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As filed with the Securities and Exchange Commission on June 26, 2008
   SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2007
 Commission file number: 000-51490
 CONTAX PARTICIPAÇÕES S.A.
  Contax Holding Company
    
    The Federative Republic of Brazil(Translation of Registrants Name into English)
    
    (Jurisdiction of Incorporation or Organization)
 
 Rua do Passeio 56, 16o andar (parte)
20021-290 Rio de Janeiro  RJ  Brazil
 
 
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredPreferred Shares, without par value (preferred shares)
    
    BovespaCommon Shares, without par value (common shares)
    
    Bovespa
 None
 
  10,031,914 preferred shares
 5,824,772 common shares
 o þ
 o þ
 þ o
  o o þ
  International Financial Reporting Standards asissued by the International AccountingU.S. GAAP o
    
    Standards Board o
    
    Other þ
 o þ
 o þ




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##### 



TABLE OF CONTENTS
 PagePRESENTATION OF INFORMATION
    
    3FORWARD-LOOKING INFORMATION
    
    5PART I
    
    5Item 1. Identity of Directors, Senior Management and Advisers
    
    5Item 2. Offer Statistics and Expected Timetable
    
    5Item 3. Key Information
    
    6Item 4. Information on the Company
    
    19Item 4A. Unresolved Staff Comments
    
    34Item 5. Operating and Financial Review and Prospects
    
    34Item 6. Directors, Senior Management and Employees
    
    47Item 7. Major Shareholders and Related Party Transactions
    
    55Item 8. Financial Information
    
    58Item 9. The Offer and Listing
    
    62Item 10. Additional Information
    
    66Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    83Item 12. Description of Securities Other Than Equity Securities
    
    83PART II
    
    83Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    83Item 14. Material Modifications to the Rights of Security Holders and Use
of Proceeds
    
    83Item 15. Controls and Procedures
    
    83Item 16A. Audit Committee Financial Expert
    
    84Item 16B. Code of Ethics
    
    84Item 16C. Principal Accountant Fees and Services
    
    85Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    85Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
    
    85PART III
    
    86Item 17. Financial Statements
    
    86Item 18. Financial Statements
    
    86Item 19. Exhibits
    
    87Exhibit 1.1Exhibit 12.1Exhibit 12.2Exhibit 13.1
   2




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PRESENTATION OF INFORMATION
 sociedade por ações
    real reais
 reais reais reais
      3




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Comissão de Valores
Mobiliários
    4




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FORWARD-LOOKING INFORMATION
  
    
    the growth in the Brazilian outsourcing contact center sector; and
    
    the performance of the Brazilian economy in general.
  
    
    our future operations performance;
    
    the demand for our services;
    
    competitive factors in the sector in which we compete;
    
    changes in the regulatory framework for our clients in the telecommunications, utilities
and financial sectors in Brazil;
    
    changes in labor law and tax requirements;
    
    economic, business and political conditions in Brazil and in the international markets,
including governmental changes and restrictions on the ability to transfer capital across
borders; and
    
    the impact of fluctuations in the price of our shares.
 
 PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
   5




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Item 3. Key Information
 Selected Financial Data
 reais reais
 Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands of reais, except per share data)Statement of Operations DataNet operating revenue from services
rendered
    
    
    1,365,815
    
    
    
    1,218,583
    
    
    
    1,044,787
    
    
    
    654,616
    
    
    
    410,690Cost of services rendered
    
    
    (1,174,035
    )
    
    
    (1,037,353
    )
    
    
    (855,907
    )
    
    
    (574,071
    )
    
    
    (334,751
    )Gross profit
    
    
    191,780
    
    
    
    181,230
    
    
    
    188,880
    
    
    
    80,545
    
    
    
    75,939Operating expenses
    
    
    (104,763
    )
    
    
    (83,800
    )
    
    
    (71,840
    )
    
    
    (47,845
    )
    
    
    (31,234
    )Operating income
    
    
    87,017
    
    
    
    97,430
    
    
    
    117,040
    
    
    
    32,700
    
    
    
    44,705Financial income (expenses) net
    
    
    (3,548
    )
    
    
    18,405
    
    
    
    14,352
    
    
    
    (4,662
    )
    
    
    (2,141
    )Income from continuing operations*
    
    
    55,451
    
    
    
    77,681
    
    
    
    81,240
    
    
    
    16,470
    
    
    
    61,240Loss from discontinued operations*
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,667
    )
    
    
    (59,336
    )Net income (loss) and comprehensive
income (loss) for the year
    
    
    55,451
    
    
    
    77,681
    
    
    
    81,240
    
    
    
    6,803
    
    
    
    1,904Earnings (Loss) per Share (inreais)**Income from continuing operationsCommon shares  basic
    
    
    3.37
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    0.86
    
    
    
    0.86Common shares  diluted
    
    
    3.23
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    0.86
    
    
    
    0.86Preferred shares  basic and diluted
    
    
    3.40
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    0.86
    
    
    
    0.86Net income (loss)Common shares  basic (i)(ii)
    
    
    3.37
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    
    
    
    
    Common shares  diluted (i)(ii)
    
    
    3.23
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    
    
    
    
    Preferred shares  basic and diluted
(i)(ii)
    
    
    3.40
    
    
    
    4.13
    
    
    
    4.25
    
    
    
    0.36
    
    
    
    0.10Weighted average common shares
outstanding  basic (i)(iii)
    
    
    5,747,315
    
    
    
    6,264,303
    
    
    
    6,368,696
    
    
    
    6,368,696
    
    
    
    6,368,696Weighted average common shares
outstanding  diluted (i)(iii)
    
    
    6,005,323
    
    
    
    6,264,303
    
    
    
    6,368,696
    
    
    
    6,368,696
    
    
    
    6,368,696Weighted average preferred shares
outstanding  basic and diluted (i)(iii)
    
    
    10,704,436
    
    
    
    12,532,231
    
    
    
    12,737,390
    
    
    
    12,737,390
    
    
    
    12,737,390Balance Sheet DataCash and cash equivalents
    
    
    240,310
    
    
    
    231,299
    
    
    
    229,488
    
    
    
    85,152
    
    
    
    33,268Property and equipment, net
    
    
    342,535
    
    
    
    309,727
    
    
    
    265,379
    
    
    
    182,936
    
    
    
    105,492Total assets
    
    
    764,711
    
    
    
    683,275
    
    
    
    620,466
    
    
    
    406,052
    
    
    
    326,333Current liabilities
    
    
    291,799
    
    
    
    234,458
    
    
    
    203,080
    
    
    
    111,289
    
    
    
    197,047Long-term liabilities
    
    
    178,031
    
    
    
    77,295
    
    
    
    56,831
    
    
    
    14,089
    
    
    
    3,093Shareholders equity
    
    
    294,881
    
    
    
    371,522
    
    
    
    360,555
    
    
    
    280,674
    
    
    
    126,193Total liabilities and shareholders equity
    
    
    764,711
    
    
    
    683,275
    
    
    
    620,466
    
    
    
    406,052
    
    
    
    326,333Cash Flow DataOperating activities (continuing
operations*)
    
    
    203,119
    
    
    
    143,411
    
    
    
    221,410
    
    
    
    71,387
    
    
    
    88,272Operating activities (discontinued
operations*)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,945
    )
    
    
    (26,449
    )Financing activities
    
    
    (51,409
    )
    
    
    (70,544
    )
    
    
    (5,297
    )
    
    
    109,336
    
    
    
    4,406Investing activities (continuing
operations*)
    
    
    (142,699
    )
    
    
    (71,056
    )
    
    
    (88,988
    )
    
    
    (97,894
    )
    
    
    (42,224
    )Investing activities (discontinued
operations*)
    
    
    
    
    
    
    
    
    
    
    17,211
    
    
    
    
    
    
    
    4,895
  6




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(i)
    
    Due to numerous expansion plans dating back to the Telemar days, Contax inherited several
million inactive shareholders. In an effort to reduce unnecessary administration and
operating costs and to provide a low cost form of liquidity for these small shareholders,
Contax decided to do a reverse stock split on November 17, 2007 with the outcome being a
significant reduction of shareholders base in Brazil. Since ADR holders are mainly
concentrated in the hands of institutional investors in large quantities, the reverse stock
split was not needed and therefore was not done for the ADRs.(ii)
    
    Due to the reverse stock split carried out on November 17, 2007, earnings per share are shown
based on groups of 20 shares for comparison amongst periods. In this case, the numbers of
ADRs was considered grouped, for comparison, even though the grouping of ADRs did not occur.(iii)
    
    Due to the reverse stock split carried out on November 17, 2007, the number of shares
excluding treasury was divided by 20 for comparison amongst periods. In this case, the
numbers of ADRs was considered grouped, for comparison, even though the grouping of ADRs did
not occur.*
    
    Discontinued operations relate to data center activities.**
    
    The computation of earnings per share for the years ended December 31, 2005, 2004 and 2003 is
based on the number of shares outstanding of Contax Holding on the date of the spin-off. Exchange Rates
 reais reais real
 Banco Central do Brasil
 Conselho Monetário
Nacional  CMN
  7




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reais
 AveragePeriod
    
    Period-end
    
    
    for period*
    
    
    High
    
    
    Low2003
    
    
    2.8882
    
    
    
    3.0715
    
    
    
    3.6623
    
    
    
    2.82192004
    
    
    2.6544
    
    
    
    2.9259
    
    
    
    3.2051
    
    
    
    2.65442005
    
    
    2.3407
    
    
    
    2.4125
    
    
    
    2.7621
    
    
    
    2.16332006
    
    
    2.1380
    
    
    
    2.1771
    
    
    
    2.3711
    
    
    
    2.05862007
    
    
    1.7713
    
    
    
    1.9483
    
    
    
    2.1556
    
    
    
    1.7325January 2008
    
    
    1.7603
    
    
    
    1.7743
    
    
    
    1.8301
    
    
    
    1.7414February 2008
    
    
    1.6833
    
    
    
    1.7277
    
    
    
    1.7681
    
    
    
    1.6715March 2008
    
    
    1.7491
    
    
    
    1.7373
    
    
    
    1.8301
    
    
    
    1.6700April 2008
    
    
    1.6872
    
    
    
    1.6889
    
    
    
    1.7534
    
    
    
    1.6575April 2008
    
    
    1.6872
    
    
    
    1.6889
    
    
    
    1.7534
    
    
    
    1.6575May 2008
    
    
    1.6294
    
    
    
    1.6605
    
    
    
    1.6949
    
    
    
    1.6294June 2008 (through 16)
    
    
    1.6277
    
    
    
    1.6319
    
    
    
    1.6428
    
    
    
    1.6215
 
 *
    
    Average of the rates on each day in the period. Source: Brazilian Central Bank
 reais
 Risk Factors
  Risks Relating to Our Business
 A large portion of our revenues originates from a limited number of clients, and the loss of one or
more of these clients could significantly impact our financial condition.
 
    8




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If the trend toward outsourcing of contact center services were reversed, the growth rate of our
business could be reduced.
    Anexo II da Norma Regulamentadora no 17 Portaria no 09
  Increases in the use of automated customer services could reduce the demand for our services.
  Our ability to recruit, motivate and retain qualified management and operators could affect the
quality of our services, which could impact our ability to attract new clients and retain existing
ones.
   9




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Our inability to pass through cost increases could seriously harm our profit margins.
  Our operating results may be harmed if we are unable to maximize our contact center capacity
utilization.
     If our clients are not successful, the amount of business they outsource may be diminished and
could result in lower revenues for us.
   The failure to keep our technology up to date may prevent us from remaining competitive.
   10




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Interruption of our contact center services could have a material adverse effect on our financial
condition and results of operations.
    Breaches of our contact center service contracts could expose us to significant monetary penalties.
    11




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We may be unable to achieve the same performance levels we have been experiencing with our
performance-based compensation contracts.
  We may be responsible for labor liabilities which could have an adverse effect on our
profitability.
   Our business is highly competitive and our failure to effectively compete could result in the loss
of clients or decreased profitability.
   12




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CTX Participações holds the majority of our voting shares and there may be circumstances in which
its interests differ from or conflict with the interests of our other shareholders.
  We may be liable for fraudulent activities or misappropriation of our clients information by our
employees or third parties.
  Risks Relating to Brazil
 The Brazilian government has exercised, and continues to exercise, significant influence over the
Brazilian economy. This involvement, as well as Brazilian political and economic conditions, could
adversely impact our business, operations and the market price of our shares and ADSs.
  
    
    devaluations and other currency fluctuations;
    
    inflation rates;
    
    interest rates;
    
    liquidity of domestic capital and lending markets;
    
    energy shortages;
    
    exchange controls and restrictions on remittances abroad (such as those that were
briefly imposed in 1989 and early 1990);
    
    monetary policy;
  13




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
    
    tax policy; and
    
    other political, diplomatic, social and economic developments in or affecting Brazil.
  Inflation and certain government measures to curb inflation may have adverse effects on the
Brazilian economy, the Brazilian securities market, our business and operations and the market
price of the shares.
 real Índice Geral de Preços-Mercado Fundação Getúlio Vargas Índice Geral de Preços
- Disponibilidade Interna Índice Nacional de Preços ao Consumidor Ampliado Instituto Brasileiro de Geografia e Estatística
  Changes in Brazilian labor law may negatively affect us.
 Consolidação das Leis do Trabalho
   14




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Regulatory proposals, such as the creation of a do not call list, could restrict our contact
center services.
 Comissão de Ciência, Tecnologia, Inovação, Comunicação e
Informática Comissão de Constituição, Justiça e
Cidadania
  Exchange rate instability may adversely affect our financial condition.
 real real real
 real real
 We may be unable to convert reais into U.S. dollars to make dividend distributions to our ADS
holders.
 reais
  15




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Economic and market conditions in other emerging market countries may adversely affect the
Brazilian economy and, therefore, the market value of our common shares and ADSs and our ability to
access the capital markets.
  Risks Relating to the ADSs and the Preferred Shares
 You may not be able to sell the ADSs or preferred shares at the price or time you desire because an
active or liquid market for the ADSs or the preferred shares will not likely develop.
  The relative volatility and illiquidity of the Brazilian securities markets may substantially limit
your ability to sell the preferred shares underlying the ADSs at the price and time you desire.
  Holders of preferred shares and ADSs have limited voting rights.
   16




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Holders of ADSs are not entitled to attend shareholders meetings and may only vote through the
Depositary.
  Holders of ADSs may have fewer and less well-defined shareholders rights than shareholders of U.S.
public companies.
    Holders of ADSs or preferred shares may not receive any dividends.
   Exchange controls and restrictions on remittances abroad may adversely affect holders of ADSs.
 reais reais
  17




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Dividends received by United States individuals will not be qualified dividend income eligible
for a 15.0% tax rate.
  If you surrender your ADSs and withdraw preferred shares, you risk losing the ability to remit
foreign currency abroad and certain Brazilian tax advantages.
   Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to the disposition
of the ADSs or preferred shares.
  Holders of ADSs may be unable to exercise preemptive rights with respect to our shares.
   18




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Holders of ADSs may face difficulties in serving process on or enforcing judgments against us and
other persons.
  
 Item 4. Information on the Company
 History and Organizational Structure
 sociedade por ações
 sociedade por ações
      19




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*
    
    Shareholdings as of December 31, 2007.**
    
    Shareholdings as of December 31, 2007.***
    
    Held indirectly through a wholly owned subsidiary.  20




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Overview
      21




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Industry Overview
       
    
    Increasing importance for companies to retain and enhance customer relationships;
    
    Increasing need for companies to focus on core competencies rather than non-revenue
producing activities;
    
    Rapid changes in technology requiring personnel with specialized technical expertise and
continued investment in new contact center equipment and services;
  22




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
    
    Increasing need to integrate and manage complex systems incorporating a variety of
hardware and software systems spanning a number of technology generations; and
    
    Extensive and ongoing training requirements.
  
    
    Increase in telephony penetration.Prior to Brazils privatization of state-owned
telecommunications companies in 1998, telephony penetration in Brazil was very low,
limiting the use of contact centers as an effective way to deliver customer service on a
broad basis. Today, a larger portion of the Brazilian population can access customer
services in general through different communication channels, including both mobile and
fixed-line terminals. According to the Brazilian telecommunications regulatory agency
(Agência Nacional de Telecomunicações), or Anatel, total wireline and wireless penetration
grew from 42.8 million in 1999 to 160 million in 2007.
 
    
    Expansion of contact center-intensive service sectors due to economic stabilization and
privatization.In the mid-1990s, Brazil implemented successful economic reforms which
created a stable macro-economic environment, spurring the growth of financial services and,
consequently, the consumer base of these companies. Brazil concurrently privatized large
state-owned service providers in the telecommunications, electric, water and gas sectors,
which brought about large investments and a rapid growth in customers.
 
