0000933267-15-000122.txt : 20151117 0000933267-15-000122.hdr.sgml : 20151117 20151117172135 ACCESSION NUMBER: 0000933267-15-000122 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20151117 FILED AS OF DATE: 20151117 DATE AS OF CHANGE: 20151117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRESUD INC CENTRAL INDEX KEY: 0001034957 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 000000000 STATE OF INCORPORATION: C1 FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-29190 FILM NUMBER: 151238981 BUSINESS ADDRESS: STREET 1: MORENO 877 CITY: BUENOS AIRES STATE: C1 ZIP: C1091AAQ BUSINESS PHONE: 00541143237449 MAIL ADDRESS: STREET 1: MORENO 877 CITY: BUENOS AIRES STATE: C1 ZIP: C1091AAQ 20-F 1 form20f.htm CRESUD 20F 2015 form20f.htm
 
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
[  ]
  
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR

[X]
  
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: June 30, 2015
 
OR

[  ]
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR

[  ]
  
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report ___
 
For the transition period from ___ to___
 
Commission file number: 001-29190
 
CRESUD SOCIEDAD ANONIMA COMERCIAL INMOBILIARIA FINANCIERA Y AGROPECUARIA
(Exact name of Registrant as specified in its charter)
 
CRESUD INC.
(Translation of Registrant’s name into English)
 
Republic of Argentina
(Jurisdiction of incorporation or organization)
 
Moreno 877, 23 Floor,
(C1091AAQ) City of Buenos Aires, Argentina
(Address of principal executive offices)
 
Matías Gaivironsky
Chief Financial Officer
Tel +(5411) 4323-7449 – finanzas@cresud.com.ar
Moreno 877, 24 Floor,
(C1091AAQ) Buenos Aires, Argentina
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 

 

 
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class
    
  
Name of each exchange on which registered
     
American Depositary Shares, each representing
ten shares of Common Stock
    
  
Nasdaq National Market of the
Nasdaq Stock Market
     
Common Stock, par value one Peso per share
    
  
Nasdaq National Market of the
Nasdaq Stock Market*
 
 

 
*
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Cresud S.A.C.I.F. y A.
(THE “COMPANY”)
 

 
The number of outstanding shares of the issuer’s common stock as of June 30, 2015 was 501,642,804.
 
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act:
 
£    Yes                      S           No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
 
S    Yes                      £           No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
S    Yes                      £           No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
£    Yes                      S           No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
 
Large accelerated filer £                                                        Accelerated filer S                                          Non-accelerated filer £
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
         
U.S. GAAP  
£
International Financial Reporting Standards as issued by the International Accounting Standards Board
S
Other  £
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
£    Item 17                                £           Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
£    Yes                      S           No


 

Cresud

 
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Item 17
  194
Item 18
  194
Item 19
  195
 

 
1
 

 
 
The Private Securities Litigation Reform Act of 1995 provides a “Safe Harbor” for forward looking statements.
 
This annual report contains or incorporates by reference statements that constitute “forward-looking statements,” regarding the intent, belief or current expectations of our directors and officers with respect to our future operating performance. Such statements include any forecasts, projections and descriptions of anticipated cost savings or other synergies. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” variations of such words, and similar expressions are intended to identify such forward-looking statements. You should be aware that any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties, and that actual results may differ from those set forth in the forward-looking statements as a result of various factors (including, without limitations, the actions of competitors, future global economic conditions, market conditions, foreign exchange rates, and operating and financial risks related to managing growth and integrating acquired businesses), many of which are beyond our control. The occurrence of any such factors not currently expected by us would significantly alter the results set forth in these statements.
 
Factors that could cause actual results to differ materially and adversely include, but are not limited to:
 
 
•
changes in general economic, business or political or other conditions in Argentina or changes in general economic or business conditions in latin america; and other countries in which we have direct and/or indirect operations and/or investments.
 
•
changes in capital markets in general that may affect policies or attitudes toward lending to Argentina or Argentine companies;
 
•
inflation, changes in exchange rates or regulations applicable to currency exchanges or transfers;
 
•
our ability to integrate our business with companies and/or assets we may acquire;
 
•
unexpected developments in certain existing litigation;
 
•
current and future laws and governmental regulations applicable to our business;
 
•
increased costs;
 
•
fluctuations and reductions on the value of Argentina’s public debt;
 
•
unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms;
 
•
force majeure; and
 
•
the risk factors discussed under Item 3 (d) Risk Factors.
 
You should not place undue reliance on such statements, which speak only as of the date that they were made. Our independent public accountants have not examined or compiled the forward-looking statements and, accordingly, do not provide any assurance with respect to such statements. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future. We do not undertake any obligation to release publicly any revisions to such forward-looking statements after filing of this Form to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
 
 
As used throughout this annual report, the terms “Cresud”, “Company”, “we”, “us”, and “our” refer to Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, together with our consolidated subsidiaries, except where we make clear that such terms refer only to the parent company.
 
References to “Tons”, “tons” or “Tns.” are to metric tons, to “kgs” are to kilograms, to “ltrs” are to liters, “Hct” are to hectares, “m2” and “square meters” are to square meters, while in the United States and certain other jurisdictions, the standard measure of area is the square foot (sq.ft). A metric ton is equal to 1,000 kilograms. A kilogram is equal to approximately 2.2 pounds. A metric ton of wheat is equal to approximately 36.74 bushels. A metric ton of corn is equal to approximately 39.37 bushels. A square meter is equal to 10.77 sq. ft. A metric ton of soybean is equal to approximately 36.74 bushels. One gallon is equal to 3.7854 liter. One hectare is equal to approximately 2.47 acres and 10,000 square meters. One kilogram of live weight cattle is equal to approximately 0.5 to 0.6 kilogram of carcass (meat and bones).
 
As used herein: “GLA or gross leasable area”, in the case of shopping centers, refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).
 
 
FINANCIAL STATEMENTS
 
This annual report contains our Audited Consolidated Financial Statements as of June 30, 2015 and 2014 and for the fiscal years ended June 30, 2015, 2014 and 2013 (our “Audited Consolidated Financial Statements”). Our Audited Consolidated Financial Statements have been audited by Price Waterhouse & Co. S.R.L. Buenos Aires Argentina, a member firm of PricewaterhouseCoopers International Limited, an independent registered public accounting firm (“Price Waterhouse & Co.”), whose report is included herein.
 
Pursuant to Resolution No.562/09 issued by the Comisión Nacional de Valores (“CNV”), as subsequently amended by Resolution No. 576/10, text amended and restated by Resolution No. 622/13 (the “Rules of the CNV”), all listed companies in Argentina with certain exceptions (i.e. financial institutions and insurance entities) are required to present their Audited Consolidated Financial Statements for accounting periods beginning on or after January 1, 2012 in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).  Therefore, we have prepared our Audited Consolidated Financial Statements under IFRS for the first time for our fiscal year ended June 30, 2013, which included comparative financial information for the year ended June 30, 2012. The opening IFRS statement of financial position was prepared as of our transition date of July 1, 2011. All IFRS standards issued by the IASB effective at the time of preparing the Audited Consolidated Financial Statements have been applied.
 

 
2
 



 
 
Market data used throughout this annual report was derived from reports prepared by unaffiliated third-party sources. Such reports generally state that the information contained therein has been obtained from sources believed by such sources to be reliable. Certain market data which appear herein (including percentage amounts) may not sum due to rounding.
 
In this annual report where we refer to “Peso”, “Pesos”, or “Ps.” we mean Argentine Pesos, the lawful currency in Argentina; when we refer to “U.S. Dollars”, or “US$” we mean United States Dollars, the lawful currency of the United States of America; when we refer to “Real”, “Reals”, “Rs.” or “R$” we mean Brazilian Real, the lawful currency in the Federative Republic of Brazil; when we refer to “NIS”, we mean New Israeli Shekels, the lawful currency of Israel; and when we refer to “Central Bank” we mean the Argentine Central Bank.
 
Solely for the convenience of the reader, we have translated certain Peso amounts into U.S. Dollars at the offer exchange rate quoted by Banco de la Nación Argentina for June 30, 2015, which was Ps. 9.088 = US$ 1.00. We make no representation that the Peso or U.S. Dollar amounts actually represent or could have been or could be converted into U.S. Dollars at the rates indicated, at any particular rate or at all.
 

 
 

 
3
 

 
 
This item is not applicable.
 
 
This item is not applicable.
 
Item 3.    Key Information
 
 
The following selected consolidated financial data has been derived from our Audited Consolidated Financial Statements as of the dates and for each of the periods indicated below. This information should also be read in conjunction with our Audited Consolidated Financial Statements included under Item 8. “Financial Information”, and the discussion in Item 5. “Operating and Financial Review and Prospects”.
 
The selected consolidated statements of income and comprehensive income data for the years ended June 30, 2015, 2014, 2013 and 2012 and the selected consolidated statements of financial position data as of June 30, 2015 and 2014 have been derived from our Audited Consolidated Financial Statements included in this annual report which have been audited by Price Waterhouse & Co S.R.L. City of Buenos Aires, Argentina, member of PriceWaterhouseCoopers International Limited, an independent registered public accountants’ firm.
 
The selected consolidated statements of income and comprehensive income data for the year ended June 30, 2012 and the selected consolidated statements of financial position data as of June 30, 2013, 2012 and July 1, 2011 have been derived from our Audited Consolidated Financial Statements as of June, 30, 2013 which have been audited by Price Waterhouse & Co S.R.L. and are not included herein.
 
 
 
 
 
 
   
IFRS
  
   
For the fiscal year ended June 30,
  
   
2015(1)
    
2015
    
2014
    
2013
    
2012
  
   
(in thousands of US$)
    
(in thousands of Ps.)
  
Consolidated Statements of Income
                              
                               
Revenues
     621,898       5,651,805       4,604,011       3,528,551       2,859,849  
Costs
     (524,837 )     (4,769,715 )     (3,914,592 )     (3,120,495 )     (2,464,219 )
Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest
     145,703       1,324,152       1,152,653       886,744       700,946  
Changes in net realizable value of agricultural produce after harvest
     (3,793 )     (34,471 )     (17,447 )     11,756       2,720  
Gross Profit
     238,971       2,171,771       1,824,625       1,306,556       1,099,296  
                                         
Gain from disposal of investment properties
     126,566       1,150,230       230,918       177,999       116,689  
Gain from disposal of farmlands
     60,570       550,462       91,356       149,584       45,490  
General and administrative expenses
     (67,982 )     (617,820 )     (533,939 )     (346,383 )     (320,677 )
Selling expenses
     (52,174 )     (474,158 )     (352,726 )     (279,463 )     (200,461 )
Other operating results, net
     1,343       12,209       (75,008 )     98,068       (93,381 )
Profit from operations
    307,294       2,792,694       1,185,226       1,106,361       646,956  
                                         
Share of (loss)/profit of associates and joint ventures
     (112,783 )     (1,024,972 )     (408,651 )     (9,818 )     2,796  
Profit from operations before financing and taxation
    194,511       1,767,722       776,575       1,096,543       649,752  
                                         
Finance income
     26,530       241,109       288,188       200,857       139,491  
Finance cost
     (185,335 )     (1,684,328 )     (2,852,000 )     (1,124,746 )     (757,497 )
Other Financial results
     17,062       155,058       (10,586 )     15,128       48,691  
Financial results, net
     (141,743 )     (1,288,161 )     (2,574,398 )     (908,761 )     (569,315 )
Profit/(Loss) before income tax
     52,768       479,561       (1,797,823 )     187,782       80,437  
Income tax (expense)/benefit
     (33,379 )     (303,350 )     389,415       (33,519 )     (21,956 )
Profit/(Loss) for the year
     19,329       176,211       (1,408,408 )     154,263       58,481  
Attributable to:
                                        
Equity holders of the parent
     (27,468 )      (249,619 )      (1,067,880 )     (26,907 )     (21,329 )
Non-controlling interest
     46,856       425,830       (340,528 )     181,170       79,810  
                                         

 
4
 

 
   
IFRS
  
   
For the fiscal year ended June 30,
  
   
2015(1)
    
2015
    
2014
    
2013
    
2012
  
   
(in thousands of US$)
    
(in thousands of Ps.)
  
Consolidated Statements of Comprehensive Income
                              
                               
Profit/(Loss) for the year
     19,389       176,211       (1,408,408 )     154,263       58,481  
Other comprehensive income:
                      
Items that may be reclassified subsequently to profit or loss:
                                        
Currency translation adjustment
     (57,382 )     (521,489 )     1,284,550       180,908       (231,288 )
Currency translation adjustment from associates and joint ventures
     8,980       81,606       (17,409 )     1,715       (3,530 )
Other comprehensive (loss)/income for the year
     (48,402 )     (439,883 )     1,267,141       182,623       (234,818 )
Total comprehensive income/(loss) for the year
     29,013       (263,672 )      (141,267 )     336,886       (176,337 )
Attributable to:
                                        
Equity holders of the parent
     (48,430 )     (440,130 )     (436,557 )     65,647       (103,268 )
Non-controlling interest
     19,416       176,458       295,290       271,239       (73,069 )
 
   
IFRS
  
   
As of fiscal year ended June 30,
  
      2015(1)       2015       2014       2013       2012  
   
(in thousands of US$)
    
(in thousands of Ps.)
  
CASH FLOW DATA
                                        
Net cash generated from operating activities
     54,414       494,514       883,163       648,519       668,411  
Net cash generated from/(used in) investing activities
     96,161       873,910       (885,945 )     (93,012 )     (353,920 )
Net cash used in financing activities
     (195,669 )     (1,778,241 )     (446,249 )     (17,160 )     (478,941 )

   
IFRS
  
   
For the fiscal year ended June 30,
    
July 1,
  
   
2015(1)
    
2015
    
2014
    
2013
    
2012
    
2011
  
   
(in thousands of US$)
    
(in thousands of Ps.)
  
Consolidated Statements of Financial Position
                                    
ASSETS
                                    
Non-Current Assets
                                    
Investment properties
     382,368       3,474,959       3,454,616       4,171,401       3,454,677       3,544,383  
Property, plant and equipment
     217,561       1,977,195       2,381,956       1,841,454       1,872,920       1,976,970  
Trading properties
     14,267       129,654       132,555       97,828       86,511       74,058  
Intangible assets
     19,340       175,763       175,007       218,537       168,302       173,682  
Biological assets
     50,493       458,879       444,853       303,128       278,208       325,864  
Investments in associates and joint ventures
     305,093       2,772,685       2,375,339       1,486,862       1,500,560       1,438,855  
Deferred income tax assets
     71,763       652,186       852,642       179,228       80,674       23,914  
Income tax credit
     17,656       160,457       177,547       198,871       156,892       123,854  
Restricted assets
     473       4,301       50,897       54,631       -       -  
Trade and other receivables
     46,960       426,777       475,349       291,430       297,169       236,787  
Investment in financial assets
     68,535       622,845       275,012       253,742       626,683       426,152  
Derivative financial instruments
     22,844       207,602       233       25,377       18,434       60,442  
Total Non-Current Assets
     1,217,353       11,063,303       10,796,006       9,122,489       8,541,030       8,404,961  
Current Assets
                                                
Trading properties
     363       3,300       4,596       11,689       10,529       28,443  
Biological assets
     13,204       119,998       195,830       97,564       85,251       107,239  
Inventories
     56,267       511,350       439,771       252,376       253,447       371,268  
Restricted assets
     66,794       607,021       -       1,022       -       -  
Income tax credit
     3,383       30,749       19,694       4,779       28,762       76,116  
Assets held for sale
     -       -       1,357,866       -       -       -  
Trade and other receivables
     195,023       1,772,373       1,438,408       1,480,314       859,302       679,426  
Investment in financial assets
     55,469       504,102       495,633       385,585       72,069       62,465  
Derivative financial instruments
     3,252       29,554       32,897       7,321       2,578       18,966  
Cash and cash equivalents
     69,729       633,693       1,002,987       1,047,586       471,922       694,552  
Total Current Assets
     463,484       4,212,140       4,987,682       3,288,236       1,783,860       2,038,475  
                                                 
TOTAL ASSETS
     1,680,837       15,275,443       15,783,688       12,410,725       10,324,890       10,443,436  


 
5
 


                                     
   
IFRS
  
   
 As of fiscal year ended June 30,
    
July 1,
  
   
2015(1)
    
2015
    
2014
    
2013
    
2012
    
2011
  
   
(in thousands of US$)
    
(in thousands of Ps.)
        
SHAREHOLDERS’ EQUITY
                                    
                                     
Capital and Reserves Attributable to Equity Holders of the Parent
                                
Share capital
     54,443       494,777       490,997       496,562       496,562       496,562  
Treasury stock
     756       6,866       10,566       5,001       5,001       5,001  
Inflation adjustment of share capital
     7,101       64,530       64,047       64,773       164,561       164,561  
Inflation adjustment of treasury stock
     98       895       1,378       652       1,657       1,657  
Share premium
     72,564       659,464       773,079       773,079       773,079       773,079  
Additional paid-in capital from treasury stock
     1,395       12,678       -       -       -       -  
Cost of treasury stock
     (3,543 )     (32,198 )     (54,876 )     -       -       -  
Share warrants
     -       -       106,264       106,264       106,263       106,263  
Cumulative translation adjustment
     48,756       443,096       633,607       2,284       (6,889 )     -  
Equity-settled compensation
     9,022       81,988       70,028       8,345       (81,939 )     -  
Changes in non-controlling interest
     5,921       53,806       (15,429 )     (21,996 )     1,833       1,012  
Legal reserve
     -       -       81,616       46,835       42,922       32,293  
Reserve for new developments
     -       -       17,065       337,065       389,202       320,064  
Special reserve
     -       -       633,940       695,628       -       -  
Reserve for the acquisition of securities issued by the company
     3,543       32,198       200,000       -       -       -  
(Accumulated deficit) / Retained Earnings
     (27,076 )      (246,069 )      (1,066,428 )     (26,522 )     666,611       829,207  
Equity Attributable to equity holders of the parent
     172,980       1,572,031       1,945,854       2,487,970       2,558,863       2,729,699  
Non-controlling interest
     256,374       2,329,927       2,488,932       2,231,096       2,132,648       2,480,379  
TOTAL SHAREHOLDERS’ EQUITY
     429,354       3,901,958       4,434,786       4,719,066       4,691,511       5,210,078  
                                                 
LIABILITIES
                                                
Non-current liabilities
                                                
Trade and other payables
     29,055       264,054       216,760       228,267       168,860       155,726  
Borrowings
     641,832       5,832,973       5,315,335       4,189,896       2,770,087       2,056,244  
Deferred income tax liabilities
     16,581       150,691       470,045       530,263       630,011       769,941  
Derivative financial instruments
     29,704       269,949       320,847       2,773       22,859       -  
Payroll and social security liabilities
     609       5,539       5,041       3,984       783       635  
Provisions
     42,578       386,948       220,489       71,626       22,553       14,939  
Total non-current liabilities
     760,359       6,910,154       6,548,517       5,026,809       3,615,153       2,997,485  
Current Liabilities
                                                
Trade and other payables
     143,798       1,306,835       1,004,180       899,542       586,691       580,675  
Income tax liabilities
     15,665       142,361       73,429       92,182       118,041       80,242  
Payroll and social security liabilities
     25,352       230,400       202,546       120,835       103,919       81,085  
Borrowings
     271,350       2,466,030       2,639,491       1,527,390       1,187,082       1,479,803  
Derivative financial instruments
     28,910       262,734       53,419       8,691       18,558       8,353  
Provisions
     6,049       54,971       20,708       16,210       3,935       5,715  
Liabilities held for sale
     -       -       806,612       -       -       -  
Total current liabilities
     491,124       4,463,331       4,800,385       2,664,850       2,018,226       2,235,873  
TOTAL LIABILITIES
     1,251,483       11,373,485       11,348,902       7,691,659       5,633,379       5,233,358  
                                                 
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES
     1,680,837       15,275,443       15,783,688       12,410,725       10,324,890       10,443,436  

 
6
 


 
   
IFRS
As of fiscal year ended June 30
  
   
2015(1)
    
2015
    
2014
    
2013
    
2012
  
Other Financial Data
  
(in US$, except for percentages, ratios and number of shares)
    
(in Ps, except for percentages, ratios, number of shares, per share and per ADS data)
  
                               
Basic net income per share (2)
     (0.06 )     (0.51 )     (2.15 )     (0.05 )     (0.04 )
Diluted net income per share (3)
     (0.06 )     (0.51 )     (2.15 )     (0.05 )     (0.04 )
Basic net income per ADS (2)(4)
     (0.56 )      (5.07 )      (21.50 )     (0.54 )     (0.43 )
Diluted net income per ADS (3)(4)
     (0.56
)
     (4.50 )      (21.50 )     (0.54 )     (0.43 )
Capital stock
     55,199       501,643       501,563       501,563       501,563  
Number of common shares
     501,642,804       501,642,804       501,562,730       501,562,730       501,562,534  
Weighted – average number of common shares outstanding
     492,020,463       492,020,463       496,132,488       496,561,931       496,561,780  
Diluted weighted – average number of common shares (5)  
     554,375,631       554,375,631       558,487,656       558,917,099       558,916,948  
Dividends paid (6)
     -       -       -       120,000       120,000  
Dividends per share
     -       -       -       0.24       0.24  
Dividends per ADS (4)
     -       -       -       2.42       2.42  
Depreciation and amortization
     28,369       257,822       296,919       279,738       233,137  
Gross margin (7)
     0.31       0.31       0.32       0.30       0.31  
Operating margin (8)
     0.40       0.40       0.21       0.25       0.18  
Net margin (9)
     0.03       0.03       (0.24 )     0.03       0.02  
Ratio of current assets to current liabilities (10)
     0.94       0.94       1.04       1.23       0.88  
Ratio of shareholders’ equity to total liabilities (11)
     0.34       0.34       0.39       0.61       0.83  
Ratio of non current assets to total assets (12)
     0.72       0.72       0.68       0.74       0.83  
Ratio of “Return on Equity” – ROE (13)
     0.04       0.04       (0.31 )     0.03       0.01  

(1)
Solely for the convenience of the reader, we have translated Peso amounts into U.S. Dollars at the exchange rate quoted by Banco de La Nación Argentina for June 30, 2015 which was Ps.9.088 = US$1.00. We make no representation that the Peso or U.S. Dollar amounts actually represent, could have been or could be converted into U.S. Dollars at the rates indicated, at any particular rate or at all.
(2)
Basic net income per share is computed by dividing the net income available to common shareholders for the period by the weighted average common shares outstanding during the period.
(3)
Diluted net income per share is computed by dividing the net income for the period by the weighted average number of common shares assuming the total conversion of outstanding notes and exercise of outstanding options. Due to the loss for the years 2014, 2013 and 2012, there is no diluted effect on this result.
(4)
Determined by multiplying per share amounts by ten (one ADS equals ten common shares).
(5)
Assuming exercise of all outstanding warrants to purchase our common shares.
(6)
The shareholders’ meeting held in October 2013 approved the distribution of a cash dividend for an amount of Ps.120 million for the fiscal year ended June 30, 2013.
(7)
Gross profit divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(8)
Operating income divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(9)
Net income divided by the sum of revenues and initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
(10)
Current assets over current liabilities.
(11)
Shareholders’ equity over total liabilities.
(12)
Non-current assets over total assets.
(13)
Profitability refers to Income for the year divided by average Shareholders’ equity.
       
 
Exchange Rates
 
In addition to the above measures, on February 8, 2002, the Argentine Central Bank (the “Central Bank”) issued strong restrictions which required the prior authorization of the Central Bank with respect to transfers of funds abroad for the purpose of servicing principal and/or interest payments on foreign indebtedness.
 
Since October 2011, the Argentine government has expanded the restrictions on access to the foreign exchange market and transfers of foreign currency abroad. Through a combination of foreign exchange and tax regulations, the Argentine authorities have significantly curtailed access to foreign exchange by individuals and private sector entities. Current foreign exchange regulations include, among others, the obligation to obtain prior approval by the Central Bank of certain foreign exchange transactions such as payments relating to royalties, services or fees payable to related parties of Argentine companies outside Argentina (pursuant to section 3.4 of Central Bank Communication “A” 5264, issued January 3, 2012, as amended and supplemented), the ability of individuals to purchase foreign currency, subject to the limits set forth by the Argentine tax authority, restrictions for legal entities to purchase foreign currency to create or increase portfolio investments outside of Argentina, and limits to the net position in foreign exchange holdings of financial institutions (pursuant to Central Bank Communication “A” 5611, issued on August 4, 2014).
 
The following table shows the maximum, minimum, average and closing exchange rates for each period applicable to purchases of U.S. Dollars.
 

 
7
 



 

   
Maximum(1)(2)
    
Minimum(1)(3)
    
Average(1)(4)
    
At closing(1)
  
Fiscal year ended June 30, 2011
     4.0900       3.9110       3.9810       4.0900  
Fiscal year ended June 30, 2012
     4.5070       4.0900       4.2808       4.5070  
Fiscal year ended June 30, 2013
     5.3680       4.5050       4.8914       5.3680  
Fiscal year ended June 30, 2014
     8.0830       5.3700       6.7657       8.0830  
Fiscal year ended June 30, 2015
     9.0380       8.0850       8.5599       9.0380  
July 2015
     9.1400       9.0430       9.0934       9.1400  
August 2015
     9.2460       9.1450       9.1939       9.2460  
September 2015
     9.3720       9.2540       9.3167       9.3720  
October 2015
     9.4960       9.3800       9.4407       9.4960  
November 2015 (through Novemeber 12, 2015)     9.5650       9.5050       9.5337       9.5650  
 
 
Source: Central Bank
 
(1)
Average between the offer exchange rate and the bid exchange rate according to Banco de la Nación Argentina “foreign currency exchange rate”.
 
(2)
The maximum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.
 
(3)
The minimum exchange rate appearing in the table was the highest end-of-month exchange rate in the year or shorter period, as indicated.
 
(4)
Average exchange rates at the end of the month.
 
 
Increases in Argentine inflation or devaluation and depreciation of the Peso could have a material adverse effect on our results.

 
This section is not applicable.
 
 
This section is not applicable.
 
 
You should carefully consider the risks described below, in addition to the other information contained in this annual report, before making an investment decision. We also may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may adversely affect our business. In general, you take more risk when you invest in the securities of issuers in emerging markets such as Argentina than when you invest in the securities of issuers in the United States. You should understand that an investment in our common shares and American Depositary Shares (“ADSs”) involves a high degree of risk, including the possibility of loss of your entire investment.
 
Risks Relating to Argentina.
 
We depend on macroeconomic and political conditions in Argentina.
 
We are exposed to economic conditions in Argentina, considering that as of the date of this annual report, substantially all of our assets were located in Argentina and all of our activities are conducted in Argentina. The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high and variable levels of inflation and currency devaluation.
 
During 2001 and 2002, Argentina experienced a period of severe political, economic and social crisis, which caused a significant economic contraction and led to radical changes in government policies. Among other consequences, the crisis resulted in Argentina defaulting on its foreign debt obligations, introducing emergency measures and numerous changes in economic policies that affected the utility companies and many other sectors of the economy, and suffering a significant devaluation of the Peso, which in turn caused numerous Argentine private sector debtors with foreign currency exposure to default on their outstanding debt. Although the economy has largely recovered from the crisis, during 2014, the Argentine economy has shown signs of slowdown due to the increase in the applicable exchange rates and decreases in commodity prices. The Argentine economy is suffering high inflation and has an increasing need of capital investment, with many sectors, particularly the energy sector, operating near full capacity.
 
