Abril Educação S.A. Quarterly Information (ITR) as at June 30, 2012 and Report on Review of Quarterly Information

Transcription

1 (A free translation of the original in Portuguese) Abril Educação S.A. Quarterly Information (ITR) as at June 30, 2012 and Report on Review of Quarterly Information

2 (A free translation of the original in Portuguese) ABRIL EDUCAÇÃO S.A. QUARTERLY FINANCIAL INFORMATION as at June 30, 2012 and Independent Audirs' Review Report on the Quarterly Information CONTENTS Page Balance sheets Statements of income Statements of changes in equity Statements of cash flows Statements of value added Notes the financial statements Board of Direcrs and Board of Executive Officers Independent Audirs' Review Report on the Quarterly Information

3 (A free translation of the original in Portuguese) BALANCE SHEETS (All amounts in thousands of Reais) ASSETS June 30, 2012 Parent December 31, 2011 June 30, 2012 December 31, 2011 CURRENT ASSETS Cash and cash equivalents (Note 7) Trade receivables (Note 9) Invenries (Note 10) Taxes recoverable (Note 11) Dividends receivable (Note 32) Interest on capital (Note 32) Advances and prepaid expenses 254, , , , ,848 56, , , ,461 10,158 7,792 38,463 38,562 13,881 13,881 6,826 6,826 1,660 1,640 11,564 8, , , , ,489 NONCURRENT ASSETS Loans and other credits with related parties (Note 32) Financial assets (Note 8) Taxes recoverable (Note 11) Deferred income tax and social contributions (Note 19) Judicial deposits (Note 18) Advances and prepaid expenses Investments (Note 12) Intangible assets (Note 13) Property and equipment (Note 14) Total assets 31,409 37, ,043 3,752 4,043 3,752 4,104 4, ,743 11,434 5,800 5,664 3,075 3,083 3,902 3, , , , , ,514 65, , ,301 1,056,022 1,020,496 1,008, ,513 1,728,899 1,751,985 The accompanying notes are an integral part of this financial information. 1

4 (A free translation of the original in Portuguese) BALANCE SHEETS (All amounts in thousands of Reais) LIABILITIES AND EQUITY CURRENT LIABILITIES Trade and other payables (Note 15) Loans and financing (Note 16) Taxes and contributions payable (Note 17) Income tax and social contribution payable Dividends payable Payables for acquisition of equity interests (Note 30) June 30, 2012 Parent December 31, 2011 June 30, 2012 December 31, ,910 5, , ,686 17,198 70, ,560 7,940 1,581 12,853 11,475 11, ,761 93,099 6,915 18, , ,997 NONCURRENT LIABILITIES Trade and other payables (Note 15) Loans and other credits with related parties (Note 32) Payables for acquisition of equity interests (Note 30) Loans and financing (Note 16) Taxes and contributions payable (Note 17) Provision for contingencies (Note 18) Deferred income tax and social contribution (Note 19) 1,034 1,006 1,046 1, , , , ,142 4,729 6,306 11,775 11,337 4,631 4,631 4,887 4,887 5,665 5, , ,970 Total liabilities EQUITY Attributable owners of the parent Share capital (Note 22) Capital reserves (Note 23) Revenue reserves (Note 23) Profit for the period Noncontrolling interests Total equity Total liabilities and equity 12,580 23, , , , , , , , , , ,475 88,396 88,396 88,396 88,396 33,392 33, , , , , , , , ,018 1,008, ,513 1,728,899 1,751,985 The accompanying notes are an integral part of this financial information. 2

5 (A free translation of the original in Portuguese) STATEMENTS OF INCOME THREEMONTH AND SIXMONTH PERIODS ENDED JUNE 30 (All amounts in thousands of Reais, except earnings per share) 04/01/ /30/ /01/ /30/ /01/ /30/2011 Parent 01/01/ /30/ /01/ /30/ /01/ /30/ /01/ /30/ /01/ /30/2011 Net revenue (Note 25) ,508 Cost of sales and services (Note 26) (10) (69) (60,182) Gross profit (10) ,326 Selling expenses (Note 26) (11) (43) (141) (38,121) General and administrative expenses (Note 26) (7,961) (12,781) (13,958) (16,584) (41,937) Other income (expenses), net (3) (3) 1,169 Operating profit (loss) Finance income (Note 27) Finance costs (Note 27) Foreign exchange variations, net (Note 27) Profit before equity in the results of subsidiaries Equity in the results of subsidiaries (Note 12) Profit before income tax and social contribution (7,982) 6,358 (34) 394 (1,264) (18,884) (20,148) (12,619) 14,111 (1,912) 288 (132) 34,716 34,584 (13,961) 2,023 (11,938) (29,338) (41,276) (16,728) 7,487 (9,241) 11,364 2,123 (36,563) 9,466 (20,167) 326 (46,938) (46,938) Income tax and social contributions (Note 28) Profit for the period (377) (20,525) (1,192) 33,392 4,235 (37,041) 3,680 5,803 25,551 (21,387) Profit attributable : Owners of the Company Noncontrolling interests Basic earnings per share R$ (Note 23) Diluted earnings per share R$ (Note 23) (20,525) (862) (21,387) 351,343 80, ,818 (124,587) (35,378) (95,393) 226,756 44, ,425 (93,133) (33,795) (81,806) (79,835) (35,277) (54,730) ,247 54,598 (23,497) 53,136 19,088 6,167 14,340 (39,045) (24,834) (45,362) ,147 (42,021) 22,293 35,147 (42,021) 22,293 (2,795) 4,815 (16,655) 32,352 (37,206) 5,638 33,392 (37,041) 5,803 (1,040) (165) (165) 32,352 (37,206) 5, There was no comprehensive income be disclosed. The accompanying notes are an integral part of this financial information. 3