    
    Pressure to reduce costs.Pricing pressures from competition and shareholder demands
for higher returns have forced Brazilian companies to streamline personnel, through
restructuring and outsourcing, and make other cost reductions, including reducing
face-to-face customer services.
   Associação
Brasileira de Marketing Direto Associação
Brasileira das Relações Empresa Cliente Associação Brasileira de Telesserviços
   23




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Our Strategy
   Customer care:
 Debt collection:
 Telemarketing:
  Human resources:
 Operational model:
 IT systems:
 Commercial model:
   24




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Competition
     Anexo II da Norma Regulamentadora no 17 Portaria no 09
  
    
    Atento. Atento is a part of the Spanish group Telefonica, which in Brazil controls a
large fixed-line operator (Telesp), an Internet provider (Terra) and, together with
Portugal Telecom, Brazils leading mobile operator (Vivo). Atento has operated in the
Brazilian market since 1999. After acquiring several companies in the sector, they became
one of the largest contact center services providers in Brazil. Two of Atentos major
clients are Telefônica and Unibanco.
 
    
    Tivit. Controlled by one of the largest private economic conglomerates in Brazil,
called the Votorantim Group, that invests in various segments such as cement, financial
services and infrastructure. Tivit has increased in Brazil buying two contact center
companies: Softway and Telefutura. Following those acquisitions, Tivit has become one of
the fifth largest contact center providers in Brazil. Two of Tivits major clients are
Santander and Telefonica.
 
    
    Dedic.Dedic is part of the Portuguese group Portugal Telecom, which controls, jointly
with Telefonica, Brazils largest mobile operator Vivo. Dedic renders services, directly
or indirectly, primarily to Portugal Telecoms subsidiaries in Brazil.
  25




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
    
    ACS.Controlled by Algar Group, a diversified Brazilian conglomerate, ACS was founded
in 1999 with headquarters located in Uberlândia, in the state of Minas Gerais. We believe
ACSs two main clients are CTBC (a telecom operator in Uberlândia that is part of the Algar
Group) and American Express Brazil.
 
    
    Teleperformance. Teleperformance is a French company that operates in approximately 45
countries. In 2004, Teleperformance increased its Brazilian operations by merging with
Companhia Brasileira de Contact Center, after which Teleperformance became one of the
largest contact center service providers in Brazil. Two of Teleperformances major clients
are UOL (one of the major Brazilian Internet providers) and Sky/Direct (a Pay-TV provider).
On August 14, 2007, Brasil Telecom, which was its largest client in Brazil and represented
approximately 70.0% of their revenue, terminated its service agreement with
Teleperformance.
 Our Business
     
    
    Customer Care. Our customer care solutions focus on the assurance of the excellence of
customer care operations and on understanding the reasons why customers contact the
Company, which are followed by specific recommendations for improving customer care
service. Contax also develops cross-selling and up-selling strategies associated with
customer service efforts and identifies opportunities for automation. Our customer service
solutions are segmented into interactive voice response (IVR), personal services (B2C and
B2B), technical support, field support and back-office.
 
    
    Telemarketing. This service is focused on providing efficient solutions for attracting
new clients (whether through active, receptive or blended approaches) and improving returns
from the existing portfolio, always focusing on the specific characteristics of each client
and its target market. The main pillars for achieving and exceeding these targets are
(i) efficient contact, through dialers and enhancement of contact lists, and (ii) the
quality of the salespeople, achieved through recruiting focused on the appropriate profile
of potential employees, regular training and motivation.
 
    
    Technical Support. We provide comprehensive technical product support for our clients
customers. For example, we handle troubleshooting calls of consumer products, respond to
software and hardware problems, provide support for ISPs dial-up and broadband customers,
and manage corporate IT help desks. For such services, we employ qualified personnel with
specialized technical training in dedicated teams.
  26




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
    
    Retention. We provide our clients with customer retention services, whether by
persuading their end-customers not to cancel a service or by observing customer behavior
and taking preventive measures to avoid cancellation requests. We collaborate with our
clients by mapping final customers opinions, in order to ensure the adoption of adequate
strategies for reversing intentions to cancel services.
 
    
    Debt Collection. We design debt collection strategies together with our clients to
maximize results, while emphasizing customer retention. We participate from the early
stages of developing our clients collection strategy to the actual execution of the
strategy, using database filters (systems that prioritize contacts and determine the type
of service each customer will receive), predictive dialers and other automatic contact
tools, such as voice mail and text messages typically sent to wireless handheld devices, in
order to maximize the likelihood of customer contact and behavior models that enable us to
categorize customers risk and identify the most efficient techniques of interacting with
customers. In order to enhance our performance, we launch pilot programs to test the
statistical efficiency of specific tools and strategies.
  Year ended December 31,Services
    
    2007
    
    
    2006
    
    
    2005Customer Care
    
    
    53.0
    %
    
    
    54.0
    %
    
    
    57.7
    %Telemarketing
    
    
    13.7
    %
    
    
    12.3
    %
    
    
    11.9
    %Technical Support
    
    
    2.5
    %
    
    
    2.3
    %
    
    
    2.7
    %Retention
    
    
    5.0
    %
    
    
    3.9
    %
    
    
    3.6
    %Debt Collection
    
    
    17.1
    %
    
    
    15.3
    %
    
    
    13.2
    %Other
    
    
    8.7
    %
    
    
    12.3
    %
    
    
    10.9
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Markets and Clients
  
    
    Telecommunications. We provide a full range of contact center services to Telemar, our
largest client. Telemars operations include fixed line terminals, long-distance services,
mobile services, as well as broadband and corporate voice and data services. In addition
to traditional customer care services, we deliver extensive client retention and debt
collection services for /Telemars retail and corporate customers. Because we have a
strong relationship with Telemar and because other telecom groups control their own contact
center companies, we have not actively pursued other opportunities in this sector.
 
    
    Financial Services.New financial products and service offerings have expanded our
opportunities in this sector. We provide a broad range of services to the credit card,
retail bank and insurance segments, as well as to consumer credit companies. This sector
continues to grow in importance for us since many financial institutions have in-house
operations that fit into our strategy of focusing on clients with high volume and highly
complex services.
 
    
    Utilities.There are several large companies in Brazil in the power, water and sewage,
and gas distribution segments. Currently, we provide services to a few power distribution
companies in the Southeast and Northeast regions of Brazil. We intend to continue to
expand our activities in this sector and our success could be enhanced if there is further
privatization in the water and sewage segment.
  27




---



##### Table of Contents




    
    Internet. We have developed specific end-to-end services for Internet service
providers, or ISPs, by servicing iG, Brazils largest ISP, and, more recently, Telemars
new ISP subsidiary. We are particularly interested in providing customer acquisition,
retention and technical support services to the growing number of broadband Internet access
providers.
   Year ended December 31,Sector
    
    2007
    
    
    2006
    
    
    2005Telecommunications
    
    
    50.8
    %
    
    
    57.6
    %
    
    
    64.5
    %Financial Services
    
    
    33.5
    %
    
    
    31.5
    %
    
    
    27.4
    %Utilities
    
    
    2.0
    %
    
    
    1.9
    %
    
    
    1.5
    %Internet
    
    
    1.3
    %
    
    
    1.2
    %
    
    
    1.1
    %Other
    
    
    12.4
    %
    
    
    7.9
    %
    
    
    5.6
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Client Contracts
      28




---



##### Table of Contents



Result Variance and Seasonality
    Human Resource Management
   29




---



##### Table of Contents



Facilities
     30




---



##### Table of Contents



# Work
    
    
    #
    
    
    Sq.Sites
    
    
    
    State
    
    Stations
    
    
    Employees
    
    
    Meters
    
    
    ExpirationPasseio 1
    
    
    
    RJ
    
    
    3,199
    
    
    
    6,857
    
    
    
    24,924
    
    
    Oct. 1, 2010Niterói
    
    
    
    RJ
    
    
    1,617
    
    
    
    4,139
    
    
    
    13,624
    
    
    Dec. 30, 2009Makenzie
    
    
    
    RJ
    
    
    1,808
    
    
    
    4,233
    
    
    
    10,077
    
    
    Dec. 30, 2009Mauá
    
    
    
    RJ
    
    
    1,558
    
    
    
    2,967
    
    
    
    9,702
    
    
    Feb. 28, 2013São Cristóvão 2
    
    
    
    RJ
    
    
    491
    
    
    
    2
    
    
    
    5,632
    
    
    Not ApplicableAntártica
    
    
    
    SP
    
    
    2,926
    
    
    
    6,091
    
    
    
    27,723
    
    
    June 13, 2009Paulista
    
    
    
    SP
    
    
    2,417
    
    
    
    6,105
    
    
    
    17,574
    
    
    Dec. 31, 2011Rubens Meireles
    
    
    
    SP
    
    
    284
    
    
    
    625
    
    
    
    2,752
    
    
    July 2, 2011Augusta
    
    
    
    SP
    
    
    279
    
    
    
    705
    
    
    
    2,863
    
    
    May 31, 2011Inhaúma 3
    
    
    
    SP
    
    
    472
    
    
    
    52
    
    
    
    3,350
    
    
    June 30, 2011Oliveira Coutinho4
    
    
    
    SP
    
    
    569
    
    
    
    9
    
    
    
    7,500
    
    
    Not ApplicableLapa5
    
    
    
    SP
    
    
    1,255
    
    
    
    2,947
    
    
    
    17,000
    
    
    April 2, 2012Prado
    
    
    
    MG
    
    
    2,725
    
    
    
    6,223
    
    
    
    11,998
    
    
    Dec. 31, 2009Nova Lima
    
    
    
    MG
    
    
    237
    
    
    
    541
    
    
    
    977
    
    
    Oct. 31, 2011C. da Pólvora
    
    
    
    BA
    
    
    1,337
    
    
    
    3,413
    
    
    
    7,757
    
    
    Dec. 30, 2009Comércio
    
    
    
    BA
    
    
    1,317
    
    
    
    3,086
    
    
    
    11,000
    
    
    April 01, 2009Borges de Mello
    
    
    
    CE
    
    
    2,547
    
    
    
    6,282
    
    
    
    15,246
    
    
    Dec. 31, 2009Prncipe
    
    
    
    PE
    
    
    661
    
    
    
    1,511
    
    
    
    3,805
    
    
    Dec. 30, 2009Conquista
    
    
    
    PE
    
    
    860
    
    
    
    1,966
    
    
    
    9,256
    
    
    June 24, 2011Porto Alegre
    
    
    
    RS
    
    
    382
    
    
    
    1,004
    
    
    
    1,290
    
    
    Undefined termDistrito Federal
    
    
    
    DF
    
    
    54
    
    
    
    91
    
    
    
    320
    
    
    June 30, 2008Contorno
    
    
    
    MG
    
    
    1,048
    
    
    
    2,548
    
    
    
    9,546
    
    
    July 30, 2010Total
    
    
    
    
    
    
    28,043
    
    
    
    61,397
    
    
    
    213,916
 
 1
    
    Includes both contact center operations and our headquarters.2
    
    We acquired this real property on December 20, 2007. We own the title deed, but it has not
yet been registered at the Notary Public. The price of the building and land acquired by
Contax on December 2007 was R$3,459 thousands. This site was launched to house operations for
financial clients, where we manage the technological park and infrastructure of the
clients contact center, while the client is in charge of personnel.3
    
    This site was also launched to house operations for a financial institution, where we manage
the technological park and infrastructure of the clients contact center, while the client is
in charge of personnel.4
    
    Since March 3, 2007, we have been rendering our services to a financial institution from this
site, on which such financial institution is the lessor and is in charge of personnel in this
site.5
    
    Launched in September 2007, the Lapa site was created to accommodate the increase in the
volume of our operations. Information Technology
  
    
    Research of new technologies and benchmarks to allow permanent business growth;
 
    
    Identify promising partners or technologies adhering to our strategy; and
 
    
    Evaluate infrastructure alternative solutions and products, in order to reduce
operational costs and enhance business effectiveness to continuous increase customers
satisfaction.
  31




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##### Table of Contents




    
    Digital voice recording: captures and stores service calls.
 
    
    Blade server: compact servers which fit in a unique chassis sharing energy, cooling
system, drivers, ports and other blade servers. These servers combine energy efficiency,
consolidation and mobility, reducing costs and increasing productivity.
 
    
    Multiuser solution (CPU share): allows up to 10 users to share a unique CPU (computer
processing unit).
 
    
    Service monitoring software: monitoring service that prevents activity interruption
problems in the network. Able to issue reports and manage network services.
 
    
    Thin clients: we have plans to implement this solution in a large scale, aiming to reduce
desktop size computers, running few or no installed applications, with strong server
dependency to process tasks. The main benefits are low energy consumption, decrease of
technical support needs and increase warranty usage.
 obi
 
    
    the Information Technology Infrastructure Library, or ITIL, a framework of best practice
approaches intended to facilitate the delivery of high quality IT services. ITIL outlines
an extensive set of management
procedures intended to support businesses in achieving both quality and value, in a
financial sense, in IT operations. These procedures are supplier independent and have been
developed to provide guidance across the IT infrastructure, development, and operations;
  32




---



##### Table of Contents




    
    the Project Management Book Of Knowledge, or PMBOK, published by the Project Management
Institute, or PMI, and widely accepted to be the standard in project management. The PMBOK
documents information and practices applicable to any type of project, not just IT related
projects; and
 
    
    the Capability Maturity Model, or CMM, a process improvement approach based on a process
model that can assess organizations against a scale of five process maturity levels. Each
level ranks the organization according to its standardization of processes in the subject
area being assessed, and the subject areas can be as diverse as software engineering,
systems engineering, project management, risk management, system acquisition, IT services
and personnel management.
  Capital Expenditures
  Year ended December 31,2007
    
    
    2006
    
    
    2005(in thousands ofreais)Telecommunications and IT systems
    
    
    76,665
    
    
    
    64,035
    
    
    
    75,564Leasehold improvements
    
    
    33,287
    
    
    
    36,549
    
    
    
    37,392Furniture and fixtures
    
    
    12,249
    
    
    
    5,510
    
    
    
    8,552Other
    
    
    11,217
    
    
    
    2,764
    
    
    
    7,188Total capital expenditures
    
    
    133,418
    
    
    
    108,858
    
    
    
    128,696
  Sales and Marketing
    33




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##### Table of Contents



Insurance
   Coverage Type
    
    Amount Covered in 2007

    
    Amount Covered in 2008Property damage
    
    R$
    70,211 thousand
    
    R$
    61,400 thousandBusiness interruption
    
    R$
    51,305 thousand
    
    R$
    42,654 thousandGeneral liability
    
    R$
    5,000 thousand
    
    R$
    10,000 thousandDirectors and Officers liability
    
    U.S.$
    60,000 thousand
    
    U.S.$
    100,000 thousand
 Intellectual Property
 Instituto Nacional de
Propriedade Intelectual
 Núcleo de Informação e Coordenação do Ponto BR 
NIC.br www.contax-net.com.br www.contaxt.com.br www.contaxtelemar.com.br www.telemarcontaxt.com.br www.contax.com.br www.contax.net.br www.contaxt.net.br
 
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
   34




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##### Table of Contents



Executive Overview
    
    
    the acquisition or loss of a major client;
 
    
    fluctuations in demand for our services;
 
    
    our ability to pass through to our clients increases in costs;
 
    
    our ability to efficiently manage our workforce productivity; and
 
    
    success or failure with respect to our performance-based services.
 Acquisition or Loss of a Major Client
  Fluctuations in Demand for Our Services
  Our Ability to Pass Through to Our Clients Increases in Total Costs
    35




---



##### Table of Contents



Our Ability to Efficiently Manage Our Workforce Productivity
    Success or Failure with Respect to Our Performance-Based Services
  Key Events in 2007
 Volume of Operations:
     36




---



##### Table of Contents



Internal Controls:
    Stock Option Plan:
  Reverse Stock Split:
    Share Buyback Program:
    37




---



##### Table of Contents



BNDES Loan Agreement:
    Critical Accounting Policies and Estimates
   
    
    revenue recognition;
 
    
    depreciation of property and equipment;
 
    
    payroll and related accruals;
 
    
    contingencies; and
 
    
    deferred and recoverable income tax and social contribution.
  38




---



##### Table of Contents



Revenue Recognition
  Depreciation of Property and Equipment
   Payroll and Related Accruals
 décimo terceiro salário
   Contingencies
    39




---



##### Table of Contents



Labor Claims
 Tax Claims Instituto Nacional de Seguridade Social  INSS
  Deferred and Recoverable Income Tax and Social Contribution
   Results of Operations
 Results of Operations for the Year ended December 31, 2007  compared with the Year ended December 31, 2006
 Period overPeriod over
    
    
    period
    
    
    Results as aperiod
    
    
    percentage
    
    
    percentage of netYear
    
    
    change
    
    
    change
    
    
    sales for the yearended December 31,
    
    
    Favorable
    
    
    Favorable
    
    
    ended December 31,2007
    
    
    2006
    
    
    (unfavorable)
    
