3Q10 EARNINGS RELEASE PERFORMANCE IN AUGUST AND SEPTEMBER ALREADY REFLECTS BENEFITS OF SYNERGIES CAPTURED IN THE INTEGRATION PROCESS

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1 3Q10 EARNINGS RELEASE PERFORMANCE IN AUGUST AND SEPTEMBER ALREADY REFLECTS BENEFITS OF SYNERGIES CAPTURED IN THE INTEGRATION PROCESS Belo Horizonte, November 16, 2010, Kroton Educacional S.A. (BM&FBovespa: KROT11), Kroton or the Company, announces today its financial results for fiscal 2010 third quarter, ended September 30, Unless noted otherwise, the Company s operating and financial information is presented on a consolidated basis and in Brazilian Reais, in accordance with Brazilian corporate law. INVESTOR RELATIONS Carlos Lazar IR Officer Phillipe Casale Analyst Tel.: / dri@kroton.com.br CONFERENCE CALL November 17, 2010 Portuguese: English: 11:00 am Brasília 12:30 pm Brasília 8:00 am New York 9:30 am New York 1:00 pm London 2:30 pm London Tel: Tel: Replay: Replay: Code: Kroton Code: Kroton Webcast: Webcast: EXECUTIVE SUMMARY MESSAGE FROM MANAGEMENT As we have stated in our recent releases, our main goal for 2010 is to complete the integration of Kroton and IUNI into ONE COMPANY, BETTER AND STRONGER, preparing it for solid growth from 2011 on. During 3Q10, the main integration projects were implemented, including the new academic model for post-secondary education, the new organizational structure, unification of the financial management systems, and the integrated planning and control process. We have achieved our goal, assuring the capture of synergies worth some R$40 million for next year, among other benefits. Most of the adjustments, especially those relating to personnel optimization, took place in July. As a result, the Company s operating and financial performance in August and September reflects the positive effects of these initiatives, reinforcing our previous earnings guidance. We currently estimate that we may surpass the August-December annualized run rate equivalent to R$100 million that we had previously indicated. 1

2 In line with our management agenda, we are currently conducting a comprehensive strategic review including the redesign of our course portfolio and pricing policy in order to enhance both student attraction and retention and the Company s profitability. We have made significant progress with initiatives relating to the new student loan program (FIES), especially with regard to the goal of reducing delinquency and student dropout rates. Management Agenda - Start-up of the new academic model - Redesigning processes - Definition of PMI project - Integrated Structure - Designation of Executive Officers - New management model greater predictability and control -Start-up of integrated ERP - New budget and control processes - Complete integration - Expense reduction suppliers, rent/leasing, general expenses - Quick wins - New acquisitions March 2010 March June August May 1 st Sept. - Dec. Nov. - Dec Integration projects 15 task forces -Strategic Review - Review of courses' portfolio - Positioning and pricing - Strategy for organic growth - New commercial and advertising strategy - Preparation of 2011 Budget STATUS OF INTEGRATION AND MANAGEMENT & CONTROL MODELS The new academic model became operational on August 1 st at all post-secondary education facilities, including all Pitágoras and IUNI units. The new model was designed on the basis of IUNI s successful experience and the best concepts in the Pitágoras teaching model, assuring high standards in the education of our students and introducing new enhancements such as extracurricular activities, an educational portal, and several tools to support teaching and learning. The Company also unified its financial systems (ERPs) on August 1 st. This unification was an essential precondition for implementation of the new budgeting and control process, as well as for unifying corporate service staff in control, financial and human resources. The new model ensures a more severe internal control and an execution consistent with the approved budget, since the system only allows the commitment of operating expenses and investments previously approved. 2

3 Synergies Considering the adjustments made to faculty and administrative staff, which resulted in workforce optimization amounting to 1,079 people between the second and third quarters, alongside several other cost optimization initiatives, synergies amounting to some R$35 million per annum have already been captured. Full completion of the integration project and implementation of the new academic model will entail synergies exceeding R$40 million p.a. already in Non-recurring integration costs and expenses in 2010 will be higher than forecasted, since optimizations have also been more severe than originally expected. The financial targets that we had indicated to the market might be surpassed, including the Company s estimate for pro forma recurring EBITDA in 2010 of R$60 million and the annualized EBITDA run rate for the period August-December of R$100 million. Completion of the integration project and the process optimization projects, combined with implementation of the new academic model and gradual adjustment of gross margins on courses that currently continue to display deficits, will enable Kroton to raise its overall EBITDA margin to 22%-23% in Q10 RESULTS HIGHLIGHTS 3Q10 results were impacted by non-recurring costs and expenses relating to the acquisition and integration of IUNI, and mainly by severance payments in connection with workforce optimization, as detailed below: Values in R$ ('000) 3Q10 2Q10 9M10 IUNI Acquisition - Auditors, Lawyers and Balance Closing (547) (1,523) (2,786) Integration Project - Consultings and IT (2,191) (5,299) (8,635) Integration Project - Layoff Expenses (12,533) (4,451) (16,984) Other (1,455) (450) (4,084) Total of Non-recurring Costs and Expenses (16,726) (11,723) (32,489) * Pro forma data (consolidating all the months of IUNI s results in the period). In contrast with 2Q10, when non-recurring items were booked only under General & Administrative Expenses, in 3Q10 non-recurring items have also been booked under Cost of Goods & Services (for Details, see Attachment II, 3Q10 Income Statement Reconciliation). No significant non-recurring costs and expenses relating to integration are foreseen in 4Q10. Values in R$ ('000) Jul/10 Aug/10 Sep/10 3Q10 Adjusted Net Revenues 47,699 53,603 56, ,224 Recurring EBITDA ,083 7,939 18,992 Recurring EBITDA Margin 2.0% 18.8% 13.9% 12.0% The above chart illustrates monthly performance in 3Q10. Most integration initiatives, especially those relating to workforce optimization, took place in July, so that the positive financial impact of these initiatives began to be reflected in August and September, when margins already reached significantly higher levels than in previous months. 3

