Telemar Norte Leste S.A.

Transcription

1 (Convenience Translation into English from the Original Previously Issued in Portuguese) REPORT ON REVIEW OF INTERIM FINANCIAL STATEMENTS To the Board of Directors and Shareholders of Rio de Janeiro RJ Introduction We have reviewed the accompanying individual and consolidated interim financial information of Telemar Norte Leste S.A. ( ) and its subsidiaries, contained in the Interim Financial Information Form ITR, for the quarter ended March 31, 2011, which comprises the balance sheets as of March 31, 2011 and the related income statement and statement of comprehensive income for the three month period then ended and the changes in shareholders equity and cash flows for the three month period then ended, including explanatory notes. Management is responsible for the preparation of the individual interim financial information in accordance with CPC 21 Interim Financial Reporting and consolidated interim financial information in accordance with CPC 21 and IAS 34 Interim Financial Reporting, issued by the International Accounting Standards Board IASB as well as for the presentation of such information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Interim Financial Information - ITR. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with Brazilian and international standards on review of interim financial information (NBC TR 2410 and ISRE Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of the interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with standards on auditing and accordingly does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the individual interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying individual interim financial information included in the ITR referred to above is not prepared, in all material respects, in accordance with CPC 21 applicable to the preparation of Interim Financial Information ITR and presented in accordance with the standards issued by the Brazilian Securities Commission. Conclusion on the consolidated interim financial information Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial information included in the ITR referred to above is not prepared, in all their material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of Interim Financial Information ITR and presented in accordance with the standards issued by the Brazilian Securities Commission. Other matters Interim Statements of Value Added We have also reviewed the individual and consolidated interim statements of value added ( DVA ), for the three month period ended March 31, 2011, the presentation of which is required by the standards issued by the Brazilian 1

2 Securities and Exchange Commission (CVM) applicable to the preparation of Interim Financial Information - ITR, and is considered as supplemental information for IFRS that does not require a presentation of DVA. These statements were subject to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they are not prepared, in all material respects, in relation to the individual and consolidated interim financial information taken as a whole. The accompanying financial statements have been translated into English for the convenience of readers outside Brazil. Rio de Janeiro, April 26, 2011 DELOITTE TOUCHE TOHMATSU Auditores Independentes Marco Antonio Brandão Simurro Engagement Partner 2

3 Unaudited Individual Balance Sheets as at March 31, 2011 and December 31, 2010 Assets (In thousands of Brazilian reais - R$) Code Line Item Current Quarter 3/31/2011 Previous Year 12/31/ Total assets 55,576,647 47,797, Current assets 14,146,534 7,744, Cash and cash equivalents 8,490,131 2,152, Cash investments 540, , Cash investments measured at fair value 540, , Trading securities 540, , Accounts receivable 2,991,247 2,967, Trade receivables 2,991,247 2,967, Inventories 32,463 26, Recoverable taxes 183, , Current recoverable taxes 183, , Other current assets 1,908,705 1,789, Other 1,908,705 1,789, Dividends and interest on capital 546, , Derivative instruments 34,795 38, Taxes other than income tax 503, , Judicial deposits 394, , Other assets 428, , Non-current assets 41,430,113 40,053, Long-term receivables 5,196,857 4,107, Cash investments measured at fair value 5,593 5, Restricted cash 5,593 5, Deferred taxes 1,967,386 1,697, Deferred income tax and social contribution 1,967,386 1,697, Related parties 48,687 49, Receivables from subsidiaries 48,687 49, Other non-current assets 3,175,191 2,354, Derivative instruments 22,730 23, Taxes other than income tax 178, , Judicial deposits 2,222,082 1,975, Available-for-sale financial assets 553, Other assets 198, , Investments 27,284,114 27,094, Equity interests 27,284,114 27,094, Investments in subsidiaries 27,242,509 27,052, Other equity interests 41,605 41, Property, plant and equipment 8,599,331 8,486, Property, plant and equipment in service 7,193,363 7,208, Lease property, plant and equipment 7,978 10, Property, plant and equipment in progress 1,397,990 1,267, Intangible assets 349, , Intangible assets 349, , Data processing systems 183, , Regulatory licenses 148, , Trademarks and patents 1,068 1, Other 16,837 17,207 3

