contax participações s.a. and subsidiaries

Contax Participações S.A. and subsidiaries

Financial Statements as at

December 31, 2013 and 2012

1

INDEPENDENT AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS

(A translation of the original report in Portuguese as published in Brazil containing financial statement prepared in accordance with accounting practices adopted in Brazil) To The Board of Directors and Shareholders of Contax Participações S.A. Rio de Janeiro – RJ We have examined the accompanying individual and consolidated financial statements of Contax Participações S.A. (“Company”), identified as Parent Company and Consolidated, respectively, which comprise the statement of financial position as of December 31, 2013 and the respective income statement, comprehensive income, changes in shareholder’s equity and cash flows for the year then ended, as well as a summary of significant accounting policies and other notes to the financial statements. Management's responsibility for the financial statements The Company’s management is responsible for the preparation and fair presentation of the individual financial statements in accordance with accounting practices adopted in Brazil, and for the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and in accordance with accounting practices adopted in Brazil, as well as for the internal control as it considers necessary to enable the preparation of financial statements free of material misstatements, regardless of whether due to fraud or error. Independent auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit, conducted in accordance with the Brazilian and International Standards on Auditing. These standards require compliance with ethical requirements by the auditor and that the audit is planned and performed for the purpose of obtaining reasonable assurance that the financial statements are free from material misstatement. An audit involves performing selected procedures to obtain evidence with respect to the amounts and disclosures presented in the financial statements. The procedures selected depend on the auditor’s judgment, and include the assessment of the risks of material misstatements of the financial statements, regardless of whether due to fraud or error. In the assessment of these risks, the auditor considers the relevant internal controls for the preparation and fair presentation of the Company’s financial statements, in order to plan audit procedures that are appropriate in the circumstances, but not for purposes of expressing an opinion on the effectiveness of the Company’s internal controls. An audit also includes evaluating the adequacy of the accounting practices used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements taken as a whole. We believe that the audit evidence obtained is sufficient and appropriate to expressing our opinion.

2

Opinion on the individual financial statements In our opinion, the aforementioned individual financial statements present fairly, in all material respects, the financial position of Contax Participações S.A. as at December 31, 2013, and of its financial performance and its cash flows for the year then ended in accordance with accounting practices adopted in Brazil.

Opinion on the consolidated financial statements In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the consolidated financial position of Contax Participações S.A. as of December 31, 2013, its consolidated financial performance and its consolidated cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and accounting practices adopted in Brazil. Emphasis As mentioned in Note 2, the Company’s financial statements were prepared in accordance with accounting practices adopted in Brazil. In the case of Contax Participações S.A., these practices differ from IFRS applicable to separate financial statements, only with respect to the valuation of the investments in the subsidiaries by the equity accounting method, while for IFRS purposes it would be cost or fair value. Our opinion is not qualified due to this issue. Other matters Statements of value added We have also examined the individual and consolidated statements of value added for the year ended December 31, 2013, which is the responsibility of the Company's management, the presentation of which is required by the Brazilian Corporation Law for public companies, and considered as supplementary information by IFRS, which does not require the presentation of the statements of added value. These statements were submitted to the same audit procedures described previously and, in our opinion, are presented adequately, in all material respects, in relation to the financial statements, taken as a whole. Rio de Janeiro, February 20, 2014

KPMG Auditores Independentes Manuel Fernandes Rodrigues de Sousa CRC SP-014428/O-6 F-RJ Engagement Partner CRC RJ-052428/O-2

CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

3

ASSETS Note 2013 2012 2013 2012

CURRENT ASSETSCash and cash equivalents 5 1,463 101,905 383,710 355,247 Restricted cash 5 546 - 6,799 18,831 Trade accounts receivable 6 - - 382,890 372,172 Debentures & loan agreements 14.4 33,707 22,543 - - Recoverable taxes 7 22,548 12,426 69,030 48,788 Court deposits 19.2 - - 23,099 21,466 Dividends receivable 65,550 - - - Prepaid expenses and other assets 9 505 140 52,666 50,802 Total current assets 124,319 137,014 918,194 867,306

NON-CURRENT ASSETSCourt deposits 19.2 - - 210,321 165,131 Held-to-maturity financial investments 5 - 24,486 46,846 71,173 Restricted cash 5 3,271 3,297 3,271 4,714 Recoverable taxes 7 5 3,987 21,264 17,873 Deferred taxes 8 3 1,330 225,679 163,324 Debentures & loan agreements 14.4 723,608 582,561 - - Related-party transactions 33 3,624 117,624 7,780 7,780 Prepaid expenses and other assets 9 714 - 24,448 16,860 Investment in subsidiaries 10 392,592 377,001 - - Property, plant and equipment 11 - - 508,411 542,446 Goodwill on investments 12 - - 402,302 383,977 Other intangible assets 13 - - 270,100 239,235 Total non-current assets 1,123,817 1,110,286 1,720,422 1,612,513

TOTAL ASSETS 1,248,136 1,247,300 2,638,616 2,479,819

The notes are an integral part of the financial statements.

Parent Company Consolidated

CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

4

LIABILITIES Note 2013 2012 2013 2012

CURRENT LIABILITIESDebentures and promissory notes 14.4 64,069 6,789 64,069 6,789 Loans and financing 15.1 - - 127,674 177,368 Trade accounts payable 120 27 201,863 140,602 Payroll, related charges and benefits 16 187 157 364,479 348,684 Finance lease obligations 17 - - 1,219 1,465 Taxes payable 18 8,038 836 68,339 54,362 Provisions 19.2 - - 24,405 21,659 Dividends payable 31,448 20,824 31,448 20,824 Onlending to shareholders 25,877 25,917 25,877 25,917 Contingent considerations 34 - 412 6,253 9,903 Other liabilities 20 - - 17,651 16,209 Total current liabilities 129,739 54,962 933,277 823,782

NON-CURRENT LIABILITIESDebentures and promissory notes 14.4 676,528 659,840 676,528 659,840 Embedded derivatives 14.4 1,427 7,878 1,427 7,878 Loans and borrowings 15.1 - - 334,856 249,718 Provisions 19.2 - - 178,493 153,685 Lease obligations 17 - - 750 480 Taxes payable 18 - - 1,985 2,989 Contingent considerations 34 - 30,339 22,240 36,128 Deferred taxes 8 2,194 - 50,811 40,502 Other liabilities 20 - - - 395 Total non-current liabilities 680,149 698,057 1,267,090 1,151,615

TOTAL LIABILITIES 809,888 753,019 2,200,367 1,975,397

CAPITAL AND RESERVESCapital stock 21.1 181,638 258,329 181,638 258,329 Capital reserves 22.1 92,679 101,789 92,679 101,789 Profit reserves 22.3 105,071 28,378 105,071 28,378 Treasury shares 23 (9,322) (9,901) (9,322) (9,901) Goodwill on capital transactions 22.2 (33,237) - (33,237) - Reserve for translation of foreign currency 22.4 101,419 75,788 101,419 75,788 Proposal for distribution of additional dividends - 39,898 - 39,898 Equity attributable to the controlling shareholders 438,248 494,281 438,248 494,281

Non-controlling interest 24 - - 1 10,141

Total equity 438,248 494,281 438,249 504,422

TOTAL LIABILITIES AND EQUITY 1,248,136 1,247,300 2,638,616 2,479,819



CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF INCOME FOR THE FISCAL YEARS ENDED DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$, unless otherwise stated)

5

Controladora TCI Consolidado TCI com Venecia

Note 2013 2012 2013 2012

Net operating revenue 26 - - 3,617,962 3,620,020

Cost of services rendered 28.1 - - (3,049,924) (3,068,096)

Gross operating income - - 568,038 551,924

Operating income (expenses) Selling 28 - - (20,057) (31,282) General and administrative 28 (4,443) (3,451) (293,950) (288,386) Share-based payment 28 2,131 (1,619) 2,131 (1,619) Equity in the earnings of subsidiaries 10 88,701 53,042 - - Financial revenue 28.4 101,146 51,660 61,717 38,431 Financial expenses 28.4 (79,293) (56,310) (162,419) (120,918) Other operating expenses, net 28.2 (84) (125) (59,796) (68,973)

108,158 43,197 (472,374) (472,747) Operating income before income tax and social contribution 108,158 43,197 95,664 79,177

Income tax and social contribution: Current 29 (2,381) - (48,283) (59,499) Deferred 29 (3,520) 1,330 56,239 30,624

Profit for the year 102,257 44,527 103,620 50,302

Profit attributable to: 30.1 Owners of the parent company 102,257 44,527 103,620 50,302

Non-controlling interest: - - (1,363) (5,775) Profit of the owners of the parent company 30.1 102,257 44,527 102,257 44,527

Earnings per share: Basic Common shares (centavos per share) 0.4326 0.6921 0.4326 0.6921 Preferred shares (centavos per share) 0.4675 0.6921 0.4675 0.6921 Diluted Common shares (centavos per share) 0.4312 0.6883 0.4312 0.6883 Preferred shares (centavos per share) 0.4675 0.6921 0.4675 0.6921


The notes are an integral part of the financial statements

CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME FOR THE FISCAL YEARS ENDED DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

6

2013 2012 2013 2012

Profit for the year 102,257 44,527 103,620 50,302

Other comprehensive income:Exchange rate difference in the translation of operations abroad: 22.4 25,631 - 25,631 - Difference in the acquisition of shares (Goodwill) 22.2 (33,237) 55,683 (33,237) 55,683

(7,606) 55,683 (7,606) 55,683

Total comprehensive income for the period 94,651 100,210 96,014 105,985

Total comprehensive income attributable to: Owners of the parent company 94,651 100,210 94,651 100,210 Non-controlling interest - - 1,363 5,775

94,651 100,210 96,014 105,985

Note



CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY FOR THE FISCAL YEARS ENDED DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

7

EquityForeign Proposal for attributable to

currency distribution of the owners of the Non-controlling ConsolidatedCapital Capital Legal Statutory Treasury translation Retained additional parent company equity

stock reserve reserve reserve shares reserve earnings dividends (BR GAAP) interest (IFRS & BR GAAP)

Balance on December 31, 2011 258,329 102,229 28,378 10,871 (10,636) - 20,105 - 84,500 493,776 4,365 498,141

Recording of capital reserve - 61 - - - - - - - 61 - 61 Payment of dividends - - - - - - - - (84,500) (84,500) - (84,500) Other comprehensive income: Exchange rate difference in the translation of operations abroad: - - - - - - 55,683 - - 55,683 - 55,683 Non-controlling interest: Dividends - - - - - - - - - - 5,776 5,776 Equity instruments for share-based payments: 2010 Program - (501) - - - - - - - (501) - (501) Sales of own shares - - - - 3,080 - - - - 3,080 - 3,080 Acquisition of own shares - - - - (2,345) - - - - (2,345) - (2,345) Profit for the period - - - - - - - 44,527 - 44,527 - 44,527 Allocation of profit for the year: Mandatory minimum dividends - - - - - - - (15,500) - (15,500) - (15,500) Proposed additional dividends - exceeding the mandatory minimum Proposed dividends - - - (10,871) - - - (29,027) 39,898 - - -

Balance on December 31, 2012 258,329 101,789 28,378 - (9,901) - 75,788 - 39,898 494,281 10,141 504,422

Capital stock reduction due to spin-off (76,691) - - - - - - - (76,691) - (76,691) Equity variation due to spin-off - (1,664) - - - - - - - (1,664) - (1,664) Recording of capital reserve - (41) - - - - - - - (41) - (41) Exchange rate difference in the translation of operations abroad - - - - - - 25,631 - - 25,631 - 25,631 Amount paid in the acquisition of shares from non-controlling shareholders - - - - - (33,237) - - - (33,237) - (33,237) Non-controlling interest: Dividends - - - - - - - - - - (10,140) (10,140) Equity instruments for share-based payments: 2010 Program - (7,405) - - - - - - - (7,405) - (7,405) Sales and acquisition of own shares - - - - 579 - - - - 579 - 579 Profit for the period - - - - - - - 102,257 - 102,257 - 102,257 Allocation of profit for the year: Statutory reserve - - - 76,693 - - - (76,693) - - - - Minimum mandatory dividend (25,564) - (25,564) - (25,564) Payment of dividends - - - - - - - - (39,898) (39,898) - (39,898)

Balance on December 31, 2013 181,638 92,679 28,378 76,693 (9,322) (33,237) 101,419 - - 438,248 1 438,249

Other comprehensive income

Profit reservesGoodwill on

capital transactions


CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

8

2013 2012 2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Profit for the period 102,257 44,527 102,257 44,527 Adjustments to net profit (loss):

Depreciation and amortization - 342 207,176 206,022 Allowance for doubtful accounts - - (593) 348 Equity in the earnings (losses) of subsidiaries (88,701) (53,042) - - Loss on sale of property, plant and equipment - - 2,585 3,449 Expenses with provision for contingencies - - 13,047 27,680 Deferred income tax and social contribution 3,520 1,330 (56,239) 30,624 Gain (loss) on interest and monetary variation, net (26,073) 4,244 36,564 84,953 Expenses recognized by share-based payments settled with equity instruments (2,131) 1,619 (2,131) 1,619 Non-controlling interest - - 1,363 5,775

Changes in working capital:Trade accounts receivable - - (9,317) 10,421 Recoverable taxes (8,020) (10,082) (22,540) (50,178) Prepaid expenses and other assets (1,078) (140) (4,902) (4,193) Payroll, related charges and benefits 30 37 8,590 (2,773) Trade accounts payable 92 (48) 51,182 (1,858) Taxes payable 9,396 (1,609) 25,101 (7,825) Other liabilities (5,275) (15,121) (13,941) (24,655) Interests received 3,102 5,759 20,910 17,669

Net cash provided by (used in) operating activities (12,881) (22,184) 359,112 341,605

CASH FLOWS FROM INVESTING ACTIVITIES

Receivables from sale of property, plant and equipment - - 328 1,000 Acquisition of property, plant and equipment - - (202,350) (146,982) Court deposits - - (39,773) (34,893) Held-to-maturity investments 24,486 29,416 24,486 29,449 Debentures (103,517) (550,000) - - Settlement of debentures - 53,377 - - Loan with related parties (1,528) - - - Amounts received from sale of investments 114,000 23,650 - - Restricted cash (449) (3,297) 9,093 6,874 Dividends received - 39,797 - - Interests received 9,197 15,202 -

Net cash provided by (used in) investing activities 42,189 (391,855) (208,216) (144,552)

CASH FLOWS FROM FINANCING ACTIVITIES

Lease - - 24 485 Financing (bank loans) - - 285,955 224,665 Financing payment (bank loans) (21,777) - (273,879) (324,231) Promissory notes - - - 120,000 Debentures - 253,438 - 253,438 Payment of debentures and promissory notes - - - (450,000) Receivables from divestment 3,570 - 3,570 - Goodwill on capital transactions - - (10,997) - Acquisition of investments - - (3,703) - Dividends paid (54,861) (103,559) (62,661) (103,559) Share buyback (4,695) (1,385) (4,695) (1,385) Interests paid (51,987) (35,353) (56,047) (101,801)

Net cash provided by (used in) financing activities (129,750) 113,141 (122,433) (382,388)

Net decrease in cash and cash equivalents (100,442) (300,899) 28,463 (185,335)

Cash and cash equivalents at the beginning of the year 101,905 402,804 355,247 540,582 Cash and cash equivalents at the end of the year 1,463 101,905 383,710 355,247



CONTAX PARTICIPAÇÕES S.A AND SUBSIDIARIES STATEMENTS OF VALUE ADDED FOR THE FSICAL YEARS ENDED DECEMBER 31, 2013 AND 2012 (All amounts in thousands of reais – R$)

9

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Revenue Services - - 3,925,149 3,938,392 Write-off of undeductible loss - - (4) (382) Other revenue - - 328 7,605

- - 3,925,473 3,945,615 Inputs acquired from third parties Cost of services rendered (75) (125) (8,518) (31,458) Supplies, electricity and outsourced services (2,680) (1,558) (465,245) (495,061) Loss/recovery of asset values - - (2,913) (11,054)

(2,755) (1,683) (476,676) (537,573)

Gross value added (2,755) (1,683) 3,448,797 3,408,042

Depreciation and amortization - (342) (207,176) (206,022) Net value added generated by the entity (2,755) (2,025) 3,241,621 3,202,020

Value added received through transfer Equity in the earnings of subsidiaries 88,701 53,042 - - Financial revenue 101,146 51,660 45,628 38,431 Total value added to distribute 187,092 102,677 3,287,249 3,240,451

Personnel Payroll and related charges 9 - 2,460,475 2,396,024 Sales commissions - - 1,373 512 Training - - 25,316 29,843 Management fees (727) 2,982 (727) 2,982 Employees' profit sharing - - 329 - Taxes, fees and contributions Federal taxes 6,440 (880) 268,916 348,072 Municipal taxes - - 119,623 127,368 Value distributed to providers of capital Interest and monetary variations 79,008 55,955 142,202 117,403 Rentals 105 93 166,122 167,944 Value distributed to shareholders Dividends 25,564 - 25,564 - Non-controlling interest - - 1,363 5,776 Retained earnings/recording of reserves 76,693 44,527 76,693 44,527

Value added distributed 187,092 102,677 3,287,249 3,240,451



CONTAX PARTICIPAÇÕES S.A. AND SUBSIDIARIES Notes to the Financial Statements for the fiscal years ended December 31, 2013 and 2012 (All amounts in thousands of reais - R$, unless otherwise stated)

10

We present the accompanying notes which are an integral part of the Financial Statements of Contax Participações S.A. and its subsidiaries, distributed as follows: 1. General information 2. Main accounting policies 3. Key accounting judgments and sources of uncertainties in estimates 4. New standards and interpretations not yet adopted 5. Cash and cash equivalents, restricted cash and financial investments 6. Trade accounts receivable 7. Recoverable taxes 8. Deferred taxes 9. Prepaid expenses and other assets 10. Investment in subsidiaries 11. Property, plant and equipment 12. Goodwill on investments 13. Other intangible assets 14. Debentures, promissory notes and loans 15. Loans and financing 16. Payroll, related charges and benefits 17. Finance lease obligations 18. Taxes payable 19. Provisions 20. Other liabilities 21. Capital 22. Reserves and equity valuation adjustments 23. Treasury shares 24. Retained earnings and dividends from equity instruments 25. Non-controlling interest 26. Operating revenue 27. Operating segments 28. Information on the nature of costs and expenses recognized in the income statement 29. Income tax and social contribution 30. Earnings per share 31. Financial instruments and risk management 32. Share-based payments 33. Related-party transactions 34. Insurance coverage 35. Commitments 36. Events after the reporting period


11

1. GENERAL INFORMATION

Contax Participações S.A. ("Company"), established in July 2000, is a publicly-held company, listed on the Securities, Commodities and Futures Exchange (BM&FBOVESPA), at the Level 2 special listing segment, whose corporate purpose is to hold interest in other commercial companies and civil societies as a partner, shareholder or quotaholder in Brazil or abroad. The Company’s head offices are located at Rua do Passeio no 42 a 56 (Parte), Centro, in the city and state of Rio de Janeiro. For the purposes of this present document, the Contax Group means the Company jointly with its subsidiaries and associated companies, namely (i) Contax S.A. and Ability Comunicação Integrada Ltda. as direct subsidiaries, and (ii) Contax-Mobitel S.A., BRC Empreendimentos Imobiliários Ltda., Contax Sucursal Empresa Extranjera, Stratton Spain S.L., TODO Soluções em Engenharia e Tecnologia S.A., TODO Tecnologia da Informação S.A., Venecia SP Participações S.A. and Ability Trade Marketing Colombia S.A.S as indirect subsidiaries. The Contax Group and its subsidiaries are jointly referred to in these Financial Statements as the “Contax Group.” 1.1. Operations of the direct and indirect subsidiaries

1.1.1. Contax S.A.

Contax S.A. (“Contax”) was established in December 2002, after changing the corporate name of the extinguished TNext S.A., a company organized in August 1998. Contax is a privately-held company, whose corporate purpose is to provide tele-assistance services in general, offering a variety of integrated customer-consumer relationship services, 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 tele-assistance services, among others.

1.1.2. Ability Comunicação Integrada Ltda. In September 2010, Contax acquired the entire control of Ability Comunicação Integrada Ltda. (“Ability”). Incorporated in June 2001, Ability is a limited liability company whose purpose is to provide services related to publicity and advertising, sales promotion, merchandising and marketing, campaign and publicity planning, publicity consulting, market and public-opinion survey, among others.

1.1.3. Contax-Mobitel S.A.

On July 1, 2011, the Contax Group took over Contax-Mobitel S.A. (new name of Mobitel S.A., as per the corporate act dated September 12, 2013) (“Contax-Mobitel”) by merging its shares. As of February 2012, Contax S.A. then owned the direct control of Mobitel S.A. (“Contax-Mobitel”) through the acquisition of all the shares held by Mobitel S.A. (“Contax-Mobitel”) with Contax


12

Participações S.A. Contax-Mobitel, incorporated in November 1991, is a privately-held company, whose corporate purpose is to provide tele-assistance services in general, offering a variety of integrated customer-consumer relationship services, 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 tele-assistance services, among others.

1.1.4. Venecia SP Participações S.A

On November 16, 2011, the Contax Group created Venecia SP Participações S.A. (“Venecia”). Venecia is a privately-held company, whose corporate purpose is to provide tele-assistance services in general. On the date of these financial statements, Venecia had no operations.

1.1.5. BRC Empreendimentos Imobiliários Ltda.

In November 2009, Contax acquired BRC Empreendimentos Imobiliários Ltda. (“BRC”) for R$61. This acquisition aimed at developing and executing the real estate project included in the Selective Incentive Program for the adjacent region of Estação da Luz (“Nova Luz Program”), in the downtown area of the city of São Paulo.

1.1.6. Contax Sucursal Empresa Extranjera Contax Sucursal Empresa Extranjera (“Contax Argentina”), a branch of Contax S.A, was incorporated in September 2010 with an initial capital stock of R$817, in the city of Buenos Aires, Argentina, whose corporate purpose is to provide tele-assistance services in general, offering integrated customer-consumer relationship services in Argentina. In August 2011, the Contax Group decided to discontinue Contax Argentina’s operational activities. This operation was discontinued as it did not report the expected growth and due to the acquisition of the Allus Group (Note 1.1.8), which had already a mature operation in Argentina with higher profitability.

1.1.7. Contax Colômbia S.A.S. In October 2012, Contax Colômbia S.A.S. (“Contax Colômbia”) was merged into the subsidiary Multienlace S.A.S. (“Mergor”). In December 2012, the controlling interest of Multienlace S.A.S of Contax S.A. was transferred to Stratton Spain S.L., as part of the restructuring of the Contax Group’s companies.

1.1.8. Allus Group (Stratton Spain S.L.)

In May 2011, Contax took over Stratton Spain S.L. (“Stratton Spain”) and its subsidiaries Allus Spain S.L., Stratton Argentina S.A., Stratton Peru S.A. and Multienlance S.A., the latter through its subsidiary Contax Colômbia (which


13

jointly compose the “Allus Group”). The Allus Group is one of the largest contact center service providers in Latin America, with 22 units distributed in Argentina, Colombia and Peru, as well as business activity in the United States and Spain.

In December 2011, Stratton Spain, through its subsidiary Stratton Argentina S.A., created Stratton Chaco S.A. (“Stratton Chaco”), a company located in Chaco province, for R$13. The purpose of the acquisition was to take advantage of tax benefits for the call center located in Chaco province, in Argentina.

In April 2013, Stratton Nea was incorporated in the city of Cordoba, in Argentina, whose purpose is to obtain tax benefits for the Contax Group.

1.1.9. TODO Tecnologia da Informação S.A. In July 2011, Contax took over GPTI Tecnologia da Informação S.A. ("GPTI"), through its parent company Contax-Mobitel. GPTI, which was incorporated in May 2008, is a privately-held company, whose corporate purpose is to provide information technology services in general, develop software and integrated, complete and customized solutions, including full or partial management of the value chain of outsourced business processes in general, back office processing, customer relationship management, among others. In April 2013, Contax S.A. acquired 20% of the shares issued by its subsidiary TODO Soluções em Tecnologia S.A In May, 2013, GPTI merged TODO Soluções em Tecnologia, as part of the Contax Group’s restructuring process. Also, GPTI’s corporate name was changed to TODO Tecnologia da Informação S.A.

1.1.10. Ability Trade Marketing Colombia S.A.S.

Ability Trade Marketing Colombia S.A.S (“Ability Colombia”) was incorporated on January 21, 2013 in the city of Bogotá, Colombia. Ability Colombia’s corporate purpose is to render publicity and advertising services, sales promotion, merchandising and marketing, campaign planning and advertising systems, advertising advisory services, market research and opinion polls, among others. On the date of this Interim Financial Information, this company has only pre-operating expenditures.

1.2. New restricting rules on outsourced services

Currently, there is no specific legislation referring to outsourced services in Brazil. The Judiciary Branch has been discussing the issue through Precedent 331 of Labor Superior Court (TST), which authorizes the outsourcing of companies’ “non-core business activity.” In 2013, the Employment Claim Section – SDI 1 of the Superior Labor Court (TST) resolved by a majority vote that the outsourcing of contact center services from other mobile telephony operator was illegal.


