Edgar Filing: TELEFONICA BRASIL S.A.

vivoitr2q14_6k.htm - Generated by SEC Publisher for SEC Filing

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of August, 2014

Commission File Number: 001-14475

TELEFÔNICA BRASIL S.A.

(Exact name of registrant as specified in its charter)

TELEFONICA BRAZIL S.A.

(Translation of registrant’s name into English)

Av. Eng° Luís Carlos Berrini, 1376 - 28º andar

São Paulo, S.P.

Federative Republic of Brazil

(Address of principal executive office)

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

Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

To Shareholders, Board Members and Management of:

Telefônica Brasil S.A.

São Paulo – SP

Introduction

We have reviewed the individual and consolidated interim accounting information of Telefônica Brasil S.A. and subsidiaries, contained in the ITR (Quarterly Information Form), referring to the quarter ended on June 30, 2014, which comprises the balance sheet of June 30, 2014 and the respective statements of income, of comprehensive income for the period so three and six months then ended and of changes in shareholders’ equity and of cash flows for the three-month period then ended, including the notes.

The management is responsible for the preparation of the individual interim financial information in accordance with Technical Pronouncement CPC 21 (R1) – Interim Statements, and the consolidated interim financial information in accordance with CPC 21 (R1) and international standard IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board – IASB, as well as for the presentation of the information in accordance with the standards issued by CVM (Comissão de Valores Mobiliários – Brazilian SEC), applicable to the preparation of Interim Information – ITR. Our responsibility is to express a conclusion on the interim accounting information based on our review.

Scope of review

We have conducted our review according to the Brazilian and International standards of review for interim information (NBC TR 2410 - Revisão de Informações Intermediárias Executada pelo Auditor da Entidade and ISRE 2410 - “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, respectively). A review of interim information consists of queries, especially to those responsible for financial and accounting matters and the application of analytical procedures and other review procedures.

The scope of a review is significantly smaller than the scope of an audit conducted in accordance with audit standards and, consequently, it did not allow us to obtain assurance that we were aware of all significant matters which could be identified in an audit. Consequently, we did not express an audit opinion.

Conclusion on the individual interim information

Based on our review, we are not aware of any fact which could lead us to believe that the individual interim financial information included in the quarterly information referred to above were not prepared, in all relevant aspects, in accordance with CPC 21 (R1), applicable to the preparation of the Quarterly Information – ITR, and presented according to the standards issued by CVM.

Conclusion on the consolidated interim financial information

Based on our review, we are not aware of any fact which could lead us to believe that the consolidated interim financial information included in the quarterly information referred to above were not prepared, in all relevant aspects, in accordance with CPC 21 (R1), and IAS 34, applicable to the preparation of the Quarterly Information – ITR, and presented according to the standards issued by CVM.

Other matters

Interim information of value added

We have also reviewed, the interim statement of value added (SVA), individual and consolidated, related to the three-month period ended on June 30, 2014, prepared under the Entity’s management responsibility, the presentation of which, in the interim information, is required according to the standards issued by CVM applicable to the preparation of Quarterly Information – ITR, and considered as supplementary information by the IFRSs, which do not require the presentation of the SVA. These statements were submitted to the same review procedures previously described and, based on our review, we are not aware of any fact which could lead us to believe that they were not prepared, in all material aspects, in accordance with the individual and consolidated interim financial information as a whole.

Audit and review of previous year’s comparative amounts

The individual and consolidated Quarterly Information (ITR), mentioned in the first paragraph include the financial information corresponding to income, comprehensive income, changes in shareholders’ equity, cash flow and value added of the quarter ended June 30, 2013, obtained from the Quarterly Information (ITR) of that semester and from the balance sheet as of December 31, 2013, obtained from the financial statements of December 31, 2013, presented for comparison purposes. The review of the Quarterly Information of the quarter ended on March 31, 2013 and the exam of the financial statements of the period ended on December 31, 2013 were conducted under the responsibility of the independent auditors, who issued review and audit reports dated July 22, 2013 and February 25, 2014, with no changes.

São Paulo, July 29, 2014.

Clóvis Ailton Madeira

Accountant CRC 1SP-106.895/O-1

Grant Thornton Auditores Independentes

CRC 2SP-025.583/O-1


TELEFÔNICA BRASIL S. A.
Balance sheets
At June 30, 2014 and December 31, 2013
(In thousands of reais )

		Company		Consolidated				Company		Consolidated
ASSETS	Note	06/30/14	12/31/13	06/30/14	12/31/13	LIABILITIES AND EQUITY	Note	06/30/14	12/31/13	06/30/14	12/31/13

CURRENT ASSETS		14,997,864	15,595,493	15,520,311	15,899,396	CURRENT LIABILITIES		13,452,213	13,825,053	13,435,015	13,731,007
Cash and cash equivalents	3	4,498,739	6,311,299	5,486,721	6,543,936	Personnel, social charges and benefits	13	439,929	427,067	444,361	431,403
Trade accounts receivable, net	4	5,959,002	5,541,023	6,174,988	5,802,859	Trade accounts payable	14	6,786,883	6,948,957	6,841,317	6,914,009
Inventories	5	490,046	469,586	510,334	505,615	Taxes, charges and contributions	15	1,213,244	1,269,105	1,265,613	1,315,164
Taxes recoverable	6.1	1,836,497	2,168,797	1,868,234	2,191,962	Loans, financing, and finance lease	16.1	1,808,723	1,236,784	1,808,723	1,236,784
Judicial deposits and garnishments	7	191,406	166,928	191,406	166,928	Debentures	16.2	301,827	286,929	301,827	286,929
Derivative transactions	32	228,347	89,499	228,347	89,499	Dividends and interest on equity	17	504,674	1,187,556	504,674	1,187,556
Prepaid expenses	8	776,504	254,743	779,639	257,286	Provisions	18	655,215	561,403	655,215	561,403
Dividends and interest on equity	17	245,306	60,346	-	1,140	Derivative transactions	32	33,534	44,463	33,534	44,463
Other assets	9	772,017	533,272	280,642	340,171	Deferred revenue	19	784,186	812,843	786,905	817,551
						Share fraction grouping		389,075	389,220	389,075	389,220
NON-CURRENT ASSETS		54,493,567	53,982,379	53,959,629	53,604,442	Authorization license		58,531	58,531	58,531	58,531
Short-term investments pledged as collateral	3	109,327	106,239	109,327	106,455	Other liabilities	20	476,392	602,195	345,240	487,994
Trade accounts receivable, net	4	182,769	160,478	280,942	257,086
Taxes recoverable	6.1	405,200	368,388	405,200	368,388	NONCURRENT LIABILITIES		11,564,467	12,858,377	11,570,174	12,878,389
Deferred taxes	6.2	430,468	-	610,557	210,294	Personnel, social charges and benefits	13	15,991	18,698	15,991	18,698
Judicial deposits and garnishments	7	4,305,248	4,123,584	4,331,094	4,148,355	Taxes, charges and contributions	15	143,663	52,252	167,221	75,074
Derivative transactions	32	91,460	329,652	91,460	329,652	Deferred taxes	6.2	-	722,634	-	722,634
Prepaid expenses	8	22,539	24,879	23,614	25,364	Loans, financing, and finance lease	16.1	2,208,168	3,215,156	2,208,168	3,215,156
Other assets	9	129,052	127,567	129,268	127,793	Debentures	16.2	4,017,470	4,014,686	4,017,470	4,014,686
Investments	10	1,204,249	1,076,696	78,108	86,349	Provisions	18	4,327,848	4,042,789	4,348,097	4,062,410
Property, plant and equipment, net	11	18,874,234	18,377,905	18,945,461	18,441,647	Derivative transactions	32	18,764	24,807	18,764	24,807
Intangible assets, net	12	28,739,021	29,286,991	28,954,598	29,503,059	Deferred revenue	19	244,546	252,351	245,152	253,661
						Post-employment benefit plan obligations	31	387,554	370,351	387,554	370,351
						Other liabilities	20	200,463	144,653	161,757	120,912