An economic slowdown suggests uncertainty as to whether the economic growth experienced in the past decade may be sustainable. This is mainly because economic growth was initially dependent on a significant devaluation of the Argentine Peso, excess production capacity resulting from a long period of deep recession and high commodity prices. Furthermore, the economy has suffered a sustained erosion of direct investment and capital investment. After the 2001 economic crisis, Argentina recovered with significant increases in gross domestic product (“GDP”) at an average of 8.5% on annual basis between 2003 and 2008. As a result of the 2008 global financial crisis, Argentina GDP’s growth rate decreased to 0.9% in 2009, though growth rebounded to 9.2% in 2010 and 8.9% in 2011. During 2012, the Argentine economy experienced a slowdown, with GDP increasing at a rate of 1.9%. In March 2014, the Argentine government announced a new method of calculating GDP as requested by the International Monetary Fund (“IMF”) (using 2004 as the base year instead of 1993, which was the base reference year used in the prior method of GDP calculation). Following changes in the methodology used in calculating GDP, the National Institute of Statistics (“Instituto Nacional de Estadísticas y Censos” or “INDEC”) reported that Argentina’s GDP’s growth rate for 2013 was 3% and 0.5% for 2014. This decrease was principally due to the deceleration of the global economy and macroeconomic conditions in Argentina during 2014. As of July 31, 2015, the Monthly Economic Activity Estimator (Estimador Mensual de Actividad Económica, or the “EMAE”) increased 2.7%, relative to the same period in the prior year, according to data published by the INDEC. Argentina’s relative stability since 2002 has been affected by increased social and political tension and government intervention in the economy.
 
Our business depends to a significant extent on macroeconomic and political conditions in Argentina. Deterioration of the country’s economy would likely have a significant adverse effect on our business, financial condition and results of operations.
 
Continuing inflation may have an adverse effect on the economy.
 
According to the INDEC, the consumer price index increased 23.9%, 10.9% and 10.8% in 2014, 2013 and 2012, respectively, and for the six months ended June 30, 2015, increased 15.0% relative to the same period in the prior year. Uncertainty surrounding future inflation rates has slowed any potential recovery in the long-term credit market. Private estimates, on average, refer to annual rates of inflation substantially in excess of those published by the INDEC.
 
 

 
8
 
In the past, inflation has materially undermined the Argentine economy and the government’s ability to foster conditions that would permit stable growth. High inflation may also undermine Argentina’s foreign competitiveness in international markets and adversely affect economic activity and employment, as well as our business and results of operation. In particular, the margin on our services is impacted by the increase in our costs in providing those services, which is influenced by wage inflation in Argentina, as well as other factors. While certain of our tenant leases include provisions that allow us to agree with our tenants to periodical increases of the lease prices, there can be no assurance that these provisions will adequately protected us against rapid inflation.
 
High inflation would also adversely affect economic activity, employment, real salaries, consumption and interest rates. In addition, the dilution of the positive effects of the Peso devaluation on the export-oriented sectors of the Argentine economy will decrease the level of economic activity in the country. In turn, 5% of the Argentine debt is adjusted by the Reference Stabilization Coefficient (“Coeficiente de Estabilización de Referencia” or “CER” as per its acronym in Spanish), a currency index that is strongly tied to inflation. Therefore, any significant increase in inflation would cause an increase in Argentina’s debt and, consequently, the country’s financial obligations.
 
The government has taken certain measures in order to control inflation, such as implementing a fair price program, by virtue of which supermarkets have to offer certain products at a government determined price, and sectorial agreements in order to implement salary increases. Additionally, the Argentine government has recently enacted Law No.26,991 (the “Supply Law”), which amends Law No.20,680, and enables the federal government to intervene in certain markets when it considers that any party to such market is trying to impose prices, or supply restrictions over such market. The Supply Law provides among others pecuniary sanctions, suspension, seizure of operations, and confiscation of goods.
 
If inflation remains high or continues to rise, Argentina’s economy may be negatively impacted and our business could be adversely affected.
 
There are concerns about the accuracy of Argentina’s official inflation statistics.
 
In January 2007, the INDEC modified its methodology used to calculate the consumer price index, which was calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. At the time that the INDEC adopted this change in methodology the Argentine government also replaced several key officers at the INDEC, prompting complaints of governmental interference from the technical staff at the INDEC. In addition, the International Monetary Fund (“IMF”) requested to clarify its inflation rates several times.
 
On November 23, 2010, the Argentine government began consulting with the IMF for technical assistance in order to prepare a new national consumer price index with the aim of modernizing the current statistical system. During the first quarter of 2011, a team from the IMF started working in conjunction with the INDEC in order to create such an index. Notwithstanding such efforts, reports published by the IMF stated that its staff also used alternative measures of inflation for macroeconomic surveillance, including data produced by private sources, and such measures have shown inflation rates that are considerably higher than those issued by the INDEC since 2007. Consequently, the IMF called on Argentina to adopt measures to improve the quality of used data by the INDEC. In a meeting held on February 1, 2013, the Executive Board of the IMF emphasized that the progress in implementing remedial measures since September 2012 has not been sufficient. As a result, the IMF issued a declaration of censure against Argentina in connection with the breach of its related obligations to the IMF and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay.
 
In order to address the quality of official data, a new consumer price index denominated Urban National Consumer’s Price Index (“Indice de Precios al Consumidor Nacional urbano” or the “IPCNu”), was enacted on February 13, 2014. For the year ended December 31, 2014 the IPCNu was 23.9%. The IPCNu represents the first national indicator to measure changes in prices of household goods for final consumption. While the previous price index only measured inflation in the Greater Buenos Aires, the IPCNu is calculated by measuring prices of goods across the entire urban population of the 23 provinces of Argentina and the City of Buenos Aires.  The IMF declared that it was going to review later in 2014 Argentina’s reports on progress in revising its inflation and gross domestic product statistics. However, as of the date of this annual report, it is still being reviewed by the IMF. In addition, in February 2014, the INDEC released a new GDP index for 2013, equal to 3.0%, which differs from the GDP index originally released by the INDEC for the same period which was 5.5%. In December 15, 2014, the IMF recognized the progress of Argentine authorities to remedy the inaccurate provision of data, but has delayed the definitive evaluation of the new index. If the IMF finds that the methodology of INDEC for calculating a new national consumer price index or GDP is inaccurate, or concludes that its methodology should be adjusted, that could result in financial and economic hazards for Argentina, including lack of financing from such organization. If these measures are adopted, the Argentine economy could suffer adverse effects, either by limiting access to international financial markets or increasing the financing cost associated therewith, which in turn would adversely affect our financial condition and results of operations.
 
Notwithstanding these measures to address appropriate inflation statistics, there are private reports implying significantly higher inflation rates than the official reports of the INDEC. Despite the changes adopted by the INDEC to the measurement procedure with the IPCNu, there are still some differences between the figures resulting from this indicator and those recorded by private consultants, the Argentine Congress and the provincial statistic agencies. If it is determined that it is necessary to unfavorably adjust the consumer price index and other INDEC indices, there could be a significant decrease in confidence in the Argentine economy, which could, in turn, have a material adverse effect on us.
 
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and public policies and foster economic growth.
 
Argentina’s 2001 default and its failure to fully restructure its sovereign debt and negotiate with the holdout creditors has limited and may continue to limit Argentina’s ability to access international capital markets. In 2005, Argentina completed the restructuring of a substantial portion of its indebtedness and settled all of its debt with the IMF. Additionally, in June 2010, Argentina completed the renegotiation of approximately 67% of the defaulted bonds that were not swapped in the 2005 restructuring. As a result of the 2005 and 2010 debt swaps, Argentina has restructured approximately 92.4% of its defaulted debt that was eligible for restructuring. Holdout creditors that declined to participate in the exchanges commenced numerous lawsuits against Argentina in several countries, including the United States, Italy, Germany, and Japan. Additionally, on May 29, 2014, the Argentine government and representatives of the Paris Club creditors reached an agreement to clear Argentina’s debt due to the Paris Club creditors, in arrears, in the total amount of US$9.7 billion as of April 30, 2014.
 
In related cases brought before the U.S. District Court for the Southern District of New York (the “District Court”), the plaintiffs argued that allowing Argentina to make payments under the new bonds issued pursuant to the debt swaps while it remained in default on its pre-2002 bonds violates the pari passu clause in the original bonds and entitles the plaintiffs to injunctive relief barring Argentina from making payments on the new bonds without making comparable payments on the original bonds. In late October 2012, the U.S. Court of Appeals for the Second Circuit in New York affirmed the District Court’s ruling that the pari passu clause in the pre-2002 bonds prevents Argentina from making payments unless it makes ratable payments to the holdout creditors at the same time. On November 21, 2012, the District Court specified that ratable payments to the holdout creditors would be the full amount owed on the bonds (including interest) and ordered Argentina to pay approximately US$1.3 billion plus interest owed to the holdout creditors’ party to such proceedings.
 

 
9
 
 
On appeal, the U.S. Court of Appeals for the Second Circuit ordered Argentina to submit a payment plan proposal for the holdout creditors, which Argentina did on March 29, 2013. On August 23, 2013, the U.S. Court of Appeals for the Second Circuit rejected Argentina’s payment proposal and affirmed the District Court’s November 21, 2012 injunctions (the “Injunction”). However, in the same ruling, the U.S. Court of Appeals for the Second Circuit stayed the enforcement of the injunctions pending the resolution by the U.S. Supreme Court of any timely petition for a writ of certiorari. In this regard, Argentina filed a petition for a writ of certiorari on June 24, 2013, which was denied as premature. Later, on February 18, 2014, Argentina and certain holders of the new bonds timely filed petitions for a writ of certiorari. On June 16, 2014, the U.S. Supreme Court denied Argentina’s petition for a writ of certiorari in connection therewith and, subsequently, on June 18, 2014, the U.S. Court of Appeals for the Second Circuit lifted its stay on the District Court’s Injunction. Separately, on June 16, 2014, the U.S. Supreme Court affirmed a District Court ruling to compel discovery from certain financial institutions concerning, among other things, Argentina’s assets.
 
On June 23, 2014, the District Court appointed a special master to mediate settlement negotiations between Argentina and the litigating bondholders. On June 26, 2014, the District Court denied Argentina’s request for a further stay of the Injunction. In addition, on or about June 27, 2014, Argentina transferred to The Bank of New York Mellon, in its capacity as trustee, amounts due June 30, 2014 in respect of certain of its restructured bonds. The District Court, however, prohibited such payment and ordered Argentina and the holders of its non-restructured bonds to agree on a payment schedule. Following negotiations between Argentina and the litigating bondholders, Argentina and such bondholders failed to reach an agreement in respect of its defaulted debt. By July 30, 2014, the end of the grace period provided under Argentina’s relevant restructured bonds for the payment of debt service thereunder, Argentina and the holdout creditors had not arrived on an agreement and The Bank of New York Mellon complied with the order of the District Court to not deliver the funds previously deposited by Argentina for payment to the holders of the restructured bonds under foreign law. While Argentina asserted that it complied with its obligation to the holders of the restructured bonds by making such deposit, and that the indenture trustee had the obligation to deliver such payment, on such date Standard & Poor’s Rating Services downgraded Argentina’s foreign currency credit rating to “selective default”, or “SD”, while on July 31, 2014, Fitch Ratings Inc. downgraded Argentina’s foreign currency issuer default rating to “restricted default”, or “RD”.
 
On September 11, 2014, the Argentine Congress enacted Law No.26,984, with the purpose of implementing legal mechanisms to allow restructured bondholders to collect payments under such bonds. Law No.26,984 established a new account in the name of Nación Fideicomisos S.A. with the Central Bank in order to make payments to restructured bondholders. Furthermore, Law No.26,984 set forth that the executive branch could implement an exchange of restructured bonds for Argentine law-governed bonds and for French law-governed bonds. As of the date of this annual report, no such mechanism has been implemented by the Argentine government. Separately, during August 2014 the Central Bank revoked The Bank of New York Mellon’s authorization to operate in Argentina. In connection with these and other actions taken by the Argentine government, the District Court held Argentina in contempt on September 29, 2014.
 
The District Court authorized limited exceptions to the Injunction allowing certain custodians of Argentine law-governed bonds to process payments in August 2014, September 2014 and December 2014. Payments on the remaining restructured bonds have not been processed as a consequence of the Injunction and various restructured bondholders have been seeking the release of such payments in court. As of the date of this annual report, the District Court has not authorized any other such releases or payments.
 
On January 2, 2015, Argentina deposited, for the benefit of the restructured bondholders, approximately US$1,000 million corresponding to the payment dated December 31, 2014. In addition, the Argentine government deposited US$539 million in Nación Fideicomisos S.A. to service interest of certain restructured bonds under foreign legislation and another amount reserved for payment to the holdouts, frozen as of the date of this annual report, as ordered by the District Court, in the accounts of Bank of New York in the Central Bank. At the date of this annual report, the consequences of the passage of the new sovereign payments law or the development and the effects of the NML Capital case could have on our business and operations are not clear.
 
The Argentine government successfully appealed such decision and on August 10, 2015, the U.S. Court of Appeals for the Second Circuit stated that the District Court had improperly expanded a class of bondholders who were seeking repayment following the 2002 default, stating thatthe District Court must return to a narrower definition of class, limited to those who have continuously held the eight series of bonds in question and to hold a hearing to determine the proper amount of damages.
 
In addition, the District Court stated in another ruling that it considers all Argentine government assets in the United States, except for diplomatic and military, as commercial assets which NML Capital could try to seize. The decision have allowed the found to request for the attachment of these assets, which have fallen specially on the Central Bank, Banco de la Nación Argentina, bank accounts of certain embassies, the Aquarius SAC-D satellite and the Frigate Libertad, among other assets. Meanwhile, Argentina’s lawyers and officials believe and argue that there are only diplomatic assets protected by sovereign immunity. In this context, the District Court ordered Argentina to provide information about assets in the United States within ten days and said that if the country holds assets which have no diplomatic or military purposes; they can be attached being considered “commercial use”.
 
On August 31, 2015 the Argentine government won an appeals court ruling. Such ruling denied a motion to dismiss for lack of subject matter jurisdiction filed by the Central Bank, stating that the District Court erred in: (1) imputing the Argentine government’s waiver of sovereign immunity to the Central Bank based on an alter‐ego theory; and (2) applying the commercial‐activity exception to Central Bank’s use of its account with the Federal Reserve Bank of New York. Accordingly, the U.S. Court of Appeals for the Second Circuit reversed the District Court’s order of September 26, 2013, and remands the cause with instructions to dismiss the complaint on sovereign immunity grounds.
 
Also, on September 16, 2015, the Argentine government won an additional appeals court ruling, which noted that defining a precise class to which Argentina owes damages for refusing to pay bondholders and calculating those damages have been "exasperating tasks," stating that “Judge Thomas P. Griesa was making it too easy for some plaintiffs by creating a class including bondholders who were not the original purchasers of the bonds”, while objective criteria may be necessary to define an ascertainable class, it cannot be the case that any objective criterion will do."
 
The continuation and outcome of this litigation may continue to prevent Argentina from obtaining favorable terms or interest rates when accessing international capital markets. Litigation initiated by holdout creditors or other parties may result in material judgments against the Argentine government and could result in attachments of, or injunctions relating to, Argentina’s assets, which could have a material adverse effect on the country’s economy and affect our ability to access international financing. In addition, litigation initiated by holdouts could eventually bring Argentina to be considered in default of its obligations and cause acceleration of the existing exchange debt due to cross default clauses which could have a material adverse effect on the on the country’s economy, and consequently, our business, financial condition and results of operations.
 
 

 
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Argentina is subject to litigation by foreign shareholders of Argentine companies and holders of Argentina’s defaulted bonds, which have resulted and may result in adverse judgments or injunctions against Argentina’s assets and limit its financial resources.
 
Foreign shareholders of several Argentine companies, including public utilities, and bondholders that did not participate in the exchange offers described above, have filed claims in excess of US$20 billion in the aggregate with the International Centre for Settlement of Investment Disputes (the “ICSID”) alleging that the emergency measures adopted by the government differ from the just and equal treatment standards set forth in several bilateral investment treaties to which Argentina is a party. During 2013, Argentina agreed to settle five separate investment treaty arbitration claims at a cost of around US$500 million. As of December 31, 2014, there were ICSID judgments outstanding against Argentina for approximately US$64 million, plus interest and expenses. On April 9, 2015, the ICSID held that Argentina must pay US$405 million in damages for prejudices suffered in relation to the termination of the Aguas Argentinas S.A. water and waste water management concession contract in the Buenos Aires metropolitan area. Litigation, as well as ICSID and UNCITRAL claims against the Argentine government, have resulted in material judgments and may result in new material judgments against the government, and could result in attachments of or injunctions relating to assets of Argentina that the government intended for other uses. As a result, the Argentine government may not have all the necessary financial resources to honor its obligations, implement reforms and foster growth, which could have a material adverse effect on the country’s economy, and consequently, our business, financial condition and results of operations.
 
The amendment of the Central Bank’s Charter and the Convertibility Law may adversely affect the Argentine economy.
 
On March 22, 2012, the Argentine Congress passed Law No.26,739, which amended the charter of the Central Bank and Law No.23,298 (the “Convertibility Law”). See “Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth” above. This new law amends the objectives of the Central Bank (established in its charter) and removes certain provisions previously in force. Pursuant to the amendment, the Central Bank focuses on promoting monetary and financial stability as well as development with social equity.
 
A key component of the amendment of the Central Bank charter relates to the use of international reserves. Pursuant to this amendment, the Central Bank reserves may be made available to the government for the repayment of debt or to finance public expenses. During 2013, the currency reserves in U.S. Dollars held by the Argentine government in the Central Bank decreased significantly, from US$43.3 billion in 2012 to US$30.6 billion in 2013, while during 2014 the reserves increased slightly to US$31.4 billion as of December 31, 2014. The Central Bank’s stock of foreign currency reserves was US$33.9 billion as of June 30, 2015 and after the payment of the sovereign bond, BODEN 15, on October 3, 2015, the stock of foreign currency reserves was US$ 27.7 billion. This use of the Central Bank reserves for expanded purposes by the Argentine government may result in Argentina being more vulnerable to inflation or external shocks, affecting the country’s capacity to overcome the effects of an external crisis.
 
Significant fluctuation in the value of the Peso may adversely affect the Argentine economy as well as our financial performance.
 
The devaluation of the Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, initially led to very high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, such as utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations.
 
Since the strengthening of exchange controls began in late 2011, and upon the introduction of measures that have limited access to foreign currency by private companies and individuals, (such as requiring an authorization of tax authorities to access the foreign currency exchange market), the implied exchange rate, as reflected in the quotations for Argentine securities that trade in foreign markets compared to the corresponding quotations in the local market, has increased significantly over the official exchange rate. These measures may prevent or limit us from offsetting the risk derived from our exposure to the U.S. Dollar and, if so, we cannot predict the impact of these changes on our financial condition and results of operations.
 
If the Peso continues to devalue, all of the negative effects on the Argentine economy related to such devaluation could reappear, with adverse consequences on our business. Moreover, it would likely result in a material adverse effect in our business as a result of the exposure to financial commitments denominated in U.S. Dollar. While certain of our office space leases are denominated in U.S. Dollars, we are only partially protected against Peso devaluation as payment is fixed in Pesos and there can be no assurance we will be able to maintain our U.S. Dollar-denominated leases.
 
On the other hand, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy. The appreciation of the Peso against the U.S. Dollar negatively impacts the financial condition of entities whose foreign currency denominated assets exceed their foreign currency-denominated liabilities, such as us. In addition, in the short term, a significant real appreciation of the Peso would adversely affect exports. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. The appreciation of the Peso against the U.S. Dollar could have an adverse effect on the Argentine economy and our business.
 
Certain measures that may be taken by the Argentine government may adversely affect the Argentine economy and, as a result, our business and results of operations.
 
During recent years, the Argentine government has increased its direct intervention in the economy through the implementation or change of laws and regulations, such as: nationalizations, or expropriations, among others; restrictions on production, imports and exports; exchange and/or transfer restrictions; direct and indirect price controls; tax increases, changes in the interpretation or application of tax laws and other retroactive tax claims or challenges; cancellation of contract rights; delays or denials of governmental approvals, among others.
 
In November 2008, the Argentine government enacted Law No.26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the “AFJPs”). More recently, beginning in April 2012, the Argentine government provided for the nationalization of YPF S.A. and imposed major changes to the system under which oil companies operate, principally through the enactment of Law No.26,741 and Decree No.1277/2012. In February 2014, the Argentine government and Repsol S.A. (the former principal shareholder of YPF S.A.) announced that they had reached agreement on the terms of the compensation payable to Repsol S.A. for the expropriation of the YPF S.A. shares. Such compensation totaled US$5 billion, payable by delivery of Argentine sovereign bonds with various maturities. In April 23, 2014, the agreement with Repsol S.A. was approved by the Argentine Congress and accordingly, in May 8, 2014, Repsol, S.A. received the relevant Argentine government bonds.
 
Additionally, on December 19, 2012, the Argentine government issued Decree N° 2552/12, which, ordered the expropriation of the “Predio Rural de Palermo.” However, on January 4, 2013, the Federal Civil and Commercial Chamber granted an injunction that momentarily blocked the enforceability of Decree N° 2,552/2012; notwithstanding the foregoing on June 1, 2015, the injunction was released. On June 2, 2015, this decision was appealed, and as a result the aforementioned injunction is still effective and the effects of the Decree N° 2552/12 remain blocked as of the date hereof. The Argentine government filed a motion to revoke the injuction which was rejected by the Federal Civil and Commercial Chamber and as a consequence the Argentine government filed an extraordinary motion with the Supreme Court, which as of the date of this annual report has not been resolved. The Decree N° 2552/12 may indirectly affect IRSA’s investment in Entertainment Holding S.A. (“EHSA”).
 
Furthermore, on May 18, 2015, IRSA was notified that the Agencia de Administración de Bienes del Estado (“AABE”), revoked the concession agreement granted to its subsidiary Arcos del Gourmet S.A, through Resolution N° 170/2014. On June 2, 2015, IRSA filed before the AABE a request to declare the notification void, as certain formal proceedings required under Argentine law have not been complied by the AABE. Furthermore, IRSA intends to file shortly an administrative appeal in order to request the dismissal of the revocation of the agreement. As of the date of this annual report, the “Distrito Arcos” shopping center continues to operate normally.
 

 
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There are other recent examples of government intervention. In December 2012 and August 2013, the Argentine Congress established new regulations relating to domestic capital markets. The new regulations generally provide for increased intervention in the capital markets by the government, authorizing, for example, the CNV to appoint observers with the ability to veto the decisions of the board of directors of companies admitted to the public offering regime under certain circumstances and suspend the board of directors for a period of up to 180 days.
 
We cannot assure you that these or other measures that may be adopted by the Argentine government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, etc., will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations and the market value of our securities.
 
Argentine presidential, congressional and certain municipal and state government elections are to be held in October 2015. Uncertainty resulting from the election campaigns regarding the results of the elections, or as a result of uncertainty as to whether the new Argentine government will implement changes in policy or regulation, may adversely affect the Argentine economy. The President of Argentina and its Congress each have considerable power to determine governmental policies and actions that relate to the Argentine economy and, consequently, may affect our results of operations or financial condition. We can offer no assurances that the policies that may be implemented by the Argentine government after such elections will not adversely affect our business, results of operations or financial condition.
 
The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs.
 
In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees and may do so again in the future. In the aftermath of the Argentine economic crisis, employers both in the public and private sectors experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. In August 2012, the Argentine government established a 25% increase in minimum monthly salary to Ps.2,875, effective as of February 2013. The Argentine government increased the minimum salary to Ps.3,300 in August 2013, to Ps.3,600 in January 2014, to Ps.4,400 in September 2014, to Ps.4,716 in January 2015, to Ps.5,588 in August 2015 and to Ps.6,060 from January 2016. Due to ongoing high levels of inflation, employers in both the public and private sectors continue to experience significant pressure from unions and their employees to increase salaries. During the year ended December 31, 2014, various unions have agreed with employers’ associations on salary increases between 25% and 30%. It is possible that the Argentine government could adopt measures mandating salary increases and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.
 
Property values in Argentina could decline significantly.
 
Property values are influenced by multiple factors that are beyond our control, such as a decrease in the demand for real estate properties due to a deterioration of macroeconomic conditions or an increase in supply of real estate properties that could adversely affect our current prices. We cannot assure you that property values will increase or that they will not be reduced. Most of the properties we own are located in Argentina. As a result, a reduction in the value of properties in Argentina could materially affect our business.
   
Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions.
 
According to current Argentine practices the Argentine government may impose restrictions on the exchange of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from investments in Argentina in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance. Beginning in December 2001, the Argentine government implemented a number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Central Bank, some of which are still in effect. Among the restrictions that are still in effect are those relating to the repatriation of certain funds collected in Argentina by non-Argentine residents.
 
On January 7, 2003, the Central Bank issued communication “A” 3859, which is still in force and pursuant to which there are no limitations on company’s ability to purchase foreign currency and transfer it outside Argentina to pay dividends, provided that those dividends arise from net earnings corresponding to approved and audited financial statements.
 
Although the transfer of funds abroad by local companies in order to pay annual dividends only to foreign shareholders, based on approved and fully audited financial statements, does not require formal approval by the Central Bank, the recent decrease in availability of U.S. Dollars in Argentina has led the Argentine government to impose informal restrictions on certain local companies and individuals for purchasing foreign currency. These restrictions on foreign currency purchases started in October 2011 and tightened thereafter through the date of this annual report. As a result of these informal restrictions, local residents and companies may be prevented from purchasing foreign currency through the foreign exchange market (“Mercado Único y Libre de Cambios” or “MULC”) for the purpose of making payments abroad, such as dividends, capital reductions, and payment for importation of goods and services. For example, local banks may request, even when not expressly required by any regulation, the prior opinion of the Central Bank before executing any specific foreign exchange transaction. In addition, other exchange controls could impair or prevent the conversion of anticipated dividends, distributions or the proceeds from any sale of equity holdings in Argentina, as the case may be, from Argentine Pesos into U.S. Dollars and the remittance of the U.S. Dollars abroad.
 
In the future, the Argentine government or the Central Bank may impose formal restrictions to the payment of dividends abroad and established additional requirements. Any restrictions on transferring funds abroad imposed by the government could undermine our ability to pay dividends on our GDSs in U.S. Dollars.
 