14

In 2010 and 2011, the Federal Supreme Court (STF) granted two injunctions, in Constitutional Claims filed by a mobile telephony company and other from the electricity sector, suspending decisions of the Superior Labor Court (TST). The companies’ motions evidenced that subsequent law to TST Precedent 331 could not be revoked by it and that outsourcing in telecommunication and electricity operations is mentioned by laws in view of specialization and interests, including the national security interest, due to the nature of the activity performed. Since there is no specific legislation on outsourced services, as well as labor relations deriving therefrom, and the lawmaker’s need to ratify the concepts on this issue, the Legislative Branch found reasons to propose three (3) bills on this issue. In October 2011, a Special Commission in the Chamber of Deputies forwarded a report containing proposals to regulate outsourcing. The current main proposal under discussion is Bill 4,330/2004, which was already approved by the Labor Commission of the Chamber of Deputies, which is now at the Justice Commission, with an appeal to be analyzed by the Plenary. After approval by the Chamber of Deputies, it will be forwarded to the Federal Senate. These documents discuss important advances, such as the end of non-core and core business activity concept and the subsidiary responsibility. However, controversies involving this issue hindered a judgment of the Legislative Branch in 2013.

1.3. Replacement of INSS employer’s rate in IT and IT and Communication sectors With the conversion of the Provisional Measure 540/2011 into Law 12,546/2011, the reduction of INSS rate was regulated as of April 2012. Articles 7, 8, 9 and 52 of this law establish that the 20% INSS employer’s rate on the payment of employee freelancers and individual taxpayer beneficiaries of companies providing exclusively IT services and IT and communication services will be replaced, from December 1, 2011 to December 31, 2014, at the rate of 2.5% on gross revenue, excluding cancelled sales and unconditional discounts granted. Provisional Measure 563/2012, issued on April 4, 2012, amended Articles 7, 8, 9 and 10 of Law 12,546/2011, reducing the current rate from 2.5% to 2.0% of gross revenues, excluding cancelled sales and unconditional discounts. The new rate went into effect in August 2012.

1.4. Net working capital

On December 31, 2013, the Contax Group recorded consolidated negative net working capital of R$15,083 (consolidated positive net working capital of R$43,524 on December 31, 2012). The Contax Group carries on with its restructuring actions and the lengthening of its debt profile, as described in the note Debentures, Promissory Notes and Loans (Note 14). In 2013, the organizational restructuring work was relevant due to a series of actions aiming at increasing productivity and business integration, such as return of sites, transfer of employees and centralization of structures.


15

The Contax Group’s Board of Executive Officers and Board of Directors approved these Financial Statements on February 20, 2014, in which they considered the events after the reporting period up to this date that could have any effect on these Financial Statements.

2. MAIN ACCOUNTING POLICIES 2.1 Declaration of compliance

The Contax Group’s Financial Statements comprise: • The consolidated financial information, prepared pursuant to the International

Financial Reporting Standards ("IFRS"), issued by the International Accounting Standards Board – IASB, and the accounting practices adopted in Brazil, referred to as Consolidated – IFRS and BR GAAP; and

• The parent company financial information, prepared pursuant to the accounting practices adopted in Brazil, referred to as Parent Company – BR GAAP.

The accounting practices adopted in Brazil comprise the practices included in Brazilian Corporate Law and in the Technical Pronouncements, Guidelines and Interpretations issued by the Brazilian Accounting Standards Board (CPC) and approved by the Brazilian Securities and Exchange Commission (CVM). In the parent company financial statements, investments in subsidiaries are recorded using the equity accounting method, pursuant to the Brazilian law. Therefore, these parent company financial statements are not considered to be in compliance with the IFRS, which require that such investments be reported at their fair value or cost in the parent company financial statements. As there is no difference between the consolidated equity and the consolidated income attributable to shareholders of the parent company, included in the consolidated financial information prepared pursuant to the IFRS and the accounting practices adopted in Brazil, and the equity and income of the parent company, included in the parent company financial information prepared pursuant to the accounting practices adopted in Brazil, the Contax Group has opted to present the parent company and consolidated financial information side by side.

2.2 Basis of preparation The annual financial statements have been prepared under the historical cost convention, except for certain financial instruments measured at fair value, as described below. The historical cost is usually based on the fair value of the consideration paid in exchange for assets.

2.3 Basis of consolidation and investments in subsidiaries The annual consolidated financial statements include the financial statements of the


16

Contax Group and of its subsidiaries, on the same reporting date and under the same accounting practices. Control is obtained when the Contax Group has the power to control the financial and operating policies of an entity in order to derive benefits from its activities. Thus, the statement of financial position and statements of income and comprehensive income consolidation process corresponds to the sum of respective assets, liabilities, revenues and expenses, added by the following eliminations between the Parent Company and its direct or indirect subsidiaries: (I) interest in the capital stock, reserves, retained earnings/accumulated losses and investments, (ii) checking account balances and other assets and/or liabilities, (iii) material transactions effects, (iv) non-controlling interest in the subsidiaries’ results and in equity. In the Contax Group’s parent company annual financial statements, the financial statements of subsidiaries are recorded under the equity accounting method.

The results of subsidiaries acquired or sold during reporting periods are included in the consolidated statements of income and comprehensive income from the acquisition date through the disposal date, where applicable. Whenever necessary, the financial information of the subsidiaries are adjusted to adapt their accounting policies to those determined by the Contax Group. All intragroup transactions, balances, revenues and expenses included in the consolidated financial statements are eliminated in full. Non-controlling interest in subsidiaries is recorded separately from the Contax Group’s equity. This interest may be initially measured at its fair value or at the proportion of interest in total shares to the fair value of net assets identifiable by the acquiring entity. The calculation basis is determined for each acquisition. Subsequently to the acquisition, the non-controlling interest balance is equivalent to the opening balance adjusted by subsequent changes in equity proportional to its interest. Comprehensive income is attributed to non-controlling interest even in case of negative interest. The Contax Group’s annual financial statements stated herein include the financial information of the following direct and indirect subsidiaries:


17

Tele-assistance services in general Control

12/31/2013 12/31/2012

Contax Direct 100% 100%Contax-Mobitel (i) Indirect 100% 100%Contax Argentina Indirect 100% 100%Stratton Espanha Indirect 100% 100%Venecia Indirect 100% 100%

Trade marketing

Ability Direct 100% 100%Ability Colômbia Indirect 100% 0%

Information technology

GPTI (ii) Indirect 100% 100%TODO (ii) Indirect 100% 80%

Nova Luz Project

BRC Indirect 100% 100%

Interest %

(i) As of February 2012, Contax-Mobitel’s operational control was transferred from the Company to the subsidiary Contax S.A., through the acquisition of all Contax-Mobitel shares from Contax Participações S.A. (See Note 1.1.3).

(ii) In April 2013, Contax S.A. acquired 20% of shares of its subsidiary TODO Soluções em Tecnologia S.A. and now holds all the shares of this company. In May, 2013, Todo Soluções em Tecnologia S.A. was merged into GPTI. Also, GPTI’s corporate name was changed to Todo Tecnologia da Informação S.A. (See Note 1.1.9).


18

The figures of the statements of financial position on December 31, 2013 and 2012, of the main items of the consolidated financial statements of direct and indirect subsidiaries are shown in the chart below:

12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012

Assets: Current 438,153 397,116 42,416 50,065 147,392 90,897 8,665 521 Non-current 1,727,121 1,515,624 35,210 30,244 233,667 246,183 349,615 278,661 Total Assets 2,165,274 1,912,740 77,626 80,309 381,360 337,080 358,280 279,182

Liabilities: Current 673,248 568,483 22,028 25,806 64,939 47,621 197 212 Non-current 1,199,443 1,062,697 4,671 8,143 28,825 32,138 - - Equity 292,583 281,560 50,927 46,360 287,596 257,321 358,083 278,970

Total liabilities and equity 2,165,274 1,912,740 77,626 80,309 381,360 337,080 358,280 279,182

Direct Subsidiaries Indirect SubsidiariesAbility Contax- Mobitel Stratton EspanhaContax

The financial information referring to the statements of financial position of the indirect subsidiaries BRC and Contax Argentina has not been reported given their irrelevant balances.


19

2.4 Business combination

In the consolidated financial statements, business acquisitions are accounted for at the acquisition method. The consideration transferred in a business combination is measured at fair value, calculated as the aggregate of the fair value of the assets transferred and liabilities assumed by the Group on the acquisition date to the former controlling shareholders of the acquiree and the interest issued by the Group in exchange for the control of the acquiree. Acquisition-related costs are usually recognized in profit or loss when incurred.

Identifiable assets acquired and liabilities assumed are recognized at fair value on the acquisition date, except for:

• Deferred tax assets or liabilities, and assets and liabilities related to employee benefit agreements, which are recognized and measured under IAS 12 – Income Taxes, and IAS 19 – Employee Benefits (equivalent to Technical Pronouncements CPC 32 and CPC 33), respectively;

• Liabilities or equity instruments related to share-based payment agreements of the acquiree or payment arrangements based on Group stock, executed to replace the share-based payment agreements of the acquiree, are measured under IFRS 2 – Share-based Payment (equivalent to Technical Pronouncement CPC 10) on the acquisition date; and

• Assets (or disposal groups) classified as held for sale under IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations (equivalent to Technical Pronouncement CPC 31) are measured in compliance with this standard.

The subsequent accounting for changes in the fair value of the contingent consideration not classified as adjustments of the measurement period depends on how the contingent consideration is classified. Contingent consideration classified as equity is not remeasured at subsequent financial statement dates, and its corresponding settlement is accounted for in equity. Contingent consideration classified as asset or liability is remeasured on subsequent financial statement dates, under IAS 39 and CPC 38, or IAS 37 – Provisions, Contingent Liabilities and Contingent Assets (equivalent to Technical Pronouncement CPC 25), as applicable, and the corresponding gain or loss is recognized in the income statement.

Parent company financial statements

In the parent company financial statements, the Contax Group applies the requirements of Technical Interpretation ICPC 09 – Parent Company Financial Statements, Separate Financial Statements, Consolidated Financial Statements, and Application of the Equity Accounting Method, which requires that any amount exceeding the acquisition cost over the Contax Group's share in the identifiable net fair value of the assets, liabilities and contingent liabilities of the acquiree on the acquisition date be recognized as goodwill, which in its turn is added to the carrying amount of the investment. Any amount of the Contax Group's share in the fair value of the identifiable assets, liabilities and contingent liabilities exceeding the acquisition cost, after the revaluation, is immediately recognized in the income statement. The consideration transferred and the


20

net fair value of assets and liabilities are measured using the same criteria applicable to the consolidated financial statements explained above.

2.5 Goodwill

Goodwill resulting from a business combination is stated at cost on the transaction date, net of accumulated loss in the recoverable amount, if any.

For purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cash-generating units) that will benefit from the synergies of the combination. No impairment loss needed to be recognized after annual impairment testing of the Company assets.

The cash-generating units goodwill was allocated to be tested for impairment on a yearly basis, or at shorter intervals whenever there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is lower than its carrying amount, an impairment loss is firstly allocated to reduce the carrying amount of any goodwill allocated to the unit and later to the other assets of the unit, proportionately to the carrying amount of each of its assets. Any goodwill impairment loss is directly recognized in the income statement for the period. Impairment losses are not reversed in subsequent periods.

Upon the disposal of the corresponding cash-generating unit, the attributable goodwill amount is included in the calculation of the profit or loss of the disposal.

2.6 Revenue recognition

The Group recognizes revenue when (i) the amount of the revenue can be reliably measured, (ii) it is probable that future economic benefits will flow to the Group, and (iii) when specific criteria for each of the Group's activities are met, as described below. A revenue amount cannot be measured with reliability until all sale-related contingencies have been solved. The Group bases its estimates on historical results, considering the type of customer and operation, and the particulars of each arrangement.

Revenue is measured at the fair value of the consideration received or receivable in exchange for services in the Group's ordinary operating activities. Revenue is stated net of sales taxes or charges, refunds, deductions, discounts, and after the elimination of intragroup sales. 2.6.1 Revenue from services

The Group provides telemarketing, customer service, and credit recovery services to other entities. These services are provided pursuant to agreements where billing is based on conversation time, workstation, performance, or fixed rates. Revenues from telemarketing or customer services based on conversation time are billed based on the number of hours of conversation, while revenues based on workstations are billed according to the number of workstations used by the customer.


21

Revenues from performance goals (for example, credit recovery services) are recognized based on the percent rate of credits collectable from consumers agreed upon with the customer. When the customer confirms such credits have been recovered, revenue is recognized.

2.6.2 Revenue from development of personalized software Revenue from development of personalized software is recognized based on the development conclusion stage, as well as after-sales services.

2.6.3 Revenue from estimate If certain circumstances have occurred that may change the initially estimated revenues, costs, or extended progress towards completion, the estimates are reviewed. Such reviews may result in increased or reduced estimated costs and revenues, and these reflect on the revenue for the period during which Management gets to know the circumstances causing the review.

2.7 Lease

A lease is classified as a finance lease if the terms of the lease agreement transfers substantially all risks and rewards incident to ownership to the lessee. All other leases are classified as operating leases.

2.7.1 Finance lease

When the Group acts as a lessee, the assets held under finance lease are initially recognized as Group assets at the lower of fair value at the commencement of the lease term and the present value of minimum lease payments. The corresponding liability payable to the lessor is included in the statement of financial position as a loan liability (lease). Lease payments are apportioned between the financial charges and the reduction of the outstanding liability so as to produce a constant periodic rate of interest on the remaining balance of the liability. Financial charges are directly recorded in profit or loss.

2.7.2 Operating lease

Payments referring to operating leases are recognized as expenses over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern of the user's economic benefit. Contingent payments derived from operating leases are recognized as expenses in the period they are incurred. Incentives for the agreement of a new operating lease are initially recognized as a liability and subsequently as a reduction of the rental expense on a straight-line basis, unless another systematic basis is more representative of the time pattern of the leased asset's economic benefit.


22

2.8 Functional currency

In the preparation of the financial statements of each entity of the Group, transactions carried out in foreign currency, that is, any currency different from the functional currency of each entity, are recorded at the rate of exchange at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate. Non-monetary items recorded at fair value in foreign currency are translated at the exchange rate at the date the fair value was determined. Non-monetary items recorded at historical cost in foreign currency are translated using the exchange rate at the date of the transaction.

Changes in foreign exchange rates over monetary items are recognized in the income statement in the period they occur, except for:

• Changes in foreign exchange rates derived from foreign currency borrowings and financing related to assets under construction for future use, which are included in the cost of these assets whenever these are considered as adjustments to these borrowings' interest rate costs; and

• Changes in foreign exchange rates over receivable or payable monetary items related to foreign operation whose settlement is not estimated nor is its occurrence probable (and, therefore, it is part of the net investment in the foreign operation), are initially recognized in Other comprehensive income and reclassified from equity to the result of the amortization of monetary items.

For the presentation of the consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated into Brazilian reais, using the foreign exchange rates at the end of the reporting period. The results are translated at the average foreign exchange rates of the period, provided that these have not significantly floated during that period; in that case, the foreign exchange rates on the transaction date are used. Changes in foreign exchange rates resulting from such translation, if any, are reclassified to comprehensive income and added to equity ("Reserve for Translation of Foreign Currency"), and non-controlling interest is attributed as appropriate.

When a foreign operation is fully disposed of, the cumulative amount of the changes in foreign exchange rates referring to this operation in the Group's equity is reclassified to the profit or loss for the year. Any change in foreign exchange rates previously attributed to non-controlling interest is written-off, but it is not reclassified to the profit or loss for the year.

In the case of a partial disposal of an interest at a subsidiary with foreign operations, where there is no loss of control, the cumulative changes in foreign exchange rates are reclassified in the same proportion into minority interests and are not recognized in the income statement.

Goodwill and adjustments at fair value of identifiable assets and liabilities acquired as a result of the acquisition of a foreign operation are treated as assets and liabilities of this operation and translated at the exchange rate at each statement of financial position date. Exchange differences are recognized in equity in specific reserve, whose breakdown can be seen under the statement of other comprehensive income.


23

2.9 Borrowing costs Borrowing costs directly attributable to the acquisition or construction of qualifying assets, i.e. assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of such assets until the date they are ready for their intended use.

Gains on temporary investment of funds obtained from specific borrowings and that has not been spent on the qualifying asset yet is deducted from the costs eligible for capitalization.

All other borrowing costs are recognized in the income for the period they are incurred.

2.10 Contax Group share-based payment agreements

The share-based compensation plan for the Contax Group’s executives is measured at the fair value of the equity instruments at the grant date. Details on the determination of the fair value of these plans are described in Note 32.

The fair value of the options granted, determined at the grant date, is recorded using the straight-line method as expense in the profit or loss for the year during which the right is acquired, based on the Contax Group's estimates on which options granted will be eventually acquired, with a corresponding increase in equity. By the end of each reporting period, the Contax Group revises its estimates on the amount of equity instruments that will be acquired. The impact of this revision in relation to the original estimates, if any, is recognized in the income for the period, in such a manner that the accumulated expense reflects the revised estimates with the corresponding adjustment to equity in the "Reserve" account that recorded the benefit to the Contax Group’s executives.

Equity-settled share-based payment transactions with third parties, except for executives, are measured at the fair value of the products or services received. When the fair value cannot be reliably estimated, such transactions are measured at the fair value of the equity instruments granted on the date the products and services were received.

2.11 Taxation

Income tax and social contribution expenses are the aggregate of current and deferred taxes. 2.11.1 Current taxes

The provision for income tax and social contribution is based on the taxable income for the year. Taxable income differs from the income reported in the income statement to the extent that it excludes income or expenses that are taxable or deductible in other reporting periods, in addition to permanently excluding non-taxable or non-deductible items. The provision for income tax and social contribution is separately calculated for each entity of the Group based on the tax rates applicable at the end of the reporting period.


24

2.11.2 Deferred taxes Deferred income tax is recognized over temporary differences between asset and liability carrying amounts for accounting purposes and corresponding amounts applied for taxation purposes. Their recognition occurs to the extent it is probable that future years’ taxable income is available to offset the deferred tax asset, based on projections of results, prepared and based on internal assumptions and future economic scenarios, which enable its utilization. Periodically, the amounts recorded are revised and the effects, considering realization or settlement effects, are reported in compliance with the tax laws.

2.12 Property, Plant and Equipment

Land, buildings, items under construction or development, furniture and fixtures, and equipment are recognized at cost less depreciation and occasional accumulated impairment losses. Professional fees and, for qualifying assets, borrowing costs capitalized pursuant to the Group's accounting policy are recognized as part of the costs of items under construction or development. Such items under construction or development are classified in the appropriate categories of property, plant and equipment when construction or development is complete and the item is ready for its intended use. Depreciation of these assets starts as soon as they are ready for their intended use, and depreciation occurs on the same basis as other property, plant and equipment assets.

Land is not depreciated.

Depreciation is recognized based on the estimated life of each asset on a straight-line basis; so that cost less residual amount after the useful life has elapsed can be written off in full (except for land and items under construction or development). Given the complex nature of the Group's IT and telecommunications systems, useful life estimates require considerable judgment and are inherently uncertain due to the fast-paced evolution of technology and practices in the industry, which could cause the early obsolescence of such systems. Estimated useful life, residual amounts, and depreciation methods are revised at the statement of financial position date, and the effect of any change in estimates is recognized prospectively.

Assets held through financial lease are depreciated through the expected useful life, like owned assets, or through a shorter period, as applicable, pursuant to the terms of the lease agreement in question.

An item of property, plant and equipment is written off on disposal or when there is no future economic benefit resulting from the continuing use of the asset. Any gain or loss from the sale or write-off of an item of property, plant and equipment, or refurbishing of furniture or equipment, is determined by the difference between amounts received in the sale and the carrying amount of the asset, and it is recognized in the income statement.


25

2.13Intangible assets

2.13.1 Intangible assets acquired separately

Intangible assets with a definite useful life mainly consist of software, and are recognized at cost less amortization and occasional accumulated impairment losses. Amortization is straight-lined based on the assets' estimated useful life. The estimated useful life and depreciation method are revised at the end of each reporting period, and the effect of any change in estimates is recognized prospectively. Intangible assets with an indefinite useful life, acquired separately, are recognized at cost less accumulated impairment losses.

2.13.2 Intangible assets

The Company’s intangible assets are composed of the data processing system, customers’ portfolio and brands and patents resulting from the acquisition of Allus Group and Contax-Mobitel, respectively. The acquisition/construction cost is appraised and deducted from the accumulated amortization and impairment losses, where applicable.

The Company deems there is no sign that the carrying amount of the intangible assets exceeds its recoverable value.

However, in order to reiterate its understanding, the Company yearly conducts impairment testing adopting the present value method of future cash flows generated by assets, resulting in an amount higher than that recorded in the books (see Note 13).

2.13.3 Goodwill on estimated future profitability

Goodwill is tested for impairment on a yearly basis or whenever circumstances indicate that the carrying amount may be impaired. In 2013, Ability, Contax-Mobitel and Allus Group’s impairment testing was carried out (see Note 3.4 – item 3), and any provision for impairment needed to be recognized.

2.14 Provisions

The Company recorded provisions involving Management’s relevant judgment for tax, labor and civil contingencies, which as a result of past event, it is probable that an outflow of resources involving economic benefits may be necessary to settle the obligation and that a reliable estimate of this obligation can be made.

The Company is also subject to several civil and labor claims covering a wide range of matters arising from the regular course of business activities. The Company’s judgment is based on the opinion of its legal counsels. The provisions are revised and adjusted to take into account changes in circumstances, such as the applicable expiration deadline, conclusions of fiscal inspections, or additional exposures that may be identified based on new matters or court decisions. Actual results may differ from estimates.


26

2.15 Financial instruments

Financial assets and liabilities are recognized when an entity of the Group is a party to the contractual provisions of the instrument.

Financial assets and liabilities are initially measured at fair value. Transaction costs directly attributable to the acquisition or issuance of financial assets and liabilities (except for financial assets and liabilities recognized at fair value in the profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as applicable, after the initial recognition. Transaction costs directly attributable to the acquisition of financial assets and liabilities at fair value through the profit or loss are immediately recognized in the income statement.

2.16 Financial assets

Financial assets are classified in the following specific categories: (i) financial assets at fair value through profit or loss, (ii) held-to-maturity investments, (iii) available-for-sale financial assets, and (iv) loans and receivables. Classification depends on the nature and purpose of the financial assets and is determined at the initial recognition date. All regular purchases or sales of financial assets are recognized or written-off based on the trade date. A regular purchase or sale corresponds to a purchase or sale of financial assets that requires that the asset be delivered within a determined deadline, under a market practice or rule.

2.16.1 Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss when they are held for trading or designated as at fair value through profit or loss. A financial asset is classified as held for trading if: • It was acquired for the purpose of selling in the short term; or

• If on the initial recognition it is part of a portfolio of identified financial

instruments that are managed together by the Group and for which there is evidence of a recent actual pattern of short-term profit-taking.

A financial asset, in addition to assets held for trading, may be designated as at fair value through profit or loss on the initial recognition if: • Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or • The financial asset is part of a managed group of financial assets or liabilities or both and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy of the Group, and information about the group is provided internally on the same basis; or


27

• It is part of a contract containing one or more embedded derivatives and IAS 39 – Financial Instruments: Recognition and Measurement (equivalent to Technical Pronouncement CPC 38) allows for the combined contract to be designated in its entirety as a financial asset or liability at fair value through profit or loss.

A gain or loss arising from a change in the fair value of a financial asset at fair value through profit or loss is recognized in the income statement. Net gains or losses recognized in the income statement include dividends or interest derived from the financial asset and are included in "Other gains and losses" in the income statement. Fair value is determined as described in Note 31.

2.16.2 Held-to-maturity investments Held-to-maturity investments correspond to non-derivative financial assets with fixed or determinable payments and with fixed maturity date the Group intends and is able to hold to maturity. After the initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment loss.

2.16.3 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are included in current assets, except for those maturing in over 12 months from the statement of financial position date, which are classified as non-current assets. Loans and receivables (including trade accounts receivable and other, and cash and cash equivalents) are measured at amortized cost using the effective interest method, less any impairment loss. Interest income is recognized using the effective interest method, except for short-term credits when recognition of interest would be immaterial.

2.17 Financial liabilities and equity instruments

2.17.1 Financial liabilities Financial liabilities are classified as "Financial liabilities at fair value through profit or loss" or "Other financial liabilities.” 2.17.1.1 Financial liabilities at fair value through profit or loss

Financial liabilities are classified at fair value through profit or loss when they are held for trading or designated as at fair value through profit or loss. A financial liability is classified as held for trading if: • It was acquired principally for the purpose of selling in the short term;

or


28

• It is part of a portfolio of identified financial instruments that are managed together by the Group and for which there is evidence of a recent actual pattern of short-term profit-taking.

A financial liability not held for trading may be designated as at fair value through profit or loss upon initial recognition if: • Such designation eliminates or significantly reduces a measurement or

recognition inconsistency that would otherwise arise; or

• It is part of a managed group of financial assets or liabilities or both and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy of the Group, and information about the Group is provided internally on the same basis; or

• It is part of a contract containing one or more embedded derivatives and

IAS 39 – Financial Instruments: Recognition and Measurement (equivalent to Technical Pronouncement CPC 38) allows for the combined contract to be designated in its entirety as a financial asset or liability at fair value through profit or loss.

A gain or loss arising from a change in the fair value of a financial liability at fair value through profit or loss is recognized in the income statement. Net gains or losses recognized in the income statement include interest paid on the financial liability and are included in "Other gains and losses" in the income statement. Fair value is determined as described in Note 32.

2.17.1.2 Other financial liabilities

Other financial liabilities (including borrowings) are measured at amortized cost.

2.17.1.3 Write off of financial liabilities

The Group writes off a financial liability only when the obligation is discharged or canceled or expires. The difference between the carrying amount of the written-off financial liability and the consideration paid and payable is recognized in the income statement.

2.18 Treasury shares

Reacquired own equity instruments (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the Company's own equity instruments. Any difference between the carrying amount and the consideration is recognized in other capital reserves.