4 MATERIAL FACT August 18, 2010 On August 18, 2010, Kroton announced in a Material Fact that it is studying operations involving associations, partnerships or possibly disposal of one or more of the educational facilities it currently owns. In this context the Company entered into confidentiality agreements with prospective parties so as to permit mutual analysis of such transactions. However, nothing binding or with a foreseeable outcome exists at this time in connection with the operations under analysis. The Company will keep its shareholders and the markets informed of any developments in this regard. DESIGNMATE AGREEMENT On September 18, 2010, Kroton signed an exclusivity agreement with Designmate, an Indian company that develops e-learning software and has pioneered 3D animations and other e- content for biology, physics, chemistry and mathematics. The agreement enables Kroton to offer the world s best digital solutions in its educational process, also on a pioneering basis. It will not only contribute to significant classroom quality enhancements in our institutions and associated schools, but also generate additional revenue from licensing of the 3D content library to third parties. COMPLETION OF IUNI ACQUISITION PROCESS At a Shareholders General Meeting held on September 24, 2010, the shareholders approved the conclusion of all corporate aspects of the acquisition of IUNI effected at the start of this year. A final balance sheet for the transaction was also concluded, resulting in a R$3.3 million reduction in the purchase price. Consequently the issuance of new shares corresponding to 6.31% of the Company s total equity was approved. The new shares were received by Altamiro Galindo, the founder of IUNI Educacional. Mr. Galindo was also elected to the Board of Kroton for a term ending with the 2011 Annual General Meeting (for more information, see Capital Markets section). 4

5 OPERATING PERFORMANCE PRIMARY & SECONDARY EDUCATION Kroton s network of primary and secondary educational facilities comprises 720 associated schools throughout Brazil. In the public sector, the Company is present through its Projecta brand, whose mission is to take high-quality education to Brazilian towns and cities via management programs, classroom materials and educational assessment. Associated Schools Nationwide Platform Primary and Secondary Associated Schools in Brazil (+6 in Japan) New primary and secondary education schools only join the Company s learning system network at the start of the year. Most of the revenue from primary and secondary schools accrues in the first quarter, when educational materials are delivered to associated schools. The number of students served by Kroton s school network in 2010 amounts to 265,000, for year-over-year growth of 16.9%. Primary and Secondary Education Student Evolution 183, , ,600 10, ,000 24, , , Private Network Public Network - PROJECTA 5

6 In 2010, several enhancements focusing on quality have been developed for the primary and secondary education network, using state-of-the-art tools to support teaching and learning. The innovations to be introduced in 2011 include: A virtual library comprising 3,500 3D Mathematics, Physics, Chemistry and Biology lessons; A new education portal that facilitates interaction among students, parents and teachers via a virtual platform; A robotics project in partnership with Lego, combining advanced technology with learning; Mind Lab, a series of international board games selected to help teach the curriculum; Wired Classroom using digital whiteboards and individual netbooks for students to view the lesson material. POST-SECONDARY EDUCATION The final number of students in the Company s 39 post-secondary education units in 3Q10 was 85,552. Of these, 75,100 were enrolled in bachelor degree courses and associate degree courses, while another 10,500 were enrolled in graduate courses. Post-Secondary Units Macapá(AP) Marabá(PA) São Luis(MA) Lauro de Freitas(BA) Salvador(BA) Itabuna(BA) Sinop(MT) 2 units Tangará da Serra(MT) 2 units Cuiabá(MT) 3 units Várzea Grande(MT) Rondonópolis(MT) 2 units Primavera do Leste(MT) Uberlândia(MG) Londrina(PR) Feira de Santana(BA) Teixeira de Freitas(BA) Linhares(ES) Guarapari(ES) Ipatinga(MG) Betim(MG) Belo Horizonte(MG) 8 units Contagem(MG) Rio de Janeiro(RJ) Poços de Caldas(MG) Votorantim(SP) Divinópolis(MG) Jundiaí(SP) The highlight was the number of new students in the period, which reached 10,241. The midyear university entrance exam traditionally leads to a smaller intake of new students, and in the second half of the year the total number of students usually falls below that in the first half after allowing for dropout and commencement. The Company ended 3Q10 with 85,552 undergraduate and graduate students. Dropout and graduates accounted for 12,783 students. 6

7 Post-Secondary Students 88,094 10,241 (6,365) (6,418) 85,552 2Q10 New Students Drop Out Graduates 3Q10 In 3Q10 the Ministry of Education (MEC) authorized eight new courses offering more than 1,000 places, including Pharmacy, Mechanical Engineering and Production Engineering. By the end of the year the Company expects to win approval for several other programs that will support organic growth in the coming quarters. Kroton also began offering foreign language courses at several of its post-secondary education facilities, with the aim of providing its students with yet another opportunity for development in special conditions. This initiative also functions as a means of attracting students who have not yet graduated from secondary school so that they can find out more about the Company s institutions. The number of students in this modality was more than 4,200 at end-september. NEW FIES - FINANCING FOR POST-SECONDARY STUDENTS ( In May 2010, the Ministry of Education (MEC) announced a new post-secondary student loan program (new FIES), which will have a significant impact on the sector s growth. More recently, in October, the government launched a Guarantor Fund to enable students from low-income families and training teachers to apply for loans without requiring co-signers. Kroton has already joined the Guarantor Fund and expects this new initiative to contribute to the penetration of higher education and help reduce dropout rates. Since 2Q10, the Company has been investing in a support structure for students to facilitate their access to FIES loans. By November 12, 2010, some 4,810 students had signed contracts under the new FIES program, and around 3,000 additional students were awaiting approval. As a result, Kroton expects to surpass the 10,000 mark in early 2011, excluding students who were already part of the FIES program (roughly 3,000) and were migrated to the new terms and conditions. The Company expects the number of post-secondary students associated with the FIES program to continue growing strongly, since the option will be better known among students at many existing facilities when the next round of entrance exams is held. 7

