Empresa de Telecomunicaciones de Bogotá, S.A., E.S.P. Financial Statements for the Years Ended December 31, 2014 and 2013 and Statutory Auditor's Report EMPRESA DE TELECOMUNICACIONES DE BOGOTÁ S.A. E.S.P. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In thousands of Colombian Pesos (COP) except where otherwise indicated) 1. ECONOMIC ENTITY AND OPERATIONS Corporate Purpose and Regulatory Framework - Empresa de Telecomunicaciones de Bogotá S.A. E.S.P. (hereafter “the Company” or “ETB”) is a joint-stock company organized as a public utility company under Colombian law. Its majority shareholder is the Capital District. The duration of the Company is undefined. The company runs its own telecommunications network in Bogotá D.C., which consists of: providing local and long distance telephone services, added value (including Internet and broadband services), mobile services, interconnection, transport and connectivity carriers, public telephone services and varying satellite and TV services. The telecommunications industry in Colombia is regulated by the government in order to promote universal service with the highest quality standards, consumer protection and fair competition. The company has made several alliances with its subsidiary Colvatel S.A. E.S.P., among others, to develop and improve broadband access solutions. 2. RELEVANT EVENTS a. Pension Liability Transfer – By means of Minutes 240 / December 7, 2012 and 260 / May 28, 2013, the Company's Board of Directors approved the full transfer of the pension liability. In compliance with Article 12 of Decree 1260 / 2000, ETB requested a positive review from the Department of Labor, issued through Communication No. 62663 / May 3, 2012, which took effect on October 21, 2013, indicating that the pension transfer could be executed as a life annuity. The approval of the actuarial valuation and pension transfer authorization were handed down by the Superintendence of Companies through Communications No. 320166538 / November 30, 2011 and No. 300-029845 / May 16, 2012, which took effect on October 29, 2013 according to Communication No. 302-153193. Framework contract for the standardization of the pension liability (total pension transfer insurance policy) - On July 31, 2013, ETB signed a pension transfer agreement with Positiva Compañía de Seguros S.A. to standardize the Company's pension liability through total pension transfer insurance policy, for individuals whose pensions, on the date that the contract was signed, represented specific liabilities that must be paid by ETB. The Company's objective with the pension liability transfer is to strengthen its strategic vision, improve financial indicators and ensure the payment to its retirees or their substitutes, by handing over funds to an entity specializing in this field. The objective of the agreement signed is to regulate relations between ETB and Positiva resulting from the total pension liability transfer; through ETB's transfer of the risk to Positiva by signing a pension transfer insurance policy for the obligation to pay the regular and - 10 - additional monthly pensions (months 13 and/or 14) of the legal retirement pensions, bonuses by treaty provision or mutual agreement resulting from early retirement plans, pensions ordered by law and the corresponding substitution thereof, as well as funeral benefits for full retirees or retirees paid exclusively by the Company. The pension arrangements included in the transfer are: a) Retirees with a shared pension, b) Retirees expecting a pension from the general pension system, c) Retirees paid exclusively by the Company, d) Beneficiaries for life and e) Temporary beneficiaries. Value - An initial value was established for the transaction at COP 1,375,000,000 for the purposes of issuing the pension transfer insurance policy. This value consists of the value of the actuarial valuation as at August 31, 2013 for COP 1,231,411,397 and the premium paid to the Insurance Company, corresponding to 11.66% of the total liability transferred for COP 143,588,603, which covers any risks arising from ETB's pension liability. As at December 31, 2013, the premium of 11.66% for COP 143,588,603 and the balance from adjusting the pension liability to reflect 100% of the transfer calculation value for COP 218,314,954 were entered by the Company as a deferred asset to be amortized in 16 years; on December 31, 2014, the Company decided to amortize this item in a 2-year period sustaining its decision through Decree 4565 / 2010. (See Note 3 (a) and Note 11 (6)). In September 2013, the Stand-alone Trust established by the Company specifically to fund the pension liability was liquidated and the funds for COP 1,188,197,689 plus cash funds for COP 186,802,311 were transferred to the Insurance Company as a consideration for the transfer agreement. In addition, the agreement established a period of 180 calendar days to validate the information based on which the risk was assessed to determine the initial premium, if any inconsistencies are found the adjustment resulting from the review could not exceed the value of COP 50,000,000. During the transfer adjustment period, a total of COP 16,144,969 was paid and new retirees were transferred for COP 1,006,295. (See Note 11 (6)). b. 4G Mobile Services Project - The purpose of this project is to develop and implement the mobile operation at ETB using new fourth generation technologies. In addition, it intends to integrate mobility services in the service portfolio (packaging fixed and mobile services) based on the premises of quality and timeliness as required. On May 8, 2013, COLOMBIA MÓVIL S.A. E.S.P. and ETB S.A. E.S.P. entered into an agreement committing to a joint venture to participate in the auction carried out by the Ministry of Information Technologies and Telecommunications to grant permits for the use of the radio spectrum. The purpose of the Joint Venture is: (a) participate together in the Auction, take the bid bonds required and apply for the award of a permit to use the radio spectrum as defined in Resolution 449 / 2013, committing to accept the values offered in the Auction; (b) if they are awarded one or more permits based on the Auction, fulfill each and every one of the obligations contained in Resolution 449; and (c) provide telecommunications networks or - 11 - services in the national territory. The Parties to the JV are responsible to fulfill 50% of the obligations per each party. In 2013, most of the funds invested were used for the acquisition and subsequent award of the LTE (Long Term Evolution - 3G Evolving Architecture) spectrum on the open block AWS (Advanced Wireless Services) band. ETB had one year to fulfill the obligation incurred with the Ministry of Information Technologies and Telecommunications to come up with an LTE bid for the market as of October 2013, on which date the resolution allocating the spectrum was made final. On October 7, 2014, ETB launched the mobile 4G service on the market. The duration of the permit will be for ten years. The Ministry established the first payment for COP 151,828,735 between ETB and TIGO within 30 days of the date on which the Resolution was executed, and the rest will be paid on the date when the spectrum segments are released for use. As at December 31, 2014, ETB has paid COP 97,429,003 distributed as follows: COP 21,514,636 in 2014 to release the occupied spectrum segments and COP 75,914,367 in 2013 corresponding to 50% of the first payment established by the Ministry (Note12). c. N-Play Project – This is one of the Company's strategic programs, whose mission is to improve the Company's competitiveness by implementing a triple-play high-speed broadband, TV and IP Voice offering. The program includes the development of the offering and human resource plans, as well as the implementation of the technologies necessary to support the triple-play services. In 2014 and 2013, the resources invested have been used for the deployment of fiber optic, the implementation of the GPON (Gigabit Passive Optical Network) and IPTV platform, the support systems for the business and the operation. d. Sale of Colombia Móvil Shares – In November 2013, the Company executed an agreement to sell its holdings in Colombia Móvil to UNE EPM Telecomunicaciones S.A. The sale agreement included 10,799,999 ordinary shares at USD 22.22 per share, for a total of USD 239,999,977.77. The transaction was conditional upon the merger of UNE EPM Telecomunicaciones S.A. and Millicom Spain Cable S.L., upon receiving the respective approvals in 2014 from the Superintendence of Industry and Commerce in April, from the National Television Authority in June and the Superintendence of Companies in August; the two Companies merged and therefore, the purchase and sale agreement was closed, in accordance with closing record dated August 23, 2014, generating non-operating income of COP 345,646,504 (Notes 6 and 27). e. Purchase of Skynet de Colombia S.A. E.S.P. – On September 24, 2013, based on Minutes No. 258, the Board of Directors authorized the acquisition of 75% of the subscribed and paid shares of the Internet access and satellite transmission company, Skynet. On October 30, 2013, ETB signed a purchase and sale agreement for 375,000 shares, equivalent to 75% of the subscribed and paid shares of SkyNet de Colombia S.A. E.S.P. in circulation for COP 30,000 million. At October 2013, it was subject to the condition precedent of reporting the consolidation to the Superintendence of Industry and Commerce. - 12 - Once compliance with the condition was verified in January 2014, the transaction was fully executed by paying for and endorsing the shares and listing ETB's shares in the shareholders register. The purpose of this acquisition is to boost programs important to the Corporate Strategy, supporting business and government clients that are present and require connectivity in remote regions of Colombia, where Fiber Optics is not an option. This would provide them with new services in the future, such as Satellite Television (See Note 12). 