6 (A free translation of the original in Portuguese) STATEMENTS OF CHANGES IN EQUITY (All amounts in thousands of Reais) Share capital Capital reserves Revenue reserves Sck Additional Capital options Legal Profit Retained dividend reserve granted reserve retention earnings proposed Attributable owners of the Noncontrolling Total parent interests equity BALANCES AS AT DECEMBER 31, , ,482 5,512 46,043 10, , ,707 Sck option plan Capital increase in accordance with EGM of 05/02/ ,000 Capital increase in accordance with EGM of 05/24/ Profit for the sixmonth period Other movements in noncontrolling interests Allocation of profit for the period Payment of additional dividend proposed 7,836 5,803 (10,272) 7,836 7,836 25,000 25, ,803 (165) 5, (10,272) (10,272) BALANCES AS AT JUNE 30, , ,482 7,836 5,512 46,043 5, , ,202 BALANCES AS AT DECEMBER 31, , ,933 10,542 7,928 80, , ,018 Profit for the quarter ended 03/31/2012 Other movements in noncontrolling interests Sck option plan 53,917 1,996 53,917 (178) 53, ,996 1,996 BALANCES AS AT MARCH 31, , ,933 12,538 7,928 80,468 53,917 1,014, ,015,686 Loss for the quarter ended 06/30/2012 Other movements in noncontrolling interests Sck option plan (20,525) 1,998 (20,525) (862) (21,387) ,998 1,998 BALANCES AS AT JUNE 30, , ,933 14,536 7,928 80,468 33, , ,920 The accompanying notes are an integral part of this financial information. 4

7 (A free translation of the original in Portuguese) STATEMENTS OF CASH FLOWS SIXMONTH PERIODS ENDED JUNE 30 (All amounts in thousands of Reais) Parent CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from (used in) operations (Note 29) Interest paid Income tax and social contribution paid NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,755 1,755 (3,885) (176) (4,061) 153,250 (22,622) (11,236) 119, ,747 (24,500) (16,987) 132,260 CASH FLOWS FROM INVESTING ACTIV VITIES Purchases of: Property and equipment Intangible assets Acquisition of subsidiary in the period, net of cash acquired (Note 31) Acquisition of permanent investment Payment for acquisition of subsidiary of prior period Payment of purchase price adjustment Corporate reorganization Loans granted related parties Loans received from related parties Interest received NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (466) (1,005) (48,770) 54, ,529 (204) 3 (182,592) 62,896 1,443 (118,454) (5,414) (1,175) (20,231) (230) (13,500) (1,005) (40,761) (2,204) (600) (156,858) 3 (544) 1,946 (158,257) CASH FLOWS FROM FINANCING ACTIV VITIES New loans and financing Repayment of loans and financing Payment of PAES and taxes in instalments s Capital increase Capital increase in subsidiaries Dividends paid NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (11,475) (11,475) 25,022 (13,696) 11,, ,000 (220,647) (1,830) 11 (11,475) (18,941) (3,859) (200) 25,022 (13,696) 7,267 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,191) (111,189) 59,690 (18,730) Cash and cash equivalents at the beginning g of the sixmonth period 259, ,, , ,170 Cash and cash equivalents at the end of the sixmonth period 254,034 47,, , ,440 NET CHANGE IN CASH AND CASH EQUI IVALENTS (5,191) (111,189) 59,690 (18,730) The accompanying notes are an integral part of this financial information n. 5

8 (A free translation of the original in Portuguese) STATEMENTS OF VALUE ADDED SIXMONTH PERIODS ENDED JUNE 30 (All amounts in thousands of Reais) Parent REVENUE Sales of goods and services (Note 25) Other revenue Provision for impairment of trade receivables , ,797 1,874 (1,153) 290, ,283 1,361 (196) INPUTS ACQUIRED FROM THIRD PARTIES Raw materials consumed Cost of sales and services Materials, energy, outsourced services and other 3, ,435 4,242 4, , ,817 68, , ,216 50,686 GROSS VALUE ADDED (3,230) (4,242) 204, ,398 RETENTIONS 93 Depreciation and amortization (Notes 13 and 14) 93 17,959 14,820 17,959 14,820 NET VALUE ADDED GENERATED (3,323) (4,242) 186, ,578 VALUE ADDED RECEIVED THROUGHH TRANSFER 49,225 18,851 20,070 14,519 Equity in the results of subsidiaries (Note 12) Finance income (Note 27) Foreign exchange gains (Note 27) 34,716 14, ,364 7,487 19, , TOTAL VALUE ADDED TO DISTRIBUTE 45,902 14, , ,097 DISTRIBUTION OF VALUE ADDED Personnel and payroll charges Salaries Benefits Government Severance Indemnity Fund for Employees (FGTS) 7,690 7, ,334 10, ,800 56,867 63,191 47,122 7,662 5,911 4,947 3,834 Taxes and contributions Federal State Municipal Remuneration of third parties' capital Interest (Note 27) Foreign exchange losses (Note 27) Rentals Copyright Other 2,735 (1,547) 2,716 (1,550) , , ,672 37,073 26,454 34, ,750 2,720 66,881 71,519 39,045 45, ,568 4,907 21,568 15, ,971 Remuneration of own capital Retained earnings Noncontrolling interests 33,392 5,803 32,352 5,638 33,392 5,803 33,392 5,803 (1,040) (165) TOTAL VALUE ADDED DISTRIBUTEDD 45,902 14, , ,097 The accompanying notes are an integral part of this financial information. 6