    
    (unfavorable)
    
    
    2007
    
    
    2006(in thousands ofreais)Net operating revenues of services
rendered
    
    
    1,365,815
    
    
    
    1,218,583
    
    
    
    147,232
    
    
    
    12
    %
    
    
    100
    %
    
    
    100
    %Cost of services rendered
    
    
    (1,174,035
    )
    
    
    (1,037,353
    )
    
    
    (136,682
    )
    
    
    -13
    %
    
    
    -86
    %
    
    
    -85
    %Selling, general and administrative
expenses
    
    
    (89,117
    )
    
    
    (72,379
    )
    
    
    (16,738
    )
    
    
    -23
    %
    
    
    -7
    %
    
    
    -6
    %Other operating expenses, net
    
    
    (15,646
    )
    
    
    (11,421
    )
    
    
    (4,225
    )
    
    
    -37
    %
    
    
    -1
    %
    
    
    -1
    %Operating income (loss)
    
    
    87,017
    
    
    
    97,430
    
    
    
    (10,413
    )
    
    
    -11
    %
    
    
    6
    %
    
    
    8
    %Net financial income (expenses)
    
    
    (3,548
    )
    
    
    18,405
    
    
    
    (21,953
    )
    
    
    -119
    %
    
    
    0
    %
    
    
    2
    %Non-operating income (expenses), net
    
    
    67
    
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    0
    %
    
    
    0
    %Income tax and social contribution
benefit
    
    
    (28,085
    )
    
    
    (38,154
    )
    
    
    10,069
    
    
    
    26
    %
    
    
    -2
    %
    
    
    -3
    %Net income
    
    
    55,451
    
    
    
    77,681
    
    
    
    (22,230
    )
    
    
    -29
    %
    
    
    4
    %
    
    
    6
    %
 Net Operating Revenues of Services Rendered
   40




---



##### Table of Contents



Cost of Services Rendered
    ,
 Selling, General and Administrative Expenses
   41




---



##### Table of Contents



Other Net Operating Expenses
  Net Financial Income (Expenses)
  Net Non-operating Income (Expenses)
  Income Tax and Social Contribution Benefit
  Net Income
   42




---



##### Table of Contents



Results of Operations for the Year ended December 31, 2006
compared with the Year ended December 31, 2005
 Period overPeriod over
    
    
    period
    
    
    Results as aperiod
    
    
    percentage
    
    
    percentage of netYear
    
    
    change
    
    
    change
    
    
    sales for the yearended December 31,
    
    
    Favorable
    
    
    Favorable
    
    
    ended December 31,2006
    
    
    2005
    
    
    (unfavorable)
    
    
    (unfavorable)
    
    
    2006
    
    
    2005(in thousands
ofreais)Net operating revenues of services
rendered
    
    
    1,218,583
    
    
    
    1,044,787
    
    
    
    173,796
    
    
    
    17
    %
    
    
    100
    %
    
    
    100
    %Cost of services rendered
    
    
    (1,037,353
    )
    
    
    (855,907
    )
    
    
    (181,446
    )
    
    
    -21
    %
    
    
    -85
    %
    
    
    -82
    %Selling, general and administrative
expenses
    
    
    (72,379
    )
    
    
    (59,742
    )
    
    
    (12,637
    )
    
    
    -21
    %
    
    
    -6
    %
    
    
    -6
    %Other operating expenses, net
    
    
    (11,421
    )
    
    
    (12,098
    )
    
    
    677
    
    
    
    6
    %
    
    
    -1
    %
    
    
    -1
    %Operating income (loss)
    
    
    97,430
    
    
    
    117,040
    
    
    
    (19,610
    )
    
    
    -17
    %
    
    
    8
    %
    
    
    11
    %Net financial income (expenses)
    
    
    18,405
    
    
    
    14,352
    
    
    
    4,053
    
    
    
    28
    %
    
    
    2
    %
    
    
    1
    %Non-operating income (expenses), net
    
    
    0
    
    
    
    235
    
    
    
    (235
    )
    
    
    
    
    
    
    0
    %
    
    
    0
    %Income tax and social contribution
benefit
    
    
    (38,154
    )
    
    
    (50,387
    )
    
    
    12,233
    
    
    
    24
    %
    
    
    -3
    %
    
    
    -5
    %Net income
    
    
    77,681
    
    
    
    81,240
    
    
    
    (3,559
    )
    
    
    -4
    %
    
    
    6
    %
    
    
    8
    %
 Net Operating Revenues of Services Rendered
     Cost of Services Rendered
   43




---



##### Table of Contents



Selling, General and Administrative Expenses
  Other Net Operating Expenses
  Net Financial Income (Expenses)
  Net Non-operating Income (Expenses)
   44




---



##### Table of Contents



Income Tax and Social Contribution Benefit
  Net Income
  Liquidity and Capital Resources
      45




---



##### Table of Contents



Contractual Obligations at December 31, 2007
 Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(in thousands of reais)Capital (finance) lease
    
    
    44,188
    
    
    
    18,219
    
    
    
    23,159
    
    
    
    2,812
    
    
    
    Operating lease (facilities)*
    
    
    82,210
    
    
    
    28,591
    
    
    
    44,509
    
    
    
    8,943
    
    
    
    166Financings (BNDES)**
    
    
    129,841
    
    
    
    7,863
    
    
    
    45,546
    
    
    
    57,067
    
    
    
    19,365Total
    
    
    256,239
    
    
    
    54,672
    
    
    
    113,214
    
    
    
    68,821
    
    
    
    19,531
 *
    
    Most of our facilities lease agreements can be terminated before their expiration, with one
to six months prior notice, subject to a penalty equivalent to three times the monthly rent.**
    
    Includes estimated interest payments.  Recent Developments
 Telemar Participações S.A. restructuring process concluded on April 2008
      46




---



##### Table of Contents




 TELEMAR PARTICIPAÇÕES S.A.
    
    COMMON (ON) STOCK
    
    
    %BNDES Participações S.A.  BNDESPar
    
    
    858,225,280
    
    
    
    25.00
    %Fiago Participações S.A.
    
    
    683,147,324
    
    
    
    19.90
    %Lexpart Participações S.A.
    
    
    352,730,590
    
    
    
    10.27
    %LF Tel S.A.
    
    
    352,730,590
    
    
    
    10.27
    %Asseca Participações S.A.
    
    
    352,730,590
    
    
    
    10.27
    %AG Telecom Participações
    
    
    352,730,590
    
    
    
    10.27
    %Alutrens Participações
    
    
    343,290,112
    
    
    
    10.00
    %Fundação Atlântico de Seguridade Social
    
    
    137,316,044
    
    
    
    4.00
    %TOTAL
    
    
    3,432,901,120
    
    
    
    100
    %
 
 CTX PARTICIPAÇÕES S.A.
    
    COMMON (ON) STOCK
    
    
    %AG Telecom Participações S.A.
    
    
    705,461,180
    
    
    
    22.83
    %LF TEL S.A.
    
    
    705,461,180
    
    
    
    22.83
    %Fundação Atlântico de Seguridade Social
    
    
    314,592,775
    
    
    
    10.18
    %SUBTOTAL
    
    
    1,725,515,135
    
    
    
    55.84
    %BNDES Participações S.A.  BNDESPar
    
    
    463,234,643
    
    
    
    15.00
    %PREVI
    
    
    354,485,146
    
    
    
    11.47
    %PETROS
    
    
    273,671,814
    
    
    
    8.85
    %FUNCEF
    
    
    273,704,271
    
    
    
    8.85
    %TOTAL
    
    
    3,090,611,008
    
    
    
    100
    %
 Acquisition by Telemar of Brasil Telecom
  
 Item 6. Directors, Senior Management and Employees
 Conselho de Administração Diretoria
  47




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##### Table of Contents



Board of Directors
   (i)
    
    holders of preferred shares representing at least 10.0% of the total capital
stock of a company may appoint one member to the Board of Directors and its respective
alternate;
 (ii)
    
    holders of common shares representing at least 15.0% of the total common shares
with voting rights may appoint one member to the Board of Directors and its respective
alternate; and
 (iii)
    
    if items (i) and (ii) above do not occur, holders of common shares and holders
of preferred shares representing together more than 10.0% of the total capital of a
company may jointly appoint one member to the Board of Directors and its respective
alternate.
  voto múltiplo
    48




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##### Table of Contents



Name
    
    PositionFernando Antonio Pimentel Melo
    
    ChairmanPedro Jereissati
    
    DirectorCarlos Jereissati
    
    DirectorCristina Anne Betts
    
    DirectorLúcio Otávio Ferreira
    
    DirectorFlavio Eduardo Sznajder
    
    DirectorRafael Andrade da Cunha Pereira
    
    DirectorAntonio Adriano Silva
    
    DirectorErik Persson
    
    DirectorSérgio Francisco da Silva
    
    DirectorLeonardo Vital Brazil Teixeira
    
    DirectorIsabel S. Ramos Kemmelmeier
    
    Director
  Fernando Antonio Pimentel Melo
 Pedro Jereissati
 Carlos Jereissati
 Cristina Anne Betts
  49




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##### Table of Contents



Lúcio Otávio Ferreira
 Flavio Eduardo Sznajder
 Rafael Andrade da Cunha Pereira
 Antonio Adriano Silva.
 Erik Persson
 Sergio Francisco da Silva.
  50




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##### Table of Contents



Leonardo Vital Brazil Teixeira
 Isabel S. Ramos Kemmelmeier.
 Executive Officers
   Name
    
    PositionFrancis James Leahy Meaney
    
    President (CEO)Michel Neves Sarkis
    
    Chief Financial Officer (CFO)/Investor
Relations OfficerJosé Luiz Cardoso Albano
    
    OfficerRosangela Maria de Oliveira Lutti
    
    Officer
 Francis James Leahy Meaney
 Michel Neves Sarkis
  51




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##### Table of Contents



José Luiz Cardoso Albano
 Rosangela Maria de Oliveira Lutti
 Fiscal Council ( Conselho Fiscal )
 conselho fiscal
     52




---



##### Table of Contents



Name
    
    PositionAllan Kardec de Melo Ferreira
    
    ChairmanAparecido Carlos Correia Galdino
    
    Regular MemberSergio Bernstein
    
    Regular MemberLuiz Felix de Freitas
    
    Regular MemberMarcio Luciano Mancini
    
    Regular Member
 Allan Kardec de Melo Ferreira.
 Aparecido Carlos Correia Galdino.
 Sergio Bernstein
 Luiz Felix de Freitas
 Marcio Luciano Mancini
 Compensation of Directors, Executive Officers and Fiscal Council Members
   53




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##### Table of Contents



Share Ownership
  Employees
  City/State
    
    Employees
    
    
    TraineesRio de Janeiro/RJ
    
    
    14,059
    
    
    
    74Niterói/RJ
    
    
    4,139
    
    
    
    6São Paulo/SP
    
    
    16,534
    
    
    
    62Salvador/BA
    
    
    6,499
    
    
    
    31Recife/PE
    
    
    3,477
    
    
    
    41Fortaleza/CE
    
    
    6,282
    
    
    
    9Belo Horizonte/MG
    
    
    9,312
    
    
    
    20Porto Alegre/RS
    
    
    1,004
    
    
    
    1Brasília/DF
    
    
    91
    
    
    
    Total
    
    
    61,397
    
    
    
    244
  Federação Interestadual
dos Trabalhadores em Telecomunicações  Federação Nacional de Telecomunicações
  Employee Benefits
  Career and Salary Plan
   54




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##### Table of Contents



Outsourcing
  Workplace Health and Safety
 Programa de Controle Médico de Saúde Ocupacional Programa de Prevenção de Riscos Ambientais Comissão
Interna de Prevenção de Acidentes
 
 Item 7. Major Shareholders and Related Party Transactions
 Major Shareholders
   Number of
    
    
    Percentage ofcommon
    
    
    outstandingShareholders
    
    shares owned
    
    
    common sharesCTX Participações S.A.
    
    
    3,425,209
    
    
    
    58.80Caixa de Previdência dos Funcionários do Banco do Brasil  PREVI
    
    
    308,510
    
    
    
    5.30Total
    
    
    3,733,719
    
    
    
    64.10
  55




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##### Table of Contents



Number of
    
    
    Percentage ofcommon
    
    
    outstandingCTX Participações shareholder
    
    shares owned
    
    
    common sharesAG Telecom Participações S.A.
    
    
    705,461,180
    
    
    
    22.83L.F. Tel S.A.
    
    
    705,461,180
    
    
    
    22.83Fundação Atlântico de Seguridade Social
    
    
    314,592,775
    
    
    
    10.18BNDES Participações S.A.  BNDESPar
    
    
    463,234,643
    
    
    
    15.00PREVI
    
    
    354,485,146
    
    
    
    11.47PETROS
    
    
    273,671,814
    
    
    
    8.85FUNCEF
    
    
    273,704,271
    
    
    
    8.85Total
    
    
    3,090,611,008
    
    
    
    100.000
 CTX Participações Shareholders Agreements
     56




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##### Table of Contents



Holders of ADSs
   Related Party Transactions
  Telemar/Contax Contracts
      57




---



##### Table of Contents



BNDES/Contax Contracts
   Facilities Lease Agreements
  Transactions with our Board of Directors or Executive Officers
   
 Item 8. Financial Information
 Consolidated Statements and Other Financial Information
   58




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##### Table of Contents



Legal Proceedings
 General
  At December 31,2007
    
    
    2006
    
    
    2005(in thousands
ofreais)NatureLabor
    
    
    38,955
    **
    
    
    22,989
    *
    
    
    24,001Tax
    
    
    7,776
    
    
    
    5,793
    
    
    
    4,852Civil
    
    
    129
    
    
    
    117
    
    
    
    64Total
    
    
    46,860
    
    
    
    28,899
    
    
    
    28,917
 
 *
    
    The amounts as of December 31, 2006 and 2005 include R$6,067 thousand of provisions related
to former Tmar s employees made during the year 2005 and the amount as of December 31, 2006
also includes part of R$6,575 thousand of provisions related to former Tmar s employees.**
    
    Pursuant to the service agreement executed by Telemar and TNL Contax, it was defined that
labor claims arising from the transfer of labor agreements from Telemar to the Company shall
be incumbent upon Telemar, which amount has been recorded as a counter entry to Receivable
Credits. The amount of labor claims under Telemars responsibility as of December 31, 2007,
was R$11,550 thousand, with the other R$27,405 thousand being labor claims filed against TNL
Contax by employees and former employees. Labor
 Judicial
 Ministério Público
do Trabalho
  As of December 31,2007(in thousands
ofreais)Types of risk*Probable
    
    
    38,955Possible/Remote
    
    
    221,761Total
    
    
    260,716
 
 *
    
    The types of risk have been determined by our management, based on the opinion of external
legal counsel and existing legal precedents.   59




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##### Table of Contents



Administrative Proceedings
    menores aprendizes
 Termo de Ajuste de Conduta
 Tax
 Instituto Nacional de Seguridade
Social  INSS)
 Civil
    60




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##### Table of Contents



Policy on Dividend Distribution
  Significant Changes
  
 Item 9. The Offer and Listing
 Information Regarding the Price History of the Stock to Be Offered or Listed
    62




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##### Table of Contents



Reais perPreferred Shares *High
    
    
    Low20073rd Quarter
    
    
    55.73
    
    
    
    47.804th Quarter
    
    
    54.80
    
    
    
    48.4520081st Quarter
    
    
    51.66
    
    
    
    43.37January
    
    
    52.99
    
    
    
    45.00February
    
    
    51.99
    
    
    
    47.50March
    
    
    49.99
    
    
    
    37.60April
    
    
    40.88
    
    
    
    35.00May
    
    
    51.00
    
    
    
    37.50June (through 16, 2008)
    
    
    51.00
    
    
    
    47.00
 
 *
    
    Prices per share after the Reverse Stock Split. Source:
  U.S. dollars per ADSHigh
    
    
    Low20073rd Quarter
    
    
    1.41
    
    
    
    1.054th Quarter
    
    
    1.50
    
    
    
    1.2020081st Quarter
    
    
    1.37
    
    
    
    1.02January
    
    
    1.32
    
    
    
    1.20February
    
    
    1.35
    
    
    
    1.22March
    
    
    1.37
    
    
    
    1.02April
    
    
    1.09
    
    
    
    1.01May
    
    
    1.45
    
    
    
    1.09June (through 16, 2008)
    
    
    1.52
    
    
    
    1.30
 Source:
 Trading on the Brazilian Stock Exchanges
    63




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Sistema de Negociação Assistida por Computador Sistema Electrônico de Negociação Nacional
   Companhia Brasileira de Liquidação e Custódia S.A.
      64




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##### Table of Contents



Regulation of the Brazilian Securities Market
  companhia aberta companhia fechada
     Disclosure Requirements
   
    
    establish the concept of a material fact that gives rise to reporting requirements.
Material facts include decisions made by the controlling shareholders, resolutions of the
general shareholders meeting of shareholders and of management of the company, or any
other facts related to the companys business (whether occurring within the company or otherwise somehow related thereto) that may
influence the price of its publicly traded securities, or the decision of investors to trade
such securities or to exercise any of such securities underlying rights;
  65




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
    
    specify examples of facts that are considered to be material, which include, among
others, the execution of shareholders agreements providing for the transfer of control,
the entry or withdrawal of shareholders that maintain any managing, financial,
technological or administrative function with or contribution to the company, and any
corporate restructuring undertaken among related companies;
    
    require the Officer of Investor Relations, to publish and inform the CVM and also the
stock exchange and entities of the organized over-the-counter market where the securities
issued by the company are traded, as the case may be, any material events occurred or
related to their business;
    
    require the controlling shareholders, directors, members of the administrative council,
of the Fiscal Council and of any technical and consultative bodies, according to the
by-laws, to report any material event they are aware of to the Officer of Investor
Relations, who will provide for its disclosure. In the event those people referred above
have personal knowledge about material events and verify omission by the Officer of
Investor Relations towards investors in the fulfilling of his communication and disclosing
duties, they will only be exempt from responsibility if they communicate the material
events to the CVM immediately;
    
    require simultaneous disclosure of material facts to all markets in which the
corporations securities are admitted for trading;
    
    require the acquirer of a controlling stake in a corporation to publish material facts,
including its intentions to promote, or not, within a year, the cancellation of the
registration of publicly-held companies;
    
    establish rules regarding disclosure requirements in the acquisition and disposal of a
material stockholding stake; and
    
    forbid the use of insider information.
 