Also, if payments cannot be made in U.S. Dollars abroad, the repatriation of any funds collected by foreign investors in Argentine Pesos in Argentina may be subject to restrictions. From October 28, 2011, in order for a non-Argentine investor to be granted access to the MULC to purchase foreign currency with Argentine Pesos received in Argentina as a result of a stock sale, capital reduction or liquidation of an Argentine company, it is a requirement that the funds originally used for such investment, disbursement or capital contribution, as applicable, were settled through the MULC. This requirement applies only to capital contributions to local companies or foreign currency purchases of the stock of an Argentine company made from October 28, 2011 that qualify as “foreign direct investments” (i.e., represent at least 10% of the Argentine company’s capital stock). In the case of equity positions below the 10% threshold, repatriation is subject to a monthly threshold of US$0.5 million. Transfers in excess of that monthly threshold are subject to prior approval by the Central Bank. The Argentine government could adopt further restrictive measures in the future. If that were the case, a foreign shareholder, such as ourselves, may be prevented from converting the Argentine Pesos it receives in Argentina into U.S. Dollars. If the exchange rate fluctuates significantly during a time when we cannot convert the foreign currency, we may lose some or all of the value of the dividend distribution or sale proceeds.
 
These restrictions and requirements could adversely affect our financial condition and the results of our operations.
 

 
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The Rural Land Law and its application.
 
On December 22, 2011, the Argentine Congress passed the Rural Land Law in order to protect the ownership and sovereignty of certain rural areas of Argentina (the “Rural Land Law”). The Rural Land Law sets limits on the ownership of rural land by foreign individuals or legal entities acting in Argentina ("Foreign Persons"), setting a maximum allowable percentage ownership for foreigners of 20%. Additionally, only 30% of the aforementioned 20% may be held by Foreign Persons of the same nationality, and from the date of enactment of the Rural Land Act, a Foreign Person may not own more than 1,000 hectares of rural land in total throughout Argentine territory. The Rural Land Law states that it will not affect any rights previously acquired by Foreign Persons.
 
For the purposes of the Rural Land Law, the definition of Foreign Person includes Argentine companies in which a percentage higher than 51% of the outstanding capital stock is owned by foreign individuals or legal entities, or lower rates if the entity meets the proportions necessary to form the social will. The following also falls within the definition of Foreign Person (among others): (a) entities controlled by a percentage greater than 25% by a foreign company, or regardless of participation when such company holds enough votes to form the social will of that company; (b) companies that issued convertible notes, where a Foreign Person may exert over 25% of the voting power necessary to form the social will; (c) transfers for trusts whose beneficiaries are Foreign Persons in a percentage higher than 25%, (d) joint ventures, holding companies and any other legal persons present or in the future, and (e) foreign legal persons under public law.
 
On February 29, 2012, Executive Branch Decree No. 274/12 was published regulating the Rural Land Law. The aforementioned decree established a deadline of 60 days to the provinces to report the total area of their departments, municipalities or political divisions equivalent discriminating rural and urban land and rural properties subject to the Rural Land Law and consequently owned by Foreign Persons. Additionally, provinces should report the complete list of foreign companies registered in their respective jurisdictions. The decree also provides that foreign holders must report their holdings within 180 days from the date of enactment of regulations in the national register of rural land.
 
Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited, and can be expected to continue to limit, the availability of international credit.
 
In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. In June 2005, the government issued Decree No.616/2005, which established additional controls on capital inflow, including the requirement that, subject to limited exemptions, 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for one year without earning any interest. In October 2011, new exchange controls measures that restrict foreign exchange inflows and outflows of capital were implemented, including, establishing as a requirement for the repatriation of the direct investment of non-residents (purchase of shares of local companies and real estate), the inflow of foreign currency and its settlement in the MULC). This measure increases the cost of obtaining foreign funds and limits access to such financing.
 
Additionally, on July 12, 2012, the Central Bank issued Communication “A” 5318, which among others suspended the access to MULC for residents for external assets without a specific purpose.
 
Through resolution No.3210/2011 of the AFIP and the Communications “A” 5239, 5240, 5242 and 5245 and its amendments of the Central Bank, the “Consultation of Exchange Operations Programme”, was established, a system by which an assessment is made at the time of each transaction, in order to allow for acquiring U.S. Dollars for tourism purposes. The system analyzes the transaction for consistency with each currency buyer’s tax information, and validates or invalidates the transaction.
 
In January 2014, the Central Bank established by Communication ”A” 5526 that resident individuals in the country will be able to access the local exchange market for purchases made in line with the ”buy for the possession of foreign currency in the country” concept according to their income declared to the AFIP and other quantitative parameters established in the framework of exchange rate policy. In this sense, the AFIP established through its General Resolution No. 3583/2014 a parameter of 20% of the monthly income of the taxpayer validating the exchange transaction, with a minimum amount of monthly income of two minimum mobile wage and a monthly cap of US$2,000. The purchase amount that individuals can access under this provision can be found through the “Exchange Operations Consultation Program”, available on the corporate website of the AFIP.
 
Additionally, on May 21, 2015, pursuant to Communication “A” 5757, the Central Bank amended Communication “A” 5526, which regulates residents’ access to the MULC for the acquisition of foreign currency for their application to specific uses and/or purposes in local assets. The amendment permits simultaneous access to the MULC for the acquisition of foreign currency for its deposit in local financial institutions up to an amount agreed with the MULC for a term no higher than 270 calendar days, deriving from the issuance of new debt securities with public offering issued by local governments and/or residents of the non-financial private sector. Such funds can only be allocated for their deposit in local financial institutions as a fixed-term deposit, or in a special account in foreign currency, which can be withdrawn only for its settlement through the MULC. These funds are exempt from the mandatory deposit of 30% imposed by Decree No.616/2005. At least 80% of residents’ foreign currency demands of residents must be covered by the funds obtained from this mechanism for specific purposes in local assets.
 
The Argentine government may, in the future, impose additional controls on the foreign exchange market and on capital flows from and into Argentina, in response to capital flight or depreciation of the Peso. These restrictions may have a negative effect on the economy and on our business if imposed in an economic environment where access to local capital is constrained. For more information, please see "Exchange Rates and Exchange Controls”.
 

 
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The Argentine economy could be adversely affected by economic developments in other global markets.
 
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. The international scenario shows contradictory signals of global growth, as well as high financial and exchange uncertainty. Most emerging economies have been affected by the change in the U.S. monetary policy, resulting in the sharp unwinding of speculative asset positions, depreciations and increased volatility in the value of their currencies and higher interest rates. The general appreciation of the U.S. Dollar resulting from a more restrictive U.S. monetary policy contributed to the fall of the international price of raw materials, increasing the difficulties of emerging countries which are exporters of these products. There is global uncertainty about the degree of economic recovery in the United States, with no substantial positive signals from other developed countries and an increased risk of a general deceleration in developing countries, specifically China.
 
Moreover, the recent challenges faced by the European Union to stabilize certain of its member economies, such as Greece, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide.  The Eurozone finance ministers, at a meeting held in August 2015, agreed a third bailout deal for Greece, which required the approval of several countries such as Germany, one of its main creditors.
 
Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into other countries. International investors’ reactions to events occurring in one market sometimes demonstrate a “contagion” effect in which an entire region or class of investment is disfavored by international investors. Argentina could be adversely affected by negative economic or financial developments in other countries, which in turn may have an adverse effect on our financial condition and results of operations. Lower capital inflows and declining securities prices negatively affect the real economy of a country through higher interest rates or currency volatility. The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including those in Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation in January 1999.
 
In addition, Argentina is also affected by the economic conditions of its major trade partner, Brazil, which started to devaluate its currency in early February 2015. The Real devalued against the U.S. Dollars by approximately 46% from January 2015 to September 2015, causing the Real to suffer the steepest depreciation in over a decade in its attempt to increase exports. In addition, during September 2015, Standard & Poor’s downgraded Brazil’s credit rating to BB-plus and during October 2015, Fitch Ratings downgraded Brazil’s credit rating to 'BBB'. Moreover, Argentina may also be affected by other countries that have influence over world economic cycles, such as the United States or China. Particularly, China has recently devaluated the Yuan, which has adversely affected companies with a substantial exposure to that country.
 
If interest rates rise significantly in developed economies, including the United States, Argentina and other emerging market economies could find it more difficult and expensive to borrow capital and refinance existing debt, which would negatively affect their economic growth. In addition, if these developing countries, which are also Argentina’s trade partners, fall into a recession; the Argentine economy would be affected by a decrease in exports. All of these factors would have a negative impact on us, our business, operations, financial condition and prospects.
 
The effect of global economic conditions on Argentina could cause a reduction in exports and foreign direct investment, and a decline in national tax revenues and the inability to access to the international capital markets, which could adversely affect our business and results of operations.
 
A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on Argentina’s economic growth and on our business.
 
High commodity prices have contributed significantly to the increase in Argentine exports since the third quarter of 2002 as well as in governmental revenues from export taxes (withholdings). However, this reliance on the export of certain commodities, such as soy, has made the Argentine economy more vulnerable to fluctuations in their prices.
 
If international commodity prices decline, the Argentine government’s revenues would decrease significantly affecting Argentina’s economic activity. Accordingly, a decline in international commodity prices could adversely affect Argentina’s economy, which in turn would produce a negative impact on our financial condition and results of operations.
 
In addition, adverse weather conditions can affect the production of commodities by the agricultural sector, which account for a significant portion of Argentina’s export revenues. These circumstances would have a negative impact on the levels of government revenues, availability of foreign exchange and the government’s ability to service its sovereign debt, and could either generate recessionary or inflationary pressures, depending on the government’s reaction. Either of these results would adversely impact Argentina’s economy growth and, therefore, our business, financial condition and results of operations.
 
Restrictions on the supply of energy could negatively affect Argentina’s economy.
 
As a result of prolonged recession, and the forced conversion into Pesos and subsequent freeze of natural gas and electricity tariffs in Argentina, there has been a lack of investment in natural gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which has prompted the government to adopt a series of measures that have resulted in industry shortages and/or costs increase. In particular, Argentina has been importing natural gas in order to compensate the shortages in local production. In order to pay for natural gas imports, the Argentine government has frequently used the Central Bank reserves due to absence of incoming currencies from investment. If the government is unable to pay for the natural gas imported in order to produce electricity, business and industries may be affected.
 
The Argentine government has been taking a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment that is required to increase natural gas production, transportation capacity and energy generation over the medium-and long-term fails to materialize on a timely basis, economic activity in Argentina could be curtailed which may have a significant adverse effect on our business.
 
As a first step of these measures, subsidies on energy tariffs were withdrawn to industries and high income consumers. Additionally, since 2011, a series of rate increases and the reduction of subsidies mainly among industries and high-income consumers were implemented. As a result, energy costs increased significantly, which could substantially and adversely affect the Argentine economy, as well as our business operations and results of our transaction.
 
High public expenditure could result in long- lasting adverse consequences for the Argentine economy.
 
During the last few years, the Argentine government has substantially increased public expenditures. In 2014, public sector expenditures increased by 43% year over year and the government reported a primary fiscal deficit of 0.9%. During recent years, the Argentine government has resorted to the Central Bank and to the Administración Nacional de la Seguridad Social (Federal Social Security Agency, or “ANSES”, per its acronym in Spanish)  to source part of its funding requirements.
 

 
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Recently, the Argentine government has begun adjusting its subsidy policies, particularly those related to energy, electricity and gas, water and public transportation. Changes in these policies could materially and adversely impact consumer purchase capacity and economic activity and may lead to an increase in prices.
 
Moreover, the primary fiscal balance could be negatively affected in the future if public expenditures continue to increase at a rate higher than revenues due to subsidies to lower-income sectors, social security benefits, financial assistance to provinces with financial problems, increased spending on public works and subsidies to the energy and transportation sectors. A further deterioration in fiscal accounts could negatively affect the government’s ability to access the long-term financial markets and could in turn result in more limited access to such markets by Argentine companies.
 
Risks Relating to Brazil
 
The Brazilian government has exercised and continues to exercise significant influence over the Brazilian economy, which combined with Brazil’s political and economic conditions may adversely affect us.
 
Our business is dependent to a large extent on the economic conditions in Brazil. From June 30, 2011 we consolidate our financial statements with our subsidiary Brasilagro-Companhia Brasileira de Propiedades Agricolas (“Brasilagro”).
 
We may be adversely affected by the following factors, as well as the Brazilian federal government's response to these factors:
 
·  
economic and social instability;
 
·  
increase in interest rates;
 
·  
exchange controls and restrictions on remittances abroad;
 
·  
restrictions and taxes on agricultural exports;
 
·  
exchange rate fluctuations;
 
·  
inflation;
 
·  
volatility and liquidity in domestic capital and credit markets;
 
·  
expansion or contraction of the Brazilian economy, as measured by GDP growth rates;
 
·  
allegations of corruption against political parties, elected officials or other public officials, including allegations made in relation to the Lava Jato investigation;
 
·  
government policies related to our sector;
 
·  
fiscal or monetary policy and amendments to tax legislation; and
 
·  
other political, social and economic developments in or affecting Brazil.
 
Historically, the Brazilian government has frequently intervened in the Brazilian economy and has occasionally made significant changes in economic policies and regulations, including, among others, the imposition of a tax on foreign capital entering Brazil (IOF tax), changes in monetary, fiscal and tax policies, currency devaluations, capital controls and limits on imports. The administration is currently facing domestic pressure to retreat from the current macroeconomic policies in an attempt to achieve higher rates of economic growth. In addition, the federal government is proposing the creation of a tax on financial transactions, including wire transfers, (the so-called “CPMF”) in order to improve the fiscal situation of the country. We cannot predict which policies will be adopted by the Brazilian government and whether these policies will negatively affect the economy or our business or financial performance.
 
The Brazilian economy has been experiencing a slowdown – GDP growth rates were 7.5%, 3.9%, 1.8%, 2.7%, and 0.1% in 2010, 2011, 2012, 2013 and 2014, respectively and GDP decreased 1.9% in the first six months of 2015. Inflation, unemployment and interest rates have increased more recently and the Brazilian Real has weakened significantly in comparison to the U.S. Dollar. The market expectations for the years 2015 and 2016 is that the Brazilian economy will continue to slow down and GDP will decrease. Our results of operations and financial condition may be adversely affected by the economic conditions in Brazil.
 
In addition to the recent economic crisis, protests, strikes and corruption scandals, including the “Lava Jato” investigation, has led to a fall in confidence and a political crisis. There is strong popular pressure and several legal and administrative proceedings for the impeachment of the Brazilian President and/or revocation of the mandates or resignation of the Brazilian President and/or the Head of the House of Representatives, which have led to uncertainties. The political crisis could worsen the economic conditions in Brazil, which may adversely affect our results of operations and financial conditions.
 
The economic and political crisis have resulted in the downgrading of the country’s long-term credit rating from Standard & Poor's rating agency from BBB + to BBB-, placing Brazil back to speculative investment grade level ("junk"). Moody's downgraded Brazil from "Baa2" to "Baa3" and changed the negative perspective to stable, while Fitch Ratings downgraded Brazil from BBB to BBB- and changed the perspective from stable to negative. Both Moody’s and Fitch still consider Brazil investment grade. Further downgrading of Brazil’s ratings by any of these agencies may adversely affect us and the stock price of our securities.
 
Inflation, coupled with the Brazilian government’s measures to fight inflation, may hinder Brazilian economic growth and increase interest rates, which could have a material adverse effect on us.
 
Brazil has in the past experienced significantly high rates of inflation. As a result, the Brazilian government adopted monetary policies that resulted in Brazilian interest rates being among the highest in the world. The Brazilian Central Bank’s Monetary Policy Committee (Comitê de Política Monetária do Banco Central, or “COPOM”, as per its acronym in Portuguese), establishes an official interest rate target for the Brazilian financial system based on the level of economic growth, inflation rate and other economic indicators in Brazil. Between 2004 and 2010, the official Brazilian interest rate varied from 19.75% to 8.75% per year. In response to an increase in inflation in 2010, the Brazilian government increased the official Brazilian interest rate, the SELIC rate, which was 10.75% per year on December 31, 2010. The SELIC rate has increased since then and, as of June 30, 2015, it was 13.75% per year. The inflation rates, as measured by the General Market Price Index (Índice Geral de Preços-Mercado or “IGP-M”, as per its acronym in Portuguese), and calculated by Fundação Getúlio Vargas, or “FGV”, were 7.8% in 2012, 5.5% in 2013, and 3.67% in 2014. Cumulative inflation in the first six months of 2015, calculated by the same index, was 4.33%.
 
Inflation and the government measures to fight inflation have had and may continue to have significant effects on the Brazilian economy and our business. In addition, the Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and slowing economic growth. On the other hand, an easing of monetary policies of the Brazilian government may trigger increases in inflation. In the event of an increase in inflation, we may not be able to adjust our daily rates to offset the effects of inflation on our cost structure, which may materially and adversely affect us.
 
An increase in interest rates may have a significant adverse effect on us. In addition, as of June 30, 2015, certain of our loans were subject to interest rate fluctuations such as the Brazilian long-term interest rate (Taxa de Juros de Longo Prazo or “TJLP”, as per its acronym in Portuguese), and the interbank deposit rate (Certificados de Depósitos Interbancários or “CDI”, as per its acronym in Portuguese). In the event of an abrupt increase in interest rates, our ability to comply with our financial obligations may be materially and adversely affected.
 

 
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       The Brazilian Real is subject to depreciation and exchange rate volatility which could adversely affect Brasilagro’s and our financial condition and results of operations.
 
Brazil’s rate of inflation and the government’s actions to combat inflation have also affected the exchange rate between the Real and the U.S. Dollar. As a result of inflationary pressures, the Brazilian currency has been devalued periodically during the last four decades. Throughout this period, the Brazilian federal government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic devaluations (during which the frequency of adjustments has ranged from daily to monthly), floating exchange rate systems, exchange controls and dual exchange rate markets. During 2009 and 2010 the Real appreciated 24.9% and 4.6%, respectively, against the U.S. Dollar. As a contrast, during 2012 and 2013 the Real depreciated 13.3%, 9.6% and 15.5%, respectively, against the U.S. Dollar. In February, 2014, Brazilian Government started to devaluate its currency, causing the Real to suffer the steepest depreciation in over a decade in its attempt to increase exports. Between January 2015 and September 2015 the Real depreciated 46%.There can be no assurance that the rate of exchange between the Real and the U.S. Dollar will not fluctuate significantly in the future. In the event of a devaluation of the Real, the financial condition and results of operations of our Brazilian subsidiary could be adversely affected. In addition, during September 2015, Standard & Poor’s downgraded Brazil’s credit rating to BB-plus and during October 2015, Fitch Ratings downgraded Brazil’s credit rating to ‘BBB-, which triggers funds that target investment-grade countries to sell its holdings in Brazil. As of October 2015, the Bovespa has dropped 40% in U.S. Dollars terms during the year.
 
Depreciation of the Real relative to the U.S. Dollar may increase the cost of servicing foreign currency-denominated debt that our subsidiary may incur in the future, which could adversely affect our financial condition and results of operations. In addition, depreciation of the Real creates additional inflationary pressures in Brazil that may adversely affect our results of operations. Depreciation generally curtails access to international capital markets and may prompt government intervention. It also reduces the U.S. Dollar value of Brasilagro’s revenues, distributions and dividends, and the U.S. Dollar equivalent of the market price of our common shares. On the other hand, the appreciation of the Real against the U.S. Dollar may lead to the deterioration of Brazil’s public accounts and balance of payments, as well as to lower economic growth from exports, which could impact the results of our subsidiary Brasilagro.

A deterioration in general economic and market conditions or in perceptions of risk in other countries, principally in emerging countries or the United States, may have a negative impact on the Brazilian economy and us.
 
Economic and market conditions in other countries, including United States, Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers. Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our common shares. In the past, the adverse development of economic conditions in emerging markets resulted in a significant flow of funds out of the country and a decrease in the quantity of foreign capital invested in Brazil. Changes in the prices of securities of public companies, lack of available credit, reductions in spending, general slowdown of the global economy, exchange rate instability and inflationary pressure may adversely affect, directly or indirectly, the Brazilian economy and securities market. The recent global economic downturn and related instability in the international financial system have had, and may continue to have, a negative effect on economic growth in Brazil. The ongoing global economic downturn has reduced the availability of liquidity and credit to fund the continuation and expansion of business operations worldwide. The recent substantial losses in worldwide equity markets, including in Brazil, could lead to an extended worldwide economic recession or depression.
 
In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States. Share prices on BM&FBOVESPA, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in the interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely affecting the price of our common shares.
 
The Brazilian government imposes certain restrictions on currency conversions and remittances abroad which could affect the timing and amount of any dividend or other payment we receive.
 
Brazilian law guarantees foreign shareholders of Brazilian companies the right to repatriate their invested capital and to receive all dividends in foreign currency provided that their investment is registered with the Banco Central do Brazil. We registered our investment in Brasilagro with the Brazilian Central Bank on April 28, 2006. Although dividend payments related to profits obtained subsequent to January 1, 1996 are not subject to income tax, if the sum of repatriated capital and invested capital exceeds the investment amount registered with the Brazilian Central Bank, repatriated capital is subject to a capital gains tax of 15%. There can be no assurance that the Brazilian government will not impose additional restrictions or modify existing regulations that would have an adverse effect on an investor’s ability to repatriate funds from Brazil nor can there be any assurance of the timing or duration of such restrictions, if imposed in the future.
 
Widespread uncertainties, corruption and fraud relating to ownership of real estate may adversely affect our business.
 
There are widespread uncertainties, corruption and fraud relating to title ownership of real estate assets in Brazil. In Brazil, ownership of real property is conveyed through filing of deeds before the relevant land registry. In certain cases, land registry recording errors, including duplicate and/or fraudulent entries, and deed challenges frequently occur, leading to judicial actions. Disputes over title ownership of real estate assets are frequent, and, as a result, there is a risk that errors, fraud or challenges could adversely affect us, causing the loss of all or substantially all of our properties.
 
In addition, our land may be subject to expropriation by the Brazilian government. An expropriation could materially impair the normal use of our lands or have a material adverse effect on our results of operations. In addition, social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra and the Argentinean Rural Land Law, among others, are active in Brazil. Such movements advocate land reform and mandatory property redistribution by the government. Land invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including some of those in which we are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot give you any assurance that Brasilagro properties will not be subject to invasion or occupation by these groups. A land invasion or occupation could materially impair the normal use of Brasilagro lands or have a material adverse effect on us or the value of our common shares or ADSs.
 
The lack of efficient transportation, and adequate storage or handling facilities in certain of the regions in which Brasilagro operates may have a material adverse effect on our business.
 
One of the principal disadvantages of the agriculture industry in some of the regions where Brasilagro operates is that they are located far from major ports (in some cases, up to 1,500 kilometers). Efficient access to transportation infrastructure and ports is critical to profitability in the agricultural industry. However, as part of our business strategy, we intend to acquire and develop land in specific areas where existing transportation is poor. A substantial portion of agricultural production in certain of the regions where we operate is currently transported by truck, a means of transportation significantly more expensive than the rail transportation available to the U.S. and other foreign countries. As a result, we may be unable to provide cost-efficient production to our potential most important markets, and this could have an adverse effect on our business and results of our operations.
 
Risks Relating to Our Region
 
Our business is dependent on economic conditions in the countries where we operate or intend to operate.
 
We have made investments in farmland in Argentina, Brazil, Paraguay and Bolivia and we may possibly make investments in other countries in and outside Latin America. Owing that demand for livestock and agricultural products is usually correlated to economic conditions prevailing in the local market, which in turn is dependent on the macroeconomic condition of the country in which the market is located, our financial condition and results of operations are, to a considerable extent, dependent upon political and economic conditions prevailing from time to time in the countries where we operate. Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. Certain countries have experienced severe economic crises, which may still have future effects. As a result, governments may not have the necessary financial resources to implement reforms and foster growth. Any of these adverse economic conditions could have a material adverse effect on our business.
 
We face the risk of political and economic crises, instability, terrorism, civil strife, expropriation and other risks of doing business in emerging markets.
 
In addition to Argentina and Brazil, we conduct or intend to conduct our operations in other Latin-American countries such as, Paraguay and Bolivia, among others. Economic and political developments in the countries in which we operate, including future economic changes or crisis (such as inflation or recession), government deadlock, political instability, terrorism, civil strife, changes in laws and regulations, expropriation or nationalization of property, and exchange controls could adversely affect our business, financial condition and results of operations.
 

 
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Although economic conditions in one country may differ significantly from another country, we cannot assure that events in one only country will not adversely affect our business or the market value of, or market for, our common shares and/or ADSs.
 
Governments in the countries where we operate or intend to operate exercise significant influence over their economies.
 
Emerging market governments, including governments in the countries where we operate, frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. Our business, financial condition, results of operations and prospects may be adversely affected by changes in government policies or regulations, including factors, such as:
 
 
•
exchange rates and exchange control policies;
 
•
inflation rates;
 
•
interest rates;
 
•
tariff and inflation control policies;
 
•
import duties on information technology equipment;
 
•
liquidity of domestic capital and lending markets;
 
•
electricity rationing;
 
•
tax policies; and
 
•
other political, diplomatic, social and economic developments in or affecting the countries where we intend to operate.
 
An eventual reduction of foreign investment in any of the countries where we operate may have a negative impact on such country’s economy, affecting interest rates and the ability of companies to access financial markets.
 
Local currencies used in the conduct of our business are subject to exchange rate volatility and exchange controls.
 
The currencies of many Latin American countries have experienced substantial volatility in recent years. Currency movements, as well as higher interest rates, have materially and adversely affected the economies of many Latin American countries, including countries in which account for or are expected to account for a significant portion of our revenues. The depreciation of local currencies creates inflationary pressures that may have an adverse effect on us generally, and may restrict access to international capital markets. On the other hand, the appreciation of local currencies against the U.S. Dollar may lead to deterioration in the balance of payments of the countries where we operate, as well as to a lower economic growth.
 
In addition, we may be subject to exchange control regulations in these Latin American countries which might restrict our ability to convert local currencies into U.S. Dollars.
 
Inflation and certain government measures to curb inflation may have adverse effects on the economies of the countries where we operate or intend to operate our business and our operations.
 
Most countries where we operate or intend to operate, historically, experienced high inflation rates. Inflation and some measures implemented to curb inflation have had significant negative effects on the economies of latin american countries. Governmental actions taken in an effort to curb inflation, coupled with speculation about possible future actions, have contributed to economic uncertainty at times in most latin american countries. The countries where we operate or intend to operate may experience high levels of inflation in the future that could lead to further government intervention in the economy, including the introduction of government policies that could adversely affect our results of operations. In addition, if any of these countries experience high rates of inflation, we may not be able to adjust the price of our services sufficiently to offset the effects of inflation on our cost structures. A high inflation environment would also have negative effects on the level of economic activity and employment and adversely affect our business and results of operations.
 
Developments in other markets may affect the Latin American countries where we operate or intend to operate, and as a result our financial condition and results of operations may be adversely affected.
 
The market value of securities of companies such as us may be, to varying degrees, affected by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including latin american countries. Various Latin American economies have been adversely impacted by the political and economic events that occurred in several emerging economies in recent times. Furthermore, Latin American economies may be affected by events in developed economies which are trading partners or that impact the global economy and adversely affect our activities and the results of our operations.
 
Land in Latin American countries may be subject to expropriation or occupation.
 