29

2.19 Share buyback

When the Contax Group repurchases its own shares, the amount of the consideration paid, including directly attributable costs, is recognized as a deduction from equity with treasury shares.

2.20 Costs and expenses

Operating costs and expenses are recognized on an accrual basis and in the Contax Group and include mainly personnel expenses.

2.21 Financial revenues and expenses

Financial revenues and expenses derive mainly from interest and monetary restatement on financial investments, borrowings and leases, all of them recognized on an accrual basis.

2.22 Cash and cash equivalents

Cash and cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For the Group, cash and cash equivalents include (i) cash on hand, (ii) demand deposits, and (iii) financial investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

Therefore, an investment normally qualifies as a cash equivalent when it has a short maturity of, for example, three months or less from the date of acquisition.

2.23 Trade accounts receivable and allowance for doubtful accounts

Trade accounts receivable are initially recognized at fair value, which usually represents the amounts billed, and subsequently recognized at balances less a provision for impairment losses. The allowance for doubtful accounts is formed when there is objective evidence, in addition to any guarantee that may have been provided by the customer, that the Group will not be able to collect all amounts owed, according to the initial conditions of credits receivable.

2.24 Court deposits

There are cases where the Group challenges the legitimacy of certain liabilities or lawsuits brought against it. Therefore, following a court order or a Management strategy, the amounts challenged may be deposited with court and not construe a settlement of the liability, allowing for the Group to keep on challenging the lawsuits. In these situations, even though the deposits are still assets of the Group—and adjusted for inflation (Note 19)—the amounts shall only be released in case of a final court decision that is favorable to the Group. Court deposits are treated as investment activities in the statement of cash flow.


30

2.25 Borrowings and financing

Borrowings are initially recognized when funds are received, net of transaction costs. Subsequently, borrowings and financing are recorded at amortized cost, i.e., plus charges and interest proportionate to the period incurred (note 15).

2.26 Payroll and related charges

Amounts related to vacation payable to employees are provisioned proportionately to the vesting period, and include the corresponding charges.

Contax has a profit-sharing program for all employees, pursuant to an agreement executed with the Interstate Federation of Telecommunications Workers (FITTEL). This profit-sharing program is based on the increase in operating gains and on individual performance, with the participation of all employees.

2.27 Accounts payable

Accounts payable are based on normal loan terms and are interest free. Foreign-currency denominated accounts payable are translated into reais using the effective exchange rate on the statement of financial position date. Exchange gains and losses are included in other income and expenses.

2.28 Payment of dividends

Minimum mandatory dividend is recognized as a liability at the end of each reporting period. Dividends that exceed the minimum mandatory dividend are recorded separately in the statement of changes in equity, and are not recognized as a liability until they are approved at the Contax Group general shareholders' meeting.

2.29 Statement of Value Added

The Company prepared parent company and consolidated statements of value added (DVA) pursuant to technical pronouncement CPC 09 – Statement of Value Added, which are reported as an integral part of the financial statements, under the BRGAAP applicable to publicly-held companies while under IFRS, they represent additional financial information.

3. KEY ACCOUNTING JUDGMENTS AND SOURCES OF UNCERTAINTIES IN ESTIMATES

When applying the Contax Group’s main accounting policies (Note 2), Management must make judgments and prepare estimates regarding the carrying amount of assets and liabilities that are not easily obtained from other sources. Estimates and assumptions are continuously revised and are based on the track record experience and other factors, including expectations of future events deemed as reasonable for the circumstances. These estimates and assumptions may differ from actual results.


31

Effects deriving from revisions of the accounting estimates are recognized in the effective revision period. 3.1. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable in exchange for services in the Group's ordinary operating activities. Revenue is stated net of sales taxes, refunds, provisions, discounts, and after the elimination of intragroup sales. The Group recognizes revenue when (i) the amount of the revenue can be reliably measured, (ii) it is probable that future economic benefits will flow to the entity, and (iii) when specific criteria for each of the Group's activities are met, as described below. A revenue amount cannot be measured with reliability until all sale-related contingencies have been solved. The Group bases its estimates on historical results, considering the type of customer and operation, and the particulars of each arrangement. The Group provides telemarketing, contact center, and credit recovery services to other entities. These services are provided based on conversation time, workstation, performance, or fixed rates. Revenue from services based on conversation time is measured based on the number of hours of conversation, while revenue based on workstations are billed according to the number of workstations used by the customer. Revenues from performance goals (i.e., credit recovery services) are recognized based on the percent rate of credits collectable from consumers agreed upon with the customer. When the customer confirms such credits have been recovered, revenue is recognized. If certain circumstances have occurred that may change the initially estimated revenues, costs, or extended progress towards completion, the estimates are reviewed. Such reviews may result in increased or reduced estimated costs and revenues, and these reflect on the revenue for the period during which Management gets to know the circumstances causing the review.

3.2. Held-to-maturity financial assets

Management has revised the Contax Group’s financial assets in conformity with capital maintenance and liquidity requirements, and confirmed its intention and capacity to hold these assets to maturity. The carrying amount of held-to-maturity financial assets is R$46,846 (R$71,173 on December 31, 2012). Details on these assets are mentioned in Note 31.

3.3. Operating Lease Commitments – Contax Group as a Lessee

The Contax Group has contracted commercial leases for computer equipment and furniture. The Contax Group has determined, based on an assessment of the terms and conditions of the contracts that assumes all the significant risks and rewards of ownership of such assets and, therefore, the Company accounts for the contracts as operating leases.


32

3.4. Impairment of goodwill To determine if goodwill is impaired, it is necessary to estimate the value in use of the cash-generating unit goodwill was allocated to. The calculation of the value in use requires that Management estimates the future cash flow expected to be derived from the cash-generating unit, and the appropriate discount rate for the present value to be calculated. The goodwill carrying amount on December 31, 2013 is R$402,302 (R$354,882 on December 31, 201).

3.4.1. Allocation of goodwill to the cash-generating units

For the purposes of impairment testing, the goodwill carrying amount was allocated to the following cash-generating units, as follows:

i. Tele-assistance services in general

The recoverable value of these cash-generating units is based on the calculation of the value in use, employing cash flow projections based on five-(5) year financial budget approved by the Management, discount and perpetuity rates as follows:

Cash-generating units Discount rate Average growth rate

Contax-Mobitel 13.3% p.a. 4.8% p.a. Allus Colômbia (“Multienlace”) 13.3% p.a. 7.9% p.a. Allus Peru (“Stratton Spain”) 13.3% p.a. 23.3% p.a. Allus Argentina (“Stratton Spain”) 13.3% p.a. 8.8% p.a.

The cash flows referring to the tele-assistance services in general cash-generating unit were extrapolated at the constant annual perpetuity rates as per chart above. Management believes that any type of eventual reasonable change in key assumptions, in which the recoverable value is based, would not lead the carrying amount to exceed total recoverable value of the respective cash-generating unit mentioned above.

ii. Information Technology (IT) services

The recoverable value of this cash-generating unit (“TODO") is based on the calculation of the value in use, employing cash flow projections based on five-(5) year financial budget approved by the Management and annual discount rate of 16.9%.

Cash flows referring to Information Technology services cash-generating unit were extrapolated at an average annual growth rate of 12.8%. Management believes that any type of eventual reasonable change in key assumptions, on which the recoverable value is based, would not result in total carrying amount exceed total recoverable value of this cash-generating unit.


33

iii. Publicity and advertising services (Trade Marketing)

The recoverable value of this cash-generating unit is based on the calculation of the value in use, employing cash flow projections based on five-(5) year financial budget approved by the Management and annual discount rate of 13.6%.

Cash flows referring to the publicity and advertising services cash-generating unit were extrapolated at an average annual growth rate of 6.3%. Management believes that any type of eventual reasonable change in key assumptions, on which the recoverable value is based, would not result in total carrying amount exceed total recoverable value of this cash-generating unit.

Specifically in relation to goodwill due to future profitability of Ability equity interest (intangible asset of indefinite life), in August 2013, after completing three (3) years as of the date of its acquisition, the Management carried out the impairment testing and concluded that any recording of provision for goodwill impairment would not be necessary. The main assumptions the Contax Group employed in this test are in line with those previously mentioned for the “publicity and advertising” cash-generating unit and compatible with results reported in the year ended December 31, 2013, as described in Note 27.

3.5. Useful life of property, plant and equipment items

As described in Note 11, the Contax Group revises the estimated useful life of property, plant and equipment items on a yearly basis, at the end of each reporting period.

3.6. Assessment of financial instruments The Contax Group uses assessment techniques that include information that is not based on observable market data to estimate the fair value of certain types of financial instruments. Note 31 provides further detail on the main assumptions used in the determination of the fair value of financial instruments, as well as the sensitivity analysis of these assumptions.

3.7. Non-Financial Assets Impairment Loss An impairment loss occurs when the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The calculation of fair value less costs to sell is based on available information on sale transactions for similar assets or market prices less additional costs to dispose of such asset. The calculation of the value in use is based on the discounted cash flow model. Cash flows derive from the budget for the next five (5) years and do not include reorganization activities the Contax Group has not committed with yet, or significant future investments that will improve the asset base of the cash-generating unit being tested for impairment. The recoverable value is sensitive to the discount rate used in the discounted cash flow method, as well as to


34

expected future cash flows to be received, and to the growth rate used for extrapolation purposes.

3.8. Share-based payment transactions The Contax Group measures the cost of share-settled transactions with executives based on the fair value of the equity instruments at the grant date. The estimated fair value of share-based payments requires that the most suitable assessment model be determined for the granting of equity instruments, which depends on the terms and conditions of the grant. This also requires that the most appropriate data be determined for the assessment model, including the expected life of the option, volatility and dividend yield, and the corresponding assumptions, as well as the quality of instruments which will be acquired. The assumptions and models used to estimate the fair value of share-based payments are reported in Note 32.

3.9. Taxes There are uncertainties regarding the interpretation of complex tax regulations and the value and timing of future taxable results. Given the long-term nature and the complexity of existing contracts, differences between the actual results and the assumptions adopted or future changes in such assumptions could require future adjustments to the tax income and expense already recorded. The Contax Group records provisions, based on applicable estimates, for possible consequences of auditing by tax authorities of the respective jurisdictions where it operates. The amount of such provisions is based on several factors, such as prior experiences with fiscal audits and different interpretations of the tax regulations by the taxable entity and by the tax authority in question. Such differences in interpretation may arise for the most diverse matters, depending on the conditions in force in the respective domicile of Contax Group entities.

3.10. Deferred and recoverable income tax and social contribution The Contax Group records assets related to deferred taxes resulting from temporary differences between the carrying amount of assets and liabilities and their tax bases. Deferred tax assets are recognized to the extent that the Contax Group expects to generate sufficient taxable profit based on projections and forecasts prepared by Management. Such projections and forecasts include several assumptions regarding the Contax Group’s performance, foreign exchange rates, volume of services, other rates and factors that may differ from current estimates, in line with the assumptions discussed in item 3.4. Under the current Brazilian tax legislation, tax losses do not expire for utilization. However, cumulative tax losses can only be offset up to 30.0% of the annual taxable profit. For further detail on deferred taxes, please refer to Note 8.


35

3.11. Measurement at fair value of a contingent consideration Contingent consideration in a business combination is measured at fair value on the date of acquisition as part of the business combination. If the contingent consideration is classified as a derivative, and, therefore, as a financial liability, it must be subsequently remeasured at fair value on the statement of financial position date. The fair value is based on the discounted cash flow and the main assumptions (item 3.4) take into account the probability of meeting each goal and the discount factor.

3.12. Provisions for tax, civil and labor risks The Contax Group is party to several legal and administrative proceedings, as described in Note 19. Provisions are recorded for all risks referring to the lawsuits that represent probable losses and which can be reliably measured. The assessment on the probability of loss includes an analysis of available evidence, the hierarchy of laws, the available court precedents, the latest decisions of courts of law and their relevance in the legal system, as well as the opinion of external legal counsels. The Management believes that these provisions for tax, civil and labor risks are appropriately stated in the Financial Statements.

3.13. Provisions for payroll and related charges Payroll and related charges are the most representative costs of the Contax Group’s operations, and are calculated and accrued according to the payroll. Payroll and related charges include salaries, paid vacation, Christmas bonus (13th salary), payroll charges, employee profit-sharing plan and taxes on payroll, most of which is determined by the labor and pension plan legislation of each country where the Contax Group operates. The provision for paid vacation in Brazil considers that each employee has the right to thirty (30)-day paid vacation per year, corresponding to 133.3% of the monthly salary. The Contax Group accrues a monthly provision for paid vacation until the benefit is paid, i.e., when the employees use their vacation. In Brazil, a monthly provision equivalent to one twelfth (1/12) of the monthly salary of each employee is accrued in the 13th salary provision until such benefit is paid. Benefits such as transportation and meal vouchers are recognized as expense on a monthly basis, when provided to employees. The variable compensation plan paid to employees is based on the achievement of performance, financial and quality goals, and on individual goals of each employee, determined on a yearly basis. This provision is accrued on a monthly basis and recalculated at the end of the reporting period based on the best estimates of the goals met, as provided for in the annual budget. However, the final overall amount is only defined after being analyzed and approved by the Board of Directors.

3.14. Seasonality The Contax Group does not suffer seasonality in its operations.


36

3.15. Goodwill impairment of the Allus companies

To determine whether goodwill is impaired, it is necessary to estimate the value-in-use of the cash generating unit to which the goodwill was allocated. To assess the value-in-use, Management needs to estimate the expected future cash flow from the cash generating unit and an adequate discount rate for the calculation of the net present value. The recoverable value of these cash generating units is determined based on the calculation of the value-in-use, using the cash flow projections based on the ten-(10) year financial budget approved by Management.

Specifically regarding the goodwill from future profitability of the shareholding interest held in the Allus companies (indefinite useful life of intangible assets), in September 2013, two (2) years after the acquisition date, Management implemented an impairment test and concluded that it was not necessary to make any provision for losses on the goodwill value booked.

4. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

The standards that may be relevant for the Group are mentioned below. The Group does not plan to early adopt these standards. IFRS 9 Financial Instruments (2010), IFRS 9 Financial Instruments (2009)

IFRS 9 (2009) introduces a new requirement for the classification and measurement of financial assets. Under the IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are maintained and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions in relation to financial liabilities. Currently, IASB has a project to make changes restricted to the IFRS 9 classification and measurement requirements and add new requirements to address the impairment loss of financial assets and hedge accounting.

IFRS 9 is effective for the years beginning on or as of January 1, 2015.

The Brazilian Accounting Pronouncements Committee still has not issued an accounting pronouncement or amendment to pronouncements in force, corresponding to this standard.

Provisional Measure no. 627 Management carried out an initial analysis of the provisions in Provisional Measure 627, of November 11, 2013 (“MP 627”), and Normative Ruling 1397, of September 16, 2013, as amended by Normative Ruling 1422, of December 19, 2013 (“IN 1397”). Although MP 627 will be in force as of January 1, 2015, there is the possibility of irreversibly applying it as of January 1, 2014. Management does not intend to anticipate its adoption.


37

Management and its legal counsel did not identify any significant impacts resulting from MP 627 and IN 1397 on the financial statements for the fiscal year ended December 31, 2013.

5. CASH AND CASH EQUIVALENTS, RESTRICT CASH AND FINANCIAL

INVESTMENTS

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Current:Cash and banks (i) 148 172 45,771 60,225 Financial investments (ii) 1,315 101,733 337,939 295,022 Cash and cash equivalents 1,463 101,905 383,710 355,247

Restricted cash (iii) 546 - 6,799 18,831 Total current 2,009 101,905 390,509 374,078

Non-current:Restricted cash (iii) 3,271 3,297 3,271 4,714 Long-term investments (iv) - 24,486 46,846 71,173 Total non-current 3,271 27,783 50,117 75,887


(i) The amounts are held in a bank checking account given that the Contax Group pays

suppliers, taxes and payroll for accounts payable on the first day of each month.

(ii) The financial investments are immediately convertible into a known cash amount and are subject to an insignificant risk of change in value. This Interim Financial Information mainly refers to Bank Deposit Certificates (CDBs) and Repurchase and Resale Agreements (OCOs) paid at the variation of Interbank Deposit Certificate (CDI).

(iii) As a partial guarantee to the payment of the additional price, as provided for in Ability’s agreement, Contax offers all funds deposited in the secured account. The current retained amount under the agreement is invested in an escrow account. On December 31, 2013, the balance of the restricted amount recorded in non-current assets and current assets corresponds to R$3,271 (R$3,297 on December 31, 2012) and R$546, respectively. The restricted amount deposited in a secured account will be released to the Seller in two annual installments (“annual release”), whereby (i) the first installment, due in the fourth year as of the closing date (August 16, 2010), will correspond to 50% of the amount resulting from the secured account, plus proportional earnings from the financial investment, and discounting the amounts corresponding to materialized contingencies (if applicable) and (ii) the second installment, due in the fifth year as of the closing date, will correspond to the amount remaining in the secured account, after the release of the first installment, plus proportional earnings from the financial investment, and discounting the amounts corresponding to materialized contingencies (if applicable).


38

As partial guarantee to the payment of additional price, as provided for in Allus agreement, Contax offers total funds deposited in the secured account. The amount retained subject to the agreement is invested in an escrow account. On December 31, 2013, the balance of restricted amount recorded R$6,799.

(iv) On December 31, 2013, the long-term investments, amounting to R$46,846 in the consolidated (R$71,173 on December 31, 2012) are composed of CDBs and OCOs from banks Itaú and BNB, respectively, whose original maturities will be for the consolidated in 2015 (R$26,775) and 2016 (R$20,071) and were acquired with the financial capacity and intention to be held in portfolio up to maturity. These investments are valued at the acquisition cost, plus income earned against profit or loss for the year.

6. TRADE ACCOUNTS RECEIVABLE

12/31/2013 12/31/2012

Related parties 39,584 59,720 Third parties 344,284 314,024 Allowance for doubtful accounts (978) (1,572)

382,890 372,172

Consolidated

On December 31, 2013, of accounts receivable from related parties, R$39,584 (R$59,720 on December 31, 2012) is mainly payable by Brasil Telecom Móvel, Oi S.A., Oi Móvel and Oi Fixa (Note 32). Related-party transactions account for 42% of the revenues from services rendered on December 31, 2013, (41% in the year ended December 31, 2012). The breakdown of trade accounts receivable by maturity is shown below:

12/31/2013 12/31/2012

Falling due 351,815 316,146 Overdue by 30 days 19,234 41,054 Overdue from 31 to 60 days 3,898 8,508 Overdue from 61 to 90 days 480 4,770 Overdue from 91 to 180 days 1,180 634 Overdue for over 180 days 7,261 2,632

383,868 373,744

Consolidated


39

The allowance for doubtful accounts is broken down as follows:

Consolidated

Balance on December 31, 2012 (1,572)

Allowance for doubtful accounts (67)

Reversal of allowance for doubtful accounts 661

Balance on December 31, 2013 (978)

Doubtful accounts by maturity period are broken down as follows:

12/31/2013 12/31/2012Overdue from 91 to 180 days (11) (17) Overdue over 180 days (967) (1,555)

(978) (1,572)

Consolidated

To determine the recovery of a receivable, the Contax Group considers any changes to its quality as of the date the credit was granted up to the date the results are disclosed. Credit risk concentration is limited due to the large basis of independent customers. Therefore, the Contax Group believes that provision for additional loss will not be required in addition to that one recorded on December 31, 2013. The allowance for doubtful accounts on December 31, 2013 represents R$918 in Contax, R$44 in TODO and R$16 in Allus Peru.


40

7. RECOVERABLE TAXES

Non- Non-current current

Income tax and social contribution recoverable 4,921 - 2,372 - Withholding income tax IRRF (i) 17,627 5 10,054 3,987

22,548 5 12,426 3,987

Non- Non-current current

Income tax and social contribution recoverable 30,370 13,625 10,315 6,249 Withholding income tax IRRF (i) 21,125 19 22,684 1,706 Withholding social integration program (PIS)/contribution for social security financing (COFINS)/social contribution 9,853 7 9,884 9,252 Social Security contributions (INSS) recoverable 2,601 - 2,266 - Service tax (ISS) recoverable (ii) - 7,613 - 666 Tax on value added (IVA) recoverable (iii) 5,050 - 3,596 - Other recoverable taxes 31 - 43 -

69,030 21,264 48,788 17,873

Current Current

Consolidated

12/31/2013 12/31/2012

Parent Company

12/31/2013 12/31/2012

Current Current

(i) Withholding income tax on financial investment redemptions. The amounts classified in current assets refer to withholding expected by the Management to be offset in 2013, according to recoverability study approved by the Management.

(ii) The ISS recoverable is classified as non-current assets due to the refund maturities with municipal agencies.

(iii) Tax on added value verified by foreign subsidiaries.


41

8. DEFERRED TAXES Deferred income tax and social contribution refer to:

Temporary differences

Income tax (iii)

Social contribution

(iii)

Total income

tax/social contribution

Temporary differences

Income tax (iii)

Social contribution

(iii)

Total income tax/social

contribution Assets:

Provisions 176,054 44,014 15,845 59,859 146,606 36,652 13,195 49,847 Goodwill on investments and other (i) 91,780 26,929 3,778 30,707 82,310 23,418 4,212 27,630

Profit sharing program 27,016 6,754 2,431 9,185 26,564 6,641 2,391 9,032

Deferred revenue - - - - 296 74 27 101 Tax loss 370,378 92,602 33,326 125,928 225,364 56,414 20,300 76,714 Deferred income tax and social contribution - assets 665,228 170,299 55,380 225,679 481,140 123,199 40,125 163,324

Liabilities: Goodwill (allocated amount) (ii) (152,334) (45,944) (4,867) (50,811) 122,733 (40,502) - (40,502) Deferred income tax and social contribution - liabilities (152,334) (45,944) (4,867) (50,811) 122,733 (40,502) - (40,502)

Consolidated12/31/2013 12/31/2012

(i) In December 2010, Contax transferred the control of Ability to the Company through a partial spin-off of assets, as well as the liabilities of contingent consideration amounting to R$45,685 (December 31, 2011: R$412 in current liabilities and R$40,501 in non-current liabilities). Therefore, goodwill previously recorded in Contax was transferred to Ability’s records as tax asset in the approximate amount of R$25 million (balance as of December 31, 2011), pursuant to CVM Rule 319/99 and ICPC 09 Technical Interpretation (Parent Company Interim Financial Information, Separate Interim Financial Information, Consolidated Interim Financial Information and Use of the Equity Accounting Method). In addition, the Contax Group has a tax asset referring to the goodwill recorded at Multienlace, based on the balance of the transferring statement of financial position as of April 30, 2011, calculated based on the effective rate in the country of origin (33% - Colombia) in the approximate amount of R$11 million.

(ii) In May and July 2011, the Contax Group took over Allus Group and Contax-Mobitel/TODO, respectively. The amount of goodwill allocated to Allus Group’s customer portfolio and brand and Contax-Mobitel/TODO’s customer portfolio and fixed assets, generated a tax debt of R$24,825 and R$21,411, respectively. In addition, during the years ended December 31, 2012 and 2013, the income tax liability was reversed, in view of the amortization of balances referring to Allus Group’s customer portfolio and brand acquired in May 2011. In 2013, the Allus Group recorded deferred tax liabilities, due to changes in the useful life of fixed assets, pursuant to the current tax legislation.

(iii) Income Tax and Social Contribution amounts comprise different rates due to foreign companies. For Allus Group entities, a single rate of 33% is applied. These respective bases are not considered in the temporary differences used for income tax and social contribution levied on domestic companies, which are 25% and 9%, respectively.


42

Management conducted technical feasibility studies which were approved by the Management bodies and the Fiscal Council, pointing to deferred tax asset full realization until 2023. Technical feasibility studies consider estimates related, among other things, to the Contax Group’s performance, as well as the behavior of operating markets and certain economic aspects. Actual amounts may differ from the adopted estimates, as disclosed in Note 3. In accordance with the technical feasibility study related to the expectation of generating future taxable income approved by Management, TODO booked the deferred tax assets related to the accumulated tax losses in December 2013.

9. PREPAID EXPENSES AND OTHER ASSETS

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Prepayments (i) 505 140 13,775 23,859 Employee advances - - 30,388 20,087 Bank blocked funds (ii) 714 - 9,840 8,035 Receivables - - 23,111 15,681

1,219 140 77,114 67,662

Current 505 140 52,666 50,802 Non-current 714 - 24,448 16,860


(i) These basically refer to advances to trade accounts payable and prepaid expenses.

(ii) These refer to amounts blocked by the banks due to court order regarding labor

proceedings.


43

10. INVESTMENTS IN SUBSIDIARIES Below, the breakdown of investments in subsidiaries, stated in the parent company financial statements:

Direct subsidiariesContax Ability Total

Balance on De ce mbe r 31, 2012 281,560 95,441 377,001

Equity in the earnings of subsidiaries 84,173 4,528 88,701

Equity valuation adjustment (i) 25,592 39 25,631

Recording of reserve (ii) (41) - (41)

Dividends receivable (65,463) - (65,463)

Goodwill on capital transactions (iii) (33,237) - (33,237)

Balance on De ce mbe r 31, 2013 292,584 100,008 392,592

(i) Refers to effect of changes in the translation of foreign currency balances of subsidiaries abroad.

(ii) Recording of reserves referring to the transfer of controlling interest from Multienlace to

Stratton Spain (Note 1.1.8).

(iii) Goodwill on acquisition of non-controlling interest in the indirect subsidiary TODO Soluções em Tecnologia, through the direct subsidiary Contax S.A. (Note 22.2).