3. MAIN ACCOUNTING POLICIES AND PRACTICES The financial statements were prepared in accordance with Colombia's generally accepted accounting principles for public-sector and public utility companies, regulated by Resolution No. 222 / July 5, 2006 and Resolution No. 356 / September 5, 2007 of Colombia's General Accounting Office. Certain accounting principles applied by the Company, which are in accordance with Colombia's generally accepted accounting principles, may not be in accordance with generally accepted accounting principles in other countries. The following is a description of the principal accounting policies adopted by the Company: a. Change in Estimates – Accounting Period - The Company made a change in the pension transfer amortization period as established by Decree 4565 / December 7, 2010, which allows Companies to defer the amount to be amortized up to 2029 in line with current legislation. As a result, the Company will amortize the pension liability transfer using the straight line method up to the year 2015. The effect of the change resulted in recording a higher amortization expense in 2014 for COP 166,437,249 as indicated in Note 11 of Other Assets. b. Monetary Unit - In accordance with the legal regulations, the monetary unit used by the Company for the Balance Sheet and the Statement of Income accounts is the Colombian Peso. c. Accounting Period - The Company Bylaws has defined the closing of its accounting and the preparation and dissemination of the general Financial Statements once per year on December 31. d. Materiality Criterion – Economic events are recognized and presented in accordance with their relative importance. In the preparation of the financial statements, materiality is determined in relation to the total current assets and liabilities; the total assets and liabilities; working capital or the statement of income for the period, as applicable. As a general rule, the criterion of 5% of the total assets and 5% of the revenue was followed. e. Adjustments for Inflation – Based on Resolutions 351 and 364 / 2001, Colombia's General Accounting Office ordered companies to eliminate adjustments for inflation. Up to December 31, 2001, with the exception of inventory non-monetary assets and liabilities and equity accounts, except for revaluation reserve, were adjusted to account for the effects of inflation using the adjustment percentages determined based on the variation of the general - 13 - consumer price index. The value of the inflation adjustments recorded up to December 31, 2001 is included in the book value for all purposes. Debit and credit balances for deferred monetary adjustments recorded up to December 31, 2001 are amortized by debiting or crediting the statement of income for the period, based on the period of depreciation or amortization for the related asset. f. Conversion of transactions and balances in foreign currency - Foreign currency transactions are recorded at the applicable exchange rates in force at the time of the transaction. At the end of each financial year, accounts receivable or payable in foreign currencies are updated at the official exchange rate certified by the Colombian Financial Superintendence: COP 2,392.46 and COP 1,926.83 equals USD 1 as at December 31, 2014 and 2013, respectively. The resulting exchange rate gain or loss is included in the statement of income for the period. g. Cash and cash equivalents – The statement of cash flow has been prepared in accordance with the indirect method. For purposes of presentation in the statement of cash flow, the Company classifies investments with current maturity under cash equivalents. h. Investments - The Company classifies and records its short-term and long-term investments as follows: i. Short-term investments: Investments with current maturities of cash surplus made in order to obtain fixed income, are reflected in cash as cash equivalents. Equity investments by the cost method - These investments are recorded at the cost of investment and they are valued at absolute value; if this value is less, a provision is charged to the statement of income, and if it is greater a valuation is credited to the revaluation reserve. Investments in subsidiaries using the equity method - Investments in subsidiaries, to which the economic entity has the power to transfer their profits or surplus, are recorded using the equity method. Allowance for accounts receivable - The allowance for bad debt is revised and updated based on the aging group in accounts receivable and their characteristics. Portfolio Individuals, Directories and other Special and Data Governance Risk High 1-30 1.8% 31-60 8.1% 61-90 31.2% 91-120 121-150 66.8% - 151-180 More than 181 - - Medium 0.2% 2.7% 19.2% 59.2% - - - Low 0.0% 2.0% 14.4% 54.3% - - - High 14.6% 39.7% 53.4% 70.1% 81.0% 100.0% 100.0% Medium 12.1% 20.8% 30.7% 39.0% 40.4% 100.0% 100.0% Low 3.2% 13.9% 18.0% 27.2% 39.3% 100.0% 100.0% High 3.6% 25.8% 54.7% 91.7% 92.0% 100.0% 100.0% - 14 - Medium 3.2% 8.2% 35.1% 82.6% 91.0% 100.0% 100.0% Low 2.7% 2.8% 18.7% 46.2% 59.4% 100.0% 100.0% - - 70.0% 100.0% 100.0% 50.0% 50.0% 50.0% 100.0% Past due accounts (*) - - Non-commercial (**) - - 5.0% (*) The commercial loan portfolio with current maturities greater than 120 days. (**) It is also analyzed individually to determine the sufficiency of the allowance. The commercial loan portfolio of national and international operators is analyzed individually and 100% of the net balance of accounts receivable and payable for the operator at risk of bad payment are allocated as an allowance. The commercial loan portfolio of LSPs (local service providers) is analyzed individually and an allowance is allocated on a monthly basis by applying a percentage established based on billing and collection over the last twelve months. There is no allowance for the employee loans portfolio because it is protected by the mortgage in favor of ETB and deducted in installments from payroll. The portfolio for collecting medical services fees from employees has a 100% coverage allowance. j. Subsidies and contributions - As established by Law 1341 / July 30, 2009, the Company records the subsidies granted to socio-economic levels 1 and 2 in an account receivable from the Ministry of Information Technologies and Telecommunications during the 5-year validity period. According to the regulations issued, for the purposes of recognition by the Ministry of Information Technologies and Telecommunications (through the ICT Fund), the Company must use the periodic consideration to be paid for the basic public switched national telephone services, equivalent to 2.2% of the gross income, to subsidize users from socio-economic levels 1 and 2. If that consideration is not sufficient, the Ministry (ICT Fund) will cover the difference. k. Inventory – Inventory consists of mobile terminals, TV decoders, items subject to return and consumables such as transmission equipment, tools, cables and spare parts. Equipment is recorded at cost, and at the end of the period, the book value is reduced to market value if it is less. The cost is determined based on the average cost method. l. Property, plant and equipment - These items are recorded at cost adjusted for inflation up to December 31, 2001. They are depreciated using the straight-line method, based on the expected useful life of the assets established by Colombia's General Accounting Office, as follows: Assets Useful life Constructions and buildings 50 years - 15 - Assets Useful life Plants and ducts: Local telephone service Internet and data service Long distance Mobile Phone Networks, lines and cables: Local telephone service Internet and data service Long distance Conduits Machinery and equipment Furniture and appliances Office equipment Communication equipment Transportation, pulling and lifting equipment Computer equipment 20 years 7 years 10 years 10 years 20 years 7 years 10 years 25 years 10 years 10 years 10 years 10 years 10 years 5 years For accounting purposes, the Company does not consider any residual value for its assets, because it considers that such value it would be relatively immaterial. They are therefore fully depreciated. Repairs and maintenance of assets are charged to the statement of income, since improvements and additions are added to the assets' cost. Retirement, sale and transfer of property, plant and equipment are recorded by eliminating the cost and accumulated depreciation of said assets and any gain or loss is charged to the statement of income. m. Other assets Prepaid Expenses – Costs and expenses disbursed in advance for the provision of services are recorded and amortized during the period in which they are received, which shall not exceed one year. The costs and expenses corresponding to insurance policies are amortized in accordance with the effect of the policies. Deferred Assets - Deferred assets consist mainly of deferred income tax debit, charges for updating information systems and processes, assets held by third parties, works and improvements on third party property, assets acquired by leasing. Deferred charges are amortized using the straight-line method, in periods ranging from one to five years depending on the duration of each project. In addition, it corresponds to the asset derived from the value that was pending amortization of the pension liability at the time of the transfer and the - 16 - premium paid to the Insurance Company as established in the contract for the full transfer of the pension liability. Up to 2013, this asset had a 16-year amortization period based on the straight-line method. As of 2014, they will be amortized in a 2-year period, as explained in detail in Note 3 (a) - Change in Estimates. Other long-term assets – Up to August 2013, these are the fiduciary orders constituted to fund the pension liability. The returns generated by these investments are recorded as finance income or expenses. n. Intangibles – These are mainly the costs incurred in rights of use and easement, which are amortized in the agreed periods of 2 to 15 years. In addition, the licenses and software acquired in the process of updating the operating platform and computer information system are recorded as intangibles and amortized using the straight-line method over a period from 1 to 10 years. In addition, they include the cost of the operating license for the long distance service, which is fully amortized, and the cost of the license to use the radio spectrum where the 4G networks will operate, which will be amortized over a 10-year period. o. Goodwill – Originated by acquisitions made for a price higher than the book value of the subsidiaries Skynet de Colombia S.A. E.S.P. and Ingelcom, which is being amortized over a 5-year period using the straight-line method, during which time the additional benefits of said investment are expected to be generated. p. Valuations (Devaluations) - These are: (a) differences between Property Plant and Equipment net book value and the expert appraisal; when the latter is greater, the difference is recorded in separate accounts in assets as valuations; when it is less, a devaluation is generated and recorded directly in the statement of income as an expense for that period. (b) Investments corresponding to the difference between the market or absolute value and the cost adjusted for inflation. These valuations are recorded in separate accounts in assets and as a revaluation reserve in the statement of changes in equity. They cannot be distributed. Devaluations are recorded directly in the statement of income as an expense for the period. q. Provision for Income Tax and other Complementary Taxes – The Company determines the provision for income tax and related taxes based on profits and the income tax for equality (CREE) based on greater of the taxable income and the presumed minimum income, estimated at the rates specified by tax law. In addition, the effect of temporary differences between book and tax treatment of certain items is recorded as deferred income tax, provided there is a reasonable expectation that such differences will be reversed. In 2013, the Company did not record any deferred taxes on the new CREE tax because, since it was a new tax, there were no temporary differences for the periods prior to the year 2013. This is in accordance with technical and legal analyses sustained by the interpretation developed with the support of tax experts. - 17 - r. Equity Tax – According to the provisions established by Colombia's generally accepted accounting principles and the alternatives for recording accounting entries established therein, the Company opted to record the tax as a deferred asset that is amortized by debiting the revaluated equity account on a yearly basis for four years for the value of the payments due in the respective