8 FINANCIAL PERFORMANCE MAIN PRO FORMA INDICATORS Values in R$ ('000) 9M10 Gross Revenue 579,938 Adjusted Net Revenue 503,106 Recurrring Gross Profit 112,101 Recurring Gross Margin 22.3% Recurrring EBITDA 59,032 Recurring EBITDA Margin 11.7% Adjusted Net Income (Loss) 23,701 Adjusted Net Income Margin 4.7% Kroton s main pro forma indicators include IUNI s results for January and February The IUNI group was acquired in March 2010, and the consolidated pro forma figures reflect the recurring results for both companies combined. 3Q10 RESULTS Unless otherwise indicated, the following analysis refers to consolidated results, including IUNI from March Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Gross Revenue 180,996 93, % 187,082 (3.3)% 530, , % Net Revenue 158,224 78, % 156, % 459, , % Recurring Gross Profit 53,543 23, % 35, % 154, , % Recurring Gross Margin 33.8% 29.4% 4.4 p.p 22.9% 10.9 p.p 33.6% 38.0% (4.4) p.p. Recurrring EBITDA 18,992 9, % (1,322) n.a. 48,660 54,149 (10.1)% Recurring EBITDA Margin 12.0% 12.6% (0.6) p.p. (0.8)% 12.8 p.p 10.6% 19.9% (9.3) p.p. Adjusted Net Income (Loss) 7,943 11,993 (33.8)% (11,820) (167.2)% 19,987 44,865 (55.4)% Adjusted Net Income Margin 5.0% 15.2% (10.2) p.p. (7.5)% 12.6 p.p 4.4% 16.5% (12.1) p.p. GROSS REVENUE Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Gross Revenue 180,996 93, % 187,082 (3.3)% 530, , % Primary and Secondary Education 24,600 16, % 27,577 (10.8)% 107,790 92, % Post-Secondary Education 156,396 76, % 159,505 (1.9)% 422, , % (-) Gross Revenue Deductions (27,427) (14,812) 85.2% (32,739) (16.2)% (79,620) (40,258) 97.8% Primary and Secondary Education (1,814) (2,261) (19.8)% (2,679) (32.3)% (6,853) (5,805) 18.0% Post-Secondary Education (25,613) (12,551) 104.1% (30,060) (14.8)% (72,767) (34,453) 111.2% (+) Interest and Penalties on Post-Secondary Education Tuition 4, n.a. 2, % 8,638 1,354 n.a. Adjusted Net Revenue 158,224 78, % 156, % 459, , % Primary and Secondary Education 22,786 14, % 24,898 (8.5)% 100,937 86, % Post-Secondary Education 135,438 64, % 131, % 358, , % Gross revenue totaled R$181.0 million in 3Q10 and R$530.2 million in the first three quarters of the year. The 3.3% drop compared with 2Q10 basically reflects the seasonal effect of primary and secondary education. Year-over-year growth in the first three quarters was 70.3%, due to the acquisition of IUNI at the start of the year. 8

9 In primary and secondary education, gross revenue grew 47.6% to R$24.6 million, from R$16.7 million in 3Q09, thanks to growth in the number of contracts with associated schools during the period. In higher education, gross revenue grew 104.8% year-over-year, mainly owing to the absorption of IUNI. The higher education segment accounted for 86.4% of total gross revenue in 3Q10 and 79.7% in the year to date, amounting to R$156.4 million and R$422.4 million respectively. GROSS REVENUE (R$ million) 410, ,0 310, ,0 210, ,0 110, ,0 10, ,0 3Q09 2Q10 3Q10 9M09 9M10 Primary and Secondary Education Post-Secondary Education DEDUCTIONS FROM GROSS REVENUE Deductions from gross revenue totaled R$27.4 million in 3Q10, with R$1.8 million deriving from operations in the primary and secondary education segment and R$25.6 million from operations in the post-secondary education segment. Deductions Primary & Secondary Education Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% Gross Revenue Primary and Secundary 24,600 16, % 27,577 (10.8)% (-) Gross Revenue Deductions (1,814) (2,261) (19.8)% (2,679) (32.3)% Taxes (821) (704) 16.6% (838) (2.0)% Returns (993) (1,545) (35.7)% (1,839) (46.0)% Other - (12) 0.0% (2) 0.0% Adjusted Net Revenue 22,786 14, % 24,898 (8.5)% Deductions in primary and secondary education comprise taxes relating to own school operations and contracts for the operation of third-party schools, and above all returns and rebates on textbooks and other classroom materials for the schools in our network. 9

10 In 3Q10, the ratio of deductions to net revenue in the segment fell 7.7 percentage points (8.0% in 3Q10 and 15.7% no 3Q09). This decrease reflects a smaller volume of returns and rebates. Deductions Post-Secondary Education 3Q10 3Q09 Chg% 2Q10 Chg% Gross Revenue Post-Secundary 156,396 76, % 159,505 (1.9)% (-) Gross Revenue Deductions (25,613) (12,551) 104.1% (30,060) (14.8)% Taxes (3,283) (2,183) 50.4% (3,628) (9.5)% ProUni (14,781) (6,546) 125.8% (13,889) 6.4% Returns (1,812) (201) n.a. (1,544) 17.4% Total Discounts (5,737) (3,621) 58.4% (10,999) (47.8)% (+) Interest and Penalties 4, n.a. 2, % Adjusted Net Revenue 135,438 64, % 131, % Most of the deductions booked for operations in post-secondary education relate to scholarships extended under the federal government s ProUni program, which grants matching exemption from income tax and CSLL tax. ProUni-related deductions accounted for R$14.8 million, out of R$25.6 million in total deductions. The remainder derived from taxes, returns and discounts on tuition fees. Given their operational nature, conditional discounts and interest on tuition fees paid in monthly installments booked as financial results have been reclassified as gross revenue deductions for better analysis. There was practically no year-over-year change in deductions in proportion to net revenue in the post-secondary education segment (18.9% in 3Q10 versus 19.5% in 3Q09). ADJUSTED NET REVENUE The Company s adjusted net revenue in 3Q10 amounted to R$158.2 million, up 100.7% compared with 3Q09 (R$78.8 million). The adjusted net revenue also grew in comparison with the previous quarter thanks to the smaller volume of deductions. Adjusted net revenue in the first nine months of 2010 totaled R$459.2 million, up 68.5% compared with 2009 (R$272.5 million). This growth reflect the absorption of post-secondary units deriving from the acquisition of IUNI in early 2010, as well as 17.1% growth in net revenue from operations in the primary and secondary education segment. 10

11 ADJUSTED NET REVENUE (R$ million) 410, ,0 310,0 260, ,0 160,0 110,0 60,0 10, ,0 3Q09 2Q10 3Q10 9M09 9M10 Primary and Secondary Education Post-Secondary Education Average Ticket In 2010, the average annual amount charged for classroom material sold to associated primary and secondary schools was R$ per student (R$ in 2009). In post-secondary education, the average monthly installment for payment of tuition fees was R$ per student (R$ in 2Q10). COST OF GOODS & SERVICES Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Costs of Goods and Services (115,819) (55,656) 108.1% (120,702) (4.0)% (316,180) (168,933) 87.2% Primary and Secondary Education Costs of Goods (3,650) (2,023) 80.4% (4,105) (11.1)% (16,770) (12,674) 32.3% Costs of Services (8,858) (7,239) 22.4% (7,407) 19.6% (22,629) (21,330) 6.1% Faculty and Other Personnel (6,537) (5,378) 21.6% (6,046) 8.1% (17,108) (16,440) 4.1% Rent (434) (337) 28.8% (203) 113.8% (847) (952) (11.0)% Administrative Costs (1,815) (1,270) 42.9% (984) 84.5% (3,818) (3,316) 15.1% Depretiation (72) (59) 22.0% (51) 41.2% (188) (180) 4.4% Other - (195) - (123) 0.0% (668) (442) 51.1% Non-Recurring Costs (1,730) % (1,730) - - Post-Secondary Education Costs of Services (92,173) (46,394) 98.7% (109,190) (15.6)% (265,643) (134,929) 96.9% Faculty and Other Personnel (58,451) (29,026) 101.4% (69,599) (16.0)% (165,882) (85,060) 95.0% Rent (13,914) (5,571) 149.8% (14,395) (3.3)% (38,497) (16,577) 132.2% Administrative Costs (14,174) (8,551) 65.8% (18,835) (24.7)% (44,512) (24,383) 82.6% Depretiation (5,634) (3,014) 86.9% (5,173) 8.9% (14,766) (7,928) 86.3% Other - (232) - (1,188) - (1,986) (981) 102.4% Non-Recurring Costs (9,408) (9,408) - - Total Non-Recurring Costs (11,138) (11,138) - - Recurring Costs of Goods and Services (104,681) (55,656) 88.1% (120,702) (13.3)% (305,042) (168,933) 80.6% 11