44

11. PROPERTY, PLANT AND EQUIPMENT

Telecom and IT equipment (i)

Furniture and fixture (i)

Facilities in third-party properties (ii)

Construction in progress (iii) Buildings Land Energy equipment

Transmission equipment Other Total

Cost

On December 31, 2012 553,123 164,884 407,208 18,086 6,789 831 45,913 29,638 47,832 1,274,308

Additions 53,062 16,283 6,049 77,412 978 - 5,548 926 5,107 165,365

Transfers (vi) 77,851 30,031 30,078 (58,422) 5,961 - 2,990 60,932 (464) 148,957

Write-offs (3,638) (3,496) (24,004) - (47) - (276) (1,901) (1,325) (34,690)

Exchange rate variation (iv) 698 343 (603) (206) - - 296 1,597 156 2,280

Impairment (v) (177) - - - - - - - - (177)

On December 31, 2013 680,919 208,045 418,728 36,870 13,681 831 54,471 91,192 51,306 1,556,043

Accumulated depreciation

On December 31, 2012 (429,219) (81,202) (178,702) - (2,485) - (17,780) (4,297) (18,177) (731,862)

Depreciation (63,394) (19,500) (54,476) - (1,039) - (4,867) (4,247) (6,543) (154,066)

Transfers (73,826) (26,217) (33,936) - (5,961) - (2,914) (49,222) (720) (192,796)

Write-offs 3,634 2,892 22,501 - 33 - 208 1,900 514 31,682

Exchange rate variation (iv) (1,205) 244 885 - - - (163) (778) 427 (590)

On December 31, 2013 (564,010) (123,783) (243,728) - (9,452) - (25,516) (56,644) (24,499) (1,047,632)

Net property, plant and equipment (14,425) (4,116) 1,333 - (238) - (1,362) (12,503) (1,206) (32,517)

On December 31, 2012 123,904 83,682 228,506 18,086 4,304 831 28,133 25,341 29,655 542,446

On December 31, 2013 116,909 84,262 175,000 36,870 4,229 831 28,955 34,548 26,807 508,411

Consolidated


45

The chart below shows the annual weighted average depreciation rates, which have been defined according to the Contax Group's assets economic useful lives:

Annual weighted average depreciation rate - % Interval rates - %

Telecom and IT equipment 26.67% 20% to 33,33 %Furniture and fixtures 12.50% 12.50%Facilities in third-party properties 22.03% 10% to 50%Buildings 7% 4% to 10%Energy equipment 10% 10%Transmission equipment 10% 10%Other 15% 10% to 20%

(i) The acquired assets’ monthly depreciation rates under the items “IT and telecom equipment” and “furniture

and fixtures” are reviewed based on the appraisal studies to determine the economic useful life prepared in accordance with the standards of Brazilian Association of Technical Standards (ABTN) by a specialized consultant qualified for this type of activity and supported by technical appraisal reports.

(ii) The depreciation rates of facilities in third party’s properties consider the effectiveness term of the real estate

lease agreements, which varies from two (2) to ten (10) years. The Contax Group may renew the agreements for the same period.

(iii) Constructions in progress mainly record the expenses related to new constructions and installations of

equipment until their startup, when they are reclassified into the corresponding operational assets accounts.

(iv) The translation adjustment effect arises from several exchange rates used in translation to real throughout the months of foreign subsidiaries.

(v) Property, plant and equipment of the subsidiary Contax Argentina belonging to Telecom group and IT

equipment were impaired for having recoverable amount below their historical cost. Contax Argentina’s property, plant and equipment relating to the operation is not generating any economic benefit at the present, but economic benefits are expected in the future.

(vi) A total of R$27,001 was reclassified to Other Intangible Assets, under Data Processing System (Note 13),

because it refers to investments in software development not yet in operation, i.e., not in conditions to generate economic benefits, and it must be stated in Note 13 due to its nature.

Finance lease Assets acquired through finance lease agreements according to CVM Resolution 645/10, which approved the Technical Pronouncement CPC 06 (R1) (lease operations), were classified as property, plant and equipment and recorded under “Telecom and IT equipment” and “Furniture and fixtures,” and generated depreciation of R$653 in fiscal year 2013 (R$735 in 2012). The carrying amount of property, plant and equipment held under finance lease agreements on December 31, 2013 in the consolidated was R$63 (R$716 on December 31, 2012).


46

12. GOODWILL ON INVESTMENTS

In July 2011, The Contax Group took over Contax-Mobitel by merging its shares (Note 1.1.3). The operation’s market value was R$118,097, of which R$31,396 refers to goodwill based on the economic value, in view of future profitability.

In May 2001, all shares issued by the companies composing Allus Group were transferred to subsidiaries Contax and Contax Colômbia pursuant to the purchase agreement entered into between the parties for R$246,262, of which R$161,978 as goodwill based on its economic value, in view of future profitability estimate (non-allocated goodwill amount).

In September 2010, Contax acquired full control of Ability for R$72,585, of which R$74,365 as goodwill based on its economic value, due to the estimate of business’ future profitability. In December, 2010, Contax transferred the control of Ability to the Company, through a partial spin-off and the transfer of R$49,081 as net goodwill of the tax assets to the Company. Ability recognized R$25,284 as deferred income tax and social contribution in consolidated results and as investment in the parent company results.

Consolidate d

On December 31, 2012 383,977

Exchange rate variation 18,325

On December 31, 2013 402,302


47

13. OTHER INTANGIBLE ASSETS

Data processing system (ii)

Trademarks and patents

Customer portfolio (acquisition of Allus

Group) (i)

Customer portfolio (acquisition of

Dedic/GPTI) (iii)

Trademarks (acquisition of Allus

Group) (i) Total

Cost

On December 31, 2012 309,670 2,249 89,243 45,954 6,075 453,191

Additions 36,942 42 - - - 36,984

Write-offs (358) (4) - - - (362)Reclassification from property, plant and equipment (vi) 117,154 - - - - 117,154

Exchange rate variation (iv) 1,776 (36) 3,748 - 158 5,646

Impairment (v) (271) - - - - (271)

On December 31, 2013 464,913 2,251 92,991 45,954 6,233 612,342

Accumulated amortization

On December 31, 2012 (197,870) (163) (7,525) (6,508) (1,890) (213,956)

Amortization (42,862) (46) (4,413) (5,173) (894) (53,390)Write-offs 261 - - - - 261 Transfers (73,315) - - - - (73,315)Exchange rate variation (iv) (1,329) 26 (519) - (22) (1,842)

On December 31, 2013 (315,115) (183) (12,457) (11,681) (2,806) (342,242)

Net intangible assets

On December 31, 2012 111,800 2,086 81,718 39,446 4,185 239,235 On December 31, 2013 149,798 2,068 80,534 34,273 3,427 270,100

Consolidated

(i) As disclosed in Notes 1.1.8 and 12, Allus Group was acquired by Contax and Contax Colômbia for R$246,262. During the process of adopting the Technical Pronouncement CPC 15 (R1) – Business Combinations (corresponding to IFRS 3), other intangible asset was identified, such as trademarks and customer portfolio (i.e. non-contractual relationship with customers).

(ii) According to the Management, the estimated useful life of software is five (5) years.

(iii) As reported in Note 1.1.3 and 12, Contax-Mobitel was acquired through the merger of Contax shares for R$118,097. During the process of adopting the Technical Pronouncement CPC 15 (R1) – Business Combinations (corresponding to IFRS 3), other intangible assets were identified, such as customer portfolio, the amortization of which shall occur within ten (10) years.

(iv) The foreign exchange variation effect arises from different exchange rates applied when translating into Real over the months when converting other intangible assets of foreign subsidiaries.

(v) Property, plant and equipment of the subsidiary Contax Argentina belonging to the Data Processing System group were impaired for having recoverable amount below their historical cost. Contax Argentina’s property, plant and equipment relating to the operation is not generating any economic benefit at the present, but are expected to in the future.

(vi) A total of R$27,001 was reclassified from subitem Property, Plant and Equipment in Progress, in Property, Plant and Equipment (Note 11), to Other Intangible Assets, under Data Processing System, because it refers to investments in software development not yet in operation, i.e., not in conditions to generate economic benefits, and it must be stated in this Note due to its nature.


48

14. DEBENTURES, PROMISSORY NOTES AND LOANS As of 2011, the Company raised funds to finance its strategy for consolidation in the Brazilian market and to expand its internationalization. In order to increase investment volume and adapt debt to Company’s expected cash inflows from investments, the Company restructured and, consequently, extended its debt to a long term, mainly through the issuing of debentures.

14.1. Intragroup private debentures (Company as funder)

In the last quarter of 2013, Contax raised the total of R$ R$58,516 deriving from the private issue of debentures, as well as R$45.000 raised in the first quarter of 2013. Previously, Contax raised R$550,000, deriving from the private issue of debentures, and R$73,850, deriving from the private issue of three series of debentures. The first and second series were settled in April 2012, in the total amount referring to principal and interest rates of R$62,829. The characteristics of these series and their balances are as follows:

Principal on Interest on Withholding Balance onSeries Issue date 12/31/2013 12/31/2013 # 12/31/2013 # 12/31/2013

3rd Series 8/2/2011 1,660 16,600 105% CDI 16,600 3,974 (596) 19,978 4th Series 1/3/2012 36,000 360,000 118% CDI 360,000 72,990 (11,309) 421,681 5th Series 1/5/2012 4,000 40,000 118% CDI 40,000 8,159 (1,632) 46,527 6th Series 10/11/2012 7,500 75,000 IPCA + 6.5% 75,000 8,258 (1,445) 81,813 7th Series 10/31/2012 7,500 75,000 TJLP + 2.5% 75,000 651 (114) 75,537 8th Series 2/19/2013 1,750 17,500 IPCA + 6.5% 17,500 1,927 (385) 19,042 9th Series 2/19/2013 1,750 17,500 TJLP + 2.5% 17,500 152 (30) 17,622 10th Series 3/20/2013 500 5,000 IPCA + 6.5% 5,000 551 (110) 5,441 11th Series 3/20/2013 500 5,000 TJLP + 2.5% 5,000 43 (9) 5,034 12th Series 11/29/2013 2,913 29,193 TJLP + 2.5% 29,193 188 (42) 29,339 13th Series 11/29/2013 29,129 29,323 IPCA + 6.5% 29,323 233 (52) 29,504

670,116 97,126 (15,724) 751,518

Number of outstanding debentures

Value at issue date

Annual financial charges

14.2. Intragroup Loan (Company as lender)

In June 2012, Contax raised R$3,873 deriving from a private loan with the Company.

Value at AnnualIssue Type of issue financial

Series date issue date charges 12/31/2013

1st Series 6/20/2012 Private 3,873 100% CDIPrincipal 3,873 Interest 473 Withholding income tax (IRRF) (83)

4,263

In December 2013 the subsidiary Ability raised R$1,529 through a private loan with the Company.


49

Value at AnnualIssue Type of issue financial

Series date issue date charges 12/31/2013

1st Series 12/12/2013 Private 1,529 100% CDIPrincipal 1,529 Interest 7 Withholding income tax (IRRF) (2)

1,534

14.3. Public Debentures (Company as fund raiser)

14.3.1. Debentures issued by the Company to the market.

In December 2011, the Company issued 40,000 public, non-convertible debentures, approved at the Board of Directors’ meeting held on October 26, 2011, totaling R$400,000, as described below:

Number of Value at AnnualIssue Type of outstanding issue financial R$ thousand

Series date issue debentures date charges 12/31/20131st Series 12/15/2011 Public 21,264 212,640 100% CDI + 1.25% p.a. spreadPrincipal 212,640 Interest 983 Withholding income tax (IRRF) (147) Transaction costs to appropriate (i) (705) Issue premiums to appropriate (i) 467

213,238

2nd Series 12/15/2011 Public 18,736 187,360 100.52% IPCA + 6.8% interest p.a.Principal 187,360 Interest 22,898 Withholding income tax (IRRF) (4,048) Transaction costs to appropriate (i) (705) Issue premiums to appropriate (i) 467

205,972 419,210

(i) On the fund raising date, the Company received R$401,431, and the difference between this amount and the

principal is related to the commission on issue of debentures. The Company paid R$2,181 relating to the issue costs of debentures to third parties. The commission and issue costs of debentures will be amortized during the effectiveness of the series.

In addition, the Company shall maintain the following financial ratios, during the effectiveness of the debentures agreement:

(a) Net Debt/EBITDA equal to or lower than three (3) times; and

(b) EBTIDA/Net Financial Expense equal to or exceeding one whole, sixty-five hundredths (1.65) time.

Where:


50

“Net Debt” corresponds to the sum of the Company’s onerous debts on a consolidated basis, less cash and cash equivalents in the short and long term (sum of cash plus unrestricted financial investments); “EBITDA” means the operating income (loss), plus depreciation and amortization less financial result, calculated on an accumulated basis over the last twelve (12) months; and

"Net Financial Expense” corresponds to the difference between financial revenues and expenses according to the Company’s consolidated statement of income for the last twelve (12) months.

These ratios will be calculated quarterly based on the interim financial information and the fiscal year-end, based on the financial information contained in the Standardized Interim Financial Information (DFP). On December 31, 2013, the Company’s Management made the calculation according to said clause and concluded that it complied with said ratio during the contractual period.

14.3.2. Debentures between the Company and BNDES (Brazilian Development Bank).

In the second half of 2012, the Company raised the amount of R$256,508 with the issue of 253,438 debentures in two series, combined with warrants, approved at the Board of Directors’ Meeting held on July 25, 2012. The embedded derivative is component of a hybrid contract, besides a non-derivative principal contract. The contract embedded derivative is based on options. Therefore, the Management chose to split the derivative financial instruments from its principal contract according to the option terms. The non-derivative principal contract was maintained under the Debentures and promissory notes category, whose subsequent measurement occurs at the amortized cost. The recorded amount of principal instrument is the residual amount after the split of the embedded derivative.

The split derivative financial instrument has the right to subscribe shares (“CALL”), where each warrant confers its holder the right to subscribe an amount of preferred shares issued by the Company resulting from the division between the adjusted face value of the first series debentures, on the warrants exercise date and the strike price of thirty-two reais (R$32.00) per share.

The fair value of the option was defined from options pricing model. For the call option, the fair value calculation was extracted from an adaptation of the Black & Scholes options pricing model with payment of dividends. The initial fair value of the embedded derivative was R$3,564. For the quarter ended December 31, 2013 the fair value of the embedded derivative was R$1,427 (R$1,477 on September 30, 2013). On April 2, 2013, the Special Shareholders’ Meeting approved the amendment to this operation contract, altering CALL to twenty-eight reais and sixty centavos (R$28.60), attaching the option to convert it into CTAX11 share,


51

which was derived from the implementation of a share depositary receipt issuance program to create units composed of common and preferred shares issued by the Company.

Below are the positions of series issued on December 31, 2013:

Number of Value at Annual

Issue Type of outstanding issue financial R$ thousandSeries date issue debentures date charges 12/31/2013

1st Series 9/18/2012 Public 126,719 126,719 IPCA + 6,5%Principal 126,719 Interest 13,953 Withholding income tax (IRRF) (2,442) Transaction costs to appropriate (i) (518) Issue premiums to appropriate (i) 1,242

138,954

2nd Series 9/17/2012 Public 126,719 126,719 TJLP + 2,5%Principal 126,719 Interest 1,099 Withholding income tax (IRRF) (192) Transaction costs to appropriate (i) (518) Issue premiums to appropriate (i) 1,242

128,350

Fair value adjustment (ii) (2,137)

265,167

(i) On the fund raising date, the Company received R$256,508, and the difference between this amount and the principal is related to the commission on issue of debentures. The Company paid R$1,315 relating to the issue costs of debentures to third parties. The commission and issue costs of debentures will be amortized during the effectiveness of the series.

(ii) The options were priced according to the Black & Scholes pricing model, and the settlement date of

September 15, 2014 as assumption. However, it is worth mentioning that according to contractual clauses, warrants may be exercised at any time as of the aforementioned date until the maturity date on September 15, 2018.

As provided for in item 14.3.1., the Company shall maintain, during the effectiveness of these Debentures agreement, the following financial ratios:

(a) Net Debt/EBTIDA ratio equal to or less than three whole and five tenths (3.5) times; and

(b) EBITDA/Net Financial Expense ratio equal to or higher than one whole and five tenths (1.5) times.

On December 31, 2013, the Company’s Management made the calculation according to referred clause and concluded that it met said ratio in the period contractually agreed upon.

14.3.3. Debentures between the Company and Banco Bradesco.

On April 2, 2013, Contax Participações S.A., merged a spun-off portion of CTX Participações’ assets, which includes, among other items, R$55,000 debt


52

from debentures issued jointly with Bradesco in September 2011, as stated below:

Number of Value at Annual

Issue Type of outstanding issue financial R$ thousandSeries date issue debentures date charges 12/31/2013

1st Series 9/19/2011 Public 55 55,000 100% CDI + 1.25% p.a. spreadPrincipal 55,000 Interest 3,329 Withholding income tax (IRRF) (499) Transaction costs to appropriate (i) (183)

57,647

(i) On the date the funds were raised, the spun-off CTX Participações incurred transaction costs to enable the

issue of debentures. These transaction costs will be amortized throughout the duration of debentures

The principal will be paid in three equal and consecutive installments, the first of which will be paid in May 2014, the second in May 2015 and the third in May 2016.


53

14.4. Current and non-current debt/right.

Below, the breakdown of current and non-current debt/right in the period ended December 31, 2013:

Debentures and private loans Current Non-current Public Debentures Current Non-current

Principal 29,037 675,837 Principal - 675,518 Interest 42,262 -

Interest 49,433 63,900 Withholding income tax (IRRF) (7,329) -

Withholding income tax (IRRF) (15,726) (15,810) Transaction costs to appropriate (684) (1,944)

Issue premiums to appropriate 783 2,635 33,707 723,608 Fair value adjustment - 1,427

64,069 677,955

Public Debentures Current Non-currentPrincipal 29,037 675,837 Interest 42,262 - Withholding income tax (IRRF) (7,329) - Transaction costs to appropriate (684) (1,944) Issue premiums to appropriate 783 2,635

Fair value adjustment - 1,427

64,069 677,955

Liabilities

On December 31, 2013Parent Company Consolidated

Assets Liabilities

Also, the breakdown of the aforementioned operations in the twelve-month period:

OperationBalance on 12/31/2012 Merger

Redemption/Funding

Amortization of Principal

Amortization of Interest Financial Charges

Withholding Income Tax

Fair Value Adjustment

Balance on 12/31/2013

Intragroup Private Debentures (14.1) 601,112 - 103,517 - (9,197) 65,333 (9,247) - 751,518 Intragroup Loan (14.2) 3,992 - 1,529 - - 360 (84) - 5,797 Debentures issued to the market (14.3.1) 409,239 - - - (31,980) 49,835 (7,884) - 419,210 Debentures issued to BNDES (14.3.2) 265,266 - - - (14,490) 28,324 (7,481) (6,452) 265,167 Debentures issued to Bradesco (14.3.3) - 58,800 - - (3,920) 4,097 (1,330) - 57,647

1,279,609 58,800 105,046 - (59,587) 147,949 (26,026) (6,452) 1,499,339

On December 31, 2013


54

15. LOANS AND BORROWINGS

15.1. Loans and borrowings Financial R$ thousand R$ thousand

Object Company Start Maturity Guarantees charges 12/31/2013 12/31/2012

In domestic currency - R$

Expansion of installed capacity - I (BNDES) Contax S.A. 08/2007 09/2013

Bank guarantee TJLP (i) + 2% p.a.

- 40,893

Expansion of installed capacity - II (BNDES) Contax S.A. 03/2010 09/2016

Receivables from Oi TJLP (i) + 2.73% p.a. 155,280 211,741

Acquisition of domestic machinery and equipment (BNDES) Contax S.A. 03/2010 09/2016

Receivables from Oi 4.5% p.a. 23,196 31,627

BNDES - Prosoft I Contax S.A. 09/2012 09/2018Bank

guarantee TJLP (i) + 1.5% p.a. 68,179 23,558

BNDES - Prosoft II Contax S.A. 09/2012 09/2018Bank

guarantee TJLP (i) + 2.5% p.a. 119,034 13,577

BNDES - Prosoft III Contax S.A. 09/2012 09/2018Bank

guarantee TJLP (i) + 0.9% p.a. 4,146 1,435 BNDES Contax-Mobitel S.A. 05/2011 05/2017 Contax Part TJLP (i) + 2.5% p.a. 17,939 17,288 Subtotal BNDES 387,774 340,119

Construction of the Santo Amaro site (BNB) Contax S.A. 03/2010 03/2015 Receivables 8.5% p.a. 21,335 38,402 Subtotal BNB 21,335 38,402

409,109 378,521

In fore ign currency

Interbank working capital Stratton Peru S.A./Allus Peru S.A. 03/2011 03/2015 Stand By 4.5% p.a. 14,362 11,183 HSBC working capital Stratton Argentina S.A. - - No Guarantee 18% p.a. 965 9

Santander working capital Stratton Argentina S.A. - - No Guarantee 16.15% to 18.8% p.a. - 25 Itaú working capital Stratton Argentina S.A. - - No Guarantee 18% p. a. - 6,194 Bancolombia working capital Multienlace S.A. 12/2008 12/2013 No Guarantee DTF (ii) + 2.15% p.a. - 18,359 Banco Chaco working capital Stratton Chaco S.A. - - No Guarantee 16.75% p.a. - 13 BCP working capital Allus Peru S.A. 08/2010 04/2018 Stand By 3.55% to 4.9% p.a. 19,745 5,593

BBVA working capital Stratton Peru S.A./Allus Peru S.A. 03/2010 12/2013 Stand By 4.83% to 5.85% p.a. 2,056 1,194

Banco Galicia working capital Stratton Argentina S.A./Stratton Chaco S.A. - - No Guarantee 14.5% p.a. - 344

Banco Patagonia working capital Stratton Argentina S.A. 03/2013 07/2016 No Guarantee 18% to 19% p.a. 16,293 5,492 Banco Macro working capital Stratton Argentina S.A. - - No Guarantee 15.5% p.a. - 159

53,421 48,565

462,530 427,086

Current 127,674 177,368 Non-current 334,856 249,718

Consolidated

Effectiveness

(i) Long-term interest rate (TJLP) defined by BNDES. (ii) Fixed rate government bond (reference interest rate of the Colombian financial market).


55

15.2. Summary of loans and financing agreements

15.2.1. Financing agreement with the Brazilian Development Bank (BNDES)

Expansion of installed capacity - I

In August, 2007, Contax entered into a loan agreement with BNDES of R$216,514 with the purpose of financing the expansion of its installed capacity, improving facilities, qualifying employees, improving the quality of services rendered, productivity and investing in marketing actions. The financing funds were released in five installments, the first of which in October 2007 and the last in November 2008.

The maturity date of the financial charges was quarterly until September 15, 2009, becoming monthly for the period between October 15, 2009 until the maturity date or advanced settlement of the financing. The principal has been settled monthly since October 15, 2009, and the last installment falls due in September 2013. The agreement was settled on September 15, 2013.

Contax contractually opted for tendering guarantees through sureties (Note 35.2) from financial institutions, in this case, not applicable to receivables structure and financial covenants on December 31, 2013. During the year ended December 31, 2013, sureties costs totaled R$2,089 (R$1,077 on December 31, 2012).

Expansion of installed capacity – II and acquisition of machines and domestic equipment

In March 2010, Contax entered into a new loan agreement with BNDES of R$323,552, divided into two sub-loans:

Sub-loan “A” totaling R$281,455 destined to investments to increase the installed capacity and improve facilities, implement quality programs, train employees and invest in Research and Development, within the scope of BNDES Program for the Development of the National Industry of Software and Information Technology Services – BNDES PROSOFT; and

Sub-loan “B” totaling R$42,097 destined to investments to acquire domestic machinery and equipment, classified into the criteria of the Special Agency of Industrial Financing (FINAME), required by the project.

Annual interest rate of 1.73% shall incur over the principal amount of sub-loan “A” plus the TJLP variation accrued of 1% p.a., while an annual interest rate of 4.5% shall incur over the sub-loan “B”.

The principal of debt will be settled in 60 monthly and consecutive installments, whereas the first installment matured on October 15, 2011 and the last installment will mature on September 15, 2016. Financial charges matured on a quarterly basis between March 2010 and September 2011, and on a monthly basis from October 2011.

Contax will tender as guarantee the receivables deriving from the Services Agreement executed with Oi Fixa, TNL PCS S/A (“Oi Móvel”) and Telemar


56

Internet Ltda. Funding and control of these guarantees are summarized as follows, by order of priority:

1. Billing control: in Banco Itaú’s special current account for Oi Group receivables. Amounts are retained for 24 hours and after this period, they are released.

2. Oi Group makes payments on day 15 of every month, and this is the same day of installment maturity (principal + interest) of BNDES loan.

3. Financial investments with monthly average yield of R$180.

In addition, Contax shall maintain during the effectiveness of this present agreement, a Debt Service Coverage Ratio (“Ratio”) equal to or higher than 1.65, to be half-yearly calculated:

a) Debt Service Coverage Ratio calculated by dividing the Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) by Debt Service on a half-yearly basis;

b) EBITDA corresponds to the operating income before financial result, income tax and social contribution and depreciation and amortization expenses in the half year;

c) The Debt Service corresponds to the amount of debt effectively paid to creditors as amortization of principal and interest rates in the half year.

Said Ratio will be verified (i) in the first half of each fiscal year, based on the financial information contained in the Interim Financial Information (ITR) and (ii) at the fiscal year’s end based on the financial information contained in the Standardized Interim Financial Information (DFP).

The Company contracted a bank guarantee with Banco Itaú on April 8, 2013, as collateral for such loan, due to the failure to comply with referred ratio in the first half of 2012.