						EQUITY		44,474,751	42,894,442	44,474,751	42,894,442
						Capital	21	37,798,110	37,798,110	37,798,110	37,798,110
						Capital reserves	21	2,686,897	2,686,897	2,686,897	2,686,897
						Income reserves	21	1,287,496	1,287,496	1,287,496	1,287,496
						Premium on acquisition of noncontrolling interests	21	(70,448)	(70,448)	(70,448)	(70,448)
						Other comprehensive income	21	9,755	16,849	9,755	16,849
						Retained earnings	21	2,762,941	-	2,762,941	-
						Proposed additional dividend	21	-	1,175,538	-	1,175,538

TOTAL ASSETS		69,491,431	69,577,872	69,479,940	69,503,838	TOTAL LIABILITIES AND EQUITY		69,491,431	69,577,872	69,479,940	69,503,838

TELEFÔNICA BRASIL S. A.
Income statements
Three- and six-month periods ended June 30, 2014 and 2013
(In thousands of reais)

		Company				Consolidated
		Three-month periods ended		Six-month periods ended		Three-month periods ended		Six-month periods ended
	Note	06/30/14	06/30/13	06/30/14	06/30/13	06/30/14	06/30/13	06/30/14	06/30/13

OPERATING REVENUE, NET	22	8,124,243	3,134,380	16,318,292	6,284,351	8,616,594	8,491,505	17,228,524	17,046,989

Cost of sales and services	23	(3,886,561)	(2,023,992)	(8,081,761)	(4,089,330)	(4,116,069)	(4,373,630)	(8,512,413)	(8,780,092)

GROSS PROFIT		4,237,682	1,110,388	8,236,531	2,195,021	4,500,525	4,117,875	8,716,111	8,266,897

OPERATING INCOME (EXPENSES)		(2,947,656)	(27,118)	(5,883,938)	(190,588)	(3,143,451)	(2,991,990)	(6,238,743)	(5,791,131)
Selling expenses	23	(2,554,420)	(769,520)	(5,037,917)	(1,542,386)	(2,566,999)	(2,380,240)	(5,077,012)	(4,556,248)
General and administrative expenses	23	(441,710)	(141,165)	(929,161)	(323,496)	(455,553)	(549,133)	(943,522)	(1,161,662)
Equity pickup	10	177,918	1,005,949	323,353	1,801,316	454	(1,615)	1,459	(2,061)
Other operating income	24	110,656	49,664	224,832	152,130	118,566	188,737	247,862	346,925
Other operating expenses	24	(240,100)	(172,046)	(465,045)	(278,152)	(239,919)	(249,739)	(467,530)	(418,085)

OPERATING INCOME BEFORE FINANCIAL INCOME (EXPENSES)		1,290,026	1,083,270	2,352,593	2,004,433	1,357,074	1,125,885	2,477,368	2,475,766

Financial income	25	329,196	151,640	850,513	263,076	354,511	383,876	892,524	748,996
Financial expenses	25	(465,495)	(222,760)	(1,091,744)	(389,502)	(466,559)	(457,208)	(1,092,902)	(839,059)

INCOME BEFORE TAXES		1,153,727	1,012,150	2,111,362	1,878,007	1,245,026	1,052,553	2,276,990	2,385,703

Income and social contributions taxes	26	838,926	(97,895)	542,061	(153,577)	747,627	(138,298)	376,433	(661,273)

NET INCOME FOR THE PERIOD		1,992,653	914,255	2,653,423	1,724,430	1,992,653	914,255	2,653,423	1,724,430


Basic and diluted earnings per share – common (R$)		1.66	0.76	2.22	1.44
Basic and diluted earnings per share – preferred (R$)		1.83	0.84	2.44	1.58

TELEFÔNICA BRASIL S. A.
Statements of changes in equity
Six-month periods ended June 30, 2014 and 2013
(In thousands of reais)
			Capital reserves			Income reserves
	Capital	Premium on acquisition of noncontrolling interests	Special goodwill reserve	Other capital reserves	Treasury stock	Legal reserve	Tax grants	Retained earnings	Proposed additional dividend	Other comprehensive income	Total equity

Balances at December 31, 2012	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,100,000	-	-	3,148,769	17,792	44,681,120

Additional dividend proposed for year 2012	-	-	-	-	-	-	-	-	(3,148,769)	-	(3,148,769)
Prescribed dividends and interest on equity	-	-	-	-	-	-	-	59,045	-	-	59,045
Other comprehensive income	-	-	-	-	-	-	-	(430)	-	(4,857)	(5,287)
Net income for the period	-	-	-	-	-	-	-	1,724,430	-	-	1,724,430

Balances at June 30, 2013	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,100,000	-	1,783,045	-	12,935	43,310,539

Prescribed dividends and interest on equity	-	-	-	-	-	-	-	57,780	-	-	57,780
Income tax return adjustment – government grants	-	-	-	-	-	-	1,699	(1,699)	-	-	-
Other comprehensive income	-	-	-	-	-	-	-	14,694	-	3,914	18,608
Net income for the year	-	-	-	-	-	-	-	1,991,515	-	-	1,991,515
Income allocation:
Legal reserve	-	-	-	-	-	185,797	-	(185,797)	-	-	-
Interim interest on equity	-	-	-	-	-	-	-	(1,738,000)	-	-	(1,738,000)
Interim dividends	-	-	-	-	-	-	-	(746,000)	-	-	(746,000)
Proposed additional dividend	-	-	-	-	-	-	-	(1,175,538)	1,175,538	-	-

Balances at December 31, 2013	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,285,797	1,699	-	1,175,538	16,849	42,894,442