12 Vertical Analysis Cost of Goods & Services Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Costs of Goods and Services (73.2)% (70.6)% (2.6) p.p. (77.1)% 3.9 p.p (68.8)% (62.0)% (6.9) p.p. Primary and Secondary Education Costs of Goods (2.3)% (2.6)% 0.3 p.p (2.6)% 0.3 p.p (3.7)% (4.7)% 1.0 p.p Costs of Services (5.6)% (9.2)% 3.6 p.p (4.7)% (0.9) p.p. (4.9)% (7.8)% 2.9 p.p Faculty and Other Personnel (4.1)% (6.8)% 2.7 p.p (3.9)% (0.3) p.p. (3.7)% (6.0)% 2.3 p.p Rent (0.3)% (0.4)% 0.2 p.p (0.1)% (0.1) p.p. (0.2)% (0.3)% 0.2 p.p Administrative Costs (1.1)% (1.6)% 0.5 p.p (0.6)% (0.5) p.p. (0.8)% (1.2)% 0.4 p.p Depretiation (0.0)% (0.1)% 0.0 p.p (0.0)% (0.0) p.p. (0.0)% (0.1)% 0.0 p.p Other 0.0% (0.2)% 0.2 p.p (0.1)% 0.1 p.p (0.1)% (0.2)% 0.0 p.p Non-Recurring Costs (1.1)% 0.0% (1.1) p.p. 0.0% (1.1) p.p. (0.4)% 0.0% (0.4) p.p. Post-Secondary Education Costs of Services (58.3)% (58.9)% 0.6 p.p (69.7)% 11.5 p.p (57.8)% (49.5)% (8.3) p.p. Faculty and Other Personnel (36.9)% (36.8)% (0.1) p.p. (44.4)% 7.5 p.p (36.1)% (31.2)% (4.9) p.p. Rent (8.8)% (7.1)% (1.7) p.p. (9.2)% 0.4 p.p (8.4)% (6.1)% (2.3) p.p. Administrative Costs (9.0)% (10.8)% 1.9 p.p (12.0)% 3.1 p.p (9.7)% (8.9)% (0.7) p.p. Depretiation (3.6)% (3.8)% 0.3 p.p (3.3)% (0.3) p.p. (3.2)% (2.9)% (0.3) p.p. Other 0.0% (0.3)% 0.3 p.p (0.8)% 0.8 p.p (0.4)% (0.4)% (0.1) p.p. Non-Recurring Costs (5.9)% 0.0% (5.9) p.p. 0.0% (5.9) p.p. (2.0)% 0.0% (2.0) p.p. Total Non-Recurring Costs (7.0)% 0.0% (7.0) p.p. 0.0% (7.0) p.p. (2.4)% 0.0% (2.4) p.p. Recurring Costs of Goods and Services (66.2)% (70.6)% 4.4 p.p (77.1)% 10.9 p.p (66.4)% (62.0)% (4.4) p.p. The cost of goods and services (COGS) was impacted in 3Q10 by non-recurring events relating mainly to the layoffs occurred in July. Total COGS excluding non-recurring effects in 3Q10 was R$104.7 million, of which R$12.5 million in primary and secondary education and R$92.2 million in post-secondary education. Total COGS in the previous quarter was R$109.2 million in higher education. The various initiatives undertaken by Kroton in its organizational restructuring program and the synergies obtained via integration with IUNI, especially implementation of the new academic model and process optimization, had a positive effect on results in 3Q10, particularly in higher education operations. The highlights in this segment were faculty and technical staff and administrative costs, both of which fell significantly compared with the previous quarter even though the cost structure prior to restructuring was still in place in July. Recurring COGS corresponded to 66.2% of net revenue in 3Q10, compared with 77.1% in the previous quarter. This reduction in percentage terms (as well as nominal) occurred even though the Company continues to incur start-up costs for units that are in the phase to approach maturity. 12

13 COST OF GOODS & SERVICES* (R$ million) 300,0 77.1% ,0 80,0 250,0 200,0 70.6% 66.2% 62.0% % ,0 60,0 50,0 150,0 100,0 50,0 0, Q09 2Q10 3Q10 9M09 9M10 Costs of Goods Costs of Services Total Costs / % Adjusted Net Revenue *Excluding Non-Recurring Costs. 40,0 30,0 20,0 10,0 0,0 RECURRING GROSS PROFIT & RECURRING GROSS MARGIN Thanks to cost savings and revenue growth, recurring gross profit (excluding non-recurring costs) rose 49.0% to R$53.5 million in 3Q10, from R$35.9 million in the previous quarter. Yearto-date, recurring gross profit amounted to R$154.2 million, up 48.9% from R$103.6 million in the corresponding period of Recurring gross margin behaved similarly, reaching 33.8% in 3Q10, for growth of 10.9 p.p. compared with 2Q10. In the first nine months of 2010, recurring gross margin was 33.6%. Primary & Secondary Education Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% Gross Revenue 24,600 16, % 27,577 (10.8)% Own Operations 9,460 8, % 10,584 (10.6)% Associated Schools Network 15,140 7, % 16,993 (10.9)% Net Revenue 22,786 14, % 24,898 (8.5)% Own Operations 8,749 8, % 9,866 (11.3)% Associated Schools Network 14,037 6, % 15,032 (6.6)% Recurring Gross Profit 10,278 5, % 13,387 (23.2)% Own Operations (109) 761 (114.3)% 2,459 (104.4)% Associated Schools Network 10,387 4, % 10,927 (4.9)% Recurring Gross Margin 45.1% 35.7% 9.4 p.p 53.8% (8.7) p.p. Own Operations (1.2)% 9.5% (10.8) p.p. 24.9% (26.2) p.p. Associated Schools Network 74.0% 68.4% 5.6 p.p 72.7% 1.3 p.p In the primary and secondary education segment, recurring gross profit amounted to R$10.3 million in 3Q10, up 99.7% year-over-year due to growth in the number of associated schools. Recurring gross margin was 45.1% overall, led by the network of associated schools, which generated a recurring gross margin of 74.0% in 3Q10. The results for 3Q10 were weaker than those for the previous quarter because of seasonality in this segment. 13