On May 28, 2010 the first releases were received, R$70,364 referring to the sub-loan “A” and R$10,524 referring to sub-loan “B”.

On December 10, 2010 the following releases were received, R$87,000 referring to sub-loan “A” and R$13,000 referring to sub-loan “B”.

On March 22, 2011, the following releases were received, R$70,364 referring to sub-loan “A” and R$10,524 referring to sub-loan “B”.

On May 16, 2011, Contax-Mobitel entered into a loan agreement with BNDES amounting to R$17,123 with long-term interest rate (TJLP) plus 2.5% p.a. as working capital to expire on May 15, 2017.

In May 2013, BNDES released R$3,815 related to loan agreement with Contax-Mobitel with TJLP plus 2.5 p.a. as working capital to expire on May 15, 2017.


57

15.2.2. Loan agreement with Banco do Nordeste do Brasil S.A. (BNB) for construction of Santo Amaro site

In March 2010, Contax executed a loan agreement with BNB of R$51,000, aiming at financing the implementation of a new operating unit in the city of Recife, state of Pernambuco. The outstanding balance will be adjusted by a fixed rate of 10% p.a., including full performance bonus of 15%. The maturity of financial charges was on a quarterly basis until March 2012, and then monthly between April 2012 and March 2015. The principal shall be paid in 36 monthly installments, from April 2012 to March 2015. As long as each installment is paid on the maturity date, the loan will bear interest rate of 8.5% p.a.; otherwise, the interest rate will be 10% p.a.

On September 21, 2010, the first release was received for a total of R$29.880. On December 15, 2010 the second release was received for a total of R$21,120.

15.2.3. Working capital loans

The entities composing Allus Group contracted several working capital loans with several financial institutions. On September 30, 2013, the total amount for these loans was R$36,289 (R$36,114 on June 30, 2013, R$43,930 on March 31, 2013 and R$48,565 on December 31, 2012).

15.2.4. New loan agreement with BNDES.

In September 2012, Contax raised R$38,463 of the total loan of R$193,570, divided into three subloans, detailed as follows:

I – Subloan “A”: the amount of R$23,496 will be earmarked to the group’s subsidiary (TODO SOLUÇÕES EM TECNOLOGIA S/A) for investments in research and development of new solutions, within the scope of the BNDES program for the Development of the National Industry of Software and Information Technology Services – BNDES PROSOFT;

II – Subloan “B”: the amount of R$13,536 will be earmarked to investments to expand service desks, infrastructure, furniture and training, within the scope of the BNDES program for the Development of the National Industry of Software and Information Technology Services – BNDES PROSOFT;

III – Subloan “C”: the amount of R$1,431 will be earmarked to investments in social projects, Contax Knowledge Station Project (ECC).

The principal amount deriving from this loan will be paid in forty-eight (48) monthly and consecutive installments, as of October 2014 to mature on September 15, 2018.

In April 2013, Contax received R$17,304 as another amount of the total loan.

Contax pledged guarantees through financial institutions.


58

The loans and borrowings annual breakdown is shown as follows:

FINANCIAL INSTITUTIONS December 31, 2012 Funding due

to spin-off Funding

Amortization of principal

AmortizaçãoJuros

Financial charges

Exchange rate variation

December 31, 2013

BNDES 340,119 - 156,164 (108,542) (25,428) 25,461 - 387,774

BNB 38,402 - - (17,000) (2,359) 2,292 - 21,335

BANCO INTERBANK 11,183 - 9,442 (8,039) (820) 821 1,775 14,362

HSBC 9 - 36,850 (35,742) (291) 291 (152) 965

SANTANDER 25 - 18,436 (18,395) (217) 217 (66) -

ITAÚ 6,194 - 69 (5,924) (87) 87 (339) -

BANCOLOMBIA 18,359 - - (18,285) (688) 671 (57) -

BCP 5,593 - 17,818 (4,781) (419) 419 1,115 19,745

BBVA 1,194 - 3,482 (2,792) (92) 92 172 2,056

BANCO MACRO 159 - - (152) (6) 6 (7) -

BANCO GALÍCIA 344 - 570 (907) (27) 27 (7) - - BANCO PATAGONIA 5,492 - 43,106 (31,515) (553) 553 (790) 16,293 BANCO CORDOBA - - 16 (16) - - - -

BANCO CHACO 13 - 2 (12) - - (3) -

VOTORANTIM (i) - 23,836 - (21,777) (1,597) (462) - -

TOTAL 427,086 23,836 285,955 (273,879) (32,584) 30,475 1,641 462,530

(i) The amount of R$23,836 was merged into the Company´s statement of financial position due to the partial spin-off of CTX Participações S.A.


59

As of December 31, the maturities of the principal and interest rates installments recorded in liabilities are as follows:

Principal payable Interest payable

2014 125,265 2,408

2015 133,405 824

2016 107,250 440

2017 53,427 262

2018 39,144 105

458,491 4,039

16. PAYROLL, RELATED CHARGES AND BENEFITS

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Payroll and fees 12 10 118,482 101,314 Accrued vacation - - 125,657 132,032 Payroll charges 175 147 83,320 77,538 Other - - 36,720 37,800

187 157 364,179 348,684


17. FINANCE LEASE OBLIGATIONS

The Contax Group has several finance lease agreements related to IT equipment and furniture for the maintenance of its operations. These agreements are recorded at present value in current and non-current liabilities. In addition, the Contax Group has contractual rights to acquire the equipment at face value (significantly lower than the fair value) at the end of the lease agreements. The Contax Group’s obligations with finance lease agreements are guaranteed by the lessors.


60

Number of

Le ssor installme nts 12/31/2013 12/31/2012

Bancolombia 60 236 279

BBVA Banco Continental 36 - 88

Banco de Galicia y Buenos Aires S.A. 25 6 56

Banco Macro 19 164 617

Hewllet Packard 36 56 363

Itaú Leasing 36 - 542

Santander 25 1,507 -

Total 1,969 1,945

Current 1,219 1,465 Non-current 750 480

Consolidate d

Expected payments of outstanding lease agreements are shown below:

Up to 2014 2015-2018Banco de Galicia y Buenos Aires S.A. 6 - Banco Macro 164 - Bancolombia 61 175 Hewllet Packard 48 8 Santander 940 567

1,219 750

Le ssor

M inimum Payments

18. RECOVERABLE TAXES

12/31/2013 12/31/2012 12/31/2013 12/31/2012

IRPJ and CSLL(i) 637 834 15,730 10,132ISS 3 1 9,718 11,187PIS and COFINS - - 11,023 12,935INSS installment payment - - 3,637 4,524Withholding income tax (IRRF) (ii) 7,338 1 8,183 104Other taxes payable (iii) 60 - 22,033 18,469

8,038 836 70,324 57,351

Current 8,038 836 68,339 54,362Non-current - - 1,985 2,989


(i) O The balances reported are offset by prepayments, recorded under Recoverable Income Tax and Social Contribution (Note 7).

(ii) It refers basically to income tax on Debentures.

(iii) These refer basically to withholding taxes on consignment in favor of third parties.

19. PROVISIONS

19.1. Contingent liabilities

The Contax Group is party to tax, civil and labor lawsuits filed in the normal course of business and have been discussing these issues in the administrative and judicial


61

levels, and where applicable, it is supported by court deposits. The Management, based on its legal counsels’ opinion, understands that the applicable legal measures and procedures that have already been taken in each situation are sufficient to cover possible losses and preserve the Contax Group’s equity, and these are assessed periodically.

19.2. Breakdown of contingent liabilities

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Tax 74,502 57,696 99,770 81,424 Labor 158,725 128,724 95,093 92,966 Civil 193 177 8,035 954

233,420 186,597 202,898 175,344

Current 23,099 21,466 24,405 21,659 Non-current 210,321 165,131 178,493 153,685

Provis ionsCourt Depos its

19.2.1. Tax contingencies

a) Lawsuits filed in court

On December 31, 2013, the Contax Group was party to 108 tax claims (103 lawsuits on December 31, 2012), and lawsuits mainly related to contributions due to the INSS, Service Tax (ISS) and Social Integration Program (PIS)/Contribution for Social Security Financing (COFINS).

Tax 12/31/2013 12/31/2012

Types of risks (i)

A favorable outcome is more probable than an unfavorable outcome 99,770 81,424 Possible/Remote 141,230 180,750 Total 241,000 262,174

(i) The types of risks were established by the Management based on opinion of the Contax

Group’s external legal counsels and court precedents.

On December 31, 2013, the provision for tax claims amounts to R$99,770 (R$81,424 December 31, 2012). Of this amount, R$61,708 (R$45,746 on December 31, 2012) refers to FAP, R$33,052 ((R$29,237 on December 31, 2012) refers to PIS/COFINS and R$654 (R$1,768 on December 31, 2012) refers to ISS. The main purpose of Contax S/A shares composing possible/ remote risk refers ISS collection tax foreclosures in the city of Niterói. The foreclosures are suspended, awaiting the judgment on the action for annulment filed by the company. Other relevant lawsuit is the collection of FGTS on transportation ticket paid in cash.


62

The tax proceedings in which Contax-Mobitel is party with possible and remote risks of loss mainly refer FGTS on transportation ticket in cash, social security contribution, ISS, FGTS on amounts paid through "FLEXCARD" card, ICMS, FUST and FUNTTEL and IRRF / CSLL. b) Administrative proceedings

On July 21, 2011, Contax received a notice of deficiency from the Federal Revenue Service at the social security level, totaling R$26,334. The amount of R$1,957 was analyzed and identified as effectively due and was paid with a discount. This amount was recorded under other operating expenses in the income statement. The difference of R$24,377 comprises the period between January and December 2007, mainly referring to the disqualification of meal subsidy for workers, within the framework of the Workers' Meal Program (PAT). The Company challenged the notices of deficiency at the administrative level, as it believes that social security (INSS) tax is not levied on the supply of fresh food. Additionally, in October 2012, Contax-Mobitel (Contax-Mobitel) received a notice of deficiency from the Federal Revenue Service in the amount of R$44.7 million. The notices of deficiency received comprise 2006 and 2007 calendar years and refer to the failure to pay social security contributions and the disallowance of amounts recorded as deductible expenses, for the purposes of calculating income tax and social contribution, as well as fines (ancillary liabilities) and penalties for conducting incentive marketing campaigns and paying bonuses to certain employees and distributing corporate cards. Contax-Mobitel challenged the notice of deficiency at the administrative level, which currently is pending judgment. Mainly considering the lapse of accrual period of 2006 and January to September 2007 accrual period, the Management, based on the opinion of its external legal counsels, deems as probable loss the restated amount of R$4.6 million.

19.2.2. Labor contingencies

a) Lawsuits filed in court

As part of its operations, the Company and its subsidiaries are defendants in several lawsuits filed by former employees, employees’ Unions and the Labor Prosecution Office, therefore creating a reserve to cover these demands, which the Group’s Management understands to be sufficient. On December 31, 2013, the Contax Group was party to approximately 22,152 labor claims (18,176 on December 31, 2012). The total amount estimated for such lawsuits on December 31, 2013 was R$1,307,604 (R$961,996 on December 31, 2012). The company records provisions for contingent


63

liabilities proportional to historic losses which, on December 31, 2013, amounted to approximately R$95,093 (R$92,966 on December 31, 2012).

Labor 12/31/2013 12/31/2012

Types of risks (i)

A favorable outcome is more probable than an unfavorable outcome 95,093 92,966 Possible/Remote 1,212,511 869,030 Total 1,307,604 961,996

(i) The types of risks were established by the Management based on opinion of the

Contax Group’s external legal counsels and court precedents.

The lawsuits mainly refer to overtime, equal pay, and permanence in the job, and injury, physical and psychological suffering.

b) Administrative proceedings

On December 31, 2013, the Contax Group has 364 notices of deficiency pending judgment. The notices in Contax S.A. and Contax-Mobitel, which were drawn up by the Regional Labor Office, derive from alleged labor infringements mainly referring to the failure to comply with employees health and safety standards at the workplace and failure to comply with working hours labor rules.

The amounts involved in these deficiency notices vary according to the type of infringement and the number of employees involved, as well as if the Company is first offender or recidivist.

After filing of previous administrative defense and notices of deficiency were upheld, these notices are legally analyzed for feasibility of filling administrative appeal or debt settlement.

Should legal opinion determine the filling of administrative appeals and they are deemed groundless, there is also the possibility of court annulment.

Notices of deficiency are classified as “possible” losses, according to the opinion of its external legal counsels, and no provision for contingencies has been set up.

Still at the administrative level, a notice of deficiency is possible deriving from the failure to comply with quotas set forth by law to include beneficiaries of the social security who were on a labor-related leave or handicapped. Pursuant to the Brazilian laws, companies with more than 100 employees are required to hire between 2% and 5% of employees under these conditions. Given Contax S/A’s impossibility to reach this percentage, in September 2002, the Company entered into a Consent Decree (TAC) with the Labor Prosecutor Office, and Contax S/A had 3 years to comply with replacement obligations (publication of vacant positions in newspapers). Once lapsed this term, the compliance shall be evidenced whenever


64

required. However, even with the implementation of a program to hire workers of the social security who were on a labor-related leave or handicapped, the job positions available have not been fully filled in, but TAC has been duly complied with.

Other administrative proceedings are listed in note 19.4, classified as possible loss.

19.2.3. Civil contingencies

The Contax Group is a party to 150 lawsuits, most of which are related to improper collection lawsuits with remote chances of loss, based on our track record of positive results. Thus, the Company only transfers to consumers the collection issued by its customer, merely playing a communicative role between final services provider and final consumer.

12/31/2013 12/31/2012

Types of risks (i)

A favorable outcome is more probable than an unfavorable outcome 8,035 954 Possible/Remote 17,638 26,116 Total 25,673 27,070

(i) The types of risks were established by the Management based on opinion of the Contax Group’s external legal counsels and court precedents.

In addition to the aforementioned civil lawsuits, Contax was punished with a fine from Empresa Brasileira de Correios e Telégrafos (EBCT), due to the violation of obligations provided for in the agreement executed between the parties in May 2002 with a fixed 6-year term of effectiveness. Fines applied at the end of the agreement term amounted to R$2,645, due to alleged violation of phone calls confidentiality, failure for not transferring toll-free phone calls (0800) and failure for not recording 100% of the phone calls. The fine amount was arbitrarily retained by EBCT of amounts overdue to Contax, as a result of the contact center services agreement. In spite of this fact, Contax believes the legal grounds are sufficiently strong to challenge the equity of these fines, then, the Company accrued R$442. Contax filed an action for annulment, ensuring the amount of the claim through a surety insurance policy and obtained an injunction in November, 2009 to release the amount retained by EBCT. In June 2010, EBCT deposited R$2,645, on behalf of Contax, in observance to the injunction.


65

19.3. Breakdown of provisions and legal obligations in judicial dispute

The breakdown of provisions for tax, labor and civil risks in the year ended December 31, 2013, is shown below:

PIS/COFINS (i) FAP (ii) ISS INSS IR/CSLL (iii) Tax Labor (iv) Civil Total

On December 31, 2012 29,237 45,746 1,768 356 4,317 81,424 92,966 954 175,344 Additions 2,337 16,850 9 - - 19,196 55,012 9,081 83,289 Usage - - - - (636) (636) (25,074) (708) (26,418) Reversals (193) (4,562) (1,169) - - (5,924) (34,299) (1,868) (42,091) Adjustment for inflation 1,671 3,674 46 15 304 5,710 6,488 576 12,774 On December 31, 2013 33,052 61,708 654 371 3,985 99,770 95,093 8,035 202,898

(i) Contax is arguing in court the application of the multiplier Accident Prevention Factor (FAP) incurred on the social security charge of the Occupational Accident Risk (RAT), whose new system of calculation took effect as of January 1, 2010. On February 11, 2010, an injunction was obtained to make the court deposit deriving from the difference resulting from FAP multiplier. The corresponding entries of additions are accounted for as personnel expenses.

In March 2013, the amount of R$4,562 was reversed from the provision, due to the partial relief to the Administrative Appeal filed by the Company, causing the decrease of FAP rate referring to 2011.

(ii) It refers to the 2004 social contribution tax loss carryforwards used to offset the payment of subsequent year’s estimate and not formalized in PER/Dcomp. (iii) The labor claims filed against the Contax Group by employees and former employees hired during the operations amounted to R$95,093 on December 31, 2013.

(iv) According to the services agreement executed between Oi Fixa and Contax, labor claims arising from the migration of employment contracts shall be incumbent upon that

entity, whose amount was recorded as corresponding entry to “Credits receivable”. The labor contingencies under Oi Fixa’s responsibility represent R$7,780 (R$7,780 in 2012) (Note 33).


66

19.4. Contingent liabilities classified as possible losses On January 22, 2010, Contax was assessed by the Regional Labor and Employment Superintendence (SRTE) of Rio de Janeiro, in the amount of R$29,136. In the assessment notice, which concerns the period from January 2001 to February 2009, the demanded amounts relate to the FGTS (Government Severance Indemnity Fund for Employees) (Law 8,036/90) and the Social Contribution (Supplementary Law nº 110/01) levied on the cash payments made to Contax’s employees corresponding to the transport voucher fringe benefit. Contax challenged the assessment notice in the administrative level and currently awaits judgment. Management, based on the opinion of its external legal counsels, considers the likelihood of loss as possible and did not record any provision for eventual unfavorable outcomes.

20. OTHER LIABILITIES

12/31/2013 12/31/2012

Deferred income (i) 8,454 11,174 Advances from customers due to promotional actions (ii) 9,197 4,964 Other accounts payable - 466

17,651 16,604

Current 17,651 16,209 Non-current - 395

Consolidate d

(i) It refers to deferred revenues, which are allocated to income statement upon their effective realization. (ii) It mainly refers to advances from customers for promotional actions.

21. CAPITAL 21.1. Capital stock

On December 31, 2013, the subscribed and paid-up capital was R$181,638 (R$258,329 on December 31, 2012), represented by 345,767,870 non-par registered book-entry shares, 119,725,707 of which are common and 226,042,163 are preferred shares. The preferred shares may represent up to two thirds of the total shares issued by the Contax Group, with the possibility of changing the previous ratio between common and preferred shares.


67

12/31/2013 12/31/2012 12/31/2013 % 12/31/2012 %

Common shares 119,725,707 24,966,582 63,573 35% 99,640 39%Preferred shares 226,042,163 39,719,499 118,065 65% 158,689 61%

345,767,870 64,686,081 181,638 100% 258,329 100%

Number of shares Capital interest

The Special Shareholders’ Meeting held on April 2, 2013 approved the merger of the spun-off portion of CTX Participações into Contax Participações’ assets and the split of shares representing the Company’s capital stock so that each Contax Participações’ share issued after the approval of the partial spin-off be represented by five (5) shares of the same type (“Split”), among other resolutions. This 1-for-5 split ratio attributed 22,337,465 new common shares issued by Contax Participações to CTX’s shareholders for 17,869,972 common shares issued by Contax Participações, cancelled due to the partial spin-off, representing total CTX Participações’ interest in common shares issued by the Company, incurring a premium of 25% to this portion of interest. The new shares issued by Contax Participações were attributed to CTX Participações’ shareholders at the proportion of shares they hold in CTX Participações’ capital stock. The Split also resulted in the decrease in Contax Participações’ capital stock of R$76,691, corresponding to the negative net assets absorbed by Contax Participações after the partial spin-off. Merger of the spun-off portion of CTX Participações in the second quarter of 2013:

CTX Participações spun-off assetsFair value recognized in

the spin-offAssets: Cash and cash equivalents 3,570 Recoverable taxes 32 Prepaid expenses 209

3,811

Liabilities: Loans and borrowings (23,367) Debentures (55,000) Interest on debentures (4,040) Debentures placement expenses 241

(82,166)

Total spun-off assets and liabilities, net (78,355)

Contax Participações capital decrease (Note 21.1) 76,691

Equity change due to spin-off (Note 22.1) (i) (1,664)

(i) It refers to the variation of the spun-off assets between the report’s reference date and the spin-off date on

April 2, 2013.


68

21.1.1. Common shares

Each common share entitles its holder to a voting right at the Company’s General Shareholders’ Meeting. Except for the provisions set forth in law, the resolutions of the General Shareholders’ Meeting are voted by common shareholders. Blank votes will not be computed.

21.1.2. Preferred shares Preferred shares issued by the Company are entitled to restricted voting rights, solely on the following matters: (i) Conversion, merger, consolidation or spin-off of the Company; (ii) Approval of agreements between the Company and the controlling shareholder, as set forth in level 2 listing rules, either directly or through third parties, as well as of other companies in which the controlling shareholder has interests, which always due to legal or statutory provisions are resolved on at Shareholders’ Meeting; (iii) Valuation of assets allocated to increase the Company´s capital stock; (iv) Selection of institution or specialized company to determine the Company´s economic value; and (v) Amendment or revocation of provisions in Bylaws which alter or change any requirements provided for in item 4.1 of the Level 2 listing rules. The right to vote is prevails while Level 2 listing agreement is effective, ensuring priority in reimbursement if the Company is liquidated, without premium, and in the payment of minimum, non-cumulative dividends of (i) 6% p.a. of the remainder of subscribed capital divided by the number of the Company shares, or (ii) 3% of net worth of shares, whichever is the highest between (i) and (ii).

Preferred shareholders can obtain unrestricted voting rights when the Company no longer pays dividends for three (3) consecutive years. Voting rights will last until dividends are duly paid.

Stock option granted to executives by the stock option plan

On December 31, 2013, the program’s beneficiaries held approximately 1,480,000 (1,590,000 on December 31, 2012) stock options for the Company common shares, of which 140,000 (582,000 on December 31, 2012) expire on October 1, 2018, and 1,340,000 (268,000 on December 31, 2012) expire on November 14, 2018. The decreased number of stock options maturing on October 1, 2018, that the beneficiaries held in the stock option program was due to the resignation from the Company of six of the program’s beneficiaries. Stock options granted within the scope of the stock option plan do not entitle its holders to voting or dividend rights. For more information on the stock option plan, see Note 33. First reverse split of shares At the Special Shareholders’ Meeting held on October 17, 2007, the reverse split of all shares representing the Contax Group’s capital stock was approved,


69

at the ratio of 20 shares for 1 share of the same type. As per the notice to shareholders, a term until November 16, 2007 was granted to carry out the adjustments to share positions. The information disclosed regarding the amount of shares prior to this date did not include a retroactive effect of the reverse split of shares. Share fractions resulting from reverse split were divided, grouped into whole numbers and sold at BM&FBOVESPA auction on August 13, 2008, as per Notice to the Market dated August 12, 2008.

Second reverse split of shares The following was approved at the Special Shareholders’ Meeting held on October 27, 2009, (i) the share reverse split, at the 50:1 share ratio, according to the corresponding types and (ii) the concurrent splitting of all shares existing after the reverse split, at the 1:200 share ratio of the same type, pursuant to Article 12 of Law 6,404/76. The concurrently share reverse split and split aimed at: (a) adjusting the shareholder base and decrease the administrative and operating costs for the Contax Group and shareholders; (b) improving the efficiency of record, control and reporting systems; (c) diminishing the possibilities of errors of information and communication, improving services to the Contax Group’s shareholders; and (d) maintaining the quoted value of the Contax Group’s shares in the market at an attractive trading level, providing better liquidity to the Contax Group's shares in the market. As per the notice to shareholders, a term until January 15, 2010 was granted to carry out the adjustments to share positions. Once elapsed the terms for shareholding adjustments by shareholders, eventual fractions of shares resulting from the reverse split, except for those which were manifestly expressed by the holder’s non-participation in the auction, were reversely split into whole figures and sold in an auction to be held at BM&FBOVESPA. The amount to be transferred to shareholders referring to two reverse splits on December 31, 2013 is R$25,877 (R$25,917 on December 31, 2012). The information disclosed regarding the amount of shares prior to this date did not include a retroactive effect of the reverse split of shares. There were six share conversion periods between 5/6/2013 and 6/14/2013, in which the Company began implementing the share certificate issue program

(“Units”), as approved by the Special Shareholders’ Meeting of April 2, 2013. Each Unit is equivalent to one (1) common share and four (4) preferred shares issued by Contax (“Share Multiples”) and traded under the ticker CTAX11. The procedures and terms related to the conversion of lots of five (5) shares that are not Share Multiples (“Conversion”) and the issue of Units were described in detail in the Material Fact published on April 25, 2013.


70

During the six request periods, between 5/6/2013 and 6/14/2013, 51,655,220 common shares were converted into preferred shares, and 24,442,728 preferred shares were converted into common shares. At the end of the share conversion periods, 53,127,529 “units” had been issued. As a result of these conversions, Contax’s capital stock is now divided into 345,767,870 shares, 119,957,883 of which common and 225,809,987 preferred. There were two more share conversion periods between 9/30/2013 and 10/11/2013, in which 1,191,496 common shares were converted into preferred shares and 959,320 preferred shares were converted into common shares. At the end of the share conversion periods, 1,257,194 units had been issued. As a result of these conversions, Contax’s capital stock is now divided into 345,767,870 shares, 119,725,707 of which common and 226,042,163 preferred.

22. RESERVES AND EQUITY VALUATION ADJUSTMENTS 22.1. Capital reserve

Reserve on the subscription of shares and stock option plan

On December 31, 2013, capital reserve amounts to R$92,679 (R$101,789 on December 31, 2012), as a result of resolutions at Meetings during 2013 and the equity variation due to spin-off.

Parent Company and Consolidated

Balance on December 31, 2012 101,789

Recording of reserve (41) Equity change due to spin-off (1,664) Equity instruments for share-based payments (7,405)


22.2 Goodwill on capital transactions

This refers to goodwill on acquisition of more 20% of the shares issued by the subsidiary TODO Soluções em Tecnologia, totaling R$33,237.


