-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RoBbZUGMQLnaBGp13KrVABFebU+yVX8ZtrvtLeMaCvmBUBkwMkFQ4JWHVIILS1VQ y6BoCn7ydZ/Uz4tdzOm1vw== 0001292814-08-001152.txt : 20080418 0001292814-08-001152.hdr.sgml : 20080418 20080418081439 ACCESSION NUMBER: 0001292814-08-001152 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080418 DATE AS OF CHANGE: 20080418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NET SERVICOS DE COMUNICACAO S A CENTRAL INDEX KEY: 0001024446 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28860 FILM NUMBER: 08763412 BUSINESS ADDRESS: STREET 1: RUA VERBO DIVINO 1365 1 ANDAR CITY: SAN PAULO STATE: D5 ZIP: 04719-002 BUSINESS PHONE: 551151862684 MAIL ADDRESS: STREET 1: RUA VERBO DIVINO 1356 STREET 2: 1 ANDAR CITY: SAO PAULO STATE: D5 ZIP: 04719-002 FORMER COMPANY: FORMER CONFORMED NAME: GLOBO CABO SA DATE OF NAME CHANGE: 19981113 FORMER COMPANY: FORMER CONFORMED NAME: MULTICANAL HOLDINGS INC DATE OF NAME CHANGE: 19961009 6-K 1 netfinancialusgaap1q08_6k.htm DF USGAAP 1Q08 Provided by MZ Data Products
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 6-K
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
 
For the month of April, 2008

Commission File Number 0-28860
 
 
NET SERVIÇOS DE COMUNICAÇÃO S.A.
(Exact name of registrant as specified in its charter)
 

Net Communications Services Inc.
(Translation of Registrant's name into English)
 

Rua Verbo Divino, 1356
04719-002 - São Paulo-SP
Federative Republic of Brazil
(Address of principal executive office)
 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

 Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.  

Yes _______ No ___X____

 If "Yes" is marked, indicate below the file number assigned to the Registrant
in connection with Rule 12g3-2(b):82-___ 

  Unaudited Condensed Consolidated 
  Interim Financial Statements 
   
  Net Serviços de Comunicação S.A. 
   
  March 31, 2008 
  with Report of Independent Registered Public 
  Accounting Firm 

NET SERVIÇOS DE COMUNICAÇÃO S.A.

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)


Contents

Report of Independent Registered Public Accounting Firm    1 
 
Condensed Consolidated Balance Sheets – March 31, 2008 (Unaudited) and December 31, 2007    2 
 
Condensed Consolidated Statements of Income for the three-month periods ended     
March 31, 2008 and 2007 (Unaudited)   4 
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three-month period ended March 31, 2008 (Unaudited) and for the year ended December 31,  2007 and Comprehensive Income for the three-month periods ended March 31, 2008  and 2007 (Unaudited)   5 
 
Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2008 and 2007 (Unaudited)   6 
 
Notes to Condensed Consolidated Interim Financial Statements (Unaudited) – March 31, 2008    7 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Net Serviços de Comunicação S.A.

We have reviewed the condensed consolidated balance sheets of Net Serviços de Comunicação S.A. and subsidiaries as of March 31, 2008, the related condensed consolidated statements of income, cash flows and comprehensive income for the three-month periods ended March 31, 2008 and 2007, and the condensed consolidated statements of changes in stockholders’ equity for the three-month periods ended March 31, 2008. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical review procedures, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Net Serviços de Comunicação S.A. and subsidiaries as of December 31, 2007, and the related consolidated statements of income, cash flows and changes in stockholders’ equity for the year then ended (not presented herein) and in our report dated January 31, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6


Maria Helena Pettersson
Partner

São Paulo, Brazil April 17, 2008

1

NET SERVIÇOS DE COMUNICAÇÃO S.A.

