Eng Version Notes

Financial Statements

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

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

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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.

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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

Estácio Participações S.A. Balance sheets as of December 31 In thousands of reais

The accompanying notes are an integral part of these financial statements. 3

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

Controladora Consolidado Controladora Consolidado

Estácio Participações S.A. Statements of income as of December 31 In thousands of reais


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

Controladora Consolidado

Estácio Participações S.A. Statement of changes in shareholders’ equity as of December 31 In thousands of reais


Reserva de

capital

Ágio na

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

Reservas de lucros

Estácio Participações S.A. Statement of cash flows for the years ended December 31 In thousands of reais


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


Estácio Participações S.A. Statement of added value for the year ended December 31, 2008 In thousands of reais


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%


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

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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.


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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;


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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.


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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.


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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;


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• 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.


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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.


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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.


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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.


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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 ConsolidadoLucro Patrimônio Lucro Patrimôniolíquido 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.


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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.


19

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.


20


(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.


21


(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.


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(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 year up to 100% in the 5th year).


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(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.


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(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.


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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%


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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.


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5 Cash and cash equivalents and marketable securities


31/12/2008 31/12/2007 31/12/2008 31/12/2007Caixa 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.


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6 Accounts receivable

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

Consolidado

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 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

Adição (empresas adquiridas) (1) 2.185

Baixa da provisão (1.416)

Saldo em 31 de dezembro de 2007 120.144

Constituição de provisão para devedores duvidosos 58.925

Adição (empresas adquiridas) (1) 9.183

Baixa da provisão (2) (85.131)



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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:


30

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


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(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.


32


(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.


33


(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.


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8 Investments in subsidiaries

(a) Changes in investments

Ajuste

Saldos em Dividendos de avaliação Ajustes Equivalência Saldos em31/12/2007 Adições recebidos patrimonial Lei nº 11.638/07 patrimonial 31/12/2008

InvestimentoSESES 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.


35

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 - PROUNI31 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/período31 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 - PROUNI31 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/período31 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.


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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.


37

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.


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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.


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9 Fixed assets

31/12/2008 31/12/2007

Custo corrigido

Depreciação/amortização

acumulada Líquido Líquido

Taxas de depreciação/amortização % ao ano

Terrenos 21.483 21.483 21.226 Edificações 80.204 (26.076) 54.128 54.721 4%Benfeitorias em imóveis de terceiros 65.628 (49.526) 16.102 16.737 (i)Móveis e utensílios 34.640 (19.011) 15.629 12.000 10%Computadores e periféricos 46.981 (28.671) 18.310 4.091 20%Máquinas e equipamentos 23.129 (12.020) 11.109 9.043 10%Veículos 320 (231) 89 116 20%Biblioteca 44.753 (20.011) 24.742 20.901 10%Instalações 5.712 (1.949) 3.763 3.473 10%Outros 34.427 (15.778) 18.649 4.543 10%Construções em andamento 6.735 6.735 984 Arrendamento mercantil - - 12.558

364.012 (173.273) 190.739 160.393

Consolidado

(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 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 10, certain assets acquired by means of financing were offered as guarantee for the respective agreements. The Company has not offered other guarantees consisting of its own assets for any other transaction performed. 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 for the period ended December 31, 2007. The commitments made in connection with such agreements, including that related to the net book value (purchase option) amounted on December 31,


40

9 Fixed assets--Continued 2007 to R$ 8,877 to be paid in monthly installments until 2009. As from January 01, 2008, pursuant to CPC 06, the Company changed its accounting practice and booked its financial leasing agreements as part of its fixed assets. The amounts of the leasing agreements, classified by asset category, are:

31/12/2008

CategoriaCusto

corrigidoDepreciação Acumulada Líquido

B iblioteca 3.176 (1.163) 2.013

E quipamentos de Atividades F ís icas/Hospitalares 3.964 (1.316) 2.648

E quipamentos de C ine, F oto e S ons 900 (275) 625

E quipamentos de Informática 14.412 (6.149) 8.264

Máquinas e E quipamentos 6.997 (2.083) 4.914

Móveis e Utens ílios 5.683 (1.846) 3.837

35.133 (12.833) 22.300

Consolidado

10 Intangible assets

Controladora ConsolidadoÁgio 31/12/2007 Adições Amortização 31/12/2008 31/12/2007 Adições Amortização 31/12/2008IREP 47.006 (6.131) 40.875 47.006 (6.132) 40.874 CURITIBA 6.376 (832) 5.544 6.376 (832) 5.544 FINTEC 6.213 (582) 5.631 EUROPAN/ABAETÉ 8.398 (1.260) 7.138 FACULDADE DE BRASÍLIA 2.532 (190) 2.342 UNICEM 3.617 (362) 3.255 SESSA 2.097 2.097 SESSE 7.690 (384) 7.306 7.690 (384) 7.306 SESAL 3.730 (186) 3.544 3.730 (186) 3.544 UNEC 4.221 (151) 4.070 4.221 (151) 4.070 SESAP 1.161 (58) 1.103 1.161 (58) 1.103 MONTESSORI 3.249 (108) 3.141 COTIA 4.062 (135) 3.927 UNISSORI 1.240 (26) 1.214 Total ágio 53.382 16.802 (7.742) 62.442 53.382 48.210 (10.406) 91.186