71

22.3. Profit Reserves Legal reserve According to Article 193 of the Brazilian Corporation Law, this reserve is recorded based on 5% of the profit for each year, and should not exceed 20% of the capital stock paid-up or 30% of the capital stock realized plus the capital reserves. The legal reserve guarantees the integrity of the capital stock and can only be used to offset losses or increase capital. It cannot be paid as dividends. Statutory reserve

Pursuant to Article 194 of the Brazilian Corporation Law and to Article 30, paragraph 2 of the Contax Group’s Bylaws, the Company may constitute a Statutory Reserve to ensure investments of the Contax Group’s interests, as well as to preserve its working capital. The Statutory Reserve is limited, together with all other profit reserves, to the amount of the capital stock. According to Article 194 of the Brazilian Corporation Law and Article 29, paragraph 3 of the Contax Group’s Bylaws, at any time, the Board of Directors may also deliberate on the distribution of interim dividends, using current balances in the profit reserves accounts of the last annual or half-yearly statement of financial position.

22.4. Reserve for the translation of foreign currency

Parent Company and Consolidated


Exchange rate difference in the translation of operations abroad

25,631


Exchange differences related to the translation of net assets of the foreign subsidiaries operations, from its corresponding functional currencies to the Contax Group’s reporting currency (Brazilian Real) are directly recognized in “Other comprehensive income” and accumulated in the reserve for the translation of foreign currency.


72

23. TREASURY SHARES Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the income statement upon the purchase, disposal or cancellation of the Contax Group’s own equity instruments. Any difference between the carrying amount and consideration is recognized in other capital reserves. Currently, there is no buyback program in progress. On December 31, 2013, treasury shares amounted to R$9,322 (R$9,901 on December 31, 2012).

24. RETAINED EARNINGS AND DIVIDENDS FROM EQUITY INSTRUMENTS 24.1. Retained earnings

12/31/2013 12/31/2012

Balance at the beginning of the year - -

Profit attributable to the owners of the parent company 102,257 44,527 Statutory reserve (76,693) 10,871 Minimum mandatory dividends (25,564) (15,500) Additional dividends - (39,898)

Balance at the end of the year - -

On December 31, 2012, dividends item recorded a balance of R$20,824. An additional dividend of R$39,898 was approved during 2013, with payments of R$54,838 and minimum mandatory dividend of R$25,564, totaling a balance of R$31,448 on December 31, 2013.

24.2. Dividend distribution policy

In compliance with the Contax Group’s Bylaws, preferred shares are entitled to receive until the limit of available profit and reserves, non-cumulative dividend corresponding to (i) six percent of the product from division of subscribed capital stock by total number of shares, and (ii) three percent of each share carrying amount (“Preferred Dividend”), whichever the highest amount. In the event of additional profit to be shared, The Contax Group is required to share with all shareholders an amount corresponding to, at least, twenty-five percent of the adjusted profit (“Mandatory Dividend”), as provided for in the Brazilian Corporation Law. The Contax Group is required to pay the Mandatory Dividend to the preferred shareholders to the extent Preferred Shares Dividends are paid. The payment of Mandatory Dividend may be restricted to the realized profit for the year, provided that the difference is recorded as unrealized reserve. The profit recorded as unrealized profit reserve, when realized, and, as long as it is not offset by losses of subsequent years, it shall be added to the first dividend declared, after respective realization.


73

The Contax Group may carry out other distributions, to the extent profits and reserves are available. All distributions mentioned above may be realized as dividends or as interest on equity, income tax-deductible. On April 29, 2013, the Contax Group announced to the market that the payment of dividends to its shareholders in the total gross amount of R$55,398, as approved at the Annual General Meeting held on this date, for the year ended December 31, 2012, would start on July 17, 2013. Shareholders owning positions on April 29, 2013 were entitled to these dividends Therefore, the Contax Group's shares now have been traded ex-dividends as of April 30, 2012 (inclusive). The amount paid per share remained the same (R$0.161036419), as the benchmark interest rate (TR) has been zero since September 2012 until the date when dividends started to be paid on July 17, 2013. Dividend amount: Gross amount per share Common share (ON) R$0.161036419 Preferred share (PN)R$0.161036419 Minimum mandatory dividend for the year ended December 31, 2013 was calculated as follows:

2013 2012

Profit for the year 102,257 44,527

Adjusted profit (i)

102,257 44,527

Minimum mandatory dividends (25,564) (15,500) Proposed additional dividends - (29,027)

Constitution (use) of statutory reserve 76,693 (10,871)

Total dividends: Dividends 25,564 55,398

(i) In fiscal years 2013 and 2012, the Legal Reserve did not increase, as the balance of the Capital Reserve plus the Legal Reserve is higher than 30% of the Capital Stock, pursuant to the criterion adopted by the Company. Dividends proposed by the Management represent a dividend equivalent to R$0.1610 per common share and R$0.1610 per preferred share. Minimum mandatory dividends are recorded in the statement of financial position as of December 31, 2013 as legal obligations (provisions in current liabilities), and dividends exceeding this minimum amount are recorded as dividend reserve separately in the statement of changes in equity.


74

25. NON-CONTROLLING INTEREST

Consolidated


Acquisition of non-controlling interest (10,140)

Balance on December 31, 2013 1

26. OPERATING REVENUE The reconciliation between the gross revenue and net operating revenue reported in the income statement for the years ended December 31, 2013 and 2012 is as follows:

12/31/2013 12/31/2012

Gross revenue 3,925,149 3,938,391

Tax on sales COFINS (107,805) (115,296) ISS (111,881) (120,147) INSS (i) (64,141) (57,908) PIS (23,360) (25,021)

Net operating revenue 3,617,962 3,620,020

Consolidated

(i) Amount referring to 2.5% over Contact Center’s and TI’s services gross revenues until July/12, and 2% as of August/12, pursuant Law 12,715/12 (Note 1.3)


75

27. OPERATING SEGMENTS

27.1 Products and services that generate revenue for reportable segments

The information presented to the main decision maker to allocate funds and assess the segment performance is focused on the type of services provided, thus, according to the Technical Pronouncement CPC 22 – Segment Information (corresponding to IFRS 8), the Contax Group is divided into 3 operating segments (the amounts of the Holding Company were not allocated to any of the reportable segments):

(a) Provision of tele-assistance services in general (Contax, Allus Group and Contax-

Mobitel); (b) Provision of information technology services in general (TODO); and

(c) Provision of publicity and advertising services (Ability and Ability Colômbia).

Pursuant to the CPC 22 (IFRS 8), segment information is presented only in the consolidated Financial Statements.

27.2 Revenues and results from reportable segments

The table below shows an analysis of the results of operations of the Contax Group by reportable segment:


76

Other revenues and

expenses recorded in

the Parent Company

Tele-assistance

services in

general

IT services in

general

Publicity and

advertising

services

Eliminations

between

segments

and others Consolidated

Net operating revenue - 3,370,073 145,796 174,477 (72,384) 3,617,962 Cost of services rendered - (2,844,148) (129,911) (148,152) 72,287 (3,049,924) Gross operating income - 525,925 15,885 26,325 (97) 568,038

Operating revenue (expenses): Selling - (19,138) (40) (879) - (20,057) General and administrative (4,443) (250,247) (20,317) (18,986) 43 (293,950) Share-based payment 2,131 - - - - 2,131 Financial revenue 101,146 25,446 5,967 1,149 (71,991) 61,717 Financial expenses (79,293) (145,102) (9,319) (696) 71,991 (162,419) Other operating expenses, net (84) (58,196) (1,145) (425) 54 (59,796)

19,457 (447,237) (24,854) (19,837) 97 (472,374)

Operating income (loss) before income tax and social contribution

19,457 78,688 (8,969) 6,488 - 95,664

Income tax and social contribution: Current (2,381) (41,114) (3,164) (1,624) - (48,283) Deferred (3,520) 17,426 42,669 (336) - 56,239

Profit for the period from continuing operations

13,556 55,000 30,536 4,528 - 103,620

Non-controlling interest - - (1,363) - - (1,363)

Profit (loss) attributable to the owners of the parent company

13,556 55,000 29,173 4,528 - 102,257


77

Other revenues and

expenses recorded in

the Parent Company

Tele-assistance

services in

general

IT services in

general

Publicity and

advertising

services

Eliminations

between

segments

and others Consolidated

Net operating revenue - 3,323,860 238,214 184,490 (126,544) 3,620,020 Cost of services rendered - (2,860,581) (187,050) (146,220) 125,755 (3,068,096) Gross operating income - 463,279 51,164 38,270 (789) 551,924

Operating revenue (expenses): Selling - (29,687) (484) (1,111) - (31,282) General and administrative (3,451) (239,319) (26,213) (20,192) 789 (288,386) Share-based payment (1,619) - - - - (1,619) Financial revenue 51,661 34,181 1,630 1,061 (50,102) 38,431 Financial expenses (56,310) (108,584) (5,774) (352) 50,102 (120,918) Other operating expenses, net (125) (67,800) (713) (335) - (68,973)

(9,844) (411,209) (31,554) (20,929) 789 (472,747)

Operating income (loss) before income tax and social contribution

(9,844) 52,070 19,610 17,341 - 79,177

Income tax and social contribution: Current - (42,708) (11,972) (4,819) - (59,499) Deferred 1,330 28,354 2,090 (1,150) - 30,624

Profit (loss) for the period from continuing operations

(8,514) 37,716 9,728 11,372 - 50,302

Non-controlling interest - - (5,775) - - (5,775)

Profit (loss) attributable to the owners of the parent company

(8,514) 37,716 3,953 11,372 - 44,527

Fiscal year ended December 31, 2012


78

Assets and liabilities of reportable segments:

Holding

Pare nt

Company

Te le-ass istance

services in

gene ral

IT services in

ge neral

Publicity and

adve rtis ing

s ervices

Eliminations

be tween

se gments and

othe rs Cons olidate d

Assets: Current 124,319 800,428 81,309 42,847 (130,709) 918,194 Non-current 1,074,736 1,305,030 101,534 35,235 (1,198,415) 1,318,120 Goodwill - 257,602 95,619 49,081 - 402,302 Total assets 1,199,055 2,363,060 278,462 127,163 (1,329,124) 2,638,616

Liabilities: Current 129,739 878,431 34,807 22,543 (132,243) 933,277 Non-current 680,149 1,289,344 18,624 4,671 (725,698) 1,267,090 Total liabilities 809,888 2,167,775 53,431 27,214 (857,941) 2,200,367

12/31/2013

Holding

Parent

Company

Tele -as sistance

se rvices in

general

IT service s in

general

Publicity and

advertis ing

se rvices

Eliminations

be twe en

se gments and

others Consolidated

Assets: Current 137,014 635,986 82,960 50,065 (38,719) 867,306 Non-current 1,061,205 1,166,033 54,355 30,244 (1,083,301) 1,228,536 Goodwill - 239,277 95,619 49,081 - 383,977 Total assets 1,198,219 2,041,296 232,934 129,390 (1,122,020) 2,479,819

Liabilities: Current 54,962 732,857 48,875 25,807 (38,719) 823,782 Non-current 698,057 1,123,388 22,213 8,143 (700,186) 1,151,615 Total liabilities 753,019 1,856,245 71,088 33,950 (738,905) 1,975,397

12/31/2012

In order to monitor the reportable segments performance and to allocate funds among the segments:

i. Goodwill was allocated to the tele-assistance, IT and publicity and advertising

tele-assistance segments as described in Note 12. The assets jointly used by the reportable segments are allocated based on the revenues generated by each reportable segment; and

ii. All liabilities are allocated to the reportable segments.


79

27.3 Geographic information

The Contax Group operates in the following geographic regions: Brazil (domestic), Spain, Peru, Colombia and Argentina. The Contax Group’s net revenue, resulting from external customers by geographic region, is detailed as follows:

12/31/2013 12/31/2012

Brazil 3,030,730 3,177,101 Argentina 264,571 210,377 Spain 4 5,165 Peru 52,446 29,298 Colombia 270,211 198,079

3,617,962 3,620,020

Consolidated Year ended

27.4 Information on main customers

The amount of R$1,658,086 (R$1,611,859 – December 31, 2012) from services provided to Oi Group is included in total revenue.


80

28 INFORMATION ON THE NATURE OF COSTS AND EXPENSES RECOGNIZED IN THE INCOME STATEMENT The Contax Group reported an income statement classifying the costs and expenses based on their function. The information on the nature of these costs and expenses recognized in the income statement is presented below:

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Depreciation and amortization - 342 207,176 206,022 Personnel expenses (427) 3,279 2,517,052 2,500,635 Raw material and supplies - - 22,847 30,239 Outsourced services 2,006 769 366,687 377,786 Electricity - - 62,300 71,350 Rental and insurance 105 93 166,122 167,942 Other expenses 80,005 57,022 241,831 225,300

81,689 � 61,505 � 3,584,015 � 3,579,274

Classified as:

Cost of services rendered - - 3,049,924 � 3,068,096 Selling - - 20,057 � 31,282 General and administrative 4,443 � 3,451 � 293,950 � 288,386 Share-based payment (2,131) � 1,619 � (2,131) � 1,619 Financial expenses 79,293 � 56,310 � 162,419 � 120,918 Other operating expenses, net 84 � 125 � 59,796 � 68,973

81,689 � 61,505 � 3,584,015 � 3,579,274



81

28.1 Cost of services provided and operating expenses

Cost of

services

rendered Selling

General and

administrative Total

Personnel (i) 2,355,307 10,556 153,319 2,519,182 Share-based payment - - (2,131) (2,131) Outsourced services (ii) 335,395 2,662 91,164 429,221 Depreciation/amortization (iii) 178,335 - 28,841 207,176 Rental and insurance (iv) 151,476 - 14,646 166,122 Marketing, sponsorship, donations 2,983 6,838 2,681 12,502 Other inputs 26,428 1 3,299 29,728

3,049,924 20,057 � 291,819 � 3,361,800

Consolidated

12/31/2013

Cost of

services

rendered Selling

General and

administrative Total

Personnel (i) 2,339,588 17,761 141,667 2,499,016

Share-based payment - - 1,619 1,619

Outsourced services (ii) 358,768 3,007 86,900 448,675

Depreciation/amortization (iii) 177,510 8 28,504 206,022

Rental and insurance (iv) 153,428 143 14,372 167,943

Marketing, sponsorship, donations 2,696 10,283 13,512 26,491

Other inputs 36,106 80 3,431 39,617

3,068,096 ü 31,282 ü 290,005 ü 3,389,383

Consolidated

12/31/2012

(i) Personnel expenses have increased due to the growth of the business volume and salary increases provided for in collective bargaining agreements and higher severance pay costs in view of the organizational restructuring.

(ii) The outsourced services considered as Cost of Services Rendered refer mainly to expenses with

workstation maintenance, facilities and data processing equipment, while the third-party services considered as selling, general and administrative expenses refer, substantially, to expenses with consulting services, traveling, and legal advice, among others.

(iii) Assets acquired through finance lease agreements were classified as property, plant and equipment in compliance with the Technical Pronouncement CPC 06 (Lease Operations) and have been depreciated on a straight-line basis based on the asset’s estimated useful life (Note 11).

(iv) They substantially represent expenses with rental of properties used in the operations and

operational infrastructure of the contact center.


82

28.2 Other operating revenues (expenses)

12/31/2013 12/31/2012

Othe r operating expe nses

Provisions for contingencies (9) - Other (75) (125)

(84) (125)

Pare nt Company

12/31/2013 12/31/2012

Other operating revenue

Reversals of provision for contingencies 27,630 24,826 Fines on overdue accounts 3,129 2,993 Recovered expenses 15,427 7,123 Other 328 7,605

46,514 ü 42,547

Other operating expenses

Provisions for contingencies (74,395) (71,150) IPTU (7,743) (7,217) Cost of property, plant and equipment written off (2,913) (11,054) Other (21,259) (22,099)

(106,310) ü (111,520)

(59,796) ü (68,973)

Consolidated

28.3 Employees benefits expenses

12/31/2013 12/31/2012

Fixed compensation 1,460,203 1,456,343 Payroll charges 316,450 340,583 Stock option plan (2,131) 1,619

1,774,522 ü 1,798,545

Consolidated


83

28.4 Net financial income

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Financial revenue

Return on investments (i) 3,102 5,610 18,925 16,265 Interest and adjustment for inflation on other assets 657 472 6,617 7,727 Interest on debentures (ii) 65,332 45,326 224 (5) Fair value adjustment - debenture conversibility (Note 14.4) 6,452 - 6,452 - Financial instruments (iii) 25,516 - 25,270 9,340 Other 87 252 4,229 5,104

101,146 � 51,660 � 61,717 � 38,431 � � �

Pare nt Company Consolidate d

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Despe sas Finance iras

Interest and adjustment for inflation on other liabilities (25) (363) (18,582) (9,335) Interest and adjustment for inflation on contingencies - - (6,194) (4,283) Interest on loans (Note 15) (5) (9,824) (33,683) (48,685) Interest on debentures (Note 14.4) (78,019) (41,151) (78,148) (41,684) Fair value adjustment- debenture conversibility (Note 14.4) - (4,314) - (4,314) Interest on promissory notes - - - (4,518) Financial instruments (iii)a - - (16,089) - Commission - Letter of Guarantee (iv) (954) (303) (4,688) (2,708) Other financial expenses (v) (290) (355) (5,035) (5,391)

(79,293) � (56,310) � (162,419) � (120,918)


(i) The return on financial investments increased due to a higher volume of cash in the period. (ii) Interest on debentures recorded in the parent company derives from intragroup transactions.

(iii) Refers to the adjustment of the contingent consideration referring to acquisitions made by the Contax Group.

(iv) Cost mainly related to letters of guarantees from financial institutions, presented as guarantee in the BNDES loan (Note 15). (v) Basically refer to financial discounts granted to customers, bank services, adjustment of short-term liabilities and other expenses.


84

29 INCOME TAX AND SOCIAL CONTRIBUTION

Income tax in Brazil includes income and social contribution taxes (social contribution tax consists of an additional federal tax). Allus Group entities shall pay only income tax. The balances of deferred taxes at the end of each period are calculated using the effective rate in the subsequent years and the tax balances effective in the end of each period include currently taxes payable. Legal rates applicable to the income tax and the social contribution in Brazil were 25% and 9%, respectively, which represented a regulatory composite rate of 34% for 2011 and 2010. For Allus Group entities, regulatory composite rates for income tax are 35% in Argentina, 34% in Colombia and 30% in Peru. The expenses and benefits from income tax and social contribution in the income for the years ended December 31, 2013 and 2012 are described as follows:

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Current Income tax (1,744) - (38,660) (46,171) Social contribution (637) - (9,623) (13,328)

(2,381) - (48,283) (59,499)

Deferred Income tax on temporary additions - - 5,536 15,660 Social contribution on temporary additions - - 3,436 5,204 Income tax on tax loss (3,169) (978) 34,356 7,273 Social contribution on tax loss carryforwards (351) (352) 12,911 2,487

(3,520) (1,330) 56,239 30,624

(5,901) (1,330) 7,956 (28,875)

Pare nt Company Consolidate d


85

The reconciliation between tax expenses and the result of book profit multiplied by the current tax rate in Brazil and in other countries where the Contax Group operates, in the years ended December 31, 2013 and 2012 is described as follows:

12/31/2013 12/31/2012 12/31/2013 12/31/2012

Operating income before income tax

and social contribution 108,158 43,197 95,664 79,177

Income tax and social contribution

at nominal rate (34%) (36,774) (14,687) (32,526) (26,920)

Adjus tments to calculate the effective rate

Permanent addition (exclus ion) of equity accounting 30,158 17,962 - -

Tax effect on permanent additions (exclusions), net (i) (34) - 631 297

Amendment to Brazilian Corporation Law - Law 11.638/07 724 (2,018) 947 (2,183)

Recording of deferred tax assets on tax los ses (ii) - - 36,612 -

Other 25 73 2,292 (69)

Income tax and social

contribution expenses (5,901) 1,330 7,956 (28,875)


(i) This refers basically to expenses with fines, donations, free gifts and sponsorships deemed undeductible, among others.

(ii) As disclosed in note 8.


86

30 EARNINGS PER SHARE

As described in Note 21, as a result of the reverse stock split and simultaneous stock split, in compliance with the paragraph 64 of Technical Pronouncement CPC 41 – Earnings (Loss) per Share (equivalent to IAS 33), the information related to the amount of shares and earnings per share was adjusted retrospectively to reflect the reverse stock split and stock split.

30.1 Basic earnings per share

Earnings per share are basically calculated by dividing the profit for the year, allocated to the Company’s common shareholders, by the weighted average number of common shares available in the year. Profit and weighted average number of thousand shares used to calculate the basic earnings per share are the following:

2013 2012

Profit for the period attributable to the controlling shareholders:

Common shares 35,790 17,036 Preferred shares 66,467 27,491

102,257 44,527

Weighted average number of shares (in thousands) used in the calculationof basic earnings per share: Common shares 82,739 24,615 Preferred shares 142,165 39,719

224,904 64,334

Basic earnings per share (in centavos)

Common shares 0.4326 0.6921 Preferred shares 0.4675 0.6921

30.2 Diluted earnings per share

Diluted earnings per share are calculated by dividing the profit allocated to the parent company’s common shareholders (after the adjustment referring to interest on convertible preferred shares and on convertible securities, both net of taxes) by the weighted average number of common shares available in the year, plus the weighted average number of common shares that would be issued at the conversion of all potential common shares diluted into common shares. Net income used to calculate all diluted earnings per share is the same used to calculate the basic earnings per share, as previously described.


87

The following table presents the weighted average number of shares for the purposes of diluted earnings per share and the weighted average number of shares used to calculate the basic earnings per share, as follows:

2013 2012

Profit for the period attributed to the controlling shareholders:

Common shares 35,790 17,036 Preferred shares 66,467 27,491

102,257 44,527

Weighted average number of shares used in the calculationof diluted earnings per share: Common shares 83,010 24,750 Preferred shares 142,165 39,719

225,174 64,468

Diluted earnings per share (in centavos)

Common shares 0.4312 0.6883 Preferred shares 0.4675 0.6921

31 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 31.1 Purposes and strategies of risk management and financial instruments

The Contax Group’s policy for financial asset management is to constantly pursue the optimization of its profitability in line with risks by establishing criteria and indicators for adjustments of liquidity, credit and market risk. Additionally, the Contax Group manages its capital structure to ensure the continuity of its operations and to maximize the return to shareholders through the optimization of debt and capital instruments. The Contax Group’s capital structure comprises debt, which includes the loans and financing detailed in Note 15, cash and cash equivalents detailed in Note 5 and equity capital attributable to controlling shareholders which includes issuance of capital, reserves and retained earnings, as indicated in Notes 21 and 22, respectively. Management believes that the Contax Group’s available funds are sufficient to meet its current working capital needs and estimated needs regarding capital expenditures for the next 12 months. During the regular course of its operations, the Contax Group is exposed to liquidity, credit and market risks, such as interest rates and foreign exchange variations.


88

31.1.1 Liquidity risk

The table below shows a summary of the Contax Group’s liquidity profile based on its equity structure and obligations as at December 31, 2013 and 2012:

Less than 1

year1 to 2 years 2 to 5 years

More than

5 years Total

Loans and financing 127,674 134,229 200,627 - 462,530

Finance lease obligations 1,219 750 - - 1,969

Trade accounts payable 201,863 - - - 201,863 Debentures, Promis sory Notes and Embedded Derivatives * 63,971 106,320 570,943 - 741,234

394,727 241,299 771,570 - 1,407,596

Less than 1

year1 to 2 years 2 to 5 years

More than

5 years Total

Loans and financing 177,368 97,060 145,446 7,212 427,086

Finance lease obligations 1,465 480 - - 1,945

Trade accounts payable 140,602 - - - 140,602

Debentures and Promis sory Notes * 4,726 10,563 401,388 256,674 673,351

324,161 108,103 546,834 263,886 1,242,984

12/31/2013

12/31/2012

* The differences of R$1,156 on December 31, 2012 and R$790 on December 31, 2013 refer to issuance charges already paid, which will not impact cash and, therefore, are not considered in this period.

Liquidity risk is the risk that a company will not be able to comply with its obligations on the maturity dates. Management understands that the Contax Group has no risk of default, as current financial resources and future generations of operational cash are appropriate to meet the needs of capital needs, comply with third-party borrowings and support average levels of investments projected in the near future. In addition, the Contax Group carries on streamlining its capital structure, lengthening and improving its debt profile, as described in the note about debentures (Note 14).

31.1.2 Credit risk

The credit risk is the possibility of a party non-complying with an obligation set forth in a financial instrument or agreement with a customer, thus resulting in financial losses. The financial instruments that expose the Contax Group to credit concentration risk mainly consist of cash and cash equivalents and accounts receivable. The Management believes that its credit policies are reasonable and reflect normal conditions of market and risk. The Contax Group’s Management does not anticipate the failure to comply with agreements by the counterparties and, therefore, does not require collaterals. In the period ended December 31, 2013, the Contax Group had cash equivalents with the following banks: Banco do Brasil (Brazil), Banco do Nordeste


89

(Brazil), Bradesco (Brazil), Bancolombia (Colombia), Banco de la Nación (Peru), Banco de Chaco (Argentina), Banco de Crédito (Peru), Banco Galícia (Argentina), Banco Patagônia (Argentina), BBVA (Peru, Colombia), Federal Savings Bank (Brazil), Citibank (Brazil), Helm Bank (Colombia), HSBC (Brazil, Argentina, Spain), Interbank (Peru), Itaú (Brasil), Safra (Brazil), Santander (Brazil, Colombia, Argentina), Votorantim (Brazil).

