The consolidated financial statements of the Company for the years ended December 31, 2009 and 2008 were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The Company has adopted IFRS for the first time in its consolidated financial statements for the year ended December 31, 2009, which include comparative financial statements for December 31, 2008, and, for the consolidated balance sheet, January 1^st, 2008, the date of transition to IFRS. IFRS 1 (first-time adoption of International Reporting Standards) requires an entity to develop accounting policies based on standards and related interpretations of the IASB in effect on the date of publication of its first consolidated financial statements under IFRS (i.e. December 31, 2009). IFRS 1 also requires these policies to be applied on the date of transition to IFRS, and for all periods shown in the first financial statements under IFRS.

The Note Transition to IFRS details the main effects of the transition to IFRS and the main differences in relation to the accounting practices adopted in Brazil for the consolidated balance sheets of the Company as at January 1^st, 2008 and December 31, 2008 and for the consolidated statement of operations for the year ended December 31, 2008.

Compiling consolidated financial statements pursuant to IFRS rules requires the use of certain estimates made by the Company’s management. Issues involving the use of judgment or estimates that are material for the consolidated financial statements are shown in Note 2.17. The consolidated financial statements were compiled using the historical cost basis, except for the valuation of certain items such as derivative financial instruments.

The Company has adopted all standards, revised standards and interpretations issued by the IASB that were in effect on December 31, 2009.

The Company’s management authorized the issuance of the financial statements on February 9, 2010.

The consolidated financial statements include the statements of Net Serviços de Comunicação S.A. and the companies in which the Company holds a direct or indirect majority interest, as detailed on Note 1. All reporting periods are consistent with those of the parent company and accounting policies are uniformly adopted across the group.

Subsidiaries are consolidated as of their acquisition date, which is the date on which the Company obtained control, and continue to be consolidated until the date such control ceases.

The consolidation process entails the line by line consolidation of assets, liabilities, income and expenses, and the elimination of the following:

• Parent company interest in share capital, reserves and retained earnings of subsidiary companies;
• Assets and liabilities resulting from transactions among group companies; and
• Revenues and expenses arising from transactions conducted among group companies.


The Company and its subsidiaries are located in and have their entire operations in Brazil.

Consolidated financial statements are shown in Brazilian reais (R$), which is the functional and presentation currency of Net Serviços de Comunicação S.A. and all consolidated subsidiaries.

Transactions in foreign currencies are converted to the functional currency using the exchange rate on the transaction date. Assets and liabilities denominated in foreign currencies are translated to the functional currency, at year-end using the year-end exchange rate, and the resulting gains or losses are recognized in the income statement.


Revenues include subscribers’ monthly fees, connection fees, pay-per-view, high-speed data and telephone services. Revenues are recorded when services are provided. Connection fees and direct selling expenses listed are deferred and amortized over the average estimated period subscribers are likely to remain connected to the system.

Deferred revenue relates to prepayment of the rights to use the Net fiber optic cable network to provide Net Fone services and rental revenue is released to income over the contractual period. Revenues with special projects are recognized based on the term of the related project.


The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase as cash equivalents.


Trade accounts receivable are recorded at estimated net realizable value and are noninterests bearing. The allowance for doubtful accounts is established on the basis of the subscriber’s history of default, and its amount is deemed sufficient to cover losses in the realization of accounts receivable. The average term for receipt from subscribers is approximately 30 days and any outstanding receivable older than 180 days is written off. The allowance for doubtful accounts is comprised of account balances which are 90 to180 days in arrears.


Inventories are stated at the lower of net realizable value (estimated selling price in the ordinary course of business less estimated selling costs) and average cost. Provisions for slow moving or obsolete inventory items are made as necessary.


Property and equipment is stated at historical cost net of depreciation, and impairment losses, if applicable. The cable network includes capitalized amounts related to personnel costs and other expenses incurred for the construction of the network during the prematurity phase and construction period.

Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The residual values and estimated useful lives of assets are reviewed and adjusted, if necessary, on an annual basis.

Subsequent costs are capitalized if the economic benefits associated with these items are probable and the amounts are reliably measured. The net book value of any replaced item is charged to expense. Repairs and maintenance expenditures are expensed as incurred.


Intangible assets are assessed as having finite or indefinite estimated useful lives. The cost of intangible assets acquired in a business combination is the fair value on the date of acquisition. Intangible assets that have finite useful lives are amortized over their estimated useful lives. Intangible assets with indefinite useful lives are not amortized, but are evaluated for impairment on an annual basis. The indefinite life status is reviewed annually. If it is determined that the use of an indefinite useful life is not appropriate, the impact of the change from indefinite to finite useful life is recorded prospectively.

The estimated useful lives of intangible assets with finite useful lives are reviewed at the end of each reporting period. The amortization expense of intangible assets with finite lives is recognized in the income statement in the expense category consistent with the function of the intangible asset.

Direct internal software development expenses are capitalized while expenses such as research, personnel training, advertising and other items not directly attributed to developing the asset are expensed as incurred.


In accordance with IAS 36, the Company considers the impairment of assets, including property and equipment and intangible assets. At each financial statement date, the Company assesses whether there are any indicators of impairment. If such indicators are identified, the Company estimates the recoverable value of the asset. The recoverable value of an asset is the greater of: (a) fair value less costs that would be incurred to sell it, and (b) its value in use. Value in use is the discounted cash flow (before taxes) arising from the continuous use of the asset to the end of its useful life.

Irrespective of the presence of indicators of impairment, goodwill and intangible assets with indefinite useful lives are tested for recovery at least once a year.

When the net book value of an asset exceeds its recoverable value, the impairment loss is recognized as an operating expense in the in income statement.


Business combinations are recognized using the acquisition method. The cost of the acquisition is the fair value of assets and equity instruments paid and liabilities assumed on the date of exchange. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at fair value on the acquisition date.

Goodwill represents the excess of acquisition cost over the fair value of net assets acquired and liabilities assumed at the acquisition date. If the cost of acquisition is less than the fair value of net assets acquired, the difference is recognized directly in the income statement.


The statutory rates applicable for federal income taxes and social contribution are 15% plus an additional 10% over R$240 for income tax and 9% for social contribution. Income taxes and social contribution are recognized on the accrual basis.

Deferred taxes are provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The amount of deferred income tax assets is reviewed at each reporting date and reduced by any amount that is no longer recoverable through future estimated taxable income. Deferred tax assets and liabilities are calculated using the tax rates applicable to taxable income in years in which these temporary differences should be realized based on tax rates that have been enacted at the reporting date.


Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reasonable estimate can be made of the amount of this obligation. If the effect of the time value of money is material, provisions are discounted using the discount rate that reflects specific risks for the liability when appropriate. When discounted, the increase in the provision due to the passage of time is recognized as a finance expense.


Financial instruments are initially recorded at fair value plus transaction costs directly attributable to their acquisition or issue. Their subsequent measurement takes place on each balance sheet date pursuant to rules for each class of assets: (i) financial assets and liabilities measured at fair value through profit or loss, (ii) held to maturity, (iii) loans and receivables and (iv) available-for-sale.

The Company uses derivative financial instruments, primarily future foreign exchange contracts, to hedge its exchange rate exposure. Derivative financial instruments are remeasured at their fair value on each reporting date. Derivatives are accounted for as financial assets when their fair value shows a gain or as financial liabilities when their fair value shows a loss. The Company elected not to apply hedge accounting as defined in IAS39.

Loans and borrowings are initially recorded at fair value, net of transaction costs incurred and subsequently measured at amortized cost using the effective interest rate method.


Leases for which significant portions of risks and property rights are retained by the Company are classified as operating leases. Payments made on operating lease contracts are recorded in the income statement on a straight line basis for the duration of contracts.