period. s. Labor Obligations – Mandatory and voluntary liabilities with employees, by virtue of applicable labor agreements, interest on severance pay, seniority bonuses, paid vacations and social security payments calculated based on the salary earned. t. Retirement Pensions – Up to July 2013, retirement pensions were recorded on a monthly basis and adjusted at the end of each fiscal year based on legal provisions and the labor law in force, because the Company switched over its pension liability as described in Note 2 and Note 19. For employees covered by the new social security system (Law 100 / 1993), the Company covers its pension liabilities through payments to Colpensiones (Colombian Pension Administrator (previously the Social Security Institute - ISS, for the Spanish original) and/or private pension funds in the terms provided by said law. The liability for retirement pensions represents the present value of all future monthly payments to be made by the Company to the employees who met or will meet certain legal and/or conventional requirements as far as age, time of service and others, determined by the Company's current actuarial studies. Pension payments are charged directly to the statement of income. The provisions of Decree 4565 / December 7, 2010 are applied to calculate amortization. Pension Funding – Up to August 2013, the Company created fiduciary orders to fund the pension liability. The returns generated by these investments are recorded in nonoperating income. In September 2013, as a result of the pension liability transfer, all of the resources held in fiduciary orders were transferred to Positiva Compañía de Seguros S.A. Fringe Benefits of Retirement Pensions – Pursuant to the collective labor agreement, the Company considers certain fringe benefits for the relatives of active employees. Based on Law 4 / 1976, some of these benefits were extended to the relatives of retirees, including medical services, education for underage children, subject to proof of financial dependence, and recreation. As at December 31, 2014 and 2013, the Company recorded the liability in accordance with the actuarial calculation of the benefit of health care payments for retirees prepared by an independent actuary. Therefore, a provision is being allocated for the liability that, at present value, covers the obligation estimated by this benefit projected to the closing date of the fiscal year, recorded in the statement of income. The healthcare benefit corresponding to the medical services to which the relatives of - 18 - retirees and the Company's active staff are entitled, and any other benefits, are recorded as the respective disbursements or the respective invoices are charged to the statement of income for the period. u. Contingencies - Certain contingent conditions may exist the date upon which the financial statements are issued. These conditions may result in a loss for the Company, even though they will only be resolved in the future when one or more events occur or may occur. These contingencies are rated by Management in accordance with their probability of occurrence based on examination by internal and external legal advisors. If the assessment of the contingency indicates that it is likely that a material loss will occur and the amount of the liability can be estimated, a provision is recorded in the financial statements. v. Reporting revenue, costs and expenses – Revenue from providing telephone services, shares in contracts with operators and services other than telephone are recorded monthly in accordance with the trade agreements in force. Services provided but not billed are valued in accordance with the trade plans or included as part of accounts receivable. Costs and expenses are recorded on an accrual accounting system. w. Earnings per share – Earnings per share are calculated based on the subscribed and paid shares outstanding at the end of the fiscal year. x. Memorandum accounts – Include contingent rights and responsibilities and differences between tax and accounting figures. y. Use of estimates – The preparation of financial statements in accordance with the generally accepted accounting principles requires Management to make certain estimates and assumptions that affect the amounts of assets, liabilities, income and expenses reported during the period. Even when the final effect thereof may vary, management considers that the estimates and assumptions used were appropriate under the circumstances. z. Reclassification - Certain figures included in the financial statements as at December 31, 2013 were reclassified for comparative purposes, which are not significant. Convergence to International Financial Reporting Standards – In accordance with the provisions of Law 1314 / 2009, Regulatory Decree 2784 / December 2012 and Decree 3024 / 2013, the Company belongs to Group 1 of those preparing financial reports and therefore, submitted the opening statement of financial position to the Colombian Financial Superintendence as at January 1, 2014 and July 31, 2014. According to IFRS 1, there is the possibility that the preliminary opening statement of financial position may require adjustments before issuing the final opening statement of financial position. Under IFRS, only a full set of the financial statements consisting of a statement of financial position, the statement of income, the statement of changes in equity and the statement of cash flow, along with the comparative financial information and the explanatory notes, can provide a reasonable presentation of the Company's financial position, the results of operations and cash flows. The first financial statements according to the International Financial Reporting Standards will be issued on December 31, 2015. - 19 - 4. ASSETS AND LIABILITIES IN FOREIGN CURRENCY 2014 US Dollars Assets Liabilities Net asset position 2013 Pesos $000 US Dollars 56,006,379 (37,757,568) COP 133,993,021 (90,333,471) 18,248,811 COP 43,659,550 Pesos $000 119,930,128 COP 231,084,968 (60,506,703) (116,586,131) 59,423,425 COP 114,498,837 5. CASH 2014 On hand Banks and corporations (1) Liquidity Management Deposits Deposits Abroad and Banks in Foreign Currencies (2) COP 49,470 630,608,937 12,314,110 2013 COP 63,695 625,066,107 6,675,266 95,436,205 COP 738,408,722 192,016,714 COP 823,821,782 (1) According to reciprocity agreements entered into with collecting banks, the funds from the development of telephone services are restricted as far as their use for an average time of 18 days following the deposit thereof. (2) As at December 31, 2014 and 2013, the amount is USD 39,890,407.81 and USD 99,654,206.22, respectively. These balances include mainly: Time Deposit -USD 22,043,264.55 - 52.737.629 (2013-USD 83,427,089.34 - 160.749.819) Money market - USD 83,964.52 - 200.882 (2013-USD 5,588,368.10 - 10,767,835) Deposits abroad - USD 17,763,178.74 - 42,497,694 (2013 - USD 10,638,748.78 - 20,499,060). 6. INVESTMENTS 2014 Short-term investments - certificates of deposit CD (1) COP Long-term investments (2) (3) Less - Allowance 384,360,208 2013 COP 48,506,731 (59,840) COP (1) Short-term investments are made up of: Entity - 20 - 48,446,891 212,951,046 147,328,128 (37,121,845) COP 110,206,283 CD – Banco Colpatria CD – Banco Sudameris CD – Helm Bank CD – Banco Corpbanca CD – Bancolombia CD - Banco Popular CD – Findeter CD – Banco Citibank CD – Ministry of Finance CD – Banco BBVA CD – Banco Pichincha CD – Banco de Bogotá CD – Banco AV Villas CD – Banco Davivienda CD – Banco de Occidente COP 5,000,000 89,656,616 COP 90,546,991 43,099,810 21,008,280 16,080,400 13,063,455 - 67,500,000 20,500,000 20,000,000 2,000,000 3,000,000 5,203,592 5,500,000 12,000,000 125,500,000 - 8,134,700 7,000,000 4,527,470 3,507,700 3,000,000 2,982,240 - 20,500,000 8,000,000 COP 384,360,208 COP 212,951,046 (2) In November 2013, the Company executed an agreement to sell its holdings in Colombia Móvil to UNE EPM Telecomunicaciones S.A. The sale agreement included 10,799,999 ordinary shares at USD 22,22 per share, for a total of USD 239,999,977.77. The transaction was conditional upon the merger of UNE EPM Telecomunicaciones S.A. and Millicom Spain Cable S.L., upon receiving the respective approvals in 2014 from the Superintendence of Industry and Commerce in April, from the National Television Authority in June and the Superintendence of Companies in August; the two Companies merged and therefore, the purchase and sale agreement was closed, in accordance with Closing Protocol dated August 23, 2014, generating a nonoperating profit of COP 345,646,504 (Note 2 (d) and Note 27). (3) Below are the details of the long-term investments as at December 31, 2014: Economic activity Share Percentage Type of Share No. Shares Held Absolute Value Cost Book Value Valuation (See Note 13) Allowance In uncontrolled companies: Contact Center Américas S.A. Empresa de Energía de Bogotá Banco Popular SA Sistema Satelital Andino Acerías Paz del Río S.A. Provision of Services Public Public Financial 39.99% Ordinary 63,994 COP 3,999,491 0.04% 0.11% Ordinary Ordinary 4,258,184 8,772,703 1,434,343 1,466,881 Telecommunications 0.69% Ordinary 24,905 59,584 Basic Industry 0.00002% Ordinary 3,289 In controlled companies: Colvatel S.A. E.S.P (1) Telecommunications Skynet de Colombia S.A. E.S.P (2) Telecommunications COP COP 22,383,363 3,999,491 COP 18,383,872 - 7,086,875 2,977,280 1,434,343 1,466,881 5,652,532 1,510,399 - - - - 300 44 44 6,960,599 32,447,562 6,900,759 25,546,803 - (59,584) (256) (59,840) 88.16% Ordinary 8,088,100,440 27,796,596 28,578,130 27,796,596 781,534 - 75% Ordinary 2,962,499 13,749,536 13,749,536 13,749,536 - - 41,546,132 42,327,666 41,546,132 781,534 - COP 48,506,731 COP 74,775,228 COP 48,446,891 COP 26,328,337 D - 21 - COP 59,840 Below are the details of the long-term investments as at December 31, 2013: Economic activity Percentage Percentage Type of Share No. Shares Held Absolute Value Cost Book Value Valuation (See Note 13) Allowance In uncontrolled companies: Colombia Móvil S.A E.S.P. Contact Center Américas S.A. Empresa de Energía de Bogotá Banco Popular SA Sistema Satelital Andino Acerías Paz del Río S.A. PCS Telephone services COP COP 10,799,999 116,322,253 79,248,664 COP 79,248,664 COP (37,073,589) $- 24.99% Ordinary Provision of Services Public Utilities Financial 39.99% Ordinary 63,994 3,999,491 19,145,579 3,999,491 15,146,088 - 0.04% 0.11% Ordinary Ordinary 4,258,184 8,772,703 1,434,343 1,466,881 6,479,791 2,679,359 1,434,343 1,466,881 5,045,448 1,212,478 - Telecommunications 0.69% Ordinary 24,905 47,987 Basic Industry 0.00002% Ordinary 3,289 300 31 31 123,271,255 107,553,424 86,149,410 21,404,014 24,056,873 24,838,407 24,056,873 781,534 COP 147,328,128 COP 132,391,831 COP 110,206,283 COP 22,185,548 In controlled companies: Colvatel S.A. E.S.P (2) Telecommunications 88.16% Ordinary 8,088,100,440 D - - - (47,987) - (269) (37,121,845) COP (37,121,845) The investments held by the Company as at December 31, 2014 have no restrictions or encumbrances. (1) ETB, as a majority shareholder of Colvatel S.A. E.S.P., with a share of 88.16% has appraised this investment using the equity method. According to the audited financial statements of Colvatel S.A. E.S.P. As at December 31, 2014 and 2013, the balances are as follows: 2014 Assets Liabilities Equity (a) (a) The composition of equity is as follows: Share capital Legal reserve Investment reserve Net profit for the year Revaluation