Main cash and cash equivalents are contained in the financial institutions rated by the Fitch risk rating agency, as per chart below:


12/31/2013 12/31/2013

F1+ 2,009 331,552F1 - 6,253F2 - 31,227

Total current 2,009 369,032

AAA 3,271 50,117

Total non-current 3,271 50,117

i. Financial instruments and cash deposits

The credit risk on balances with financial institutions is managed by the Contax Group’s Treasury according to its internal policies. Excess funds are only invested in approved counterparties and within the limit established to each of them. The counterparty’s credit limit is annually revised by the Company’s Board of Directors and may be restated throughout the year whenever necessary, subject to the approval of the Contax Group’s Financial Committee. These limits are established to mitigate risk concentration, thus mitigating financial losses in case of a counterparty files for bankruptcy.

ii. Accounts receivable

Credit risk related to accounts receivable is mainly minimized due to the financial size of the companies to which the Contax Group provides services. Moreover, the Contax Group continuously monitors its receivables, reassessing, whenever necessary, its credit policies with the purpose of mitigating eventual losses. Whenever necessary, the Contax Group records an allowance for doubtful accounts for delinquent customers and applies the collection and negotiation procedures of overdue credits.

The allowance for doubtful accounts is recorded as probable losses in relation to accounts receivable, which is calculated based on estimates considering the situation of each customer and guarantees granted by them.


90

iii. Financial covenants

As described in Note 15.2.1., Contax has a loan with BNDES containing financial covenants. As described in the notes 14.3.1 and 14.3.2, the Company issued debentures the contract of which provides for financial covenants. Contax’ failure to comply with ratio set forth in the loan agreement may result in bank guarantee or early settlement of debt.

31.1.3 Market risk

Risk that the fair value of future cash flows of a financial instrument changes due to market price fluctuation. Market prices include interest rate foreign exchange risks. Financial instruments affected by market risk include loans and financing payable, deposits and financial instruments available measured at fair value through profit or loss.

a. Interest rate risk

Interest rate risk is possibility that the fair value of future cash flows of a financial instrument may change due to fluctuations in the market interest rates. The Contax Group’s exposure to the risk of changes in the market interest rates mainly refer to the long-term liabilities subject to floating interest rates. The Contax Group has not executed derivatives contracts to cover this risk; however it continuously follows up the market interest rates with the purpose of monitoring the eventual need of contracting these instruments.

BNDES loans and financing bear fixed interest rates based on TJLP and were obtained to finance the expansion of installed capacity, improve facilities, train employees, enhance service quality and productivity, invest in marketing initiatives and acquire machinery and equipment. Once these rates are considered favorable, the Contax Group believes that there is no high volatility risk regarding this debt amount. Interest rate variation

The Contax Group maintains a significant portion of its cash and cash equivalents indexed to the CDI variation and a substantial portion of its debt indexed to the CDI and IPCA variation. Based on data presented in the Focus market reports (BACEN) and the macroeconomic projections of banks, the market considered the following rates as a probable scenario for 2014: IPCA (5.98%), CDI (10.61%) and TJLP (5.00%). Management carried out sensitivity tests for adverse scenarios, considering a deterioration rate of 25% or 50% higher than that of the probable scenario, as per the chart below:


91

InstrumentsR$

thousandFinancial Charges Rate

Scenario I Market

expectation

Scenario II 25% index

increase

Scenario III50% index

increase

Financial investments 384,792 CDI 9.77% 425,624 431,785 441,184Debentures (271,952) CDI 9.77% (300,809) (305,164) (311,806) Debentures (350,930) IPCA 5.91% (371,916) (376,855) (382,040)

Debentures (i)

(127,818) TJLP 5.00% - - -

Financing (i)

(364,578) TJLP 5.00% - - -

Financing (ii)

(23,196) Taxa fixa 4.50% - - -

Financing (ii)

(21,335) Taxa fixa 8.50% - - -

Impact on revenue / net financial expenses (9,012) (12,144) (14,573)

Consolidated on December 31, 2013

(i) For financial instruments pegged to TJLP, no impairment scenarios were presented, as these refer to loans with BNDES, which has an exclusive market with low volatility rate, and not posing relevant risk for the company.

(ii) For these items, no impairment scenarios were presented, as they were contracted at fixed rates for the entire term of the loan contracts.

b. Currency risk

Currency risk is the possibility that the fair value of future cash flows of a financial instrument changes due to foreign exchange rate fluctuations. The Contax Group’s exposure to the risk of changes in foreign exchange rates mainly refers to (i) loan portfolio in foreign currency, (ii) investments in subsidiaries abroad, (iii) revenues and costs related to the services rendered by foreign subsidiaries and (iv) capital expenditures in future acquisitions of IT equipment, despite not being expressed in foreign currency, are indirectly impacted by variations in foreign exchange rates because they contain imported parts.

On December 31, 2013, approximately 80.3% of the Contax Group’s capital expenditures include equipment with imported parts (38% on December 31, 2012). On December 31, 2013, loans and borrowings in foreign currency amounted to R$53,421 (Note 15).

For the period ended December 31, 2013, operating income and expenses of the foreign subsidiaries totaled R$587,232 and R$469,494, respectively, (15% and 15% of consolidated amounts).

The Contax Group has not been executing derivative agreements to cover this risk, but has been continuously monitoring foreign exchange variations, to observe the eventual need of contracting these instruments.

Exchange rate variation

For purposes of sensitivity analysis of the transactions involving exposure to foreign exchange variation (basically loans and financing denominated in foreign currency), the Contax Group estimated, based on the market projections disclosed on December 27, 2013 in the BACEN Focus Market Report, the probable scenarios for the US dollar in 2014. Scenarios II and III were estimated


92

considering decreases of 25% and 50%, respectively, above the expectation of probability, as shown below:

InstrumentsR$

thousandExchange

rate

Scenario I Market

expectation

Scenario II25% index

increase

Scenario III25% index

increase

Foreign currency loans - US$ 53,421 2.34 55,932 66,776 80,132

Impact on net financial expenses (2,511) (13,355) (26,711)

31.1.4 Remittances abroad

The Argentinean government imposed requirements on individuals and legal entities related to the purchase, as well as remittances in foreign currency and payments abroad as of October 2011, reducing the U.S. dollars buy at the official exchange rate. This situation gave rise to a non-official U.S. dollar foreign exchange market at a rate much above the official exchange rate which will become a benchmark for U.S. dollars operations. The variation between these exchange rates was 38% recorded in early January to 54% by the end of December.

These requirements may create problems in relation to remittances abroad and payment of dividends deriving from the Group’s Argentinean companies.

31.2 Classification and valuation of the financial instruments

The Contax Group operates with several financial instruments, especially financial investments, accounts receivable, suppliers, loans and financings and lease.

31.3 Fair value of financial instruments The fair value of publicly-quoted investments is based on current purchase prices. For financial instruments without active market or public quote, the Contax Group establishes the fair value through valuation techniques. These techniques include the use of recent operations contracted with third parties, reference to other instruments which are substantially similar, the analysis of discounted cash flows and the option pricing models making use of as much information generated by the market as possible and relying very little on information generated by the Contax Group’s Management. At the end of the reporting period, the Contax Group evaluates if there is any objective evidence that a financial asset or a group of financial assets is recorded at a value higher than its recoverable value. If there is any evidence concerning the available-for-sale financial assets, the cumulative loss (measured as the difference between the acquisition cost and the current fair value, less any loss for realization of this financial asset previously recognized in income) is excluded from equity and recognized in the income statement.


93

31.3.1 Valuation techniques applied and assumptions made for the purposes of fair value measurement

The fair value measurement of financial assets and liabilities is presented below:

• The fair value of the financial assets and liabilities that present standard terms and conditions and are traded on active markets is determined based on the prices observed in these markets.

• The fair value of the other assets and liabilities (except those mentioned above) is determined using pricing methods that are generally accepted, based on discounted cash flow analyses. The balances stated below are measured at the amortized cost and carrying amounts correspond to their fair values, except for long-term financial investments:

Financial assets 12/31/2013 12/31/2012 12/31/2013 12/31/2012

Loans and receivables: Dividends receivable 45,559 - 45,559 - Long-term financial investments - 24,486 - 26,250 Total financial assets 45,559 24,486 45,559 26,250

Financial liabilities

At amortized cost:

Trade accounts payable 120 27 120 27 Total financial liabilities 120 27 120 27

Financial assets 12/31/2013 12/31/2012 12/31/2013 12/31/2012

Loans and receivables:

Trade accounts receivable 382,890 372,172 382,890 372,172 Other receivables 20,771 15,204 20,771 15,204 Long-term financial investments 46,846 71,173 46,618 72,922 Held to maturity: Restricted cash 10,070 23,545 10,070 23,545 Total financial assets 460,577 482,094 460,349 483,843

Financial liabilities

At amortized cost:

Trade accounts payable 201,863 140,602 201,863 140,602

Loans and financing 462,530 427,086 462,530 427,086

Debentures and promissory notes 741,234 673,351 741,234 673,351 Lease obligations 1,971 1,945 1,971 1,945 Total financial liabilities 1,407,598 1,242,984 1,407,598 1,242,984

Parent CompanyCarrying amount Fair value

ConsolidatedCarrying amount Fair value


94

31.4 Derivatives On December 31, 2013 and 2012, the Contax Group did not operate speculative derivative financial instruments. The Company’s credit policy does not authorize speculative derivative financial instruments operations. As per Note 14.3.2, the Company transacted embedded derivatives added to the issue of Debentures. This derivative operation observes the Company’s indebtedness policy, which lengthens the debt.

31.5 Cash and cash equivalents

The recorded values are close to those of the realization or settlement values. Cash surplus is invested, in line with treasury policies, and periodically revalued by Management.

32 SHARE-BASED PAYMENTS

The purpose of the Contax Group’s stock options is to grant the option to subscribe common, book-entry shares issued by the Company on behalf of the Management and beneficiaries in order to retain them (or maintain them) and encourage them to contribute to the Contax Group. In order to be entitled to the stock option, beneficiaries must remain in service from one to four years (vesting period).

The plans are an onerous business, exclusively civil, and do not have any labor or social security binding nature between the Contax Group and the Grantees, whether they are employees or not.

The members of the Stock Option Plan Committee hold meetings to according to the general guidelines of the Plan decide which managers, employees and service providers will be eligible, the total number of options to be distributed, as well as the acquisition price of each option. At the discretion of the Compensation Committee, managers, employees and individuals providing services to the Contax Group. 32.1 Accounting record of share-based payment benefit

On January 31, 2013, the right to buy 400,000 shares was exercised by beneficiaries of the 2010 Program, with a record of R$674 referring to the stock sale price adjustment, against the capital reserve under equity. On February 21, 2013, the right to buy 90,000 shares was exercised by beneficiaries of the 2010 Program, with a record of R$63 referring to the stock sale price adjustment, against the capital reserve under equity.

On May 7, 2013, the right to buy 420,000 shares was exercised by beneficiaries of the 2010 Program, with a record of R$492 referring to the stock sale price adjustment, against the capital reserve under equity.


95

On July 18, 2013, the right to buy 1,250,000 shares was exercised by beneficiaries of the 2010 Program, with a record of R$4,044 referring to the stock sale price adjustment, against the capital reserve under equity.

33 RELATED-PARTY TRANSACTIONS The operations with related parties refer to all loans receivable, accounts receivable from any service provided and any other debts with shareholders, subsidiaries or unconsolidated associated companies. Referring to the Contax Group’s operations with its direct subsidiaries, these are restricted to equity interests as described in Note 10.

The transactions between the Contax Group and its subsidiaries, which are its related parties, were removed from the consolidation process and, therefore, are not presented in this note, except for the amount of R$117,624, referring to the transfer of controlling interest of Contax-Mobitel, from Contax Participações S.A. to Contax, reported in the statement of financial position under related-party transactions. Below are the operations between Contax Participações and its Related Parties:


96

Brasil Brasil PT Paggo

Oi Oi Oi Telecom Telecom Sistemas de Administradora

Fixa Móvel S.A. (i) Móvel Multimídia Informação Iguatemi de Crédito Total

Assets

Accounts receivable 18,743 14,430 5,055 1,058 - - 47 251 39,584

Receivables - contingency (Note19.3 (iv))

7,780 - - - - - - - 7,780

26,523 14,430 5,055 1,058 - - 47 251 47,364

Liabilities

Trade accounts payable (6,365) (483) (262) - (1) (325) - - (7,436)

(6,365) (483) (262) - (1) (325) - - (7,436)

Brasil Brasil PT Paggo

Oi Oi Oi Telecom Telecom Sistemas de Administradora

Fixa Móvel S.A. (i) Móvel Multimídia Informação Iguatemi de Crédito Total

Assets

Accounts receivable 15,717 19,073 14,540 9,166 1,167 - 57 - 59,720

Receivables - contingency (Note19.3 (iv))

7,780 - - - - - - - 7,780

23,497 19,073 14,540 9,166 1,167 - 57 - 67,500

Liabilities

Trade accounts payable (4,549) (338) (43) - - (2,711) - - (7,641)

(4,549) (338) (43) - - (2,711) - - (7,641)

12/31/2013

12/31/2012


97

Brasil Brasil Paggo PT PT

Oi Oi Oi Oi Telecom Telecom Administradora Paggo Sistemas de Telecom

Fixa Móvel Internet S.A. (i) Móvel Multimídia de Crédito Soluções Informação Inovação Iguatemi Total

Gross revenue

Revenue from services rendered 963,891 507,541 26,541 86,423 68,122 - 2,677 127 - - 479 1,655,801

Sales revenue - 2,764 - - - - - - - - - 2,764

963,891 510,305 26,541 86,423 68,122 - 2,677 127 - - 479 1,658,565

Costs and expenses

Cost of services rendered (26,460) (2,963) - (804) (36) (1) - - 381 - - (29,883)

937,431 504,578 26,541 85,619 68,086 (1) 2,677 127 381 - 479 1,625,918

Brasil Brasil Paggo PT PT

Oi Oi Oi Oi Telecom Telecom Administradora Paggo Sistemas de Telecom

Fixa Móvel Internet S.A. (i) Móvel Multimídia de Crédito Soluções Informação Inovação Iguatemi Total

Gross revenue

Revenue from services rendered 899,928 548,011 9,751 75,393 69,039 5,746 3,550 441 - - 484 1,612,343

Sales revenue - - - - - - - - - - - -

899,928 548,011 9,751 75,393 69,039 5,746 3,550 441 - - 484 1,612,343

Costs and expenses

Cost of services rendered (32,432) (4,554) - (734) (65) - - - (2,711) (446) - (40,942)

867,496 543,457 9,751 74,659 68,974 5,746 3,550 441 (2,711) (446) 484 1,571,401

12/31/2013

12/31/2012


98

(i) Change of Brasil Telecom S.A.’s company name

The corporate name of Brasil Telecom S.A. changed to Oi S.A. Therefore, Brasil Telecom S.A.’s statement of financial position and income statements were retroactively taken as representative of Oi S.A.

(ii) Related-party transactions

The Contax Group’s main customers in the tele-assistance segment are the following related-party companies: Oi Fixa, Oi Móvel (Oi Fixa’s subsidiary), Oi S.A. (Brasil Telecom Fixa), Oi Internet and BT Móvel (hereinafter jointly referred to as “Oi”).

The Contax Group provides a complete set of contact center services to Oi, whose operations include wireline terminals, long-distance services, mobile services, as well as broadband and voice and data services to corporate customers. In addition to traditional consumer services, the Contax Group offers services related to consumer retention and collection for Oi’s corporate and retail customers.

The Contax Group’s current relationship with Oi is represented by several different and independent services, such as customer service to Oi’s wireline segment, strong telemarketing services to attract more mobile customers, customer support to prepaid and post-paid users, technical support to broadband users and collection services.

On the other hand, Oi is the main telecommunications provider (commuted wireline services, mobile services, long distance/free calls, data, among others) and, most importantly, provide such services directly or through the Contax Group to some of its customers, according to their choice. Although Oi currently provides most of its telecommunication services to the Contax Group, should it become unable to do so or decide to terminate such Service agreements, the Company’s Management understands that it would be possible to hire another company to provide such services without having major interruption on the Contax Group’s businesses.

As described in Note 15, part of these receivables with Oi was given as collateral to BNDES loan.

33.1 Compensation of key Management personnel

33.1.1 Operations with the Board of Directors or Board of Executive Officers

Neither the members of the Board of Directors or Board of Executive Officers, nor relatives of their respective families, have or already had any direct interest in any operation made with the Contax Group that is or may be considered unusual by its nature or its conditions or may have been significant for the Contax Group’s business. During the periods ended December 31, 2013 and 2012, the Contax Group did not grant either short-term loans or guarantees to the members of the Board of Directors, Board of Executive Officers, Fiscal Council, or any relatives of the members’ families.

CONTAX PARTICIPAÇÕES S.A. AND SUBSIDIARIES Notes to the Financial Statements for the years ended December 31, 2013 and 2012 (All amounts in thousands of reais - R$, unless otherwise stated)

99

33.1.2 Share-based compensation

The members of the Company's Management (Chief Executive Officer and Statutory Executive Officers) participate in the Stock Option Plan (Note 32).

33.2 Compensation of Board Members, Executive Officers and members of the Fiscal Council

The Management compensation (i.e. board members and statutory officers), in the periods ended December 31, 2013 and 2012, paid or payable is outlined below:

12/31/2013

Payroll and charges 2,817 Fees 1,404 Profit sharing 3,321 Stock option plan 361

7,903

34 INSURANCE COVERAGE

The Contax Group has a risk management program aiming at minimizing risks, obtaining in the market coverage compatible with its size and operations. Coverage was contracted by amounts deemed as sufficient by Management to cover any eventual losses and casualties, taking into account the nature of its operations, the risks involved in its operations and the guidance of its insurance brokers, ensuring the integrity of assets and the continuity of the Contax Group’s operations. All of the Contax Group’s policies are automatically renewed. On December 31, 2013, the insurance coverage for the Group and for the Company is contracted as shown below:

Line s Insure d amounts Maturity

Management and officers civil liability (i) 281,040 01.13.2014Fire of property, plant and equipment / Loss of profits 200,000 06.13.2014General civil liability 10,000 06.13.2014

(i) Maximum guarantee limit set forth in US$120 million.


100

35 COMMITMENTS

35.1 Contractual obligations

The following table presents the Contax Group’s contractual obligations on December 31, 2013:

Parent CompanyLess than More than

Contractual Obligations Total 1 year 1-2 years 2-5 years 5 years

Debentures (ii) 741,234 63,971 106,320 570,943 -

Total 741,234 63,971 106,320 570,943 -

Payments due by term

ConsolidatedLess than More than

Contractual Obligations Total 1 year 1-2 years 2-5 years 5 years

Lease agreements (facilities) (i) 360,903 122,357 95,815 119,143 23,588

Finance lease agreements 1,969 1,219 750 - - Financing 462,530 127,674 134,229 200,627 - Debentures (ii) 741,234 63,971 106,320 570,943 - Contingent consideration 28,493 6,253 22,240 - -

Total 1,595,129 321,474 359,354 890,713 23,588

Payments due by term

i. A substantial part of the lease agreements referring to the Contax Group’s facilities may be terminated before its maturity, with a prior notice from one (1) to six (6) months, thus being subject to a termination fee equivalent to three (3) times the monthly rental amount of the property.

ii. As described in Note 14. Out of R$741,234, the amount of R$790 is not considered referring to charges already paid.

35.1.1 Facilities lease agreement

The Contax Group’s operating facilities are located in properties rented from related parties, being a substantial part of lease agreements entered into with Oi Fixa. The effectiveness of these lease agreements range from 5 to 10 years and they have a renewal clause for the same period. Additionally, all lease agreements contain clauses of market value review, in case the Contax Group exercises its renewal right. The Contax Group does not have any contractual rights to acquire the leased property at the end of the lease term. During the periods ended December 31, 2013 and 2012, expenses of all lease agreements corresponded to R$140,019 and R$136,756, respectively. These expenses are recorded under operating costs or expenses in the income statement. On December 31, 2013, the Contax Group did not have any other additional contractual obligations.


101

35.2 Guarantees

On December 31, 2013, sureties and guarantees contracted by other subsidiaries, regarding loans with third parties and legal claims, as follows:

Guarantees 12/31/2013 12/31/2012

Bank guarantee (BNDES) 524,014 390,319 Bank guarantee (Contingencies) 38,819 33,557

Total 562,833 423,876

35.3 Consent decree (TAC)

As disclosed in Note 19.2.2 (b), in September 2002, the Contax Group signed a Consent Decree (TAC) with the Labor Attorney General. The aforementioned TAC aimed the implementation of a hiring program for employees returning to service after leave under the social security system. Vacant positions currently available at the Contax Group have not been filled in yet, in view of difficulties of hiring this type of professionals. Nevertheless, the Contax Group has been complying with TAC (Note 19).

36. EVENTS AFTER THE REPORTING PERIOD

36.1 Controlling Shareholders’ Corporate Reorganization On February 14, 2014, Contax Participações S.A. (“Contax Participações”) published a Notice to the Marked announcing that it had received a communication sent by the shareholder Portugal Telecom Brasil S.A, (“PT Brasil”), in which PT Brasil transferred to Bratel Brasil S.A. (“Bratel Brasil”), through corporate restructuring, all the direct interest it held in CTX Participações S.A. (“CTX Participações”), corresponding to one billion, two hundred and forty-two million, two hundred and sixty-two thousand, four hundred and forty-four (1,242,262,444) non-par registered common shares issued by the Company, representing nineteen point nine percent (19.9%) of the Company’s total and voting capital; and in CONTAX PARTICIPAÇÕES S.A., corresponding to (b.1) four million, two hundred and ninety-two thousand, ninety-six (4,292,096) non-par registered common shares issued by Contax, representing 3.584941% of all the shares issued by Contax; and (b.2) seventeen million, one hundred and sixty-eight thousand, three hundred and eighty-four (17,168,384) non-par registered preferred shares issued by Contax, representing 7.595213% of all the preferred shares issued by Contax. The transfer is the first step of the process whereby PORTUGAL TELECOM S.G.P.S S.A. will no longer have an interest in Contax Participações and CTX Participações, as announced in the Material Fact disclosed by the Companies on October 2, 2013. This corporate reorganization will not result in any change in the Contax Group’s operations.


102

Board of Executive Officers

Carlos Henrique Zanvettor Chief Executive Officer Maurício Pereira Ignácio Officer

Board of Directors

Fernando Antonio Pimentel Melo Chairman Pedro Jereissati Sitting Member

Alexandre Jereissati Legey Sitting Member Renato Torres Faria Sitting Member

Armando Galhardo Nunes Guerra Junior Sitting Member Shakhaf Wine Sitting Member

Rogério Ziviani Sitting Member Pedro Luiz Cerize Sitting Member

Abílio Cesário Lopes Martins Sitting Member Marcio de Araújo Faria Alternate Member

Carlos Jereissati Alternate Member Cristiano Yazbek Pereira Alternate Member Rafael Cardoso Cordeiro Alternate Member

André Sant'Anna de Valadares Alternate Member Nuno José Porteiro Cetra Alternate Member

Manuel Jeremias Leite Caldas Alternate Member Marcelo Cerize Alternate Member

Fiscal Council

Aparecido Carlos Correia Galdino Sitting Member Eder Carvalho Magalhães Sitting Member

Sérgio Bernstein Sitting Member Jose Luiz Montans Anacleto Junior Sitting Member

Wancler Ferreira da Silva Alternate Member Sidnei Nunes Alternate Member

Bruno Gonçalves Siqueira Alternate Member Fernando Linhares Filho Alternate Member

Bruno Cabral Bergamasco Sitting Member

Moacir Pereira da Silva Accountant CRC RJ-078603/O-9

CPF no. 590.911.427-15

103

Management

Report 2013

Opening

To Shareholders,

The management of Contax Participações S.A. (“Company” or “Contax”) disclose, beyond the Financial

Reports and the independent auditors’ report on the financial statements, the Management Report for

2013.

The financial information in this report was prepared in accordance with the International Financial

Reporting Standards (IFRS) and the accounting practices adopted in Brazil, including Brazilian Corporate

Law and the pronouncements, guidelines and interpretations issued by the Accounting Pronouncements

Committee (CPC) and approved by the CVM (Brazilian Securities and Exchange Commission) applicable

to the Company’s operations.

Group Contax is one of the largest groups specializing comprehensively in Customer Relationship

Management (CRM). Group Contax offers different communication channels to service, understand and

please the end consumer of its clients. Currently, the Company operates predominantly in customer

service, debt collection, Telemarketing, Retention, Back-Office, Technology Services and Trade

Marketing. Group Contax’s business strategy prioritizes the development of long-term relationships with

large companies in diverse market sectors that use its services including telecommunications, finance,

utilities, services, government, healthcare and retail. In December 2013, Contax Group had operations in

Argentina, Brazil, Colombia and Peru, and maintained a commercial presence in the United States, Chile,

Panama and Spain, with a total of 108 thousand employees.

Management

Report 2013

Management Commentaries

Throughout its 13-year history, Group Contax maintained a trajectory of permanent evolution,

consolidating its leadership position in the Latin American market and becoming the largest or second-

largest Contact Center and collection operator in all the countries where it operates.

The leading industries hiring our services, chiefly Telecommunication and Finance, boosted growth in

the Contact Center industry in Brazil and in other countries in Latin America at the start of the century as

a result of the major need to bolster the capacity to absorb the demand by its clients for services, and

the expansion of consumption in these countries.

Recently, resulting from greater maturity and from the competitive environment in these markets, in

tandem with higher demands for quality, speed and efficiency by the consumers, these industries

revised their products and processes and started to demand from the Contact Center companies higher

specialization, in detriment to growth of en masse operations as seen in the past, aiming to gain

efficiency and reduce the level of complaints at customer service centers or at regulatory agencies.