Softwares e licenças de uso 5.105 4.640 (3.171) 6.574

Projeto Ensino à distância eIntegração 3.586 5.635 (118) 9.103

Intangível total 53.382 16.802 (7.742) 62.442 62.073 58.485 (13.695) 106.863


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10 Intangible assets--Continued

On February 29, 2008, through subsidiary IREP, the Company concluded the acquisition of all the units of interest of (i) Fintec for R$ 6,295; (ii) Europan, for R$ 8,352; and (iii) Faculdade Brasília, for R$ 2,235. As a result of such transaction, goodwill amounting to R$ 17,143 was recorded in such entities. On June 03, 2008, through subsidiary IREP, the Company concluded the acquisition of all the units of interest of Unicem, for R$ 4,244. As a result of such transaction, goodwill amounting to R$ 3,617 was recorded for such entity. On October 1, 2008, the Company’s Board of Directors authorized its Executive Board to start the procedures for the acquisition of interests in the capital stock of the following controlling companies of post-secondary education institutions: (i) SESSE; (ii) SESAL; (iii) UNEC; and (iv) SESAP, controlling company of Faculdade do Amapá. Goodwill was generated because such entities held unsecured liabilities on the acquisition date. On November 07, 2008, through subsidiary IREP, the Company concluded the acquisition of all the units of interest of the following companies: 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”), the main offices and campuses of which are located in the cities of São Paulo, Cotia and Ibiúna, respectively. As a result of such transaction, goodwill amounting to R$ 8,551 was recorded in these companies.

Goodwill connected with said acquisitions is determined based on the expectation of future profitability, pursuant to the Economic/Financial Appraisal Reports issued by a specialist company, and will be amortized between 05 to 10 years.


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11 Loans and financing

Modalidade Encargos financeiros Consolidado

31/12/200

8 31/12/2007 Em moeda nacional Capital de giro 1,70% ao mês e/ou CDI + 0,25% ao mês 287 FINAME TJLP + 6% ao ano 177

Contratos de arrendamento mercantil IGPM + 12,3% ao ano 8.863 Contratos de arrendamento mercantil 11,8% a 22,1% ao ano 2.423 11.573 177

Passivo circulante 6.735 175 Passivo não circulante 4.838 2 11.573 177

As a guarantee for the leasing transactions, promissory notes were offered endorsed by members and leased assets themselves. The long-term amount represented by the leasing shall be paid in monthly installments until 2011, as follows: Consolidado 31/12/2008 Passivo não circulante Vencimento em:

2010 4.147 2011 691

4.838


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12 Salaries and payroll charges

Controladora Consolidado 31/12/2008 31/12/2007 31/12/2008 31/12/2007

Salários e encargos sociais a pagar

162 40 32.360 29.847 Provisão de férias 23.845 28.663 162 40 56.205 58.510

13 Taxes payable and tax installments a) Taxes payable

Controladora Consolidado 31/12/2008 31/12/2007 31/12/2008 31/12/2007

ISS a recolher 3.587 3.062 IRRF a recolher 53 21 3.786 6.548 IRPJ a recolher 1.495 6.545 2.005 CSLL a recolher 551 7 2.403 771 PIS e COFINS a recolher 30 24 539 423 2.129 52 16.860 12.810

b) Tax installments

Consolidado

31/12/2008 31/12/2007 ISS 284 PIS 113 COFINS 376 INSS 4.317 329 IPTU 420 396

5.509 725

Passivo circulante 1.484 502

Passivo não circulante 4.025 223

5.509 725


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13 Taxes payable and tax installments

b) Installments--Continued Refer to tax installments payable to the Local Government, Federal Revenue Agency and Social Security. The monthly installments amount to nearly R$ 25, there remaining 93 and 68 installments, which are expected to end in September 2016 and August 2014, respectively. Consolidado 31/12/2008 Passivo não circulante Vencimento em:

2010 956 2011 686 2012 573 2013 535

2014 a 2018 1.275 4.025

14 Advance under partnership agreement On March 24, 2004, a partnership agreement was entered into between SESES and affiliates (including Controlling 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 Controlling 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, a partnership agreement was entered into between SESES and affiliates (including Controlling Entities) and Unibanco, effective until July 31, 2011. 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.


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14 Advance under partnership agreement--Continued 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 Controlling Entities fixed revenues of R$ 15,954, which have been recognized in the statement of income over the term of the agreement. 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 paid to the Company the additional amount of R$ 18,000. On December 31, 2008, the balance related to revenues paid in advance in connection with the partnership agreement amounted to R$ 26,460 (R$ 11,395 on December 31, 2007), recorded under non-current liabilities, which will be amortized over the term of the agreement.

15 Provision for contingencies

Subsidiaries are involved in several civil, labor and tax proceedings at different levels. Management, based on the opinion of its external legal advisors, recorded a provision in an amount considered sufficient to cover potential losses arising from such pending litigations. On December 31, the provision for contingencies, net of the corresponding judicial deposits, was as follows:

Provisão para Depósitos Total Provisão para Depósitos Totalcontingências judiciais líquido contingências judiciais líquido

Cíveis 9.862 (1.939) 7.923 7.888 (1.990) 5.898 Trabalhistas 11.570 (2.159) 9.411 7.671 (1.837) 5.834 Tributárias 8.711 (5.879) 2.832 7.822 (5.851) 1.971

30.143 (9.977) 20.166 23.381 (9.678) 13.703

Consolidado31/12/2008 31/12/2007


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15 Provision for contingencies--Continued Changes in the provision for contingencies are as under: Saldo em 31 de março de 2007 22.541

Adições 6.082

Pagamentos (5.242)


Adições 7.423

Adição empresas adquiridas em 2008 2.184

Pagamentos (2.845)


(a) Civil contingencies Most proceedings involve mainly undue collections and claims for material damages and pain and suffering. Our legal advisors carried out a survey, evaluation and quantification of the civil proceedings, and Management maintains a provision for probable losses from these cases in the amount of R$ 9,862 on December 31, 2008 (R$ 7,888 on December 31, 2007).