Operating segments are defined as components of an enterprise for which separate financial information is available and is evaluated on a regular basis by the chief operating decision maker, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. Since all decisions are made on the basis of consolidated reports, all services are provided using the same cable network, there are no managers responsible for any specific element of the business, and all decisions relating to strategic planning, finance, purchasing, investment and liquidity application are made on a consolidated basis, the Company has concluded it has a single reportable segment.


The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors believed to be reasonable under the circumstances. Actual results could differ from these estimates. These underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities, within the next financial year, are discussed below.

a)	Deferred income taxes The amount of deferred income tax assets is reviewed at each reporting date and reduced by the amount that is no longer recoverable through estimates of future taxable income. Amounts reported involve considerable exercise of judgment by management and future taxable income may be higher or lower than the estimates considered when valuing a deferred tax asset. Valuation allowances are established when management determines it is more likely than not that deferred tax assets will not be realized.
b)	Valuation of assets acquired and liabilities assumed in business combinations In recent years, as described in Note 4, the Company entered into certain business combinations. Under IFRS 3, the Company must allocate the cost of the acquired entity to the assets acquired and liabilities assumed based on their estimated fair values on acquisition date. Any excess of the cost of the acquired entity over the fair value of assets acquired and liabilities assumed is recorded as goodwill. The Company exercises significant judgment in identifying tangible and intangible assets and liabilities, valuing such assets and liabilities and determining their remaining useful lives. Management generally engages third party valuation consultants to assist in valuing the assets and liabilities. The valuation assumptions include estimates of discounted cash flow and discount rates. Use of alternative assumptions would result in different estimates of the value of assets acquired and liabilities assumed.
c)	Test of impairment of non-financial assets Goodwill and indefinite-lived intangible assets are tested for impairment annually and at other times when indicators of impairment exist. Recoverable amounts are determined based on value-in-use calculations, using discounted cash flow assumptions established by management. These calculations require the use of estimates and use of alternative assumptions would result in different estimates of the value of assets acquired and liabilities assumed. See Note 16.
d)	Provisions The Company records provisions that involve considerable exercise of judgment by management in estimating tax contingencies and civil liability and labor claims that may be liable for payment in future years, as a result of tax inspections by tax authorities. The Company is also subject to various claims, legal, civil and labor proceedings covering a wide range of issues that arise from the ordinary course of business. The Company records these liabilities when it determines, based on the opinion of its legal advisors, that losses are probable and can be reasonably estimated. Provisions are reviewed and adjusted to consider changes in circumstances such as the applicable limitation period, findings of tax inspections or additional exposures identified based on new issues or court rulings. Actual results may differ from estimates.

Certain new IASB accounting procedures and IFRIC interpretations have been published and/or reviewed and their adoption is optional or mandatory for the financial year starting January 1^st, 2010.

The IASB and the IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements.

Management of the Company does not currently anticipate that the adoption of these standards and interpretations will have a material impact on the Company’s financial statements in the period of initial application:

