For all periods up to and including the year ended December 31, 2008, the Company prepared its financial statements in accordance with accounting practices adopted in Brazil, additional rules of the Brazilian Securities Commission (CVM), technical pronouncements of the Accounting Pronouncements Committee and provisions of the Law of Corporations (BRGAAP). Consolidated financial statements for the year ended December 31, 2009 are the first submitted by the Company in accordance with IFRS. The Company compiled its opening balance sheet for the transition date of January 1st, 2008. The reporting period for these financial statements is December 31, 2009.

In compiling its consolidated balance sheet at the transition date in accordance with IFRS 1, the Company has applied the mandatory exceptions and certain optional exemptions for the full retrospective application of IFRS.


The Company adopted the use of the following optional exemptions from full retrospective application:

a)  Business combinations: IFRS 3 Business Combinations has not been applied to acquisitions made before June 2007, the date of acquisition of Vivax Ltda. The acquisition of Vivax Ltda. and other business combinations following this date have been accounted for in accordance with IFRS 3.
b)  Financial instruments: the Company opted to classify and value its financial instruments under IAS 32 and IAS 39 on the IFRS transition date with no retrospective analyses performed. All financial instruments acquired after the transition date were analyzed and classified at the time of contracting the transactions.




         
  Note 3.2 BRGAAP Reclassification Adjustment IFRS
ASSETS        
Current        
   Cash and cash equivalents 569,606 - - 569,606
   Trade accounts receivable 132,328 - - 132,328
   Inventories 63,956 - - 63,956
   Receivables from related parties e 32,718 (24,905) - 7,813
   Deferred taxes e 73,108 (73,108) - -
   Recoverable taxes e 44,848 (43,962) - 886
   Prepaid expenses e 25,583 (3,510) - 22,073
   Other current assets 12,214 - - 12,214
   Total current assets 954,361 (145,485) - 808,876
         
Non-current        
   Judicial deposits e 23,326 147,735 - 171,061
   Deferred taxes e 391,066 173,951 140 565,157
   Recoverable taxes e 42,778 - - 42,778
   Prepaid expenses e 7,387 (5,563) - 1,824
   Other trade receivables e 1,990 4,298 - 6,288
   Investments a/e 1,830,052 (1,830,052) - -
   Property and equipment a/e 1,504,360 136,672 8,501 1,649,533
   Intangible assets a/e 42,494 2,029,553 8,584 2,080,631
   Deferred costs b 288,523 (288,523) - -
   Total non-current assets 4,131,976 368,071 17,225 4,517,272
                
Total assets 5,086,337 222,586 17,225 5,326,148

         
  Note 3.2 BRGAAP Reclassification Adjustment IFRS
LIABILITIES        
Current        
   Trade accounts payable 187,672 - - 187,672
   Accounts payable – Programming suppliers 121,595 - - 121,595
   Other fiscal obligations e 73,697 (6,614) - 67,083
   Payroll and related charges 97,087 - - 97,087
   Loans payable e 24,668 (3,510) - 21,158
   Related parties e 24,905 (24,905) - -
   Income taxes and social contribution e/d 38,568 (36,470) (877) 1,221
   Copyright payable (“ECAD”) e 29,619 50,495 - 80,114
   Other current liabilities e 13,753 14,612 - 28,365
Total current liabilities 611,564 (6,392) (877) 604,295
           
Non-current        
   Deferred income taxes and social contribution d - 151,914 - 151,914
   Loans Payable e 1,099,975 (5,563) - 1,094,412
   Provisions e 590,372 82,627 - 672,999
   Deferred revenues 41,520 - - 41,520
   Other non-current liabilities c 4,503 - 5,192 9,695
   Total non-current liabilities 1,736,370 228,978 5,192 1,970,540
           
Shareholders’ Equity        
   Capital stock 5,466,968 - - 5,466,968
   Capital reserves 285,520 - - 285,520
   Accumulated deficit (3,014,085) - 12,910 (3,001,175)
Total shareholders’ equity 2,738,403 - 12,910 2,751,313
                       
Total liabilities 5,086,337 222,586 17,225 5,326,148



       
    BRGAAP Adjustment IFRS
Net Sales 3,690,409 - 3,690,409
Cost of services rendered c (2,153,992) 538 (2,153,454)
Gross profit 1,536,417 538 1,536,955
       
Operating expenses      
Selling expenses (429,545) - (429,545)
General and administrative expenses (515,657) - (515,657)
Depreciation and amortization a (50,989) (38,322) (89,311)
Other net expenses c (15,558) (1,347) (16,905)
  (1,011,749) (39,669) (1,051,418)
       
Goodwill amortization (152,158) 152,158 -
  (152,158) 152,158 -
                
Operating profit 372,510 113,027 485,537
       
Financial results      
Financial expenses (432,462) - (432,462)
Interest Income 113,935 - 113,935
  (318,527) - (318,527)
Profit before taxes 53,983 113,027 167,010
       
Income taxes and social contribution d (148,989) 2,233 (146,756)
                