9 (A free translation of the original in Portuguese) NOTES TO THE QUARTERLY FINANCIAL INFORMATION FOR THE PERIOD ENDED JUNE 30, 2012 (All amounts in thousands of Reais unless otherwise stated) 1. GENERAL INFORMATION Abril Educação S.A. (the "Company") is a corporation headquartered in São Paulo, State of São Paulo. The Company and its subsidiaries (the "Group") operate in the segment of primary and preuniversity education, with the following business lines: Ediras Ática and Scipione book publishing houses and SER teaching system, Sistema de Ensino Abril Educação Anglo teaching system and preuniversity entrance courses; PH Group basic teaching schools and preuniversity entrance courses, ETB Group technical and professional teaching schools, Maxiprint Gráfica e Edira Maxi teaching system, Escola Satélite S.A. onsite courses, Edumobi digital content distribution technology, and SGE GEO teaching system. The Company's activities include the editing, printing, publication, advertising and sale, in the wholesale and retail markets, of books, textbooks and publications for basic education and precollege admission courses, and it also provides specialized training services for teachers and school managers, meetings, lectures and workshop activities related education, as well as pedagogical activities of its basic and professional teaching courses through its own schools or teaching system. The issue of this Quarterly Financial Information was authorized by the Company's Board of Direcrs on August 14, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting practices adopted by the Company prepare its interim financial information are the same adopted in the preparation of the audited financial statements for the year endedd December 31, Basis of presentation The Quarterly Financial Information has been prepared on a hisrical cost basis, as modified by financial assets measured at fair value through profit or loss. The Quarterly Financial Information was based on principles, methods and criteria consistent with those adopted at the end of the last fiscal year ended December 31, 2011 and, consequently, should be read gether with the published annual financial statements. The interim financial statements included herein were prepared pursuant technical pronouncement CPC 21 Interim Statements and presented accordingly the rules issued by the Brazilian Securities Commission (CVM) applicable the preparation of the Quarterly Financial Information. The preparation of Quarterly Financial Information requires the use of certain critical accounting estimates. It also requires management exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant the Quarterly Financial Information are disclosed in 7

10 Note 3. The actual results of the operations for the quarters shown do not necessarily represent an indication of the results expected for the fiscal year ending December 31, (a) Quarterly Financial Information The Company's interim financial information has been prepared and is being presented in accordance with the Brazilian Accounting Pronouncements Committee CPC 21 (R1) Interim Statements, equivalent International Accounting Standards (IAS) 34 Interim Financial Reporting. (b) Parent Company Quarterly Financial Information The parent company's interim financial information has been prepared in accordance with the Brazilian Accounting Pronouncements Committee CPC 21 (R1) Interim Statements, and is presented gether with the consolidated interim financial information. In the parent company's individual interim financial information, subsidiaries are recorded based on the equity accounting method. The same adjustments are made in the parent company and consolidated financial information reach the same profit or loss and equity attributable the owners of the parent entity. In the case of Abril Educação S.A., the accounting practices adopted in Brazil applicable the parent company's financial information, prepared in accordance with CPC 21, differs from the IFRS applicable separate financial information only in relation the evaluation of investments in subsidiaries based on the equity accounting method, instead of at cost or fair value in accordance with IAS Consolidation The consolidated and parent company Quarterly Financial Information reflects the balances of assets, liabilities and equity at June 30, 2012 and December 31, 2011, and the operations for the periods ended June 30, 2012 and 2011 of the Parent Company and its subsidiaries. Subsidiaries The Company is deemed have control of a subsidiary throughh investment when it has, in addition the relevant interest, predominance in the resolutions of the entities' activities and control. Other interests which do not meet these conditions are called associated companies and accounted for using the equity accounting method, proportional the Company s interest in the capital of the investee. Transactions, balances and unrealized gains on transactions between Group entities are eliminated in consolidation. Unrealized losses are also eliminated, unless the transaction provides evidence of impairment of the asset transferred. The accounting policies of subsidiaries are altered where necessary ensure consistency with the policies adopted by the Company. 8

11 2.3 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided the chief operating decisionmaker responsible for allocating resources and assessing the performance of the operating segments, which has been identified as the Board of Direcrs. These decisionmakers may also receive detailed information on the Group's products, brands and other divisions, but these will not therefore qualify as reportable segments. 2.4 Standards, amendments and interpretations existing standards that are not yet effective The following new standards, amendments and interpretations of existing standards were issued by the IASB but are not effective for The early adoption of these standards, although encouraged by the IASB, has not been implemented in Brazil by the Brazilian Accounting Pronouncements Committee (CPC):. IFRS 9 "Financial instruments" addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and Ocber It replaces the parts of IAS 39 relating the classification and measurement of financial instruments. The Group has yet assess the full impact of IFRS 9. The standard is applicable from January 1, IFRS 10 " financial statements" builds on existing principles by identifying the concept of control as the determining facr in whether an entity should be included within the consolidated financial statements of the parent company. The Group has yet assess the full impact of IFRS 10. The standard is applicable from January 1, IFRS 11 "Joint arrangements" was issued in May The standard allows a more realistic reflection of joint arrangements by focusing on the rights and obligations of parties the arrangement, rather than its legal form. The proportional consolidation method will no longer be permitted for joint ventures. The standard is applicable from January 1, IFRS 12 "Disclosures of interests in other entities", includes the disclosure requirements for all forms of interest in other entities including joint arrangements, associations, special purpose vehicles and other off balance sheet vehicles. The Group has yet assess the full impact of IFRS 12. The standard is applicable from January 1, IFRS 13 "Fair value measurement" was issued in May 2011, and aims improve consistency and reduce complexity by providing a precise definition of fair value, as well as a single set of fair value measurement and disclosure requirements for use across IFRSs. The Company has yet assess the full impact of IFRS 13. The standard is applicable from January 1, There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected have a material impact on the Group. 9