14 Post-Secondary Education Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% Gross Revenue 156,396 76, % 159,505 (1.9)% Adjusted Net Revenue 135,438 64, % 131, % Recurring Gross Profit 43,265 18, % 22, % Recurring Gross Margin 31.9% 28.0% 4.0 p.p 17.1% 14.8 p.p Recurring gross profit in post-secondary education, the segment most affected by organizational restructuring and the synergies captured, rose 92.0% compared with 2Q10, reaching R$43.3 million. As a result, recurring gross margin was 31.9%, up 14.8 p.p. compared in the quarter. OPERATING EXPENSES Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Recurring Gross Profit 53,543 23, % 35, % 154, , % Operational Expenses (Income) (41,361) (17,441) 137.1% (47,372) (12.7)% (127,600) (61,193) 108.5% Selling Expenses (17,518) (8,992) 94.8% (19,356) (9.5)% (56,708) (30,933) 83.3% Personnel Expenses (10,229) (4,120) 148.3% (15,342) (33.3)% (36,146) (13,180) 174.2% General and Administrative (12,600) (4,973) 153.4% (10,557) 19.4% (31,356) (18,852) 66.3% Other Operating Income (Expenses) (859) 799 (207.5)% (1,962) (56.2)% (2,925) 2,238 (230.7)% Goodwill Amortization (155) (155) 0.0% (155) (0.2)% (465) (466) (0.1)% Non-Recurring Expenses (5,588) (3,143) 77.8% (11,723) (52.3)% (21,351) (3,143) 579.3% Recurring Net Operational Income 12,182 5, % (11,449) (206.4)% 26,599 42,365 (127.0)% Vertical Analysis Operating Expenses 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Recurring Gross Profit 33.8% 29.4% 4.4 p.p 22.9% 10.9 p.p 33.6% 38.0% (4.4) p.p. Operational Expenses (Income) (26.1)% (22.1)% (4.0) p.p. (30.2)% 4.1 p.p (27.8)% (22.5)% (5.3) p.p. Selling Expenses (11.1)% (11.4)% 0.3 p.p (12.4)% 1.3 p.p (12.3)% (11.4)% (1.0) p.p. Personnel Expenses (6.5)% (5.2)% (1.2) p.p. (9.8)% 3.3 p.p (7.9)% (4.8)% (3.0) p.p. General and Administrative (8.0)% (6.3)% (1.7) p.p. (6.7)% (1.2) p.p. (6.8)% (6.9)% 0.1 p.p Other Operating Income (Expenses) (0.5)% 1.0% (1.6) p.p. (1.3)% 0.7 p.p (0.6)% 0.8% (1.5) p.p. Goodwill Amortization (0.1)% (0.2)% 0.1 p.p (0.1)% 0.0 p.p (0.1)% (0.2)% 0.1 p.p Non-Recurring Expenses (3.5)% (0.04) 0.5 p.p (7.5)% 4.0 p.p (4.6)% (4.0)% (0.7) p.p. Recurring Net Operational Income 7.7% 7.3% 0.4 p.p (7.3)% 15.0 p.p 5.8% 15.5% (9.8) p.p. Kroton s main operating expense lines, comprising selling expenses, personnel expenses, and general and administrative expenses, totaled R$41.4 million in 3Q10. It is important to note the decrease in the line Personnel Expenses to R$10.2 million, from R$15.3 million in 2Q10. As expected, the Company booked non-recurring operating expenses due to the integration process and implementation of the new academic model, amounting in 3Q10 to R$5.6 million (for details, see page 3). 14

15 BREAKDOWN OF OPERATING EXPENSES 3Q10 Goodwill Other Expenses Amortization 2% 1% General and Administrative 30% Selling Expenses 42% Personnel Expenses 25% Selling Expenses Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Sales Team (1,594) (794) 100.8% (1,766) (9.7)% (5,353) (2,168) 146.9% Marketing and Copyright (8,037) (3,416) 135.3% (6,254) 28.5% (23,004) (15,093) 52.4% Provision for Doubtfull Account (PDA) (7,366) (2,823) 160.9% (8,287) (11.1)% (22,846) (9,116) 150.6% PDA Primary and Secundary Education (163) (191) (14.7)% (169) (3.6)% (715) (887) (19.4)% PDA Post-Secundary Education (7,203) (2,632) 173.7% (8,118) (11.3)% (22,131) (8,229) 168.9% Other (521) (1,959) (73.4)% (3,049) (82.9)% (5,505) (4,556) 20.8% Selling Expenses Total (17,518) (8,992) 94.8% (19,356) (9.5)% (56,708) (30,933) 83.3% Selling expenses consist of marketing, copyright and provision for doubtful accounts (PDA). Other comprises mainly travel and third-party services. Selling expenses totaled R$17.5 million in 3Q10. The ratio of these expenses to adjusted net revenue fell 0.3 p.p. compared with 3Q09 and 1.3 p.p. compared with 2Q10. PDA amounted to R$7.4 million, down 11.1% compared with 2Q10, due to a decrease in delinquency among post-secondary students at the turn of the semester and the positive impact of the new student loan program (FIES). In proportion to adjusted net revenue, PDA in the post-secondary segment fell from 6.2% to 5.3% during the same period. 25,0 PDA / NET REVENUE (%) (R$ million) 5.3% ,0 20,0 4.7% 5.0% 5,0 15,0 3.6% 4,0 10, ,0 2,0 5,0 0, Q09 2Q10 3Q10 9M10 1,0 0,0 Primary and Secondary Education Post-Secondary Education PDA / % Adjusted Net Revenue 15