Additional dividend proposed for year 2013	-	-	-	-	-	-	-	-	(1,175,538)	-	(1,175,538)
Unclaimed dividends and interest on equity	-	-	-	-	-	-	-	109,518	-	-	109,518
Other comprehensive income	-	-	-	-	-	-	-	-	-	(7,094)	(7,094)
Net income for the period	-	-	-	-	-	-	-	2,653,423	-	-	2,653,423

Balances at June 30, 2014	37,798,110	(70,448)	63,074	2,735,930	(112,107)	1,285,797	1,699	2,762,941	-	9,755	44,474,751

Outstanding shares (thousands)											1,123,269
Book value per shares (VPA)											39.59

TELEFÔNICA BRASIL S. A.
Statements of comprehensive income
Three- and six-month periods ended June 30, 2014 and 2013
(In thousands of reais)

	Company				Consolidated
	Three-month period ended		Six-month period ended		Three-month period ended		Six-month period ended
	06/30/14	06/30/13	06/30/14	06/30/13	06/30/14	06/30/13	06/30/14	06/30/13

Net income for the year	1,992,653	914,255	2,653,423	1,724,430	1,992,653	914,255	2,653,423	1,724,430

Unrealized losses in investments available for sale	(3,276)	(1,169)	(4,571)	(12,427)	(3,276)	(1,169)	(4,571)	(12,427)
Taxes	1,114	228	1,554	4,225	1,114	228	1,554	4,225
	(2,162)	(941)	(3,017)	(8,202)	(2,162)	(941)	(3,017)	(8,202)

Accumulated adjustments of conversion of foreign currency transactions	(2,366)	6,883	(5,129)	4,393	(2,366)	6,883	(5,129)	4,393

Other net comprehensive income to be reclassified to P&L in subsequent years	(4,528)	5,942	(8,146)	(3,809)	(4,528)	5,942	(8,146)	(3,809)


Actuarial gains (losses) and limitation effect of the surplus plan assets	-	-	-	-	-	-	-	(651)
Taxes	-	-	-	-	-	-	-	221
	-	-	-	-	-	-	-	(430)

Gains (losses) on derivative transactions	(438)	-	1,594	-	(438)	2,876	1,594	(1,588)
Taxes	149	-	(542)	-	149	(978)	(542)	540
	(289)	-	1,052	-	(289)	1,898	1,052	(1,048)

Interest held in comprehensive income of subsidiaries	-	1,898	-	(1,478)	-	-	-	-

Other net comprehensive income that will not be reclassified to P&L in subsequent years	(289)	1,898	1,052	(1,478)	(289)	1,898	1,052	(1,478)

Comprehensive income for the year, net of taxes	1,987,836	922,095	2,646,329	1,719,143	1,987,836	922,095	2,646,329	1,719,143




TELEFÔNICA BRASIL S. A.
Statements of cash flows
Six-month periods ended June 30, 2014 and 2013
(In thousands of reais)

	Company		Consolidated
	06/30/14	06/30/13	06/30/14	06/30/13
Cash provided by operating activities

Income before taxes	2,111,362	1,878,007	2,276,990	2,385,703

Non-cash items

Non-cash expenses (income)	3,554,577	15,633	3,910,428	3,763,903
Depreciation and amortization	2,622,196	1,345,096	2,632,390	2,845,289
Foreign exchange variations on loans	40,752	13,494	40,752	40,991
Monetary gains	37,539	25,301	24,393	41,087
Equity pickup	(323,353)	(1,801,316)	(1,459)	2,061
Loss (gain) on write-off/disposal of goods	25,958	(57,629)	25,734	(139,517)
Estimated impairment losses of trade accounts receivable	396,685	154,474	428,270	402,103
Provision (reversal) of suppliers	152,807	(8,610)	157,752	28,586
Estimated losses (write-offs and reversals) for impairment of inventory items	(11,391)	3,033	(10,795)	11,506
Pension plan and other post-employment benefits	15,762	13,296	15,755	13,159
Provisions for tax, labor, civil and regulatory demands	240,591	165,638	240,605	228,597
Interest expenses	342,533	163,238	342,533	270,317
Provision (reversal) for divestiture	13,959	(3,821)	13,959	12,954
Provision for loyalty program	539	-	539	6,770
Investment losses	-	3,439	-	-

Changes in operating assets and liabilities:	(2,642,275)	(322,353)	(2,406,811)	(1,780,927)
Trade accounts receivable	(836,955)	(147,746)	(824,255)	(376,767)
Inventories	(9,069)	(5,645)	6,076	(126,500)
Taxes recoverable	41,344	12,527	32,772	(298,088)
Prepaid expenses	(412,834)	(109,238)	(414,016)	(501,776)
Other current assets	(243,376)	6,691	54,898	112,327
Other noncurrent assets	9,966	(73,467)	(27)	(9,792)
Personnel, social charges and benefits	10,155	(50,467)	10,251	(47,772)
Trade accounts payable	(250,889)	3,826	(158,907)	114,575
Taxes, charges and contributions	98,570	305,800	98,582	442,467
Interest paid	(378,298)	(140,161)	(378,298)	(264,450)
Income and social contribution taxes paid	(415,724)	-	(544,113)	(703,097)
Outros passivos circulantes	(191,195)	(91,030)	(210,135)	(45,169)
Other non-current liabilities	(63,970)	(33,443)	(79,639)	(76,885)
Total cash arising from operating activities	3,023,664	1,571,287	3,780,607	4,368,679

Net cash generated from (used in) investing activities

Future capital contribution in subsidiaries	-	(65,250)	-	-
Acquisition of fixed and intangible assets (net of donations)	(2,638,508)	(1,011,834)	(2,654,154)	(3,016,567)
Cash from disposal of fixed assets	5,887	34,273	7,034	423,090
Redemptions (short-term investments) in guarantee	-	-	-	(250,000)
Redemption (realization) of judicial deposits	(80,864)	(56,876)	(67,963)	(160,028)
Dividends and interest on equity received	1,140	1,320,449	1,140	-
Total cash from (used in) investing activities	(2,712,345)	220,762	(2,713,943)	(3,003,505)

Cash (from) used in financing activities

Payment of loans, financing, and debentures	(433,825)	(214,237)	(433,825)	(438,563)
Loans and debentures raised	93,884	1,300,128	93,884	1,318,124
Net payment of derivative agreements	(31,710)	(5,671)	(31,710)	(14,960)
Payment referring to group of shares	(145)	(161)	(145)	(161)
Dividends and interest on equity paid	(1,752,083)	(1,583,900)	(1,752,083)	(1,583,900)
Total cash (from) used in financing activities	(2,123,879)	(503,841)	(2,123,879)	(719,460)

Increase (decrease) in cash and cash equivalents	(1,812,560)	1,288,208	(1,057,215)	645,714