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15 Provision for contingencies--Continued

(a) Civil contingencies--Continued The main proceeding involving probable loss is related to a claim for damages that was filed connected with 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 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$ 45. 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$ 6,068 on December 31, 2008 (R$ 5,800 on 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) Public civil action, with request for interim relief, filed by the Federal Prosecution Service, regarding several post-secondary education institutions, 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. The case amount is estimated at R$ 1,000;

(ii) Suit filed by Wilson Park Hotel (“WPH”) against SESES 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. The suit is estimated at R$ 500;

(iii) Suit filed by the Central Student Association (DCE – Diretório Central de Estudantes)

against Faculdade Integrada do Recife (“FIR”), sponsored by Sociedade de Ensino Superior de Pernambuco Ltda., the purpose of which is to denounce the alleged “abusive increase in monthly tuition fees”. The hearing took place on November 06, 2007, with no agreement reached by the parties. Currently, the evidentiary and final hearings are awaited. The suit is estimated at R$ 3,000; and


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(iv) Repossession Suit filed by Seven Park Estacionamento Ltda., under the allegation of breach of contract connected with the Rent Agreement for the parking used by one of IREP’s campuses. The suit is currently in its fact-finding stage, awaiting examination as well as testimonies and documentary evidence. The suit is estimated at R$ 1,000.

No provision for contingencies was recorded for such proceedings in the consolidated financial statements.


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(b) Labor contingencies Main labor claims refer namely to overtime, recognition of employment relationship, salary parity and salary differences arising from the reduction in the working hours of certain teachers. Our legal advisors gathered information, assessed and quantified the labor-related claims and, in order to cover probable losses on such claims, Management keeps a provision in the amount of R$ 11,570 on December 31, 2008 (R$ 7,671 on December 31, 2007). Among the main labor claims examined by our external legal advisors with risk of possible loss and amounting nearly to R$ 12,650, we can highlight:

(i) Five assessment notices drawn up by the Ministry of Labor, in the total amount of

R$ 1,050; and (ii) Suit whereby the Estate of Lucivaldo Evangelista requires a compensation for moral and

property damages, in addition to a monthly payment, since said individual deceased in SESPA’s facilities. The case discusses who is the real employer and responsible for the payments. Although the decease took place within SESPA’s facilities, the employee was hired by a subcontracted company. On January 31, 2008, the labor judge in charge of this suit issued an acquittal ruling in favor of the Company. Currently, judgment of the appeal filed by the plaintiff is awaited. The suit is estimated at R$ 1,638.

(c) Tax contingencies

SESES is questioning in court the assessment referring to collection of FINSOCIAL (Social Security Funding Tax), considering the suspension, by the Brazilian Revenue Agency, 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 lawsuit, and a provision for contingencies in the same amount was recorded.

SESES is also questioning in court the requirement to pay Social Contribution Tax on Gross Revenue for Social Integration Program (PIS). 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 amounting to R$ 4,900 are being made in the PIS amounts that would be due (at the rate of 1% on payroll).


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(c) Tax contingencies--Continued (i) Contribution to 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. 9,532/97, it was entitled to tax immunity and exemption, being considered a public interest entity at the federal and state levels, through Decree no. 86,072, of June 4, 1981, and Law no. 2,536, of January 3, 1975, respectively. In addition, SESES held 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. 8,212/91, which was revoked by Provisional Measure no. 446/08 of November 11, 2008, set forth that the philanthropic welfare entity meeting the following requirements was exempt from its share of the 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 or 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. 9,732/98 also 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. 8,212/91, 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 Law are met; (b) the wording of article 55, revoked, of Law no. 8,212/91, 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. 8,212/91 or with article 4 of said Law, are cancelled.


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(c) Tax contingencies--Continued

(i) Contribution to INSS - Employer--Continued

As mentioned, 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 has been 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 past two CEBAS renewals granted by CNAS. SESES, however, enrolled with PROUNI in December 2004, which grants the entities that adhere to 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 of article 55, revoked, of Law no. 8,212/91, 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.