Our land may be subject to expropriation by the governments of the countries where we operate and intend to operate. An expropriation could materially impair the normal use of our lands or have a material adverse effect on our results of operations. In addition, social movements, such as Movimento dos Trabalhadores Rurais Sem Terra and Comissão Pastoral da Terra in Brazil, are active in certain countries where we operate or intend to operate. Such movements advocate land reform and mandatory property redistribution by governments. Invasions and occupations of rural areas by a large number of individuals is common practice for these movements, and, in certain areas, including some of those in which we are likely to invest, police protection and effective eviction proceedings are not available to land owners. As a result, we cannot assure you that our properties will not be subject to invasion or occupation. A land invasion or occupation could materially affect the normal use of our properties or have a material adverse effect on us or the value of our common shares and our ADSs.
 
We may invest in countries other than Argentina and Brazil and cannot give you any assurance as to the countries in which we will ultimately invest, and we could fail to list all risk factors for each possible country.
 
We have a broad and opportunistic business strategy therefore we may invest in countries other than Argentina and Brazil including countries in other emerging markets outside latin america (e.g., Africa). As a result, it is not possible at this time to identify all risk factors that may affect our future operations and the value of our common shares and ADSs.
 

 
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Risks Relating to Our Business.
 
Fluctuation in market prices for our agriculture products could adversely affect our financial condition and results of operations.
 
Prices for cereals, oilseeds and by-products, like those of other commodities, can be expected to fluctuate significantly. The prices that we are able to obtain for our agriculture products depend on many factors beyond our control, including:
 
 
•
prevailing world prices, which historically have been subject to significant fluctuations over relatively short periods of time, depending on worldwide demand and supply;
 
•
changes in the agricultural subsidy levels in certain important countries (mainly the United States and countries in the European Union) and the adoption of other government policies affecting industry market conditions and prices; and
 
•
demand for and supply of competing commodities and substitutes.
 
Our financial condition and results of operations could be materially and adversely affected if the prices of our agricultural products decline.
 
Unpredictable weather conditions may have an adverse impact on our crop yields and cattle production.
 
The occurrence of severe adverse weather conditions, especially droughts, hail, or floods, is unpredictable and may have a potentially devastating impact upon our crop production and, to a lesser extent, our cattle and wool production. The occurrence of severe adverse weather conditions may reduce yields on our farmlands or require us to increase our level of investment to maintain yields.
 
According to the United States Department of Agriculture (“USDA”) estimates, Argentina’s crops output (wheat, corn and soybean) for the 2015/2016 season are expected to drop by 8,3 million tons as compared to the previous cycle. They forecast a reduction in the planted area, and a general decrease in the expected yields in comparison with the 2014/2015 campaign, which shown all-time high yields for corn and soybean. The estimated production of soybean is supposed to reach 57 million tons, the wheat production 10.5 million tons and the corn production 24 million tons.
 
We cannot assure you that the current and future severe adverse weather conditions will not adversely affect our operating results and financial condition.
 
Diseases may strike our crops without warning potentially destroying some or all of our yields.
 
The occurrence and effect of crop disease and pestilence can be unpredictable and devastating to crops, potentially destroying all or a substantial portion of the affected harvests. Even when only a portion of the crop is damaged, our results of operations could be adversely affected because all or a substantial portion of the production costs for the entire crop have been duly incurred. Although some crop diseases are treatable, the cost of treatment is high, and we cannot assure that such events in the future will not adversely affect our operating results and financial condition.
 
Our cattle are subject to diseases.
 
Diseases among our cattle herds, such as tuberculosis, brucellosis and foot-and-mouth disease, can have an adverse effect on milk production and fattening, rendering cows unable to produce milk or meat for human consumption. Outbreaks of cattle diseases may also result in the closure of certain important markets, such as the United States, to our cattle products. Although we abide by national veterinary health guidelines, which include laboratory analyses and vaccination, to control diseases among the herds, especially foot-and-mouth disease, we cannot assure that future outbreaks of cattle diseases will not occur. A future outbreak of diseases among our cattle herds may adversely affect our cattle and milk sales which could adversely affect our operating results and financial condition.
 
We may be exposed to material losses due to volatile crop prices since a significant portion of our production is not hedged, and exposed to crop price risk.
 
Due to the fact that we do not have all of our crops hedged, we are unable to have minimum price guarantees for all of our production and are therefore exposed to significant risks associated with the level and volatility of crop prices. We are subject to fluctuations in crop prices which could result in receiving a lower price for our crops than our production cost. We are also subject to exchange rate risks related to our crops that are hedged, because our futures and options positions are valued in U.S. Dollars, and thus are subject to exchange rate risk.
 
In addition, if severe weather or any other disaster generates a lower crop production than the position already sold in the market, we may suffer material losses in the repurchase of the sold contracts.
 
The creation of new export taxes may have an adverse impact on our sales and results of operations.
 
In order to prevent inflation and variations in the exchange rate from adversely affecting prices of primary and manufactured products (including agricultural products), and to increase tax collections and reduce Argentina’s fiscal deficit, the Argentine government has imposed new taxes on exports. Pursuant to Resolution No. 11/02 of the Ministry of Economy and Production, as amended by Resolution No. 35/02, No. 160/2002, No. 307/2002 and No. 530/2002, effective as of March 5, 2002, the Argentine government imposed a 20%, 10% and 5% export tax on primary and manufactured products. On November 12, 2005, pursuant to Resolution No. 653/2005, the Ministry of Economy and Production increased the tax on cattle exports from 5% to 10%, and on January 2007 increased the tax on soybean exports from 23.5% to 27.5%. Pursuant to Resolutions No. 368/07 and No. 369/07 both dated November 12, 2007, the Ministry of Economy and Production further increased the tax on soybean exports from 27.5% to 35.0% and also the tax on wheat and corn exports from 20.0% to 28.0% and from 20.0% to 25.0%, respectively. In early March 2008, the Argentine government introduced a regime of sliding –scale export tariffs for oilseed, grains and by-products, where the withholding rate (in percentage) would increase to the same extent as the crops’ price. Therefore, it imposed an average tax for soybean exports of 46%, compared to the previous fixed rate of 35%. In addition, the tax on exports of wheat was increased, from a fixed rate of 28% to an average variable rate of 38%, and the tax on exports of corn changed from a fixed rate of 25% to an average variable rate of 36%. This tariff regime, which according to farmers effectively sets a maximum price for their crops, sparked widespread strikes and protests by farmers whose exports have been one of the principal driving forces behind Argentina’s recent growth. In April 2008, as a result of the export tariff regime, farmers staged a 21-day strike in which, among other things, roadblocks were set up throughout the country, triggering Argentina’s most significant political crisis in five years. These protests disrupted transport and economic activity, which led to food shortages, a surge in inflation and a drop in export registrations. Finally, the federal executive branch decided to send the new regime of sliding-scale export tariffs to the federal congress for its approval. The project was approved in the lower chamber of the national congress but rejected by the Senate. Subsequently, the federal government abrogated the regime of sliding-scale export tariffs and reinstated the previous scheme of fixed withholdings.
 

 
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Export taxes may have a material adverse effect on our sales and results of operations. We produce exportable goods and, therefore, an increase in export taxes is likely to result in a decrease in our products’ price, and, therefore, may result in a decrease of our sales. We cannot guarantee the impact of those or any other future measures that might be adopted by the Argentine government on our financial condition and result of operations.
 
An international credit crisis could have a negative impact on our major customers which in turn could materially adversely affect our results of operations and liquidity.
 
The most recent international credit crisis that started in 2008 had a significant negative impact on businesses around the world. Although we believe that available borrowing capacity under the current conditions and proceeds resulting from potential farmland sales will provide us with sufficient liquidity through the current economic environment, the impact of the crisis on our major customers cannot be predicted and may be quite severe. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a reduction in their future orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity.
 
Government intervention in the markets may have a direct impact on our prices.
 
The Argentine government has set certain industry market conditions and prices in the past. In order to prevent a substantial increase in the price of basic products as a result of inflation, the Argentine government is adopting an interventionist policy. In March 2002, the Argentine government fixed the price for milk after a conflict among producers and the government. Since 2005, the Argentine government, in order to increase the domestic availability of beef and reduce domestic prices, adopted several measures: it increased turnover tax and established a minimum average number of animals to be slaughtered. In March 2006, the registries for beef exports were temporarily suspended. This last measure was softened once prices decreased. There can be no assurance that the Argentine government will not interfere in other areas by setting prices or regulating other market conditions. Accordingly, we cannot assure you that we will be able to freely negotiate all our products’ prices in the future or that the prices or other market conditions that the Argentine government could impose will allow us to freely negotiate the price of our products.
 
We do not maintain insurance over all our crop storage facilities; therefore, if a fire or other disaster damages some or all of our harvest, we will not be completely covered.
 
We store a significant portion of our grain production during harvest due to the seasonal drop in prices that normally occurs at that time. Currently, we store a significant portion of our grain production in plastic silos. We do not maintain insurance on our plastic silos. Although our plastic silos are placed in several different locations, and it is unlikely that a natural disaster affects all of them simultaneously, a fire or other natural disaster which damages the stored grain, particularly if such event occurs shortly after harvesting, could have an adverse effect on our operating results and financial condition.
 
Worldwide competition in the markets for our products could adversely affect our business and results of operations.
 
We experience substantial worldwide competition in each of our markets in which we operate, and in many of our product lines. The market for cereals, oil seeds and by-products is highly competitive and also sensitive to changes in industry capacity, producer inventories and cyclical changes in the world’s economies, any of which may significantly affect the selling prices of our products and thereby our profitability. Argentina is more competitive in the oilseed market than in the market for cereals. Due to the fact that many of our products are agricultural commodities, they compete in the international markets almost exclusively on the basis of price. Many other producers of these products are larger than us, and have greater financial and other resources. Moreover, many other producers receive subsidies from their respective countries while we do not receive any such subsidies from the Argentine government. These subsidies may allow producers from other countries to produce at lower costs than us and/or endure periods of low prices and operating losses for longer periods than we can. Any increased competitive pressure with respect to our products could materially and adversely affect our financial condition and results of operations.
 
Social movements may affect the use of our agricultural properties or cause damage to them.
 
Social movements such as the Landless Rural Workers’ Movement (Movimento dos Trabalhadores Rurais Sem Terra) and the Pastoral Land Commission (Comissão Pastoral da Terra) are active in Brazil and advocate land reform and property redistribution by the Brazilian government. Invasion and occupation of agricultural land by large numbers of people is a common practice among the members of such movements and, in certain regions, including those where we currently invest, remedies such as police protection or eviction procedures are inadequate or non-existent. As a result, we cannot assure you that our agricultural properties will not be subject to invasion or occupation by any social movement. Any invasion or occupation may materially impair the use of our lands and adversely affect our business, financial condition, and results of operations.
 
If we are unable to maintain our relationships with our customers, particularly with the single customer who purchases our entire raw milk production each month, our business may be adversely affected.
 
Our cattle sales are diversified, notwithstanding the aforementioned, we are and will continue to be significantly dependent on a number of third party relationships, mainly with our customers for crop and milk sales. During the fiscal year 2015, we sold our products to approximately 300 customers. Sales of agricultural products to our ten largest customers represented approximately 48% of our net sales for the fiscal year ended June 30, 2015. During fiscal year 2015, our biggest three customers were ETH Biotecnología, Mastellone Hnos. S.A. and Molinos Río de la Plata S.A., which represented, in the aggregate, approximately 27% of our net sales in agricultural products, while the remaining seven customers in the aggregate represented approximately 21% of our net sales in the fiscal year 2015.
 
In addition, we currently sell our entire raw milk production to one customer in Argentina, Mastellone Hnos. S.A. For the year ended June 30, 2015, these sales represented approximately 3% of our agricultural business revenues. We cannot assure you that this customer will continue to purchase our entire raw milk production in the future or that, if it fails to do so, we could enter into satisfactory sale arrangements with new purchasers in the future.
 
We sell our crop production mainly to exporters and manufacturers that process the raw materials to produce meal and oil, products that are sent to the export markets. The Argentine crop market is characterized by a few purchasers and a great number of sellers. Although most of the purchasers are international companies with strong financial conditions, we cannot assure you that this situation will remain the same in the future or this market will not get more concentrated in the future.
 
We may not be able to maintain or form new relationships with customers or others who provide products and services that are important to our business. Accordingly, we cannot assure you that our existing or prospective relationships will result in sustained business or the generation of significant revenues.
 
 
 

 
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Our business is seasonal, and our revenues may fluctuate significantly depending on the growing cycle.
 
Our agricultural business is highly seasonal due to its nature and cycle. The harvest and sale of crops (corn, soybean and sunflower) generally occurs from February to June. Wheat is harvested from December to January. Our operations and sales are affected by the growing cycle of the crops we process and by decreases during the summer in the price of the cattle we fatten. As a result, our results of operations have varied significantly from period to period, and are likely to continue to vary, due to seasonal factors.
 
The restrictions imposed on our subsidiaries’ dividend payments may adversely affect us.
 
We have subsidiaries, and therefore, dividends in cash and other permitted payments of our subsidiaries constitute a major source of our income. The debt agreements of our subsidiaries contain covenants that may restrict their ability to pay dividends or proceed with other types of distributions. If our subsidiaries are prevented from making payments to us or if they are only allowed to pay limited amounts, we may be unable to pay dividends or to repay our indebtedness.
 
Our principal shareholder has the ability to direct our business and affairs, and its interests could conflict with ours.
 
As of June 30, 2015, Mr. Eduardo S. Elsztain, is the beneficial owner of 37.4% (on a fully diluted basis) of our common shares. As a result of his significant influence over us, Mr. Elsztain, by virtue of his position in IFISA, has been able to elect a majority of the members of our board of directors, direct our management and determine the result of substantially all resolutions that require shareholders’ approval, including fundamental corporate transactions and our payment of dividends by us.
 
The interests of our principal shareholder and management may differ from, and could conflict with, those of our other shareholders. Pursuant to a consulting agreement we pay a management fee equal to 10% of our annual net income to Consultores Asset Management S.A., formerly known as Dolphin Fund Management S.A. (“Consultores Asset Management”), a company whose capital stock is 85% owned by Mr. Eduardo S. Elsztain and the remaining by Saúl Zang, our vice-chairman. This performance based fee could be viewed as an incentive for Consultores Asset Management to favor riskier or more speculative investments than would otherwise be the case. In addition, as of June 30, 2015 Mr. Elsztain was the beneficial owner, due to his indirect shareholding through us of 64.3% of IRSA (without considering treasury shares), an Argentine company that currently owns approximately 95.8% of the common shares of its subsidiary IRSA Commercial Properties whose chief executive officer is Mr. Alejandro G. Elsztain, Mr. Eduardo S. Elsztain’s brother. We cannot assure you that our principal shareholders will not cause us to forego business opportunities that their affiliates may pursue or to pursue other opportunities that may not be in our interest, all of which may adversely affect our business, results of operations and financial condition and the value of our common shares and the ADSs
 
We could be adversely affected by our investment in IRSA if its value declines.
 
Our investment in IRSA is exposed to the common risks generally inherent in investments in the real estate industry, many of which are outside IRSA’s control. Any of these risks could adversely and materially affect IRSA’s businesses, financial position and/or results of operations. Any available returns on capital expenditures associated with real estate are dependent upon sales volumes and/or revenues from leases and the expenses incurred. In addition, there are other factors that may adversely affect the performance and the value of a property, including the local economic conditions prevailing in the area where the property is located, macroeconomic conditions in Argentina and in the rest of the world, competition from other companies engaged in real estate development, IRSA’s ability to find lessees, non-performance by lessees and/or lease terminations, changes in legislation and in governmental regulations (including those governing the use of the properties, urban planning and real estate taxes), variations in interest rates (including the risk of an increase in interest rates causing a reduction in the sales of lots in properties intended for residential development) and the availability of funding. In addition, and given the relative illiquidity of the real estate market, IRSA could be unable to effectively respond to adverse market conditions and/or be compelled to undersell one or more of its properties. Broadly speaking, some significant expenses, such as debt services, real estate taxes and operating and maintenance costs do not fall when there are circumstances that reduce the revenues from an investment.
 
These factors and/or events could impair IRSA’s ability to respond to adverse changes in the returns on its investments thus causing a significant reduction in its financial position and/or the results of its operations, which could have an adverse effect on our financial position and the results of our operations.
 
We could be materially and adversely affected by our investment in Brasilagro.
 
We consolidated our financial statements with our subsidiary Brasilagro. Brasilagro was formed on September 23, 2005 to exploit opportunities in the Brazilian agricultural sector. Brasilagro seeks to acquire and develop future properties to produce a diversified range of agricultural products (which may include sugarcane, grains, cotton, forestry products and livestock). Brasilagro is a startup company that has been operating since 2006. As a result, it has a developing business strategy and limited track record. Brasilagro’s business strategy may not be successful, and if not successful, Brasilagro may be unable to successfully modify its strategy. Brasilagro’s ability to implement its proposed business strategy may be materially and adversely affected by many known and unknown factors. If we were to write-off our investments in Brasilagro, this would likely materially and adversely affect our business. As of June 30, 2015, we owned 39.76% of the outstanding common shares of Brasilagro.
 
We are subject to extensive environmental regulation.
 
Our activities are subject to a wide set of federal, state and local laws and regulations relating to the protection of the environment, which impose various environmental obligations. Obligations include compulsory maintenance of certain preserved areas in our properties, management of pesticides and associated hazardous waste and the acquisition of permits for water use. Our proposed business is likely to involve the handling and use of hazardous materials that may cause the emission of certain regulated substances. In addition, the storage and processing of our products may create hazardous conditions. We could be exposed to criminal and administrative penalties, in addition to the obligation to remedy the adverse effects of our operations on the environment and to indemnify third parties for damages, including the payment of penalties for non-compliance with these laws and regulations. Since environmental laws and their enforcement are becoming more stringent in Argentina, our capital expenditures and expenses for environmental compliance may substantially increase in the future. In addition, due to the possibility of future regulatory or other developments, the amount and timing of environmental-related capital expenditures and expenses may vary substantially from those currently anticipated. The cost of compliance with environmental regulation may result in reductions of other strategic investments which may consequently decrease our profits. Any material unforeseen environmental costs may have a material adverse effect on our business, results of operations, financial condition or prospects.
 
As of June 30, 2015, we owned land reserves extending over more than 352,928 hectares that were purchased at very attractive prices. In addition, we have a concession over 109,014 hectares reserved for future development. We believe that there are technological tools available to improve productivity in these farmlands and, therefore, achieve appreciation in the long term. However, current or future environmental regulations could prevent us from fully developing our land reserves by requiring that we maintain part of this land as natural woodlands not to be used for production purposes.
 
Increased energy prices and fuel shortages could adversely affect our operations.
 

 
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We require substantial amounts of fuel oil and other resources for our harvest activities and transport of our agricultural products. We rely upon third parties for our supply of the energy resources consumed in our operations. The prices for and availability of energy resources may be subject to change or curtailment, respectively, due to, among other things, new laws or regulations, imposition of new taxes or tariffs, interruptions in production by suppliers, worldwide price levels and market conditions. The prices of various sources of energy may increase significantly from current levels. An increase in energy prices could materially adversely affect our results of operations and financial condition.
 
We depend on our chairman and senior management.
 
Our success depends, to a significant extent, on the continued employment of Mr. Eduardo S. Elsztain, our chairman, and Alejandro G. Elsztain, our chief executive officer, and second vice-chairman. The loss of their services for any reason could have a material adverse effect on our business. If our current principal shareholders were to lose their influence on the management of our business, our principal executive officers could resign or be removed from office.
 
Our future success also depends in part upon our ability to attract and retain other highly qualified personnel. We cannot assure you that we will be successful in hiring or retaining qualified personnel, or that any of our personnel will remain employed by us.
 
The Investment Company Act may limit our future activities.
 
Under Section 3(a)(3) of the Investment Company Act of 1940, as amended, an investment company is defined in relevant part to include any company that owns or proposes to acquire investment securities that have a value exceeding 40% of such company’s unconsolidated total assets (exclusive of U.S. government securities and cash items). Investments in minority interests of related entities as well as majority interests in consolidated subsidiaries which themselves are investment companies are included within the definition of “investment securities” for purposes of the 40% limit under the Investment Company Act.
 
Companies that are investment companies within the meaning of the Investment Company Act, and that do not qualify for an exemption from the provisions, are required to register with the Securities and Exchange Commission and are subject to substantial regulations with respect to capital structure, operations, transactions with affiliates and other matters. In the event such companies do not register under the Investment Company Act, they may not, among other things, conduct public offerings of their securities in the United States or engage in interstate commerce in the United States. Moreover, even if we desired to register with the Securities and Exchange Commission as an investment company, we could not do so without an order of the Commission because we are a non-U.S. corporation, and it is unlikely that the Securities and Exchange Commission would issue such an order.
 
In recent years we made a significant investment in the capital stock of IRSA. As of June 30, 2015, we owned approximately 64.3% of IRSA’s outstanding shares. Although we believe we are not an “investment company” for purposes of the Investment Company Act, our belief is subject to substantial uncertainty, and we cannot give you any assurance that we would not be determined to be an “investment company” under the Investment Company Act. As a result, the uncertainty regarding our status under the Investment Company Act may adversely affect our ability to offer and sell securities in the United States or to U.S. persons. The U.S. capital markets have historically been an important source of funding for us, and our ability to obtain financing in the future may be adversely affected by a lack of access to the U.S. markets. If an exemption under the Investment Company Act is unavailable to us in the future and we desire to access the U.S. capital markets, our only recourse would be to file an application to the SEC for an exemption from the provisions of the Investment Company Act which is a lengthy and highly uncertain process.
 
Moreover, if we offer and sell securities in the United States or to U.S. persons and we were deemed to be an investment company under the investment company act and not exempted from the application of the Investment Company Act, contracts we enter into in violation of, or whose performance entails a violation of, the Investment Company Act, including any such securities, may not be enforceable against us.
 
We hold Argentine securities which might be more volatile than U.S. securities and carry a greater risk of default.
 
We currently have and in the past have had certain investments in Argentine government debt securities, corporate debt securities, and equity securities. In particular, we hold a significant interest in IRSA, an Argentine company that has suffered material losses, particularly during the fiscal years 2001 and 2002. Although our holding of these investments, excluding IRSA, tends to be short term, investments in such securities involve certain risks, including:
 
·  
market volatility, higher than those typically associated with U.S. government and corporate securities; and
 
·  
loss of principal.
 
Some of the issuers in which we have invested and may invest, including the Argentine government, have in the past experienced substantial difficulties in servicing their debt obligations, which have led to the restructuring of certain indebtedness. We cannot assure that the issuers in which we have invested or may invest will not be subject to similar or other difficulties in the future which may adversely affect the value of our investments in such issuers. In addition, such issuers and, therefore, such investments, are generally subject to many of the risks that are described in this section with respect to us, and, thus, could have little or no value.
 
Risks relating to our investment in IRSA.
 
IRSA is subject to risks inherent to the operation of shopping centers that may affect its profitability.
 
IRSA’s shopping centers are subject to various factors that affect their development, administration and profitability, including:
 
·  
decline in its lease prices or increases in levels of default by IRSA’s tenants due to recessions, increases in interest rates and other factors that IRSA cannot control;
 
·  
the accessibility and the attractiveness of the area where the shopping center is located;
 
·  
the intrinsic attractiveness of the shopping center;
 
·  
the flow of people and the level of sales of each shopping center rental unit;
 
·  
increasing competition from internet sales;
 
·  
the amount of rent collected from each shopping center rental unit;
 
·  
changes in consumer demand and availability of consumer credit (considering the limits impose by the Central Bank to interest rates charged by financial institutions), both of which are highly sensitive to general macroeconomic conditions; and
 
·  
fluctuations in occupancy levels in IRSA’s shopping centers.
 

 
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An increase in IRSA’s operating costs, caused by inflation or by other factors, could have a material adverse effect on IRSA if its tenants are unable to pay higher rent due to the increase in expenses. Moreover, the shopping center business is closely related to consumer spending and to  the economy in which customers are located. All of IRSA’s shopping centers are in Argentina, and, as a consequence, their business could be seriously affected by a recession in Argentina. For example, during the economic crisis in Argentina, spending decreased significantly, unemployment, political instability and inflation significantly reduced consumer spending in Argentina, lowering tenants’ sales and forcing some tenants to leave IRSA’s shopping centers. Persistently poor economic conditions in Argentina will likely have a material adverse effect on the revenues from shopping center activity and thus on IRSA’s business.
 
IRSA’s performance is subject to risks associated with its properties and with the real estate industry.
 
IRSA’s economic performance and the value of its real estate assets are subject to the risk that their properties may not be able to generate sufficient revenues to meet the operating expenses, including debt service and capital expenditures, IRSA’s cash flow and ability to service its debt and to cover other expenses may be adversely affected.
 
Events or conditions beyond IRSA’s control that may adversely affect its operations or the value of its properties include:
 
·  
downturns in the national, regional and local economic climate;
 
·  
volatility and decline in discretionary spending;
 
·  
competition from other shopping centers and office, and commercial buildings;
 
·  
local real estate market conditions, such as oversupply or reduction in demand for retail, office, or other commercial space;
 
·  
decreases in consumption levels;
 
·  
changes in interest rates and availability of financing;
 
·  
the exercise by our tenants of their legal right to early termination of their leases;
 
·  
vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space;
 
·  
increased operating costs, including insurance expense, salary increases, utilities, real estate taxes, state and local taxes and heightened security costs;
 
·  
civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
 
·  
significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;
 
·  
declines in the financial condition of our tenants and our ability to collect rents from our tenants;
 
·  
changes in our ability or our tenants’ ability to provide for adequate maintenance and insurance, possibly decreasing the useful life of and revenue from property;
 
·  
changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or government action such as expropriation, confiscation or revocation of concessions; and
 
·  
interpretation by judges of the New Civil Code (in force from August 1, 2015).
 
If any one or more of the foregoing conditions were to affect IRSA’s business, it could have a material adverse effect on our financial condition and results of operations.
 
An adverse economic environment for real estate companies such as a credit crisis may have a significant adverse impact on our results of operations and business prospects.
 
The success of IRSA’s business and profitability of its operations are dependent on continued investment in the real estate markets and access to capital and debt financing. A long term crisis of confidence in real estate investments and lack of credit for acquisitions may tend to constrain our business growth. As part of our business goals, IRSA intends to increase our properties portfolio with strategic acquisitions of core properties at advantageous prices, where IRSA believes it can bring the necessary expertise to enhance property values.
 
In order to pursue acquisitions, IRSA may need access to equity capital and/or debt financing. Any disruptions in the financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact IRSA’s ability to refinance existing debt and the availability and cost of credit in the near future. Any consideration of sales of existing properties or portfolio interests may be tempered by decreasing property values. IRSA’s ability to make scheduled payments or to refinance its obligations with respect to indebtedness depends on its operating and financial performance, which in turn is subject to prevailing economic conditions. If a recurrence of the disruptions in financial markets remains or arises in the future, there can be no assurances that government responses to such disruptions will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.
 
The loss of significant tenants could adversely affect both the operating revenues and value of IRSA’s properties.
 