4 Unaudited Individual Balance Sheets as at March 31, 2011 and December 31, 2010 Liabilities and Equity (In thousands of Brazilian reais - R$) Code Line Item Current Quarter 3/31/2011 Previous Year 12/31/ Total liabilities and equity 55,576,647 47,797, Current liabilities 6,947,954 8,524, Payroll and related taxes 253, , Payroll 253, , Trade payables 1,512,080 1,612, Domestic suppliers 1,512,080 1,612, Taxes payable 13,231 5, Federal taxes payable 13,231 5, Income tax and social contribution payable 13,231 5, Loans and financing 2,613,206 4,344, Loans and financing 2,613,206 4,344, In local currency 1,957,981 3,225, In foreign currency 655,225 1,119, Other payables 2,056,413 1,874, Other 2,056,413 1,874, Dividends and interest in capital 591, , Taxes other than income tax 485, , Tax financing program 13,004 14, Derivative instruments 552, , Licenses and concessions 124, , Other payables 288, , Provisions 499, , Tax, social security, labor and civil provisions 499, , Tax provisions 159,693 76, Social security and labor provisions 233, , Civil provisions 106,039 99, Non-current liabilities 28,210,591 24,582, Loans and financing 24,383,767 21,117, Loans and financing 24,383,767 21,117, In local currency 17,259,525 14,725, In foreign currency 7,124,242 6,391, Other payables 1,947,062 1,531, Other 1,947,062 1,531, Taxes other than income tax 828, , Tax financing program 596, , Derivative instruments 361, , Other payables 161, , Deferred taxes 35,967 35, Deferred income tax and social contribution 35,967 35, Provisions 1,843,795 1,897, Tax, social security, labor and civil provisions 1,843,795 1,897, Tax provisions 344, , Social security and labor provisions 677, , Civil provisions 822, , Equity 20,418,102 14,690, Share capital 11,614,365 7,445,720 4

5 Unaudited Individual Balance Sheets as at March 31, 2011 and December 31, 2010 Liabilities and Equity (In thousands of Brazilian reais - R$) Code Line Item Current Quarter 3/31/2011 Previous Year 12/31/ Capital reserves 3,807,926 2,022, Stock options granted 122, , Treasury shares -28,657-28, Investment grants 631, , Interest on construction in progress 1,210,302 1,210, Special reserve - Law 8200/1991 2,279 2, Share subscription premium 1,869,857 86, Income reserves 6,272,487 6,272, Legal reserve 95,011 95, Investment reserve 6,177,476 6,177, Retained earnings/(accumulated losses) -203, Valuation adjustments to equity -1,072,973-1,050,522 5

6 Unaudited Individual Income Statements For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD 1/1/2011 to 3/31/2011 Prior YTD 1/1/2010 to 3/31/ Net operating revenue 3,179,695 3,432, Cost of sales and services -1,920,105-1,979, Gross profit 1,259,590 1,452, Operating income/expenses -712, , Selling expenses -456, , General and administrative expenses -281, , Other operating income 92, , Other operating expenses -253, , Equity pick up of subsidiaries 186, , Income before financial income/expenses and income taxes 547,257 1,016, Financial income/expenses, net -1,012, , Financial income 268, , Financial expenses -1,280, , Income/loss before income taxes -464, , Income tax and social contribution 261, , Current -8,772-23, Deferred 269, , Income /(loss) from continuing operations -203, , Net income /(loss) for the period -203, , Earnings/(losses) per share - (R$ per share) Basic earnings/(losses) per share Common shares Preferred shares Diluted earnings/losses per share Common shares Preferred shares

7 Unaudited Individual Statements of Comprehensive Income For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD 1/1/2011 to 3/31/2011 Prior YTD 1/1/2010 to 3/31/ Net income /(loss) for the period -203, , Other comprehensive income/(loss) -22, Derivative instruments, net of taxes -22, Realization of losses on available-for-sale investments Comprehensive income/(loss) for the period -226, ,126 7

8 Unaudited Individual Statements of Cash Flows - Indirect Method For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD 1/1/2011 to 3/31/2011 Prior YTD 1/1/2010 to 3/31/ Net cash provided by operating activities 634, , Cash flows from operating activities 1,087,606 1,281, Income before income taxes -464, , Charges, interest income, and inflation adjustment 485, , Depreciation and amortization 323, , Provision for doubtful accounts 89, , Provisions 73,654 44, Equity pick up of subsidiaries -186, , Derecognition of permanent assets 12,477 1, Allowance/reversal for impairment of investments 0-1, Interest and inflation adjustment on due from related parties Inflation adjustment of provisions 86,147 50, Interest on taxes in installments - tax financing program 67,715 8, Concession Agreement Extension Fee - ANATEL 23,605 27, Employee and management profit sharing 21,482 27, Mark-to-market of derivative financial instruments 247,459-19, Share-based compensation 1,540 3, Recognition of prepaid expenses 95,314 85, Tax financing program 209,461-26, Other 2, Changes in assets and liabilities -158, , Accounts receivable -92, , Held-for-trading cash investments -907,149-1,115, Redemptions of held-for-trading cash investments 1,022, , Prepaid expenses -118, , Inventories -5,674-1, Taxes 5, , Trade payables 19, , Payroll, related taxes and benefits -58,580-14, Provisions -68,787-73, Other assets and liabilities 45,564 52, Other -293, , Financial charges paid -260, , Income tax and social contribution paid - 0-8, Income tax and social contribution paid - Third parties -35,252-28, Dividends and interest on capital received 2,201 3, Net cash used in investing activities -1,334, , Intragroup receivables - disbursements -62,531-12, Intragroup receivables - proceeds 64,003 46, Increase in permanent investments -2, Purchase of property, plant and equipment and intangible assets -523, , Acquisition of available-for-sale instruments -553,