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(i) Contribution to INSS - Employer--Continued The Company’s Management informs that, on December 23, 2008, 27 tax assessment notices, issued by the Brazilian Revenue Agency, were delivered against its controlled company Sociedade de Ensino Superior Estácio de Sá Ltda. (“SESES”), regarding alleged debts of social security contributions for the years 2003, 2004 and 2005, in the total amount of R$ 458,907, as well as a list for controlling the estate assets of SESES, in accordance with the applicable tax legislation. These notices contest mainly the fulfillment of the legal requirements for SESES to be recognized as a social welfare non-profit entity and its corresponding right to the exemption from social security contributions, a condition that it held up to February 09, 2007, when it was converted into a profit-oriented company. The Company reinforces the remote probability of loss in these claims, based on the legal opinions provided by its legal advisors, who also understand that said notices are subject to invalidity in view of the inconsistencies found in the proceeding and the supporting facts of the tax assessment notices. The main arguments highlighted by our legal advisors to contest such notices are the following: (i) the Philanthropic Welfare Entity Certificates (“CEBAS”) for SESES, corresponding to the

three-year periods 2001-2003 and 2004-2006, remain in effect; (ii) the collection of social security contributions resulting from the non-compliance with legal

requirements could only be made after the normal cancelling of CEBAS, by means of the applicable administrative procedure, established in the legislation, which was not followed in such case;

(iii) loss of the right, on the part of the Public Administration, to cancel CEBAS related to the

three-year period 2001/2003 (certificate granted in 2000 – lapsing in 5 years); (iv) non-compliance with applicable administrative procedure to discontinue the exemption

granted to SESES;


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(i) Contribution to INSS - Employer--Continued (v) Art. 38 of Provisional Measure no. 446/08 established that the appeals connected with

requests for CEBAS renewal were dismissed, as in the case of SESES; (vi) the remote cancellation of SESES immunity has only future effects; (vii) the lapsing of the tax assessments related to the period from January to November

2003; (viii) compliance with the free-tuition requirement and the possibility of considering partial

scholarships in determining the 20% (twenty percent) of free tuition, which was reinforced by CNAS Resolution 177/00 and Article 11 of Law no. 11,096/05;

(ix) effects of adherence to PROUNI (December 2004), notably the legislative pardon related

to refused CEBAS requests exclusively for the non-compliance with the free-tuition requirement, and the verification of free tuition, as from 2005, based on the criteria of Article 11 of PROUNI ruling;

(x) with regard to the equity reversal matter, SESES argues that its conversion from a non-

profit entity into a business company did not result in dissolution or settlement, pursuant to the terms of Article 1,113 of the Civil Code. Therefore, the case did not encompass equity reversal to another public or philanthropic entity; and

(xi) concerning the alleged compensation payment to the controlling member of SESES, as a

philanthropic entity, together with the contestations, all rent contracts and the related rent receipts were presented. Accordingly, such procedure goes against the authorities’ allegation of compensation payment to said member.

The Company’s Management, based on the opinion of its legal advisors, does not expect an unfavorable outcome for such proceeding, classifying the likelihood of loss as remote; as such, no provision was recorded in the consolidated financial statements.


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(ii) Transformation into profit-oriented business company

The Controlling Entities and SESES changed their form of business organization from civil non-profit companies to profit-oriented companies on September 30, 2005 and February 9, 2007, respectively. With such change, the Controlling 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 the PROUNI rules. Based on the opinion of its legal and tax advisors, Management understands that the mere transformation of the Controlling 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 the PROUNI rules. Accordingly, the surplus amounts generated during the period in which the Controlling 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 Controlling Entities are subject, we highlight the following: (i) CPMF (Provisional Contribution 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. 9,311/96 and applicable Normative Ordinances of the Brazilian Revenue Agency;

(ii) COFINS (Social Contribution 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. 9,532/97. Furthermore, SESES, based on its legal advisors’ opinion, construed that it is entitled to such exemption, once the effectiveness of the articles of Law no. 9,732/98 was suspended by a Notice of Claim of Unconstitutionality;


55

15 Provision for contingencies--Continued (d) Other contingent tax issues--Continued

(iii) CSLL (Social Contribution on Net Profit): SESES and the Controlling Entities understood that, while under the non-profit regime and considering suspension of the effectiveness of the articles of Law no. 9,732/98 by a Notice of Claim of Unconstitutionality, they were exempt from the referred tax, in the terms of article 15, paragraph 1 of Law no. 9,532/97.

The Management of SESES and Controlling Entities, as well as 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

16 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 shareholder in units of interest of SESES, SESPA, SESCE, SESPE and STB. Of the total capital transferred, R$ 15,191 refer to the capital reserve recorded in the shareholders’ equity of the related investees, resulting from the PROUNI tax incentive. Such amounts can not be distributed to members of these subsidiaries and, consequently, to the Company’s shareholders, via capital reduction or refund for a five-year term after the date said capital increase occurred in the investees. 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 corresponding type and class, according to the provisions of Article 12 of the Brazilian Corporate Law. As a result of the reverse share split, the Company’s subscribed and paid-up capital amounted to 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.


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16 Shareholders’ equity--Continued

(a) Capital--Continued

On August 1, 2007, the Company’s Board of Directors approved the capital increase, observing the authorized capital limit, through capital subscription of R$ 268,164, with the 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. As such, the Company’s 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 value. On July 11, 2008, the following corporate changes were implemented: (i) conversion of all preferred shares into common shares, at the ratio of 01 (one) common share to 01 (one) preferred share; (ii) adherence to the rules of the Novo Mercado segment of the São Paulo Stock Exchange – BOVESPA (“Bovespa”) and migration of Company shares from the Level 2 segment to Bovespa’s Novo Mercado; and (iii) reverse split of Company shares at the ratio of 03 (three) to 01 (one), with the Company’s capital stock divided into 78,585,066 (seventy-eight million, five hundred and eighty-five thousand, and sixty-six) common shares, which were approved in Extraordinary Shareholders’ Meetings held on June 04 and 13, 2008 and July 07, 2008, respectively. On December 31, 2008, the Company’s authorized subscribed and paid-up capital amounted to R$ 1,000,000, as under: Quantidade de ações