 Item 10. Additional Information
 Memorandum and Articles of Association
  Organization
 Junta Comercial
   66




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Qualification of Directors
    Allocation of Net Income and Distribution of Dividends
  
    
    5.0% to a legal reserve, not to exceed 20.0% of the paid-in capital of Contax;
    
    at least 25.0% of adjusted net income against payment of dividends. As required by
Brazilian corporate law, such amount will be increased if required to satisfy payment of
dividends of preferred shares; and
    
    respecting the entry in the reserve for profits to be realized, the remaining net income
should be allocated in the reserve for expansion for working capital purposes. The total
amount registered in the reserve for expansion together with the amount enrolled in profit
reserves is limited to the total amount recorded as paid-in capital.
   Shareholders Meetings
   Valor
Econômico Diário Oficial do Estado do Rio de Janeiro
  67




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##### Table of Contents



Voting Rights
    
    
    the creation of preferred shares or the increase of an existing class of shares without
preserving their proportion with other classes of shares, except as already authorized by
our by-laws;
    
    a change of a preference, privilege or redemption or amortization provision of any class
of preferred shares; and
    
    the creation of a new class of preferred shares that has a preference, privilege or
redemption or amortization provision which is superior to those of existing preferred
 shares.
   
    
    a reduction of the mandatory dividend set forth in our by-laws;
    
    the approval of a merger, spin-off or consolidation;
    
    our participation in a group of companies, or grupo de sociedades, the management of
which is coordinated through contractual relationships and equity ownership, as defined
under Brazilian corporate law;
  68




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##### Table of Contents




    
    a change in our business purpose;
    
    the creation of founders shares (partes beneficiárias);
    
    the cessation of our liquidation process; and
    
    approval of our dissolution.
  
    
    amend the by-laws, including changing the rights of holders of common shares;
    
    elect or dismiss members of the Board of Directors or Fiscal Council, if in operation;
    
    review the yearly accounts prepared by management and accept or reject managements
financial statements, and decide on the allocation of: (i) net profits for payment of the
mandatory dividend, and (ii) funds to the various reserve accounts;
    
    authorize the issuance of debentures and founders shares (partes beneficiárias), except
that the Board of Directors is empowered to approve the issuance of simple debentures that
are not convertible into shares and have no real guarantee;
    
    suspend the rights of shareholders who have not fulfilled their obligations as imposed
by law or by the by-laws;
    
    accept or reject the valuation of assets contributed by a shareholder in consideration
for issuance of capital stock;
    
    pass resolutions authorizing: (i) the reorganization of our legal form; (ii) our
merger, spin-off, dissolution or liquidation; and (iii) the election or dismissal of
liquidators and the inspection of their accounts; and
    
    authorize our management to file for bankruptcy or request concordata(a reorganization
process similar to Chapter 11 proceedings under U.S. bankruptcy law).
 Related Party Transactions
    69




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Withdrawal Rights
   (i)
    
    by the dissenting or nonvoting holders of the adversely affected class of
 shares (including any holder of preferred shares of an adversely affected class) in the
event that the holders of a majority of all outstanding common shares authorize:
 
    
    the creation of preferred shares or an increase of an existing class of shares
without preserving their proportion with other classes of shares, except as
already authorized in our by-laws;
    
    a change in the preferences, privileges, or redemption or amortization
provisions of any class of preferred shares; or
    
    the creation of a new class of preferred shares that has a preference,
privilege, or redemption or amortization provision that is superior to those of
existing preferred shares.
 (ii)
    
    by all dissenting or nonvoting shareholders, in the event that the holders of a
majority of all outstanding common shares authorize:
 
    
    a reduction of the mandatory dividend set forth in our by-laws;
    
    the approval of our consolidation or merger into another company;
    
    our participation in a grupo de sociedades;
    
    a change in our business purpose;
    
    our spin-off, if such spin-off implies (a) a change in our business purpose
(except if the spun-off assets revert to a company whose main purpose is the same
as ours), (b) a reduction of the mandatory dividend set forth in our by-laws, or
(c) our participation in a grupo de sociedades; or
    
    the acquisition of control of another company at a price which exceeds certain
limits set forth in Brazilian corporate law.
 grupo de sociedades
   70




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##### Table of Contents



fato relevante
   Liquidation Procedures
  Form and Transfer of Securities
    Transfer of Control
   71




---



##### Table of Contents



Amendments
 " reais centavos
 reais centavos
  Disclosure of Shareholder Ownership
  Material Contracts
     72




---



##### Table of Contents



BNDES Loan Agreement
    Exchange Controls and Other Limitations Affecting Shareholders
       73




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
    
    appoint at least one representative in Brazil with powers to take action relating to the
foreign investment;
    
    complete the appropriate foreign investor registration forms;
    
    obtain registration as a foreign investor with the CVM; and
    
    register their foreign investment with the Brazilian Central Bank.
    reais reais
    74




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##### Table of Contents



Registered Capital
   Taxation
  Brazilian Tax Considerations
   Taxation of Dividends
   75




---



##### Table of Contents



Distribution of Interest on Capital
     Taxation of Gains Outside Brazil
    76




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Taxation of Gains in Brazil
          77




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##### Table of Contents



Tax on Foreign Exchange and Financial Transactions
 Foreign Exchange Transactions reais reais
 
    
    In the case of (i) inflow and outflow related to transactions entered in the Brazilian
stock exchange by 2,689 Holders; (ii) outflow related to transactions that are not carried
out on the Brazilian stock exchange by 2,689 Holders; (iii) inflow related to acquisition
of shares in a public offering, provided the public offer is registered with the CVM and
the issuer of the securities is listed in Brazilian stock exchange; and (iv) payment of
dividends and interests on capital, zero;
    
    In case of inflow related to transactions that are not carried out on the Brazilian
stock exchange by 2,689 Holders, 1.5%.
  Tax on Transactions Involving Bonds and Securities.
 Other Brazilian Taxes
  reais
   78




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Material United States Federal Income Tax Considerations
    U.S. Holders
    79




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##### Table of Contents



Treatment of ADS
  Receipt of Distributions
        80




---



##### Table of Contents



Sale, Exchange or Other Taxable Disposition of Preferred Shares
  Passive Foreign Investment Company (PFIC) rules
     81




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##### Table of Contents



Non-U.S. Holders
     Information Reporting and Backup Withholding
  HOLDERS OF PREFERRED SHARES OR ADSS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY
CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF PREFERRED SHARES OR ADSS ARISING UNDER THE LAWS OF
ANY OTHER TAXING JURISDICTION.
  82




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Documents On Display
 www.sec.gov
 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
   
 Item 12. Description of Securities Other Than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Disclosure Controls and Procedures
   83




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##### Table of Contents



Managements Annual Report on Internal Control over Financial Reporting
    Changes in Internal Controls
   
 Item 16A. Audit Committee Financial Expert
 Conselho Fiscal
 
 Item 16B. Code of Ethics
   84




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##### Table of Contents



Item 16C. Principal Accountant Fees and Services
  Total Fees2007
    
    
    2006(in thousands of reais)Audit Fees(1)
    
    
    601
    
    
    
    385Audit-Related Fees(2)
    
    
    
    
    
    
    810Total
    
    
    601
    
    
    
    1,195
 
 (1)
    
    Audit Fees for the years ended December 31, 2007 and 2006 consist of fees billed for
professional services rendered for the audits and reviews of the consolidated financial
statements of the Company and other services normally provided in connection with statutory
and regulatory filings. The audit fees include expenses related to compliance with SOX.(2)
    
    Audit-Related Fees for the years ended December 31, 2007 and 2006 consist of fees billed for
assurance and related services that are traditionally performed by independent accountants
that are reasonably related to the performance of the audit or review of the Companys
financial statements. These services include consulting in connection with accounting and
reporting standards and services related to internal control reviews. Pre-approval of policies and procedures
  
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    85




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Total Number of Shares
    
    
    Maximum Number ofPurchased as Part of
    
    
    Shares That May Yet BeTotal Number of Shares
    
    
    Average Price
    
    
    Publicly Announced
    
    
    Purchased Under thePurchased
    
    
    Paid Per Share
    
    
    Programs
    
    
    ProgramsPeriods in 2007
    
    Preferred
    
    
    Common
    
    
    Preferred
    
    
    Common
    
    
    Preferred
    
    
    Common
    
    
    Preferred
    
    
    CommonJanuary 1 to 31
    
    
    196,575
    
    
    
    230,445
    
    
    
    37.80
    
    
    
    61.00
    
    
    
    196,575
    
    
    
    230,445
    
    
    
    997,575
    
    
    
    27,405February 1 to 28
    
    
    318,150
    
    
    
    27,405
    
    
    
    40.00
    
    
    
    59.60
    
    
    
    318,150
    
    
    
    27,405
    
    
    
    679,425
    
    
    
    0March 1 to 31
    
    
    679,425
    
    
    
    
    
    
    
    37.80
    
    
    
    
    
    
    
    679,425
    
    
    
    
    
    
    
    0
    
    
    
    0April 1 to 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0May 1 to 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0June 1 to 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0July 1 to 31
    
    
    4,000
    
    
    
    1,560
    
    
    
    52.40
    
    
    
    71.60
    
    
    
    4,000
    
    
    
    1,560
    
    
    
    1,078,619
    
    
    
    158,114August 1 to 31
    
    
    909,710
    
    
    
    158,114
    
    
    
    50.80
    
    
    
    70.60
    
    
    
    909,710
    
    
    
    158,114
    
    
    
    168,909
    
    
    
    0September 1 to 30
    
    
    161
    
    
    
    
    
    
    
    52.00
    
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    168,748
    
    
    
    0October 1 to 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (168,748
    )
    
    
    November 1 to 30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    December 1 to 31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,108,021
    
    
    
    417,524
    
    
    
    45.30
    
    
    
    65.90
    
    
    
    2,108,021
    
    
    
    417,524
    
    
    
    0
    
    
    
    0
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
   86




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##### Table of Contents



Item 19. Exhibits
 No.
    
    Description1.1
    
    By-laws of Contax Holding as of June 17, 2008.2.1
    
    Deposit Agreement, dated as of August 12, 2005 among Contax Holding,
The Bank of New York, as Depositary, and Owners and Beneficial Owners
of American Depositary Receipts issued thereunder. (Incorporated by
reference to Exhibit 2.1 to the Companys Annual Report on Form 20-F
filed on June 29, 2006.)4.1
    
    Services Agreement, dated November 30, 2004, among Telemar Norte
Leste S.A, TNL PCS S.A. and TNL Contax S.A. (Incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on
Form 20-F filed on August 10, 2005.)4.2
    
    First Amendment, dated December 29, 2004, to the Services Agreement
between Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A.
dated November 30, 2004.(Incorporated by reference to Exhibit 4.6 to
the Companys Annual Report on Form 20-F filed on June 29, 2006.)4.3
    
    Second Amendment, dated October 18, 2005, to the Services Agreement
between Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A.
dated November 30, 2004. (Incorporated by reference to Exhibit 4.7
to the Companys Annual Report on Form 20-F filed on June 29, 2006.)4.4
    
    Third Amendment, dated May 1, 2007, to the Services Agreement between
Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A. dated
November 30, 2004. (Incorporated by reference to Exhibit 4.4 to the
Companys Registration Statement on Form 20-F filed on June 29,
2007.)4.5
    
    Contact Center Services Agreement, dated April 1, 2004, between
Orbitall Serviços e Processamento de Informações Comerciais LTDA. and
Inovação Contact Center Serviços de Contatos Telefônicos Ltda.
(Incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 20-F filed on August 10, 2005.)4.6
    
    Amendment to Services Agreement, dated May 28, 2004, between Orbitall
Serviços e Processamento de Informações Comerciais LTDA. and Inovação
Contact Center Serviços de Contatos Telefônicos Ltda. (Incorporated
by reference to Exhibit 4.3 to the Companys Registration Statement
on Form 20-F filed on August 10, 2005.)4.7
    
    Amendment to the Contact Center Service Agreement, dated September
27, 2004, between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.4 to the Companys Registration Statement on Form 20-F
filed on August 10, 2005.)4.8
    
    Amendment to Temporary Service Agreement and Other Matters, dated
September 27, 2004, between Orbitall Serviços e Processamento de
Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by
reference to Exhibit 4.5 to the Companys Registration Statement on
Form 20-F filed on August 10, 2005.)
  87




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##### Table of Contents



No.
    
    Description4.9
    
    Amendment, dated October 1, 2004, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.9 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)4.10
    
    Amendment, dated April 1, 2005, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.10 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)4.11
    
    Amendment, dated May 10, 2006, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.11 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)4.12
    
    Amendment, dated December 29, 2006, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.12 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)8.1
    
    List of Subsidiaries. (Incorporated by reference to Exhibit 8.1 to
the Companys Registration Statement on Form 20-F filed on June 29,
2006.)11.1
    
    Code of Ethics of Contax Holding. (Incorporated by reference to
Exhibit 11.1 to the Companys Registration Statement on Form 20-F
filed on August 10, 2005.)12.1
    
    Certification of the Chief Executive Officer of the Company, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)12.2
    
    Certification of the Chief Financial Officer of the Company, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)13.1
    
    Certifications of the Chief Executive Officer and the Chief Financial
Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Furnished herewith.)
  88




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##### Table of Contents



SIGNATURES
  CONTAX PARTICIPAÇÕES S.A.By:
    /s/ Francis James Leahy MeaneyName: Francis James Leahy MeaneyTitle:   Chief Executive Officer   89




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##### Table of Contents



Contax Participações S.A.
  Table of contents
 Reports of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets, Dec. 31, 2007 and 2006
    
    F-3Consolidated and Combined Statements of Operations, Dec. 31, 2007, 2006 and 2005
    
    F-4Consolidated and Combined Statements of Cash Flows, Dec. 31, 2007, 2006 and 2005
    
    F-5Consolidated and Combined Statement of Changes in Shareholders Equity, Dec. 31, 2007, 2006 and 2005
    
    F-6Notes to the Consolidated Financial Statements
    
    F-7
  90




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##### Table of Contents



Contax Participações S.A.
Consolidated and Combined Financial Statements
at December 31, 2007 and 2006 and for the three years in the
period
ended December 31, 2007
and Report of Independent Registered
Public Accounting Firm
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  Internal Control  Integrated Framework
   
  F-2




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##### Table of Contents



Contax Participações S.A.
 