9 Unaudited Individual Statements of Cash Flows - Indirect Method For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD 1/1/2011 to 3/31/2011 Prior YTD 1/1/2010 to 3/31/ Judicial deposits -287, , Redemption of judicial deposits 30, , Proceeds from sale of property, plant and equipment Net cash provided by financing activities 7,037,035-44, Loans less debt issuance costs 4,440,499 1,011, Tax Financing Program -26,504-37, Repayment of loans and financing, debentures, derivatives, and leases -3,328,879-1,017, Capital increase 5,952, Dividends and interest on capital paid in the period Increase (decrease) in cash and cash equivalents 6,337,401 40, Cash and cash equivalents at beginning of period 2,152,730 2,589, Cash and cash equivalents at end of period 8,490,131 2,629,871 9

10 Unaudited Individual Statement of Changes in Equity for the Period Ended March 31, 2011 (In thousands of Brazilian reais - R$) Share capital Capital reserves, stock options granted and treasury shares Income reserves Retained earnings or accumulated losses Other comprehensive income/loss 5.01 Balance at December 31, ,445,720 2,022,504 6,272, ,050,522 14,690, Adjusted opening balances 7,445,720 2,022,504 6,272, ,050,522 14,690, Capital transactions with owners of the 4,168,645 1,785, ,954, Capital increases 4,168,645 1,783, ,952, Recognized options granted 0 2, , Total comprehensive income ,799-22, , Net income for the period , , Other comprehensive income ,451-22, Realization of derivative transactions reserve ,704-22, Changes in available-for-sale financial assets Internal change in equity Realization of Law 8200/1991 reserve Balance at March 31, ,614,365 3,807,926 6,272, ,703-1,072,973 20,418,102 Equity 10

11 Unaudited Individual Statement of Changes in Equity for the Quarter Ended March 31, 2010 (In thousands of Brazilian reais - R$) Share capital Capital reserves, stock options granted and treasury shares Income reserves Retained earnings or accumulated losses Other comprehensive income/loss 5.01 Balance at December 31, ,434,429 2,021,778 4,850, ,050,522 13,255, Adjusted opening balances 7,434,429 2,021,778 4,850, ,050,522 13,255, Capital transactions with owners of the 0 4, , Recognized options granted 0 4, , Total comprehensive income , , Net income for the period , , Internal change in equity Realization of Law 8200/1991 reserve Balance at March 31, ,434,429 2,026,522 4,850, ,377-1,050,522 13,834,958 Equity 11

12 Unaudited Individual Statements of Value Added For the Periods Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD 1/1/2011 to 3/31/2011 Prior YTD 1/1/2010 to 3/31/ Revenue 4,376,181 4,748, Sales of goods, products and services 4,373,602 4,772, Other income 92, , Provision (reversal) for doubtful accounts -89, , Inputs purchased from third parties -2,002,002-2,112, Cost of sales and services -1,007,986-1,056, Supplies, power, outside services, and other -946,733-1,004, Other -47,283-51, Gross value added 2,374,179 2,635, Retentions -566, , Depreciation and amortization -323, , Other -242, , Provisions -159,801-94, Other expenses -82,754-33, Net value added 1,808,114 2,209, Value added received as transfer 455, , Equity pick up of subsidiaries 186, , Financial income 268, , Total value added to be distributed 2,263,524 2,777, Distribution of value added 2,263,524 2,777, Personnel 189, , Salaries and wages 126, , Benefits 25,105 26, Severance Pay Fund (FGTS) 8,576 8, Other 29,815 28, Taxes, rates and contributions 969,200 1,189, Federal -57,214 16, State 1,009,689 1,154, Municipal 16,725 19, Third Parties 1,308, , Interest 1,120, , Rentals 188, , Shareholders -203, , Net income for the period -203, ,126 12

13 Unaudited Balance Sheets as at March 31, 2011 and December 31, 2010 Assets (In thousands of Brazilian reais - R$) Code Line Item Current Quarter 3/31/2011 Previous Year 12/31/ Total assets 78,360,683 73,976, Current assets 25,269,441 21,495, Cash and cash equivalents 12,029,552 8,621, Cash investments 1,459,719 1,942, Cash investments measured at fair value 1,459,719 1,942, Trading securities 1,459,719 1,942, Accounts receivable 5,880,865 5,896, Trade receivables 5,880,865 5,896, Inventories 116,314 98, Recoverable taxes 1,311,704 1,089, Current recoverable taxes 1,311,704 1,089, Other current assets 4,471,287 3,846, Other 4,471,287 3,846, Derivative instruments 34,795 38, Judicial deposits 1,869,747 1,813, Taxes other than income tax 1,246,193 1,054, Other assets 1,320, , Non-current assets 53,091,242 52,480, Long-term receivables 13,802,255 12,494, Cash investments measured at fair value 34,087 9, Restricted cash 34,087 9, Deferred taxes 5,525,123 5,186, Deferred income tax and social contribution 5,525,123 5,186, Other non-current assets 8,243,045 7,299, Derivative instruments 22,730 23, Judicial deposits 6,801,248 6,438, Taxes other than income tax 459, , Pension plan assets 95,715 92, Available-for-sale financial assets 553, Other assets 310, , Investments 47,061 47, Equity interests 47,061 47, Other equity interests 47,061 47, Property, plant and equipment 23,024,652 23,340, Property, plant and equipment in service 20,431,721 20,645, Lease property, plant and equipment 10,382 13, Property, plant and equipment in progress 2,582,549 2,680, Intangible assets 16,217,274 16,598, Intangible assets 16,107,162 16,488, Data processing systems 975,225 1,049, Regulatory licenses 14,759,076 15,026, Trademarks and patents 116, , Other 256, , Goodwill 110, ,112 13