12 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually reassessed and are based on hisrical experience and other facrs, including expectations of future events that are believed be reasonable under the circumstances. 3.1 Critical accounting estimates and assumptions Based on assumptions, the Company makes estimates concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. A complete list of critical accounting estimates is presented in Note 3.1 of the published annual financial statements. The main estimates for this quarter are presented below: (a) Estimated impairment of goodwill The Company tests annually whether goodwill and trademarks acquired have suffered any impairment, in accordance with its accounting policy. In this quarter, indicars resulting in the need of bringing forward the annual testing were not identified and, consequently, no provision of this nature was recorded. (b) Deferred taxes The Company recognizes deferredd tax assets and liabilities based on the differences between their carrying amounts in the quarterly financial information and the tax bases of assets and liabilities using current rates and taking in account the hisrical profit generated and the estimated future taxable profit, based on technical feasibility studies which support the recording and maintenance of these assets per CVM Instruction 371/2002. In the current quarter, no substantial differences in relation studies and full projections made in view of the preparation of the published annual financial statements were identified. (c) Contingencies The Company is a party lawsuits and administrative proceedings, and provisions have been made for all probable losses arising from these. The evaluation of the likelihood of loss includes the assessment of available evidence, and the opinion of outside legal advisors. Management believes that these contingencies are properly presented in the Quarterly Financial Information. 4. FINANCIAL RISK MANAGEMENT 4.1 General considerations and policies The Company and its subsidiaries have a risk management policy, which provides guidelines on transactions and requires the diversification of transactions and counterparties. According this policy, the nature and general position of financial risks are monired and managed on a regular basis evaluate their results and their financial impact on cash flow. The credit limits of counterparties are also periodically reviewed. 10

13 4.2 Financial risk facrs The activities of the Company and its subsidiaries expose them several financial risks: market (including currency and interest rate), credit and liquidity risk. The Company's global risk management program is focused on the uncertainty of financial markets and seeks minimize any possible adverse effects on the Company s financial performance. In practice, the Corporate Treasury identifies and may contract financial instruments for the purposes of hedging the Company against interest and foreign exchange rate risk. (a) Market risk The Company is subject market risk arising from its business activities, mainly involving the possibility of fluctuations in exchange rates and variations in interest rates. i) Exchange rate risk The Company has contracts with paper suppliers denominated in foreign currency. The risk related these transactions arises from possible fluctuations in foreign exchange rates, which may increase the balances of these liabilities. As at June 30, 2012, the balance of these trade payables was R$2,840 (R$7,287 as at December 31, 2011) ). Due the relatively low exposure, the Company does not have any hedging transactions for this type of risk. ii) Interest rate risk The Company has loans and financing in local currency, which are subject interest rates linked indices (mainly the Interbank Deposit Rate "CDI"). The risk related these liabilities arises from possible fluctuations in these rates. The Company had not entered in derivatives agreements hedge against this type of risk as at June 30, and December 31, However, the market rates are constantly monired in order assess the need contract derivatives hedge against fluctuations in these rates. In addition loans and financing, the subsidiary Sistema de Ensino Abril Educação S.A. (former name of Gráfica e Edira Anglo S.A) issued debentures not convertible in or exchangeable for shares. This liability was contracted at an interest rate linked CDI and the related risk arises from the possible increase in CDI rates. The market values of the instruments mentioned above do not differ significantly from the amounts recorded in the Quarterly Financial Information as at June 30, 2012 and in the financial statements for the year ended December 31,

14 (b) Credit risk Credit risk is managed on a centralized basis. Credit risk arises from cash and cash equivalents, including marketable securities with high liquidity and trade receivables. The level of credit risk and the policy for managing it have not changed in relation the description included in the most recent set of published annual financial statements. (c) Liquidity risk Prudent liquidity risk management implies the maintenance of sufficient cash and marketable securities, as well as the availability of committed credit lines and the capacity liquidate market positions. Management monirs the Company's consolidated liquidity level, taking in consideration the projected cash flow, nonutilized credit lines and the cash and cash equivalents balances. The table below analyzes the Company's nonderivative financial liabilities, which are measured using the amortized cost method. The amounts disclosed in the table represent contractual undiscounted cash flows, and a column is included reconcile the amounts those recorded in the Company's balance sheet. Less than one year Between 1 and 2 years Between 2 and 5 years Total Effect of discount Carrying amount As at June 30, 2012 Debentures (Note 16) Loans and financing (Note 16) Payables for acquisition of equity interests (Note 30) Trade and other payables (Note 15) , ,4 427 (105,680) 215,747 17,280 11,340 37,896 66,516 (11,985) 54, , , , ,2 214 (42,274) 323, ,067 1, , ,113 As at December 31, 2011 Debentures (Note 16) Loans and financing (Note 16) Payables for acquisition of equity interests (Note 30) Trade and other payables (Note 15) 64,888 67, , ,9 948 (73,223) 219,725 13,862 25,142 43,141 82,145 (21,784) 60, , , , ,6 674 (85,295) 303, ,686 1, , , CAPITAL MANAGEMENT The Company's objective in managing its capital is ensure the continuity of the business, offer a proper return the sckholders and benefits other stakeholders. The Company monirs its capital on a consolidated basis using the financial leverage ratio, among others. 12