CONDENSED CONSOLIDATED BALANCE SHEETS
Years ended March 31,2008 and December 31,2007
(Thousands of United States dollars)

    March 31,    December 31, 
    2008    2007 
   
Assets    (unaudited)    
Current assets         
     Cash and cash equivalents    US$ 341,591    US$ 319,063 
     Short-term investments    2,609    2,512 
     Trade accounts receivable, net of allowance for         
     doubtful accounts of US$ 15,824 at March 31, 2008         
         and US$16,803 at December 31, 2007    195,416    181,371 
     Inventories    35,727    36,107 
     Deferred income taxes    17,354    36,053 
     Recoverable income taxes    19,368    25,319 
     Prepaid expenses    14,092    13,962 
     Other current assets    5,502    6,894 
     
Total current assets    631,659    621,281 
 
Non-current assets         
     Property and equipment, net    1,050,026    998,872 
     Goodwill    953,360    941,922 
     Intangible assets    305,920    308,575 
     Deferred income taxes    126,769    127,296 
     Judicial deposits    87,808    96,574 
     Recoverable income taxes    17,885    24,151 
     Other non-current assets    7,342    7,242 
     
Total non-current assets    2,549,110    2,504,632 
 
 
 
 
     
Total assets    US$ 3,180,769    US$ 3,125,913 
     

2

    March 31,    December 31, 
   
2008 
   2007 
   
Liabilities and stockholders’ equity    (unaudited)    
Current liabilities         
   Trade accounts payable    US$ 116,824    US$ 119,979 
   Accounts payable to programmers    72,656    68,647 
   Income taxes payable    6,987    20,734 
   Sales taxes payable    44,149    41,592 
   Payroll and related charges    47,927    54,846 
   Current portion of long-term debt    11,470    7,774 
   Interest payable    18,302    6,153 
   Deferred revenue    93,104    88,193 
 Accrued expenses and other liabilities    14,635    15,035 
     
Total current liabilities    426,054    422,953 
 
Non-current liabilities         
   Long-term debt, less current portion    625,362    620,943 
   Deferred sign-on, hook-up fee and programming         
      benefits 
   33,636    30,841 
   Estimated liability for tax, labor and civil claims and         
      assessments 
   373,907    379,946 
   Accrued expenses and other liabilities    51,778    47,523 
     
Total non-current liabilities    1,084,683    1,079,253 
     
Total liabilities    1,510,737    1,502,206 
     
 
Stockholders’ equity         
   Preferred stock, no par value    2,373,572    2,359,660 
   Common stock, no par value    987,414    959,641 
   Additional paid-in capital    37,503    79,188 
   Accumulated deficit    (1,778,985)   (1,804,601)
   Accumulated other comprehensive profit    50,528    29,819 
     
Total stockholders’ equity    1,670,032    1,623,707 
 
 
 
     
Total liabilities and stockholders’ equity    US$ 3,180,769    US$ 3,125,913 
     

See accompanying notes to unaudited condensed consolidated interim financial statements.

3

NET SERVIÇOS DE COMUNICAÇÃO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Years ended March 31, 2008 and 2007
(Thousands of United States dollars, except per share and share amounts)

    March 31, 2008    March 31, 2007 
   
Total revenue    US$ 624,427    US$ 341,670 
     Taxes and other deductions from revenues    (146,659)   (75,806)
     
Net operating revenue    477,768    265,864 
     
     Programming and other operating costs, excluding depreciation and amortization         
       Third party providers 
   (37,693)   (19,788)
       Related parties    (79,844)   (52,322)
       Other operating costs 
   (110,269)   (54,124)
     Selling, general and administrative expenses    (118,149)   (68,370)
     Depreciation and amortization    (66,539)   (39,354)
     Other income (expenses)   (1,537)   3,552 
     
Total operating costs and expenses    (414,031)   (230,406)
     
Operating income    63,737    35,458 
     
   Other income (expenses): 
        
     Monetary indexation, net    94    (49)
     Gain on exchange rate, net    2,704    6,693 
     Interest expense    (18,258)   (13,304)
     Interest income    10,556    8,317 
     Financial expense, net    (3,479)   (10,365)
     
Total other expenses, net    (8,383)   (8,708)
Income before income taxes    55,354    26,750 
     
 
   Income taxes    (29,738)   (8,199)
     
Net income    US$ 25,616    US$ 18,551 
     
Net earnings per common share basic and diluted    US$ 0.07    US$ 0.06 
     
Net earnings per preferred share, basic and diluted    US$ 0.08    US$ 0.07 
     
Weighted average number of common shares outstanding, basic and diluted    223,930,592    182,776,904 
     
Weighted average number of preferred shares outstanding, basic and diluted    113,440,328    111,414,544 
     

See accompanying notes to unaudited condensed consolidated interim financial statements.