14 Unaudited Balance Sheet as at March 31, 2011 and December 31, 2010 Liabilities and Equity (In thousands of Brazilian reais - R$) Code Line Item Current Quarter 3/31/2011 Previous Year 12/31/ Total liabilities and equity 78,360,683 73,976, Current liabilities 15,624,929 17,608, Payroll and related taxes 504, , Payroll 504, , Trade payables 3,751,412 4,039, Domestic suppliers 3,751,412 4,039, Taxes payable 914, , Federal taxes payable 914, , Income tax and social contribution payable 914, , Loans and financing 3,829,027 5,551, Loans and financing 3,829,027 5,551, In local currency 3,175,361 4,389, In foreign currency 653,666 1,162, Other payables 4,675,949 4,946, Other 4,675,949 4,946, Dividends and interest in capital 881, , Derivative instruments 552, , Taxes other than income tax 1,522,922 1,728, Tax financing program 50,407 51, Licenses and concessions payable 617, , Other payables 1,051,342 1,162, Provisions 1,949,586 1,770, Tax, social security, labor and civil provisions 1,949,586 1,770, Tax provisions 267, , Social security and labor provisions 322, , Provisions for employee benefits 32,381 77, Civil provisions 1,328,027 1,245, Non-current liabilities 36,341,438 35,535, Loans and financing 22,090,910 21,874, Loans and financing 22,090,910 21,874, In local currency 14,966,132 15,481, In foreign currency 7,124,778 6,392, Other payables 5,343,304 4,655, Other 5,343,304 4,655, Derivative instruments 361, , Licenses and concessions payable 1,606,991 1,593, Tax financing program 1,013, , Taxes other than income tax 1,663,900 1,514, Other payables 697, , Deferred taxes 3,186,614 3,331, Deferred income tax and social contribution 3,186,614 3,331, Provisions 5,720,610 5,675, Tax, social security, labor and civil provisions 5,720,610 5,675, Tax provisions 653, , Social security and labor provisions 1,695,296 1,526, Provisions for employee benefits 545, ,365 14

15 Unaudited Balance Sheets as at March 31, 2011 and December 31, 2010 Liabilities and Equity (In thousands of Brazilian reais - R$) Code Line Item Current Quarter Previous Year 3/31/ /31/ Civil provisions 2,826,106 2,811, Total equity 26,394,316 20,831, Share capital 11,614,365 7,445, Capital reserves 3,807,926 2,022, Stock options granted 122, , Treasury shares -28,657-28, Investment grants 631, , Interest on construction in progress 1,210,302 1,210, Special reserve - Law 8200/1991 2,279 2, Share subscription premium 1,869,857 86, Income reserves 6,272,487 6,272, Legal reserve 95,011 95, Investment reserve 6,177,476 6,177, Retained earnings/(accumulated losses) -203, Valuation adjustments to equity -1,072,973-1,050, Noncontrolling shareholders 5,976,214 6,141,428 15

16 Unaudited Income Statements For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD Prior YTD 1/1/2011 to 3/31/2011 1/1/2010 to 3/31/ Net operating revenue 6,933,078 7,446, Cost of sales and services -4,009,740-4,129, Gross profit 2,923,338 3,317, Operating income/expenses -2,384,275-2,288, Selling expenses -1,257,075-1,206, General and administrative expenses -694, , Other operating income 225, , Other operating expenses -657, , Income before financial income/expenses and income taxes 539,063 1,029, Financial income/expenses, net -1,199, , Financial income 335, , Financial expenses -1,535, , Income/(loss) before income taxes -660, , Income tax and social contribution 291,660 80, Current -185, , Deferred 477, , Income (loss) from continuing operations -369, , Net income (loss) for the period -369, , Attributable to controlling shareholders -203, , Attributable to noncontrolling shareholders -165,214-54, Earnings per share - (R$ per share) Basic earnings/(losses) per share Common shares Preferred shares Diluted earnings/(losses) per share Common shares Preferred shares