If certain of IRSA’s most important tenants were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if it simply failed to retain its patronage, IRSA’s business could be adversely affected. IRSA’s shopping centers are typically anchored by significant tenants, such as well-known department stores who generate shopping traffic at the mall. Further, certain tenants are also very important for IRSA’s office buildings. A decision by such significant tenants to cease operations at IRSA’s shopping centers or office buildings, as applicable, could have a material adverse effect on the revenues and profitability of the affected segment and, by extension, on its financial condition and results of operations. In addition, the closing of one or more significant tenants at its shopping centers may induce other major tenants at an affected property to terminate their leases, to seek rent relief and/or cease operating their stores or otherwise adversely affect occupancy at the property. Moreover, key tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies. The bankruptcy and/or closure of one or more significant tenants, if IRSA is not able to successfully re-lease the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved.
 

 
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IRSA may face risks associated with property acquisitions.
 
IRSA has in the past acquired, and intend to acquire in the future, properties, including large properties that would increase its size and potentially alter its capital structure. Although, IRSA believes that the acquisitions that it has completed in the past and that it expect to undertake in the future have, and will, enhance its future financial performance, the success of such transactions is subject to a number of uncertainties, including the risk that:
 
·  
IRSA may not be able to obtain financing for acquisitions on favorable terms;
 
·  
acquired properties may fail to perform as expected;
 
·  
the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates; and
 
·  
acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, absence of business relationships in the area or unfamiliarity with local governmental and permitting procedures.
 
If IRSA acquires new properties, it may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into IRSA’s organization and to manage new properties in a way that allows it to realize cost savings and synergies, which could impair the results of operations.
 
IRSA’s future acquisitions may be unprofitable.
 
IRSA intends to acquire additional properties to the extent that they manage to acquire them on advantageous terms and conditions and they meet our investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including:
 
·  
IRSA’s estimates of the cost of improvements needed to bring the property up to established standards for the market may prove to be inaccurate;
 
·  
properties IRSA acquires may fail to achieve, within the time frames it projects, the occupancy or rental rates it expects to achieve at the time it makes the decision to acquire, which may result in the properties’ failure to achieve the returns that IRSA projected;
 
·  
IRSA pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase the total acquisition costs; and
 
·  
IRSA investigation of a property or building prior to its acquisition, and any representations IRSA may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.
 
If IRSA acquires a business, it will be required to merge and integrate the operations, personnel, accounting and information systems of such acquired business. In addition, acquisitions of or investments in companies may cause disruptions in IRSA’s operations and divert management’s attention away from day-to-day operations, which could impair IRSA’s relationships with its current tenants and employees.
 
Acquired properties may subject IRSA to unknown liabilities.
 
Properties that IRSA acquires may be subject to unknown liabilities and IRSA it would have no recourse, or only limited recourse, to the former owners of the properties. Thus, if a liability were asserted against it based upon ownership of an acquired property, IRSA might be required to pay significant sums to settle it, which could adversely affect its financial results and cash flow. Unknown liabilities relating to acquired properties could include:
 
·  
liabilities for clean-up of undisclosed environmental contamination;
 
·  
law reforms and governmental regulations (such as those governing usage, zoning and real property taxes); and
 
·  
liabilities incurred in the ordinary course of business.
 
IRSA’s dependence on rental income may adversely affect its ability to meet its debt obligations.
 
A substantial part of IRSA’s income is derived from rental income from real property. As a result, IRSA’s performance depends on its ability to collect rent from its tenants. IRSA’s income and funds for distribution would be negatively affected if a significant number of its tenants or any of its major tenants (as discussed in more detail below):
 
·  
delay lease commencements;
 
·  
decline to extend or renew leases upon expiration;
 
·  
fail to make rental payments when due; or
 
·  
close stores or declare bankruptcy.
 
Any of these actions could result in the termination of leases and the loss of rental income attributable to the terminated leases. In addition, IRSA cannot assure you that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms or at all. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt and other financial obligations.
 
It may be difficult to buy and sell real estate quickly and transfer restrictions may apply to part of IRSA’s portfolio of properties.
 
Real estate investments are relatively illiquid and this tends to limit its ability to vary its portfolio in response to changes in the economy or other conditions. In addition, significant expenditures associated with each investment, such as mortgage payments, real estate taxes and maintenance costs, are generally not reduced when circumstances cause a decrease in income from an investment. If income from a property declines while the related expenses do not decline, IRSA’s business would be adversely affected. Further, if it becomes necessary or desirable for it to dispose of one or more of the mortgaged properties, IRSA may not be able to obtain a release of the lien on the mortgaged property without payment of the associated debt. The foreclosure of a mortgage on a property or inability to sell a property could adversely affect its business.
 

 
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Some of the land IRSA has purchased is not zoned for development purposes, and it may be unable to obtain, or may face delays in obtaining the necessary zoning permits and other authorizations.
 
IRSA owns several plots of land which are not zoned for the type of projects it intends to develop. In addition, IRSA does not yet have the required land-use, building, occupancy and other required governmental permits and authorizations for these properties. IRSA cannot assure you that it will continue to be successful in its attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be unreasonably delayed or rejected. Moreover, IRSA may be affected by building moratorium and anti-growth legislation. If it is unable to obtain all of the governmental permits and authorizations it needs to develop its present and future projects as planned, IRSA may be forced to make unwanted modifications to such projects or abandon them altogether.
 
IRSA’s ability to grow will be limited if IRSA cannot obtain additional financing.
 
IRSA must maintain liquidity to fund its working capital, service its outstanding indebtedness and finance investment opportunities. Without sufficient liquidity, IRSA could be forced to curtail its operations or may not be able to pursue new business opportunities.
 
IRSA´s growth strategy is focused on the development and redevelopment of properties IRSA already owns and the acquisition and development of additional properties. As a result, IRSA is likely to depend to an important degree on the availability of debt or equity capital, which may or may not be available on favorable terms or at all. IRSA cannot guarantee that additional financing, refinancing or other capital will be available in the amounts IRSA desires or on favorable terms. IRSA´s access to debt or equity capital markets depends on a number of factors, including the market’s perception of IRSA´s growth potential, IRSA´s ability to pay dividends, its financial condition, its credit rating and its current and potential future earnings. Depending on these factors, IRSA could experience delays or difficulties in implementing its growth strategy on satisfactory terms or at all.
 
The capital and credit markets have been experiencing extreme volatility and disruption since the last credit crisis. If IRSA’s current resources do not satisfy its liquidity requirements, it may have to seek additional financing. The availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit and its credit ratings, as well as the possibility that lenders could develop a negative perception of the prospects of IRSA or the industry generally. IRSA may not be able to successfully obtain any necessary additional financing on favorable terms, or at all.
 
Serious illnesses and pandemics, such as the 2009 outbreak of Influenza A H1N1 virus (the “Swine Flu”), have in the past adversely affected consumer and tourist activity, may do so in the future and may adversely affect our results of operations.
 
As a result of the outbreak of Swine Flu during the winter of 2009, consumers and tourists dramatically changed their spending and travel habits to avoid contact with crowds. Furthermore, several governments enacted regulations limiting the operation of schools, cinemas and shopping centers. Even though the Argentine government only issued public service recommendations to the population regarding the risks involved in visiting crowded places, such as shopping centers, and did not issue specific regulations limiting access to public places, a significant number of consumers nonetheless changed their habits vis-a-vis shopping centers and malls. We cannot assure you that a new disease outbreak or health hazard (such as the Ebola outbreak in recent years) will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourist activity, and that such scenario would not adversely affect our businesses.
 
Adverse incidents that occur in IRSA’s shopping centers may result in damage to IRSA’s image and a decrease in the number of IRSA’s customers.
 
Given that shopping centers are open to the public, with ample circulation of people, accidents, theft, robbery and other incidents may occur in IRSA´s facilities, regardless of the preventative measures it adopts. In the event such an incident or series of incidents occurs, shopping center customers and visitors may choose to visit other shopping venues that they believe are safer and less violent, which may cause a reduction in the sales volume and operating income of IRSA´s shopping centers.
 
Argentine Law governing leases imposes restrictions that limit IRSA´s flexibility.
 
Argentine laws governing leases impose certain restrictions, including the following:
 
·  
a prohibition to include automatic price adjustment clauses based on inflation increases in lease agreements; and
 
·  
the imposition of a two-year minimum lease term for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease agreement requires a shorter term.
 
As a result of the foregoing, IRSA is exposed to the risk of increases of inflation under our leases, and the exercise of rescission rights by our tenants could materially and adversely affect its business. IRSA cannot assure you that its tenants will not exercise such right, especially if rent values stabilize or decline in the future or if economic conditions deteriorate.
 
In addition, on October 1, 2014, by means of the Law No.26,994, the Argentine Congress sanctioned a new Civil and Commercial Code (the “Civil and Commercial Code”) which although wasn’t effective as of June 30, 2015, is in force since August 1, 2015, and is currently applicable to our leases. The Civil and Commercial Code derogates Law No. 23,091 on Urban Leases, which amends certain important matters in the current law in connection with leases, such as including a minimum term of two years, and a maximum term of twenty years for residential leases and of fifty years for other purpose leases. Furthermore, the Civil and Commercial Code modifies the regime applicable to contractual provisions relating to foreign currency payment obligations by establishing that foreign currency payment obligations may be discharged in Pesos. This amends the legal framework currently in force, pursuant to which debtors may only discharge their foreign currency payment obligations by making payment in the specific foreign currency agreed upon in their agreements; provided however that the option to discharge in Pesos a foreign currency obligation may be waived by the debtor is still under discussion. Although certain judicial decisions have set forth that this regulation regarding foreign currency can be left aside by the parties to an agreement, it is still too early to determine whether or not this legal provision can be left aside in an agreement as a general rule. Moreover, and regarding the new provisions for leases, there are no judicial decisions on the scope of this amendment and, in particular, in connection with the ability of the parties to any contract to set aside the new provision and enforce such agreements before an Argentine court.
 
IRSA may be liable for some defects in its buildings.
 
According to the former Argentine Civil Code, the builder of a real estate development was liable in case of property damage – meaning the damages compromises the structure and/or the defects render the building no longer useful – for a period of 10 years since the possession of the property; on the other hand, the builder was liable for the latent defects, even when those defects did not imply significant property damage. In addition, according to the former Argentine Civil Code, such liability was extended to the technical project manager and the designer of any given project. Furthermore, in certain cases, such as when consumer law was involved, the liability could be extended to the developer. The Civil and Commercial Code, which became effective on August 1, 2015, has similar provisions to those included in the former Argentine Civil Code and expressly extends the liability for such damage to real estate developers (i.e., any person who sells real estate built by either themselves or by a third party contractor), and any other person involved in the project, in addition to the liability of the builder, the technical project manager and the designer of any given project. According to the Civil and Commercial Code, the warranty period for latent defects expires after three years of the client taking possession of the real estate, and both the builder and the seller are liable for such defects.
 
In IRSA’s real estate developments it usually act as developer and seller and build through third-party contractors. Absent a specific claim, IRSA cannot quantify the potential cost of any obligation that may arise as a result of a future claim, and it has not recorded provisions associated with them in its financial statements. If IRSA were required to remedy any defects on completed works, its financial condition and results of operations could be adversely affected.
 

 
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Eviction proceedings in Argentina are difficult and time consuming.
 
Although Argentine law permits a summary proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are difficult and time-consuming. Historically, the heavy workloads of the courts and the numerous procedural steps required have generally delayed landlords’ efforts to evict tenants. Eviction proceedings generally take between six months and two years from the date of filing of the suit to the time of actual eviction.
 
IRSA has usually attempted to negotiate the termination of lease agreements with defaulting tenants after the first few months of non-payment in order to avoid legal proceedings. Delinquency may increase significantly in the future, and such negotiations with tenants may not be as successful as they have been in the past. Moreover, new Argentine laws and regulations may forbid or restrict eviction, and in each such case, they would likely have a material and adverse effect on IRSA´s financial condition and results of operation.
 
IRSA is subject to risks inherent to the operation of office buildings that may affect its profitability.
 
Office buildings are subject to various factors that affect their development, administration and profitability, including:
 
·  
a decrease in demand for office space;
 
·  
a deterioration in the financial condition of our tenants may result in defaults under leases due to bankruptcy, lack of liquidity or for other reasons;
 
·  
difficulties or delays renewing leases or re-leasing space;
 
·  
decreases in rents as a result of oversupply, particularly of newer buildings;
 
·  
competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from our tenants; and
 
·  
maintenance, repair and renovation costs incurred to maintain the competitiveness of IRSA's office buildings.
 
IRSA’s investment in property development and management activities may be less profitable than we anticipate.
 
IRSA is a company engaged in the development and management of shopping centers, office buildings and other rental properties, frequently through third-party contractors. Risks associated with IRSA’s development and management activities include the following, among others:
 
·  
abandonment of development opportunities and renovation proposals;
 
·  
construction costs of a project may exceed IRSA’s original estimates for reasons including raises in interest rates or increases in the costs of materials and labor, making a project unprofitable;
 
·  
occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment;
 
·  
pre-construction buyers may default on its purchase contracts or units in new buildings may remain unsold upon completion of construction;
 
·  
the unavailability of favorable financing alternatives in the private and public debt markets;
 
·  
sale prices for residential units may be insufficient to cover development costs;
 
·  
construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs;
 
·  
impossibility to obtain or delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, or building moratoria and anti-growth legislation;
 
·  
significant time lags between the commencement and completion of projects subjects IRSA to greater risks due to fluctuation in the general economy;
 
·  
construction may not be completed on schedule because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods), resulting in increased debt service expense and construction costs;
 
·  
general changes in IRSA’s tenants’ demand for rental properties; and
 
·  
IRSA may incur capital expenditures that could result in considerable time consuming efforts and which may never be completed due to government restrictions.
 
In addition, IRSA may face contractors’ claims for the enforcement of labor laws in Argentina (sections 30, 31 and 32 under Law No. 20,744), which provide for joint and several liability. Many companies in Argentina hire personnel from third-party companies that provide outsourced services, and sign indemnity agreements in the event of labor claims from employees of such third company that may affect the liability of such hiring company. However, in recent years, several courts have denied the existence of independence in those labor relationships and declared joint and several liabilities for both companies.
 
While IRSA’s policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, nevertheless IRSA is subject to risks associated with the construction of properties, such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of its control, as well as financing costs, may exceed original estimates, possibly making the associated investment unprofitable. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm its operating results.
 
IRSA is subject to great competitive pressure.
 
IRSA’s real estate activities (in particular due to the acquisition of the office buildings in December 2014) are highly concentrated in the Buenos Aires metropolitan area, where the real estate market is highly competitive due to a scarcity of properties in sought-after locations and the increasing number of local and international competitors.
 

 
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Furthermore, the Argentine real estate industry is generally highly competitive and fragmented and does not have high barriers to entry restricting new competitors from entering the market. The main competitive factors in the real estate development business include availability and location of land, price, funding, design, quality, reputation and partnerships with developers. A number of residential and commercial developers and real estate services companies compete with it in seeking land for acquisition, financial resources for development and prospective purchasers and tenants. Other companies, including joint ventures of foreign and local companies, have become increasingly active in the real estate business and shopping center business in Argentina, further increasing this competition. To the extent that one or more of IRSA’s competitors are able to acquire and develop desirable properties, as a result of greater financial resources or otherwise, its business could be materially and adversely affected. If IRSA is not able to respond to such pressures as promptly as its competitors, or the level of competition increases, its financial condition and results of its operations could be adversely affected.
 
All of IRSA’s shopping center properties are located in Argentina. There are other shopping centers and numerous smaller retail stores and residential properties within the market area of each of our properties. The number of competing properties in a particular area could have a material adverse effect on its ability to lease retail space in its shopping centers or sell units in its residential complexes and on the amount of rent or the sale price that IRSA is able to charge. IRSA cannot assure you that other shopping center operators, including international shopping center operators, will not invest in Argentina in the near future. If additional companies become active in the Argentine shopping center market in the future, such competition could have a material adverse effect on IRSA’s results of operations.
 
Substantially all of IRSA’s offices and other non-shopping center rental properties are located in developed urban areas. There are many office buildings, shopping malls, retail and residential premises in the areas where the properties are located. This is a highly fragmented market, and the abundance of comparable properties in the vicinity may adversely affect the ability to rent or sell office space and other real estate and may affect the sale and lease price of their premises. In the future, both national and foreign companies may participate in Argentina’s real estate development market, competing with IRSA for business opportunities.
 
Some potential losses are not covered by insurance, and certain kinds of insurance coverage may become prohibitively expensive.
 
IRSA currently carries insurance policies that cover potential risks such as civil liability, fire, loss profit, floods, including extended coverage and losses from leases on all of its properties. Although IRSA believes the policy specifications and insured limits of these policies are generally customary, there are certain types of losses, such as lease and other contract claims, terrorism and acts of war that generally are not insured under the insurance policies offered in the national market. Should an insured loss or a loss in excess of insured limits occur, IRSA could lose all or a portion of the capital it has invested in a property, as well as the anticipated future revenue from the property. In such an event, IRSA might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. IRSA cannot assure you that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt its operations, delay revenue and result in large expenses to repair or rebuild the property. If any of its key employees were to die or become incapacitated, it could experience losses caused by a disruption in its operations which will not be covered by insurance, and this could have a material adverse effect on its financial condition and results of operations.
 
In addition, IRSA cannot assure you that it will be able to renew its insurance coverage in an adequate amount or at reasonable prices. Insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold, or, if offered, these types of insurance may be prohibitively expensive.
 
Demand for IRSA’s premium properties may not be sufficient.
 
IRSA has focused on development projects to cater affluent individuals and has entered into property barter agreements pursuant to which IRSA contributes its undeveloped properties to ventures with developers who will deliver to its units in premium locations. At the time the developers return these properties to it, demand for premium residential units could be significantly lower. In such case, IRSA would be unable to sell these residential units at the estimated prices or time frame, which could have an adverse effect on its financial condition and results of operations.
 
IRSA’s level of debt may adversely affect its operations and its ability to pay its debt as it becomes due.
 
IRSA had, and expects to have, substantial liquidity and capital resource requirements to finance its business. As of June 30, 2015, IRSA’s consolidated financial debt amounted to Ps.4,973.0 million (including accrued and unpaid interest and deferred financing costs). IRSA cannot assure you that it will have sufficient cash flows and adequate financial capacity in the future.
 
The fact that it is leveraged may affect its ability to refinance existing debt or borrow additional funds to finance working capital, acquisitions and capital expenditures. In addition, the recent disruptions in the global financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact IRSA’s ability to refinance existing debt and the availability and cost of credit in the future. In such conditions, access to equity and debt financing options may be restricted and it may be uncertain how long these economic circumstances may last.
 
This would require IRSA to allocate a substantial portion of cash flow to repay principal and interest, thereby reducing the amount of money available to invest in operations, including acquisitions and capital expenditures. Its leverage could also affect its competitiveness and limit its ability to changes in market conditions, changes in the real estate industry and economic downturns.
 
IRSA may not be able to generate sufficient cash flows from operations to satisfy its debt service requirements (including the notes) or to obtain future financing. If IRSA cannot satisfy its debt service requirements or if IRSA default on any financial or other covenants in its debt arrangements, the lenders and/or holders of its debt will be able to accelerate the maturity of such debt or cause defaults under the other debt arrangements. IRSA’s ability to service debt obligations or to refinance them will depend upon its future financial and operating performance, which will, in part, be subject to factors beyond its control such as macroeconomic conditions and regulatory changes in Argentina. If it cannot obtain future financing, it may have to delay or abandon some or all of its planned capital expenditures, which could adversely affect its ability to generate cash flows and repay its obligations.
 

 
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The recurrence of a credit crisis could have a negative impact on its major customers, which in turn could materially adversely affect its results of operations and liquidity.
 
The international credit crisis in 2009 had a significant negative impact on businesses around the world. The impact of a crisis on our major tenants cannot be predicted and may be quite severe. A disruption in the ability of our significant tenants to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction their future orders of their products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity.
IRSA is subject to risks affecting the hotel industry.
 
The full-service segment of the lodging industry in which our hotels operate is highly competitive. The operational success of our hotels is highly dependent on our ability to compete in areas such as access, location, quality of accommodations, rates, quality food and beverage facilities and other services and amenities. Our hotels may face additional competition if other companies decide to build new hotels or improve their existing hotels to increase their attractiveness. 
 
In addition, the profitability of our hotels depends on:
 
·  
IRSA’s ability to form successful relationships with international and local operators to run our hotels;
 
·  
changes in tourism and travel trends, including seasonal changes and chages due to pandemic outbreaks, such as the A H1N1 virus, a potential ebola outbreak, among others, or weather phenomenas or other natural events, such as the eruption of the Puyehué and the Calbuco volcano in June 2011 and April 2015, respectively;
 
·  
affluence of tourists, which can be affected by a slowdown in global economy; and
 
·  
taxes and governmental regulations affecting wages, prices, interest rates, construction procedures and costs.
 
An uninsured loss or a loss that exceeds the policies on IRSA’s properties could subject to lost capital or revenue on those properties.
 
Under the terms and conditions of the leases currently in force on IRSA’s properties, tenants are required to indemnify and hold harmless from liabilities resulting from injury to persons, or property, on or off the premises, due to activities conducted on the properties, except for claims arising from our negligence or intentional misconduct or that of its agents.
 
Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. In addition, IRSA cannot assure the holders that the tenants will properly maintain their insurance policies or have the ability to pay the deductibles.
 
Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, IRSA could lose all or part of its invested capital, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition.
 
The shift of consumers to purchasing goods over the Internet may negatively affect sales at IRSA´s shopping centers.
 
In recent years, retail sales by means of the Internet have grown significantly in Argentina, even though the market share of Internet sales related to retail sales is still not significant. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping centers. IRSA believes that its target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods, and this trend is likely to continue. If e-commerce and retail sales through the Internet continue to grow, consumers’ reliance on traditional distribution channels such as IRSA´s shopping centers could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects.
 

 
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IRSA’s business is subject to extensive regulation and additional regulations may be imposed in the future.
 
IRSA´s activities are subject to federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical patrimony, consumer protection, antitrust and other requirements, all of which affect its ability to acquire land, buildings and shopping centers, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the creation of new taxes and changes in the taxation regime. IRSA is required to obtain licenses and authorizations with different governmental authorities in order to carry out IRSA´s projects. Maintaining IRSA´s licenses and authorizations can be a costly provision. In the case of non-compliance with such laws, regulations, licenses and authorizations, IRSA may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations.
 
In addition, public authorities may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force IRSA to make expenditures to comply with such new rules. Development activities are also subject to risks relating to potential delays in obtaining or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other required governmental permits and authorizations. Any such delays or failures to obtain such government approvals may have an adverse effect on IRSA´s business.
 
In the past, the Argentine government imposed strict and burdensome regulations regarding leases in response to housing shortages, high rates of inflation and difficulties in accessing credit. Such regulations limited or prohibited increases on rental prices and prohibited eviction of tenants, even for failure to pay rent. Most of IRSA´s leases provide that the tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting IRSA´s rental income. IRSA cannot assure you that the Argentine government will not impose similar or other regulations in the future. Changes in existing laws or the enactment of new laws governing the ownership, operation or leasing of properties in Argentina could negatively affect the Argentine real estate market and the rental market and materially and adversely affect IRSA´s operations and profitability.
 
IRSA’s assets are highly concentrated in certain geographic areas and an economic downturn in such areas could have a material adverse effect on its financial condition.
 
For the fiscal year ended June 30, 2015, 70.9% of IRSA’s sales from leases and services were derived from shopping centers in the City of Buenos Aires and the Greater Buenos Aires. In addition, all of its office buildings are located in the City of Buenos Aires and a substantial portion of its revenues are now derived from such properties. Although IRSA owns properties and may acquire or develop additional properties outside of the City of Buenos Aires and the Greater Buenos Aires, it expects to continue to depend to a very large extent on economic conditions affecting those areas and therefore, an economic downturn in those areas could have a material adverse effect on its financial condition and results of operations. IRSA’s dependence on rental income may adversely affect its ability to meet our debt obligations.
 
IRSA faces risks associated with the expansion to other Latin American markets.
 
From 1994 to 2002, IRSA had substantial investments outside of Argentina, including Brazil Realty, which was sold in 2002, and Fondo de Valores Inmobiliarios in Venezuela, which was sold in 2001.
 
IRSA continue to believe that Brazil, Uruguay and other Latin American countries offer attractive growth opportunities in the real estate sector. IRSA will continue to consider investment opportunities outside of Argentina as they arise.
 
Investments in Brazil and other Latin American countries are subject to significant risks including sovereign risks and risks affecting these countries’ real estate sectors. These risks include competition by well-established as well as new developers, unavailability of financing or financing on terms that are not acceptable to IRSA, exchange rate fluctuations, lack of liquidity in the market, rising construction costs and inflation, extensive and potentially increasing regulation and bureaucratic procedures for obtaining permits and authorizations, political and economic instability that may result in sharp shifts in demand for properties, risks of default in payment and difficulty evicting defaulting tenants.
 
IRSA faces risks associated with its expansion in the United States.
 
On July 2, 2008, we acquired 30% interest in Metropolitan 885 LLC (“Metropolitan”), a limited liability company organized under the laws of Delaware, United States of America. During fiscal year 2011, an agreement was reached to restructure Metropolitan’s debt; after the consummation of the aforementioned restructuring, we indirectly hold 49% of New Lipstick LLC (“New Lipstick”), a holding company which is the owner of Metropolitan. Metropolitan’s main asset is the Lipstick Building, a 34-story building located at 885, Third Avenue between 53 and 54 streets in Manhattan, New York. Metropolitan has incurred in a secured loan in connection with the Lipstick Building. For more information, please see “Item 5. Operating and Financial Review and Prospects”.
 
In March 2012, through our subsidiary Real Estate Strategies, L.P. (“RES”), we acquired 3,000,000 Series C convertible preferred shares issued by Condor in an aggregate amount of US$ 30,000,000, a REIT focused in middle-class and long-stay hotels in 20 states in the United States of America.
 
During 2008 and 2009, the U.S. markets experienced extreme dislocations and a severe contraction in available liquidity globally as important segments of the credit markets were frozen. Global financial markets have been disrupted by, among other things, volatility in securities prices, rating downgrades and declining valuations. This disruption lead to a decline in business and consumer confidence and increased unemployment and precipitated an economic recession throughout the globe. As a consequence, owners and operators of commercial real estate, including hotels, resorts, and commercial real estate properties such as offices, experienced dramatic declines in property values. We are unable to predict if disruptions in the global financial markets will occur in the future and the impact that may have on IRSA’s business, financial condition and results of operations.
 
IRSA may face risks associated with its investment in Israel.
 
IDBD is one of the largest business conglomerates of Israel. Particularly, due to the limited size of the Israeli market and due to the high level of governmental regulation, IDBD and its subsidiaries may be limited to expand its business in the future, to form joint ventures and/or strategic alliances, or be obliged to sell, transfer or dispose any of its assets or business segments.
 
Furthermore, changes in the market prices of securities issued by IDBD and its subsidiaries can affect, directly or indirectly, their results of operations, the shareholders' equity, and/or the enterprise value, the ability to approve and/or distribute dividends, and the availability of credit, among other things.
 