16 Personnel Expenses Part of the enhancements implemented by the Company refer to administrative workforce optimization. As a result, the ratio of personnel expenses to net revenue fell 3.3 p.p. to 6.5% in 3Q10, from 9.8% in 2Q10. In absolute terms, these expenses totaled R$10.2 million in 3Q10, down from R$15.3 million in 2Q10. General & Administrative Expenses Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Travel and Rent (1,881) (1,388) 35.5% (1,153) 63.1% (5,129) (4,521) 13.4% Third-Parties and Consuntants Services (6,448) (1,213) 431.6% (5,713) 12.9% (16,188) (7,497) 115.9% Others (4,271) (2,372) 80.1% (3,691) 15.7% (10,620) (6,834) 55.4% General and Administrative Expenses (12,600) (4,973) 153.4% (10,557) 19.4% (31,356) (18,852) 66.3% General and administrative expenses, comprising mainly travel, rent, third-party services and consulting, totaled R$12.6 million in 3Q10, for an increase of 19.4% compared with the previous quarter. Goodwill Amortization Goodwill amortization was suspended on January 1, 2009, in compliance with Federal Law 11,638/07. All goodwill assets are now evaluated annually based on impairment testing. The only goodwill asset that continues to be amortized is part of the acquisition of Sociedade Unificada de Ensino e Cultura (SUESC) allocated as asset surplus value, which corresponded to R$0.2 million in 3Q10. Following corporate restructuring and the issuance of new shares in the Company in September, as well as disbursement of the deferred payment in November, the acquisition of IUNI was concluded and goodwill of R$357.5 million was recognized. This goodwill will be allocated based on the fair market valuation of assets and liabilities in compliance with the new Brazilian GAAP, especially CPC 15 - Business Combinations. ACCOUNTS RECEIVABLE TURNOVER Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% Accounts Receivables 128,987 92, % 142,059 (9.2)% Primary and Secondary Education 27,713 22, % 46,441 (40.3)% Post-Secondary Education 90,857 70, % 95,618 (5.0)% Balance FIES 10, Accounts Receivables Turnover (days) Primary and Secondary Education (days) % 107 (32.7)% Post-Secondary Education (days) (38.9)% 65 (7.6)% With the implementation of new credit and debt collection policies, as well as the advent of the new FIES, the performance of the accounts receivable portfolio improved, especially in the post-secondary segment. Accounts receivable turnover in this segment averaged 60 days in 3Q10, down 39 days compared with 3Q09 and 5 days compared with 2Q10. 16

17 RECURRING EBITDA & RECURRING EBITDA MARGIN Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Net Income (Loss) (8,677) 8,962 n.a. (23,937) (63.8)% (13,793) 40,088 n.a. (+) Income Tax and Social Contribuition 2, % (2,277) (194.6)% 6,973 8,516 (18.1)% (+) Financial Results without Discounts and Interest on Tuition 1,978 (7,126) n.a. 3,037 (34.9)% 922 (9,297) n.a. (+) Goodwill Amortization % 155 (0.2)% (0.1)% (+) Provision for divestment % 2, % 2, % (+) Depreciation and Amortization 6,657 4, % 7,587 (12.3)% 19,214 11, % EBITDA 2,266 6,826 n.a. (13,045) (117.4)% 16,171 51,006 (68.3)% (-) Non-Recurring Costs and Expenses 16,726 3, % 11, % 32,489 3,143 n.a. Recurring EBITDA 18,992 9, % (1,322) n.a. 48,660 54,149 (10.1)% Recurring EBITDA Margin 12.0% 12.6% (0.6) p.p. (0.8)% 12.8 p.p 10.6% 19.9% (9.3) p.p. Kroton s recurring EBITDA in 3Q10 totaled R$19.0 million (margin of 12.0%), adjusted for the elimination of non-recurring costs and expenses relating to the integration process and the new academic model. Thanks to integration and restructuring, the Company succeeded in reversing 2Q10 EBITDA despite the fact that the old cost and expense structure was still in place in July, so that the actions in question began having an effective impact only in August The Company s performance in August and September shows that it is already approaching the expect run rate for its operations. Excluding also greenfield and start-up costs and expenses (Barreiro, Poços de Caldas, Votorantim, Governador Valadares, Feira de Santana, Marabá and Maceió) amounting to R$3.2 million in 3Q10 and R$9.4 million pro forma in 9M10, Kroton s adjusted EBITDA would be R$22,2 million (14.0% margin) in 3Q10 and R$69,1 million (13.7% margin) in 9M10. Values in R$ ('000) 3Q10 2Q10 9M10 EBITDA 2,266 (13,045) 27,124 (-) Non-Recurring Costs and Expenses 16,726 11,723 32,489 (-) Costs and Expenses of Start-Ups and 3,224 3,674 9,437 Adjusted EBITDA 22,216 2,352 69,050 Adjusted EBITDA Margin 14.0% 1.5% 13.7% ADJUSTED FINANCIAL RESULT Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Adjusted Financial Result (1,978) 7,126 n.a. (3,037) (34.9)% (922) 9,297 n.a. Adjusted Financial Revenue 2,690 8,249 (67.4)% 2, % 12,762 13,941 (8.5)% Interest Gain on Financial Investments 455 7,865 (94.2)% 1,515 (70.0)% 8,849 12,871 (31.2)% Others 2, n.a % 3,913 1, % Adjusted Financial Expenses (4,668) (1,123) 315.7% (5,307) (12.0)% (13,684) (4,644) 194.7% Bank Expenses (450) (12) n.a. (1,415) (68.2)% (2,361) (611) 286.4% Interest on Loans (248) (383) (35.2)% (676) (63.3)% (3,007) (1,221) 146.3% Interest and Tax on Late Payment (1,644) (78) n.a. (1,552) 5.9% (3,497) (334) n.a. Monetary Revaluation on Certain Liabilities (231) (461) (49.9)% (345) (33.0)% (935) (1,789) (47.7)% Others (2,095) (189) n.a. (1,319) 58.8% (3,884) (689) n.a. Kroton s financial result was minus R$2.0 million in 3Q10. This amount was adjusted for reclassification of conditional discounts booked as financial expenses and allocated to deductions from gross revenue in the post-secondary education segment. 17