4

NET SERVIÇOS DE COMUNICAÇÃO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Period ended March 31, 2008 and Year ended December 31, 2007
(Thousands of United States dollars)

                        Additional 
paid-in 
capital 		   Accumulated
deficit 		   Accumulated other comprehensive gain (loss) - only CTA     
   
Number of shares issued 
   Capital stock           
       
    Preferred    Common    Preferred    Common    Total           Total 
   
Balance at December 31, 2006    181,564,205    110,675,783    US$ 1,904,876    US$ 947,175    US$ 2,852,051    US$ 106,469    US$ (1,926,755)   US$ (192,708)   US$ 839,057 
 
Exchange of tax benefit                                     
contributed by stockholders for                                     
shares February 1, 2007    1,881,774 6    1,146,354    20,464    12,466    32,930    (32,930)   -    -    - 
 
Issuance of shares for Vivax                                     
acquisition on June 11, 2007    39,674,028    -    434,320    -    434,320    -    -    -    434,320 
 
Exchange of tax benefit                                     
contributed by Stockholders for                                     
shares    -    -    -    -    -    5,649    -    -    5,649 
 
Change in cumulative translation                                     
adjustment for the year    -    -    -    -    -    -    -    222,527    222,527 
 
Net income for the year    -    -    -    -    -    -    122,154    -    122,154 
   
 
Balance at December 31, 2007    223,120,007    111,822,137    US$ 2,359,660    US$ 959,641    US$ 3,319,301    US$ 79,188    US$ (1,804,601)   US$ 29,819    US$ 1,623,707 
 
Exchange of tax benefit                                     
contributed by stockholders for                                     
shares January 31, 2008    1,229,387    2,454,256    13,912    27,773    41,685    (41,685)   -    -    - 
 
Change in cumulative translation                                     
adjustment for the period    -    -    -    -    -    -    -    20,709    20,709 
 
Net income for the period    -    -    -    -    -    -    25,616    -    25,616 
   
Balance at March 31, 2008                                     
(unaudited)   224,349,394    114,276,393    US$ 2,373,572    US$ 987,414    US$ 3,360,986    US$ 37,503    US$ (1,778,985)   US$ 50,528    US$ 1,670,032 
   
 
                           
Three-month periods ended March 31 
    
                           
2008 
  
2007 
    
                 
                Net income for the period    US$ 25,616    US$ 18,551     
                Cumulative translation adjustments    20,709    36,553     
               
                Total comprehensive income (unaudited)   US$ 46,325    US$ 55,104     
                 

See accompanying notes to unaudited condensed consolidated interim financial statements.

5

NET SERVIÇOS DE COMUNICAÇÃO S.A.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of United States dollars)

   
Three-months period ended: 
   
    March 31, 2008    March 31, 2007 
     
Operating activities         
 Net income for the period    US$ 25,616    US$ 18,551 
 Adjustments to reconcile net income to net cash provided by         
   Operating activities:         
       Amortization of deferred sign-on and hook-up fee revenues    (990)   (892)
       Equity in results of affiliates    -    (3,727)
       Exchange losses, monetary indexation and interest expense, net    20,122    13,241 
       Depreciation and amortization    66,539    39,354 
       Deferred income taxes    22,131    5,826 
       Write off and disposal of assets, net    (444)   500 
       Estimated liability for tax, labor and civil claims and assessments    (15,458)   (4,196)
   Increase/decrease in operating assets and liabilities         
     Trade accounts receivable    (9,596)   (6,206)
     Recoverable income taxes    13,324    5,657 
     Short-term investments    (67)   223,935 
     Prepaid expenses and other assets    10,334    (3,075)
     Accounts payable to suppliers and programmers    (1,577)   8,117 
     Income taxes payable    (12,309)   (9,134)
     Payroll and related charges    (7,791)   (11,851)
     Sales taxes, accrued expenses and other liabilities    11,059    3,151 
     
Net cash provided by operating activities    120,893    279,251 
     
 
Investing activities         
 Acquisition of property and equipment    (99,419)   (76,968)
 Proceeds from sale of equipment    500    599 
     
Net cash used in investing activities    (98,919)   (76,369)
     
 
Financing activities         
   Repayments of short-term debt    (5,335)   (4,184)
   Issuances of long-term debt    2,108    - 
     
Net cash used in financing activities    (3,227)   (4,184)
     
Effect of exchange rate changes on cash and cash equivalents    3,781    5,310 
     
Net increase in cash and cash equivalents    22,528    204,008 
Cash and cash equivalents at beginning of the period    319,063    11,826 
     
Cash and cash equivalents at end of the period    US$ 341,591    US$ 215,834 
     
 
Supplemental disclosure of cash flow information         
Cash paid for income taxes    US$ 8,995    US$ 5,814 
Cash paid for interest    US$ 5,146    US$ 3,924 
Non-cash transaction for investing activities (fiscal benefit contribute         
 by Globotel Participações S.A.)   US$ 41,685    US$ 32,930 

See accompanying notes to unaudited condensed consolidated interim financial statements.