15 6. FINANCIAL INSTRUMENTS a) Identification and valuation of financial instruments The Company and its subsidiaries have various financial instruments, mainly cash and cash equivalents, marketable securities, trade receivables, trade payables and loans and financing, which are measured at amortized cost using the effective interest rate. Considering the terms and characteristics of these instruments, the carrying amounts approximate their fair values. In the sixmonth period endedd June 30, 2012, the Company did not conduct transactions involving derivative financial instruments. In compliance with CVM Resolution 550/08, the Company presented, in the annual published financial statements as at December 31, 2011, a table giving a sensitivity analysis of the risks associated with the Company's financial instruments that could impact the Company's profit and equity. The initial scenario is considered the most probable over the next three months by management, based on the evaluation of external consultants. In addition this scenario, and in line with CVM Instruction 475/08 of December 17, 2008, two other scenarioss were disclosed representing a deterioration of 25% and 50% in the selected risks (Scenarios I and II). The scenarios projected as at June 30, 2012 remain unchanged, and the current position of the financial instruments under each scenario is presented below: Carrying amount Probable scenario Scenario I At June 30, 2012 Gain (loss) Scenario II Bank deposit certificates CDBs Total CDI assets Payables for acquisition of equity interests Debentures Bank loans (i) Total CDI debt Net CDI exposure 360,008 (1,760) 360,008 (1,760) (323,940) 1,584 (215,747) 1,055 (32,386) 158 (572,073) 2,797 (212,065) 1,037 (1,320) (880) (1,320) (880) 1, ,098 1, CDI rate % p.a Rate variation 8.38% 7.85% 0.53% (ii) 7.97% 8.09% 0.12% (iii) 0.24% (iv) (i) Excludes the loan from BNDES (FINAME), subject the longterm interest rate (TJLP), of R$22,145 5, for which the projections indicate no change from the current interest rates. (ii) Variation of the probable scenario and the actual. (iii) Variation of the probable scenario and a deterioration of 0.12%. (iv) Variation of the probable scenario and a deterioration of 0.24%. 13

16 7. CASH AND CASH EQUIVALENTS June 30, 2012 Parent December 31, 2011 June 30, 2012 December 31, 2011 Cash Bank accounts Bank deposit certificates CDBs (i) , , , , ,010 4, , , , ,647 (i) CDBs are remunerated at rates from 100.0% 102.5% of the Interbank Deposit Certificate (CDI) rate. They are measured at amortized cost, have various maturities and are redeemable at any time. 8. FINANCIAL ASSETS On July 1, 2011 the Company bought 5.9% of the equity of Livemocha Inc., amounting US$2 million. Livemocha Inc. is based in the United States of America and had a book value as at December 31, 2010 of US$3.5 million. It offers distance language courses throughout the world. This equity interest is considered be strategic. As it does not qualify as an investment in a subsidiary or associate, it was classified as an availableforsale financial asset, measured at fair value through profit or loss, except for foreign exchange variations, which were recognized in the statement of income. As at June 30, 2012, the fair value of this asset was R$ 4,043 (R$3,752 in December 2011). The Company recognized a foreign exchange gain of R$ 291 related this interest. The effect of this was recognized in finance income (costs). 9. TRADE RECEIVABLES a) These comprise the following: June 30, 2012 Parent December 31, 2011 June 30, 2012 December 31, 2011 Sale of books Sale of textbooks Preparary courses Other Total trade receivables Provision for impairment of trade receivables Total trade receivables 57, ,829 3,791 7,533 3,934 6, ,848 1,993 4, ,848 67, ,357 (11,096 6) (9,943) 213 1,848 56, , ,414 14

17 The entire balance of trade receivables comprises receivables from the domestic market. Of the tal trade receivables (sale of educational books) as at December 31, 2011, R$125,934 refers sales the Government, mainly the National Education Development Fund ("FNDE"), an independent agency of the Ministry of Education ("MEC"). There were no material outstanding balances with the Government as at June 30, b) The aging of trade receivables is as follows: June 30, 2012 December 31, 2011 June 30, 2011 Not yet due: Past due: Up 30 days From days From days From days From days Over 360 days 38, ,198 28,897 16,159 9,317 2,869 5,445 1,872 3,039 1,475 1,969 2,171 2,407 1,032 6,720 6,740 67, ,357 26,280 26,716 8,499 3,557 3,485 1,386 1,829 7,960 52,996 The changes in the provision for impairment of trade receivables were as follow: June 30, 2012 June 30, 2011 Balances as at January 1 Additions from business combination Additions in the period Reversals and writeoffs Balances as at June (3.706) (841)

18 10. INVENTORIES Raw materials Work in progress Finished goods (i) and (ii) Imports in transit Other Provision for obsolescence and real June 30, ,645 71, ,086 2, lizable value (14,369) 201,357 December 31, ,920 45, ,621 1, (52,727) 195,461 The changes in the provision for obsolescence and realizable value are as follow: Balances as at January 1 Additions/reversals in the period Utilization of provision for: Destruction (i) Invenry adjustment (ii) Balances as at June 30 June 30, 2012 June 30, ,727 51, (1,983) (34,411) (4,220) 14, ,168 (i) (ii) In June 2012 the Company completed the process of destruction of obsolete and unsalable books, already provided for, in the amount of R$ 34,411, without impact on the profit for the period. In connection with the internal control improvement process, a physical invenry of finished products was taken, which determined an invenry adjustment of R$24,499, of which R$4,220 had already been provided for. Accordingly, the amount of R$20,279 was recognized in profit for the period, in the account "cost of sales and services" (see Note 29). The Company has already taken the required actions prevent the recurrence of this event and ensure that the preventive controls are adequate the operation. 16

19 11. TAXES RECOVERABLE Parent June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011 Social Contributions on Revenue ("COFINS") Social Integration Program ("PIS") Service Tax ("ISS") Income tax on financial investments Prepaid income taxes Income tax and social contribution tax credit Income tax on interest on capital Other Current Noncurrent 6 1 7,915 5, , ,603 10,158 7,792 10,158 7,792 8,399 18,427 2,663 4, ,827 6,477 17,435 12,249 1,812 1,264 1, ,567 42,656 38,463 38,562 4,104 4,094 17