 Consolidated Balance Sheets
December 31, 2007 and 2006
(Expressed in thousands of Brazilian Reais)
 As of December 31,2007
    
    
    2006Current assetsCash and cash equivalents
    
    
    240,310
    
    
    
    231,299Trade accounts receivable, netRelated parties
    
    
    17,847
    
    
    
    8,244Unrelated parties
    
    
    67,016
    
    
    
    45,624Deferred taxes
    
    
    17,187
    
    
    
    12,176Recoverable taxes
    
    
    25,818
    
    
    
    33,887Prepaid expenses
    
    
    2,807
    
    
    
    2,248Others
    
    
    3,263
    
    
    
    2,167Total current assets
    
    
    374,248
    
    
    
    335,645Property and equipment, net
    
    
    274,559
    
    
    
    265,593Intagible
    
    
    67,976
    
    
    
    44,134342,535
    
    
    
    309,727Other assetsDeferred taxes
    
    
    12,006
    
    
    
    19,903Recoverable taxes
    
    
    5,568Judicial deposits
    
    
    17,787
    
    
    
    7,938Receivable from Telemar
    
    
    11,550
    
    
    
    6,570Receivable from Other
    
    
    128
    
    
    
    2,751Other non-current assets
    
    
    889
    
    
    
    741Total other assets
    
    
    47,928
    
    
    
    37,903Total assets
    
    
    764,711
    
    
    
    683,275Current liabilitiesBorrowings
    
    
    300Suppliers
    
    
    72,466
    
    
    
    47,761Payroll and related accruals
    
    
    143,349
    
    
    
    112,382Taxes other than on income
    
    
    14,163
    
    
    
    10,471Taxes on income
    
    
    24,827
    
    
    
    29,088Dividends payable
    
    
    14,271
    
    
    
    12,390Current-portion of capital lease obligations
    
    
    18,218
    
    
    
    21,091Stock options plan
    
    
    1,862
    
    
    
    Other current liabilities
    
    
    2,343
    
    
    
    1,275Total current liabilities
    
    
    291,799
    
    
    
    234,458Long-term liabilitiesBorrowings
    
    
    100,060Provisions for contingencies
    
    
    46,860
    
    
    
    28,899Capital lease obligations
    
    
    25,970
    
    
    
    44,122Deferred tax
    
    
    2,285
    
    
    
    1,529Taxes other than on income
    
    
    2,391
    
    
    
    2,745Stock options plan
    
    
    465
    
    
    
    Total long-term liabilities
    
    
    178,031
    
    
    
    77,295Shareholders equityPreferred shares  10,031,914 issued,
non-par-value shares (2006* - 242,973,900)
    
    
    149,249
    
    
    
    149,249Common shares  5,824,772 issued,
non-par-value shares (2006* - 121,487,217)
    
    
    74,624
    
    
    
    74,624Treasury stock  166,017 shares (2006* 316,500)
    
    
    (10,913
    )
    
    
    (780
    )Additional paid-in capital
    
    
    9,421
    
    
    
    9,386Appropriated retained earnings
    
    
    68,066
    
    
    
    136,076Unappropriated retained earnings
    
    
    4,434
    
    
    
    2,967Total shareholders equity
    
    
    294,881
    
    
    
    371,522Total liabilities and shareholders equity
    
    
    764,711
    
    
    
    683,275
 (*)
    
    See Note 3  Reverse split of shares. The number of shares does not include treasury stock.   F-3




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##### Table of Contents



Contax Participações S.A.
 
 Consolidated Statements of Operations
Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of Brazilian Reais, unless otherwise stated)
 Years ended December 31,2007
    
    
    2006
    
    
    2005Net operating revenue from services rendered
    
    
    1,365,815
    
    
    
    1,218,583
    
    
    
    1,044,787Cost of services rendered
    
    
    (1,174,035
    )
    
    
    (1,037,353
    )
    
    
    (855,907
    )Gross profit
    
    
    191,780
    
    
    
    181,230
    
    
    
    188,880Operating income (expenses)Selling, general and administrative
    
    
    (89,117
    )
    
    
    (72,379
    )
    
    
    (59,742
    )Other operating expenses, net
    
    
    (15,646
    )
    
    
    (11,421
    )
    
    
    (12,098
    )Operating income
    
    
    87,017
    
    
    
    97,430
    
    
    
    117,040Financial income (expenses), net
    
    
    (3,548
    )
    
    
    18,405
    
    
    
    14,352Non-operating income, net
    
    
    67
    
    
    
    
    
    
    
    235Income from operations before
income tax and social contribution
    
    
    83,536
    
    
    
    115,835
    
    
    
    131,627Income tax and social contribution provision
    
    
    (28,085
    )
    
    
    (38,154
    )
    
    
    (50,387
    )Net income and comprehensive income for the year
    
    
    55,451
    
    
    
    77,681
    
    
    
    81,240Earnings per shares (in reais)Common shares  Basic
    
    
    3.37
    
    
    
    4.13
    
    
    
    4.96Common shares  Diluted
    
    
    3.23
    
    
    
    4.13
    
    
    
    4.96Preferred shares  Basic
    
    
    3.37
    
    
    
    4.13
    
    
    
    3.90Preferred shares  Diluted
    
    
    3.37
    
    
    
    4.13
    
    
    
    3.90
   F-4




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##### Table of Contents



Contax Participações S.A.
 
 Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of Brazilian Reais, unless otherwise stated)
 Year ended December 31,2007
    
    
    2006
    
    
    2005Operating activities:Net income for the year
    
    
    55,451
    
    
    
    77,681
    
    
    
    81,240Adjustments to reconcile net income to cash provided by
operating activities:Depreciation and amortization
    
    
    100,642
    
    
    
    64,448
    
    
    
    45,846Provision for doubtful accounts
    
    
    4,033
    
    
    
    Contingencies and other provisions
    
    
    13,278
    
    
    
    (2,625
    )
    
    
    18,061Loss on permanent asset disposal
    
    
    (67
    )
    
    
    
    
    
    
    (235
    )Deferred tax asset, net
    
    
    (2,682
    )
    
    
    7,537
    
    
    
    23,155(Increase) decrease in accounts receivable
    
    
    (35,028
    )
    
    
    (21,025
    )
    
    
    6,196(Increase) decrease in other current assets
    
    
    6,629
    
    
    
    (2,160
    )
    
    
    (25,496
    )(Increase) in other non-current assets
    
    
    (2,228
    )
    
    
    3,152
    
    
    
    (7,180
    )Increase in payroll and related accruals
    
    
    30,967
    
    
    
    11,115
    
    
    
    36,484Increase in accounts payable and accrued expenses
    
    
    24,705
    
    
    
    (5,026
    )
    
    
    2,642Increase (decrease) in other current liabilities
    
    
    3,230
    
    
    
    553
    
    
    
    18,302Increase (decrease) in accrued interest
    
    
    3,891
    
    
    
    2,607
    
    
    
    (343
    )Increase (decrease) in recoverable taxes
    
    
    (167
    )
    
    
    7,154
    
    
    
    22,738Increase (Decrease) in other non-current liabilities
    
    
    465Net cash provided by operating activities
    
    
    203,119
    
    
    
    143,411
    
    
    
    221,410Investing activities:Capital expenditure for property and equipment
    
    
    (132,950
    )
    
    
    (66,964
    )
    
    
    (88,109
    )Capital expenditure for discontinued operation
Judicial deposits
    
    
    (9,849
    )
    
    
    (4,154
    )
    
    
    (1,521
    )Proceeds of disposal of property and equipment
    
    
    100
    
    
    
    62
    
    
    
    642Proceeds of disposal of property and equipment
discontinued operation
    
    
    
    
    
    
    
    
    
    
    17,211Cash used in investing activities
    
    
    (142,699
    )
    
    
    (71,056
    )
    
    
    (71,777
    )Financing activities:Treasury stock purchases
    
    
    (119,317
    )
    
    
    (41,394
    )Proceeds from sale of treasury stock
    
    
    472Payments of long-term obligation (leases)
    
    
    (21,091
    )
    
    
    (16,220
    )
    
    
    (3,938
    )Proceeds from long-term borrowings
    
    
    100,060Payment of dividends
    
    
    (11,533
    )
    
    
    (12,930
    )
    
    
    (1,359
    )Net cash provided by financing activities
    
    
    (51,409
    )
    
    
    (70,544
    )
    
    
    (5,297
    )Increase in cash and cash equivalents
    
    
    9,011
    
    
    
    1,811
    
    
    
    144,336Cash and cash equivalents at beginning of year
    
    
    231,299
    
    
    
    229,488
    
    
    
    85,152Cash and cash equivalents at end of year
    
    
    240,310
    
    
    
    231,299
    
    
    
    229,488Supplemental cash flow information:Income tax and social contribution paid
    
    
    26,085
    
    
    
    27,999
    
    
    
    27,230Interest paid
    
    
    2,023
    
    
    
    296
    
    
    
    389Non-cash transations:Property and equipament purchased with capital leases
    
    
    
    
    
    
    41,894
    
    
    
    40,587
   F-5




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##### Table of Contents



Contax Participações S.A.
 
 Consolidated Statement
of Changes in Shareholders Equity,
Years ended December 31, 2007, 2006 and 2005
(Expressed in thousands of Brazilian Reais, unless otherwise stated)
 Paid-in CapitalAdditional
    
    
    Treasury
    
    
    AppropriatedNumber of shares outstanding
    
    
    Preffered
    
    
    Common
    
    
    Paid-in
    
    
    Shares
    
    
    Retained
    
    
    RetainedPreferred
    
    
    Common
    
    
    Total
    
    
    Shares
    
    
    Shares
    
    
    Capital
    
    
    Purchases
    
    
    Earnings
    
    
    Earnings
    
    
    TotalAt December 31, 2004
    
    
    253,202,318
    
    
    
    126,601,159
    
    
    
    379,803,477
    
    
    
    149,249
    
    
    
    74,624
    
    
    
    50,000
    
    
    
    
    
    
    
    6,013
    
    
    
    788
    
    
    
    280,674Split of shares
    
    
    1,545,482
    
    
    
    772,758
    
    
    
    2,318,240Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,240
    
    
    
    81,240Statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,477
    
    
    
    (57,477
    )Appropriation of net income to:Dividends approved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,359
    )
    
    
    (1,359
    )Legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,033
    
    
    
    (4,033
    )Unrealized earnings reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,727
    
    
    
    (5,727
    )At December 31, 2005
    
    
    254,747,800
    
    
    
    127,373,917
    
    
    
    382,121,717
    
    
    
    149,249
    
    
    
    74,624
    
    
    
    50,000
    
    
    
    
    
    
    
    73,250
    
    
    
    13,432
    
    
    
    360,555Split of sharesTreasury shares purchases
    
    
    (11,949,100
    )
    
    
    (6,028,000
    )
    
    
    (17,977,100
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41,394
    )
    
    
    
    
    
    
    
    
    
    
    (41,394
    )Cancellation of shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,614
    )
    
    
    40,614Dividends approved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,432
    )
    
    
    (13,432
    )Dividends proposed from
Unrealized Earnings Reserve


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,050
    )
    
    
    
    
    
    
    (7,050
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,681
    
    
    
    77,681Statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,234
    
    
    
    (53,234
    )Appropriation of net income to:Dividends proposed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,838
    )
    
    
    (4,838
    )Legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,736
    
    
    
    (3,736
    )Unrealized earnings reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,906
    
    
    
    (12,906
    )At December 31, 2006
    
    
    242,798,700
    
    
    
    121,345,917
    
    
    
    364,144,617
    
    
    
    149,249
    
    
    
    74,624
    
    
    
    9,386
    
    
    
    (780
    )
    
    
    136,076
    
    
    
    2,967
    
    
    
    371,522Treasury shares purchases
    
    
    (42,160,412
    )
    
    
    (8,350,472
    )
    
    
    (50,510,884
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (119,317
    )
    
    
    
    
    
    
    
    
    
    
    (119,317
    )Cancellation of shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,580
    
    
    
    (108,580
    )Sale of treasury stocks
    
    
    
    
    
    
    179,660
    
    
    
    179,660
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    604
    
    
    
    
    
    
    
    
    
    
    
    639Reverse Split of shares
    
    
    (190,606,374
    )
    
    
    (107,516,350
    )
    
    
    (298,122,724
    )Dividends approvedDividends proposed from Unrealized Earnings Reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,637
    )
    
    
    
    
    
    
    (12,637
    )Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,451
    
    
    
    55,451Statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,464
    
    
    
    (38,464
    )Appropriation of net income to:Dividends proposed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (777
    )
    
    
    (777
    )Legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,699
    
    
    
    (2,699
    )Unrealized earnings reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,044
    
    
    
    (12,044
    )At December 31, 2007
    
    
    10,031,914
    
    
    
    5,658,755
    
    
    
    15,690,669
    
    
    
    149,249
    
    
    
    74,624
    
    
    
    9,421
    
    
    
    (10,913
    )
    
    
    68,066
    
    
    
    4,434
    
    
    
    294,881
   F-6




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##### Table of Contents



1
    
    Description of Business(a)
    
    OperationsContax Participações S.A. (Contax Holding), established on July 31, 2000, is a publicly-held
Company whose registered corporate purpose is to hold interests in other commercial enterprises and
civil societies as a partner, shareholder or quota holder in Brazil or abroad. Its only subsidiary,
TNL Contax S.A. (TNL Contax) (together with Contax Holding, the Company), is a contact center
service provider, which corporate purpose is providing telephonic customer assistance services in
general.The Company obtained its registration in BOVESPA and SEC and started the negotiations of shares and
ADRs on August 29, 2005 in BOVESPA and on August 31, 2005 in the USA over-the-counter market.(b)
    
    TNL ContaxTNL Contax S.A., established in August, 1988, privately-held company, which corporate purpose is to
provide telephonic customer assistance services in general, offering a variety of integrated
customer interaction solutions between its clients and their consumers, including telemarketing
operations, customer services, customer retention, technical support and bill collection through a
variety of communication channels, including telephone contacts, internet access, e-mail, fax,
development of technological solutions related to the telephonic customer assistance services
offer, among others.2
    
    Summary of Significant Accounting Policies(a)
    
    Basis of presentationThe Consolidated Financial Statements were prepared in accordance with accounting practices
generally accepted in the United States of America (US GAAP), which differ in certain respects
from the accounting practices adopted in Brazil that are used to prepare the Companys statutory
financial statements.The consolidation and combination process for the balance sheet and the statements of operations,
cash flows and shareholders equity reflects the aggregate of the balances and changes in assets,
liabilities, shareholders equity and income and expense accounts, according to their nature,
together with the elimination of inter-company transactions and unrealized profits.
   F-7




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##### Table of Contents



(b)
    
    Fair value of financial instrumentsThe carrying amounts reported in the balance sheet for cash and cash equivalents, accounts
receivable, and other receivables and accrued expenses approximate their fair values due to the
short-term nature of these financial instruments.(c)
    
    Concentration of credit risksFinancial instruments which expose the Company to concentration of credit risk consist primarily of
cash equivalents and accounts receivable. All cash equivalents are maintained in Brazil with prime
financial institutions. Management believes its credit policies are prudent and reflect normal
business terms and risk. The Company does not anticipate nonperformance by the counterparties and,
accordingly, does not require collateral.(d)
    
    Use of estimatesThe Consolidated Financial Statements include estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingencies and the amounts of revenues and
expenses. The application of this significant accounting policy often requires judgments made by
management regarding the effects of matters that are inherently uncertain. Our estimates, including
but not limited to the provisions of accounts receivables and contingent liabilities, may differ
from the actual value of such assets or liabilities.(e)
    
    Cash and cash equivalentsCash and cash equivalents are considered to be all highly liquid investments with an original
maturity to the Company of three months or less.(f)
    
    Revenue recognitionWe recognize revenues on an accrual basis at the time the services are rendered, except with
respect to some of our performance-based services, which we recognize upon measurement and
acceptance by our client. The service contract revenues are calculated based on indicators like
quantity of workstations, speaking time and on performance targets. Revenues are calculated based
on information available in our IT systems that relate to the volume of data services rendered to
each client. Revenues related to our performance-based services are calculated based on data
available in our clients IT systems. In addition, we usually allocate operations managers to
review, reconcile and discuss such indicators with clients. Some revenue adjustments are recorded
after discussions with such clients.(g)
    
    Costs and expensesThe operating costs and expenses are recorded on an accrual basis and pertain mainly to personnel
expenses.
   F-8




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##### Table of Contents



(h)
    
    Financial income and expensesFinancial income and expenses pertain mainly to interest and monetary variations resulting from
financial investments loan contracts signed with a subsidiary and leasing contracts, all recorded
on an accrual basis.(i)
    
    Provision for doubtful accountsThis provision is recorded to recognize probable losses in relation to accounts receivable, whose
calculation is based on estimates considering the situation of each customer and the guarantees
provided by them. The basis for measurement of the provision considers the position of each overdue
client individually.(j)
    
    Judicial depositsThe Company questions, in some situations, whether certain liabilities or lawsuits filed against
the company are fair or not. Pursuant to these questionings, by court order or by strategy of the
management, the referred amounts may be deposited in court and the liabilities will not be
considered as settled. In these situations, if it is not possible to redeem the deposit, except for
a court decision favorable to the entity. These deposits may be monetarily updated.(k)
    