17 Unaudited Statements of Comprehensive Income For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD Prior YTD 1/1/2011 to 3/31/2011 1/1/2010 to 3/31/ Net income (loss) for the period -369, , Other comprehensive income -22, Derivative instruments, net of taxes -22, Realization of losses on available-for-sale investments comprehensive income/(loss) for the period -391, , Attributable to controlling shareholders -226, , Attributable to noncontrolling shareholders -165,214-54,789 17

18 Unaudited Statements of Cash Flows - Indirect Method For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD Prior YTD 1/1/2011 to 3/31/2011 1/1/2010 to 3/31/ Net cash provided by operating activities 1,586,947 1,836, Cash flows from operating activities 2,981,947 3,525, Income before income taxes -660, , Charges, interest income, and inflation adjustment 654, , Depreciation and amortization 1,456,236 1,518, Provision for doubtful accounts 272, , Provisions 286, , Provision for actuarial liabilities of pension plan 1, Derecognition of permanent assets 35,422 14, Interest and inflation adjustment on due from related parties 0-3, Inflation adjustment of provisions 223, , Interest on taxes in installments - Tax financing program 79,299 20, Concession Agreement Extension Fee - ANATEL 37,795 39, Employee and management profit sharing 41,222 53, Mark-to-market of derivative financial instruments 249,893-17, Share-based compensation 2,067 4, Recognition of prepaid expenses 103, , Tax financing program 208,942-29, Other -10,926-19, Changes in assets and liabilities -808,675-1,193, Accounts receivable -260, , Held-for-trading cash investments -1,891,468-1,606, Redemptions of held-for-trading cash investments 2,401, , Amounts receivable -4,208-7, Prepaid expenses -585, , Inventories -10,135 25, Taxes -417, , Trade payables 13, , Payroll, related taxes and benefits -103,491-48, Provision for actuarial liabilities of pension plan -96,132-83, Provisions -121, , Other assets and liabilities 267,243-3, Other -586, , Financial charges paid -356, , Income tax and social contribution paid ,889-97, Income tax and social contribution paid - Third parties -82,240-67, Net cash used in investing activities -2,151, , Intragroup receivables - proceeds 0 472, Purchase of property, plant and equipment and intangible assets -1,082,465-1,110, Acquisition of available-for-sale instruments -553, Net cash received from sale of equity interests 46,

19 Unaudited Statements of Cash Flows - Indirect Method For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD Prior YTD 1/1/2011 to 3/31/2011 1/1/2010 to 3/31/ Judicial deposits -654, , Redemption of judicial deposits 87, , Proceeds from sale of property, plant and equipment 4,313 26, Net cash provided by (used in) financing activities 3,971, , Loans less debt issuance costs 393, , Licenses and concessions -19,392-15, Tax financing program -26,597-30, Repayment of loans and financing, debentures, derivatives, and -2,284,860-1,321, Capital increase 5,952, Dividends and interest on capital paid in the period -42, Increase (decrease) in cash and cash equivalents 3,407, Cash and cash equivalents at beginning of period 8,621,996 5,804, Cash and cash equivalents at end of period 12,029,552 5,804,020 19

20 Unaudited Statement of Changes in Equity For the Quarter Ended March 31, 2011 (In thousands of Brazilian reais - R$) Share capital Capital reserves, stock options granted and treasury shares Income reserves Retained earnings or accumulated losses Other comprehensive income/loss Equity attibutable to controlling shareholders Equity attributable to noncontrolling shareholders 5.01 Balance at December 31, ,445,720 2,022,504 6,272, ,050,522 14,690,189 6,141,428 20,831, Adjusted opening balances 7,445,720 2,022,504 6,272, ,050,522 14,690,189 6,141,428 20,831, Capital transactions with shareholders 4,168,645 1,785, ,954, ,954, Capital increases 4,168,645 1,783, ,952, ,952, Recognized options granted 0 2, , , Total comprehensive income ,799-22, , , , Net income for the period , , , , Other comprehensive income ,451-22, , Realization of derivative transactions reserve ,704-22, , Changes in available-for-sale financial assets Internal change in equity Realization of Law 8200/1991 reserve Balance at March 31, ,614,365 3,807,926 6,272, ,703-1,072,973 20,418,102 5,976,214 26,394,316 Total equity 20

21 Unaudited Statement of Changes in Equity For the Quarter Ended March 31, 2010 (In thousands of Brazilian reais - R$) Share capital Capital reserves, stock options granted and treasury shares Income reserves Retained earnings or accumulated losses Other comprehensive income/loss Equity attibutable to controlling shareholders Equity attributable to noncontrolling shareholders 5.01 Balance at December 31, ,434,429 2,021,778 4,850, ,050,522 13,255,837 6,438,822 19,694, Adjusted opening balances 7,434,429 2,021,778 4,850, ,050,522 13,255,837 6,438,822 19,694, Capital transactions with shareholders 0 4, , , Recognized options granted 0 4, , , Total comprehensive income , ,126-54, , Net income for the period , ,126-54, , Internal change in equity Realization of Law 8200/1991 reserve Balance at March 31, ,434,429 2,026,522 4,850, ,377-1,050,522 13,834,958 6,384,033 20,218,991 Total equity 21