6

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(Thousands of United States dollars)

1. Operations

Net Serviços de Comunicação S.A. is a publicly held corporation organized under the laws of Brazil. The Company controls a group of cable subscription television companies, together referred to as “Net Serviços” or “the Company”, and is the leading cable television Multiple System Operator (MSO) in Brazil. The shares of Net Serviços de Comunicação S.A. are traded on the São Paulo and Madrid Stock Exchanges, and its American Depositary Share receipts or ADS are traded on the NASDAQ National Market.

The Company provides cable television services under the “NET” brand name and high-speed Internet access under the “NET VIRTUA” brand name through several cable networks located in the country’s largest cities. The Company and Empresa Brasileira de Telecomunicações S.A. – Embratel (Embratel), a subsidiary of Teléfonos del México S.A. de C.V. (Telmex), jointly provide voice service under the “NET FONE VIA EMBRATEL” brand name.

During the period ended March 31, 2008 there have been no significant changes in the Company’s ownership in subsidiaries. On March 31, 2008 the subsidiary Net Jundiaí was merged into Net Serviços de Comunicação S.A.

2. Basis of Presentation

The accompanying condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States (USGAAP), which differ in certain aspects from the accounting practices adopted in Brazil (BRGAAP) applied by the Company in the preparation of its statutory financial statements and for other legal and regulatory purposes. The consolidated financial statements for statutory purposes are prepared in Brazilian reais.

The condensed consolidated interim financial statements as of and for the three-month periods ended March 31, 2008 and 2007 are unaudited. However, in the opinion of management, these financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods presented. The results for the three-month period ended March 31, 2008 are not necessarily indicative of the results to be expected for the entire year.

This unaudited condensed consolidated interim financial statements has been prepared on substantially the same basis as the consolidated financial statements as of and for the year ended December 31, 2007 and should be read in conjunction therewith.

7

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

2. Basis of Presentation (Continued)

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by USGAAP.

The exchange rate of the Brazilian Real (R$) to the US$ was R$ 1.7491:US$ 1.00 at March 31, 2008, R$1.7713:US$ 1.00 at December 31, 2007. At April 17, 2008 the exchange rate was R$1.6588:US$ 1.00.

3. Inventories

Inventories are comprised, as follows:

    March 31, 2008    December 31, 2007 
     
Consumable material    US$ 21,138   20,307
Parts and maintenance material    15,698   16,896
Allowance for obsolescence    (1,109)   (1,096)
     
Total    US$ 35,727   36,107
     

4. Related Party Transactions

The balances due to and from related parties as well as revenues and operating costs and expenses as of March 31, 2008 and December, 31 2007 are as follows:

                            Operating costs and
Related companies    Assets   Liabilities   Service revenues   expenses
         
    03/31/08   12/31/07   03/31/08   12/31/07   03/31/08   03/31/07   03/31/08   03/31/07
 
Emp. Brasil. de Telecom.                                 
S.A – Embratel    US$ 20,428    18,471    54,690    47,139    25,184    4,969    (18,468)   (7,900)
Net Brasil S.A    -    -    44,049    40,742    -    -    (70,472)   (47,284)
Globosat Programadora                                 
Ltda.    142    140    3,947    3,607    352    313    (9,372)   (5,586)
Other    -    -    1,264    942    -    41    (4,335)   (2,937)
 
Total    US$ 20,570    18,611    103,950    92,430    25,536    5,323    (102,647)   (63,707)
 

8

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

5. Debt

Debt is comprised as follows:

        Effective        
    Face    interest rate   March   December 
    Amount    per year   31, 2008    31, 2007 
         
Debentures - 6th public issuance    US$ 331,599    CDI + 0.70%    US$ 331,599    US$ 327,442 
Perpetual Notes    150,000    9.25%    150,000    150,000 
Bank credit notes    97,192    CDI + 1.20%    97,192    95,975 
FINAME    58,041    TJLP + 3.15%    58,041    55,300 
         
            636,832    628,717 
Less current portion            (11,470)   (7,774)
         