reserve 2013 COP 56,499,801 24,083,478 32,416,323 COP COP 9,174,374 6,334,310 8,205,580 8,699,960 2,099 COP COP 32,416,323 COP 45,749,203 17,574,868 28,174,335 9,174,374 6,334,310 8,205,580 4,458,276 1,795 28,174,335 As at December 31, 2014, revenue was recorded using the equity method for COP 7,669,858 (2013 - COP 3,930,402). (2) ETB, as a majority shareholder of Skynet S.A., with a share of 75% has appraised this investment using the equity method (See Note 2). According to the audited financial statements of Skynet S.A., as at December 31, 2014 and 2013, the balances were as follows: - 22 - Assets Liabilities Equity (a) (a) The composition of equity is as follows: Share capital Legal reserve Properties revaluation reserve Previous year results Net profit for the year COP 25,195,713 6,862,995 18,332,718 COP 16,817,637 6,547,744 10,269,893 COP 9,753,990 515,903 4,837,721 3,225,104 COP 3,950,000 250,000 3,410,862 2,659,031 COP 18,332,718 COP 10,269,893 As at December 31, 2014, revenue was recorded using the equity method for COP 2,418,827 7. ACCOUNTS RECEIVABLE, NET Provision of Services - directories Telecommunications Services (1) Interconnection with operators Subsidies and contributions (2) Loans to employees COP 4,310,109 271,922,321 28,359,548 29,510,722 16,506,683 COP 2014 Prepaid taxes Advances to contractors Deposits provided Past due accounts - retired due to non-payment Pension shares Other accounts receivable (3) 3,865,903 231,282,641 30,492,352 28,847,665 20,244,960 2013 162,011,786 11,591,945 4,065,568 242,174,283 2,022,462 191,424,901 113,841,129 12,599,940 3,437,075 212,967,982 2,289,612 190,430,243 Less - Allowance for accounts receivable (4) 963,900,328 (316,126,811) 850,299,502 (246,583,814) Less - current portion 647,773,517 (452,441,258) 603,715,688 (399,292,544) COP (1) 195,332,259 COP 204,423,144 The following is the composition of the loan portfolio associated with telecommunications services: Individuals LSPs and cell providers Governance (a) Prepaid Cards - Public Telephones - 23 - COP 160,338,696 8,251,749 103,219,358 112,518 COP 171,478,308 6,333,214 53,450,005 21,114 COP 271,922,321 COP 231,282,641 (a) The variation is mainly due to the loan portfolio generated for COP 41,677,890 with the Superintendence of Notaries and Records. (2) The amount corresponding to the case filed by ETB against the Telecommunications Fund on July 14, 2000 due to the damages suffered from funding the deficit between subsidies and contributions in 1998 for COP 21,897,152 (2013 COP 21,897,152) and subsidies payable to ETB pursuant to Law 1341 / 2009 for COP 7,613,570 (2013 - COP 6,950,513). (3) Other accounts receivable consist of: Accounts receivable yields Claims and Compensations (a) Reimbursement of Pensions ISS Home loans former employees Financing interest individuals Promissory Notes Investment Yields Dividends and shares receivable Leases Agency agreements Embargoes Services Other accounts receivable COP COP 499,597 153,651,186 2,207,689 5,293,246 1,831,389 1,558,010 4,243,230 2,050,296 1,150,536 4,832,875 7,499,117 867,997 5,739,733 $- 191,424,901 COP 155,751,764 2,530,378 5,933,255 2,157,773 1,558,010 1,210,418 8,223,630 7,220,913 867,997 4,976,105 190,430,243 (a) This is mainly the charge ordered by the Council of State through rulings of August 9, 2012 and September 6, 2012, ordering Comunicación Celular COMCEL S.A. (now "Claro") to return the amounts previously paid to Comcel in compliance with the ruling of December 15, 2006 as a result of the contracts signed by the parties on October 13, 1998 for access charges and the use of interconnection for COP 138,283,653 in capital and COP 14,641,957 for indexing, for a total of COP 152,925,610. (4) The allowance for accounts receivable includes: 2014 Provision of services - directories Telecommunications Services (a) Interconnection with international operators Subsidies and contributions Loans to employees Past due accounts - retired due to non-payment Administrative Investigation Other accounts receivable 2013 COP 2,172,990 69,624,624 16,227,022 3,074,660 1,649,606 212,967,070 138,558 10,272,281 COP 2,871,278 31,335,614 12,434,802 3,074,660 1,740,548 185,546,720 138,558 9,441,634 COP 316,126,811 COP 246,583,814 (a) This includes mainly the provision for the portfolios of LSP COP 8,251,748 (2013 - COP 5,351,121), government portfolio COP 38,507,433 (2013 - COP 8,955,511) and portfolio of individuals COP 22,865,443 (2013 - COP 17,028,982). Movements in the allowance account are presented below: Opening balance Charges to the statement of income (Note 26) - 24 - COP 246,583,814 70,921,182 COP 218,752,669 42,549,357 - Provision for Ingelcom - merger Recovery of the allowance (Note 27) 987,792 (15,706,004) (1,378,185) Final balance COP 316,126,811 COP 246,583,814 8. RELATED COMPANIES Main balances and transactions with related companies - The accounts receivable and payable with related companies correspond to: Accounts receivable: Capital District Colombia Móvil S.A. E.S.P. Colvatel SA E.S.P. Contact Center Américas S.A. Banco Popular Empresa de Energía de Bogotá Skynet de Colombia S.A. E.S.P. Total accounts receivable COP 14,026,726 COP 3,616,894 2,040,975 99,761 210,878 32,590 47,692,351 5,742,196 195,791 14,872 350,594 485,023 - COP 20,027,824 54,480,827 COP 2014 Accounts payable: Capital District Colombia Móvil S.A. E.S.P. Colvatel SA E.S.P. Contact Center Américas S.A. Skynet de Colombia S.A. E.S.P. COP Accounts payable total COP 2013 87,795,966 COP 23,475,982 27,617,550 852,678 139,742,176 COP 103,645,401 1,537,661 5,893,014 19,217,030 130,293,106 The following is the effect of transactions with related companies on the statement of income: Company Revenue Colombia Móvil S.A. E.S.P. Colombia Móvil S.A. E.S.P. Colombia Móvil S.A. E.S.P. Colombia Móvil S.A. E.S.P. Colvatel S.A. Colvatel S.A. Colvatel S.A. Colvatel S.A. Transaction type Interest Telecommunications Services Leases Other extraordinary revenue Telecommunications Services Fees and commissions Other extraordinary revenue Interests and returns - 25 - $- COP 10,878,613 - 13,233,867 410,780 - 1,506,626 220,574 36,343 634,554 - 163,908 68,800 71,468 10,960 Company Contact Center Américas S.A. Contact Center Américas S.A. Contact Center Américas S.A. Contact Center Américas S.A. Contact Center Américas S.A. Banco Popular Empresa de Energía de Bogotá S.A. E.S.P. Empresa de Energía de Bogotá S.A. E.S.P. Skynet de Colombia S.A. E.S.P. Capital District Capital District Capital District Transaction type Telecommunications Services Dividends Leases Fines and sanctions Other extraordinary revenue Interest Telecommunications Services Dividends Telecommunications Services Telecommunications Services Leases Other revenue Total Revenue 4,128,381 11,650 928 72,147 2,911,727 45,169 - 2,277,061 515,244 2,508,872 219,260 244,815 273,886 192,904 10,074 - 41,631,249 12,702,048 451,768 COP 62,597,776 70,913,011 10,600,803 COP 2014 114,349,714 2013 Costs and expenses: Colvatel S.A. E.S.P. Colvatel S.A. E.S.P. Colvatel S.A. E.S.P. Colvatel S.A. E.S.P. Contact Center Américas S.A. Skynet de Colombia S.A. E.S.P. Colombia Móvil S.A. E.S.P. Colombia Móvil S.A. E.S.P. Technical operational maintenance (point to multipoint platform) Commissions, fees and public telephone management services. Infrastructure leasing. Other Costs Outsourcing service Leasing, links and channels. Access charges. PCS Communication Service. COP 47,924,358 COP 586,197 78,724 801,896 101,287,834 536,248 87,320 895,548 95,550,940 6,311,629 - 910,377 530,652 - Total costs and expenses 156,990,638 Net effect on results 28,319,342 COP 94,392,862 126,830,427 COP 12,480,713 In 2014 and 2013, there were no events between Management and Board Members, or between Management and legal persons, in which the Board Members are in turn legal representatives or shareholders with a share greater than or equal to 10% of the following types of transactions: - 26 - a) Loans without interest or consideration, or services at no charge. b) Loans involving for the borrower an obligation that does not correspond to the essence or nature of the mutual agreement. c) Transactions whose characteristics differ from those carried out with third parties. 9. INVENTORY, NET Items in stores (1) Less - Provision for obsolescence COP 57,753,988 (286,451) COP 11,341,348 (327,973) COP 57,467,537 COP 11,013,375 (1) This includes mainly: (a) Mobile terminals for COP 32,568,770 acquired for sale to the users of the new 4G service offered by the Company since October 2014. (See Note 2 (b)). (b) TV decoders for COP 6,165,509 for the IPTV service offered by the Company since January 2014 as part of the N-Play Project (See Note 2 (c)). Movements in the allowance for inventory are presented below: 2014 2013 Opening balance Provision - debits to statement of income Recovery of the allowance Provision for merger - Ingelcom COP 327,973 75,045 (116,567) - COP 127,212 192,900 7,861 Final balance COP 286,451 COP 327,973 10. PLANT AND EQUIPMENT PROPERTY, NET Item Land Assets under construction (1) Movable property in storage Subtotal non-depreciable assets Adjusted historical cost COP 9,226,683 451,168,153 15,284,786 475,679,622 As at December 31, 2014 Accrued depreciation Allowance $- - $- - Net Appraisal Valuation (See Note 13) - COP 9,226,683 451,168,153 15,284,786 COP 190,391,267 - COP 181,164,584 - - 475,679,622 190,391,267 181,164,584 Plants and networks (2) Furniture and appliances Buildings Vehicles Communication equipment, computers and other 4,184,433,452 45,801,018 170,267,686 30,139,952 2,982,476,415 27,051,448 43,312,577 26,787,659 3,253,398 184,520 22,772 1,198,703,639 18,565,050 126,955,109 3,329,521 1,466,363,732 18,640,900 198,350,722 8,424,093 264,406,695 75,850 71,395,613 5,094,572 166,587,228 142,822,238 288,421 23,476,569 23,996,973 520,404 Subtotal depreciable assets 4,597,229,336 3,222,450,337 3,749,111 1,371,029,888 1,715,776,420 341,493,134 COP1,846,709,510 COP 1,906,167,687 COP 522,657,718 COP5,072,908,958 COP3,222,450,337 COP3,749,111 Total - 27 - Item Land Adjusted historical cost COP Constructions in progress Movable property in storage 9,286,644 307,770,530 11,838,175 Subtotal non-depreciable assets 328,895,349 Plants and networks Furniture and appliances Buildings Vehicles Communication equipment, computers and other $- $- Net Appraisal Valuation (See Note 13) - - COP 9,286,644 307,770,530 11,838,175 COP 181,038,390 - - - 328,895,349 181,038,390 171,751,746 COP 171,751,746 - 3,896,704,049 35,404,022 183,829,605 30,258,372 2,698,549,627 25,653,760 44,206,143 25,574,071 2,793,357 138,297 24,294 1,195,361,065 9,611,965 139,623,462 4,660,007 1,422,799,367 9,724,669 211,142,567 9,658,191 227,438,302 112,704 71,519,105 4,998,184 159,774,014 134,501,952 454,473 24,817,589 26,827,246 2,009,657 2,928,485,553 3,410,421 1,374,074,088 1,680,152,040 306,077,952 Subtotal depreciable assets Total As at December 31, 2013 Accrued depreciation Allowance COP4,634,865,411 COP2,928,485,553 COP3,410,421 COP1,702,969,437 COP1,861,190,430 COP 477,829,698 (1) As at December 31, 2014, the increase corresponds to the investment made by the Company in the execution of the N-Play project with the purpose of implementing a triple-play high-speed broadband, TV and IP Voice offering on fiber optic (See Note 2 (c)). (2) This is the provision for the slow activity of the spare parts that are part of plants and networks. The cost and expense for total depreciation recorded in the statement of income as at December 31, 2014 was COP 296,595,786 (2013 - COP 296,646,496). There are no restrictions or encumbrances on property, plant and equipment. 