20 12. INVESTMENTS Investments in subsidiaries Investments: As at December 31, 2010 Corporate restructuring Capital contribution Capital contribution with advance for future capital Assets spun off Equity in the results of subsidiaries: Share of profits of subsidiaries Amortization of intangible assets (allocation) Deferred tax on amortization of intangible assets (allocation) Dividends proposed Interest on capital Transfer Total as at December 31, 2011 Ática Scipione Sistema de Ensino Abril Educação Caep 78,347 69, ,078 (3) 57, ,282 27,084 (196,742) 39,176 27,721 1,565 3,186 (21,394) (1,863) 7, (8,284) (5,597) (4,082) (3,949) 3, ,157 87, ,003 4,493 P.H. Maxi Total Parent 318,545 (3) 9, ,082 27, ,555 31,187 (2,295) (152) 69,201 (266) (143) (23,666) ,047 (13,881) (8,031) 3, ,084 39, ,973 Equity in the results of subsidiaries Share of profits of subsidiaries Amortization of intangible assets (allocation) Deferred tax on amortization of intangible assets (allocation) Total as at March 31, ,126 16,469 15,400 (445) (5,287) 1, , , ,913 4,048 4,613 2,768 57,931 (798) (477) (6,562) , ,170 42, ,573 Purchase price adjustment Equity in the results of subsidiaries: Share of profits of subsidiaries Amortization of intangible assets (allocation) Deferred tax on amortization of intangible assets (allocation) Total as at June 30, 2012 (12,239) (12,227) 4,832 (978) (5,286) 1, ,044 91, ,257 3,070 1,005 1,005 3,695 2,355 (14,562) (799) (464) (6,549) , ,338 45, ,694 18

21 Presented below is the Company's share of profits (losses) of subsidiaries, all of them closelyheld, as well as of their tal assets (including goodwill) and liabilities: Direct investment June 30, 2012 Assets Liabilities 04/01/ /30/ /01/ /30/2012 Edira Ática S.A. Edira Scipione S.A. Sistema de Ensino Abril Educação S.A. (i) Fair value allocation Sistema de Ensino Abril Educaç Combined PH Fair value allocation Combined PH Maxiprint Gráfica e Edira Ltda. Fair value allocation Maxiprint Central Abril Educação e Participações Ltda. (CAEP Fair value allocation CAEP Total 188,461 86, ,476 53, , ,859 ção S.A. 109,190 86,950 31,398 12,663 P) 57,562 53, , ,224 (12,239) 6,887 (12,227) 4,242 4,832 20,232 (3,488) (6,978) 3,695 8,308 (527) (1,054) 2,355 5,123 (307) (621) (978) (1,423) (18,884) 34,716 Indirect investment (ii) June 30, 2012 Assets Liabilities 04/01/ /30/ /01/ /30/2012 Nice Participações S.A. (ETB) Combined PH Escola Satélite S.A. Edumobi Tecnologia de Ensino Móvel Ltda. (iii) SGE Comércio de Material Didático S.A. (Note 31) Total 1,832 1,970 1, ,341 3,939 11,813 6,750 (324) (319) (234) (279) (316) (316) (874) (914) December 31, 2011 Assets Direct investment Liabilities Profit (losses) at December 31 Edira Ática S.A. Edira Scipione S.A. Sistema de Ensino Abril Educação S.A. (i) Fair value allocation Sistema de Ensino Abril Educaç Central Abril Educação e Participações Ltda. Fair value allocation CAEP P.H. Group Fair value allocation P.H. Group Maxiprint Gráfica e Edira Ltda. Fair value allocation Maxiprint Gráfica e Edira Ltd Total 272, , ,136 74, , ,449 ção S.A. 5,936 1, ,290 90,360 25,924 12,313 da. 846, ,610 39,176 27,721 1,565 (14,119) 3,186 (1,230) (2,295) (176) (152) (94) 53,582 December 31, 2011 Indirect investment (ii) Profit (losses) at Assets Liabilities December 31 Nice Participações S.A. (ETB) P.H. Group Fair value allocation P.H. Group Maxiprint Gráfica e Edira Ltda. Total 1,679 1,235 1,679 1,235 (712) 11,164 (1,229) (1,643) 7,580 (i) On June 28, 2012, the sckholders resolved change the name of Gráfica e Edira Anglo S.A. Sistema de Ensino Abril Educação S.A.. (ii) Indirect investment in CAEP Central Abril Educação e Participações Ltda. (iii) On April 4, 2012, the related company Abril S.A. transferred 119,999 quotas of Violettree Participações Ltda., with par value of R$ 0.10 (ten cents of a Real) each, the subsidiary CAEP Central Abril Educação e Participações Ltda. On April 27, 2012, the sckholders resolved change the name of Violettree Participações Ltda. Edumobi Tecnologia de Ensino Móvel Ltda. 19

22 13. INTANGIBLE ASSETS Goodwill Trademarks and patents Trademarks and patents Fair value allocation Portfolio of cusmers Noncompete agreement Portfolio of textbooks Computer systems Internallygenerated software development costs Other Total As at December 31, 2011 Opening balance Additions Additions from business combinations Writeoffs Transfers Amortization Amortization of goodwill (i) 207 (i) (62) (2.198) (2) (2.200) (15.139) (1.511) (4.709) (21.359) Net book amount As at March 31, 2012 Opening balance Additions Additions from business combinations Transfers Amortization Amortization of goodwill (2.388) (64) (2.185) 235 (647) (647) (4.167) (474) (1.405) (6.046) Net book amount As at June 30, 2012 Opening balance Additions Additions from business combinations Purchase price adjustment (ii) Transfers Amortization Amortization of goodwill (1) (200) 1 (696) (696) (4.164) (465) (1.407) (6.036) Net book amount Amortization rate % p.a. Anglo amortization rate % p.a. PH amortization rate % p.a. Maxiprint amortization rate % p.a ,33% 50% 18% 8,57% 20% 21,43% 20% 20% % (i) Transfers between investments and intangible assets accounts related goodwill. (ii) Purchase price adjustment Maxiprint Gráfica e Edira Ltda. Management did not identify any indication 30, of impairment of goodwill or other intangible assets with indefinite useful lives for the period ended June 20