Profit (loss) for the year (95,006) 115,260 20,254

           
Note 3.2 BRGAAP Reclassification Adjustment IFRS
ASSETS
Current
   Cash and cash equivalents 736,880 - - 736,880
   Trade accounts receivable 166,105 - - 166,105
   Inventories 61,757 - - 61,757
   Receivables from related parties 17,356 - - 17,356
   Deferred taxes e 57,480 (57,480) - -
   Recoverable taxes e 100,357 (96,951) - 3,406
   Prepaid expenses 24,381 - - 24,381
   Other receivables 12,794 - - 12,794
   Total current assets 1,177,110 (154,431) - 1,022,679
           
Non-current
   Judicial deposits e 22,337 88,585 - 110,922
   Deferred taxes e 338,923 158,322 (373) 496,872
   Recoverable taxes 50,302 - - 50,302
   Prepaid expenses 865 - - 865
   Other trade receivables e 3,689 3,163 - 6,852
   Investments a/e 3,163 (3,163) - -
   Property and equipment a/e 2,280,421 (83,164) 40,424 2,237,681
   Intangible assets a/e 2,201,315 143,545 124,897 2,469,757
   Deferred costs b 8,430 (8,430) - -
   Total non-current assets 4,909,445 298,858 164,948 5,373,251
           
Total assets 6,086,555 144,427 164,948 6,395,930

           
    Note 3.2 BRGAAP Reclassification Adjustment IFRS
LIABILITIES                    
Current                    
   Trade accounts payable     298,351 31,412 - 329,763
   Accounts payable – Programming suppliers     148,419 - - 148,419
   Other fiscal obligations e 110,226 (18,393) - 91,833
   Payroll and related charges     160,673 - - 160,673
   Loans Payable     58,331 - - 58,331
   Income taxes and social contribution d 82,589 (78,558) - 4,031
   Copyright payable (“ECAD”) e 44,441 10,410 - 54,851
   Accounts payable – business acquisitions     58,491 - - 58,491
   Other accounts payable e 26,079 (14,397) - 11,682
   Total current liabilities     987,600 (69,526) - 918,074
                       
Non-current                    
   Deferred income taxes and social contribution d - 152,794 32,362 185,156
   Loans payable     1,701,485 - - 1,701,485
   Provisions e 634,776 61,159 - 695,935
   Deferred revenues     93,912 - - 93,912
   Other non-current liabilities c 25,385 - 4,416 29,801
   Total non-current liabilities     2,455,558 213,953 36,778 2,706,289
Shareholders’ equity                    
   Capital Stock     5,540,346 - - 5,540,346
   Capital Reserves     212,142 - - 212,142
   Accumulated deficit     (3,109,091) - 128,170 (2,980,921)
Total shareholders’ equity     2,643,397 - 128,170 2,771,567
                       
Total liabilities     6,086,555 144,427 164,948 6,395,930


Description of principal differences between BRGAAP and IFRS that affect the Company’s financial statements:

a)  Business combinations: Under IFRS3, the cost of a business combination must be measured at fair value on date of acquisition. On the acquisition date, the acquiring entity must allocate the acquisition cost (including direct costs of the transaction) and recognize identified assets acquired and liabilities assumed at fair value.

Under BRGAAP, goodwill is calculated as the difference between the purchase price and net equity of the acquired entity. The fair value approach is not used. Goodwill is generally attributed to higher value of assets (usually property and equipment), which is embedded in the value thereof, and is amortized over the remaining life of the asset, or future profitability. Goodwill is not amortized under IFRS.

The adjustment recorded primarily reflects the recognition of intangible assets in connection with the acquisition of Vivax, Net Jundiaí and the BigTv Companies that were not recognized under BRGAAP, and reversal of the amortization of goodwill recorded under BRGAAP.
b)  Deferred costs: Under IFRS, pre-operating expenses are not covered by the definition of an intangible asset and are expensed as incurred. Costs relating to an internally generated intangible asset are not capitalized unless they are development costs meeting the specific criteria in IAS 38.

Under BRGAAP, prior to 2008, pre-operating expenses were capitalized as deferred costs. Under CPC 13 on Initial Adoption of Law No. 11638/07 the Company elected to maintain the balances recognized as deferred assets until fully amortized, subject to impairment evaluation. As of January 1st, 2008, pre-operating expenses are no longer recognized as intangible assets under BRGAAP and expensed as incurred.
c)  Deferral of incentives received from programming suppliers: The Company receives revenues from programming content suppliers to compensate the Company for marketing activities focused on building the customer base. Under IFRS these amounts are deferred and amortized to income over the period of the related contracts. Under BRGAAP, these incentives were recognized as income when received.
d)  Income taxes and social contribution: Deferred income taxes have been recorded on temporary differences related to differences between BRGAAP and IFRS using the criteria set out in Note 2.12.
e)  Reclassifications: Under IFRS the following reclassifications to the consolidated financial statements are also required:

• Judicial deposits are included in non-current assets and not offset against the related provision;
• Transactions between related parties are presented on a net basis;
• Recoverable taxes and taxes payable are presented on a net basis;
• Borrowings are presented net of issuance costs incurred;
• Cost of residential installations and projects are reclassified from deferred costs to property and equipment;
• Cost of software is reclassified from property and equipment to intangible assets;
• Deferred income tax assets and liabilities are classified as long-term;
• Goodwill related to acquisitions is reclassified from investments to intangible assets;
• Deferred assets is reclassified to property and equipment; and
• Investments (others) is reclassified to others trade accounts receivables.