Long-term debt            US$ 625,362    US$ 620,943 
         

The long-term debt maturities, excluding the perpetual notes, which have no scheduled maturity, are as follows:

Year falling due   Consolidated
   
2009   US$ 11,826
2010   97,091
2011   194,283
2012   89,262
2013   82,900
   
Total   US$ 475,362
   

6. Earnings per Share

The following table sets forth the computation of earnings per share for the period ended March 31, 2008 and 2007 (in thousands, except per share amounts):

    March 31, 2008   March 31, 2007
     
Numerator         
Net income    US$ 25,616    US$ 18,551 
 
Denominator         
Weighted average number of common shares    113,440,328    111,414,544 
Weighted average number of preferred shares    223,930,592    182,776,904 
10% - Preferred shares    1.10    1.10 
Weighted average number of preferred shares         
    adjusted    246,323,651    201,054,594 
 
Denominator for basic earnings per share    359,763,979    312,469,139 
 
Basic earnings per common share    US$ 0.07    US$ 0.06 
10% - Preferred shares    1.10    1.10 
Basic earnings per preferred shares    US$ 0.08    US$ 0.07 

9

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

7. Estimated Liability for Tax, Labor and Civil Claims and Assessments

Taxes and contributions, determined and withheld by the Company and its subsidiaries, as well as their tax, and corporate records and tax returns, are subject to examination by tax authorities during different expiration periods, pursuant to applicable legislation.

The Company and its subsidiaries are party to certain legal proceedings involving tax, labor, civil and other claims, arising in the ordinary course of business.

While it is impossible to determine with certainty the ultimate outcome of these matters, management has established reserves when it can reasonably estimate probable losses based on its analysis of the pending disputes and on the opinion of its legal counsel.

During the first quarter of 2008, the Company and certain of its operating subsidiaries withdrew from lawsuits related to the taxation of the broadband services. The related liabilities were fully accrued and offset against the corresponding judicial deposits of US$13,798 with no impact in the income statement for the period.

The estimated liability for tax, labor and civil claims and assessments is comprised as follows:

    March 31, 2008    December 31, 2007 
     
Tax related matters    US$ 332,460    US$ 339,531 
Labor related claims    23,556    23,228 
Civil related claims    17,891    17,187 
     
Total    US$ 373,907    US$ 379,946 
     

The Company and some of its consolidated cable operating subsidiaries provided letters of credit in the amount of US$139,437 (US$130,723 on December 31, 2007) to the state and federal tax authorities as a collateral for the amounts under litigation.

In connection with certain proceedings, the Company was required to place deposits with the related judicial court. These judicial deposits will only be released upon a favorable final court decision. The aggregated amount of deposits made related thereto is US$87,808 (US$96,574 on December 31, 2007), which is available to offset payments required under ultimate unfavorable court decisions.

Labor proceedings arise primarily from employees of subcontractors, in conjunction with the high turnover in the industry. Management has recorded estimated probable losses arising from these proceedings.

10

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

7. Estimated Liability for Tax, Labor and Civil Claims and Assessments (Continued)

Civil proceedings arise in the normal course of business corresponding mainly to indemnifications for moral and material damages sought by subscribers, as well as public lawsuits related to the revision of certain provisions of the cable subscription agreement and subscription price realignment. Management has recorded estimated probable losses on civil proceedings.

Following is a description of the Company’s major indirect tax related matters:

The Company and its subsidiaries have centralized cash management and cash transfers made under a current intercompany account. Based on the opinion of its external legal counsel, management understands that such transfers are not subject to Financial Operations Tax (IOF) charges. However, in view of certain adverse court decisions as to the applicability of this law, management has recorded estimated liabilities of approximately US$32,534 (US$32,105 on December 31, 2007).

The Company and its subsidiaries have questioned, in court, the incidence of PIS and COFINS social fund contributions on their revenues. Management has recorded the amount of US$91,986 (US$89,568 on December 31, 2007) related to this litigation.

The subsidiary Net Rio Ltda. received a tax assessment notice from the State Tax Authority in the amount of US$29,519 (US$29,148 on December 31, 2007) relating to the state sales tax (ICMS). The assessment is based on the Tax Authorities understanding that as a result of delaying the payment of the ICMS tax during the period from November 2001 to October 2002, the Company lost its rate reduction benefit. Management, supported by the opinion of its external legal counsel, has presented its defense against the assessment. Management understands that the Company has meritorious and substantial defense arguments. Estimated losses related to this assessment amount to US$16,614 (US$16,147 on December 31, 2007).