22 Unaudited Statement of Value Added For the Quarters Ended March 31, 2011 and 2010 (In thousands of Brazilian reais - R$) Code Line Item Current YTD Prior YTD 1/1/2011 to 1/1/2010 to 3/31/2011 3/31/ Revenue 9,420,559 10,084, Sales of goods, products and services 9,467,770 10,154, Other income 225, , Provision (reversal) for doubtful accounts -272, , Inputs purchased from third parties -3,674,865-3,788, Cost of sales and services -1,231,668-1,420, Supplies, power, outside services, and other -2,149,387-2,114, Other -293, , Gross value added 5,745,694 6,296, Retentions -2,091,736-1,946, Depreciation and amortization -1,456,236-1,518, Other -635, , Provisions -510, , Other expenses -124,826-65, Net value added 3,653,958 4,350, Value added received as transfer 335, , Financial income 335, , Total value added to be distributed 3,989,310 4,759, Distribution of value added 3,989,310 4,759, Personnel 463, , Salaries and wages 302, , Benefits 65,845 65, Severance Pay Fund (FGTS) 22,438 22, Other 73,111 66, Taxes rates and contributions 2,279,001 2,581, Federal 117, , State 2,133,653 2,303, Municipal 28,311 4, Third Parties 1,615,396 1,212, Interest 1,219, , Rentals 396, , Shareholders -369, , Net income attributable to controlling -203, , Net income attributable to noncontrolling shareholders -165,214-54,789

23 1 GENERAL INFORMATION (the or TMAR ) is a subsidiary of Tele Norte Leste Participações S.A. ( TNL ), which, at March 31, 2011, holds 70.39% of TMAR s total capital and 98.01% of its voting capital. TMAR is headquartered at Rua General Polidoro 99, in the city of Rio de Janeiro, Brazil. TMAR is the leading provider of fixed telephone services in its operation area: Region I, comprising the states of Rio de Janeiro, Minas Gerais, Espírito Santo, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí, Maranhão, Pará, Amazonas, Roraima, and Amapá (except for this region s Sector 3, including 57 municipalities of the Triângulo Mineiro, Minas Gerais, and Alto Paranaíba, also in Minas Gerais, where CTBC - Companhia de Telecomunicações do Brasil Central operates). These services are provided under concessions granted by Agência Nacional de Telecomunicações - ANATEL (National Telecommunications Agency), the regulator of the Brazilian telecommunications industry. TMAR also holds the ANATEL concession to provide long-distance fixed telephone services in the same region and a concession to provide nationwide International Long-distance services. TMAR also holds (i) through its subsidiaries Brasil Telecom S.A. ( BrT ) and 14 Brasil Telecom Celular S.A. ( BrT Celular ) concessions to provide fixed and mobile services in Region II, respectively, and the International Long-distance service concession through BrT; and (ii) through subsidiary TNL PCS S.A. ( Oi ) provide mobile telephony services in Regions I and III. The terms of the concession agreements and licenses above are disclosed in Notes 17 and 3 (h). 2 SIGNIFICANT ACCOUNTING POLICIES The Board of Directors authorized the completion of these unaudited interim financial statements at the meeting held on April 28, Basis of preparation The s unaudited interim financial statements have been prepared for the quarter ended March 31, 2011 and in accordance with IAS 34 and accounting pronouncement CPC 21 issued by the Accounting Pronouncements Committee (CPC), which address the unaudited interim financial reporting. CPC 21 (IAS 34) requires that management use certain accounting estimates. The unaudited interim financial statements have been prepared based on the historical cost, except for certain financial assets and financial liabilities measured at their fair values. These unaudited interim financial statements do not include all the information and disclosures required in annual financial statements and should be read in conjunction with the annual financial statements for the year ended December 31, 2010, filed on March 28, 2011, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) and the accounting practices adopted in Brazil. There were no changes in the accounting policies adopted compared to the year ended December 31, 2010, except as described below: a) Revenue recognition customer loyalty program ( Oi Pontos ) The implemented a customer loyalty program ( Oi Pontos ), under which customers accumulate points related to the amounts paid for mobile telephony, fixed telephony, internet and pay TV services, 23