Acionistas Ordinárias %

Uchôa Cavalcanti Participações S. A. 41.004.050 52,18%

Moena Participações S.A. 15.717.013 20,00%

Marcel Cleófas Uchôa 692.566 0,88%

André Cleófas Uchoa 674.366 0,86%

Monique Uchoa Cavalcanti de Vasconcelos 666.666 0,85%

Administradores e Conselheiros 52.482 0,07%

Demais Acionistas 19.777.923 25,17%

78.585.066 100%


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16 Shareholders’ equity--Continued (b) Capital reserve

As described in Note 3l, SESES was originally organized as a non-profit philanthropic entity and, therefore, was entitled to tax immunity and exemption, being recognized as an entity of public interest at the 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 the enrollment under the PROUNI Program. Similarly to SESES, although not philanthropic in nature, the Controlling 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, the Company’s shareholders assigned the stock issue price at R$ 27,072, whereas assets used for capital subscription indicated that SESES’ and the Controlling Entities’ units of interest had an equity value of R$ 123,554. Such capital increase (R$ 27,072) is equivalent to funds actually contributed by the controlling shareholders, in the form of initial capital or capital increase through capitalization of profits and income reserves generated after SESES and the Controlling 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 Controlling 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 set up by 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.


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16 Shareholders’ equity--Continued (c) Income reserve--Continued

(c.2) Profit retention reserve

This reserve is destined to be used in capital investments, according to Article 196 of the Brazilian Corporate Law. The proposed allocation of net income for the year ended December 31, 2008 provides for profit retention of R$ 13,644, 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 bylaws, 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 the Brazilian Corporate Law. The proposed dividends presented in the Company’s financial statements, subject to approval by the General Shareholders’ Meeting, are as under: Lucro líquido do exercício 37.635 Ajustes lucros acumulados (Lei nº 11.638) (4.467) Apropriação à reserva legal (1.658) Lucro líquido ajustado – base de cálculo dos dividendos 31.510 Percentual de dividendos propostos 56,70% Dividendos propostos a pagar (17.866)

(e) Allocation of adjusted net income Lucro líquido do exercício 37.635 Ajustes lucros acumulados (Lei nº 11.638) (4.467) Apropriação à reserva legal (1.658) Lucro líquido ajustado 31.510 Dividendos propostos (17.866) Constituição da reserva de retenção de lucros (13.644)


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17 Financial result


31/12/2008 31/12/2007 31/12/2008 31/12/2007

Receitas financeiras Multa e juros recebidos por atraso 10.231 6.835 Rendimentos de aplicações financeiras 20.535 9.070 25.521 10.849

Outras 541 104 3.689 2.639

21.076 9.174 39.441 20.323

Despesas financeiras Despesas bancárias 4 1 4.448 3.050 Juros e encargos financeiros 1 3 3.344 884

CPMF 1 1.191 65 3.891 Descontos financeiros 4.044

Outras 52 3 1.198 308

58 1.198 13.099 8.133

The financial discounts caption corresponds to the discounts granted upon renegotiation of overdue monthly tuition fees. Until 2007, such amounts were classified in the sales deduction group, since it was not possible for the Company to segregate, in the books, such discounts from the discounts granted on prepayment.

18 Discontinued activities result

Controladora Consolidado31/12/2008 31/12/2007 31/12/2008 31/12/2007

Receitas não continuadas Resultado na alienação de imobilizado 3.317 Outras receitas 277 220

277 3.537

Despesas não continuadas Despesas extraordinárias (i) (17.470) (17.470) Resultado na alienação de imobilizado (2.190) Outras despesas (71)

(17.470) (2.190) (17.541)

(17.470) (1.913) (14.004)


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18 Discontinued activities result--Continued

(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:

31/12/2007

Controladora eConsolidado

Advogados, auditores e consultores 3.210 Impostos e taxas 114 Comissões de colocação 13.320 Outras 826

17.470

19 Income tax and social contribution

Pursuant to Law no. 11,096/2005, regulated by Decree no. 5,493/2005 and Normative Ordinance of the Brazilian Revenue Agency no. 456/2004, under the terms of Article 5 of Provisional Measure no. 213/2004, post-secondary education 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. The reconciliation of taxes determined, at statutory rates, and the amount of taxes recorded in 2008 and 2007 is as under:


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19 Income tax and social contribution--Continued

Exercício findo em 31/12/2008




Lucro antes do imposto de renda e da contribuição social 39.680 27.315 46.327 29.425

Prejuízo fiscal apurado na controladora 13.126 Adições permanentes:

Ajustes da Lei 11.638/2007 824

Despesas não dedutíveis (a) 3.229 1.151 Amortização de ágio 7.742 2.321 10.405 2.321

Exclusões permanentes:

Ajustes da Lei 11.638/2007 (67)Equivalência patrimonial (38.738) (42.762)Compensação de prejuízo fiscal (b) (2.604) (2.604) (109)Outras (3.254)

Adições/Exclusões temporárias:

Provisão para contingências 7.735 3.494 Provisão para devedores duvidosos 7.270 Outras 734

Base de cálculo 6.080 (13.125) 73.854 46.153 Alíquotas

Imposto de renda 15% 15% 15% 15% Adicional de imposto de renda (sobre o excedente) 10% 10% 10% 10% Contribuição social 9% 9% 9% 9%

Valor do imposto e da contribuição:

Imposto de renda 912 11.078 6.923 Adicional de imposto de renda (sobre o excedente) 583 7.714 4.540 Contribuição social 550 6.378 4.157

2.045 25.170 15.620

Menos: total de isenção (reserva de capital nas Mantenedoras) (16.478) (13.511)

Imposto de renda e contribuição social devidos - corrente 2.045 8.692 2.109

(a) Refer basically to expenses with employee bonuses, sponsorships and gifts. (b) Refers to tax losses of Estácio Participações S.A.