18 Financial revenue fell 67.4% year-over-year in 3Q10, because cash invested at the time was used in the acquisition of IUNI and for repayment of bank loans. INCOME TAX & SOCIAL CONTRIBUTION Income tax and social contribution amounted in 3Q10 to R$2.1 million. The actual tax liability for the period was negative R$2.4 million, offset by a deferred tax credit of R$0.3 million. Post-secondary operations are not taxed because of ProUni. Income tax is paid at a rate of 34% in the primary and secondary education segment. ADJUSTED NET INCOME & ADJUSTED NET MARGIN Values in R$ ('000) 3Q10 3Q09 Chg% 2Q10 Chg% 9M10 9M09 Chg% Net Income(Loss) (8,677) 8,962 n.a. (23,937) (63.8)% (13,793) 40,088 n.a. (+) Deferred Income Tax and Social Contribution (261) (267) (2.2)% 239 (209.1)% 826 1,168 (29.3)% (+) Goodwill Amortization % 155 (0.2)% (0.1)% (+) Non-Recurring Costs and Expenses 16,726 3, % 11, % 32,489 3,143 n.a. Adjusted Net Income (Loss) 7,943 11,993 (33.8)% (11,820) (167.2)% 19,987 44,865 (55.4)% Adjusted Net Margin 5.0% 15.2% (10.2) p.p. (7.5)% 12.6 p.p 4.4% 16.5% (12.1) p.p. Net income adjusted according to the table above was R$7.9 million in 3Q10, for a 5.0% margin, reversing the loss in 2Q10. A year-over-year comparison also reflects the impact of the R$2.0 million negative financial result in 3Q10, in contrast with the R$7.1 million positive result in 3Q09, period in which the Company was holding a relevant cash position regarding the capital increase operation occurred at that time. Kroton s adjusted net income totaled R$ 20.0 million in the first nine months of CASH & CAPITALIZATION Values in R$ ('000) 3Q10 2Q10 Chg% Cash and Banks 40,964 56,000 (26.9)% Loans and Financing 24,779 21, % Short-term Debt 7,872 8,118 (3.0)% Long-term Debt 16,907 13, % Shareholder s Equity 779, ,401 (1.0)% Total Capitalization 804, ,790 (0.5)% Net Cash 16,185 34,611 (53.2)% Cash and banks totaled R$41.0 million at end-september The Company maintains a low level of debt, which stood at R$24.8 million in 3Q10, with shortterm debt accounting for R$7.8 million and long-term debt for R$16.9 million. Kroton s net cash balance for the quarter was R$16.2 million. 18

19 CASH FLOW & INVESTMENTS The Company continues to manage capex strictly in line with the approved budget. New investments are highly selective, taking into account the prospect of real returns based on a comprehensive and painstaking analysis of all the variables involved. Kroton invested R$10.0 million in 3Q10 (6.3% of adjusted net revenue). Broke down of CAPEX is as follows: (i) Computer equipment and library: R$3.6 million (ii) Systems development and software licenses: R$1.4 million (iii) Laboratory and similar equipment: R$1.8 million (iv) Expansion of physical facilities construction and improvements: R$3.2 million. In addition, the Company adopts a strict policy on the opening of new classes in higher education. All courses are evaluated from a financial and economic standpoint, taking into account the full program cycle, natural dropout, and additional expenses required in any program s last few years. EVOLUTION OF CASH POSITION (R$ million) 14.9 (16.7) 56.0 (6.8) (10.0) (57.0) Cash Position on 06/30/2010 Cash Generated from Operations excluding non-recurring Non-Recurring Costs and Expenses Acquisitions / Sales of Investments CAPEX Cash Flow from Financing Activities Cash Position on 09/30/

20 CAPITAL MARKETS CAPITAL INCREASE & NEW OWNERSHIP STRUCTURE A Shareholders General Meeting held on September 24, 2010, approved an increase of R$52,810, in share capital from R$821,020, to R$873,830,615.50, via the issuance of 4.2 million new common shares and 25.2 million preferred shares, all of which are registered shares with no par value. The reason for the capital increase was the acquisition of IUNI Educacional, approved by the Board of Directors on March 12, This transaction included an agreement that Kroton would privately issue new shares and that Altamiro Galindo, the founder of IUNI Educacional, would receive the new common and preferred shares thus issued, which correspond to 6.31% of the Company s total equity. Following the issue described above, Kroton s share capital now comprises 466,239,622 shares, of which 234,113,715 are common shares and 232,125,907 are preferred shares. Free float is 44.9%, equivalent to 29,894,017 units. PERFORMANCE OF UNITS Kroton s units (KROT11) have been listed on Level 2 of the São Paulo Stock Exchange (BM&FBOVESPA) since July Kroton is part of the Exchange s Special Corporate Governance Stock Index (IGC) and Special Tag-Along Stock Index (ITAG). The units traded in all sessions during 3Q10. The number of trades was 9,758 and trading volume in the period totaled R$138.9 million, for an average daily trading volume of R$2.1 million. On September 30, 2010, the price was quoted at R$14.99 per unit, giving Kroton a market capitalization of R$998.4 million. KROT11 gained 12.3% in 3Q10, compared with gains of 13.9% for the Ibovespa Index, 18.7% for the IGC, and 20.2% for the ITAG in the same period. KROT11 is currently covered by 10 different local and international research analysts. Highlights 2Q10 Ticker KROT11 Corporate Governance Level Nível 2 Total Number of theorical Units Free-Float 44,9% Market Capitalization R$ milion Average Daily Trade Volume (quarter average) R$ 2.1 million Maximum (R$ per unit) R$ Minimun (R$ per unit) R$ Average (R$ por unit) R$ Closing Quote on 09/30/2010 R$

21 SHARE BUYBACK A meeting of the Board of Directors held on May 11, 2010, approved a Second Share Buyback Program authorizing the repurchase of up to 1 million (1,000,000) units, equivalent to 3.9% of the free float in units, to be held in treasury for later sale or cancellation. Under the second program, 293,800 units had been repurchased by September 30, 2010, equivalent to 29.4% of the approved total, for an average of R$14.06 per unit. No shares were repurchased in 3Q10. ABOUT KROTON EDUCACIONAL Kroton is one of the largest private educational organizations in Brazil. It has operated in the primary and secondary education segment for over 40 years and in the post-secondary education segment since Kroton conducts its business on an integrated and diversified basis, operating its own schools and colleges as well as providing education services, teaching technologies and classroom materials to a network of more than 720 associated primary and secondary schools. In the post-secondary and higher education segment, Kroton operates 39 campuses. DISCLAIMER This document contains forward-looking statements and information. Such forward-looking statements and information are merely forecasts and not guarantees of future performance. All stakeholders are advised that such forward-looking statements and information involve risks, uncertainties and factors relating to the operations and business environments of Kroton and its subsidiaries and affiliates, and that the actual results of the companies concerned could differ materially from the future results anticipated explicitly or implicitly by such forwardlooking statements and information. 21