23 14. PROPERTY AND EQUIPMENT Annual depreciation rates Net balance at 12/31/11 Additions Additions from busine ess combinati ion Depreciation Depreciation of deemed cost Transfers Net balance at 03/31/12 Additions Disposals Additions from business combination Depreciation Depreciation of deemed cost Transfers Net balance at 06/30/12 Land 2,402 Buildings 3% 36,572 Facilities 20% 1, Machinery and industrial equipment 27% 7, Furniture and fixtures 10% 1, Vehicles 33.33% 6, Computer equipment 40% 2, Other 20% 2,315 1,011 Construction in progress 4, Leasehold improvements 2,402 (516) 36,056 (63) 567 2, (185) 7, (2) 19 (81) 37 2, (1) (909) 24 6, (50) 53 (300) (33) 2,452 1,218 (5) (166) 2,248 5, (3,078) 1, ,111 2, (1,704) (516) (235) 65,724 2,418 (58) 2,402 (4) (513) 35,539 (67) 2, (199) (1) 7, (88) 2 2, (921) 1 5, (277) 3,525 1 (243) 5,346 (3) 2,331 (1) (1,800) (513) (1) 66,514 21

24 Annual depreciation rates Net balance at 12/31/11 Additions Disposals Additions from business combination Depreciation Depreciation of deemed cost Net Transfers (i) balance at 12/31/12 Land 2,402 Buildings 3% 38,538 (9) Facilities 20% 1, (2) 33 (197) Machinery and industrial equipment 27% 4, ,223 (267) Furniture and fixtures 10% ,883 (1,109) Vehicles 33.33% 6,385 3,358 (139) 254 (3,122) Computer equipment 40% 946 1,497 (1) 442 (397) Other 20% 2,873 (15) (109) (439) Construction in progress 470 3,580 58,112 8,901 (157) 5,726 (5,540) 2,402 (2,307) ,572 (109) 1, , ,837 6, , , ,124 (2,307) ,111 (i) Transfers between investments and property and equipment accounts. a) Impairment Management did not identify any indication of impairment as at June 30, Accordingly, it was not necessary calculate the impairment of these assets. 15. TRADE AND OTHER PAYABLES Domestic suppliers Foreign suppliers Salaries and social charges Advances from cusmers Copyrights payable Other payables Parent June 30, 2012 December 31, 2011 June 30, 2012 December 31, Current Noncurrent

25 16. LOANS AND FINANCING June 30, 2012 December 31, 2011 Non Non Current current Current current Debentures Loans and financing: In local currency: BNDES FINAME Bank loans Total loans and financing ,000 58, ,063 10,131 12,014 10,762 16,800 6,320 26,066 1,520 31,279 16,451 38,080 12,282 48,079 17, ,080 70, , Debentures On Ocber 25, 2010, the First Issue of Debentures of Sistema de Ensino Abril EducaçãoS.A. (the "Debentures"), as the successor Greentree Educacional S.A., was completed. The debentures are a single series, nominative and bookentry, not convertible in shares, representing 1,059 units with a unit value of R$ 250, taling R$ 264,750. The debentures have a fiveyear period and will mature on Ocber 25, 2015, subject CDI + 2% per year, paid semiannually. As intended, some of the resources generated by the public offering of shares held on July 21, 2011 were used by Sistema de Ensino Abril Educação S.A., on September 5, 2011, make a special repayment of R$63.6 million of the above loan, without penalties, as established in the debenture deed. On June 29, 2012, the entirety of the First Issue of Debentures of Sistema de Ensino Abril Educação S.A. was redeemed in advance. On June 18, 2012, the Second Issue of Debentures of Sistema de Ensino Abril Educação S.A. was carried out. The debentures are a single series, nominative and bookentry, not convertible in shares, representing 215 units with a unit value of R$ 1,000, taling R$ 215,000, with financial settlement on June 29, The funds obtained from the issue were used in the full settlement of the First Issue debentures. The debentures have a fiveyear period and will mature on June 18, The repayment of the principal will be made in 4 annual installments, beginning on June 18, 2014, subject CDI % per year, paid semiannually as from December 18, Pursuant contractual conditions, the Company is required comply with certain covenants during the debentures effective period, which have been complied with: 23

26 (i) (ii) Leverage ratio equal or lower than 3.0x as from December 31, 2012 the leverage ratio is the ratio between net debt and Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) Interest coverage ratio equal or higher than 1.5x as from December 31, 2012 the interest coverage ratio is the ratio between EBITDA and interest expenses related the previous twelve months, calculated based on the Company's consolidated financial statements Local currency Loans and financing in local currency as at June 30, 2012 are as follow: BNDES FINAME The subsidiaries Edira Ática S.A. and Edira Scipione S.A. have credit lines from the National Bank for Economic and Social Development ("BNDES") (Fund for Financing the Acquisition of Industrial Machinery and Equipment "FINAME") finance and increase the production of educational books. Interest on these varies from 3.25% 4.75% p.a. on p of the Longterm Interest Rate ("TJLP"). The principal of the loans is repayable between thirtysix and fortytwo months. Bank Loans On Ocber 1, 2010, the subsidiaries Edira Ática S.A. and Edira Scipione S.A. renegotiated the existing credit facility changing, among other conditions, the schedule of principal repayments six semiannual installments, payable in April and Ocber of each year, beginning on April 3, 2013 and ending on Ocber 6, 2015, remunerated at the CDI rate plus 2% per annum, payable semiannually. This loan agreement has covenants requiring compliance with certain financial ratios and prepayments through the sale of assets, as well as restrictions on the distribution of dividends and other transactions with related parties or investments in other companies. As at December 31, 2011, the subsidiaries Edira Ática S.A. and Edira Scipione S.A. were in compliance with all of the applicable requirements: (i) (ii) Maximum leverage ratio for Abril Educação of 3.5x for 2012 and 3.0 as from the fiscal year 2013 the leverage ratio is the ratio between net debt (except indebtedness from REFIS IV Program) and Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), and Minimum interest coverage ratio of 2.0x for 2012 and 2.5 as from the fiscal year 2013 the interest coverage ratio is the ratio between EBITDA and interest expenses (except indebtedness under the REFIS IV Program) related the previous twelve months, calculated based on the Company's consolidated financial statements. 24