Cash and cash equivalents at beginning of year	6,311,299	3,079,282	6,543,936	7,133,485
Cash and cash equivalents at end of year	4,498,739	4,367,490	5,486,721	7,779,199

Variations in cash and cash equivalents for year	(1,812,560)	1,288,208	(1,057,215)	645,714


TELEFÔNICA BRASIL S. A.
Statements of value added
Six-month periods ended June 30, 2014 and 2013
(In thousands of reais)
	Company		Consolidated
	06/30/14	06/30/13	06/30/14	06/30/13

Revenue	22,161,113	8,273,164	23,282,986	23,204,275
Goods and services sold	22,242,223	8,298,542	23,372,651	23,297,628
Other income	315,575	129,096	338,605	308,750
Provision for impairment of trade accounts receivable	(396,685)	(154,474)	(428,270)	(402,103)

Input products acquired from third parties	(8,426,931)	(3,824,313)	(8,933,262)	(8,693,073)
Cost of goods and products sold and services rendered	(4,642,720)	(2,806,557)	(5,131,097)	(5,362,048)
Materials, energy, third-party services and other expenses	(3,767,164)	(1,078,901)	(3,784,242)	(3,459,368)
Loss/recovery of assets	(17,047)	61,145	(17,923)	128,343

Gross value added	13,734,182	4,448,851	14,349,724	14,511,202

Retentions	(2,622,196)	(1,345,096)	(2,632,390)	(2,845,289)
Depreciation and amortization	(2,622,196)	(1,345,096)	(2,632,390)	(2,845,289)

Net value added produced	11,111,986	3,103,755	11,717,334	11,665,913

Value added received in transfer	1,173,923	2,064,392	894,041	746,935
Equity pickup	323,353	1,801,316	1,459	(2,061)
Financial income	850,570	263,076	892,582	748,996

Total value added to be distributed	12,285,909	5,168,147	12,611,375	12,412,848

Distribution of value added	(12,285,909)	(5,168,147)	(12,611,375)	(12,412,848)

Personnel, social charges and benefits	(1,121,388)	(414,881)	(1,132,390)	(1,137,340)
Direct compensation	(734,372)	(286,309)	(741,825)	(741,963)
Benefits	(328,675)	(92,063)	(331,555)	(326,341)
FGTS	(58,341)	(36,509)	(59,010)	(69,036)
Taxes, charges and contributions	(6,155,457)	(2,164,389)	(6,465,265)	(7,409,165)
Federal	(1,296,643)	(657,442)	(1,554,253)	(2,566,156)
State	(4,829,955)	(1,482,458)	(4,834,375)	(4,797,996)
Municipal	(28,859)	(24,489)	(76,637)	(45,013)
Debt remuneration	(1,951,865)	(603,837)	(1,955,483)	(1,775,701)
Interest	(1,090,420)	(368,367)	(1,091,378)	(815,736)
Rent	(861,445)	(235,470)	(864,105)	(959,965)
Equity remuneration	(2,653,423)	(1,724,430)	(2,653,423)	(1,724,430)
Retained profits	(2,653,423)	(1,724,430)	(2,653,423)	(1,724,430)
Others	(403,776)	(260,610)	(404,814)	(366,212)
Labor, civil, tax, and regulatory provisions, net	(403,776)	(260,610)	(404,814)	(366,212)

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

1. Operations

a. Background information

Telefônica Brasil S.A. (Company or Telefônica Brasil) is a publicly-traded corporation operating in telecommunication services and in the performance of activities that are necessary or useful in the rendering of such services, in conformity with the concessions and authorizations it has been or granted. The Company, headquartered at Avenida Engenheiro Luiz Carlos Berrini, nº 1376, in the city and State of São Paulo, Brazil, is a member of Telefónica Group, the telecommunications industry leader in Spain, also being present in various European and Latin American countries.

At June 30, 2014 and December 31, 2013, Telefónica S.A., holding company of the Group, held a total of 73.81% direct and indirect interest in the Company, being 91.76% of common shares and 64.60% of preferred shares (See Note 21).

b. Operations

The Company is primarily engaged in the rendering of land-line telephone and data services in the state of São Paulo, under Fixed Switched Telephone Service Concession Arrangement (STFC) and Multimedia Communication Service (SCM) authorization, respectively. Also, the Company is authorized to render STFC services in Regions I and II of the General Service Concession Plan (PGO) and other telecommunications services, such as SCM (data communication, including broadband internet), SMP (Personal Communication Services) and SEAC (Conditional Access Audiovisual Services) (especially by means of DTH and cable technologies).

Service concessions and authorizations are granted by Brazil’s Telecommunications Regulatory Agency (ANATEL), under the terms of Law No. 9472 of July 16, 1997 - General Telecommunications Law (“Lei Geral das Telecomunicações” - LGT), amended by Laws No. 9986 of July 18, 2000 and No. 12485 of September 12, 2011. Operation of such concessions and authorizations is subject to supplementary regulations and plans issued.

STFC service concession arrangement

The Company is the grantee on an STFC concession to render land-line services in the local network and national long distance calls originated in sector 31 of Region III, which comprises the state of São Paulo (except for cities within sector 33), as established in the General Service Concession Plan (PGO).

The Company’s current STFC service concession arrangement is effective until December 31, 2025, and may be subject to reviews on December 31, 2015 and December 31, 2020.

In accordance with the service concession arrangement, every two years, during the arrangement’s 20-year term, the Company shall pay a fee equivalent to 2% of its prior-year STFC revenue, net of applicable taxes and social contributions.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

Authorizations and frequencies to SMP

Frequency authorizations granted by ANATEL for mobile telephone services may be renewed only once, over a 15-year period, through payment, every two years after the first renewal, of fees equivalent to 2% of the Company’s prior-year revenue, net of taxes and social contributions, related to the application of the Basic and Alternative Plans of Service.

The Company operates SMP services, in accordance with the authorizations it has been given. Information on operation areas (regions) and expirations of radiofrequency authorizations is the same as in Note 1.c - “Operations”, disclosed in the financial statements as at December 31, 2013.

c. Corporate restructuring

In order to streamline the Company’s organizational structure, to rationalize the services provided by its subsidiaries and to concentrate service provision in two operating entities, namely the Company and its wholly-owned subsidiary Telefônica Data S.A. (TData or Subsidiary), the Company carried out a corporate restructuring approved by ANATEL, under the terms of Act No. 3043 of May 27, 2013, as published in the Federal Official Gazette (DOU) of May 29, 2013, subject to the conditions thereunder.

The Board of Directors’ meeting held on June 11, 2013 approved the terms and conditions of the corporate restructuring process involving the Company’s wholly-owned subsidiaries and subsidiaries.