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19 Income tax and social contribution--Continued As described in Notes 3l and 16b, 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 until December 31, 2007, 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 the income tax and social contribution expenses account. The Company did not recognize deferred tax assets arising from income tax and social contribution losses since it has been recently set up, and its future results will basically derive from equity pickup. The Company and its subsidiaries do not present a history of profits. In view of this, deferred tax assets arising from temporary differences and income tax and social contribution losses of R$ 3,557 on December 31, 2008 (R$ 4,463 on December 31, 2007) have not been recorded.

20 Financial instruments

Pursuant to the provisions of CVM Resolution no. 566, of December 17, 2008, which approved Technical Pronouncement CPC 14, the Company performed a valuation of its 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 on March 31, 2007 and 2008 are recorded in the balance sheet accounts at amounts compatible with those observable in the market. The main financial instruments are described below, as well as the criteria, assumptions and limitations adopted for determining their market values:


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20 Financial instruments--Continued

(a) Cash and cash equivalents The amounts accounted for under this heading approximate market values due to these instruments’ short-term maturities.

(b) Related parties Stated at book value, since there are no similar instruments in the market.

(c) Loans and financing They are classified as financial liabilities recorded until their maturity, and are booked based on their contract value. The market value of these liabilities is equivalent to their book value.

(d) Accounts receivable They are classified as financial assets recorded until their maturity, and are booked based on their contract value, which is equivalent to their market value.

(e) Other asset and liability financial instruments The estimated realizable values of the Company’s financial assets and liabilities were determined based on information available in the market and appropriate valuation methodologies. Risk factors All the transactions of the Company and its subsidiaries are carried out with banks that have proven liquidity, thus minimizing their risks. Management sets up an allowance for doubtful 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’s 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.


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20 Financial instruments--Continued Risk factors--Continued

(b) Interest rate risk The interest rate risk to which the Company is exposed relates to its long-term debt and, to a lower extent, its 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. The debt subject to TJLP fluctuation was settled in 2008.

(c) Exchange rate risk The Company’s net income is not subject to changes deriving from exchange rate volatility, as it does not have significant foreign-currency-denominated operations.

(d) Sensitivity analysis

In accordance with CVM Resolution no. 475 of December 17, 2008, which addresses the disclosure of information on financial instruments (derivatives) in the notes to financial statements, the Company informs that it has no policy for the utilization of financial instruments (derivatives). Accordingly, no risk arising from exposure to such instruments was identified.


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21 Insurance

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. On December 31, 2008, the Company and its subsidiaries had the following main insurance policies taken out from third parties: Ramos Importâncias seguradas

Incêndio de bens do imobilizado 31.450

Responsabilidade civil 3.880

Despesa fixa 340

Equipamentos eletrônicos 5.530

Queda de aeronave 860

Demais ramos 3.058

Our auditors’ work does not encompass issuing an opinion about the insurance coverage sufficiency, which was determined and assessed regarding its appropriateness by the Company’s Management.

22 Commitments

The subsidiaries have several rental contracts connected with their facilities. The future commitments related to these contracts effective on December 31, 2008 will correspond to R$ 82,000 on an yearly basis, for the next 5 years, considering that their due dates will be renewed as usual and the amounts known at that date.


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23 Compensation of administrators

(a) Compensation

The compensation of Administrators, comprising the members of the Board of Directors, is recorded in expenses for the period. As approved by the Ordinary and Extraordinary Shareholders’ Meetings of April 25, 2008, the maximum amount of R$ 7,500 per year was established for the compensation of administrators. The compensation of the current statutory directors (8 directors) has been made by subsidiary SESES, and then apportioned to the other controlling companies. The monthly amount of such compensation, including applicable social charges, is R$ 405 (included in the total amount of the preceding paragraph).

(b) Stock option plan

In the Extraordinary General Meeting held on June 13, 2008, the shareholders approved the Company’s Stock Option Plan (“Plan”), designed for managers, employees and service providers of the Company (“Beneficiaries”). The Plan is managed by the Plan Management Committee, created by the Board of Directors for such purpose, in a meeting held on July 1, 2008. The Committee is responsible for periodically creating stock option programs, establishing, among the eligible individuals, those to be granted the options, as well as the specific applicable rules, pursuant to the general ruling of the Plan (“Program”). The volume of stock options is limited to 4.15% of the total shares of the Company’s capital stock existing on the date each Program is approved. This limit may reach 5% provided that the Company purchases shares in the market. The stock option is formalized by means of an individual contract between the Company and each Beneficiary. As a requirement to purchase the stock option, the Beneficiary shall make the payment, upon exercising the vested option, based on the price determined by the Board of Directors or Committee, as applicable. For the first Stock Option Program, approved by the Committee on July 15, 2008, the Exercise Price of the options shall be R$ 16.50 (sixteen reais and fifty cents) for each share issued by the Company, restated by IGPM since the approval date of the program.