    Property and equipmentThe investment in property and equipment is stated at original cost. Property and equipment is
depreciated using the straight-line method over their estimated useful lives. The principal
depreciation rates are detailed in Note 12.Management reviews long-lived assets, primarily buildings and equipment to be held and used in the
business, for the purpose of determining and measuring impairment on a recurring basis or when
events or changes in circumstances indicate that the carrying value of an asset or group of assets
may not be recoverable. Write-down of the carrying value of assets or groups of assets is recorded
if and when appropriate.(l)
    
    Provisions for contingenciesThe recognition, measurement and disclosure of contingent assets and liabilities and legal
obligations are carried out according to the criteria set forth in FAS 5.Contingent Assets  are not recognized on an accounting basis, except when the management is in
total control of the situation or when there are real guarantees or favorable decisions, on which
it is no longer possible to file appeals, characterizing the gain as practically certain.
   F-9




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Contingent liabilities  constituted by means of individual analysis, by complaints, based on the
opinion of management and in-house counsel, as well as outside legal advisers. The bases, amounts
involved and types of main contingencies are described in Note 16.Legal obligations  arise from tax obligations whose purpose of claim is its lawfulness or
constitutionality.(m)
    
    Income tax and social contributionProvisions for deferred and payable income tax and social contribution and tax credit on temporary
differences are established at the base rate of 34%, comprised of a 25% federal income tax rate
plus a 9% social contribution rate. In accordance with SFAS 109  Accounting for Income Taxes,
the deferred tax effects of tax loss carry forwards and temporary differences and adjustments to US
GAAP have been recognized in the Consolidated Financial Statements. A valuation allowance is made
when it is more likely than not that tax assets will not be fully recoverable in the future.Prepaid income tax and social contribution are recorded as Recoverable taxes.(n)
    
    Payroll and related accrualsThe amounts related to vacation pay owed to the employees are covered by provisions established in
proportion to the acquisition period thereof.The subsidiary TNL Contax has a profit sharing program, for all its employees, pursuant to the
agreement entered into with FITTEL  Interstate Federation of Employees of Telecommunications
Companies. This profit sharing program is based on increasing operating gains and individual
performance, in which all the employees take part.(o)
    
    LoansLoans taken are recognized initially in the funds receivables, net of transaction costs.
Subsequently, loans taken are presented by the cost amortized, which includes charges and interest
proportional to the period incurred.(p)
    
    LeasingsLeasing contracts are treated as finance leases when any of the following conditions is met: (i)
the contract transfer the leased asset at the end of the lease term (ii) the contract contains a
bargain purchase option (iii) the present value of the future lease payments equals or exceeds 90%
of the fair value of the leased asset and, (iv) the lease term equals or exceeds 75% of the useful
life of the leased asset.Leasing contracts treated as finance leases are recognized as both an asset (equipment) and a
liability (short and long-term debt).
   F-10




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##### Table of Contents



(q)
    
    Other current liabilitiesThese are stated at known or estimated amounts, including, when applicable, accrued charges and
monetary variations incurred on a pro rata basis.(r)
    
    Statements of cash flowsThe statement of cash flows is presented in accordance with FAS 95, Statement of Cash Flows,
which establishes specific presentation requirements and requires certain disclosures, such as the
amount of interest and income taxes paid and non-cash transactions such as acquisition of property,
plant and equipment through capital leases, utilization of escrow deposits in settlement of
liabilities and debt for equity conversions, among others.(s)
    
    Segment InformationAs the company operates in only one segment and one geographic area, no segment information is
disclosed.3
    
    Earnings per shareFor the purpose of these financial statements, the computation of earnings per share for 2006 and
2005 is based on the number of shares with the effect of the reverse split of shares in the
proportion of 20 shares for 1 share of the same type. Since preferred and common shareholders have
different dividend, voting and liquidation rights, basic and diluted earnings per share have been
calculated using the two-class method. The two-class method is an earnings allocation
formula that determines earnings per share for preferred and common stock according to the
dividends to be paid as required by the Companys by-laws and participation rights in undistributed
earnings. Basic earnings per common share is computed by reducing net income by distributable and
undistributable net income available to preferred shareholders and dividing net income available to
common shareholders by the average number of common shares outstanding. Net income available to
preferred shareholders is the sum of the preferred stock dividends and the preferred shareholders
portion of undistributed net income. Undistributed net income is computed by deducting total
dividends (the sum of preferred and common stock dividends) from net income. Undistributed net
income is shared equally by the preferred and common shareholders on a pro rata basis.On August 17, 2005, Contax Holdings Shareholders approved a split of its shares, to equalize its
number of shares to the number of TNL for share distribution purpose that occurred shortly after.
The split ratio was 1.006.103 for each 1 Contax Holdings share.First share buyback program.
   F-11




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##### Table of Contents



At the Extraordinary Meeting of the Board of Directors held on June 29, 2006, the share buyback
proposal was approved, with funds registered in the Capital Reserve and Statutory Reserve, totaling
the buyback of 5,886,700 common shares and 11,773,900 preferred shares, fully cancelled as per
resolution of the Extraordinary General Meeting held on November 28, 2006.Second share buyback program.
At the Extraordinary Meeting held on November 30, 2006, the Board of Directors approved the launch
proposal of the share buyback program, with funds registered in the Capital Reserve and Statutory
Reserve, which amounted to the buyback of 5,298,300 common shares and 24,058,190 preferred shares,
cancelled on July 31, 2007, thus maintaining 1,750,000 common shares in treasury, as per resolution
at the Extraordinary General Meeting held on July 27, 2007.Third share buyback program.
At the Extraordinary Meeting, held on July 26, 2007, the Board of Directors approved the new share
buyback program with funds registered in the Capital Reserve and Statutory Reserve, totaling the
buyback of 18,277,422 preferred shares and 3,193,472 common shares, cancelled on October 17, 2007,
of which 1,750,000 common shares are kept in treasury, pursuant to the resolutions of the General
Extraordinary Meeting, totaling 3,500,000 common shares in treasury.Sale of shares
On October 18, 2007 179,660 common shares were sold to the Companys executives, in conformity with
the Stock Option Plan approved at the Extraordinary General Meeting held on April 16, 2007.Reverse split of shares.
At the Extraordinary General Meeting held on October 17, 2007, the reverse split of all shares
representing the Companys capital stock was approved, in the proportion of 20 shares for 1 share
of the same type. As per the call to the shareholders, a term of until November 16, 2007 was
granted for the execution of the adjustments in the share positions. The information disclosed
regarding the amount of shares prior to this date does not include a retroactive effect of the
reverse split of shares.
   F-12




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##### Table of Contents



As of December 31,2007
    
    
    2006
    
    
    2005Net income for the year
    
    
    55,451
    
    
    
    77,681
    
    
    
    81,240Less preferred shares dividends
    
    
    (777
    )
    
    
    (4,838
    )
    
    
    (8,955
    )Less common shares dividends
    
    
    
    
    
    
    
    
    
    
    (4,478
    )Remaining net income equally allocated to:preferred shares
    
    
    35,302
    
    
    
    46,954
    
    
    
    40,727common shares
    
    
    19,371
    
    
    
    25,889
    
    
    
    27,080Total net income allocated to:preferred shares
    
    
    36,079
    
    
    
    51,792
    
    
    
    49,682common shares
    
    
    19,371
    
    
    
    25,889
    
    
    
    31,558Weighted average number of shares outstanding  Basic:Common
    
    
    5,747,315
    
    
    
    6,264,303
    
    
    
    6,368,696Preferred
    
    
    10,704,436
    
    
    
    12,532,231
    
    
    
    12,737,390Weighted average number of shares outstanding  Diluted:Common
    
    
    6,005,323
    
    
    
    6,264,303
    
    
    
    6,368,696Preferred
    
    
    10,704,436
    
    
    
    12,532,231
    
    
    
    12,737,390Basic and diluted earnings per share:Common
    
    
    3.37
    
    
    
    4.13
    
    
    
    4.96Preferred
    
    
    3.37
    
    
    
    4.13
    
    
    
    3.90Diluted earnings per share:Common
    
    
    3.23
    
    
    
    4.13
    
    
    
    4.96Preferred
    
    
    3.37
    
    
    
    4.13
    
    
    
    3.90
   F-13




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##### Table of Contents



4
    
    Recently issued accounting pronouncements(i)
    
    SFAS 141 (Revised)In December 2007, the Financial Accounting Standards Board issued FAS 141R  Business Combinations.
This statement applies to all transactions or events in which an entity obtains control of one or
more businesses, except for joint ventures, assets that do not constitute a business, combination
of businesses under common control and not-for-profit organizations. This Statement shall be
applied prospectively to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier
application is prohibited. The objective of this statement is to improve the relevance,
representational faithfulness and comparability of the information that a reporting entity provides
in its financial reports about a business combination and its effects. The Company is currently
studying the impact of this standard and will apply it as of the fiscal year beginning January 1,
2009.(ii)
    
    SFAS 160In December 2007, the Financial Accounting Standards Board issuedFAS 160  Non-controlling
Interests in Consolidated Financial Statements, which applies to all entities that prepare
consolidated financial statements, except not-for-profit organizations.This Statement amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.This Statement shall be effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited. This Statement shall be
applied prospectively as of the beginning of the fiscal year in which this Statement is initially
adopted, except for the presentation and disclosure requirements. The objective of this statement
is to improve the relevance, comparability and transparency of the financial information that a
reporting entity provides in its consolidated financial statements by establishing accounting and
reporting standards that require more extensive disclosure that clearly identifies and
distinguishes between the interests of the Parent Company and the interests of the non-controlling
owners. The Company is currently studying the impact of this standard and will apply it as of the
fiscal year beginning January 1, 2009.(iii)
    
    SFAS 161In March 2008, the (FASB) issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities, The new standard is intended to improve financial reporting about instruments and
hedging activities by requiring enhanced disclosures to enable investors to better understand their
effects on an entitys financial position, financial performance, and cash flows. It is effective
for financial statements issued for fiscal years and interim periods beginning after November 15,
2008 with early application encouraged. We are currently studying the possible effects which may
arise upon adoption of this standard.
   F-14




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##### Table of Contents



(iv)
    
    SFAS 159In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Boards long-term measurement objectives for
accounting for financial instruments. The fair value option established by this Statement permits
all entities to choose to measure eligible items at fair value at specified election dates. This
standard is effective for fiscal years ending on or after November 15, 2007. The Company is
currently studying the impact of this standard and will apply it as of the fiscal year beginning on
January 1, 2008(v)
    
    SFAS 157In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, Fair Value
Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair value measurements.
This statement applies under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting pronouncements that fair
value is relevant measurement attribute. Accordingly, this Statement does not require any new fair
value measurements. Accordingly to the Board, a single definition of fair value, together with a
framework for measuring fair value, should result in increased consistency and comparability in
fair value measurements. This standard is effective for fiscal years ending on or after November
15, 2007. The Company is currently studying the impact of this standard and will apply this
standard as of the fiscal year beginning on January 1, 2008.(vi)
    
    SFAS 157-2In February 2008, the Financial Accounting Standard (FASB) issued FSP FAS 157-2, Effective Date of
FASB Statement No. 157. The objective of this FSP is to delay the effective date of FASB Statement
No. 157, Fair Value Measurements, for nonfinancial assets and nonfinancial liabilities, except for
items that are recognized or disclosed at fair value in the financial statements on a recurring
basis. The delay is intended to allow the Board and constituents additional time to consider the
effect of various implementation issues that have arisen, or that may arise, from the application
of Statement 157. This FSP shall be effective upon issuance.
   F-15




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##### Table of Contents



5
    
    Cost of Services Rendered and Operating Expenses
 Year ended December 31, 2007Selling,generalCost of
    
    
    andservices
    
    
    adminis-rendered
    
    
    trative
    
    
    TotalPersonnel (i)
    
    
    863,257
    
    
    
    45,112
    
    
    
    908,369Third-party services (ii)
    
    
    158,276
    
    
    
    31,127
    
    
    
    189,403Depreciation (iii)
    
    
    93,848
    
    
    
    6,794
    
    
    
    100,642Facilities (iv)
    
    
    49,134
    
    
    
    1,724
    
    
    
    50,858Allowance for doubtful accounts (v)
    
    
    
    
    
    
    4,033
    
    
    
    4,033Other
    
    
    9,520
    
    
    
    327
    
    
    
    9,847Total
    
    
    1,174,035
    
    
    
    89,117
    
    
    
    1,263,152
 Year ended December 31, 2006Selling,generalCost of
    
    
    andservices
    
    
    adminis-rendered
    
    
    trative
    
    
    TotalPersonnel (i)
    
    
    786,712
    
    
    
    34,799
    
    
    
    821,511Third party services (ii)
    
    
    133,384
    
    
    
    27,366
    
    
    
    160,750Depreciation (iii)
    
    
    59,529
    
    
    
    4,919
    
    
    
    64,448Facilities (iv)
    
    
    45,579
    
    
    
    3,513
    
    
    
    49,092Other costs and expenses
    
    
    12,149
    
    
    
    1,782
    
    
    
    13,931Total
    
    
    1,037,353
    
    
    
    72,379
    
    
    
    1,109,732
   F-16




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##### Table of Contents



Year ended December 31, 2005Selling,generalCost of
    
    
    andservices
    
    
    adminis-rendered
    
    
    trative
    
    
    TotalPersonnel (i)
    
    
    670,998
    
    
    
    28,771
    
    
    
    699,769Third party services (ii)
    
    
    93,055
    
    
    
    24,038
    
    
    
    117,093Depreciation (iii)
    
    
    41,907
    
    
    
    3,939
    
    
    
    45,846Facilities (iv)
    
    
    39,385
    
    
    
    1,354
    
    
    
    40,739Other costs and expenses
    
    
    10,562
    
    
    
    1,640
    
    
    
    12,202Total
    
    
    855,907
    
    
    
    59,742
    
    
    
    915,649
 
 (i)
    
    Personnel cost has presented an increase due to the growth of the business volume. The
Company provisioned for its 2007 profit sharing program the amount of R$15,483 due to the fact
that the negotiations regarding said program are not concluded with FITTEL. The management
carried out the provision taking into account its best estimate to conclude the negotiations,
verifying the background of previous negotiations, technical analysis and the current status
of this negotiation.(ii)
    
    Third party services considered as Costs of services rendered refer mainly to data
processing and workstation maintenance, while third-party services considered Selling,
general and administrative refer to expenses with consulting, traveling, legal counsel and
others.(iii)
    
    The increase arises from the reduction of the useful life expected for the assets recorded
in the items regarding IT equipment, and furniture and fixtures (Note 12), and from the
investments carried out due to the increase in business volume(iv)
    
    Facilities expenses include mainly amounts which are being paid for the rental of properties
and contact center operating infrastructure.(v)
    
    Allowance for doubtful accounts related to past due receivables. 6
    
    Other operating income (expenses), net
 Years ended December 31,2007
    
    
    2006
    
    
    2005Provision for contingencies (Note 16)
    
    
    (10,108
    )
    
    
    (8,413
    )
    
    
    (10,908
    )Other, net (i)
    
    
    (5,538
    )
    
    
    (3,008
    )
    
    
    (1,190
    )Total
    
    
    (15,646
    )
    
    
    (11,421
    )
    
    
    (12,098
    )
 
 (i)
    
    Other, net refers, mainly, to IPTU  Municipal Real Estate Tax from the leased buildings.   F-17




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##### Table of Contents



7
    
    Financial income (expenses), net
 Years ended December 31,2007
    
    
    2006
    
    
    2005Financial incomeInterest on securities
    
    
    15,681
    
    
    
    25,523
    
    
    
    21,569Other
    
    
    966
    
    
    
    1,018
    
    
    
    10816,647
    
    
    
    26,541
    
    
    
    21,677Financial expensesBank charges, including CPMF (i)
    
    
    (6,903
    )
    
    
    (5,332
    )
    
    
    (5,341
    )Interest and monetary restatement of contingencies
    
    
    (4,683
    )
    
    
    (2,707
    )
    
    
    (1,000
    )Interest on BNDES financing
    
    
    (1,873
    )Other (ii)
    
    
    (6,736
    )
    
    
    (97
    )
    
    
    (984
    )(20,195
    )
    
    
    (8,136
    )
    
    
    (7,325
    )(3,548
    )
    
    
    18,405
    
    
    
    14,352
 (i)
    
    CPMF, or Provisory Contribution over Financial Movements is a contribution paid by
individuals and companies over withdrawals from bank and financial investment accounts.(ii)
    
    Other expenses refers mainly to taxes on financial operations interest on short-term
liabilities and leasing obligations. 8
    
    Income tax and social contributionIncome taxes in Brazil comprise federal income tax and social contribution, which is an additional
federal tax. The statutory composite enacted tax rate applicable in the periods presented is 34%,
represented by a 25% federal income tax rate plus a 9% social contribution rate.
   F-18




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##### Table of Contents



The amount reported as income tax expense in our Consolidated Financial Statements information is
reconciled to the statutory rates as follows:
 Years ended December 31,2007
    