Company Annual General Meeting held on July 1, 2013 approved the aforementioned corporate restructuring, which included spin-offs and mergers of subsidiaries and of companies directly or indirectly controlled by the Company, so that the economic activities other than telecommunications services, including the provision of Value Added Services as defined in article 61 of the General Telecommunications Law (LGT) (with such activities being jointly and generally referred to as SVAs), provided by the various wholly-owned subsidiaries/subsidiaries were concentrated in TData and the telecommunication services were consolidated by the Company.

All of the spin-offs or split-ups, as the case may be, and the merger of the net assets of the companies involved in the restructuring process took place on the same date and had the same reporting date (April 30, 2013), as follows: the Company merged (i) the net assets of TData, arising from its spin-off, corresponding to the activities related to the provision of service of Multimedia Communication Service (SCM); (ii) the net assets of Vivo S.A. (Vivo), arising from its split-up, corresponding to the use of Personal Communication Services (SMP), Multimedia Communication Services (SCM) and STFC in local, domestic and international long distance calls in regions I and II of the General Service Concession Plan (PGO), and the net assets of SVAs and other services other than telecommunications services were merged into TData and Vivo’s operations were ceased; (iii) the net assets of ATelecom S.A. (ATelecom), arising from its split-up, corresponding to the activities related to the provision of Conditional Access Audiovisual Services (SEAC) (through DTH technology) and SCM, and the net assets of SVAs and other services other than telecommunications services were merged into TData, thus ATelecom's operations were ceased; and (iv) Telefônica Sistema de Televisão S.A. (TST), which concentrated the activities related to the provision of SEAC and SCM services before its merger into the Company, due to the full merger of Lemontree Participações S.A. (Lemontree), GTR-T Participações e Empreendimentos S.A. (GTR-T), Ajato Telecomunicações Ltda (Ajato), Comercial Cabo TV São Paulo S.A. (CaTV) e TVA Sul Paraná S.A. (Sul Paraná), thus TST, Lemontree, GTR-T, Ajato, CaTV and Sul Paraná had its operations ceased.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

The merger of companies and net assets previously described did not result in any capital increase or issue of new Company shares; accordingly, the corporate restructuring did not result in any changes in ownership interest currently held by Company shareholders.

There is no question of replacing shares of noncontrolling shareholders of the spun-off companies with shares of the merging company, since the Company was, upon the merger of net assets and/or companies, as the case may be, the sole shareholder of the companies spun off/ merged. Accordingly, an equity valuation report at market price was not prepared for calculating the noncontrolling share replacement ratio as defined in article 264 of Law No. 6404/76, and article 2, paragraph 1, item VI of CVM Rule No. 319/99, based on recent understandings expressed by the Brazilian Securities and Exchange Commission (CVM) regarding consultations in connection with similar restructuring processes and based on CVM Rule No. 559 of November 18, 2008.

The corporate restructuring was described in detail in Note 1b) - “Corporate restructuring” disclosed in the financial statements as at December 31, 2013.

d. Share trading on stock exchanges

The Company is listed in the Brazilian Securities and Exchange Commission (CVM) as a publicly-held company under Category A (issuers authorized to trade any marketable securities) and has shares traded on the São Paulo Stock Exchange (BM&FBovespa). It is also listed in the US Securities and Exchange Commission (SEC), and its level II American Depositary Shares (ADS), backed by preferred shares only, are traded on the New York Stock Exchange (NYSE).

e. Agreement between Telefónica S.A. and Telecom Italia

TELCO S.p.A. (in which Telefónica S.A. held a 46.18% interest) has a 22.4% interest with voting rights in Telecom Italia., and is the majority shareholder of this company.

Telefónica S.A. holds indirect control in Telefônica Brasil, and Telecom Italia, S.p.A. holds an indirect interest in TIM S.A. (TIM), a Brazilian telecommunications company. Neither Telefónica S.A., nor Telefônica Brasil or any other affiliate of Telefónica S.A. interfere in, are involved with or have decision-making powers over TIM operations in Brazil, also being lawfully and contractually forbidden to exercise any type of political power derived from indirect interest held as concerns operations in Brazil, directly related to TIM operations. TIM (Brazil) and Telefônica Brasil compete in all markets in which they operate in Brazil under permanent competitive stress and, in this context, as well as in relation to the other economic players in the telecommunications industry, maintain usual and customary contractual relations with one another (many of which are regulated and inspected by ANATEL) and/or which, as applicable, are informed to ANATEL and Brazil’s Administrative Council for Economic Defense (CADE), concerning the commitments assumed before these agencies so as to ensure total independence of their operations.

On September 24, 2013, Telefónica S.A., entered into an agreement with the other shareholders of the Italian company TELCO S.p.A. whereby Telefónica S.A. subscribed and paid up capital in TELCO, S.p.A. through a contribution of 324 million euros, receiving shares without voting rights of TELCO, S.p.A as consideration. As a result of this capital increase, the share capital of Telefónica S.A. voting in TELCO, S.p.A. remaining unchanged (remaining at 46.18%), although their economic participation rose to 66%. Thus, the governance of TELCO S.p.A., as well as the obligations of Telefónica S.A. to abstain from participating in or influencing the decisions that impact the industries where they both operate, remained unchanged.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

In the same document, Italian shareholders of TELCO S.p.A. granted Telefónica S.A. an option to purchase all of their shares in TELCO S.p.A. Exercising this call option was subject to obtaining the required previous approvals from antitrust authorities and telecommunications regulatory agencies as applicable (including Brazil and Argentina), beginning eligible after January 1, 2014, whenever the Shareholders’ Agreement remains in full force and effect, except (i) between June 1 and June 30, 2014 and between January 15 and February 15, 2015; and (ii) during certain periods in case the Italian shareholders of TELCO, S.p.A. request the entity’s spin-off.

On December 4, 2013, the CADE announced the following decisions:

1) Approve, subject to the limitations described below, the acquisition, by Telefónica S.A., of the total interest held by Portugal Telecom, SGPS SA and PT Móveis – Serviços de Telecomunicações, SGPS, SA (PT) in Brasilcel NV, which controlled Brazilian mobile telecommunications operator Vivo Participações S.A. (Vivo Part.).

The transaction has been approved by ANATEL and its completion (requiring no prior approval from CADE at the time) took place immediately after approval from ANATEL, on September 27, 2010.

The limitations imposed by CADE on its decision are as follow:

a) A new shareholder share control over Vivo Part. with Telefónica S.A., adopting the same conditions applied to PT when it held an interest in Brasilcel NV.; or

b) Telefónica S.A. shall cease to have, either directly or indirectly, an equity interest in TIM Participações S.A.

2) Impose a R$ 15 million fine on Telefónica S.A. for violating the will and purpose of the agreement executed by and between Telefónica S.A. and CADE, as a requirement to approve the initial purchase transaction of Telecom Italia in 2007, due to the subscription and payment, by Telefónica S.A., of TELCO S.p.A. nonvoting shares in the context of its recent capital increase. This decision also requires Telefónica S.A. to dispose of its nonvoting shares held in TELCO S.p.A.