All states in which Net Serviços subsidiaries operate, except for the State of Rio Grande do Sul, adhered to the provisions in the ICMS Agreement 57/99, which authorized a reduction in the ICMS tax rate on subscription television services as compared to the
ICMS tax rate on other telecommunication services of 25%. The current ICMS tax rate under this Agreement is 10%. The State of Rio Grande do Sul is taxing such services at the rate of 12%. The Company is judicially challenging the rate of 12% and is making
judicial deposits of the amounts in excess of the rates in effect under the ICMS Agreement 57/99. At March 31, 2008, court deposits and accrued liabilities under litigation amounts to US$24,822 (US$23,727 on December 31, 2007).

11

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

7. Estimated Liability for Tax, Labor and Civil Claims and Assessments (Continued)

In 1999, the Company has requested injunctions asking for the non-collection of Withholding Tax over hedge gains in the amount of US$14,185 (US$14,007 on December 31, 2007). All injunctions have so far been accepted in court, authorizing the non-collection of said tax. The Company does not record such potential obligation in view that, in case of an unfavorable decision, the withheld amount will be accounted for as tax credit.

In September 2003, the subsidiary Net Rio Ltda. received a tax assessment notice from the Brazilian Federal Internal Revenue Service in the amount of US$14,482 (US$14,300 on December 31, 2007). The assessment is alleging that interest accrued under the current intercompany accounts is subject to withholding tax. Net Rio Ltda. is defending itself and recorded potential losses related to this assessment in the amount of US$7,417 (US$7,206 on December 31, 2007).

The Senior Notes and Floating Rate Notes (Notes) are not subject to Withholding Tax (IRRF) and Tax on Financial Operations (IOF), as long as the average term is not less than 96 months. As result of the fact that some noteholders exercised their rights in
advance the Company established a reserve of US$77,448 (US$75,465 on December 31, 2007) related to these taxes.

The Federal Internal Revenue has imposed a tax assessment of US$9,831 on the Company’s subsidiary Reyc Comércio e Participações Ltda., or Reyc, alleging that, for the purpose of the Tax on Import, or Imposto sobre Produtos Importados, or IPI,
payment, Reyc did not correctly classify transactions related to the import of Company’s analog decoders. Reyc filed three lawsuits against the imposition of the tax assessment and is awaiting the lower court’s decision in connection with two of these
lawsuits. Reyc has recorded a provision in the amount of US$5,197 (US$5,132 on December 31, 2007) to cover any potential losses.

The Company’s operating subsidiaries are challenging in court the collection, by municipalities of various locations in which it operates, of taxes for the use of land on which poles are placed for sustaining signal transmission cables. Management believes
that the collection of such taxes presents various constitutional and legal irregularities and is not recording reserves related to these taxes.

12

NET SERVIÇOS DE COMUNICAÇÃO S.A.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) (Continued)
(Thousands of United States dollars)

8. Stockholders’ Equity

On January 31, 2008, the Company’s Board of Directors approved a capital increase for the subscription of 1,229,387 common and 2,454,256 preferred shares in the amount of US$41,685 as compensation for the fiscal benefit contributed by the stockholders originating from the merger of Globotel Participações S.A.

9. Financial Instruments

The adoption of SFAS 157 – “Fair value measurements”, which is effective since November 15, 2007, did not generate a material impact on the Company’s financial position, except for the following disclosures about assets and liabilities measured at the fair value on a recurring basis, which are categorized in the table below based upon the level of significant input to the valuations.

        Fair Value Measurements at March 31, 2008 Using 
     
        Quoted Prices in Active    Significant Other    Significant 
    Balance at March 31,    Markets for Identical    Observable Inputs    Unobservable 
Description    2008    Assets (Level 1)   (Level 2)   Inputs (Level 3)
Financial investments funds     US$ 308,148     US$ 308,148     US$ -     US$ - 
Short term investments – Brazilian                 
Interbank Deposit – “CDI”    2,609    2,609    -    - 
Derivative instruments – foreign                 
exchange swaps contracts    (423)   (423)   -    - 
         
     US$ 310,334     US$ 310,334     US$ -     US$ - 
         

13

 
SIGNATURE
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: April 18, 2008

 
NET SERVIÇOS DE COMUNICAÇÃO S.A.
By:
/S/  João Adalberto Elek Jr.
 
João Adalberto Elek Jr.
CFO and IRO
 

 

 
FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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