    
    2006
    
    
    2005Income from continuing operations before
tax and social contribution
    
    
    83,537
    
    
    
    115,836
    
    
    
    131,627Federal income tax and social contribution expense at
statutory enacted rates
    
    
    (28,402
    )
    
    
    (39,384
    )
    
    
    (44,753
    )Adjustments to derive effective tax rate:Tax effects on permanent differences
    
    
    317
    
    
    
    1,230
    
    
    
    (5,634
    )Income tax and social contribution
tax provision
    
    
    (28,085
    )
    
    
    (38,154
    )
    
    
    (50,387
    )(28,085
    )
    
    
    (38,154
    )
    
    
    (50,387
    )
  As of December 31,2007
    
    
    2006Deferred taxes:Provision for contingencies
    
    
    12,006
    
    
    
    7,592Profit sharing
    
    
    6,631
    
    
    
    3,060Tax loss carryforwards
    
    
    10,556
    
    
    
    21,42729,193
    
    
    
    32,079Current deferred tax assets
    
    
    17,187
    
    
    
    12,176Long-term deferred tax assets
    
    
    12,006
    
    
    
    19,903
    F-19




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F-20




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##### Table of Contents



9
    
    Cash and cash equivalents
 As of December 31,2007
    
    
    2006Cash and banks accounts (i)
    
    
    114,440
    
    
    
    65,235Certificate of deposits (ii)
    
    
    125,870
    
    
    
    166,064240,310
    
    
    
    231,299
  (i)
    
    The amounts are kept in a current account, as the Company has accounts payable due on the
first days of each month, relating to the payment of suppliers, taxes and payroll.(ii)
    
    In general, these financial investments are indexed by the Brazilian Interbank Certificate of
Deposit (CDI) rate, with daily liquidity and maturity after one month from the date of
issuance. 10
    
    Deferred taxes
 As of December 31,2007
    
    
    2006Short
    
    
    Long
    
    
    Short
    
    
    Longterm
    
    
    term
    
    
    term
    
    
    termIncome tax on temporary differences
    
    
    4,876
    
    
    
    8,828
    
    
    
    2,257
    
    
    
    5,582Social Contribution on temporary differences
    
    
    1,755
    
    
    
    3,178
    
    
    
    810
    
    
    
    2,010Income tax on tax loss carryfowards
    
    
    7,753
    
    
    
    
    
    
    
    6,327
    
    
    
    9,414Social Contribution on tax loss carryfowards
    
    
    2,803
    
    
    
    
    
    
    
    2,782
    
    
    
    2,89717,187
    
    
    
    12,006
    
    
    
    12,176
    
    
    
    19,903
 11
    
    Recoverable taxes
 As of December 31,2007
    
    
    2006Short
    
    
    Long
    
    
    Shortterm
    
    
    term
    
    
    termIncome tax recoverable (i)
    
    
    17,269
    
    
    
    
    
    
    
    19,546Social contribution recoverable (i)
    
    
    6,379
    
    
    
    
    
    
    
    7,210Withholding taxes
    
    
    1,740
    
    
    
    3,688
    
    
    
    5,634ISS recoverable (ii)
    
    
    
    
    
    
    1,880
    
    
    
    931Other
    
    
    430
    
    
    
    
    
    
    
    56625,818
    
    
    
    5,568
    
    
    
    33,887
 
 (i)
    
    Recoverable income tax and social contribution relate to advance payments made
throughout the year to be compensated with income tax and social contribution payable
upon filling of the Companys tax return.(ii)
    
    Recoverable ISS is classified as Long Term due to the repayment terms with
Municipal bodies.   F-21




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##### Table of Contents



12
    
    Property and equipment and intangible assets, net
 As of December 31,2007
    
    
    2006AnnualAccumulated
    
    
    
    
    
    
    
    
    
    depreciationCost
    
    
    depreciation
    
    
    Net
    
    
    Net
    
    
    rate (%)Telecom and IT systems (i)
    
    
    261,544
    
    
    
    (160,226
    )
    
    
    101,318
    
    
    
    126,311
    
    
    
    33,3 to 20Improvements on third
party assets
    
    
    157,707
    
    
    
    (36,771
    )
    
    
    120,936
    
    
    
    100,221
    
    
    
    10Furniture and fixtures (i)
    
    
    47,104
    
    
    
    (14,692
    )
    
    
    32,412
    
    
    
    25,168
    
    
    
    12,5 to 10Construction in progress
    
    
    1,530
    
    
    
    
    
    
    
    1,530
    
    
    
    877Buildings
    
    
    2,628
    
    
    
    
    
    
    
    2,628
    
    
    
    
    
    
    
    4Land
    
    
    831
    
    
    
    
    
    
    
    831Other
    
    
    20,199
    
    
    
    (5,295
    )
    
    
    14,904
    
    
    
    13,016
    
    
    
    10Intangible
Software
    
    
    112,081
    
    
    
    (44,105
    )
    
    
    67,976
    
    
    
    44,134
    
    
    
    20Total
    
    
    603,624
    
    
    
    (261,089
    )
    
    
    342,535
    
    
    
    309,727
 
 (i)
    
    The leasing contracts related to these assets vary from 5 to 8 years and the Company has the
ability, at its option, to extend these contracts by the same periods (see note 16 (b)).     F-22




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##### Table of Contents



Basic earnings per share:Common
    
    
    4.43Preferred
    
    
    4.43Diluted earnings per share:Common
    
    
    4.24Preferred
    
    
    4.43
 13
    
    Financings
 2007Final
    
    
    FinancialPurpose
    
    Funding
    
    
    maturity
    
    
    charges
    
    
    AmountNacional currencyBNDES(Operation
expansion and update)
    
    
    10.5.2007
    
    
    
    9.15.2013
    
    
    TJLP+ 2% p.y. (i)
    
    
    100,360Current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300Noncurrent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,060
 
 (i)
    
    See note 19 (f)       F-23




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##### Table of Contents



Limit bySurety
    
    Debt (%)- Banco Safra S/A
    
    
    12.04
    %- Banco Votorantim S/A
    
    
    55.56
    %- Banco Alfa S/A
    
    
    32.40
    %100.00
    %
   F-24




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##### Table of Contents



Interest
    
    
    FinancialPurpose
    
    Funding
    
    
    amortization
    
    
    charges
    
    
    2007BNDES
    
    
    100,002
    
    
    
    (1,574
    )
    
    
    1,932
    
    
    
    100,360
  BNDES
    
    Principal
    
    
    Interest
    
    
    Total2008
    
    
    
    
    
    
    7,863
    
    
    
    7,8632009
    
    
    6,254
    
    
    
    7,831
    
    
    
    14,0852010
    
    
    25,015
    
    
    
    6,446
    
    
    
    31,4612011
    
    
    25,015
    
    
    
    4,489
    
    
    
    29,5042012
    
    
    25,015
    
    
    
    2,548
    
    
    
    27,5632013
    
    
    18,761
    
    
    
    604
    
    
    
    19,365100,060
    
    
    
    29,781
    
    
    
    129,841
 14
    
    Taxes other than on income
 Consolidated2007
    
    
    2006Short
    
    
    Long
    
    
    Short
    
    
    Longterm
    
    
    term
    
    
    term
    
    
    termServices Tax  ISS
    
    
    8,296
    
    
    
    
    
    
    
    5,523Social Security Financing (COFINS)
    
    
    5,089
    
    
    
    
    
    
    
    4,170INSS  Installments
    
    
    768
    
    
    
    2,391
    
    
    
    768
    
    
    
    2,745Other
    
    
    10
    
    
    
    
    
    
    
    1014,163
    
    
    
    2,391
    
    
    
    10,471
    
    
    
    2,745
 15
    
    Taxes on income
 As of December 31,2007
    
    
    2006Income tax payable
    
    
    18,018
    
    
    
    21,249Social contribuition payable
    
    
    6,809
    
    
    
    7,839Total
    
    
    24,827
    
    
    
    29,088
   F-25




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##### Table of Contents



16
    
    Commitments and Contingencies(a)
    
    Contingencies
 As of December 312007
    
    
    2006TaxServices Tax  ISS
    
    
    1,098
    
    
    
    671Contributions to the National Social Security Institute  INSS (i)
    
    
    5,196
    
    
    
    5,122PIS/COFINS
    
    
    1,4827,776
    
    
    
    5,793Labor(ii)
    
    
    38,955
    
    
    
    22,98938,955
    
    
    
    22,989Civil
    
    
    129
    
    
    
    117Total
    
    
    46,860
    
    
    
    28,899
 The provisions for contingencies reflect managements best estimates for the amounts deemed
sufficient to cover probable losses from pending claims on the balance sheet date and are based on
the expert opinions of legal advisors. The Company and its subsidiary maintain judicial deposits to
ensure the right of recourse in lawsuits of tax and labor nature.
 (i)
    
    Provision to regulate contributions to SENAC and SEBRAE entities, in the payments made to
INSS (National Institute of Social Security), accordingly to the FPAS (Pension and Social
Assistance Fund) table.(ii)
    
    Pursuant to the services agreement executed by Telemar and TNL Contax, it was defined that
labor claims, arising from the migration of work agreements shall be incumbent upon Telemar,
which amount has been recorded as a counter entry to Receivable Credits. The amount of labor
claims under Telemars responsibility amounts to R$ 11,550 thousand. The labor claims filed
against TNL CONTAX by employees and former employees amount to R$ 27,405 thousand.
 In the third quarter of 2006, TNL Contax was imposed an official notification regarding
contributions to INSS in the amount of R$ 21.9 million. Of this amount, R$ 3.5 million was
recognized as a contingency provision and R$ 3.7 million refer to third parties liabilities that
are being totally assumed by these third parties and did not affect the results for the period as
its was recorded in the Taxes paid in installments account (see Note 14) as a counter entry to
the Other assets account. For the remaining R$ 14.7 million, the Company has argued a defense
appeal, since it does not agree with the position adopted by the fiscal authorities. Based on the
opinion of its external legal advisors, the Companys position is that there are good possibilities
of success, therefore, it has not recognized any provision for this amount.
   F-26




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##### Table of Contents



As a part of our ongoing operations, we have been the defendant in a number of lawsuits brought by
our employees, labor unions and the Labor Public Prosecution Office (Ministério Público do
Trabalho). We have established what we believe to be an adequate reserve to cover these claims.(b)
    
    CommitmentsLeasingThe Company maintains several commercial leasing agreements for IT equipment that are being treated
as finance leases and have been recorded as both an asset (equipment) and a liability (long-term
debt) at their inception:
 Liability balancesInception
    
    Maturity
    
    Number of
    
    
    Assets balance
    
    
    Current part of long-term
    
    
    Long-termLessor
    
    date
    
    date
    
    installments
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006HP Financial
    
    20/12/2004a 29/09/2005
    
    20/11/2007a 29/08/2008
    
    
    36
    
    
    
    4,588
    
    
    
    6,553
    
    
    
    970
    
    
    
    3,724
    
    
    
    
    
    
    
    970IBM Leasing
    
    01/07/2005a 29/07/2005
    
    01/06/2008a 29/06/2008
    
    
    36
    
    
    
    329
    
    
    
    460
    
    
    
    118
    
    
    
    237
    
    
    
    
    
    
    
    118HP Financial
    
    29/10/2005a 27/04/2006
    
    29/09/2009a 27/03/2010
    
    
    48
    
    
    
    11,453
    
    
    
    15,233
    
    
    
    4,744
    
    
    
    4,744
    
    
    
    4,881
    
    
    
    9,625CIT
    
    27/11/2005
    
    27/10/2009
    
    
    48
    
    
    
    8,532
    
    
    
    11,144
    
    
    
    3,272
    
    
    
    3,272
    
    
    
    4,143
    
    
    
    7,416DIBENS (UBB)
    
    23/09/2005
    
    03/11/2010
    
    
    48
    
    
    
    9,041
    
    
    
    11,275
    
    
    
    3,490
    
    
    
    3,490
    
    
    
    3,121
    
    
    
    6,611IBM Leasing
    
    25/01/2006
    
    25/12/2009
    
    
    48
    
    
    
    454
    
    
    
    606
    
    
    
    189
    
    
    
    189
    
    
    
    189
    
    
    
    378HP Financial
    
    1/12/2006 a 24/9/2006
    
    5/11/2011a 23/9/2011
    
    
    60
    
    
    
    12,736
    
    
    
    16,398
    
    
    
    3,663
    
    
    
    3,663
    
    
    
    9,140
    
    
    
    12,736IBM Leasing
    
    28/06/2006
    
    24/10/2011
    
    
    60
    
    
    
    6,268
    
    
    
    8,040
    
    
    
    1,772
    
    
    
    1,772
    
    
    
    4,496
    
    
    
    6,26853,401
    
    
    
    69,709
    
    
    
    18,218
    
    
    
    21,091
    
    
    
    25,970
    
    
    
    44,122
   F-27




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##### Table of Contents



Inception
    
    Maturity
    
    Number of
    
    
    Payments for the year
    
    
    Expenses for the yearLessor
    
    date
    
    date
    
    installments
    
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006HP Financial
    
    20/12/2004
    
    20/11/2007a 29/09/2005
    
    a 29/08/2008
    
    
    36
    
    
    
    3,724
    
    
    
    3,890
    
    
    
    2,030
    
    
    
    2,030IBM Leasing
    
    01/07/2005
    
    01/06/2008a 29/07/2005
    
    a 29/06/2008
    
    
    36
    
    
    
    237
    
    
    
    237
    
    
    
    131
    
    
    
    131HP Financial
    
    29/10/2005
    
    29/09/2009a 27/04/2006
    
    a 27/03/2010
    
    
    48
    
    
    
    4,744
    
    
    
    4,246
    
    
    
    3,780
    
    
    
    3,382CIT
    
    11/27/2005
    
    10/27/2009
    
    
    48
    
    
    
    3,272
    
    
    
    2,245
    
    
    
    2,612
    
    
    
    1,790DIBENS (UBB)
    
    9/23/2005
    
    11/3/2010
    
    
    48
    
    
    
    3,490
    
    
    
    3,330
    
    
    
    2,234
    
    
    
    2,157IBM Leasing
    
    1/25/2006
    
    25/12/2009
    
    
    48
    
    
    
    189
    
    
    
    189
    
    
    
    151
    
    
    
    151HP Financial
    
    1/12/2006a 24/9/2006
    
    5/11/2011a 23/9/2011
    
    
    60
    
    
    
    3,663
    
    
    
    1,915
    
    
    
    3,663
    
    
    
    1,915IBM Leasing
    
    6/28/2006
    
    10/24/2011
    
    
    60
    
    
    
    1,772
    
    
    
    822
    
    
    
    1,772
    
    
    
    82221,091
    
    
    
    16,874
    
    
    
    16,373
    
    
    
    12,378
 Payments due by periodMoreLess than
    
    
    
    
    
    
    
    
    
    
    thanContractual obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(in thousands of reais)Capital (finance) lease
    
    
    44,188
    
    
    
    18,219
    
    
    
    23,159
    
    
    
    2,812Operating lease (facilities)
    
    
    82,210
    
    
    
    28,591
    
    
    
    44,509
    
    
    
    8,943
    
    
    
    166Total
    
    
    126,398
    
    
    
    46,810
    
    
    
    67,668
    
    
    
    11,755
    
    
    
    166
 17
    
    Shareholders equity(a)
    
    Share capitalContax Participações capital of R$ 223,873 as of December 31, 2007, is comprised of 15,856,686
(2006*  364,461,117) registered shares, with no par value, of which 5,824,772 (2006* 
121,487,217) are common shares and 10,031,914 (2006*  242,973,900) are preferred shares.The Company started a share buyback programs on June 29 and November 30, 2006 (see Note 3) under
which 6,028,000 common shares and 11,949,100 preferred shares were acquired and 5,886,700 common
shares and 11,773,900 preferred shares were subsequently cancelled up to December 31, 2006.Each common share is entitled to one vote in the Shareholders General Meeting.
 (*)
    
    See Note 3  Reverse split of shares. The number of shares does not include treasury stock.   F-28




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##### Table of Contents



The preferred shares issued by the Company do not have voting rights, but are granted refund
priority in the event of liquidation of the Company, without goodwill, and in the payment of
non-cumulative minimum dividends, on the basis of: (a) 6% per year over the amount resulting from
the division of the subscribed capital by the number of shares of the Company or, (b) 3% pear year
over the share net equity value, prevailing the higher amount between (a) and (b).The preferred shares may represent up to 2/3 (two thirds) of the total shares issued by the
Company, with the possibility of changing the previous existing proportion between common and
preferred shares.On August 17, 2005, an Extraordinary General Meeting of Contax Participações approved the split of
the total of its outstanding shares, resulting in the issue of 2,318,240 new shares (772,758 common
shares and 1,545,482 preferred shares), which have been fully allocated to TNL to be distributed,
according to the aforementioned Extraordinary General Meeting held on December, 29, 2004, to TNLs
shareholders, in a ratio 1:1, thus satisfying the capital share reduction mentioned above.(b)
    