11. OTHER ASSETS 2014 Deferred income tax debit (1) Studies and projects (2) Assets held by third parties Works and improvements on third party property Assets acquired by leasing (3) Prepaid Expenses (4) Material goods and services Development expenses (5) Pension liability transfer (6) Commercial trust – company equity Equity tax Miscellaneous COP 121,235,922 52,859,744 28,651,448 8,095,641 1,928,416 14,082,790 10,735,485 7,776,405 189,527,410 329,840 2,492,937 2013 COP 101,822,633 68,521,583 28,469,693 5,978,999 9,421,137 5,151,795 19,449,474 8,312,195 361,903,557 280,643 28,188,826 617,571 Less - Accumulated amortization 437,716,038 (29,307,335) 638,118,106 (36,509,106) Less - current portion 408,408,703 (11,838,857) 601,609,000 (2,565,234) COP - 28 - 396,569,846 COP 599,043,766 2014 2013 (1) This is the deferred tax resulting from the temporary differences as follows: Bad debts allowance Other provisions Adjustments for Inflation to Fixed Assets COP 67,332,840 53,903,082 - COP 25,907,557 75,915,076 COP 121,235,922 COP 101,822,633 This variation is because the deferred tax for the temporary differences up to December 31, 2014 between the accounting balances and the figures on the tax returns were determined at the rate of 25% for income tax and 9% for the CREE tax. For temporary differences occurring in 2013, the Company estimated the deferred income tax only at the rate of 25% because it considered the Income Tax for Equality (CREE) was a new tax, in accordance with the Company's technically and legally grounded interpretation based on examination by its external advisors. (See Note 3 (q) and Note 17). (2) These are the charges for the updating of information systems and processes, mainly the leasing of the electrical infrastructure and satellite network for: Broadband Project Somos Project COP 667,122 14,659,850 COP 2014 10,529,958 24,002,006 2013 11,414,946 4,385,135 4,898,838 16,833,853 IPTV (Internet Protocol Television) Project (Note 2 (c)) LTE - mobile services project (Note 2 (b)) Information Technology Project Customer Service Project Other Projects (a) COP 52,859,744 11,280,920 7,654,543 5,556,708 3,462,879 6,034,569 COP 68,521,583 (a) Consists mainly of the Revchain and Billing, Change Management SAP, FTTH N-Play and Company Architecture projects. (3) The assets acquired through finance lease agreements are: As at December 31, 2014 Details Obligation No. Leasing Bancoldex 101-11906 Purchase % Option to Purchase 1% 1,928,416 Destination EAR Maxiplus remote hubs and license Value COP Nature Financing Amortization 1,928,416 COP 1,494,876 Term Outstanding Payments 60 months Outstanding Balance COP 433,540 1 Balance Payable COP 58,040 As at December 31, 2013 Details Banco de Obligation No. 180-48167 Destination Installation of Cisco Internet and - 29 - Nature Term Outstanding Payments Financing 60 months - As at December 31, 2014 Details Occidente Obligation No. Leasing Bancoldex 101-11906 Purchase % Option to Purchase 5% 1% 285,490 35,804 Total Destination data equipment at the Banco Agrario office - IP Telephony Project Radio link equipment to be installed nationwide Value COP COP Nature Term 60 months Financing COP 9,421,137 COP 14 Outstanding Balance Amortization 5,709,793 3,711,344 Outstanding Payments 5,709,793 2,329,620 $- 8,039,413 COP Balance Payable $- 1,381,724 503,480 1,381,724 COP 503,480 (4) As at December 31, 2014 and 2013, this is made up mainly of prepaid insurance expenses COP 11,381,554 (COP 1,910,238), leases COP 2,586,560 (COP 3,149,393) and subscriptions, memberships and maintenance COP 114,676 (COP 92,164), respectively. (5) As at December 31, 2014 and 2013, this includes mainly the premium of the legal stability contract for COP 10,727,790, which corresponds to 0.5% of the value of the investments made in an unproductive period and 1% during the operating stage. It is amortized over a 10-year period using the straight line method. The net balance as at December 2014 is COP 7,768,962 (2013 - COP 8,304,753) (See Note 17). (6) As described in Note 2 to the financial statements, the Company carried out the total pension liability transfer in 2013. The agreement signed with the Insurance Company considered the payment of a premium for 11.66% for the transfer of the risk involved in the pension liability transfer. As at December 31, 2014 and 2013, this asset included: 2014 Premium on the transferred pension liability Balance to adjust the pension liability to reflect 100% of the transfer calculation value COP 71,794,302 2013 COP 109,157,477 Balance paid during the transfer adjustment period Transfer of new retirees 218,314,954 8,072,484 503,147 COP 189,527,410 143,588,603 COP 361,903,557 As mentioned in paragraph 7 of the Auditor's review, in 2014, sustaining its actions on Decree 4565 / 2010, the Company decided to adjust the amortization period, reducing it from 16 to 2 years, which was applied on the balance to amortize as at December 31, 2013. This change generated a higher amortization expense of COP 166,437,249 (See Note 2 (a), Note 3 (a) and Note 19). The amortization charged to the statement of income as at December 31, 2014 and 2013 for the pension transfer was COP 189,927,410 and COP 8,502,733. The total amortization recorded in statement of income as at December 31, 2014 and 2013, without including the amortization of the pension transfer was COP 56,430,455 and COP 78,531,650, respectively. 12. INTANGIBLES, NET Goodwill (1) COP - 30 - 26,283,671 COP 3,986,091 Operating license for long distance service Local and corporate software Rights of use and easement (2) Long distance software Local and corporate licenses (3) Internet and data software 4G operating license (4) Internet and data license (3) Brands Less - Accumulated amortization 293,248,991 249,211,332 225,154,484 45,028,992 71,845,012 26,605,725 144,723,505 43,475,369 7,808 293,248,991 277,504,576 224,567,702 45,101,792 38,221,606 33,137,156 75,914,367 6,455,204 7,808 1,125,584,889 (716,290,995) 998,145,293 (702,264,769) COP 409,293,894 COP 295,880,524 (1) This variation is due to the acquisition of 75% of the shares in Skynet de Colombia S.A. E.S.P. for COP 30,000,000 thus generating goodwill for COP 22,297,580, which will be amortized in 5 years (Note 2 (e)). (2) This includes the rights to use submarine cable and fiber optics for COP 224,281,878 (2013 - COP 223,695,096), which will be amortized in periods ranging from 2 to 15 years. (3) This includes: (a) License to use Oracle for COP 30,432,438, which is a database for the value chain, SRM, IT resource optimization projects, the service management, N-Play and LTE projects, which are amortized in a 3-year period, except for N-Play and LTE, which will be amortized in 15 years. (b) Tibco licenses for COP 4,980,150. This is a connecting bus used to connect all the platforms of the Revchain system, mainly for customer service, which will be amortized in 15 years. (c) Other licenses and hardware for COP 10,938,269, which are used for the IT optimization project, to be amortized in 3 years. (d) Software Assurance for COP 4.206.789. This is a customer service tool that supports the corporate data center project, to be amortized in 3 years. (4) According to Resolution No. 2623 / July 26, 2013 of the Ministry of Information Technologies and Telecommunications, the permit to use the frequency bands of the radio spectrum was awarded to the Colombia Móvil (TIGO) - ETB Joint Venture for the operation and provision of mobile ground services. The value of the radio spectrum allocated is COP 195,749,940. The duration of the permit will be for ten years. The Ministry established the first payment for COP 151,828,735 between ETB and TIGO within 30 days following the execution date of the Resolution and the rest will be paid the date on which the spectrum segments are released for use. As at December 31, 2014, ETB has paid COP 97,429,003 distributed as follows: COP 21,514,636 in 2014 to release the spectrum segments and COP 75,914,367 in 2013 corresponding to 50% of the first payment established by the Ministry. (See Note 2 (b)). In addition, it includes other items associated with the intangible asset, mainly i) the design, supply, installation, configuration, operation and stabilization of the equipment (hardware and software) of an Internet traffic inspection platform based on DPI technology COP 2,048,681, ii) COP 5,305,548 for the supply of the Core LTE solution, iv) specialized consulting for the startup of the LTE mobile business for guidance for the deployment of the network and the commissioning of the business for COP 29,142,056 and v) evolving maintenance of the Tibco system for COP 6,159,434. The total amortization charged to the statement of income as at December 31, 2014 was COP 46,449,772 (2013 - COP 33,528,718). - 31 - 13. VALUATIONS 2014 Property, plant and telecommunications equipment (1) Property, plant and equipment other than telecommunications (1) COP Long-term investments (See Note 6) COP 264,406,695 2013 COP 227,438,302 258,251,023 250,391,396 522,657,718 26,328,337 477,829,698 22,185,548 548,986,055 COP 500,015,246 (1) The main indicators that affected the increase on the value of the property, plant and telecommunications equipment appraisal as at December 2014 were: (a) The official exchange rate, which varied 19% compared to the previous year. In 2014, the official exchange rate of COP 2,392.46 was applied (2013 - COP 1,926.83). (b) The CPI, which went from 1.94% in 2013 to 3.66% in 2014. (c) The activations carried out in 2014 with a percentage of approximately 8.5% of the total value of the assets. The valuation of fixed assets correspond to: 2014 Land (a) Buildings (a) Plants and networks (b) Furniture and appliances (b) Communication equipment, computers and other (b) Vehicles (c) 2013 COP 181,164,584 71,395,613 264,406,695 75,850 520,404 5,094,572 COP 171,751,746 71,519,105 227,438,302 112,704 2,009,657 4,998,184 COP 522,657,718 COP 477,829,698 (a) The land and buildings were appraised in 2013 by Lonja Inmobiliaria, a Colombian Society of Architects firm. The final report was received on February 28, 2014, on which date the respective adjustment was recorded. (b) The plants and networks, communications equipment, computers and furniture and appliances were appraised in 2014 by Carlos Eduardo Hernandez Ortiz, listed in the National Appraisers Registry Asesorías, Consultorías y Soluciones Integrales S.A.S. (ACSI). In 2013, the Company also recorded an appraisal for this item, which was carried out by Guillermo Alejandro Ramirez Sanchez, listed in the National Appraisers Registry - Asesorías, Consultorías y Soluciones Integrales S.A.S. (ACSI). (c) The vehicles were appraised in December 2013 by Confianza Ingenieros Consultores Ltda. The final report was submitted in the first quarter of the year, at which time the final appraisal was reported. At the end of the year 2013, the Company recorded the appraisal with the information of Fasecolda up to that date. In 2014, the appraisals had a net increase of COP 48,970,809 (2013 - COP 307,275,078, distributed as follows: Long-term investments COP - 32 - 4,142,789 COP 6,112,079 Fixed assets 44,828,020 Total activity COP 48,970,809 301,162,999 COP 307,275,078 14. BONDS AND SECURITIES ISSUED By means of Resolution No. 4164 / December 28, 2012, the Financial Superintendence authorized the Company to make the public offering of ordinary bonds. On January 17, 2013, the bond deposits were made on the international capital market for COP 530,180,000 denominated in Colombian Pesos, payable in US Dollars over a 10-year period. The conditions for the bond issue were as follows: Nominal value Total amount authorized Total amount issued COP 20,000 each COP 530,180,000 COP 530,180,000 equivalent to USD 299,882,350.28 with the issue liquidation rate (TRM 1,767.96) Issue date: January 17, 2013 Maturity date: January 17, 2023 Nominal interest rate: 7.00% Base interest rate Annually Date payment of interest January 17 each year, starting on January 17, 2014 Form of payment Colombian Pesos payable in US Dollars at the TRM on the date of payment COP 530,180,000 As at December 31, 2014 and 2013, the interest accrued is COP 37,112,600 and 35,360,061, respectively. The funds from the issuance are used to finance investment projects, such as the development and implementation of the N-Play Triple-play Services program (See Note 2 (c)). 