The deadline for compliance with the conditions and obligations imposed by CADE in both decisions were classified as confidential by CADE.

At December 13, 2013, Telefónica S.A. published a material news release regarding the decisions made by CADE in the meeting held on December 4, 2013, stating that it considered the measures imposed by that agency to be unreasonable, thus started applicable legal proceedings in July, 2014.

In this context, and in order to strengthen its firm commitment to the obligations previously assumed by Telefónica S.A. to keep away from Telecom Italia's business in Brazil, Telefónica S.A. pointed out, in a material news release that Mr. César Alierta Izuel and Mr. Julio Linares López had decided to resign with immediate effect, from the position of Directors at Telecom Itália S.p.A. .Additionally, Mr. Julio Linares López decided to resign, with immediate effect, from his position on the list presented by TELCO S.p.A. for a potential re-election to the Board of Directors of Telecom Itália, S.p.A.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

Likewise, Telefónica S.A., notwithstanding the rights defined in the Shareholders’ Agreement of TELCO S.p.A, stated in a material news release it decided not to exercise, for now, its right to appoint or suggest two Directors at Telecom Itália, S.p.A.

On June 16, 2014, the Italian shareholders of TELCO, S.p.A. decided to exercise their rights to request the spin-off ensured by the Shareholders' Agreement of the company. The implementation of this spin-off was approved at the Annual General Meeting of TELCO, S.p.A. on July 9, 2014, and is subject to the previous authorization by competente authorities, incuding CADE and ANATEL in Brazil. Whenever authorized, the spin-off will be implemented through the transfer of all current interest held by TELCO, S.p.A. in the Telecom Itália, S.p.A. capital, to four (4) new companies, which are wholly owned by one of the current shareholders of TELCO, S.p.A., and which are designed to hold interest in the capital of Telecom Itália, S.p.A., proportionally to the current economic interest of their respective future controlling shareholder in the capital of TELCO, S.p.A.

Regulatory approvals in Brazil to the spin-off of TELCO, S.p.A. mentioned above have been required from relevant agencies as the applicable corporate documents are completed in Italy.

2. BASIS OF PREPARATION AND PRESENTATION OF QUARTERLY INFORMATION

2.a) Basis of presentation

The Company’s Quarterly Information (ITR) for the six-month period ended June 30, 2014 is presented in thousands of reais (unless otherwise stated) and was prepared under a going concern assumption.

This quarterly information compares the six-month periods ended June 30, 2014 and 2013, except for balance sheets that compare the positions at June 30, 2014 with December 31, 2013.

In order to better present and compare the figures of the consolidated income statements for the six-month periods ended June 30, 2014 and 2013, certain reclassifications were made among the groups of “Cost of sales and services”, “Selling expenses”, “General and administrative expenses” and “Other operating income (expenses)”, for the period ended June 30, 2013, as follows:


	Income statement at 06/30/13, disclosed at 06/30/13	Reclassifications	Income statement at 06/30/13, disclosed at 06/30/14
Operating revenue, net	17,046,989	-	17,046,989
Cost of sales and services	(8,798,819)	18,727	(8,780,092)
Gross profit	8,248,170	18,727	8,266,897
Selling expenses	(4,517,671)	(38,577)	(4,556,248)
General and administrative expenses	(1,177,126)	15,464	(1,161,662)
Other operating income	405,903	(58,978)	346,925
Other operating expenses	(481,449)	63,364	(418,085)
Equity pickup	(2,061)	-	(2,061)
Income before financial income (expenses)	2,475,766	-	2,475,766
Financial income	748,996	-	748,996
Financial expenses	(839,059)	-	(839,059)
Income before taxes	2,385,703	-	2,385,703
Income and social contribution taxes	(661,273)	-	(661,273)
Net income for the period	1,724,430	-	1,724,430

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

On account of the net assets received in the corporate restructuring process occurred on July 1, 2013, described in Note 1c), the individual information of the income statements at June 30, 2014 and 2013 is not comparable.

The individual quarterly information (Company) was prepared and is presented in accordance with accounting practices adopted in Brazil, which comprise the rules issued by the Brazilian Securities and Exchange Commission (CVM) and CPC 21 - Interim Financial Reporting, issued by the Brazilian FASB (CPC), which are in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), except for investments in subsidiaries, which are measured by the equity method, while for IFRS purposes it would be measured at cost or fair value.

The consolidated quarterly information (Consolidated) was prepared and is presented in accordance with CPC 21 and IAS 34 - Interim Financial Reporting, issued by the IASB, and CVM rules.

At the meeting held on July 21, 2014, the Executive Board authorized the issue of this quarterly information, which was ratified by the Board of Directors at a meeting held on July 29, 2014.

This Quarterly Information (ITR) was prepared in accordance with accounting principles, practices and criteria consistent with those adopted in the preparation of the financial statements for the financial year ended December 31, 2013, in addition to the new pronouncements, interpretations and amendments that became effective from January 1, 2014, as follows:

IFRS 10, IFRS 12 and IAS 27 Investment Entities: These amendments became effective for annual periods beginning on or after January 1, 2014, providing an exception to the consolidation requirements for a reporting entity that meets the definition of an investment entity under IFRS 10. This exception requires an investment entity to account for its investments in subsidiaries at fair value in P&L. The application of these amendments does not entail impacts on the Company’s financial position, given that its subsidiary is not qualified as an investment entity.

IAS 32 Offsetting Financial Assets and Financial Liabilities: This amendment became effective for annual periods beginning on or after January 1, 2014 and clarifies the meaning of “currently has a legally enforceable right to set off the recognized amounts” and the criteria that would qualify for settlement the settlement mechanisms of clearing house systems that are not simultaneous. The application of this amendment does not entail significant impacts on the Company’s financial position.

IAS 36 Recoverable Amount Disclosures for Non Financial Assets (Impairment of Assets): This amendment became effective for annual periods beginning on or after January 1, 2014 and eliminates unintended consequences of IFRS 13 Fair Value Measurement on disclosures required by IAS 36. In addition, these amendments require the disclosure of recoverable amounts of assets or Cash Generating Units (CGU) for which a provision for impairment has been recognized over the period. The application of this amendment does not impact the Company’s disclosures.

IAS 39 Novation of Derivatives and Continuation of Hedge Accounting: This amendment became effective for annual periods beginning on or after January 1, 2014 and introduces a relief regarding discontinuance of hedge accounting where a derivative, which is designated as hedging instrument, is novated if specific conditions are met. The application of this amendment does not entail significant impacts on the Company’s financial position.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

IFRIC 21 Levies: This amendment became effective for annual periods beginning on or after January 1, 2014 and provides guidance on when to recognize a liability for a tax or levy when the obligating event occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability is recognized before the specified minimum threshold is reached. The application of this standard does not entail significant impacts on the Company’s financial position.