22 ATTACHMENT 1 BALANCE SHEET 09/30/10 % Net Rev. 06/30/10 % Net Rev. Chg% (In thousand reais, except otherwise indicated) Current Assets 189, % 222, % (15.0)% Cash and Banks 40, % 56, % (26.8)% Accounts Receivable 105, % 121, % (12.7)% Inventories 9, % 10, % (12.4)% Deferred Taxes 18, % 11, % 66.0% Advances to Suppliers % 1, % (42.9)% Other Accounts Receivable 14, % 22, % (37.9)% Non-current 895, % 833, % 7.4% Non-current Assets 64, % 57, % 11.7% Accounts Receivables 23, % 20, % 11.3% Deferred Taxes 8, % 5, % 61.5% Subsidiaries Credit 0 0.0% % n.a. Other 32, % 31, % 4.3% Investments 1, % 1, % 0.0% Fixed Assets 216, % 212, % 2.2% Intangible 610, % 560, % 9.0% Deferred 2, % 2, % (4.6)% Total Assets 1,084, % 1,056, % 2.7% Liabilities and Shareholders' Equity Current 143, % 156, % (8.3)% Account Payable 18, % 18, % 3.8% Loans and Financing 7, % 8, % (3.0)% Payments and Social Charges 51, % 47, % 6.6% Income and Social Contribution Taxes 5, % 7, % (18.7)% Tax and Contribuitons Collectable 8, % 10, % (13.7)% Advances from Customers 8, % 18, % (55.6)% Other 42, % 46, % (7.9)% Non-current Liabilities 108, % 112, % (3.2)% Loans and Financing 16, % 13, % 27.4% Deferred Taxes % % 16.7% Other 90, % 98, % (7.5)% Minority Interest % % (7.7)% Shareholder s Equity 832, % 787, % 5.7% Capital 873, % 821, % 6.4% Capital Reserve 17, % 16, % 5.7% Treasury Stocks (25,599) (2.4)% (25,599) (2.4)% (0.0)% Profit (Loss) Earnings (33,265) (3.1)% (24,589) (2.3)% 35.3% Total Liabilities and Shareholders' Equity 1,084, % 1,056, % 2.7% 22

23 ATTACHMENT 2 3Q10 INCOME STATEMENT RECONCILIATION Adjustments 3Q10 Results (Accounting) Interest and Penalties on Tuition Conditional Discounts Non-recurring Costs and Expenses 3Q10 Results (Earning Release) (In thousand reais, except otherwise indicated) Gross Revenue 180, ,651 Primary and Secondary Education 24, ,600 Post-Secondary Education 156,396 4, ,051 Deductions (21,690) (27,427) Primary and Secondary Education (1,814) (1,814) Post-Secondary Education (19,876) - (5,737) - (25,613) Net Revenue 159, ,224 Primary and Secondary Education 22, ,786 Post-secondary Education 136, ,438 Costs of Products/Services (115,819) (104,681) Cost of Products Sold (5,031) - - 1,381 (3,650) Cost of Services (110,788) - - 9,757 (101,031) Gross Profit 43, ,543 Operating Income (Expenses) (46,949) (41,361) Selling Expenses (10,152) (10,152) Provision for Doubtful Accounts (7,366) (7,366) Personnel Expenses (11,624) - - 1,395 (10,229) General and Administrative Expenses (16,793) - - 4,193 (12,600) Management Remuneration Other Operating Income (Expenses) (859) (859) Goodwill Amortization (155) (155) Income (Loss) from Operations before Interests and Financial Results (3,462) ,182 Financial Results (3,060) (1,978) Financial Expenses (10,405) - 5,737 - (4,668) Financial Revenues 7,345 (4,655) - - 2,690 Income (Loss) from Operations (6,522) ,204 Income and social contribuition tax (2,153) (2,153) Current (2,414) (2,414) Deferred Minority Interests (2) (2) Net Income for the Period (8,677) ,049 #REF! 0 23

24 ATTACHMENT 3 QUARTERLY INCOME STATEMENT 3Q10 % Net Rev. 3Q09 % Net Rev. 3Q10 /3Q09 2Q10 % Net Rev. 3Q10 /2Q10 Gross Revenue 180, % 93, % 94.6% 187, % -3.3% Primary and Secondary Education 24, % 16, % 47.6% 27, % (10.8)% Post-Secondary Education 156, % 76, % 104.8% 159, % (1.9)% Deductions (21,690) (13.6)% (11,706) (14.4)% 85.3% (21,878) (13.2)% (0.9)% Primary and Secondary Education (1,814) (1.1)% (2,261) (2.8)% (19.8)% (2,679) (1.6)% (32.3)% Post-Secondary Education (19,876) (12.5)% (9,445) (11.6)% 110.4% (19,199) (11.6)% 3.5% Net Revenue 159, % 81, % 95.9% 165, % (3.6)% Primary and Secondary Education 22, % 14, % 58.1% 24, % (8.5)% Post-Secondary Education 136, % 66, % 104.0% 140, % (2.7)% Costs of Products/Services (115,819) (72.7)% (55,656) (68.4)% 108.1% (120,702) (73.1)% (4.0)% Cost of Products Sold (5,031) (3.2)% (2,023) (2.5)% 148.7% (4,105) (2.5)% 22.6% Cost of Services (110,788) (69.5)% (53,633) (66.0)% 106.6% (116,598) (70.6)% (5.0)% Gross Profit 43, % 25, % 69.4% 44, % (2.3)% Operating Income (Expenses) (46,949) (29.5)% (20,584) (25.3)% 128.1% (59,095) (35.8)% (20.6)% Selling Expenses (10,152) (6.4)% (7,981) (9.8)% 27.2% (11,069) (6.7)% (8.3)% Provision for Doubtful Accounts (7,366) (4.6)% (2,823) (3.5)% 160.9% (8,287) (5.0)% (11.1)% Personnel Expenses (11,624) (7.3)% (4,291) (5.3)% 170.9% (19,793) (12.0)% (41.3)% General and Administrative Expenses (16,793) (10.5)% (6,363) (7.8)% 163.9% (17,829) (10.8)% (5.8)% Other Operating Income (Expenses) (859) (0.5)% 1, % n.a. (1,962) (1.2)% (56.2)% Goodwill Amortization (155) (0.1)% (155) (0.2)% 0.0% (155) (0.1)% (0.2)% Income (Loss) from Operations before Interests and Financial Results (In thousand reais, except otherwise indicated) (3,462) (2.2)% 5, % (168.1)% (14,593) (8.8)% (76.3)% Financial Results (3,060) (1.9)% 4, % n.a. (11,617) (7.0)% (73.7)% Financial Expenses (10,405) (6.5)% (4,229) (5.2)% 146.0% (16,168) (9.8)% (35.6)% Financial Revenues 7, % 8, % (17.1)% 4, % 61.4% Income (Loss) from Operations (6,522) (4.1)% 9, % (167.1)% (26,209) (15.9)% (75.1)% Income Tax and Social Contribuition (2,153) (1.4)% (762) (0.9)% 182.5% 2, % n.a. Current (2,414) (1.5)% (1,029) (1.3)% 134.6% 2, % n.a. Deferred % % (2.2)% (239) (0.1)% n.a. Minority Interest (2) (0.0)% 9 0.0% n.a. (4) (0.0)% (54.5)% Net Income (Loss) for the Period (8,677) (5.4)% 8, % n.a. (23,937) (14.5)% (63.8)% 24