    Additional paid-in capitalThe capital reserve constituted in November 2004, in the amount of R$ 50,000, destined to the
repurchase of shares, as per resolution of the board of directors on June 29, 2006, amounts to R$
9,421 as of December 31, 2007 (2006  R$ 9,386) .(c)
    
    DividendsAccording to the Companys by-laws, Contax Holding has to distribute dividends for each fiscal year
in the amount of not less than 25% of the net profit adjusted in accordance with clause 202 of Law
No. 6404/76. The Company may also distribute quarterly dividends, as long as the total amount of
paid dividends does not exceed the capital reserve. In accordance with Brazilian Corporate Law, on
December 31, 2007, management proposed the payment of R$ 13,414 as the minimum mandatory dividends,
prescribed by Law No. 6404/76 and was recognized as dividends payable.At the Annual General Meeting held on April 16, 2007, was approved the distribution of R$ 11,888 as
dividends proposed in the year ended December 31, 2006, to the Companys shareholders owning shares
on April 16, 2007. Dividends were paid as from April 27, 2007, remunerated through the application
of the Referential Rate  TR, since January 01, 2007.On April 18, 2006, the distribution of R$ 13,432 as dividends, proposed by management on December
31, 2005, was deliberated and approved by the annual shareholders meeting. On June 5, 2006 the
dividends were paid to Contax Holdings shareholders.
   F-29




---



##### Table of Contents



The annual dividend distributed to holders of preferred shares (the Preferred Dividend) has
priority in the allocation of Adjusted Net Income when determining the Preferred Dividend in
relation to the general dividend. Remaining amounts to be distributed, if any, are allocated first
to the payment of a dividend to holders of common shares in an amount equal to the Preferred
Dividend and the remainder, if any, is distributed equally among holders of preferred shares and
common shares.The Preferred Dividends corresponds to a non-cumulative preferred dividend equal to 6% of share
capital determined in according to accounting practices adopted in Brazil, in proportion of
preferred shares to total capital, or 3% of shareholders equity book value per share, whichever is
greater.(d)
    
    Appropriated retained earningsBrazilian laws require that certain appropriations be made from retained earnings to reserve
accounts on an annual basis, all determined in accordance with amounts stated in the statutory
accounting records, as detailed below:
 Unrealized
    
    
    Statutory
    
    
    LegalEarnings Reserve
    
    
    Reserve
    
    
    Reserve
    
    
    TotalAt December 31, 2005
    
    
    11,363
    
    
    
    57,477
    
    
    
    4,410
    
    
    
    73,250Proposed dividends from retained earnings
    
    
    (7,050
    )
    
    
    
    
    
    
    
    
    
    
    (7,050
    )Appropriation from retained earnings
    
    
    12,906
    
    
    
    53,234
    
    
    
    3,736
    
    
    
    69,876At December 31, 2006
    
    
    17,219
    
    
    
    110,711
    
    
    
    8,146
    
    
    
    136,076Used to cancellation of shares
    
    
    
    
    
    
    (108,580
    )
    
    
    
    
    
    
    (108,580
    )Proposed dividends from retained earnings
    
    
    (12,637
    )
    
    
    
    
    
    
    
    
    
    
    (12,637
    )Appropriation from retained earnings
    
    
    12,044
    
    
    
    38,464
    
    
    
    2,699
    
    
    
    53,207At December 31, 2007
    
    
    16,626
    
    
    
    40,595
    
    
    
    10,845
    
    
    
    68,066
 The purpose and basis of appropriation to such reserves is described below:
 
    
    Unrealized earnings reserve  this represents principally our share of earnings of
controlled entity, not yet received in the form of cash dividends.
    
    Legal reserve  this reserve is a requirement for all Brazilian corporations and represents
the appropriation of 5% of annual net income under accounting practices adopted in Brazil up
to a limit of 20% of the Company capital.
    
    Statutory reserve  this reserve is an investment reserve that is constituted to insure
future investments and to reinforce the Companys working capital. Any statutory reserve,
together with all Appropriated retained earnings, is limited to the Companys capital.
   F-30




---



##### Table of Contents



(e)
    
    Stock option planAt the Extraordinary General Stockholders Meeting, held on April 16, 2007, approval was given for
a stock option plan. The Board of Directors is responsible for administering the plan, and will
introduce stock purchase programs from time to time.The Stock Option Program initiated in 2007 includes 3 beneficiaries, who are entitled to a total
corresponding to up to 1.9% of the subscribed and paid in share capital, representing
350,000 thousand common shares granted under the program of April 2007. The options may be
exercised as from October 1, 2007, in four equal annual blocks.The exercise price that has been set was based on the weighted average Bovespa quotation over the
30 days immediately preceding the concession date, and will be monetarily adjusted according to
Ìndice Geral de Preços  MercadoIGP-M (general market inflation index).The market value of the shares on the last business day of the year 2007 was R$ 68.99 per share.The following table shows the position of the options in effect as at December 31, 2007:
 Stock options outstandingWeightedStock
    
    average
    
    
    Weighted(in thousand
    
    remaining life
    
    
    averageof shares)
    
    (months)
    
    
    exercise price341,017
    
    
    40
    
    
    
    54.4
 The Companys stock-options qualify for liability treatment under SFAS No. 123R, Share-Based
Payment. Compensation expense of R$ 2,494 was recognized, based on the fair value of the options
outstanding at December 31, 2007.During the year 8,983 shares were exercised and the related amount was R$ 167.At December 31, 2007, the number of exercisable options was 127,604 and the unrecognized
compensation expense was R$ 5,215.
   F-31




---



##### Table of Contents



The fair value of the options was calculated using the Black & Scholes option pricing model based
on the following assumptions:
 Strike price
    
    
    54.4Market price
    
    
    68.9Strike (%)
    
    21.15
    %(ITM)Volatility
    
    
    34.3
    %Market rate
    
    
    12.72
    %Dividend yield
    
    
    1.4
    %
   F-32




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##### Table of Contents



3
    
    Transactions with related partiesThe main transactions between the Company and other related parties can be summarized as follows:
 2007BrasilBrasil CAP
    
    
    Veículos
    
    
    
    
    
    
    PaggoCapitali-
    
    
    Companhia
    
    
    
    
    
    
    Adminstradora
    
    
    PaggoOi Fixa
    
    
    Oi móvel
    
    
    zações S.A.
    
    
    de Seguros
    
    
    OI Internet
    
    
    de cartões
    
    
    Acquirer
    
    
    BNDES
    
    
    TotalAssetsAccounts receivable
    
    
    12,279
    
    
    
    4626
    
    
    
    285
    
    
    
    595
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    17,847LiabilitiesSuppliers
    
    
    2,699
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,935Borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,359
    
    
    
    100,359RevenuesRevenues from services
rendered
    
    
    573,003
    
    
    
    161,055
    
    
    
    3,584
    
    
    
    6,644
    
    
    
    10,092
    
    
    
    418
    
    
    
    84
    
    
    
    
    
    
    
    754,880Costs and expensesCosts of services rendered
    
    
    (24,225
    )
    
    
    (6,700
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,925
    )Interest financing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,873
    )
    
    
    (1,873
    )
 2006BrasilBrasil CAP
    
    
    VeículosCapitali-
    
    
    CompanhiaOI Fixa
    
    
    Oi móvel
    
    
    zações S.A.
    
    
    de Seguros
    
    
    OI Internet
    
    
    TotalAssetsAccounts receivable
    
    
    7,430
    
    
    
    
    
    
    
    274
    
    
    
    540
    
    
    
    
    
    
    
    8,244LiabilitiesSuppliers
    
    
    1,807
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,938RevenuesRevenues from services
rendered
    
    
    605,750
    
    
    
    152,284
    
    
    
    3,241
    
    
    
    5,805
    
    
    
    7,657
    
    
    
    774,737Costs and expensesCosts of services rendered
    
    
    (26,547
    )
    
    
    (2,344
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,891
    )
   F-33




---



##### Table of Contents



2005BrasilBrasil CAP
    
    
    VeículosCapitali-
    
    
    CompanhiaOI fixa
    
    
    OI móvel
    
    
    zações S.A.
    
    
    de Seguros
    
    
    OI Internet
    
    
    TotalAssetsAccounts receivable
    
    
    426
    
    
    
    
    
    
    
    243
    
    
    
    548
    
    
    
    
    
    
    
    1,217LiabilitiesSuppliers
    
    
    1,647
    
    
    
    132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,779RevenuesRevenues from services
rendered
    
    
    572,378
    
    
    
    96,276
    
    
    
    2,699
    
    
    
    4,481
    
    
    
    5,331
    
    
    
    681,165Costs and expensesCosts of services rendered
    
    
    (7,016
    )
    
    
    (1,866
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,882
    )
 The transactions with related parties are carried out at terms, rates and conditions similar to
those for third parties.19
    
    Risk management(a)
    
    EstimatesThe Company has evaluated its assets and liabilities relating to the market/realization values,
through available information and evaluation methodologies established by management. However, the
market data interpretation, as well as the selection of evaluation methods require a reasonable
judgment and estimate to produce the most adequate market value. Therefore, actual amounts may
differ from the estimates. The use of different market hypothesis and/or methodologies for
estimates, approximates, the estimated realization values.(b)
    
    Financial instrumentsAs of December 31, 2007 and 2006, the Company had no transactions involving derivatives.(c)
    
    Cash and cash equivalents, accounts receivables, other assets and accounts payableThe recorded values approximate the market values.
   F-34




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##### Table of Contents



(d)
    
    FinancingsOn August 23, 2007, the subsidiary TNL Contax S.A. signed a financing agreement with BNDES in the
amount of R$216,514 with the purpose of financing the expansion of installed capacity, improving
current facilities, qualifying human resources, improving the quality of services and productivity,
and investing in marketing shares. On October 5, 2007, the first tranche in the amount of R$100,002
was received (Note 13).(e)
    
    Credit riskThe credit risk associated with trade accounts receivable is not relevant, due to the financial
size of the companies to which the Company provides services.The provision for doubtful accounts is recorded to recognize probable losses in relation to
accounts receivable, whose calculation is based on estimates considering the situation of each
customer and the guarantees provided by them. The basis for measurement of the provision considers
the position of each overdue client individually.Concentration of Credit RiskThe credit risk associated with the trade accounts receivable is not relevant, comparing to the
size of the financial volume of the companies which the Company provides services. The credits of
bad debt provision are adequately covered to make face the eventual losses in its accomplishments.In the year ended December 31, 2007 one client accounted for 50,7%of the Companys revenues (2006
 57,5%)(f)
    
    Interest rates riskThe associated risk arises from the possibility of the Company incurring in losses derived from
interest rate variations that increase the financial expenses related to financings raised in the
market. The Company continuously monitors the market interest rates with the purpose of evaluating
the possible need of hiring operations to protect itself against the volatility risk of these
rates.20
    
    InsuranceThe Company has a corporative program for risk management to obtain minimum risks, searching at the
market compatibles covers with its size and operations. Management understands that the amounts of
the policies to cover any possible future material damages and loss of revenues arising from such
damages (loss of profits) are sufficient to guarantee the integrity of its assets and full
protection of the continuity of its operations.
   F-35




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At December 31, 2007, The Company had the following main insurance policies contracted with third
parties:
 AmountsInsurance lines
    
    insuredD&O Management Civil Liability
    
    
    106,230Fire  Permanent assets
    
    
    70,211Loss of income
    
    
    51,305Comprehensive general liability
    
    
    5,000
 21
    
    Subsequent event(a)
    
    BNDES fund raisingAccording to the financing agreement entered into on August 23, 2007, with the subsidiary TNL
Contax S.A., on January 28, 2008 and January 30, 2008 the second and third releases were carried
out, in the amount of R$40,001 and R$10,000, respectively. Up to this date the amount released
totals R$150,003.(b)
    
    Corporate Restructuring of Telemar Participações S.A.On April 25, 2008, the Extraordinary General Meeting approved the partial spin-off of Telemar
Participações S.A. (TmarPart), with the version of a portion of its shareholders equity related
to the shares issued by the Company held by TmarPart, to the new company, incorporated for this
purposes under the corporate name CTX Participações S.A. (CTX), as published in the Material Fact
on this same date.The Partial Spin-off is one of the restructuring stages, and is justified by the need to segregate
into distinct companies the interest in the contact center activities from the other
telecommunications activities, corresponding to the investment of TmarPart in Tele Norte Leste
Participações S.A.CTX was incorporated with a capital stock of R$70,000, divided into 3,090,611,008 common shares
which will be attributed to the shareholders of TmarPart, at the ratio of one share of CTX to each
share of TmarPart. CTX will be responsible only for the investment related to the shares issued by
Contax Participações S.A, without any solidarity with TmarPart, pursuant to article 233, sole
paragraph, of Law no. 6,404/76.
    F-36




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EXHIBIT INDEX
 No.
    
    Description1.1
    
    By-laws of Contax Holding as of June 17, 2008.2.1
    
    Deposit Agreement, dated as of August 12, 2005 among Contax Holding,
The Bank of New York, as Depositary, and Owners and Beneficial Owners
of American Depositary Receipts issued thereunder. (Incorporated by
reference to Exhibit 2.1 to the Companys Annual Report on Form 20-F
filed on June 29, 2006.)4.1
    
    Services Agreement, dated November 30, 2004, among Telemar Norte
Leste S.A, TNL PCS S.A. and TNL Contax S.A. (Incorporated by
reference to Exhibit 4.1 to the Companys Registration Statement on
Form 20-F filed on August 10, 2005.)4.2
    
    First Amendment, dated December 29, 2004, to the Services Agreement
between Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A.
dated November 30, 2004.(Incorporated by reference to Exhibit 4.6 to
the Companys Annual Report on Form 20-F filed on June 29, 2006.)4.3
    
    Second Amendment, dated October 18, 2005, to the Services Agreement
between Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A.
dated November 30, 2004. (Incorporated by reference to Exhibit 4.7
to the Companys Annual Report on Form 20-F filed on June 29, 2006.)4.4
    
    Third Amendment, dated May 1, 2007, to the Services Agreement between
Telemar Norte Leste S.A., TNL PCS S.A. and TNL Contax S.A. dated
November 30, 2004. (Incorporated by reference to Exhibit 4.4 to the
Companys Registration Statement on Form 20-F filed on June 29,
2007.)4.5
    
    Contact Center Services Agreement, dated April 1, 2004, between
Orbitall Serviços e Processamento de Informações Comerciais LTDA. and
Inovação Contact Center Serviços de Contatos Telefônicos Ltda.
(Incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form 20-F filed on August 10, 2005.)4.6
    
    Amendment to Services Agreement, dated May 28, 2004, between Orbitall
Serviços e Processamento de Informações Comerciais LTDA. and Inovação
Contact Center Serviços de Contatos Telefônicos Ltda. (Incorporated
by reference to Exhibit 4.3 to the Companys Registration Statement
on Form 20-F filed on August 10, 2005.)4.7
    
    Amendment to the Contact Center Service Agreement, dated September
27, 2004, between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.4 to the Companys Registration Statement on Form 20-F
filed on August 10, 2005.)4.8
    
    Amendment to Temporary Service Agreement and Other Matters, dated
September 27, 2004, between Orbitall Serviços e Processamento de
Informações Comerciais LTDA. and TNL Contax S.A. (Incorporated by
reference to Exhibit 4.5 to the Companys Registration Statement on
Form 20-F filed on August 10, 2005.)4.9
    
    Amendment, dated October 1, 2004, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.9 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)




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No.
    
    Description4.10
    
    Amendment, dated April 1, 2005, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais LTDA. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.10 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)4.11
    
    Amendment, dated May 10, 2006, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.11 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)4.12
    
    Amendment, dated December 29, 2006, to the Contact Center Service
Agreement between Orbitall Serviços e Processamento de Informações
Comerciais S.A. and TNL Contax S.A. (Incorporated by reference to
Exhibit 4.12 to the Companys Registration Statement on Form 20-F
filed on June 29, 2007.)8.1
    
    List of Subsidiaries. (Incorporated by reference to Exhibit 8.1 to
the Companys Registration Statement on Form 20-F filed on June 29,
2006.)11.1
    
    Code of Ethics of Contax Holding. (Incorporated by reference to
Exhibit 11.1 to the Companys Registration Statement on Form 20-F
filed on August 10, 2005.)12.1
    
    Certification of the Chief Executive Officer of the Company, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)12.2
    
    Certification of the Chief Financial Officer of the Company, pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)13.1
    
    Certifications of the Chief Executive Officer and the Chief Financial
Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Furnished herewith.)