15. PROVIDERS 2014 Domestic Providers Interconnection with international operators Foreign Providers 2013 COP 126,098,950 17,747,005 69,828,289 COP 173,013,961 19,309,003 60,834,034 COP 213,674,244 COP 253,156,998 COP 67,660,827 55,384,791 7,246,452 9,961,529 534,622 9,736,394 35,360,061 COP 64,129,093 71,223,364 7,626,216 10,704,105 50,301 9,736,741 36,670,306 16. ACCOUNTS PAYABLE Commissions, fees and services Dividends payable (See Note 23) Payroll creditors Leases Insurance Contributions to the Telecommunications Fund Interest payable - 33 - Third Party Deposits Other accounts payable 58,644,977 2,796,329 35,783,520 3,692,867 COP 247,325,982 COP 239,616,513 COP 16,296,874 11,755,614 3,006,694 11,367 9,287,535 3,283,239 COP 14,156,674 28,188,826 12,362,019 772,373 4,491 8,835,458 3,719,910 COP 43,641,323 COP 68,039,751 17. TAXES, ENCUMBRANCES, AND FEES Sales Tax Equity tax Withholding tax payable CREE self-withholdings Excise Tax Income tax for equality (CREE) Industry and Commerce Tax The tax provisions applicable to the Company stipulate that: Income tax and CREE tax The rate applicable to income tax for the years 2014 and 2013 is 25%, and the income tax for equality (CREE) is 9%, respectively. According to Article 73 of Law 1341 / 2009, companies providing of basic public switched telephone services, local mobile telephone services in the rural sector and long distance services are not subject to the presumed minimum income system. Industry and commerce tax returns for Bogotá D.C. on withholding and sales tax for the years 2012 to 2014 and the tax returns for the years 2012 and 2013 are subject to review by the tax authorities. Income Tax 2008 – The Company requested compensation for the income tax credit for the 2008 tax year for COP 14,395,977. However, the DIAN turned down the request and handed down a Resolution by means of which it imposed a fine for inappropriate compensation. The balance payable determined by the Tax Authority, along with penalties and interests, amounts to a total of COP 40,521,154 corresponding to the tax credit declared. This case is currently under discussion with the Cundinamarca Administrative Court (See Note 21). Below is a summary of the main reconciliation entries for: a) Difference between accounting income and taxable liquid income 2014 Earnings before income tax Plus: COP - 34 - 227,522,759 2013 COP 119,369,269 Expense for non-deductible provisions Expenditure from previous years Reversion excess tax depreciation over the accounting depreciation Monetary tax adjustment Less: Non-deductible tax expense Other non-taxable income and categories Deduction for the acquisition of real productive assets Revenue from the sale of Colombia Móvil shares Revenue from previous years 226,267,089 90,057,154 53,445,604 24,994,398 131,414,552 - 68,814,357 (8,339,795) 13,308,203 50,878,466 63,644,684 14,408,436 240,000,000 371,074,885 - 180,000,000 230,713 25% 25% (152,295,964) (58,572,108) Taxable liquid income Tax rate Income Tax Deferred tax, net $- Income tax provision, net $- b) Deferred taxes As mentioned in Paragraph 6 of the Auditor's review, as at December 31, 2014 and 2013, the Company calculated and recorded its deferred income tax based on the temporary differences between the accounting balances and the figures on its tax returns at the rate of 25%. The Company did not record the deferred income tax at the rate of 9% corresponding to the CREE tax, because it assumed the book value of the fixed assets as a balance to be depreciated in the CREE tax, considering that it is a new tax, so there are no temporary differences between CREE and accounting values. The deferred tax debit was recorded making provisions for disbursements expected to be paid in the future For the deferred tax credit, the Company applied accelerated depreciation to the income tax (after signing the legal stability contract). The effect was a lower income tax payment value for the periods in which it was used, generating a deferred income tax payable. The Company is currently reversing the effect of the higher depreciation value applied for tax purposes in previous years. The activity of deferred income tax is listed in detail below: 2014 Deferred income tax debit (Note 11) Deferred income tax credit (Note 22) (19,413,289) (132,882,675) - 35 - 2013 39,121,656 (97,693,764) Deferred tax, net COP 152,295,964 COP 58,572,108 c) Difference between accounting equity and tax equity - Accounting equity Accounts receivable Shares and contributions Inventory Fixed assets Other assets Valuations Liabilities COP 3,429,484,186 COP 3,097,741,165 269,331,359 210,895,555 23,123,978 411,639,709 286,451 327,973 (311,450,225) (483,360,733) (383,939,277) (423,512,513) (548,986,055) (500,015,246) 354,408,531 409,061,446 Tax equity COP 2,832,258,948 COP 2,722,777,356 Below is a summary of the main reconciliation entries for income tax for equality (CREE): a) Differences between accounting income and income tax for equality (CREE) 2014 Earnings before income tax Plus: Expense for non-deductible provisions Expenditure from previous years Less: Non-deductible tax expense Other non-taxable income and categories Excess tax depreciation over the accounting depreciation Revenue from the sale of Colombia Móvil shares Revenue from previous years OP Taxable liquid income Tax rate Income tax for equality (CREE) COP 2013 227,522,759OP 119,369,269 226,267,089 90,057,154 53,445,604 24,994,398 18,698,819 50,878,466 63,644,684 14,408,436 371,074,885 - 21,486,682 230,713 103,194,832 9% 98,038,756 9% 9,287,535 COP 8,823,488 b) Differences between accounting equity and tax equity of the income tax for equality (CREE): Accounting equity Accounts receivable COP3,429,484,186 269,331,359 - 36 - COP 3,097,741,165 210,895,555 Shares and contributions Inventory Other assets Valuations Liabilities Tax equity 23,123,978 286,451 (8,940,232) (548,986,055) 354,408,531 411,639,709 327,973 21,486,682 (500,015,246) 409,061,446 COP3,518,708,218 COP 3,651,137,284 Legal Stability Contract - The Legal Stability Committee, made up of the Ministry of Commerce, Industry and Tourism, Communications, Finance and the National Planning Department, authorized signing the legal stability contract for a term of 20 years, which protects the Company's activity in the event of adverse changes to the tax regime. Based on the provisions of Article 5 of Law 963 / 2005, which indicates that the investors who sign the legal stability contracts must pay, in favor of the State, a premium rated as 0.5% of the value of the investments made in an unproductive period and 1% during the operating stage, the Company paid COP 10,727,790, which was recorded as a deferred charge "development expenses" (Note 11). The following are the main tax benefits obtained by signing the contract: Equity tax Article 292-1 Tax Code: For the year 2011, Law 1370 / 2009 created the equity tax. Article 293-1 and 294-1 of the Tax Code. This tax applies when net worth is greater than or equal to COP 3 billion as at January 1, 2011. The tax is calculated for net worth greater than or equal to this base. Article 296-1. Tax Code: The rate of the equity tax referred to in Article 292-1 is 4.8% on net worth greater than or equal to COP 5 billion. Income - Special Deduction on Real Productive Fixed Assets (AFRP for the Spanish original) Article 158-3 Tax Code: Income tax payers may deduct 40% for investments in real productive fixed assets - Law 1111 / 2006. In the contract validity period, the Company may request the special deduction of 40% for investments in AFRP (Real Productive Fixed Assets), which represents a deduction greater than 10% compared to the regulations in force for 2010 and 30% for the following years, given the elimination of said deduction as of the 2011 tax year by Law 1430 / 2010. Income - Deduction Payments Abroad Article 31 Decree 836 / 1991 - Telecommunication Costs: The limitation discussed in Article 122 of the Tax Code (15% limitation on the taxpayer's net income) will not be applicable on the costs incurred for the provision of telecommunications services that generate taxable income in Colombia, even if no taxes are withheld on said costs because there is no legal obligation to do so. The Company can take 100% of the costs incurred abroad to provide taxable services with income in Colombia as a deductible in the determination of its net income. Income tax rate Article 240 - Tax Code: The single rate on the taxable income is similar for corporations, limited liability companies and other entities, in accordance with the relevant regulations, including foreign companies and other entities of any kind. Said rate was 33% up to 2012. - 37 - Equity Tax – In 2010, the DIAN issued a review of the Equity Tax - Law 1370 / 2009 - indicating that it also applies for taxpayers reporting under the special tax stability arrangement, and, as a result, shall be recognized in the terms set forth. The Company has executed a formal legal stability agreement since 2009, which includes the Equity Tax. However, in compliance with the DIAN's statement, the Company determined and recorded the corresponding liability for the 2011 - 2014 period for COP 112,755,302, the expense for the corresponding tax was paid and recorded, pursuant to the provisions of the accounting legislation in force. However, based on the analysis of the legal stability contract in force, the Company has submitted a request for a refund of the payment made to the DIAN of the 8 tax payments for the total amount and it is currently taking the relevant steps for the recovery thereof. Tax Reform – The following is a summary of some of the amendments to the Colombian Tax System for the years 2015 going forward, introduced by Law 1739 / December 23, 2014: Wealth Tax – The wealth tax was created as of January 1, 2015. This tax is generated by the possession of wealth (gross equity less current debts) in an amount greater than or equal to COP 1 billion as at January 1, 2015. The legal obligation is incurred on January 1, 2015, January 1, 2016 and January 1, 2017. The taxable base of the wealth tax is the value of gross equity less current debts held on January 1, 2015, 2016 and 2017. The marginal rate corresponds to: Taxable Base Ranges 2015 2016 2017 From COP 0 to COP 2,000,000 From COP 2,000,000 to COP 