27 17. TAXES AND CONTRIBUTIONS PAYABLE Parent June 30, 2012 December 31, 2011 June 30, 2012 December 31, 2011 Non Current Current Current Current Current NonCurrent REFIS and PAES COFINS National Social Security Institute ("INSS") Withholding Income Tax ("IRRF") ISS PIS Other 3,553 4,729 3,444 6, ,324 1, ,560 4,729 7,940 6, REFIS and PAES In November 2009, the Company and its subsidiaries enrolled in the Tax Recovery Program, established by Law 11941/099 and Provisional Measure 470/09, finance their tax liabilities through a special system of installment payment of tax and social security obligations. The changes in the balance of this program can be summarized as follow: Balance payable as at December 31, ,755 Payments from January December 2011 (1,953) Interest from January December Balance payable as at December 31, ,750 Payments from January June 2012 (1,830) Interest from January June Balance payable as at June 30, ,282 Current Noncurrent 3,553 4,729 The Company and its subsidiaries are awaiting the ratification of these debts by the tax authorities in

28 18. PROVISION FOR CONTINGENCIES AND JUDICIAL DEPOSITS The Company and its subsidiariess are parties lawsuits and administrative proceedings, which include labor, civil and tax lawsuits arising from the normal course of business. The provision for contingencies takes in account the evaluation of probable losses by the Company s legal advisors, the nature of the lawsuits and hisrical experience. The Company's management, based on the opinion of the legal advisors, believe that the provision for contingencies, presented below, is sufficient cover losses on the lawsuits: a) Composition and change: Tax Labor Civil Total As at December 31, ,834 5,304 1,199 11,337 Monetary restatement and int nterest Provision set up Reduction in provision Payment Reversal Reversal of judicial deposits 14 1,003 (200) (3,207) (504) 1, ,044 2,987 (3,207) (1) (705) 1,210 As at June 30, ,651 3,882 2,242 11,775 b) The nature of the lawsuits may be summarized as follows: Labor Lawsuits The most common claims mainly refer proportional vacation pay, salary differences, nightare no individual claims of a shift premiums, overtime and social charges, among others. There significant amount requiring specific disclosure. Civil Lawsuits There are no individual claims of a significant amount requiring specific disclosure. Tax Lawsuits There are no individual claims of a significant amount requiring specific disclosure. 26

29 18.1 The balances of judicial deposits, presented as a reduction of the provision for contingencies, were as follow: Lawsuits Tax Labor June 30, , ,743 Noncurrent December 31, ,149 1,804 2, Judicial deposits recorded in noncurrent assets are as follow: Lawsuits Tax Labor Civil June 30, ,388 3, ,800 Noncurrent December 31, ,383 3,175 1,106 5, In management's opinion, alll lawsuits have been adequately provided for, and for those where no provisions have been recorded, including lawsuits in which an unfavorable outcome is regarded as possible by the external legal advisors, management believes that losses are not likely. The contingencies under discussion in court, classified as possible losses, for which no provisions have been recorded, are as follow: Lawsuits Tax Labor Civil June 30, ,587 7,328 4,798 52,713 December 31, ,902 5,965 2,992 41,859 27

30 19. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION The breakdown of assets and liabilities in relation income and social contribution taxes as at June 30, 2012 is as follows: Deferred tax asset Tax losses Provision for contingencies Provision for invenry adjustment Provision for impairment of trade receivables Provision for profit sharing Losses on copyrights Amortization of nondeductible intangible asse Tax deductible goodwill Other temporary differences Deferred tax liability Goodwill on investments (i) Business combination Temporary differences June 30, ,506 2,611 3, ets 16,099 (40,923) 1,695 10,743 (4,631) (256) (4,887) Credited (charged) the statement of income December 31, ,436 15,070 (592) 3,203 3,052 (686) 1, ,458 11,641 (18,810) (22,113) 27 1,667 (691) 11,434 (4,631) 52 (52) (52) (204) (0) (4,887) 30/06/12 31/12/11 Deferred tax asset be recovered after 12 months Deferred tax liability be settled after 12 months 7,690 11,434 7,690 11,434 (4,887) (4,887) (4,887) (4,887) (i) Refers the balance of deferred income and social contribution taxes liabilities for the tax benefit of goodwill, already utilized, on the acquisition of Ediras Ática and Scipione, amounting R$10,312 and R$3,312, respectively, amounting R$4,631. The realization of deferred income tax and social contribution assets on tax losses and temporary differences is related the period in which the companies estimate they will earn sufficient taxable profits utilize these balances, as well as the realization of the corresponding temporary differences that originated the deferred tax assets or liabilities. In the specific case of tax deductible goodwill, the deferred tax asset is expected be realized within 10 years. 20. PRIVATE PENSION AND RETIREMENT PLANS Some of the Company's subsidiaries have been sponsors of the private pension fund Abrilprev Sociedade de Previdência Privada ("Abrilprev") since December 2007 the main purpose of Abrilprev is supplement the official social security benefits. During the period ended June 30, 2012, the Company and its subsidiaries made contributions Abrilprev amounting R$626 (R$687 as at June 30, 2011). The sponsors' contribution is currently % (1.3552% as at June 30, 2011) and joining the plan is optional for all employees of the sponsors. 28