IDBD is indirectly exposed due to its main investments, to changes in the prices of, raw materials, securities, and other economic indices, which may have a material impact on the results of operations of IDBD and its subsidiaries.
 
Actual losses on client balances could differ from those that IDBD currently anticipates and, as a result, we may need to adjust our provisions. We cannot assure you that we will accurately assess the creditworthiness of its clients. If IDBD is unable to meet its contractual obligations, it may experience delays in the collection of or be unable to collect its client balances, which would adversely affect our results of operations and cash flows could be adversely affected.
 
As a consequence of the aforementioned and due to the high level of governmental regulation in Israel, the value of our investment in IDBD could be severely affected and therefore would likely have a significant adverse effect on our business, financial condition and results of operations.
 
IRSA is currently facing litigation in connection with its investment in IDBD.
 
On October 20, 2015, the Tel Aviv-Jaffo Court admitted the motion filed by the Arrangement Trustees of IDBH under the Arrangement and determined that any IDBD shares held by any entity controlled by Eduardo Sergio Elsztain and/or transferred by them to third parties shall be prevented from participating as offerees in the Tender Offers as set forth in the Arrangement, with the reservation that this will not apply to IDBD shares which were purchased from minority shareholders on the stock exchange and are in the possession of IFISA. Dolphin filed an appeal before the Supreme Court of Justice of Israel on the Tel Aviv-Jaffo Court's Decision.
 
There can be no assurances of the final outcome of this litigation if the Supreme Court does not reverse the judgment and remove our ban from participating in the Tender Offers with our indirect shareholdings, and as a consequence the value of our investment in IDBD could be severely affected and therefore would likely have a significant adverse effect on our business, financial condition and results of operations.
 
      

 
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Conditions in Israel may limit the ability of IDBD to develop and sell products, which could result in a decrease of revenues.
 
     IDBD’s corporate headquarters and a substantial business are located in Israel. Political, economic and security conditions in Israel could directly affect IDBD´s operations. Since the establishment of the State of Israel, a number of armed conflicts, hostilities and terrorist attacks have taken place in Israel and adjacent areas, which in turn could adversely affect IDBD and its results of operations. The disruption of trade between Israel and its main commercial partners, could affect the economic and financial condition of Israel, which could adversely affect the results of operations of IDBD and its subsidiaries.
 
The rights and responsibilities of IDBD´s shareholders are governed by Israeli law and differ in some respects from the rights and responsibilities of shareholders under U.S. law.
 
IDBD is incorporated under Israeli law. The rights and duties of holders of IDBD’s common shares are governed by IDBD´s articles of association and by Israeli law. These rights and duties may differ in some respects from the usual for U.S. corporations. Israeli law provides that these duties are applicable in shareholder votes at the general meeting with respect to, among other things, amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and actions and transactions involving interests of officers, directors or other interested parties which require the shareholders’ general meeting’s approval. In addition, a controlling shareholder of an Israeli company or a shareholder who knows that he or she possesses the power to determine the outcome of a vote at a meeting of our shareholders, or who has, by virtue of the company’s articles of association, the power to appoint or prevent the appointment of an office holder in the company, or any other power with respect to the company, has a duty of fairness towards the company.
 
If the bankruptcy of Inversora Dársena Norte S.A. is extended to IRSA´s subsidiary Puerto Retiro, IRSA will likely lose a significant investment in a unique waterfront land reserve in the City of Buenos Aires.
 
On April 18, 2000, Puerto Retiro S.A. ("Puerto Retiro"), was served notice of a filing made by the Argentine Government, through the Ministry of Defense, seeking to extend bankruptcy of Inversora Dársena Norte S.A. ("Indarsa") to the Company. Upon filing of the complaint, the bankruptcy court issued a restraing order the ability of Puerto Retiro dispose of, in any manner, the real property purchased in 1993 from Tandanor.
   
Indarsa had acquired 90% of the capital stock in Tandanor from the Argentine Government in 1991. Tandanor’s main business involved ship repairs performed in a 19-hectare property located in the vicinity of La Boca neighborhood and where the Syncrolift is installed.
 
As Indarsa failed to comply with its payment obligation for acquisition of the shares of stock in Tandanor, the Ministry of Defense filed a bankruptcy petition against Indarsa, seeking to extend it to the Company.
 
The evidentiary stage of the legal proceedings has already concluded. The Company lodged an appeal from the injunction order, and such order was confirmed by the Court of Appeals on December 14, 2000. The parties filed the arguments in due time and proper manner. After the case was set for judgment, the judge ordered the suspension of the judicial order requesting the case records for issuance of a decision based on the alleged existence of pre-judgmental status in relation to the criminal case against former officials of the Ministry of Defense and former directors of the Company, for which reason the case will not be adjudicated until a final judgment is entered in respect of the criminal case.
 
It has been made known to the commercial court that the expiration of the limitation period has been declared in the criminal action and the criminal defendants have been acquitted. However, this decision was reversed by the Criminal Court of Cassation (Cámara de Casación Penal). An extraordinary appeal was filed and rejected, therefore an appeal was directly lodged with the Argentine Supreme Court for improper refusal to permit the appeal, and a decision is still pending.
 
The Management and the legal counsel to the Company believe that there are sufficient legal and technical arguments to consider that the petition for an extension of the bankruptcy will be dismissed by the court. However, in view of the particular features and progress of the case, this position cannot be held to be conclusive.
 
In turn, Tandanor filed a civil action against Puerto Retiro and the other defendants in the criminal case for violation of Section 174 (5) based on Section 173 (7) of the Criminal Code. Such action seeks -on the basis of the nullity of the decree that approved the bidding process involving the Dársena Norte property- a reimbursement in favor of Tandanor for all such amounts it has allegedly lost as a result of a suspected fraudulent transaction involving the sale of the property disputed in the case.
 
In July 2013 the answer to the civil action was filed, which contained a number of defenses. Tandanor requested the intervention of the Argentine Government as third party co-litigant in this case, which petition was granted by the Court. In March 2015, both the Argentine Government and the criminal complainant answered the asserted defenses. As of the date hereof no resolution has been issued in such regard. We can not assure you that this Company may succeed in this order.
 
Property ownership through joint ventures or minority participation may limit IRSA´s ability to act exclusively in its interest.
 
IRSA develops and acquires properties through joint ventures with other persons or entities when IRSA believes circumstances warrant the use of such structures. For example, IRSA currently owns 80% of Panamerican Mall S.A. (“PAMSA”), while another 20% is owned by Centro Comercial Panamericano S.A., and 50% of Quality Invest S.A. (“Quality Invest”).
 
IRSA could engage in a dispute with one or more of its joint venture partners that might affect its ability to operate a jointly owned property. Moreover, its joint venture partners may at any time, have business, economic or other objectives that are inconsistent with its objectives, including objectives that relate to the timing and terms of any sale or refinancing of a property. For example, the approval of certain of the other investors is required with respect to operating budgets and refinancing, encumbering, expanding or selling any of these properties. In some instances, its joint venture partners may have competing interests in its markets that could create conflicts of interest. If the objectives of its joint venture partners are inconsistent with its own objectives, IRSA will not be able to act exclusively in its interests.
 
If one or more of the investors in any of its jointly owned properties were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, there could be an adverse effect on the relevant property or properties and in turn, on its financial performance. Should a joint venture partner declare bankruptcy, IRSA could be liable for its partner’s common share of joint venture liabilities.
 
Dividend restrictions in IRSA’s subsidiaries’ debt agreements may adversely affect it.
 
IRSA has subsidiaries and an important source of funds for are cash dividends and other permitted payments from its subsidiaries. The debt agreements of its subsidiaries contain covenants restricting their ability to pay dividends or make other distributions. If IRSA’s subsidiaries are unable to make payments to it, or are able to pay only limited amounts, IRSA may be unable to make payments on its indebtedness.
 

 
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IRSA is dependent on its Board of Directors.
 
IRSA´s success, to a significant extent, depends on the continued employment of Mr. Eduardo S. Elsztain, and certain other members of its board of directors and senior management, who have significant expertise and knowledge of its business and industry. The loss or interruption of their services for any reason could have a material adverse effect on its business and results of operations. IRSA´s future success also depends in part upon its ability to attract and retain other highly qualified personnel. IRSA cannot assure you that they will be successful in hiring or retaining qualified personnel or that any of I ts personnel will remain employed by them.
 
IRSA may face potential conflicts of interest relating to its principal shareholders.
 
IRSA’s largest beneficial owner is Mr. Eduardo S. Elsztain, through us. As of June 30, 2015, such beneficial ownership consisted of: (i) 372,112,411 common shares held by us, and (ii) 900 common shares held directly by Mr. Elsztain.
 
Conflicts of interest between IRSA’s management, us and its affiliates may arise in the performance of IRSA’s business activities. As of June 30, 2015, Mr. Elsztain also beneficially owned (i) approximately 37.4% of ours’ common shares and (ii) approximately 95.8% of the common shares of our subsidiary IRSA Commercial Properties. IRSA cannot assure you that its’ principal shareholders and their affiliates will not limit or cause IRSA to forego business opportunities that its affiliates may pursue or that the pursuit of other opportunities will be in IRSA's interest.
 
Due to the currency mismatches between assets and liabilities, IRSA may have currency exposure.
 
As of June 30, 2015, the majority of our liabilities, such as our Series I and Series II Notes are denominated in U.S. Dollars while our revenues are denominated in Pesos. This currency gap exposes IRSA to a risk of exchange rate volatility, which would negatively affect its financial results if the Dollar were to appreciate against the Peso. Any further depreciation of the Peso against the U.S. Dollar will correspondingly increase the amount of its debt in Pesos, with further adverse effects on its results of operation and financial condition and may increase the collection risk of its leases and other receivables from its tenants and mortgage debtors, most of whom have Pesodenominated revenues.
 
IRSA’s Investment in Banco Hipotecario.
 
As of June 30, 2015, IRSA owned approximately 29.99% of the outstanding capital stock of Banco Hipotecario S.A. ("Banco Hipotecario"), which represented 14.08% of IRSA’s consolidated assets as of such date.
 
All of Banco Hipotecario’s operations, properties and customers are located in Argentina. Accordingly, the quality of Banco Hipotecario’s loan portfolio, financial condition and results of operations depend on economic, regulatory and political conditions prevailing in Argentina.
 
These conditions include growth rates, inflation rates, exchange rates, changes to interest rates, changes to government policies, social instability and other political, economic or international developments either taking place in, or otherwise affecting, Argentina.
 
Risks Relating to the Argentine Financial System
 
The short-term structure of the deposit base of the Argentine financial system, including Banco Hipotecario, could lead to a reduction in liquidity levels and limit the long-term expansion of financial intermediation. 
 
After the Argentine crisis, the volume of financial activity regarding deposits and loans was severely reduced. Between 2003 and 2007, a gradual and increasing recovery of deposits levels took place. But because of the global financial crisis, these levels were reduced during 2008 only to be further improved during the last half of 2009, until the present date. 
 
The Argentine financial system growth strongly depends on deposits levels, due to the small size of its capital markets and the absence of foreign financings during recent years. In the medium term, the growth of credit could depend on the growth of the deposits levels. During 2011-2013 credit was able to grow at a higher rate than deposits, by consuming liquidity excess of financial institutions. Notwithstanding that, in 2014, this scenario started to change, and reasonable deposits started to grow at a faster rate that credits.
 
The liquidity of the Argentine financial system is currently reasonable, due to the high level of mandatory deposits reserves of Argentine financial entities, among other short-term investments, which represent 43% of total deposits. Notwithstanding that, because most deposits are short term, a substantial part of the credits are also short-term maturity, and there are a small proportion of long term credit lines, such as mortgages. Moreover, the restrictions on the purchase of foreign currency naturally reduce the volatility of local currency deposits.
 
Although liquidity levels are currently reasonable, no assurance can be given that these levels will not be reduced due to a future negative economic scenario. Therefore, there is still a risk of low liquidity levels that could increase funding cost in the event of a withdrawal of a significant amount of the deposit base of the financial system, and limit the long-term expansion of financial intermediation including Banco Hipotecario.
 
Future governmental measures may adversely affect the economy and the operations of financial institutions.
 
The Argentine government has historically exercised significant influence over the economy, and financial institutions, in particular, have operated in a highly regulated environment. We cannot assure that the laws and regulations currently governing the economy or the banking sector will remain unaltered in the future. We cannot assure you that changes will not adversely affect Banco Hipotecario’s business, financial condition or results of operations and Banco Hipotecario’s ability to honor its debt obligations in foreign currency.
 
As of the date of this annual report, there are three legislative bills to amend the Financial Institutions Law which have been sent to the Argentine Congress seeking to modify different aspects of the Financial Institutions Law. If the law currently in force were to be comprehensively modified, the financial system as a whole could be substantially and adversely affected. If any of these legislative bills were to be enacted or if the Financial Institutions Law were amended in any other way, there is no prediction on the impact of the subsequent amendments to the regulations on the financial institutions in general, Banco Hipotecario’s business, its financial condition and the results of operations.
 
Law No. 26,739 was enacted to amend the Central Bank’s charter, the principal aspects of which are: (i) to broaden the scope of the Central Bank’s mission (by establishing that such institution shall be responsible for financial stability and economic development while pursuing social equity); (ii) to change the obligation to maintain an equivalent ratio between the monetary base and the amount of international reserves; (iii) to establish that the board of directors of the institution will be the authority responsible for determining the level of reserves required to guarantee normal operation of the foreign exchange market based on changes in external accounts; and (iv) to empower the monetary authority to regulate and provide guidance on credit through the financial system institutions, so as to “promote long-term production investment”.
 

 
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In addition, the Civil and Commercial Code, among other things, modifies the applicable regime for contractual provisions relating to foreign currency payment obligations by establishing that foreign currency payment obligations may be discharged in Pesos. This amends the legal framework, pursuant to which debtors may only discharge their foreign currency payment obligations by making payment in the specific foreign currency agreed upon in their agreements; provided however that the option to discharge in Pesos a foreign currency obligation may be waived by the debtor is still under discussion.
 
We are not able to ensure that any current or future laws and regulations (including, in particular, the amendment to the Financial Institutions Law and the amendment to the Central Bank’s charter) will not result in significant costs to us, or will otherwise have an adverse effect on Banco Hipotecario’s operations.
 
The stability of the financial system depends upon the ability of financial institutions, including ours, to maintain and increase the confidence of depositors.
 
The measures implemented by the Argentine government in late 2001 and early 2002, in particular the restrictions imposed on depositors to withdraw money freely from banks and the “pesification” and restructuring of their deposits, were strongly opposed by depositors due to the losses on their savings and undermined their confidence in the Argentine financial system and in all financial institutions operating in Argentina.
 
If depositors once again withdraw their money from banks in the future, there may be a substantial negative impact on the manner in which financial institutions, including ours, conduct their business, and on their ability to operate as financial intermediaries. Loss of confidence in the international financial markets may also adversely affect the confidence of Argentine depositors in local banks.
 
In the future, an adverse economic situation, even if it is not related to the financial system, could trigger a massive withdrawal of capital from local banks by depositors, as an alternative to protect their assets from potential crises. Any massive withdrawal of deposits could cause liquidity issues in the financial sector and, consequently, a contraction in credit supply.
 
The occurrence of any of the above could have a material and adverse effect on Banco Hipotecario’s expenses and business, results of operations and financial condition.
 
The asset quality of financial institutions is exposed to the non-financial public sector’s and Central Bank’s indebtedness.
 
Financial institutions carry significant portfolios of bonds issued by the Argentine government and by provincial governments as well as loans granted to these governments. The exposure of the financial system to the non-financial public sector’s indebtedness had been shrinking steadily, from 48.9% of total assets in 2002 to 9.1% in 2014. To an extent, the value of the assets held by Argentine banks, as well as their capacity to generate income is dependent on the creditworthiness of the non-financial public sector, which is in turn tied to the government’s ability to foster sustainable long-term growth, generate fiscal revenues and cut back on public expenditure.
 
In addition, financial institutions currently carry securities issued by the Central Bank in their portfolios, which generally are short-term; such securities issued by the Central Bank represents approximately 19.5% of the total assets of the Argentine financial system. As of June 30, 2015, Banco Hipotecario’s total exposure to the public sector was Ps.2,286.4 million, which represented 7.6% of its assets as of that date, and the total exposure to securities issued by the Central Bank was Ps. 2,422.2 million, which represented 7.3% of its total assets as of June 30, 2015.
 
The Consumer Protection Law may limit in some of the rights afforded to Banco Hipotecario.
 
Argentine Law No. 24,240 (the “Consumer Protection Law”) sets forth a series of rules and principles designed to protect consumers, which include Banco Hipotecario’s customers. The Consumer Protection Law was amended by Law No. 26,361 on March 12, 2008 to expand its applicability and the penalties associated with violations thereof. Additionally, Law No. 25,065 (as amended by Law No. 26,010 and Law No. 26,361, the “Credit Card Law”) also sets forth public policy regulations designed to protect credit card holders.
 
In addition, the Civil and Commercial Code has a chapter on consumer protection, stressing that the rules governing consumer relations should be applied and interpreted in accordance with the principle of consumer protection and that a consumer contract should be interpreted in the sense most favorable to it.
 
The application of both the Consumer Protection Law and the Credit Card Law by administrative authorities and courts at the federal, provincial and municipal levels has increased. This trend has increased general consumer protection levels. In the event that Banco Hipotecario is found to be liable for violations of any of the provisions of the Consumer Protection Law or the Credit Card Law, the potential penalties could limit some of Banco Hipotecario’s rights, for example, with respect to its ability to collect payments due from services and financing provided by us, and adversely affect Banco Hipotecario’s financial results of operations. We cannot assure you that court and administrative rulings based on the newly-enacted regulation or measures adopted by the enforcement authorities will not increase the degree of protection given to Banco Hipotecario’s debtors and other customers in the future, or that they will not favor the claims brought by consumer groups or associations. This may prevent or hinder the collection of payments resulting from services rendered and financing granted by us, which may have an adverse effect on Banco Hipotecario’s business and results of operations.
 
Class actions against financial institutions for unliquidated amounts may adversely affect the financial system’s profitability.
 
Certain public and private organizations have initiated class actions against financial institutions in Argentina. The National Constitution and the Consumer Protection Law contain certain provisions regarding class actions. However, their guidance with respect to procedural rules for instituting and trying class action cases is limited. Nonetheless, through an ad hoc doctrine, Argentine courts have admitted class actions in some cases, including various lawsuits against financial entities related to “collective interests” such as alleged overcharging on products, interest rates and advice in the sale of public securities, etc. If class action plaintiffs were to prevail against financial institutions, their success could have an adverse effect on the financial industry in general and indirectly on Banco Hipotecario’s business.
 
Banco Hipotecario operates in a highly regulated environment, and its operations are subject to regulations adopted, and measures taken, by several regulatory agencies.
 
Financial institutions are subject to a major number of regulations concerning functions historically determined by the Central Bank and other regulatory authorities. The Central Bank may penalize Banco Hipotecario and its directors, members of the Executive Committee, and members of its Supervisory Committee, in the event of any breach of the applicable regulation. Potential sanctions, for any breach on the applicable regulations may vary from administrative and/or disciplinary penalties to criminal sanctions. Similarly, the CNV, which authorizes securities offerings and regulates the capital markets in Argentina, has the authority to impose sanctions on us and Banco Hipotecario’s Board of Directors for breaches of corporate governance established in the capital markets laws and CNV Rules. The Financial Information Unit ("Unidad de Información Financiera" or “UIF”) regulates matters relating to the prevention of asset laundering and has the ability to monitor compliance with any such regulations by financial institutions and, eventually, impose sanctions.
 

 
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We cannot assure you whether such regulatory authorities will commence proceedings against Banco Hipotecario, its shareholders or directors, or its Supervisory Committee or penalize Banco Hipotecario. This notwithstanding, and in addition to “Know Your Customer” compliance, Banco Hipotecario has implemented other policies and procedures to comply with its duties under currently applicable rules and regulations.
 
In addition to regulations specific to the banking industry, Banco Hipotecario is subject to a wide range of federal, provincial and municipal regulations and supervision generally applicable to businesses operating in Argentina, including laws and regulations pertaining to labor, social security, public health, consumer protection, the environment, competition and price controls. We cannot assure that existing or future legislation and regulation will not require material expenditures by Banco Hipotecario or otherwise have a material adverse effect on Banco Hipotecario’s consolidated operations.
 
Risks Relating to the Bank’s Business.
 
The quality of Banco Hipotecario’s loan portfolio could be impaired if the Argentine private sector continues to be affected in the event of a decrease in the level of activity.
 
Banco Hipotecario’s loan portfolio is concentrated on recession-sensitive segments and it is to a large extent dependent upon local and international economic conditions. This in turn might affect the credit worthiness of Banco Hipotecario's loan portfolio and its results of operations.
 
Increased competition and M&A activities in the banking industry may adversely affect Banco Hipotecario.
 
Banco Hipotecario foresees increased competition in the banking sector. If the trend towards decreasing spreads is not offset by an increase in lending volumes, the ensuing losses could lead to mergers in the industry. These mergers could lead to the establishment of larger, stronger banks with more resources than us. Therefore, although the demand for financial products and services in the market continues to grow, competition may adversely affect Banco Hipotecario’s results of operations, shrinking spreads and commissions.
 
Reduced spreads without corresponding increases in lending volumes could adversely affect Banco Hipotecario’s profitability.
 
The spread for Argentina’s financial system between the interest rates on loans and deposits could be affected as a result of increased competition in the banking sector and the Argentine government’s tightening of monetary policy in response to inflation concerns.
 
Since 2009, the interest rate spreads throughout the Argentine financial system have generally increased. This increase was sustained by a steady demand for consumer loans in recent years. In 2013 and 2014, borrowing and lending rates increased significantly. However, the net interest margin of the financial system remained stable due to a substantial growth both in the loan and deposit portfolios.
 
In June 2014, the Central Bank established a system of maximum active benchmark rates for consumer loans and secured loans and additionally, in October 2014, established a new mechanism of regulation by setting a minimum deposit rate for certain deposits of natural persons.
 
We cannot guarantee that interest rate spreads will remain stable unless increases in lending or additional cost-cutting takes place. A reversal of this trend, or a new regulation imposing maximum active benchmark rates, could adversely affect Banco Hipotecario’s profitability.
 
Differences in the accounting standards between Argentina and certain countries with developed capital markets, such as the United States, may make it difficult to compare Banco Hipotecario’s financial statements and those prepared by companies from these other countries.
 
Publicly available information about Banco Hipotecario in Argentina is presented differently from the information available for registered public companies in certain countries with highly developed capital markets, such as the United States. Except as otherwise described herein, Banco Hipotecario prepares its financial statements in accordance with Central Bank GAAP, which differ in certain significant respects from Argentine GAAP and from U.S. GAAP.
 
The Argentine Government might prevail at Banco Hipotecario’s General Shareholders’ Meetings.
 
By virtue of Law No. 23,696 (the “Privatization Law”) there are no restrictions on the Argentine Government’s ability to dispose of its Class A shares and all those shares minus one could be sold to third parties through public offering. Banco Hipotecario’s By-laws set forth that if at any time Class A shares were to represent less than 42% of Banco Hipotecario’s shares with right to vote, Class D shares automatically lose their triple vote right, which could result in the principal shareholders losing control of Banco Hipotecario. Should any such situation materialize and should the Argentine Government retain a sufficient number of Class A shares, the Argentine Government could prevail in Shareholders’ Meetings (except for some decisions that call for qualified majorities) and could thus exert actual control on the decisions that must be submitted to consideration by the Shareholders’ Meeting.
 
Banco Hipotecario’s obligations as trustee of the Programa de Crédito Argentino del Bicentenario para la Vivienda Única Familiar (“PROCREAR”) trust are limited.
 
Banco Hipotecario currently acts as trustee of the PROCREAR Trust, which aims to facilitate access to housing solutions by providing mortgage loans for construction and developing housing complexes across Argentina. Under the terms and conditions of the PROCREAR Trust, all the duties and obligations under the trust have to be settled with the trust estate. Notwithstanding, if the aforementioned is not met, Banco Hipotecario could have its reputation affected. In addition, if the Argentine government decides to terminate the PROCREAR Trust and/or terminate Banco Hipotecario’s role as trustee of the PROCREAR Trust, this may adversely affect Banco Hipotecario’s results of operations.
 
In the future, Banco Hipotecario may consider new business opportunities, which could turn out to be unsuccessful.
 
In recent years Banco Hipotecario has considered some business acquisitions or combinations and plans to continue considering acquisitions that offer appealing opportunities and that are in line with Banco Hipotecario’s commercial strategy. However, Banco Hipotecario cannot assure you that such businesses could deliver sustainable outcomes or that it will be able to consummate the acquisition of financial institutions in favorable conditions. Additionally, Banco Hipotecario’s ability to obtain the desired outcome because of said acquisitions will be partly dependent upon its ability to follow through with the successful integration of the businesses. To integrate any acquired business entails major risks, including unforeseen difficulties in integrating operations and systems; problems inherent in assimilating or retaining the target’s employees; challenges associated with keeping the target’s customers; unforeseen liabilities or contingencies associated with the target; and the likelihood of management having to take time and attention out of the business’s day-to-day to focus on the integration activities and the resolution of associated problems.
 
 

 
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Cybersecurity events could negatively affect Banco Hipotecario’s reputation, its financial condition and results of operations.
 
Banco Hipotecario has access to large amounts of confidential financial information and control substantial financial assets belonging to the customers as well as to Banco Hipotecario. In addition, Banco Hipotecario provides its customers with continuous remote access to their accounts and the possibility of transferring substantial financial assets by electronic means. Accordingly, cybersecurity is a material risk for Banco Hipotecario. Cybersecurity incidents, such as computer break-ins, phishing, identity theft and other disruptions could negatively affect the security of information stored in and transmitted through Banco Hipotecario ‘s computer systems and network infrastructure and may cause existing and potential customers to refrain from doing business with Banco Hipotecario.
 
In addition, contingency plans in place may not be sufficient to cover liabilities associated with any such events and, therefore, applicable insurance coverage may be deemed inadequate, preventing Banco Hipotecario from receiving full compensation for the losses sustained because of such a disruption.
 
Although Banco Hipotecario intends to continue to implement security technology devices and establish operational procedures to prevent such damage, we cannot assure you that all of Banco Hipotecario‘s systems are entirely free from vulnerability and these security measures will be successful. If any of these events occur, it could damage Banco Hipotecario’s reputation, entail serious costs and affect Banco Hipotecario‘s transactions, as well as its results of operations and financial condition.
 
A disruption or failure in any of Banco Hipotecario’s information technology systems could adversely affect its business.
 
Banco Hipotecario depends on the efficient and uninterrupted operation of internet-based data processing, communication and information exchange platforms and networks, including those systems related to the operation of Banco Hipotecario’s ATM network. Banco Hipotecario‘s operations depend on its ability to manage its information technology systems and communications efficiently and without interruption. Banco Hipotecario’s communications, systems or transactions could be harmed or disrupted by fire, floods, power failures, defective telecommunications, computer viruses, electronic or physical theft and similar events or disruptions. In addition, Banco Hipotecario’s information technology systems and operations may suffer if its suppliers do not meet the delivery of products in a timely manner or decide to end the relationship with Banco Hipotecario.
 