3,000,000 From COP 3,000,000 to COP 5,000,000 From COP 5,000,000 forward 0.20% 0.35% 0.75% 1.15% 0.15% 0.25% 0.50% 1.00% 0.05% 0.10% 0.20% 0.40% Income tax for equality (CREE) and its surcharge fees – As of the 2016 tax period, and temporarily for 2015, the CREE tax will be 9%. Tax losses incurred by taxpayers of the CREE tax as of 2015 may be offset in this tax. In addition, the excess of the minimum base for the CREE tax can also be offset as of 2015 within the following 5 years fiscally adjusted. In no case can the CREE tax or its surcharge fees be offset with credits for other taxes liquidated in the tax returns. Similarly, the tax credits liquidated on the CREE tax returns, and the surcharge cannot be offset with debts for other taxes, advances, withholding taxes, interest and sanctions. The CREE surcharge has been created for the 2015, 2016, 2017 and 2018 periods. The event generating the surcharge applies to taxpayers whose annual CREE tax return indicates a profit greater than or equal to COP 800 million. The marginal rate applicable to establish the surcharge will be: Surcharge Taxable Base - COP 800 million 2015 5% 2016 6% 2017 8% 2018 9% The surcharge value must be paid 100% in advance. Said value is calculated based on the CREE tax taxable base used by the when settling said tax in the previous tax year. The CREE tax surcharge advance payment shall be made in two annual installments as established by the the legal regulations. - 38 - Income tax and related taxes – Residence is clarified for tax purposes and the following rates have been established for the income obtained by foreign companies and entities, that are not attributable to a branch office or permanent establishment: Year 2015 2016 2017 2018 39% 40% 42% 43% The application of the tax credit for taxes paid abroad has been modified, distributing it between the income tax and the CREE tax in a proportion of 64% and 36%, respectively. Modifications were established for the tax incentives, consisting of i) Deduction for investments in research, technological development or innovation, ii) Tax discount on income tax for VAT paid to acquire capital assets and heavy machinery. In addition, the exchange rate difference for foreign investments can be handled without affecting taxes up to the time of disposal of the respective investment. In addition, the effect of the limitation on deductions for payments in cash has been postponed for the year 2019 and following. Other provisions - Again, mechanisms for reconciliation, transaction and special conditions of payment are established to bring an end to the processes or discussions between taxpayers and the authorities, related to tax issues, payments of the social security system, customs and foreign exchange. 18. LABOR OBLIGATIONS 2014 Consolidated Severance Pay Bonuses Vacations Other benefits - interest COP 18,051,275 7,637,730 3,556,793 10,892,692 2013 COP 40,138,490 (26,919,957) Less - current portion COP 13,218,533 17,068,417 9,419,047 5,654,154 5,474,842 37,616,460 (25,460,950) COP 12,155,510 Long term obligations correspond to the severance fees payable to the persons covered by the arrangement prior to Law 50 / 1990. 19. RETIREMENT PENSIONS AND BENEFITS Actuarial calculation of pensioners not transferred COP 2,280,125 $- The expense recorded in the statement of income for retirement pensions is broken down as follows: - 39 - Pension transfer amortization (Note 11 (6)) Amortization of non-transferred retirees Monthly pension payments (1) Payments to the ISS for the Company's retirees that have pension shared with the ISS Pension Payments Recovery of actuarial calculation for pensions Total expense for retirement pensions and related benefits COP 189,527,410 2,280,125 882,453 COP 37,111,554 7,327,244 - COP 237,128,786 8,502,733 81,913,395 10,470,378 7,701,372 (17,538,106) COP 91,049,772 (1) As at December 31, 2014, this is the monthly payment of pensions for 7 new retirees that have not been transferred. In 2013, ETB made monthly pension payments up to August 31, 2013 because as of September 1, 2013 the pension transfer took effect (See Note 2 (a)). 20. ESTIMATED LIABILITIES 2014 Provision for contingencies (Note 21) Contributions to the Communications Fund Estimated liabilities Pension payment provision (1) COP 92,888,051 7,919,571 40,554,376 118,216,846 2013 COP 259,578,844 (73,930,240) Less - current portion COP 185,648,604 34,141,916 7,733,910 20,088,605 90,577,781 152,542,212 (53,089,688) COP 99,452,524 (1) Colpensions shareability - In 2014, the Company obtained an actuarial study of the future pension payments to be made to Colpensiones in relation to 691 of the Company's retirees to be shared with said entity. The value of the actuarial study for the pension payments of 2014 was COP 32,028,801 (2013 - COP 37,381,368) and the actuarial calculation for health care payments for 3,799 transferred retirees amounts to COP 86,188,045 (2013 COP 66,767,913). The balance will be amortized by applying the percentage calculated based on decree 4565 / 2010 applicable to retirement pensions. 21. CONTINGENCIES As at December 31, 2014 and 2013, the value of claims for lawsuits are as follows: Claims by type of proceedings: Administrative Civil Labor COP - 40 - 454,242,732 8,548,985 327,415,006 COP 299,593,000 8,528,985 330,795,756 Other Contingent Liabilities Tax Obligations 10,528,099 72,036,167 COP 872,770,989 10,528,099 72,036,167 COP 721,482,007 Based on the assessment of the likelihood of actual loss according to the information provided by the legal advisors, Company Management has provisioned COP 92,888,051 and CO 34,141,916 as at December 31, 2014 and 2013, respectively, to cover likely losses from these contingencies (See Note 20): Provision by type of proceedings: Administrative (1) Civil Labor Other Contingent Liabilities COP 80,421,867 3,315,652 9,150,201 331 COP 19,497,784 3,195,651 11,448,150 331 COP 92,888,051 COP 34,141,916 As mentioned in paragraph 5 of the Auditor's review, management, with the support of its internal and external legal advisors, estimates that the result of the lawsuits corresponding to the part that has not been provisioned as at December 31, 2014 and 2013 for COP 779,882,939 and COP 687,340,091, respectively (See Note 28) will be ruled in favor of the interests of the Company and will not cause significant liabilities to be recorded or, if any, they will not affect its financial position significantly: Lawsuit not provisioned by type of proceedings Administrative Civil Labor Other Contingent Liabilities Tax Obligations COP 373,820,865 5,233,333 318,264,805 10,527,768 72,036,167 COP 280,095,216 5,333,333 319,347,606 10,527,768 72,036,167 COP 779,882,938 COP 687,340,091 (1) Telecom Contingency – As at December 31, 2014, in accordance with the analysis by the internal legal advisors, the Company has decided to protect itself against the risk of the initial ruling being revoked or amended and, for the sake of good judgment, changed the value of the contingency to COP 62,380,339. At present, the proceedings are in the Council of State for the resolution of the appeals filed by the parties. 22. OTHER LIABILITIES Deferred income tax credit (1) Collections for third parties Contributions to the Communications Fund Income received in advance Deferred income domestic operators Liabilities COP - 41 - 173,847,376 56,861,605 21,897,151 57,449,100 3,314,902 1,781,242 COP 306,730,051 58,845,127 21,897,151 80,436,275 3,279,777 1,682,174 Pension shares Prepaid cards Other deferred income Less - current portion COP 2,037,185 606,471 4,122,281 2,282,749 42,680 5,011,988 321,917,313 (122,609,213) 480,207,972 (147,516,522) 199,308,100 COP 332,691,450 (1) This is the deferred tax resulting from the temporary differences as follows: Tax depreciation over accounting depreciation Provision for retirement pensions Amortization of intangibles Pension transfer amortization COP 77,862,556 COP 165,935,645 57,891,323 51,840,773 31,062,310 COP 306,730,051 52,969,282 43,015,538 COP 173,847,376 The main variation corresponds to the fact that as at December 31, 2014, the Company reimbursed the DIAN for the excess of the tax depreciation over the accounting depreciation in the amount of COP 88,073,089 (See Note 3 (q) and Note 17). 23. SHAREHOLDER EQUITY Share Capital - As at December 31, 2014 and 2013, the authorized capital amounts to COP 2,001,776 corresponding to 3,693,276,163 common shares with a nominal value of COP 0.5420054199290271 per share. The subscribed and paid-in capital is COP 1,924,419 represented by 3,550,553,412 shares. Number of Shares Shareholders Capital District Universidad Distrital Francisco José de Caldas Municipality of Villavicencio Meta Governor's Office Empresa de Acueducto y Alcantarillado de Bogotá S.A. E.S.P. Severance and Pension Benefit Fund Instituto de Desarrollo Urbano de Bogotá Lotería de Bogotá Total public common shares Private capital (common shares outstanding) Total shares outstanding - 42 - Share (%) 3,074,421,943 62,743,304 757,660 615,312 86.58994% 1.76714% 0.02134% 0.01733% 1,373 0.00004% 1,373 1,373 1,373 0.00004% 0.00004% 0.00004% 3,138,543,711 88.39591% 412,009,701 11.60409% 3,550,553,412 100.00000% Dividends declared - At the General Meeting of Shareholders held on March 26, 2014 (according to Minutes No. 37), dividends were declared for COP 61,708,618 at the rate of COP 17.38 for each of the shares outstanding, payable on June 27, 2014 for minority shareholders and March 13, 2015 for majority shareholders. At the General Meeting of Shareholders held on March 19, 2013 (according to Minutes No. 36) dividends were declared for COP 80,000,000 at the rate of COP 22.53 per share in circulation The distribution and allocation of profits was as follows: 2014 Increase reserve excess depreciation Increase reserve future fiscal years Distribution of dividends 2013 COP 7,700,000 99,709,271 61,708,618 COP 78,909,508 103,920,664 80,000,000 COP 169,117,889 COP 262,830,172 Movements for dividends declared and payable follows: 2013 2014 Opening balance Plus - Dividends declared Less - Dividends paid COP 71,223,364 61,708,618 (77,547,191) COP 1,961,239 80,000,000 (10,737,875) Dividends payable (Note 16) COP 55,384,791 COP 71,223,364 Share Premium - The balance is comprised of the difference between the nominal value of each share and its placement price and the value of the premium for the merger with ETELL S.A. E.S.P. of COP 410,276 corresponding to the difference between the nominal value and the value paid for the share in order to maintain the nominal value of the absorbing company. The value of this account cannot be distributed as dividends. Legal Reserve - In accordance with Colombian Law, 10% of the net profit of each fiscal year must be allocated as a legal reserve until the balance of the reserve is equivalent to at least 50% of the subscribed capital. The mandatory legal reserve cannot be distributed prior to the Company's liquidation, but it can be used to absorb net annual losses. Excess depreciation reserve - According to the tax regulations in force, in order to implement the deduction of accelerated depreciation, the Company must allocate from its profit 70% of the difference between the higher value of tax depreciation over accounting depreciation in order to comply with the provisions of Article 130 of the Tax Code. In subsequent periods, when the tax depreciation is less than the accounting depreciation, 70% of the difference can be released from the tax reserve as untaxed income. Reserve for the restoring, expanding and replacing systems - This reserve was established with the aim of benefiting from the tax exemption for residential public utility companies, according to Article 211 of the Tax Code. - 43 - Reserve for future fiscal years - Created by decision of the General Meeting of Shareholders. There are no restrictions on this reserve and it is at the disposal of the Meeting of Shareholders. Reserve to repurchase shares This reserve was created by decision of the General Meeting of Shareholders held in 2003. The reserve was constituted in order to repurchase shares from the Company's minority shareholders, provided they met certain conditions set forth in the majority shareholder agreement. Equity valuation - Equity valuation cannot be distributed as profit, but it can be capitalized. 