24 which can be exchanged for mobile telephony service packages, events available at Oi experiences and/or transferred to the Multiplus Fidelidade Program (a partner) to be exchanged for several other awards of this program, such as air tickets, fuel in Ipiranga gas stations, etc. The accounts for the points awarded under the program as a separately identifiable component of the sales transaction in which they are granted. The fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The consideration allocated to the points is measured by reference to their fair value, i.e., the amount for which the award credits could be sold separately. This amount is deferred and the related revenue is recognized when, and only when, the points are redeemed and/or expire (after 24 months). Revenue recognition is based on the number of points that have been redeemed in exchange for awards, relative to the total number expected to be redeemed. This program began its effective operations this quarter (Note 23). b) Hedge accounting Beginning January 1, 2011, the started to adopt hedge accounting for its derivative instruments. The purpose of this practice is to reduce the volatility of the recognized in the income statement due to changes in the fair values of derivative instruments. Derivative instruments that qualify for hedge accounting are submitted to period prospective and retrospective effectiveness tests using the dollar offset method. Derivative instruments contracted and designated for hedge accounting are formally identified through initial designation documentation prepared in accordance with the requirements of CPC 38 (IAS 39). Derivative instruments classified as cash flows hedges were designated for hedge accounting. The effective portion, as defined in CPC 38 (IAS 39), is recognized is an equity line item called Other comprehensive income, net of taxes, and is reclassified to financial income (expenses) using the effective rate. The ineffective portion, measured after the quarterly effectiveness tests, is recognized in financial income (expenses) in the same period it occurs. Changes in the fair values of derivative instruments that are not designated for purposes of hedge accounting are accounted as financial income or expenses in the income statement for the period they occur. The hedge relationship expires and the designation is removed when: (i) The derivative contract is exercised, terminated or settled, or if the voluntarily removes the designation, according to the criteria set out in CPC 38 (IAS 39). The hedged item continues to exist, the balances accumulated in other comprehensive income related to the changes in the fair value of the derivative are allocated to the income statement for the year in which the hedged interest expenses and foreign exchange fluctuation are allocated. 24

25 (ii) The debt is prepaid or extinguished. In this case, the balance accumulated in other comprehensive income is immediately allocated to financial income or expenses in the income statement for the period their designation is terminated. The information required on derivative instruments and the effects recognized by the in the quarter are described in Note 3. Estimates and critical accounting judgments In preparing the unaudited interim financial statements, the s management uses estimates and assumptions based on historical experience and other factors, including expected future events, which are considered reasonable and relevant. The use of estimates and assumptions frequently requires judgments related to matters that are uncertain with respect to the outcomes of transactions and the amount of assets and liabilities. Actual results of operations and the financial position may differ from these estimates. The estimates that represent a significant risk of causing material adjustments to the carrying amounts of assets and liabilities were disclosed in the s financial annual statements referred to above. In the period there was no material change in the accounting estimates adopted by the company and its subsidiaries besides those referred to in Note 22, in respect to labor contingencies. Other changes in the period On September 29, 2010, indirect subsidiary Oi entered into a Business Partnership Agreement with Banco do Brasil S.A. ( Banco do Brasil ) and an Investments Agreement with Cielo S.A. ( Cielo ). The purpose of the agreement entered into by TMAR, BrT, Oi, BrT Celular, Paggo Administradora, Way TV and Banco do Brasil is to establish a business partnership for the issuance of co-branded, prepaid, credit cards, and other means of payment in the traditional format or that use mobile payment technology to offered to current and future customer base of Oi. The agreement entered into by Oi, Paggo Acquirer, Cielo and CieloPar Participações Ltda. ( CieloPar ) sets out the interest of Paggo Acquirer and CieloPar in a new entity called Paggo Soluções de Meios de Pagamento S.A. ( Paggo Soluções ). Paggo Soluções was established to engage in the capture, transmission, processing and financial settlement of business transactions originated from or competed in mobile handsets, using mobile payment technology; and promote the accreditation of the current and new merchants with its acquisition network of transaction originated in mobile handsets, using the existing nationwide relationships of the and Paggo Acquirer. In February 28, 2011, after the authorization of the Brazilian Antitrust Agency (CADE), Paggo Acquirer and CieloPar started to hold 50% each of the capital of Paggo Soluções. Because of this change in interest held, the no longer fully consolidates the assets and liabilities of said indirect subsidiary and started to make the proportionate consolidation of said joint venture. 25

26 The balance sheet balances of Paggo Soluções proportionately consolidated by the as at March 31, 2011 are as follows: Assets Liabilities and equity Current assets Current liabilities Cash and cash equivalents 911 Trade payables 4,101 Trade receivables 4,898 Other payables 510 Other assets 642 4,611 6,451 Non-current assets Equity Intangible assets 51,545 Capital 57,178 51,545 Accumulated losses (3,793) 53,385 Seasonality 57,996 57,996 The and its subsidiaries do not have material seasonal operations. 3 DERIVATIVE INSTRUMENTS AND RISK ANALYSIS Financial risk management The s activities expose it to several financial risks, such as: market risk (including currency fluctuation risks, interest rate risk on fair value and cash flows, and price risk), credit risk and liquidity risk. The uses derivative instruments to protect it against certain exposures to these risks. Risk management is carried out by the 's treasury officer, in accordance with the policies approved by management. Oi s Financial Risk Management Policy (the Policy ), approved by the Board of Directors, documents the management of exposures to market risk factors generated by the financial transactions of the Oi Group companies. Under the Policy, market risks are identified based on the features of financial transactions contracted and to be contracted during the year. Several scenarios are then simulated for each of the risk factors using statistical models, used as basis to measure the impacts the on Oi Group s financial income (expenses). Based on this analysis, the Executive Committee annually agrees with the Board of Directors the Risk Guideline to be followed in each financial year. The Risk Guideline is equivalent to the worst expected impact of financial income (expenses) on the Group s net income, with 95% of level of confidence. To ensure a proper risk management, according to the Risk Guideline, the treasury can contract hedging instruments, including derivative transactions such as swaps, currency forwards and options. The and its subsidiaries do not use derivative instruments for other purposes. 26