Any of the foregoing events may cause disruptions in Banco Hipotecario‘s information technology systems, delays and the loss of critical data, and could prevent Banco Hipotecario from operating at optimal levels. In addition, the contingency plans in place may not be sufficient to cover all those events and, therefore, this may mean that the applicable insurance coverage is limited or inadequate, preventing Banco Hipotecario from receiving full compensation for the losses sustained because of such a disruption. Also, Banco Hipotecario‘s recovery of losses plan may not be enough to prevent damage resulting from all the cases and Banco Hipotecario’s insurance coverage could be inadequate to cover losses from interruptions. If any of these assumptions occur Banco Hipotecario’s reputation, business, results of operations and financial condition could be adversely affected.
 
Risks Related to the ADSs and the Common Shares.
 
Shares eligible for sale could adversely affect the price of our common shares and American Depositary Shares.
 
The market prices of our common shares and ADS could decline as a result of sales by our existing shareholders of common shares or ADSs in the market, or the perception that these sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
 
The ADSs are freely transferable under U.S. securities laws, including common shares sold to our affiliates. IFISA, which as of June 30, 2015, owned approximately 37.4% of our common shares (or approximately 187,552,100 common shares which may be exchanged for an aggregate of 18,755,210 ADSs), is free to dispose of any or all of its common shares or ADSs at any time in its discretion. Sales of a large number of our common shares and/or ADSs would likely have an adverse effect on the market price of our common shares and the ADSs.
 
If we issue additional equity securities in the future, you may suffer dilution, and trading prices for our equity securities may decline.
 
We may issue additional shares of our common stock for financing future acquisitions or new projects or for other general corporate purposes, although there is no present intention to do so. Any such issuance could result in a dilution of your ownership stake and/or the perception of any such issuances could have an adverse impact on the market price of the ADSs.
 
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.
 
There may be less publicly available information about the issuers of securities listed on the Buenos Aires Stock Market (“Mercado de Valores de Buenos Aires” or “MERVAL”) than is regularly published by or about domestic issuers of listed securities in the United States and certain other countries. We are exempt from the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
 
We have identified a material weakness in our internal controls over financial reporting related to the accounting for derivative financial instruments derived from non-routine, complex contractual provisions in the context of the acquisition of an associate.
 
Our management has concluded that our disclosure controls and procedures as of the end of fiscal year 2014 were not effective given to a material weakness in our internal control over financial reporting. This material weakness is related to the accounting for derivative financial instruments derived from non-routine complex contractual provisions in the context of the acquisition of an associate. Under this concept, a material weakness is a deficiency, or combination of deficiencies, in the internal control over financial reporting that may reasonably cause that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. See Item 15. Controls and Procedures - A. Disclosure Controls and Procedures.
 
Any failure to implement and/or maintain improvements in the controls over our financial reporting, or any difficulties encountered in the implementation of such improvements, could result in a material misstatement in our annual or interim financial statements that: (i) may not be prevented or detected; and/or, (ii) may cause us to fail to meet our reporting obligations under the applicable securities laws. This situation may also cause investors to lose confidence in our reported financial information, and this could have an adverse impact on the trading price of our shares or ADSs.
 
Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.
 
We are a publicly held stock corporation (sociedad anónima) organized under the laws of Argentina. Most of our directors and our senior managers, and most of our assets are located in Argentina. As a result, it may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce against us or them in United States court judgments obtained in such courts predicated upon the civil liability provisions of the United States federal securities laws. There is doubt whether the Argentine courts will enforce, to the same extent and in as timely a manner as a U.S. or foreign court, an action predicated solely upon the civil liability provisions of the United States federal securities laws or other foreign regulations brought against such persons or against us.
 

 
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If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. Holders of our common shares or ADSs would suffer negative consequences.
 
Based on the current and projected composition of our income and valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company (“PFIC”) for United States federal income tax purposes for the taxable year ending June 30, 2015, and we do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation. If we become a PFIC, U.S. Holders (as defined in “Taxation—United States Taxation”) of our common shares or ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our common shares or ADSs at a gain, as well as reporting requirements. Please see ‘‘Taxation—United States Taxation—Passive Foreign Investment Company’’ for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.
 
Changes in Argentine tax laws may adversely affect the tax treatment of our common shares or ADSs.
 
On September 23, 2013, the Argentine income tax law was amended by the passage of Law N° 26,893. Under the amended law, the distribution of dividends is subject to income tax at a rate of 10%, unless the dividends are distributed to Argentine corporate entities. In addition, the amended law establishes that the sale, exchange or other transfer of shares and other securities is subject to a capital gain tax at a rate of 15% for Argentine resident individuals and foreign beneficiaries. There is an exemption for Argentine resident individuals if certain requirements are met; however, there is no such exemption for non-Argentine residents. See Item 10.E –“Taxation —Argentine Taxation.”  However, as of the date hereof many aspects of the amended tax law remain unclear and, pursuant to certain announcements made by Argentine tax authorities, they are subject to further rulemaking and interpretation, which may adversely affect the tax treatment of our common shares and/or ADSs.
 
The income tax treatment of income derived from the sale of ADSs, dividends or exchanges of shares from the ADS facility may not be uniform under the revised Argentine income tax law. The possibly varying treatment of source income could impact both Argentine resident holders as well as non-Argentine resident holders. In addition, should a sale of ADSs be deemed to give rise to Argentine source income, as of the date of this annual report no regulations have been issued regarding the mechanism for paying the Argentine capital gains tax when the sale exclusively involves non-Argentine parties. However, as of the date of this annual report, no administrative or judicial rulings have clarified the ambiguity in the law.
 
Therefore, holders of our common shares, including in the form of ADSs, are encouraged to consult their tax advisors as to the particular Argentine income tax consequences under their specific facts.
 
Holders of our ADSs may be unable to exercise voting rights with respect to the common shares underlying the ADSs at our shareholders’ meetings.
 
We will not treat the holders of our ADSs as one of our shareholders and the holders of our ADSs will not have shareholder rights. The ADS depositary will be the holder of the common shares underlying your ADSs and ADS holders may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the ADS depositary with respect to the underlying common shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in an Official Gazette in Argentina, an Argentine newspaper of general circulation and the bulletin of the Buenos Aires Stock Exchange (“BCBA”), and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide the notice to the ADS depositary. If requested by us, the ADS depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the ADS depositary as to voting the common shares represented by their ADSs. Due to these procedural steps involving the ADS depositary, the process for exercising voting rights may take longer for ADS holders than for holders of common shares and common shares represented by ADSs may not be voted as ADS holders desire.
 
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.
 
Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, your rights or the rights of holders of our common shares to protect your or their interests in connection with actions by our board of directors may be fewer and less well defined under Argentine corporate law than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self−dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, putting holders of our common shares and ADSs at a potential disadvantage.
 
The protections afforded to minority shareholders in Argentina are different from and more limited than those in the United States and may be more difficult to enforce.
 
Under Argentine law, the protections afforded to minority shareholders are different from, and much more limited than, those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes, such as derivative lawsuits and class actions, is less developed under Argentine law than under U.S. law as a result of Argentina’s short history with these types of claims and few successful cases. In addition, there are different procedural requirements for bringing these types of shareholder lawsuits. As a result, it may be more difficult for our minority shareholders to enforce their rights against our directors or us or controlling shareholder than it would be for shareholders of a U.S. company.
 
The majority of our shareholders may determine to not pay any dividends.
 
In accordance with Argentine corporate law we may pay dividends to shareholders out of net and realized profits, if any, as set forth in our Audited Financial Statements prepared in accordance with IFRS. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shareholders entitled to vote at the meeting. As a result, we cannot assure you that we will be able to generate enough net and realized profits so as to pay dividends or that our shareholders will decide that dividends will be paid
 
Our ability to pay dividends is limited by law and economic conditions.
 
 In accordance with Argentine corporate law, we may pay dividends in Pesos out of retained earnings, if any, to the extent set forth in our audited financial statements. Our ability to generate retained earnings is subject to the results of our operations. During 2014 inflation has accelerated mainly due to the devaluation process carried out by the Argentine Central Bank. The uncertainty surrounding future inflation may affect our results and as a result our ability to pay dividends. If the Peso continues to devaluate significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences on our business and as a result on the results of our operations and our ability to pay dividends.
 
The ability of holders of the ADS to receive cash dividends may be limited.
 
The ability of the ADS holders to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars. Under the terms of our deposit agreement with the depositary for the ADSs, to the extent that the ADS depositary can in its judgment, and in accordance with local exchange regulations, convert Pesos (or any other foreign currency) into U.S. Dollars on a reasonable basis and transfer the resulting U.S. Dollars abroad, the ADS depositary will promptly as practicable convert or cause to be converted all cash dividends received by it in Pesos on the deposited securities common shares into U.S. Dollars. If in the judgment of the depositary this conversion is not possible on a reasonable basis (or is not permitted by applicable Argentine laws, regulations and approval requirements), the ADS depositary may distribute the foreign currency received by it in Pesos in Argentina or in its discretion hold such currency uninvested for the respective accounts of the owners entitled to receive the same. As a result, if the exchange rate fluctuates significantly during a time when the depositary cannot or does not convert the foreign currency, you may lose some or all of the value of the dividend distribution. For further information see “Risks Relating to Argentina—Restrictions on transfers of foreign currency and the repatriation of capital from Argentina may impair our ability to pay dividends and distributions.”
 
Our inability to provide audited financial statements for IDBD in accordance with Rule 3-09 of Regulation S-X may cause us to be unable to complete a registered offering, which would materially adversely affect our ability to access the capital markets, may cause certain of our shareholders to be unable to rely on Rule 144 for sales of our securities and may ultimately result in the delisting of our ADSs from NASDAQ.
 
We have been unable to obtain financial statements for IDBD for the year ended December 31, 2014 audited in accordance with auditing standards generally accepted in the United States (“U.S. GAAS”) that may be required to be included in this Annual Report on Form 20-F by Rule 3-09 of Regulation S-X (“Rule 3-09”). As of June 30, 2015, we held 49% of IDBD and, as such, we did not control IDBD and did not have the power to direct IDBD or its management to provide us with such audited consolidated financial statements. In reliance on Rule 12b-21 promulgated under the Exchange Act and Rule 409 promulgated under the Securities Act of 1933, as amended, we have provided unaudited consolidated financial statements for IDBD for the year ended December 31, 2014, which do not comply with Rule 3-09. As a result of including such financial information, we do not believe that the omission of the audited financial statements in accordance with Rule 3-09 will have a material impact on a reader’s understanding of our financial condition or our results of operations.
 
We are in the process of requesting a waiver from the SEC for filing the audited consolidated financial statements of IDBD for the year ended December 31, 2014 as may be required by Rule 3-09. We cannot provide you with any assurances that we will obtain this waiver. If the SEC does not grant this waiver to us, we will have to file an amendment to this annual report including the financial statements of IDBD for the year ended December 31, 2014 audited in accordance with U.S. GAAS as soon as such financial statements become available. If this annual report on Form 20-F is considered materially deficient due to the lack of financial statements of IDBD for the year ended December 31, 2014 audited in accordance with U.S. GAAS, we may no longer be considered current in our Exchange Act reporting requirements until the time we file such amendment and we may no longer be considered timely in our Exchange Act reporting requirements. As a result, we would become ineligible to use a “short form” registration statement on Form F-3 for 12 months. In addition, the SEC may not declare effective any registration statement that we file in connection with an offering that requires the financial statements under Rule 3-09 to be included. If, as a result, we are unable to complete a registered offering, our ability to access the public capital markets would be materially adversely affected. Any resulting inability to complete a registered offering may materially adversely impact our business, liquidity position, growth prospects, financial condition and results of operations. Furthermore, the Rule 144 safe harbor for the sale of our securities may be unavailable for a certain period of time, which may make it harder to effect such sales. Finally, our ADSs may ultimately be delisted from NASDAQ.
 

Item 4.   Information on the Company
 
 
General Information
 
Our legal name is Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria, and our commercial name is “Cresud”. We were incorporated and organized on December 31, 1936 under Argentine law as a stock corporation (sociedad anónima) and were registered with the Public Registry of Commerce of the City of Buenos Aires (Inspección General de Justicia), on February 19, 1937 under number 26, on page 2, book 45 of National By-laws Volume. Pursuant to our bylaws, our term of duration expires on July 6, 2082. Our headquarters are located at Moreno 877, (C1091AAQ), Ciudad Autónoma de Buenos Aires, Argentina. Our telephone is +54 (11) 4814-7800, and our website is www.cresud.com.ar.
 
Information contained in or accessible through our website is not a part of this annual report on Form 20-F. All references in this annual report on Form 20-F to this or other internet sites are inactive textual references to these URLs, or “uniform resource locators” and are for information purposes only. We assume no responsibility for the information contained on these sites.
 

 
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History
 
We were incorporated in 1936 as a subsidiary of Credit Foncier, a Belgian company engaged in the business of providing rural and urban loans in Argentina. We were incorporated to administer real estate holdings foreclosed by Credit Foncier. Credit Foncier was liquidated in 1959, and as a part of such liquidation, our shares were distributed to Credit Foncier’s shareholders and in 1960 were listed on the Buenos Aires Stock Exchange (“BASE”). During the 1960s and 1970s, our business shifted to exclusively agricultural activities.
 
In 1993 and 1994, Consultores Asset Management acquired, on behalf of certain investors, approximately 22% of our shares on the BASE. In late 1994, an investor group led by Consultores Asset Management (including Dolphin Fund plc.) acquired additional shares increasing their aggregate shareholding to approximately 51.4% of our outstanding shares. In 1995, we increased our capital through a rights offering and global public offering of ADRs representing our common shares and listed such ADRs on the NASDAQ. We started our agricultural activities with 7 farmlands and 20,000 hectares under management.
 
As of June 30, 2015, we have invested approximately Ps. 1,077.5 million to acquire our current 64.30% equity interest in IRSA (without considering treasury shares). IRSA is one of Argentina’s largest real estate companies and is engaged in a range of diversified real estate activities including residential properties, office buildings, shopping centers and luxury hotels in Argentina. A majority of our directors are also directors of IRSA.
 
In line with our international expansion strategy, on September of 2005 we participated in the creation of Brasilagro with the purpose of replicating our business model in Brazil. We created BrasilAgro together with our partners, Cape Town Llc, Tarpon Investimentos S.A., Tarpon Agro LLC, Agro Investments S.A. and Agro Managers S.A.
 
On May 2, 2006, BrasilAgro’s shares were listed on the Novo Mercado of the Brazilian Stock Exchange (“BOVESPA”) with the symbol AGRO3. BrasilAgro’s shares were placed jointly with Banco de Investimentos Credit Suisse (Brazil) S.A. in the Brazilian market through investment mechanisms regulated by controlling authorities and with sales efforts pursuant to an exception from registration under the US Securities Act of 1933. The amount originally offered was R$ 532 million, equivalent to 532,000 common shares at a price of R$ 1,000 per share of BrasilAgro.
 
In addition, we purchased shares in the offering for R$ 42.4 million (approximately US$ 20.6 million). Following such contribution we held a total amount of 42,705 shares, equivalent to 7.4% of BrasilAgro’s capital stock. On October 31, 2007, BrasilAgro carried out a 1-for-100 share split approved at the special shareholders' meeting held on March 15, 2007 and ratified at the annual shareholders' meeting held on October 29, 2007. Following this split, BrasilAgro's capital stock was composed of 58,422,400 common shares.
 
On October 20, 2010 and on December 23, 2010, along with Tarpon we executed two amendments to the share purchase agreement dated as of April 28, 2010, under which we acquired 9,581,750 shares of common stock of BrasilAgro, representing 16.40% of the outstanding stock. Consequently, on October 20, 2010 we paid R$25.2 million and on December 23, 2010 we paid R$50.8 million, and the price reminder of R$52.6 million was paid on April 27, 2011.
 
Consequently, as of the date of this annual report, we hold 23,150,050 shares or 39.76% of BrasilAgro’s outstanding capital stock. It should be noted that such acquisition of shares does not imply any change of control within the shareholders’ group of BrasilAgro according to the legal regime in Brazil; Additionally, we own 168,902 BrasilAgro’s first issuance warrants and 168,902 BrasilAgro’s second issuance warrants.
 
In addition, during the last quarter of calendar year 2010, we entered into an agreement by means of which we assigned all equity and political rights related to 2,276,534 shares of BrasilAgro for two years. The agreement also provides a promise to sell, under which the assignee may at any time request the sale of BOVESPA’s shares or the transfer of shares on its behalf. In consideration for the assignment, we paid a fixed value of US$0.8 million and additionally, in the event the assignee requested the sale or transfer of share, it should paid US$7.15 per share sold or transferred. On June 27, 2012, we agreed together with Mr. Elie Horn and Cape Town Llc. to terminate the shareholder’s ageerrment.
 
From fiscal year 2011, we present our financial statements in consolidated form with Brasilagro’s. In November past, Brasilagro’s shares became listed as Level II ADRs on the NYSE, under the ticker symbol LND.
 
In the context of operations that represent a new expansion of our agricultural business in south america, on September 2008, we entered into several agreements to carry out real estate and agricultural, livestock and forestry activities in the Republic of Paraguay. Under these agreements, a new corporation was organized together with Carlos Casado S.A. (“Carlos Casado”) under the name Cresca, in which we hold a 50% equity interest. Additionally, we provide consulting services for the agricultural, livestock and forestry development of a rural property of 41,931 hectares.
 
In March 2008 we concluded a capital increase of 180 million shares. As a result, 180 million shares offered at the subscription price of US$ 1.60 or Ps. 5.0528 per share were fully subscribed, in the local and international markets. In addition, each shareholder received, without additional cost, one warrant for each share subscribed. See Item 9 “The Offer and Listing – A. Offer and Listing Details - Stock Exchanges in which our securities are listed”. This capital increase allows us to expand our international operations to Paraguay and Bolivia.
 
We entered into an agreement to purchase a 50% interest in a rural property located in Mariscal José Felix Estigarribia, Department of Boquerón, Chaco Paraguayo, Republic of Paraguay, owned by Carlos Casado, for a price of US$5.2 million, in order to contribute them to the new company organized. The contribution was made on January 26, 2009, and the title deed to the property was executed on February 3, 2009. Therefore, jointly with the contribution made by Carlos Casado, the total value of the contributions in Cresca is US$10.5 million. In addition, Cresca has an option granted by Carlos Casado for the purchase of 100,000 additional hectares located in Paraguay.
 
On March 19, 2010 the option granted under the agreement dated September 3, 2008 was partially exercised, whereby 3,614 hectares, valued at US$350 each, were transferred to Cresca. Finally, on June 29, 2010, the title deed was executed, involving the conveyance of 3,646 hectares.
 
In December 2013, we sold our entire interest in Cresca, in which we held 50% of its stock capital, and the option granted by Carlos Casado for the purchase of 100,000 additional hectares located in Paraguay, to our subsidiary Brasilagro for US$ 18.5 million, thus adding 145,000 hectares in the Paraguayan Chaco to its land portfolio intended for development. On April 3, 2014, Cresca signed a bill of sale whereby it sells an area of 24,624 hectares located in Chaco Paraguayo.
 
During fiscal year 2015 the option granted under the agreement dated September 3, 2008 was exercised, whereby 60,531 hectares, valued at US$350 each, were transferred to Cresca.
 
In the framework of a series of transactions that represent a new expansion of our agribusiness operations in South America, in line with our business plan, we have incorporated companies that own land in the Republic of Bolivia during 2008.
 

 
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For such purposes, the following companies were incorporated: Agropecuaria Acres del Sud S.A (“Acres del Sud”), Ombú Agropecuaria S.A.(“Ombú”), Yatay Agropecuaria S.A. (“Yatay”) and Yuchan Agropecuaria S.A. (“Yuchan”). The preceding Bolivia-based companies acquired land for agricultural operations. We maintain a 100.00% ownership interest in the capital stock of those companies, all engaged in agricultural operations.
 
In addition, during October 2008, we acquired, a company named Helmir S.A. (“Helmir”), domiciled in the Republic of Uruguay and incorporated with a broad-ranging corporate purpose.
 
In line with our international expansion strategy, we have entered into a number of agreements to formalize our position in various South American countries. In July 2008, we, executed several promise to purchase agreements for an aggregate of 12,166 hectares in the Republic of Bolivia for a total price of US$28.9 million.
 
In connection with these lands, on November 20, 2008, two purchase instruments including delivery of possession were executed, as part of the process of casting into public deed and filing of deeds with the relevant registries, involving the purchase of 883, 2,969 and 3,748 hectares in “San Cayetano,” “San Rafael” and “La Fon Fon” farmlands, respectively, located in Santa Cruz, Bolivia.
 
On January 22, 2009, we executed a deed of purchase for 4,566 hectares in Las Londras farmlands, located in the Province of Guarayos, Republic of Bolivia. On that date, the sum of US$3.8 million was paid, representing 42.9% of the total agreed price. The remaining balance is payable in two annual installments: the first one was paid during the 2010 fiscal period, and the second one was paid in fiscal year 2011.
 
During fiscal year 2010, 10,800 hectares of the farmlands located in Bolivia were sown. This region has traditionally achieved double harvesting of soybean, which means that better results can be obtained per hectare during a single season; yet, the weather conditions that prevailed during the last year have not allowed double harvesting.
 
In June 2011, we entered into a purchase agreement for two agricultural parcels located at Santa Cruz, Republic of Bolivia, with a total surface of 5,000 hectares, which are used for agricultural exploitation: (i) The first parcel has a surface of approximately 2,660 hectares for sugar cane exploitation purposes. The purchase price was US$8.4 million which was fully paid, and (ii) the second parcel has a surface of approximately 2,340 hectares for soybeans exploitation purposes. The purchase price was US$4.9 million which was fully paid.
 
Additionally, we have agreed to sell a parcel of La Fon Fon with a surface of 910 hectares for US$3.64 million and 1,643 hectares of "La Fon Fon II" for an overall amount of US$ 7.21 million.
 
On May 27, 2014 Ombú executed a purchase and sale agreement involving a sale subject to retention of title covering 883 hectares of “San Cayetano I” for an aggregate amount of US$ 4.2 million.
 
Acquisitions, dispositions and authorization pending approval
 
Year ended June 30, 2015
 
Sale of Cresca farmland
 
On April 3, 2014, Cresca S.A. signed a bill of sale whereby it sells an area of 24,624 hectares located in Chaco Paraguayo. The total price is US$ 14.7 million (Ps. 56.3 million), which amount shall be collectable as follows US$ 1.8 million were collected upon execution of the bill of sale, US$ 4.3 million upon execution of the conveyance deed; US$ 3.7 million interest-free in July, 2015; US$ 4.9 million interest-free in July, 2016. Possession was delivered upon execution of the conveyance deed of title and constitution of a mortgage to secure payment of the balance, on July 14, 2014.
 
The Company has recognized gains of Ps. 19.1 million as result of this transaction.
 
Sale of Cremaq farmland
 
On June 10, 2015, Brasilagro sold the remaining area of 27,745 hectares of Cremaq field, an establishment, located in the municipality of Baixa Grande do Ribeiro (Piaui). The sale was priced at Rs. 270 million (Ps. 694.0 million), of which Rs. 67.5 million (Ps. 196.8 million) were collected in full as of the date of these financial statements.
 
The Company has recognized gains of Ps. 525.9 million as result of this transaction.
 
Sale of La Fon Fon II farmlands
 
On October 17, 2013, Yuchán Agropecuaria signed a purchase-sale agreement involving a sale subject to retention of title involving 1,643 hectares of "La Fon Fon II" for an overall amount of US$ 7.21 million (equivalents to Ps. 59.0 million). As of the consolidated financial statement date, the amount of US$ 1.5 million has been collected, and the remaining balance amounts to US$ 5.71 million that will be cancelled in 6 semi-annual installments, starting in December this year, and concluding in June, 2018. Under the contract, the conveyance shall be recorded with the Registry once the price has been fully paid off. On June 24, 2015, possession was granted by Yuchán Agropecuaria. During this year the Company recognized a profit before tax of US$ 2.7 million (equivalents to Ps. 24.6 million) as result of this transaction.
 
Sale of investment properties
 
On July 7, 2014, IRSA signed the transfer deed for the sale of the 19th and 20th floors of the Maipú 1300 Building. The total price of the transaction was Ps. 24.7. Such transaction generated a profit before tax of approximately Ps. 20.3 million.
 
On September 29, 2014, the Company finalized the sale of the Madison 183 Building, through the subsidiary Rigby 183 LLC (“Rigby 183”), in the city of New York, United States, in the sum of US$ 185 million, thus paying off the mortgage levied on the asset in the amount of US$ 75 million. Such transaction generated a gain before tax of approximately Ps. 296.5 million.
 
On October 8, 2014, the Company through IRSA signed the transfer deed for the sale of the 22th and 23th floors of the Bouchard 551 Building. The total price of the transaction was Ps. 168.7 million. Such transaction generated a gain before tax of approximately Ps. 150.1 million.
 
On October 22, 2014, the Company through IRSA signed the transfer deed for the sale of the 10th floor and two parking units of the Maipú 1300 Building and one parking unit of the building Libertador 498. The total price of the transaction was Ps. 12.0 million. Such transaction generated a gain before tax of approximately Ps. 10.1 million.
 
On October 28, 2014, the Company through IRSA signed the transfer deed for the sale of 9th, 10th and 11th floors of the Bouchard 551 Building. The total price of the transaction was Ps. 279.4 million. Such transaction generated a gain before tax of approximately Ps. 238.6 million.
 
On November 7, 2014, the Company through IRSA signed the transfer deed for the sale of the 21th floor of the Bouchard 551 Building. The total price of the transaction was Ps. 75.6 million. Such transaction generated a gain before tax of approximately Ps. 66.1 million.
 

 
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On December 10, 2014, the Company through IRSA signed the transfer deed for the sale of the 9th floor of the Maipú 1300 Building. The total price of the transaction was Ps. 12.5 million. Such transaction generated a gain before tax of approximately Ps. 10.7 million.
 
On December 22, 2014, IRSA transfered to IRSA Commercial Properties, 83,789 m2 of our premium office space including the República Building, the Bouchard 710 building, the Della Paolera 265 building, the Intercontinental Plaza Building, the Suipacha 652 building and the land reserve “Intercontinental II” with potential to develop up to 19,600 square meters, each located in the City of Buenos Aires, to implement our objective of expanding our business of developing and operating commercial properties in Argentina and to create a unique and unified portfolio of rental properties consisting of the best office buildings in the city of Buenos Aires and the best shopping centers in Argentina. The total value of the transaction was US$308.0 million, based on third party appraisals. This transaction had no accounting impact.
 
On May 5, 2015, the Company through IRSA Commercial Properties has signed a bill of sale to transfer 8,470 square meters corresponding to nine offices floors and 72 parking units of Intercontinental Plaza Building. The transaction price was Ps. 376.4 million, which has already been paid in full. On June 30, 2015, the title deed was executed and the possession of the units previously mentioned was granted. Gross profit before tax of this operation amounted to Ps. 338.4 million. 
 