24. OPERATING INCOME 2014 Basic charge Variable local and Internet charge Variable long distance charge Access charges COP Telematic and value-added service Fixed charge Mobile voice and data service Connection charge Public telephones Reconnection and reinstatement Communication service Sundries (1) 420,850,999 108,759,269 57,424,220 58,689,352 2014 2013 COP 473,928,241 127,638,324 64,665,542 58,625,742 2013 175,192,406 409,071,820 879,188 1,365,322 2,261,221 4,836,470 124,987,495 118,410,330 416,299,404 1,014,010 76,077 2,480,219 98,721,606 COP 1,364,317,762 COP 1,361,859,495 COP 65,880,475 16,470,057 3,216,332 1,896,594 788,740 890,454 35,863,703 (18,860) COP 46,656,030 15,665,305 3,930,757 2,213,069 1,207,798 112,500 1,570,102 27,485,081 (119,036) COP 124,987,495 COP 98,721,606 (1) Miscellaneous revenue is made up of: Additional telecommunications services Traffic lights and others Billing implementation services and operators Supplementary services Special services Agreements and others Links Sale of commodities (a) Discount on sales (a) As at December 31, 2014, they are: a) sale of mobile devices and SIM cards for COP 5,264,435 and b) resale of computers, modems, structured cabling and other for COP 30,599,268. 25. COST OF SALES Personnel COP - 44 - 96,524,022 COP 122,662,348 Overhead Depreciation Leases Amortizations Access charges Contributions Maintenance, repairs and materials Insurance Taxes Fees and consulting Public utilities Channels and content Advertising Commodities Orders and contracts for other services (1) 1,625,318 288,010,337 101,286,304 47,150,458 30,223,857 27,617,718 125,224,081 1,603,587 15,751,979 22,413,861 20,862,788 4,329,898 28,174,589 3,319,557 125,717,280 COP 939,835,634 2,745,430 287,407,865 96,795,867 76,987,000 33,521,184 28,696,968 109,891,967 8,879,403 14,716,548 10,219,261 10,677,042 - 13,700,963 - 121,501,887 COP 938,403,733 (1) As at December 31, 2014 and 2013, these are call center expenses for COP 115,120,062 and COP 107,314,572, surveillance for COP 1,879,291 and COP 4,248,570, bill delivery and processing COP 8,717,927 and COP 9,938,745, respectively. 26. OPERATING EXPENSES 2014 Personnel Fees and consulting Maintenance, repairs and materials Public utilities Leases Advertising Communication and transportation Insurance Contributions Taxes Security Outsourcing services Allowance for bad debt Other provisions (1) Provision for contingencies (See Note 21) Depreciation Amortizations Printing and publications Miscellaneous (1) The provisions are listed below: - 45 - 2013 COP 72,656,913 13,357,605 24,723,367 9,925,791 9,641,185 789,104 2,294,634 9,583,099 7,125,269 11,313,861 13,488,292 16,168,587 33,314,117 41,364,385 3,635,657 8,585,449 55,729,770 24,592 4,668,086 COP 62,172,939 13,816,204 20,914,849 15,974,587 7,352,607 67,778 2,409,784 1,568,421 7,810,907 9,656,617 10,420,872 15,922,515 33,280,191 10,646,035 9,782,258 9,238,631 43,576,101 149,592 4,402,653 COP 338,389,763 COP 279,163,541 Investments Telecommunications portfolio Other accounts receivable Inventory Liabilities in process Plants, ducts and tunnels Transportation equipment Furniture, appliances and office equipment Machinery and equipment COP 11,597 36,304,731 1,302,334 75,045 348,116 3,253,398 46,223 22,941 COP 3,984 6,820,984 2,448,182 192,900 154,335 408,586 24,294 138,297 454,473 COP 41,364,385 COP 10,646,035 COP 49,865,236 10,088,685 COP 48,791,995 4,730,288 27. OTHER INCOME AND EXPENSES, NET Non-operating income: Financial Returns (1) Earnings calculated using equity method 2014 Extraordinary income (2) Revenue from exchange difference, net Income from previous years (3) 2013 434,700,223 17,506,218 1,570,719 Non-operating expenses: Financial Extraordinary Expenses from previous years (4) Loss calculated by equity method Community development (ICTs and corporate responsibility) 49,264,902 42,579,207 1,030,599 COP 513,731,081 COP 146,396,991 COP 39,361,195 6,508,047 85,628,709 3,673,950 COP 47,914,078 13,059,823 11,934,575 2,906,433 4,455,262 135,171,901 Total other income and expenses, net COP 378,559,180 80,270,171 COP 66,126,820 (1) In 2014 and 2013, the financial returns correspond mainly to the financial interest generated by bank deposits and accounts receivable yields, among others, for COP 38,673,280 and COP 36,860,892, respectively. (2) In 2014, extraordinary income corresponds mainly to the profit generated from the sale of shares in Colombia Móvil S.A. E.S.P. for COP 345,646,504 (see Note 2 (d)) and recoveries for COP 68,596,434; in 2013, to recoveries for COP 32,018,948 as follows: Recovery of other loan portfolios Provision for investment in Colombia Móvil Recovery loan portfolio provision subsidies and contributions Provision for contingencies - 46 - COP 1,378,185 40,675,172 1,443,668 153,899 4,658,509 14,262,336 3,837,883 Recovery CREE tax provision Allowance for inventory Collection accounting cleanup Other recoveries (a) 40,275 116,567 438,449 21,289,277 COP 68,596,434 316,941 12,004,221 COP 32,018,948 (a) This is mainly made up of the refunds made by Colpensiones for the pensions paid by the Company while said body takes over the pensions pursuant to the Law. (3) It corresponds mainly to COP 1,518,464 for Ingelcom using the equity method. (4) Expenses of previous years consist of: 2014 Previous years wages and salaries Overhead from previous years Taxes, Contributions, and Fees Extraordinary (b) 2013 COP 5,492,375 13,493,422 66,642,912 COP 3,514,373 3,001,927 1,688,722 3,729,553 COP 85,628,709 COP 11,934,575 (a) In 2014, this included mainly the deferred income tax of Colombia Móvil for COP 5,246,411 and COP 28,378 for the updating of the Colvatel equity method. (b) Extraordinary expenses in 2014 include primarily COP 62,359,976 for the provision of the Telecom process contingency due to access charges (See Note 21) and Colombia Móvil investment losses of COP 3,601,584 ( 2013 - COP 3,283,200) calculated using the cost method. 28. MEMORANDUM ACCOUNTS Debtors Taxes Control Contingent rights (1) Collections for third parties Accounting cleanup Portfolio penalties COP Total accounts receivable 420,380,621 1,824,376,775 1,271,058,107 108,079,386 49,062,293 246,846,110 COP 3,919,803,292 - 47 - COP 232,682,911 1,239,763,303 1,270,154,096 106,847,347 49,149,904 229,504,431 COP 3,128,101,992 Creditors Control Contingent liabilities (2) (Note 21) Taxes COP 1,181,727,107 779,882,939 601,808,645 COP 1,493,805,298 687,340,091 601,808,645 Total accounts payable COP 2,563,418,691 COP 2,782,954,034 (1) As at December 31, 2014 and 2013, this includes primarily: i) the case against the SIC for the basic public switched telephone network (PSTN) long distance services market lost and the unexplored market as a result of the high pricing of this service for COP 497,841,121. ii) case against the Ministry of Information Technology and Telecommunications for COP 458,920,000 to declare that the Company could not recover the amount paid for the concession to provide PSTN long distance services granted by the Ministry of Information Technology and Telecommunications. iii) case against Mercury for COP 13,768,447 for monetary losses and damages, iv) lawsuit against Telecom due to breach of contract for COP 17,000,000. v) Lawsuit filed against the Communications Fund for credit balance on contributions prior to the year 2009 for COP 21,897,152. vi) action against the Caja Nacional de Previsión Social for the collection of pension payments in the amount of COP 15,740,724. vii) Lawsuit against Ministry of Information Technology and Telecommunications for the annulment of Resolution 2234 / 2012 and the recognition of the deficit created by the application of Law 812 / 2003 in the amount of COP 49,725,401. (2) As at December 31, 2014 and 2013, it includes mainly: i) the proceedings filed by Atelca against ETB for the failure to comply with conventional clauses for COP 300,000,000 ii) proceedings with Telefónica Móviles S.A. for access charges that ETB failed to pay in accordance with Resolution No. 463 / 2001 issued by the CRC for COP 41,272,833. iii) proceedings with Colombia Telecomunicaciones S.A. for access charges resulting from the contract signed with ETB in June 1999 for COP 42,000,000, iv) proceedings with UNE EPM Bogotá S.A. for access charges from August 2000 to date; the claims are for COP 35,000,000, v) proceedings with Empresas Municipales de Cali for access charges for interconnecting traffic flowing from April 24 to August 6, 2010 for COP 46,504,451 and vi) proceedings with Comcel, now Claro, for the request to annul the arbitral award for COP 78,000,000. 29. FINANCIAL INDICATORS Indicator Liquidity Current Ratio: (Current Assets / Current Liabilities) Debt Total level of debt: (Total Liabilities / Total Assets) Short-term debt: (Total Current Liabilities / Total Assets) Total long-term debt: (Total Long-term Liabilities / Total Assets) Expression 2014 (times) 2.26 2013 Indicator Explanation 1.84 Indicates the Company's capacity to service its short-term debts by committing its current assets. % 32.62% 36.29% This indicator shows the degree of leverage corresponding to creditors' share in the Company's assets. % 14.31% 16.19% Represents the percentage of debt to third parties with shortterm maturities. % 18.32% 20.10% Represents the percentage of debt to third parties with medium and long-term maturities. - 48 - Activity Commercial loan portfolio turnover: (360/(Revenue / Total Portfolio)) Supplier turnover: (360/(Cost of sales / accounts payable suppliers)) Profitability Gross profit margin: (Gross Profit / Revenue) Days 79 69 Indicates the average turnover of the commercial loan portfolio in the year. Days 82 97 Indicates the average number of days it takes the Company to make payments to suppliers. This calculation was made excluding taxes and dividends payable. % 31.11% Operating Margin (Operating Profit / Revenue) % 6.31% Net profit margin: (Net Profit / Revenue) % 27.16% Return on equity: (Net Profit / Total Equity) % 10.80% Return on assets (ROA) (Net Profit / Total Assets) % 7.28% - 49 - 31.09% Shows the Company's capacity to manage sales, to generate gross profit, that is to say, before administrative expenses, sales costs, other revenue, other expenditures and taxes. 10.60% Indicates the contribution of each Peso of sales in the generation of operating profit. 12.42% Represents the percentage of net sales that generate profit after taxes in the Company. 5.46% Represents the return on shareholder investment. 3.48% Measures the net profit generated by each Peso invested in total assets.