27 With the approval of the Policy, the Financial Risk Management Committee was created, currently consisting of the CEO, the CFO, the Technology Development and Strategy Officer, the Customer Relations Officer, the Investor Relations Officer, and the Tax Officer, the General Controller of the Oi Group. This Committee meets on a monthly basis to oversee compliance with the Policy. Bimonthly, the Executive Committee submits to the Board of Directors Policy follow-up reports. According to their nature, financial instruments may involve known or unknown risks, and it is important to assess to the best judgment the potential of these risks. Thus, financial instruments may exist with or without guarantees depending on circumstantial or legal aspects. (a) Fair value of financial instruments The and its subsidiaries have measured their financial assets and financial liabilities at their market or actual realizable values (fair value) using available market inputs and valuation techniques appropriate for each situation. The interpretation of market inputs for the selection of such techniques requires considerable judgment and the preparation of estimates to obtain an amount considered appropriate for each situation. Accordingly, the estimates presented may not necessarily be indicative of the amounts that could be obtained in an active market. The use of different assumptions for the calculation of the fair value may have a material impact on the amounts obtained. The method used for calculation of the fair value of derivative instruments (swaps and NDFs) was the use of future cash flows associated to each instrument contracted, discounted at market rates prevailing at the end of the reporting period. The method used for calculation of the fair value of derivative instruments to account for option premiums was the Black&Scholes method. The fair value of securities traded in active markets is equivalent to the amount of the last closing quotation available at the end of the quarter multiplied by the number of outstanding securities. The fair values of contracts where the current contractual terms and conditions are similar to those originally contracted or for which there are no quotation or contracting benchmarks are equal to their carrying amounts. 27

28 The main asset and liability financial instruments are as follows: 3/31/2011 Accounting measurement Carrying amount Carrying amount Fair value Fair value Assets Cash and cash equivalents Fair value 8,490,131 8,490,131 12,029,552 12,029,552 Cash investments Fair value 546, ,016 1,493,806 1,493,806 Derivative instruments Fair value 57,525 57,525 57,525 57,525 Trade receivables Amortized cost 2,991,247 2,991,247 5,880,865 5,880,865 Available-for-sale financial asset (i) Fair value 553, , , ,444 Liabilities Trade payables Amortized cost 1,512,080 1,512,080 3,751,412 3,751,412 Loans and financing Loans and financing Amortized cost 17,764,772 17,604,264 22,097,841 21,937,332 Debentures Amortized cost 9,232,201 9,228,805 3,822,096 3,844,606 Derivative instruments Fair value 913, , , ,706 Dividends and interest on capital Amortized cost 591, , , ,168 Licenses and concessions payable (*) Amortized cost 124, ,457 2,224,437 2,224,437 12/31/2010 Accounting measurement Carrying amount Carrying amount Fair value Fair value Assets Cash and cash equivalents Fair value 2,152,730 2,152,730 8,621,996 8,621,996 Cash investments Fair value 640, ,449 1,951,733 1,951,733 Derivative instruments Fair value 62,025 62,025 62,025 62,025 Trade receivables Amortized cost 2,967,518 2,967,518 5,896,592 5,896,592 Liabilities Trade payables Amortized cost 1,612,763 1,612,763 4,039,775 4,039,775 Loans and financing Loans and financing Amortized cost 17,253,610 18,257,498 22,009,798 22,810,156 Debentures Amortized cost 8,208,524 8,781,213 5,416,236 5,453,105 Derivative instruments Fair value 763, , , ,865 Dividends and interests on capital Amortized cost 591, , , ,836 Licenses and concessions payable (*) Amortized cost 100, ,852 2,126,157 2,126,157 (*) There is no market for licenses and concessions payable and, therefore, they are not adjusted to fair value. (i) On March 4, 2011, the initiated the process to acquire equity interest in Portugal Telecom (PT) under a share sale and purchase in installments agreement entered into from Barclays. On March 30, 2011, Barclays transferred to the 26,895,360 shares representing 3% of the share capital of PT. Up to March 31, 2011, the had disbursed R$584,538, plus transaction costs and taxes. Under the contract, contingent to certain market conditions, Barclays might deliver additional shares to the without the need of new cash disbursements. As to this date the does not have significant influence and there is no evidence to this regard or any other indications considered relevant that might typify the investment as an associate or a jointly controlled entity, which would require the measurement of the investment by the equity method or proportionate consolidation, respectively, therefore the recognized the investment as an available-for-sale financial asset, required by CPC