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23 Compensation of administrators--Continued (b) Stock option plan--Continued

On December 31, 2008, none of the options granted was exercised, and the total share amount comprising the options is 1,555,148 shares, representing 1.98% of total shares on December 31, 2008.

The assumptions used to determine each grant, based on the Black-Scholes model, are described as follows:

Data da outorga

Preço spot*

Volatilidade

anual

Taxa de juros real

Preço de exercício

Prazo médio (anos)

Dividend

Yield 11/07/2008 23,50 57.49% 6.85% 16,50 7,50 0,97% 30/09/2008 14,05 56,00% 8,42% 16,50 7,50 1,62% 02/10/2008 14,60 55,87% 7,66% 16,50 7,50 1,56% 10/11/2008 14,65 64,90% 9,68% 16,50 7,50 1,55% * market price on the related grant dates In accordance with the provisions of Technical Pronouncement CPC 10, the outstanding stock-based payments on December 31, 2008 were measured and recognized by the Company, and their effects were recorded retroactively to the beginning of the year they were granted until the transition date limit. Based on the fair value of the options on their grant date, the effect on shareholders’ equity and results is the following: Resultado Patrimônio Líquido Ajuste de adoção inicial da Lei 11638/07: 2008 969 969 2009 3,015 3,984 2010 3,015 6,999 2011 3,015 10,014 2012 4,971 14,985 2013 90 15,075 The Company does not have any other benefits to its administrators on December 31, 2008.


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Dear Shareholders,

In compliance with legal and statutory provisions, the Management of Estácio Participações S.A. (“Company”) submits this Management Report and the Consolidated Financial Statements for the fiscal years ended December 31, 2008 and 2007, prepared in accordance with the Brazilian Corporate Law, together with the Independent Auditors’ Report.

Profile and History Estácio Participações S.A. is a publicly-held company, incorporated on March 31, 2007 and

currently listed in Bovespa’s Novo Mercado, having under its direct and indirect control 20 (twenty) controlling institutions, which were set up as limited-liability companies. The Company’s nationwide education network consists of 02 Universities, 02 University Centers and 27 Colleges in 16 states, as well as 01 abroad.

The target business of the Company’s directly and indirectly controlled institutions is rendering

services in the educational segment, comprising regular and technological undergraduation, in accordance with the rules established by the Ministry of Education. As such, Estácio is the largest private group in its business segment, based on the number of regularly enrolled students. Economic setting and post-secondary education market

During the first three quarters of 2008, the performance of the Brazilian economy remained

quite positive, posting expansion of 6.38% in the period. The economic slowdown observed in the last quarter of the year, arising from the harsher effects of the U.S. sub-prime credit crisis, did not affect our enrollment processes, as they take place in the first and third quarters of the year.

The private post-secondary education sector in Brazil comprises students who are mostly

working adults. As a result, unemployment rates drive the demand in the sector. The Company will perform its activities following a cautious approach in view of the more

restrictive economic setting over the fiscal year 2009. The progress achieved throughout 2008 and continuing towards 2009, as mentioned below, will play an important role in supporting the Company to operate in a more challenging environment, having a stricter control of its costs, as well as a more effective and intelligent business strategy in the pursuit of new students and their retention. In addition, the Company’s geographical distribution, with 78 campuses spread across 16 states, allows for a higher dilution of the exposure risk to specific regions of the country that will suffer more intensely the worsening of the economic scenario.


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Message from Management Throughout 2008, the Company carried on with its strategic and organizational restructuring process. In May, GP Investments, Latin America’s largest private equity company, through an investment fund under its management, became a controlling shareholder of the Company, upon the acquisition of 20% of its capital, by means of Moena Participações S.A. (“Moena”). For such purpose, a shareholders’ agreement was signed whereby the Company started to be jointly managed by Uchôa Cavalcanti Participações S.A. (“Uchôa Cavalcanti”) and Moena.

The Company implemented a new management model whose top priorities are the efficiency and integration of processes, the utilization of financial and operating performance indicators aligned with planning and budget, as well as the creation of continuous improvement targets and internal and systematic benchmarks, even for faculty. Such management model also aims at a strict cost and expense control, focus on growth, quality of education and student satisfaction. In line with this guidance, the Company widely reshuffled its Management Board, hiring seasoned professionals in the market.

With regard to operations, 2008 was a year of major achievements. The Company jumped from an undergraduate base of 178 thousand students in late 2007 to 207 thousand students in late 2008, which represents a 16.1% expansion. Such result was driven by a solid organic growth and boosted by the acquisition of 13 campuses located in the North/Northeast regions (5), Southeast region (7) and Paraguay (1). The total investment in acquisitions reached R$ 56.7 million in 2008.

In addition to the current Distance Learning (DL) programs at the graduate level (Lato Sensu), the Company intends to start offering undergraduate programs throughout 2009 by means of 54 DL units in 15 states.

The Ministry of Education (MEC) authorized the creation of 35 programs in 14 colleges belonging to the Company’s economic group. Authorizations were granted for 21 programs in Radial University Center and in Bahia University Center (FIB). MEC also accredited 15 traditional undergraduate programs and 6 technical undergraduate programs with grades G (good) and VG (very good). The colleges located in Recife and Santa Catarina were assigned remarkable grades based on the external assessment carried out by the National Institute for Educational Research and Studies – INEP (Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira).