On the preparation date of this quarterly information, the following IFRS amendments had been published; however, their application was not compulsory:

IFRS 2 Share Based Payments: These amendments changed the settings relating to the purchase conditions and its implementation is effective beginning on or after July 1, 2014. The Company does not believe that these amendments may significantly impact its financial position.

IFRS 3 Business Combination: The amendments changed the accounting for contingent consideration in a business combination. Contingent consideration on acquisition of a business that is not classified as equity is subsequently measured at fair value through profit or loss, whether or not included in the scope of IFRS 9 Financial Instruments. These changes are effective for new business combinations after July 1, 2014. The Company consider the application of these changes to any business combinations that occur beginning on or after 1 July 2014.

IFRS 8 Operating Segments: These amendments are related to the aggregation of operating segments, which can be combined / aggregated whether they are in accordance with the criteria of the rule, in other words, if the segments have similar economic characteristics and are similar in other qualitative aspects. If they are combined, the entity shall disclose the economic characteristics used to assess whether the segments are similar. These amendments will become effective beginning on or after July 1, 2014. Considering the fact that the Company and its subsidiary operate in a sole operating segment, significant impact on their financial position is not expected.

IFRS 9 Financial Instruments: IFRS 9, as issued, is the first step in IASB’s project to replace IAS 39 and applies to classification and measurement of financial assets and liabilities as defined by IAS 39. Initially, the pronouncement would become effective for annual periods beginning on or after January 1, 2013, but Amendments to IFRS 9: Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, postponed the effective date of IFRS 9 to January 1, 2018. In the subsequent steps, IASB will tackle issues such as hedge accounting and provision for impairment of financial assets. Adoption of the first step of IFRS 9 will affect the classification and measurement of the Company’s financial assets, but will have no impact on the classification and measurement of its financial liabilities. The Company will quantify such effects together with the effects from other phases of IASB’s project once the final consolidated standard is issued.

IFRS 13 Fair Value Measurement: This amendment is related to the application of the exception to financial assets portfolio, financial liabilities and other contracts. It will become effective for annual periods beginning on or after July 1, 2014. The Company will evaluate the effect of the application on new transactions after July 1, 2014.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: The amendments to IAS 16.35 (a) and IAS 38.80 (a) clarifies that a revaluation can be made as follows: i) adjust the gross carrying amount of the asset at market value or, ii) determine the market value and adjust the gross carrying amount proportionally, so that the resulting carrying amount is equal to the market value. IASB also clarified that the accumulated depreciation / amortization is the difference between the gross carrying amount and the book value of the asset (i.e. gross carrying amount - accumulated depreciation / amortization = book value). The amendment to IAS 16.35 (b) and IAS 38.80 (b) clarifies that the accumulated depreciation / amortization is eliminated so that the gross carrying amount and the book value is equal to market value. These amendments will become effective beginning on or after 1 July 2014 retrospectively. Implementation of these amendments has no impact on the financial or operating positions of the Company at the time. Whereas the reassessment of property and equipment and intangible assets is not allowed in Brazil, the Company does not expect impact on its financial position.

IAS 24 Related Party Disclosures: The amendment clarifies that an entity's providing management services to other entity that provides key management personnel to provide management services is a subject relating to related party disclosures. In addition, an entity that uses a management entity shall disclose the expenses incurred by management services. The amendments will become effective beginning on or after 1 July 2014 retrospectively. The Company does not expect these amendments significantly impact its financial position.

IAS 40 Investment Property: This amendment clarifies the relationship between the definitions of IFRS 3 and IAS 40 on the classification of the investment property or owner-occupied property. The description of ancillary services in IAS 40 that differentiates between investment properties and owner-occupied property (IFRS 3) is used to determine whether the transaction is a purchase of an asset or a business combination. This amendment will become effective beginning on or after 1 July 2014 prospectively. The Company will evaluate any possible impact in case of transactions occur after the effective date.

The Company does not early adopt any pronouncement, interpretation or amendment that has been issued, whose application is not compulsory.

2.b) Subsidiaries (wholly-owned and jointly-controlled subsidiaries)

Information on investees at June 30, 2014 and December 31, 2013 is described below:

Telefônica Data S.A. (TData): Wholly-owned subsidiary of the Company and headquartered in Brazil, this entity is engaged in the rendering and operation telecommunications services; provide value added services (SVAs); provide integrated business solutions in telecommunications and related activities; manage the provision of technical assistance and maintenance services of telecommunications equipment and network, consulting services regarding telecommunications solutions and related activities, and design, implementation and installation of telecommunication-related projects; sell and lease telecommunications equipment, products and services, value-added services or any other related services, provided or supplied by third parties; provide third parties with telecommunications infrastructure; manage and/or develop activities that are necessary or useful for performing such services in accordance with applicable law; provide business trading services in general and provide technical support services in IT, including consulting, installation and maintenance of goods, applications and services, licensing or sub licensing of any kind of software, and storage and management of data and information.

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

Aliança Atlântica Holding B.V. (Aliança): Jointly-controlled subsidiary, headquartered in Amsterdam, Netherlands, this entity has a 50% interest held by Telefônica Brasil and cash generated from sale of Portugal Telecom shares in June 2010.

Companhia AIX de Participações (AIX): Jointly-controlled subsidiary, with 50% interest held by Telefônica Brasil, this entity is engaged in holding interest in Refibra Consortium, and in performing activities related to the direct and indirect operation of activities related to the construction, completion and operation of underground networks or optical fiber ducts.

Companhia ACT de Participações (ACT): Jointly-controlled subsidiary, with 50% interest held by Telefônica Brasil, this entity is engaged in holding interest in Refibra Consortium, and in performing activities related to the rendering of technical support services for the preparation of projects and completion of networks, by means of studies required to make them economically feasible, and monitor the progress of Consortium-related activities.

Upon consolidation, all asset and liability balances, revenues and expenses arising from transactions and interest held in equity between the Company and its Subsidiary were eliminated.

3. CASH AND CASH EQUIVALENTS

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
Cash and bank checking accounts	48,920	101,094	49,295	101,921
Short-term investments	4,449,819	6,210,205	5,437,426	6,442,015
Total	4,498,739	6,311,299	5,486,721	6,543,936

Highly liquid short-term investments basically correspond to Bank Deposit Certificates (CDB), pegged to the Interbank Deposit Certificate (CDI) rate variation, and are kept at first-tier financial institutions.

In addition, the Company had short-term investments pledged as collateral for loans and legal proceedings in the consolidated amounts of R$ 109,327 at June 30, 2014 (R$ 106,455 at December 31, 2013) recorded in noncurrent assets.

