Gross Revenue

Anhanguera Educacional’s gross revenue consists of the following items:

Monthly tuitions: The Company derives most of its revenue from the monthly tuitions Anhanguera Educacional charges its students for the undergraduate, graduate and extension programs.

Fees, academic services, admission exams and others: Anhanguera Educacional derives the remaining portion of its revenue from fees charged for services provided to its students, such as document printing, academic recovery programs, make-up exams, grade review applications, transcript requests, academic material sales, admission exam fees, among others.

Main Taxes

The taxes assessed on its revenue are directly connected to the volume of its revenue. Since the Company joined the Prouni in 2005, Anhanguera Educacional is exempt from federal taxes (PIS and COFINS) assessed on its gross operating revenue from the monthly tuitions the Company charge for its undergraduate programs. As a result, the main tax assessed on its revenue is the Imposto sobre Serviços (Tax on Services), or ISS.

Imposto Sobre Serviços: ISS is a municipal tax assessed on gross operating revenue from services, net of scholarships and monthly fees cancelled. The ISS amount Anhanguera Educacional must pay differs according to the municipality where its services are rendered. ISS rates in the municipalities where the Company operates vary from 2.0% to 5.0%.

Programa de Integração Social: The PIS is a federal tax assessed on gross operating revenue from services, net of scholarships and cancelled enrollments. Due to its participation in the Prouni beginning in 2005, its revenue from the monthly tuitions of its undergraduate programs have been exempted from the PIS tax. Accordingly, as of 2005, Anhanguera Educacional pays the PIS tax only on revenue from its graduate programs, at the rate of 0.65%, as well as on fees and revenue from academic services rendered to students and admission exam fees, at the rate of 1.65%.

Contribuição para Financiamento da Seguridade Social: The COFINS tax is a federal tax assessed on the gross operating revenue from services, net of scholarships and monthly fees cancelled. Due to its participation in the Prouni, its revenue from the monthly tuitions of its undergraduate programs has been exempted from the COFINS since 2005. Accordingly, as of 2005, the Company pays the COFINS tax only on revenue from its graduate and extension programs, at the rate of 3.0%, and on fees for academic services rendered to students and admission exam fees, at the rate of 7.6%.

Main Operating Costs and Expenses

Cost of services provided: The Company’s cost of services provided includes the operation costs for its campuses. Anhanguera Educacional faculty cost is the principal cost element for the services it provides, and includes primarily the payment for hours of in-class teaching and hours spent coordinating programs, which consists of class preparation, student services and coordination of academic activities at the campuses, among others, in addition to labor fees, vacation pay and the thirteenth salary. The Company’s costs with faculty members vary primarily as a result of the number of programs and students enrolled, the total hours of each program and the academic qualification of the faculty.

Anhanguera Educacional’s costs of services also consist of costs related to human resources for program support, coordinator and administrative staff of the campuses, occupation (mainly rental costs, tax on property, electricity and water), outsourced services, materials and other costs resulting from the operation of its campuses, such as maintenance and transportation. These costs vary primarily as a result of the number of campuses and the number of students enrolled at each campus.

Selling expenses: The Company’s selling expenses consist of marketing expenses and provision for doubtful accounts. Marketing expenses are primarily related to campaigns intended to attract students to its selection processes. Accordingly, its expenses with recruiting efforts are largely related to the number of new students the Company expect to enroll in the subsequent academic semester. In addition to its expenses with recruiting efforts, its marketing campaigns also aim to increase students’ retention, increase referrals and strengthen its brand. Anhanguera Educacional’s marketing expenses include (i) advertisements on TV networks, billboards, radio, newspapers and other media; (ii) internal sales and marketing teams; and (iii) publication of articles written by its professors and students, among others. The Company establishes provisions for doubtful accounts based on its management’s estimate of the likelihood of collecting the credits and on its history of recovery of overdue accounts.

General and administrative expenses: The Company’s general and administrative expenses consist of all the expenses of its central campus in Valinhos, including operating expenses. Anhanguera Educacional’s head office personnel expenses include the variable compensation program currently available to its area managers and executive officers. Additionally, its general and administrative expenses also include other administrative expenses such as provisions for contingencies, as well as other operating revenue, such as payment for subleasing of space in its campuses by service providers and recovery of expenses, among others.

Depreciation and amortization: The Company’s depreciation expenses consist of the depreciation of its assets. Anhanguera Educacional’s amortization expenses consist of the amortization of pre-operational expenses incurred by new campuses, amortization of specific projects and of acquisition goodwill. Anhanguera Educacional amortizes this goodwill over a five-year period expected for the payback of the investment, based on studies and payback plans developed by specialized companies and on the applicable regulations.

Net financial result: The Company’s financial revenue and expenses reflect primarily (i) expenses related to its short- and long-term indebtedness, (ii) income from financial investments, (iii) income from default interest and penalties for late payment of monthly tuitions, (iv) PIS and COFINS taxes on its financial income, (v) operating financial expenses (CPMF and bank expenses), and (vi) other charges and fees paid to financial institutions.

Non-operating result: Anhanguera Educacional’s non-operating revenue and expenses include donations received by the veterinary and physiotherapy clinics that are part of the programs offered in the health area, tax penalties, profit or loss from the sale of property, plant and equipment and adjustment to its fixed assets resulting from an inventory made by a specialized company.

Income taxes: The tax legislation determines that the Company pays income and social contribution taxes that, in the aggregate, may usually account for up to approximately 34.0% of its income before taxes, when positive. However, as a result of its joining the Prouni in 2005, Anhanguera Educacional has been exempted from payment of income tax and social contribution (IRPJ and CSLL) on a percentage of its income before taxes in proportion to the revenue from its undergraduate programs.