IAS	24 Disclosure Requirements for Government-Related Entities and Definition of a Related Party The revised version of IAS 24 simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. The revised standard addresses concerns that the previous disclosure requirements and definition of a related party were too complex and difficult to apply in practice, particularly in environments where government control is pervasive, by providing a partial exemption for government-related entities and a revised definition of a related party. This amendment was issued in November 2009 and is effective for financial years beginning on or after January 1st, 2011. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IAS	27 Consolidated and Separate Financial Statements (revised) In January 2008, the IASB issued an amended version of IAS 27 Consolidated and Separate Financial Statements. This requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. Such transactions will no longer result in goodwill or gains or losses. When control is lost, any remaining interest in the entity is remeasured to fair value and a gain or loss recognized. The amendment is effective for annual periods beginning on or after July1st, 2009 and is to be applied retrospectively, with certain exceptions. The Company plans to adopt the new requirement with effect from January1st, 2010 and does not expect it will have an impact on the consolidated financial statements.
IAS	32 Classification of Rights Issues In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues. For rights issues offered for a fixed amount of foreign currency, current practice requires such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to all of an entity’s existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment is effective for financial years beginning on or after February 1st, 2010. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IAS	39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items This amendment was issued in July 2008 and is effective for financial years beginning on or after July 1st, 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The Company plans to adopt the new requirement with effect from January 1st, 2010 and does not expect it will have an impact on the consolidated financial statements.
IFRS	2 Share-based Payment: Group Cash-settled Share-based Payment Transactions In June 2009, the IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. This amendment is effective for financial years beginning on or after January 1st, 2010. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IFRS	1 Additional Exemptions for First-Time Adopters The amendments to IFRS 1 address the retrospective application of IFRSs to particular situations and are aimed at ensuring that entities applying IFRSs will not face undue cost or effort in the transition process. The amendments exempt entities using the full cost method from retrospective application of IFRSs for oil and gas assets and exempt entities with existing lease contracts from reassessing the classification of those contracts in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease, when the application of their national accounting requirements produced the same result. This amendment was issued in July 2009 and is effective for financial years beginning on or after January 1st, 2010. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IFRS	3 Business Combinations (revised) In January 2008, the IASB issued a revised version of IFRS 3 Business Combinations’. The revised standard still requires the purchase method of accounting to be applied to business combinations but will introduce some changes to existing accounting treatment. For example, contingent consideration is measured at fair value at the date of acquisition and subsequently remeasured to fair value with changes recognized in profit or loss. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the minority interest. All transaction costs are expensed. The standard is applicable to business combinations occurring in accounting periods beginning on or after July 1st, 2009 and the Company to adopt it with effect from January 1st, 2010. The Company has not yet completed its evaluation of the effect of adopting this interpretation.
IFRS	9 Financial Instruments – Classification and Measurement IFRS 9 Financial Instruments completes the first part of the project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 uses a simple approach to determine whether a financial asset is measured at amortized cost or fair value. The new approach is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The standard also requires a single impairment method to be used. This standard is effective for financial years beginning on or after January 1st, 2013. The Company has not yet completed its evaluation of the effect of adopting this interpretation.
IFRIC	14 Prepayments of a Minimum Funding Requirement This amendment is to remedy an unintended consequence of IFRIC 14. The amendment applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset. This amendment is effective for financial years beginning on or after January 1st, 2011. This amendment will not have an impact on the Company’s consolidated financial statements.
IFRIC	17 Distributions of Non-cash Assets to Owners This interpretation is effective for annual periods beginning on or after July 1st, 2009 with early application permitted. It provides guidance on how to account for non-cash distributions to owners. The interpretation clarifies when to recognize a liability, how to measure it and the associated assets, and when to derecognize the asset and liability. The Company does not expect IFRIC 17 to have an impact on the consolidated financial statements as the Company has not made non-cash distributions to shareholders in the past. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IFRIC	18 Transfer of Assets from Customers IFRIC 18 was issued in January 2009 and is effective prospectively from July 1st, 2009. This interpretation clarifies the treatment of IFRS, particularly IAS 18 Revenue for agreements in which an entity receives an item of property, plant and equipment from a customer to connect to an ongoing supply of goods and services. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.
IFRIC	19 Extinguishing Financial Liabilities with Equity Instruments IFRIC 19 was issued in November 2009 and is effective prospectively from July 1st, 2010. This interpretation clarifies the requirements of International Financial Reporting Standards when an entity renegotiates the terms of a financial liability with its creditor, and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially. The Company believes that adoption of these new requirements will not impact its consolidated financial statements.

There are no other standards and interpretations in issue but not yet adopted that Management anticipate will have a material effect on the reported income or net assets of the Company