4. TRADE ACCOUNTS RECEIVABLE, NET

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
Billed amounts	4,538,625	4,084,617	5,009,016	4,581,188
Unbilled amounts	1,778,057	1,777,871	1,906,652	1,890,485
Interconnection amounts	923,739	872,678	911,912	859,894
Gross accounts receivable	7,240,421	6,735,166	7,827,580	7,331,567
Impairment losses	(1,098,650)	(1,033,665)	(1,371,650)	(1,271,622)
Total	6,141,771	5,701,501	6,455,930	6,059,945

Current	5,959,002	5,541,023	6,174,988	5,802,859
Noncurrent	182,769	160,478	280,942	257,086

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

The aging list of trade accounts receivable, net of estimated impairment losses, is as follows:

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
Falling due	4,354,894	4,131,549	4,634,390	4,398,791
Overdue from 1 to 30 days	878,523	756,787	907,731	795,389
Overdue from 31 to 60 days	320,036	266,192	323,442	289,783
Overdue from 61 to 90 days	203,751	162,436	199,088	166,105
Overdue from 91 to 120 days	75,005	59,244	82,850	62,122
Overdue above 120 days	309,562	325,293	308,429	347,755
Total	6,141,771	5,701,501	6,455,930	6,059,945

At June 30, 2014 and December 31, 2013, no customer represented more than 10% of trade accounts receivable, net.

Changes in estimated impairment losses on accounts receivable are as follows:

	Company	Consolidated
Balance at December 31, 2013	(1,033,665)	(1,271,622)
Additions, net (Note 23)	(396,685)	(428,270)
Write-offs	331,700	328,242
Balance at June 30, 2014	(1,098,650)	(1,371,650)

At June 30, 2014, the consolidated balance of noncurrent trade accounts receivable included R$ 182,770 (R$ 160,478 at December 31, 2013), referring to the new business model for resale of goods to legal entities, whose days sales outstanding is up to 24 months. At June 30, 2014, the impact of the present value adjustment amounted to R$ 21,411 (R$ 18,174 at December 31, 2013).

TData has a product called “Soluciona TI,” which consists of leasing IT equipment to small- and medium-sized enterprises, for which TData receives fixed installments over the lease term. Considering the contractual terms, the Company classified this product as Finance Lease. At June 30, 2014, the consolidated balance of noncurrent trade accounts receivable included R$ 98,172 (R$ 96,608 at December 31, 2013) relating to this product.

The consolidated balance of current and noncurrent trade accounts receivable, relating to finance lease of “Soluciona TI” product, comprises the following effects:

	Consolidated
	06/30/14	12/31/13
Present value receivable	347,362	335,376
Unrealized financial income	6,118	7,058
Nominal value receivable	353,480	342,434
Estimated impairment losses	(113,511)	(99,791)
Net amount receivable	239,969	242,643

Current	141,797	146,035
Noncurrent	98,172	96,608

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

At June 30, 2014, the aging list of trade accounts receivable referring to “Soluciona TI” product is as follows:

	Consolidated
	Nominal value receivable	Present value receivable
Falling due within 1 year	249,190	249,190
Falling within 5 years	104,290	98,172
Total	353,480	347,362

There are no unsecured net book values resulting in benefits to the lessor nor contingent payments recognized as revenue over the year.

5. INVENTORIES

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
Consumer materials	70,321	55,431	71,686	58,492
Materials for resale (a)	465,791	459,949	491,201	498,803
Other inventories	6,482	6,481	6,482	6,481
Gross total	542,594	521,861	569,369	563,776
Estimated impairment losses and obsolescence	(52,548)	(52,275)	(59,035)	(58,161)
Total	490,046	469,586	510,334	505,615

(a) This includes, among others, mobile telephones, simcards (chip) and IT equipment in stock.

Changes in estimated impairment losses and inventory obsolescence are as follows:

	Company	Consolidated
Balance at December 31, 2013	(52,275)	(58,161)
Additions	(10,745)	(12,563)
Reversals	10,472	11,689
Balance at June 30, 2014	(52,548)	(59,035)

The cost of sales includes additions/reversals of estimated impairment losses and inventory obsolescence (Note 23).

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

6. DEFERRED TAXES AND TAXES RECOVERABLE

6.1 Taxes recoverable

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
State VAT - ICMS (a)	1,865,240	1,908,754	1,873,394	1,911,703
Income and social contribution taxes recoverable (b)	266,454	374,096	270,706	377,704
Taxes and contribution withheld at source (c)	42,764	174,015	57,536	188,659
Contribution Taxes on Gross Revenue for Social Integration Program (PIS) and for Social Security Financing (COFINS)	50,943	62,449	52,900	63,816
Other	16,296	17,871	18,898	18,468
Total	2,241,697	2,537,185	2,273,434	2,560,350

Current	1,836,497	2,168,797	1,868,234	2,191,962
Noncurrent	405,200	368,388	405,200	368,388

(a) This includes credits arising from acquisition of property and equipment (subject to offsetting in 48 months), in ICMS refund request, which was paid under invoices later cancelled, for the rendering of services, tax replacement, rate difference, among others.
(b) These mainly refer to prepayments of income and social contribution taxes, which will be offset against federal taxes to be determined in the future.
(c) These refer to credits on Withholding Income Tax (IRRF) on short-term investments, interest on equity and others, which are used as deduction in operations for the period and social contribution tax withheld at source on services provided to public agencies.

6.2 Deferred taxes

Deferred income and social contribution tax assets are computed considering expected generation of taxable profit, which were based on a technical feasibility study, approved by the Board of Directors.

Significant components of deferred income and social contribution taxes are as follows:

	Company		Consolidated
	06/30/14	12/31/13	06/30/14	12/31/13
Deferred tax assets
Income and social contribution tax losses (a)	-	122,321	82,493	262,915
Income and social contribution taxes on temporary differences (c)
Provisions for tax, civil and labor claims	1,436,810	1,322,244	1,442,081	1,327,288
Post-employment benefits	149,387	143,537	149,387	143,537
Estimated impairment losses on accounts receivable	261,662	241,203	268,623	245,556
Estimated losses modem and other property and equipment items	184,393	164,518	186,706	166,174
Profit sharing	54,946	71,287	55,332	71,948
Accelerated accounting depreciation	155,009	154,181	155,009	154,181
Estimated impairment losses on inventory	10,134	10,884	12,340	12,885
Provision for loyalty program	31,383	31,199	31,383	31,199
Customer portfolio and trademarks (Note 26)	311,141	-	311,141	-
Trade accounts payable and other provisions	518,999	338,458	600,383	398,956
Income and social contribution taxes on temporary differences	157,453	157,988	156,767	157,313
Total	3,271,317	2,757,820	3,451,645	2,971,952

Telefônica Brasil S. A.

Notes to Quarterly Information

June 30, 2014

(In thousands of reais)

Deferred tax liabilities
Merged tax credit (b)	(337,535)