In 2005, the Company’s subsidiaries joined the University for All Program (PROUNI), the purpose of which is to grant full and partial scholarships to students taking undergraduate and specific education courses. Currently, the Company has a total of 15,695 thousand students that have been granted scholarships under said program.

In order to support the new management model, the Company successfully completed the nationwide implementation of the integrated business administration system (SAP), together with the remodeling and consolidation of the academic information system (SIA), which allows the real-time monitoring and control of records and academic and financial data for the entire student and faculty base.

In December, the Company concluded another major step in its organizational streamlining process by implementing the Model Project, which aims at adopting continuous improvement practices within the organization and linking them to performance and compensation targets. Such initiative resulted in the


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approval of the first Zero-Based and Matrix Budget, where financial and organizational targets were defined for 2009.

The Company believes that linking those targets to variable compensation will encourage its employees, while aligning the Company’s interests with its investors.

One of the initiatives scheduled for 2009 is the creation of a Shared Services Center (CSC), which will combine, in Rio de Janeiro, all operations-supporting roles, of both commercial and procedural nature, that are shared by all campuses and the corporate center. The strategic planning for 2009 also encompasses the set-up of a Learning Center and a Student Care Center. After such units come into full operation, the Company expects to significantly improve efficiency, enhance the quality of education and increase the satisfaction degree of students.

Economic/Financial Performance

The Company and its subsidiaries are following for the first time in its Financial Statements the provisions set forth by Law 11,638/07 and Provisional Measure 449/08, as described in the Notes to the Financial Statements.

The consolidated gross revenues in 2008 amounted to R$ 1.4 billion, while net revenues reached R$ 980 million. Nearly R$ 13.3 million were paid as additional social contribution in the year, deriving from the conversion of subsidiary Sociedade de Ensino Superior Estácio de Sá Ltda. (“SESES”) into a business company and its enrollment in the PROUNI program. Despite such expected higher tax burden, the Company’s EBITDA reached R$ 98.4 million. The results for 2008 were affected by the revision, by Management, of the criterion followed to set up the provision for doubtful debts. As such, Management decided to increase the provision for receivables from students with overdue monthly tuition fees, arising from past renegotiations. The net income for fiscal year 2008 amounted to R$ 37.6 million. However, such result would have reached R$ 71.6 million considering the exclusion of non-recurring expenses with the restructuring process and goodwill amortization. In 2009, the dividends proposed by Management related to fiscal year 2008 will amount to R$ 17.9 million, corresponding to 56.7% of the net income booked in the financial statements after the adjustments set forth in the legislation, pursuant to the dividend distribution policy of at least 50%, as determined in the Shareholders’ Agreement.

The Company ended 2008 with a solid cash position of R$ 202 million, which were

conservatively invested in fixed-income instruments. In 2009, the Company plans to carry on with its process of investing in operating improvements, maintenance and expansion of campuses (current and future), as well as acquisitions based on market opportunities.


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Social responsibility

Estácio determines its Social Responsibility policies and guidelines considering their contribution to social inclusion, promoting citizenship and the economic and social development, as well as the preservation of the environment, cultural memory, artistic production and cultural heritage. Social initiatives are carried out in all units, considering mainly the demands from the communities where the Company operates. Some highlights in 2008 include the “Family Health Program”, which promotes full care to the population living in the downtown area of Rio de Janeiro; the “Child and Teen Module”, which is a partnership with the Public Prosecution Service of the state of Rio de Janeiro aimed at assisting the data recording of children residing in state shelters, contributing to public policies guidance; and the “Psychomotor Stimulation Project”, which assists children with neuromotor impairments and unable to learn and walk naturally.

Concerned with the entry of its students into the labor market, the Company also invests in its trainee and job center. In a partnership with 9,000 companies only in the state of Rio de Janeiro, in 2008 52 thousand trainee positions were offered, and more than 22 thousand were taken up by students from Universidade Estácio de Sá. Should we consider the internships started in 2007, in late 2008 nearly 30 thousand students from Estácio were engaged in some kind of internship program. In 2009, the Company intends to extend the project to all units. Corporate Governance

In line with market best practices and in the pursuit of a greater transparency and trust relationship with investors, the Company joined Bovespa’s Novo Mercado in July 2008. In this connection, the Company is subject to arbitration by the Market Arbitration Chamber, as set forth in its Bylaws.

The Company’s Fiscal Council is composed of three independent members, one of whom is

assigned by minority shareholders. Also in the pursuit of high governance standards, another major improvement relates to the implementation of the audit, stock option plan management and education committees, all of them supporting the activities of the Board of Directors. Independent Auditors’ Work

For the fiscal year ended December 31, 2008, the independent auditors rendering audit services to Estácio Participações S.A., Ernest Young Auditores Independentes S.S., did not perform any services unrelated to the external audit representing more than 5% of the fees paid annually. Acknowledgements

The Management of Estácio Participações S.A. would like to thank its shareholders, students and business partners for their trust in the Company during 2008, and also its faculty, managers and employees for their effort and dedication in achieving the results presented herein. * * *

Eng Version Notes

Business

Transcript of Eng Version Notes