Contacting clients through several channels should be part of the strategy of companies hoping to

monitor its new consumers, who are far more demanding, well informed and connected to the Internet.

These movements led the company to revise its strategic plan at the end of 2009. Improved our efforts

to the differentiation of rendered services in order to position Group Contax as a technological and

consulting partner aimed at the relationship management of large corporations and that of their

consumers. We reaffirmed some existing ways and established new action fronts in order to ensure the

sustainability and profitability of the business. Our position has changed, and presently includes the

interaction from remote channels (solutions in IT, human- and electronic-based voice, social networks,

self service, chat and more) as well as on-site customer service.

Since 2011, the Company has earmarked much of its Capex to technology projects in order to create its

new platforms, which in addition to being robust and highly available, increase the productivity and

quality of the work of our operators, as it reduces the average customer service time, decreasing the

costs of managing the technological environment, in addition to reducing the investment in future

expansions of our premises. In this period, more than R$ 300 million was invested in technology.

Solutions were developed involving:

• implementation and management of IVRs, making it more humanized, with improved

performance;

• redesign of customer service screens and service flows, providing a unique front-end for our

operators;

• migration of our voice and data network over to a high-performance MPLS mechanism for the

routing of voice and data traffic;

• processing of data, voice and social media on a Cloud Services platform hosted in two high-

performance Data Centers.

Management

Report 2013

• new management tools for supervisors, thus allowing the “biological” micro-management of the

agents;

• solutions capable of focusing on each contact, client by client, boosting the capacity to analyze

and resolve problems by our operators, and creating a unified communication, guaranteeing the

concept of multi-channels built by the company.

The year 2013 for Group Contax was marked by the conduction of a deep administrative turnaround,

and the acceleration of the operational turnaround was made feasible by the new platforms. From the

second quarter of this year we promoted internally a series of actions in order to bolster our

productivity and the integration of our businesses, streamlining and optimizing flows and processes.

We concluded the centralization of our structures of administrative services, previously integrated into

the Group’s business units, integrating executive, commercial and back office activities, shaping the

corporate units that service all the units in a comprehensive form. The Group started to be managed by

a single Executive Committee leveraging the competencies and synergies among the different business

lines.

This movement allowed us to simplify redundant structures in the different businesses within the

Group, stemming from acquisitions taken place since 2010, centralizing the creation, dissemination and

management of policies, processes and MIS (Management Information System) aiming for greater

standardization and control.

Similarly to the dynamic already in place in our international operations, in Brazil we resumed the

process of moving our infrastructure to regions with large supply of skilled workforce, allowing us to

vacate some less efficient spaces that do not fit the new model for sites. This movement should

continue in the future, and in 2014 we should witness the opening of four new sites in target regions

with capacity for more than 15 thousand people and with the vacating of several sites concentrated in

the Southeast region.

These changes aim to seize even more the benefits from the lower turnover and absenteeism ratios

seen in these regions compared to the Southeast, leading to lower hiring and training costs, in addition

to creating opportunities for the reduction of our costs of rent, maintenance and “facilities”. With larger

and more modern structures, the new units are more efficient, being planned to ensure the conditions

for the development of Contact Center activities with the appropriate use of water, energy,

telecommunications, safety, maintenance, among others. As a result, at the end of 2014 approximately

60% of our sites in Brazil will be under 5 years old.

As a result of these movements, our operating result for the year had a negative impact of R$27.2

million due to non-recurring expenses relating to the administrative restructuring that leads to the

benefit of a monthly reduction of fixed costs. We also had the negative impact of R$5.4 million in

depreciation/amortization due to the revision of the service life of some assets, stemming from the

vacating of sites.

Management

Report 2013

Group Contax progressively improved its financial and operating performance, creating value for its

shareholders. The Company significantly grew its EBITDA margin in the period and sent net income

generation back to levels seen at the largest international competitors, as it seized the potential that the

different businesses developed by the Group provide, in addition to greater productivity obtained in our

operations due to the investment made in the past several years in new technologies.

Despite the mounting challenges, the foundations for a new cycle of development and expansion at

Group Contax are being built. The plan is to construct a differentiated and broad delivery, in terms of

customer relationship, for our clients.

Reaffirming our commitment to maintaining the adequate transparency in corporate relations, both

internally as well as with third parties, we concluded in April 2013 the migration to the special trading

segment, Level 2 at BM&FBovespa, with rigid governance rules that go beyond those demanded by the

Brazilian Corporate Law.

We kept investing significantly in our growth strategy outside of Brazil, seizing competitive advantages

to service global companies and opportunities to explore new markets in new territories. Our revenue in

this area recorded sharp growth near 33% compared to the prior year and accounted for 16% of the

Group’s total (17% in the last quarter) as well as 22% of EBITDA produced in this year.

In Colombia revenue jumped 36% during the year, as a result of the maintenance of the revenue levels

from local clients, with significant gains from international clients through the export of services. We

reached a new record of 8,719 employees and 5,841 workstations as a result of the expansion of our

structure in Puerto Seco in the city of Medellín and the conclusion of our new site in Bogotá, with

capacity for 1,400 workstations. Finally, it is worth highlighting the success in the negotiations with our

major client in the country, with the renewal for a minimum period of three years.

Our Peruvian operations are still growing fast and accounted for 12% of our revenue outside Brazil in

the last quarter of 2013, due to an increase in the volume of our local clients, as well as to our portfolio

of clients abroad. In the month of December, we concluded the expansion there, reaching 1,845

workstations to support the sharp growth the country has been enjoying.

The great flexibility of our international platform allows the sell of services for many countries that

demand customer care in Spanish. Presently we service markets such as U.S., Canada, Spain, Chile and

Panama from our operations in Colombia and Peru. We had significant gains in our portfolio outside

Brazil through exporting of service, as the revenue from off-shore operations has grew 90% compared

to 2012, reaching R$ 70,3 million, accounting for 12% from the total billed outside Brazil. In Peru, this

figure accounts for 66% from revenue originated from our operations in this country

It is worth highlight, finally, the materialization of Latin America's first website entirely dedicated to the

management of relationships via social networks. Located in Cordoba, Argentina, the site has 500

employees and manages 1.5 million social network users per month in various Spanish-speaking

countries, through eight different service channels.

Management

Report 2013

Employees

Group Contax is one of the largest employers in South America. In Brazil, it has been one of the top job

generators since 2000. Recently, between 2012 and 2013, the number of employees jumped from 107.2

thousand to 108.3 thousand professionals.

Several opportunities are open for those who are part of this large team, especially youngsters having

their first jobs. This group accounts for about 40% of the Company’s workforce. Group Contax values

and stimulates the development of this important workforce, investing in programs for professional

growth based on meritocracy principles and actions aimed at education.

An example of this work of corporate social responsibility developed at Group Contax is the Crescer

(Grow) Program, an initiative that supports the college formation of employees in several Brazilian

states. Since 2008, more than 3,000 youngsters already received their university diplomas through the

program, which continues to benefit hundreds of employees year after year. The Group also provides

incentives to specialization courses such as MBAs, extension for corporate training, in addition to

sponsorships in external education.

If it’s up to the target of qualifying employees and the whole effort that Group Contax has in adding

value to its professionals, the trend will be always to strengthen the development of its employees.

Those who choose to work at Group Contax have at their disposal a good working environment and

premises that are increasingly sustainable, designed to ensure comfort and safety. The sites are easily

accesible, near bus terminals, train or subway stations and have planned projects in accessibility for

those who need special care, in addition to group areas.

Group Contax offers several benefits for its professionals, such as transport and food vouchers, and

medical and dental assistance.

All those who identify themselves with the Customer Relationship area find at Group Contax the

opportunity to have a formally defined career, seizing the constant incentives of a company that doesn’t

stop growing

Management

Report 2013

Financial Performance

Net Operating Revenue (R$ million)

3,620 3,618

58* 64*

2012 2013

3,678 3,682

* The effect of 2.0% tax on gross revenue, based on the Greater Brazil Plan.

Net Operating Revenue by Type of Service (%)

60%19%

8%

5%2% 6%

Customer Care

Telemarketing/Retention

Debt Collection

Trade Marketing

ITC

Others

2013

Management

Report 2013

Costs and Expenses

In order to better compare current data with historical data, the vertical analysis of the Costs and Expenses ratios

was built based on Adjusted Net Revenue. It is worth noting that Personnel cost considers the benefit of the

payroll tax exemption, in compliance with law 12,546/12,715 of the Greater Brazil Plan.

Throughout 2013 the Company promoted a series of actions aiming to optimize the potential of our physical and

technological infrastructure, seizing the gains of our dominant scale in Latin America and the synergies between

the different segments in which we operate. We conducted a deep administrative turnaround process that

impacted our operating result negatively by R$27.2 million due to non-recurring expenses relating to the

organizational restructuring that aims at a monthly reduction of fixed costs. Despite the higher expenses linked

to the administrative turnaround, total Costs and Expenses in 2013 of Group Contax totaled R$3,214 million,

R$37.9 million or 1.2% lower than seen in the previous year. As a percentage of NOR, we recorded a 1.1 p.p.

reduction, reaching 87.3%.

Cost of Services Rendered

2013 versus 2012

Cost of Rendered Services at the Company totaled R$2,872 million, lower by R$19 million, or 0.6%. As a

percentage of NOR, there was a reduction of 0.6 p.p. (78.0% in 2013 vs. 78.6% in 2012). It should be noted

that our operating result for the year was impacted negatively by R$27.2 million due to non-recurring expenses

related to the organizational restructuring.

Personnel – increase of 0.7%, or R$15.7 million. Even while facing greater labor costs in Brazil due to

the 9% increase in the minimum wage and higher termination costs due to the process of integrating the

structure of administrative services of the Group, the Company maintained the level of expenses with

Personnel as a result of productivity gains obtained by the investments in technology and by the

simplification of redundant structures within the Group’s different businesses.

Third-Party Services – reduction of R$23.1 million, or 6.4%, explained basically by the lower spending

on electricity, telecommunications and “facilities” stemming from the process of reorganization of our

physical structure. With larger and more modern structures, the new units are more efficient, being

planned to ensure the conditions for the development of Contact Center activities. Moreover, we revised

the policies, processes and procurement needs of the Group, implementing the best practices in strategic

sourcing, reducing the number of suppliers and increasing selectivity.

Rent and Insurance – reduction of R$2.0 million, or 1.3%, reflecting the migration of our operations

to the Northeast region of Brazil, with the consequent vacancy of several sites in the Southeast region,

which compensated the expansion of the physical structure of our international operations.

Management

Report 2013

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses in 2013 totaled R$283.0 million, R$9.7 million or 3.3% lower than

the total seen for 2012. As a positive contribution we had the centralization of our structure of administrative

services of all business units at the Group, integrating executive, commercial and back office activities. Aiming for

greater standardization and controls, we centralized the creation, dissemination and management of policies,

processes and MIS (Management Information System) in a single structure capable of servicing the demands of

the whole Group.

Other Operating Revenue and Expenses

In 2013, Other Operating Revenue and Expenses totaled R$59.4 million, down by R$9.2 million compared to

the previous year due to a smaller average number of employees in the period and a lower number of labor-

related lawsuits.

EBITDA (R$ MM) and EBITDA Margin (%)1

EBITDA in 2013 reached R$403.5 million, higher by 9.8% compared to 2012. EBITDA Margin in the year was

11.2%, 1.0 p.p. higher than 2012.

During 2013, we conducted an intensive administrative turnaround process, simplifying our corporate structure,

centralizing executive, commercial and back office activities, and integrating our structure of shared services of

all business units at the Group, aiming to reduce cost and continuously improve processes.

We sped up the process of moving our infrastructure within Brazil, vacating some spaces in regions that are less

attractive for the development of Contact Center activities and opening new sites in regions containing a large

supply of skilled labor.

Due to the movements we have mentioned, our operating result for 2013 had a negative impact of R$27.2

million due to non-recurring expenses relating to the organizational restructuring promoted at the Company.

1 EBITDA of prior priods was recalculated in keeping with CVM Instruction 527. EBITDA stands for earnings before interest, taxes,

depreciation and amortization. EBITDA is not acknowledged by IFRS, does not represent cash flow for the presented periods, must not be

considered as alternative net earnings and it is not a performance ratio. EBITDA is used by Group Contax to measure its own performance.

Group Contax understands that some investors and analysts use EBITDA as a gauge of its operating performance.

Management

Report 2013

EBITDA Reconciliation

(R$ Thousand) 2013 2012 2013 vs.

2012

Net Income (loss) 102,257 44,527 129.7%

(-) Interest of non-controlling Shareholders 1,363 5,776 -76.4%

(+) Inc. Tax & Social Contr. (7,956) 28,875 n.m

Income Before Taxes 95,664 79,178 20.8%

(+) Financial Expenses 162,419 120,918 34.3%

(-) FinancialRevenue (61,717) (38,431) 60.6%

(+) Depreciation/Amortization 207,176 206,022 0.6%

EBITDA 403,542 367,687 9.8%

Depreciation/Amortization

In 2013, spending on depreciation/amortization amounted to R$207.2 million, R$1.2 million higher than that

seen in 2012, resulting from the higher concentration of investments in IT that have a shorter depreciation term

compared to the remaining assets and from the revision of the service life of some assets relating to the process

of vacating less efficient sites in not-so-attractive regions for the Contact Center activity in Brazil.

Net financial results

Net financial expenses amounted to R$100.7 million in 2013, R$18.2 million higher year-over-year, reflecting

higher interest expense due to a higher gross debt in the period, the passive foreign exchange variation due to

the depreciation of the international currency basket that was higher than the depreciation of the Real versus

the U.S. Dollar, partially offset by the reduction in expenses related to interest on financing, due to a smaller

volume of short-term borrowings in the period. At the end of 2013, Contax had R$ 776.3 million of net debt,

which compared with R$677.1 million of net debt at the end of 2012.

Net Income

In 2013, Net Income hit R$102.3 million, in a 129.7% increase from 2012 as the generation of net income was

back at historic levels. This figure represents 2.8% of net operating revenue and earnings per share of R$2.3026

against R$0.6921 in 2012. This increase can be explained basically by EBITDA higher by R$35.8 million and the

lower expenses with Income Tax and Social Contribution by R$36.8 million, partially offset by net financial

expenses higher by R$18.2 million.

Management

Report 2013

Dividends Proposal

Contax's Management is proposing the payment of the minimum required dividends, totaling R$25.6 million, as

well the constitution of statutory reserve of R$ 76.7 million in excess of undistributed profit, which will be

resolved at the Annual Shareholders’ Meeting which should be held until April 30, 2014, that will acknowledge

the financial statements for the fiscal year ended December 31, 2013.

Debt

The cash position at the end of 2013 hit R$430.6 million, this figure accounts for R$4.2 million, or 0.9% increase

compared to the position in December 2012. This variation can be explained mainly by the generation of cash

from operating activities throughout the period by R$359.1 million, partially compensated by the consumption of

cash for the capex program in the amount of R$208.2 million, by the disbursement for the payment of dividends

in the amount of R$55.4 million and by the financing activities that presented a net disbursement of R$42.4

million.

Gross Debt at Contax reached R$1,206.5 million in December 2013, in a R$103.0 million increase compared to

December 2012, mainly due to the incorporation of debt of CTX, the controlling shareholder, during the process

of migration to Level 2 of BM&FBovespa and the new installment of the Prosoft financing from BNDES during the

year.

It should be highlighted that 84% of the Company’s debt was long term at the end of December 2013.

Consolidated Net Debt at the end of December 2013 hit R$776.3 million, higher by R$99.2 million compared to

the figure seen in December 2012.

Foreign currency debt accounted for approximately 4.6% of total debt and the average debt cost in 4Q13 was

9.6% per year.

(R$ Thousand) Dec/13 Dec/12 Dec/13 vs.

Dec/12

(-) Gross Debt (1,206,523) (1,103,538) 9.3%

Short Term (192,962) (185,622) 4.0%

Long Term (1,013,561) (917,916) 10.4%

(+)Cash and equivalents

430,556 426,420 1.0%

Short term 383,710 355,247 8.0%

Long Term 46,846 71,173 -34.2%

Net Cash/(Debt) (775,967) (677,118) 14.6%

Management

Report 2013

Major Creditors Rate

32%

61%

6%

BNDES Debentures Other

28%

41%

22%

8%

CPI (IPCA) TJLP CDI Other

Investments (CAPEX)

In 2013, capex at Group Contax totaled R$ 200.2 million, 36.3% higher compared to 2012. Of this figure, R$

128.8 million was earmarked for technology projects in order to increase our productivity and boost growth

opportunities. Investments in operations abroad totaled R$ 40.2 million.

(R$ Thousand) 2013 2012 2013 vs.

2012

Revenue Growth 65,722 59,573 10.3%

Reinvestment 116,598 81,090 43.8%

Other 17,911 6,263 186.0%

Investments on operations (Capex)

200,230 146,927 36.3%

Outlook for 2014

The greater maturity and the competitive environment of the Telecommunication, Finance and Air Transport

industries in Brazil, combined with higher demand for quality, speed and efficiency by the consumers in these

markets, led the companies that operate in these industries to revise their products and processes aiming at

reducing costs and the complaint ratio at customer service centers or at regulatory agencies. As a result, these

industries started to demand from the companies that operate in our sector a higher specialization, in detriment

to growth of en masse operations as seen in the past. Thus, less complex demands tend to be serviced more and

more by self-service channels, while operator-assisted service is leveled at increasingly complex demands. This

change is noticed by the surge in consumer interaction via social media, as well as the growing complexity of the

demands of the large consuming crowds.

Management

Report 2013

The variety of customer relationship channels guides the Contact Center sector to a new approach: understand

the behavior of final clients, act in a proactive manner and generate a high value relationship.

This trend demands higher specialization and command of technological innovation, so we can maintain our

leadership position in the new cycles of outsourcing, given that in this business model the relationship between

the provider and the client is intensified. New technologies such as Cloud Computing increase the flexibility of

the Contact Center and open doors for new market niches that are untapped. Understanding the client based on

the high volume of generated data and being present where the client is (social networks, mobile means, self-

service, collaborative networks, etc) are the sector’s challenges under the point of view of interaction with the

final client. It is necessary to integrate several channels, treating the client in a unified way, ensuring the

efficiency and productivity without compromising quality when delivering services.

Our Information Technology operation was reorganized recently in order to bolster its strategic focus on the

development of solutions that end up translating into productivity gains to our Contact Center operations. Since

2011, the Company has earmarked much of its Capex to technology projects in order to create a new platform,

which in addition to being robust and highly available, increases the performance of our operators.

Our operational turnaround that began in 2011 is gathering speed, based on the roll-out of technologies

developed during project NGR (New Generation of Relationship), our proprietary platform, for other operations

in and out of Brazil, boosting our productivity, elevating the number of simple transactions processed through

electronic mechanisms or by expanding the capacity and quality of delivery of human service with the support of

technology, a factor that has already helped increase the Company’s profitability.

These changes considerably expand the opportunities for the Company to seize value because any improvement

in processes and systems, reducing the average customer service time and/or the contact rate, will result in

lower costs. These will be in part absorbed by Contax, while the client will receive part of it as a benefit.

We will continue in 2014 the process of transferring and expanding our infrastructure, inside and outside of

Brazil over to new, more efficient units for the development of our activities, resulting from better location, the

architectural configuration of the buildings and the reduction in the number of operational sites without an

impact on our installed capacity. We are migrating our operations over to regions with a large supply of skilled

labor, seizing the benefits from the lower turnover and absenteeism ratios seen in these regions, leading to

lower hiring and training costs, in addition to creating opportunities for the reduction of our costs of rent,

maintenance and “facilities”.

Our Contact Center operation in Latin America recorded sharp growth in the volume of operations in 2013, with

revenue seeing 32.6% growth. It made us the first or second-largest player in all the countries where we operate,

and will remain as an important growth driver for the Company. The Latin Contact Center market offers to the

Group sizable expansion opportunities due to the fact that this is a very scattered market, with players offering

lower value added solutions and because we are not yet present in important places. In addition, the

internationalization strategy of the Company created commercial synergy opportunities as Contax has in its

client portfolio in Brazil companies with a global reach, allowing the expansion of business over to countries that

demand Spanish-speaking service.

Management

Report 2013

This way, we expect to invest nearly R$200 million in 2014, with a considerable part of this figure being

earmarked for technology with the aim of reaching differentiated quality levels with cost reduction, the opening

of new sites with proprietary design in adequate regions and the expansion of our international operations.

Corporate and Shareholder Structure as of 12/31/2013

Contax Participações S.A is a public brazilian company whose corporate objective is to invest in other

business and civil societies as a partner or shareholder, in Brazil or abroad. Its total capital were

represented at the end of 2013 by 119,725,707 common shares and 226,042,163 preferred shares.

Shareholders Common

Shares CS %

Preferred Shares

PS % Total Total %

Total Capital 119,725,707 100.0% 226,042,163 100.0% 345,767,870 100.0%

CTX Participações 69,486,980 58.0% 24,947,900 11.0% 94,434,880 27.3%

Portugal Telecom Brasil 4,292,096 3.6% 17,168,384 7.6% 21,460,480 6.2%

AG Telecom 2,652,644 2.2% 10,610,576 4.7% 13,263,220 3.8%

LF Tel 2,652,644 2.2% 10,610,576 4.7% 13,263,220 3.8%

Fundação Atlântico 772,270 0.6% 3,089,080 1.4% 3,861,350 1.1%

Tesouraria 352,011 0.3% 1,408,044 0.6% 1,760,055 0.5%

Free Float 39,517,062 33.1% 158,207,603 70.0% 197,724,665 57.3%

Ability Contax

Contax-Mobitel

Allus

CONTAX PARTICIPAÇÕES

ListedCompany

100% 100%

100% 100%

31.97%Todo!

68.03%

Management

Report 2013

Corporate Governance

With the company’s entry into the Level 2 of BM&FBovespa there was a movement by the

Administration towards improving its Corporate Governance practices. Thus, focused on the principles

of transparency, equity, accountability and corporate responsibility, as approved by the Board of

Directors, the following committees were created: Executive Committee (“COMEX”); Human Assets &

People Committee; Technology Committee; Planning Committee; Culture & Ethics Committee;

Disclosure Committee; Finance and Risk Management Committee; Commercial & Innovation Committee

and Crisis Committee. It is important to highlight that the Company already had forums for the analysis

and monitoring of results of its business units, the so-called Results Committees.

Strengthening its commitment to the best governance practices and to the best interests for its

shareholders, as approved by the Board of Directors, the Audit Committee was created, which will begin

in April 2014 and will be guided by the internal and independent audit of the Company, by risk

management and financial reports, be it in terms of identification and monitoring or in terms of internal

controls. The Audit Committee, in frequent interactions with the Finance Committee and that of Risk

Management, will bring even more trust to the procedures and controls at the Company.

Disclosure of non-audit services

KPMG Auditores Independentes is responsible for the external audit of the Company and its subsidiaries

since 2013. For the last fiscal year, complementary services or consulting services were not hired with

this company, as the focus was maintained on external auditing related to the examination of the

financial statements.

Acknowledgment

The Administration of Contax Participações thanks its shareholders, clients and suppliers for the support

and trust that help distinguish the Company and, especially, our employees for the dedication and

personal efforts that led to the significant growth of the business. The satisfaction of our clients and,

therefore, that of the consumers of their respective products and/or services, remains and will remain

the priority. Contax will move ahead, working with a team that is highly motivated, creative in

innovative solutions and sensitive to the problems and needs of a competitive market, in order to

maintain clients, suppliers and partners involved with the same challenges.

Rio de Janeiro, February 20, 2014

Management

CONTAX PARTICIPAÇÕES S.A. Corporate Taxpayer's ID (CNPJ/MF): 04.032.433/0001-80 Company Registry (NIRE): 33300275410 Publicly-Held Company REPORT OF THE FISCAL COUNCIL In compliance with the attributes set forth in items II and VII of Article 163 of Law 604/76, the Fiscal Council of CONTAX PARTICIPAÇÕES S.A., has examined the Company’s Financial Statements, Balance Sheet, Proposal for the Distribution of Dividends, annual management report and other statements for the fiscal year ended December 31, 2013. Based on the documents examined and on the explanations provided by representatives of the Company and KPMG Auditores Independentes, the undersigned members of the Fiscal Council concluded that said Financial Statements are an accurate reflection of the Company’s financial and equity situation. Pursuant to Article 163 of Law 6404/76, they therefore approved the forwarding of said documents for subsequent approval by the Annual Meeting of Contax Participações S.A. Shareholders, which will be held by April 30, 2014. Rio de Janeiro, February 20, 2014. Sérgio Bernstein Chairman of the Council Eder Carvalho Magalhães José Luiz Montans Anacleto Júnior Aparecido Carlos Correia Galdino

Executive´s Report of Financial Statements For purposes of compliance with Article 25, § 1, VI, CVM instruction 480, of December 7,2009, the Executive of Contax Participações and Subsidiaries Financial Statements as at December 31, 2013. Rio de Janeiro, February 20, 2013. Carlos Henrique Zanvettor – Chief Executive Officer Magali Rogéria de Moura Leite – Officer Maurício Pereira Ignácio – Officer

Executive’s Report of Independent Auditors’ Report For purposes of compliance with Article 25, § 1, VI, CVM instruction 480, of December 7, 2009, the Executive of Contax Participações and Subsidiaries, state that discussed, reviewed and agreed with the independent Auditors’ Report as at December 31, 2013 Rio de Janeiro, February 20, 2013. Carlos Henrique Zanvettor – Chief Executive Officer Magali Rogéria de Moura Leite – Officer Maurício Pereira Ignácio – Officer

contax participações s.a. and subsidiaries

Documents