On May 19, 2015, the Company through IRSA signed the transfer deed for the sale of the 15th floor of the Maipú 1300 Building and one parking unit in Libertador 498 Building. The total price of the transaction was US$ 13.5 million. Such transaction generated a profit before tax of approximately Ps. 11.6 million.
 
On June 5, 2015, the Company through IRSA signed the transfer deed for the sale of the 14th floor of the Maipú 1300 Building. The total price of the transaction was US$ 1.5 million. Such transaction generated a profit before tax of approximately Ps. 11.5 million.
 
All sales of fiscal year ended June 30, 2015 led to a combined profit for the Company of Ps. 1,150.2 million approximately, disclosed within the line “Gain from disposal of investment properties” in the income statement.
 
For more information, see “Item 4—Recent Developments.”
 
Decreased shareholding in Avenida Inc.
 
On July 18, 2014, the Company, through Torodur S.A., exercised the warrant that remained associated to this investment and consequently its interest in Avenida Inc. increased to 6,172,840 shares or 35.46%. Simultaneously, however, a new investor acquired 35.12% of interest in the Company, diluting the Cresud’s holding to 23.01% at such date.
 
On September 2, 2014, Torodur S.A. sold 1,430,000 shares representing 5% of the Avenida Inc.’s capital stock in the amount of Ps. 19.1 million (US$ 2.3 million), thus reducing the equity interest to 17.68% of its share capital. Such transaction generated a gain of Ps. 8.8 million which are shown in the line "Other operating results, net" in the income statement.
 
As a result of the sale of the interest, the Company has ceased to recognize the equity interest in Avenida Inc. as investment in associates and began to consider it as a financial asset at fair value in the financial statements as of June 30, 2015. On July, 2015, following last year sale of 5% and the recent capital round, our share interest was diluted to 11.38% of Avenida.
 
Acquisition of additional interest in BHSA
 
During the year ended June 30, 2015, we acquired, through IRSA, 3,289,029 additional shares of BHSA for a total price of Ps.14.2 million, thus increasing its interest in such company from 29.77% to 29.99%, without consideration of Treasury shares.
 
Investment in IDBD
 
General
 
As of June 30, and as of the date hereof, we hold an indirect investment, through Dolphin Fund Limited (“Dolphin Fund”) and Dolphin Netherlands B.V. (“Dolphin Netherlands” and together with Dolphin Fund, “Dolphin”), of 49% of the outstanding capital of IDBD.
 
As of June 30, 2015 we recorded our investment in IDBD of Ps, 1,136 million and had accounted for a liability that reflected Dolphin’s obligation to undertake the Tender Offers (as defined below) for an amount of Ps. 502.6 million.
 
As a part of the terms of the Arrangement (as defined below), Dolphin agreed to undertake one or more Tender Offers for the acquisition of shares of IDBD for a total amount of NIS512.09 million (equivalent to approximately US$ 135.7 million at the exchange rate prevailing as of June 30, 2015), as follows: (i) at least NIS249.8 million for a price per share of NIS7.798 (price valid as of June 30, 2015, subject to adjustment) by December 31, 2015, an amount of; and (ii) at least NIS512.09 million less the offer made in 2015, for a price per share of NIS8.188 (price as of June 30, 2015, subject to adjustments) by December 31, 2016.
 
For more information see “—Investment in IDBD—Background of the Investment in IDBD”.
 
Background of the Investment in IDBD
 
On May 7, 2014, through Dolphin Netherlands B.V, we entered into a transaction, jointly with C.A.A. Extra Holdings Limited, a non-related company, controlled by Mordechai Ben Moshé (“Extra”), through which 106.6 million common shares of IDBD representing 53.30% of its stock capital were acquired under the scope of a debt restructuring of IDBD’s holding company, IDB Holdings Corporation Ltd. (“IDBH”) with its creditors (the “Arrangement”).
 
Under the terms of the shareholders' agreement entered into between Dolphin Fund and E.T.H.M.B.M. Extra Holdings Ltd., a company controlled by Mordechai Ben Moshé, to which Dolphin Netherlands and Extra acceded (the “Shareholders' Agreement”), Dolphin acquired a 50% interest in this investment, while Extra acquired the remaining 50%. The total investment amount was NIS950 million, equivalent to approximately US$272 million at the exchange rate prevailing on that date.
 
Under the Arrangement, Dolphin and Extra agreed to participate on a joint and several basis in the capital increases by way of rights offerings resolved by IDBD’s Board of Directors in order to carry out its business plan for 2014 and 2015, in an amount of at least NIS300 million for 2014 and NIS500 million for 2015.
 
As of June 30, 2015, Dolphin has contributed NIS668.6 million in aggregate while Extra contributed NIS203.5 million in IDBD. Thus, Dolphin has completed its committed contributions, while IDBD is claiming from Extra, and Dolphin, under its joint and several liability, to pay the balance committed by Extra for an aggregate of NIS196.5 million (equivalent to approximately US$52.1 million at the exchange rate prevailing as of June 30, 2015).
 
Moreover, as part of the Arrangement, Dolphin and Extra committed jointly and severally to make one or more tender offers (the “Tender Offers”) for the acquisition of shares of IDBD for a total amount of NIS512.09 million (equivalent to approximately US$135.7 million at the exchange rate prevailing as of June 30, 2015), as follows: (i) by December 31, 2015 at least NIS249.8 million for a price per share of NIS7.798 (value as of June 30, 2015, subject to certain adjustments) and (ii) by December 31, 2016, for at least NIS512.09 million, less the offer made in 2015, for a price per share of NIS8.188 (value as of June 30, 2015, subject to certain adjustments). As security for the performance for the Tender Offers, a total of 34,130,119 shares of IDBD were pledged as of June 30, 2015.
 
On May 12, 2014, IDBD’s shares were listed on the “Tel Aviv Stock Exchange (“TASE”), consequently, all the shares (including the pledged shares) were deposited in escrow with Bank Leumi Le-Israel in compliance with the lock-up provisions set forth in the TASE Regulations, which provide that initially listed shares may not be disposed of for a term of 18 months and allow the release of 2.5% per month beginning on the fourth month since the initial listing date, consequently, pursuant to the TASE’s regulations as of June 30, 2015, 39,237,461 shares and 243,394 Series 3 warrants remained deposited as set forth above (including part of the pledged shares).
 
In addition, as of June 30, 2015, 49,695,135 shares, 23,950,072 Series 4 warrants, 22,752,569 Series 5 warrants and 20,357,561 Series 6 warrants of IDBD held by Dolphin were deposited in the same escrow account in which the pledged shares are deposited, and were later transferred to an account of Dolphin which is not an escrow account. As of the date hereof today, the Tender Offers have not been consummated yet.
 
Pursuant to the provisions of IDBD’s shelf offering report for the rights issuance dated June 9, 2014, on June 26, 2014, a total of 1,332,500 rights to subscribe shares and warrants were granted by IDBD to Dolphin at a ratio of one per each 40 shares held, which were exercised on July 1, 2014. Later on, during IDBD’s rights issuance process, Dolphin and Extra acquired 0.89 million additional rights for NIS2.83 million, equivalent to approximately US$0.83 million, out of which 50% correspond to Dolphin and 50% to Extra, all in accordance with the terms of the Shareholders' Agreement.
 
The rights offered by IDBD allowed to subscribe in July 2014 for 13 common shares of IDBD for a price of NIS65 (NIS5 per share) and 27 warrants, 9 of each series (series 1, 2 and 3) to be issued by IDBD, at no cost. Each warrant issued by IDBD would allow the acquisition of one common share of IDBD. Series 1 matured on November 1, 2014 and were exercisable at NIS5.50 per warrant. Series 2 matured on May 1, 2015 and were exercisable at NIS6.00 per warrant. Series 3 matures on December 1, 2015 and is exercisable at NIS6.50 per warrant.
 
On July 1, 2014 Dolphin exercised all granted rights it held as of June 30, 2014 to acquire additional shares in IDBD. As a result of the exercise of such rights, Dolphin received 23.1 million shares and 16 million of each of Series 1, 2 and 3 warrants. Extra held the same number of rights and acquired the same number of shares and warrants as Dolphin.
 
During the period from July 9 to July 14, 2014, Dolphin acquired through market transactions 0.42 million shares and 0.34 million Series 2 warrants for NIS1.77 million (equivalent to approximately US$0.52 million as of such date); 50% of which were subsequently sold to Extra pursuant to the provisions of the Shareholders’ Agreement.
 
On November 2, 2014, Dolphin exercised 15,998,787 Series 1 warrants and Extra exercised its respective share of Series 1 warrants.
 
On January 19, 2015, Dolphin acquired through market transactions 94,000 shares of IDBD for a total amount of NIS0.13 million (equivalent to US$0.03 million as of the purchase date) and subsequently sold 50% to Extra in accordance with the terms of the Shareholders´ Agreement. In addition, Dolphin acquired 42,564 shares of Discount Investment Corporation Ltd. (“DIC”), IDBD's subsidiary, for NIS0.24 million (equivalent to US$0.06 million as of the purchase date), 50% of which was offered to Extra under the terms of the Shareholders Agreement; notwithstanding the aforementioned,  Extra decided not to acquire the corresponding 50%.
 
 Furthermore, on January 19, 2015, IDBD issued a shelf offering report for the issuance of rights (the “Rights Offering”) for approximately NIS800 million (the “Maximum Immediate Payment”) pursuant to an irrevocable offer from Dolphin dated December 29, 2014, to grant on January 26, 2015, one right (one “New Right”) for each 25 shares held in IDBD. Each New Right would grant a right to subscribe on February 10, 2015, 45 common shares of IDBD for NIS68.04 (NIS1.512 per share) and 20 Series 4 warrants, 19 Series 5 warrants and 17 Series 6 warrants issued by IDBD at no cost. Each warrant issued by IDBD would allow acquiring a common share in IDBD. The Series 4 warrants will mature on February 10, 2016 at an exercise price of NIS1.663 per warrant. Series 5 warrants will mature on February 12, 2017 at an exercise price of NIS1.814 per warrant. Series 6 warrants mature on February 12, 2018 at an exercise price of NIS1.966 per warrant.
 
As a result of the Rights Offering above mentioned, on January 26, 2015, Dolphin received 3.7 million New Rights, while Extra received the same number of New Rights. The Rights Offering shelf offering report also stipulated that on February 5, 2015 the rights received could be traded on the public market during such single day only.
 
 In addition, on February 5, 2015, Dolphin acquired 2.05 million New Rights for a total amount of NIS0.94 million (equivalent to US$0.24 million as of the purchase date), 50% of which was offered to Extra under the terms of the Shareholders´ Agreement; notwithstanding the aforementioned, Extra decided not to acquire the corresponding 50%.
 
On February 10, 2015 Dolphin exercised all New Rights received and acquired on the market. As a result of exercise of these New Rights, Dolphin received 258,970,184 shares, 115,097,859 Series 4 warrants, 109,342,966 Series 5 warrants and 97,833,180 Series 6 warrants.  Extra did not exercise any of the New Rights it held. On February 10, 2015, Dolphin sold 71.39 million shares of IDBD to Inversiones Financieras del Sur S.A. (“IFISA”) at the closing price of NIS1.39 per share, totaling NIS99.23 million, equivalent to US$25.65 million at the exchange rate prevailing on the date of the transaction.
 
As a result of the Right Offering, Dolphin remained obliged to inject an amount of NIS8.5 million as equity into IDBD by way of an additional rights offering.
 
In addition, between February 9 and February 16, 2015, Dolphin acquired in the market 0.36 million shares of DIC for NIS2.88 million, equivalent to US$0.74 million at the exchange rate prevailing on the date of each transaction, part of which was offered to Extra under the terms of the Shareholders Agreement, notwithstanding the foregoing, Extra decided not to acquire its part of such shares according to the Shareholders Agreement.
 
On May 1, 2015 the IDBD Series 2 warrants matured without being exercised.
 
On May 31, 2015 Dolphin sold to IFISA 46 million Series 4 warrants for a total amount of NIS0.46 million (equivalent to US$0.12 million as of the date of the transaction), on condition that IFISA agrees to exercise all of them when so required by IDBD to Dolphin, in accordance with the proposal made on May 6, 2015 (as detailed below).
 
On June 3, 2015 in accordance with the Dolphin proposal dated May 6, 2015, Dolphin exercised 44.2 million Series 4 warrants for a total amount of NIS73.5 million (equivalent to US$19.2 million at the exchange rate prevailing on such date) and IFISA exercised 46 million Series 4 warrants for a total aggregate amount of NIS76.5 million.
 
As a result of the transactions described above, as of June 30, 2015, Dolphin held an aggregate number of 324,445,664 shares, 15,988,787 Series 3 warrants, 24,897,859 Series 4 warrants, 109,342,966 Series 5 warrants and 97,833,180 Series 6 warrants, accounting for a 49.0% share interest in IDBD, and IFISA held 117,390,470 shares accounting for a 17.73% share interest in IDBD. In addition, as of June 30, 2015 Dolphin held 406,978 shares of DIC, representing a direct interest of 0.48%.
 
As of June 30, 2015, IDBD’s Board of Directors consisted of nine members, three of which were appointed by Dolphin as regular directors: Eduardo Sergio Elsztain, Alejandro Gustavo Elsztain (on July 7 Roni Bar- On replaced him) and Saúl Zang.
 
For more information, see “Item 4—Recent Developments.”
  
IDBD Arbitration
 
On February and March 2015 Dolphin and Extra exchanged letters mainly in relation to claims from Extra in connection with the Rights Offering and Extra’s claim demanding a pro rata acquisition of shares of IDBD owned by Dolphin acquired under the Rights Offering,  all the shares acquired thereafter by IFISA and the allocation of certain IDBD shares between Dolphin and Tyrus, asserting in the latter cases the rights under the Shareholders ‘Agreement (first refusal).
 
Based on the foregoing and in accordance with the provisions of the Shareholders’ Agreement with respect to dispute resolution, on April 30, 2015 arbitration proceedings were initiated in Tel Aviv (the “Preliminary Hearing”), and the Israeli law applies thereto. The arbitration proceedings are intended to settle the issues referred to above, and application and interpretation of certain clauses of the Shareholders' Agreement.
 
In addition, during the Preliminary Hearing, the parties agreed on the rules and procedures that would govern the conduct of the arbitration proceedings and a schedule for such purposes.
 
 On May 28, 2015, before the filing of the arbitration claim, Extra triggered the Buy Me Buy You (“BMBY”) clause in the Shareholders´ Agreement, which establishes that each party to the Shareholders Agreement may offer to the counterparty to acquire (or sell, as the case may be) the shares it holds in IDBD at a fixed price; and within 14 days from delivery of the BMBY notice (the “Notice”) recipient should let it know whether it desires to sell or acquire the other party’s shares pursuant to the terms of the Notice, in accordance with the provisions of the Shareholders Agreement. In the Notice, Extra further added that the purchaser thereunder would be required to assume all obligations of seller under the Arrangement.
 
On June 10 and 11, 2015, Dolphin gave notice to Extra of its intention to buy all the shares of IDBD held by Extra, asserted its defenses and its interpretation about application and construction of the BMBY, establishing that Extra’s interpretation of such mechanism was inaccurate, and pursuant to the BMBY clause, Dolphin was not required to assume all of the obligations under the Arrangement, but that if the arbitrator shall decide that Dolphin is required to assume such obligations, then Dolphin would still be the purchasing party in the BMBY.
 
As a result, the parties pursued arbitration to settle their disputes and in respect of the correct interpretation of the BMBY clause, in order to determine, first, who would be the purchaser under the BMBY clause, and whether such party will be under the obligation to assume all the obligations of seller under the Arrangement.
 
For such purposes, the arbitrator decided to divide the arbitration proceedings into two phases: the first one to deal with the disputes related to application and interpretation of the mechanism under the BMBY clause and the second one in relation to the parties’ additional claims.
 
The parties then filed their respective arguments related to the application and interpretation of the BMBY clause mechanism, and two hearings were held on July 19 and July 22, 2015 in order to reach a decision on this matter.
 
 Moreover, on June 28 and 30, 2015 Extra filed a motion with the arbitrator requesting an injunction preventing changes in IDBD’s current Board of Director’s composition at IDBD’s annual shareholders’ meeting held on July 7, 2015.
 
For more information, see “Item 4—Recent Developments.”
  
 
 

 
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Proposals to IDBD
 
On December 29, 2014, Dolphin agreed to inject funds in IDBD, directly or indirectly, through entities controlled by Eduardo Sergio Elsztain, for at least NIS256 million and up to NIS400 million, as follows: (i) NIS256 million through the exercise of the New Rights arising from the Rights Offering by Dolphin; (ii) an additional investment (the “Additional Investment”) for an amount equivalent to (a) the Maximum Immediate Payment), less (b) the amount received by IDBD under the Rights Offering, excluding the exercise of the new warrants, but in no case for an amount higher than NIS144 million. The Additional Investment will be made by Dolphin or by any entity directly or indirectly controlled by Eduardo Sergio Elsztain exercising additional rights to be acquired by them or, if such rights are not acquired, by participating in another rights offering to be made by IDBD.
 
On February 10, 2015, Dolphin subscribed a total of NIS391.5 million, with a remaining contribution commitment of NIS8.5 million.
 
In addition, Dolphin committed to (i) exercise the Series 4 warrants for a total amount of NIS150 million if so requested by IDBD’s Board of Directors within six to 12 months as from the Rights Offering date; and (ii) exercise the remaining Series 4, 5 and 6 warrants received under the Rights Offering, subject to the satisfaction of two conditions simultaneously: (a) that IDBD and its creditors reach an agreement to amend certain debt covenants; and (b) that a control permit over Clal is given by the Capital Markets, Insurance and Savings Commissioner of Israel.
 
On May 6, 2015, Dolphin submitted to IDBD’s Board of Directors a binding and irrevocable proposal, which mainly provided the following:
 
·  
Appointment of Eduardo Sergio Elsztain as sole chairman of IDBD’s Board of Directors;
 
·  
Dolphin’s commitment (directly or through any vehicle controlled by Eduardo Sergio Elsztain) to accelerate its obligation to exercise the Series 4 warrants for NIS150 million, and thus IDBD will have the possibility to require their exercise since May 20, 2015 (later it was clarified that this date would be no later than June 2, 2015) instead of on July 19, 2015, provided that before May 20, 2015, IDBD receives a written irrevocable commitment from the representatives of the IDBD bondholders to the effect that until July 20, 2015 they will not call a bondholders meeting (unless they are required to do so under the applicable laws) that includes in its agenda any of the following items:
 
i)  
Appointment of advisers (financial, legal or otherwise);
 
ii)  
Appointment of a committee representing IDBD’s bondholders (as defined below);
 
iii)  
File legal actions against IDBD; and
 
iv)  
Accelerate the maturity or demand immediate payment of any indebtedness of IDBD.
 
·  
IDBD’s Board of Directors should set up a committee composed of two members of IDBD’s monitoring committee and two members of IDBD’s board appointed by Dolphin, which shall have the following duties, subject to the applicable law (later it was clarified that such committee shall not have the authority to make any decision but rather only to make recommendations to the board of directors):
 
i)  
Manage, discuss, negotiate and conclude negotiations with the representatives of IDBD’s bondholders regarding their requests;
 
ii)  
Negotiate with IDBD’s financial creditors a new set of covenants for IDBD’s financial indebtedness; and
 
iii)  
Devise a business and financial plan for IDBD.
 
·  
Dolphin (directly or through any vehicle controlled by Eduardo Sergio Elsztain), promised to submit offers to purchase IDBD shares in the public phase of the public offering at an amount of up to NIS100 million at a price per share which is no less than the opening price in the public phase of the public offering, and subject to the following conditions, inter alia:
 
i)  
That IDBD makes a public offering of its shares under terms acceptable to the market and approved by IDBD’s Board of Directors, for an amount of at least NIS100 million and not to exceed NIS125 million, and that the offering is made between October 1, 2015 and November 15, 2015.
 
ii)  
The commitment assumed by Dolphin would automatically expire upon the occurrence of any of the following events before the day of the public auction under the public offering: (i) if any of IDBD’s creditors or any of the representatives of IDBD’s bondholders files legal actions against IDBD, including a request for early or immediate repayment or acceleration of any portion of IDBD’s debt; (ii) if a meeting of any of IDBD’s bondholders is called including in its agenda any of the matters set forth above; (iii) if IDBD receives capital contributions for a total amount of NIS100 million in any manner, whether through a rights offering, the exercise of warrants, a private or public placement, and if such contributions are made by Dolphin directly or through any vehicle controlled by Eduardo Sergio Elsztain (apart from the capital contributions creditable against the remaining NIS8.5 million obligation under Dolphin’s irrevocable proposal dated December 29, 2014), or by any other individual or legal entity, or the investor public, and at any event when the aggregate amount of such capital contributions under paragraph 5 (d) (iii) of the proposal so submitted is lower than NIS100 million, Dolphin’s commitment under Section 5 (c) above would be reduced accordingly; or (iv) if a material adverse event or change occurs in IDBD or its control structure or in any of its material affiliates.
 
On May 7, 2015, IDBD’s Board of Directors approved the proposal and Eduardo Sergio Elsztain was appointed sole Chairman of IDBD’s Board of Directors.
 
On June 3, 2015, pursuant to Dolphin´s original proposal dated December 29, 2014, as amended by paragraph (ii) of the proposal dated May 6, 2015, Dolphin exercised 44.2 million Series 4 warrants, while IFISA exercised the remaining Series 4 warrants required to complete the total NIS150 million commitments. Therefore, the commitment was satisfied as of June 30, 2015.
 
Proposal to IDBD and DIC
 
On June 29, 2015, Dolphin submitted an irrevocable proposal to IDBD and DIC (the “Proposal Sent to IDBD and DIC”) which offered that, subject to its approval by the Boards of Directors of both companies, DIC would start as soon as possible a rights offering for up to approximately NIS500 million (“DIC’s Rights Offering”) (equivalent to US$132.5 million at the exchange rate prevailing as of June 30, 2015). Under DIC’s Rights Offering, each shareholder of DIC would receive, for no consideration, DIC’s right units consisting of 4 series of warrants issued by DIC (which would be registered for trading in the TASE), each of which would be exercisable for one common share of DIC (“DIC’s Warrants”), with the following features:
 
·  
DIC’s Warrants would be divided into 4 series, and the exercise price of each of such series would be approximately NIS125 million, as follows:
 
i)  
The first series of warrants would be exercisable until December 21, 2015, for a price to be determined based on acceptable market conditions and after consultation with capital market experts, but in no case for a higher price than NIS6.53 (“DIC’s #1 Warrants”).
 
ii)  
The second series of warrants would be exercisable until December 21, 2016, for an exercise price equivalent to 110% of DIC’s #1 Warrants’ exercise price.
 
iii)  
The third series of warrants would be exercisable until December 21, 2017, for an exercise price of: (i) 110% of DIC’s #1 Warrants’ exercise price, in the event they are exercised before December 21, 2016; or (ii) 120% of DIC’s #1 Warrants’ exercise price if they are exercised between December 21, 2016 and December 21, 2017.
 
iv)  
The fourth series of warrants would be exercisable until December 21, 2018, for an exercise price of: (i) 110% of DIC’s #1 Warrants’ exercise price, in the event they are exercised before December 21, 2016; or (ii) 130% of DIC’s #1 Warrants’ exercise price if they are exercised between December 21, 2016 and December 21, 2018.
 
·  
As part of DIC’s Rights Offering, IDBD would promise to exercise all DIC’s #1 Warrants issued in favor of IDBD, for a total amount of approximately NIS92.5 million (“IDBD’s Investment Amount”) by December 21, 2015, provided that the following conditions have been satisfied as of such date:
 
i)  
IDBD should have the written consent of IDBD’s main lenders for IDBD to exercise DIC’s #1 Warrants issued in its favor under DIC’s Rights Offering.
 
ii)  
IDBD should have conducted and completed a Public Offering (as defined below), under which it should have raised an amount of at least NIS200 million.
 
iii)  
IDBD should have received the written consent of its main lenders in order for any amount injected as capital in IDBD after the date of such proposal in excess of NIS100 million and up to NIS350 million, to be used at any time for injection from IDBD into DIC, through any capital injection method.
 
iv)  
IDBD's obligation expires upon the occurrence of any of the events which result in the expiration of Dolphin's commitment pursuant to the proposal (as described below) or in case of a material adverse event or change occurs in IDBD or its control structure or in any of its material affiliates.
 
·  
In turn, Dolphin proposed the following to IDBD:
 
i)  
IDBD’s public offering amount under Dolphin’s proposal dated May 6 would be increased by at least NIS100 million and up to NIS125 million (the “Public Offering under the Proposal to IDBD and DIC”). In other words, the total amount would be increased from a minimum of NIS100 million to a minimum of NIS200 million, and the maximum amount would be increased from a maximum of NIS125 million to a maximum of NIS250 million (the “Total Increased Amount”).
 
ii)  
Therefore, Dolphin’s obligation to participate in the Public Offering under the Proposal to IDBD and DIC would be increased (compared to the proposal dated May 6, 2015) by an amount equal to the difference between the Total Increased Amount and the total amount of commitments received, always provided that such amounts were not higher than NIS200 million (the “Capital Contribution Amount”).
 
iii)  
The approval of this proposal would constitute IDBD’s confirmation and approval that all of Dolphin’s commitments under this proposal would imply the full and complete settlement of its remaining obligations to inject NIS8.5 million in IDBD, pursuant to Dolphin’s irrevocable proposal dated December 29, 2014 (provided however that Dolphin shall participate in an amount exceeding NIS8.5 million).
 
iv)  
The amount mention in section 5(d)(iii) of the May 6 proposal shall be NIS200 million.
 
v)  
Dolphin’s commitment would automatically expire upon the occurrence of any of the following events: (i) if any of DIC’s creditors or any of the trustees of DIC’s bonds filed any legal action against DIC, including a request for early repayment or acceleration of any portion of DIC’s debt; and/or (ii) if any meeting of DIC’s bondholders included in its agenda any or many of the following matters: (a) appointment of advisers (financial, legal or otherwise); (b) appointment of a committee of representatives of DIC’s bondholders; (c) filing of any legal action against DIC; and/or (d) request for early or immediate repayment of any portion of DIC’s debt, or any similar discussion.
 
The Proposal to IDBD and DIC was binding and irrevocable, and it was valid up to July 13, 2015 (later extended to July 16, 2015) and expired on such date if the Boards of Directors of IDBD and DIC did not accept it and approve it unconditionally. On July 9 and 16, 2015, Dolphin submitted clarifications on the Proposal to IDBD and DIC. The Proposal to IDBD and DIC was approved by IDBD’s Board of Directors on July 16, 2015.
 
For more information, see “Item 4—Recent Developments.”
 
 

 
38
 
Disposal of financial assets
 
During August 2014, IRSA has sold, through its subsidiary REIG IV, the balance of 1 million shares of Hersha Hospitality Trust, at an average price of US$ 6.74 per share.
 
Transactions with non-controlling interests
 
IRSA
 
During the fiscal year ended June 30, 2015, the Company sold a 1.81% interest in IRSA for a total amount of Ps. 181.8 million. This resulted in an increase in non-controlling interests of Ps. 33.7 million and a decrease in equity attributable to holders of the parent of Ps. 97.7 million, net of tax effect. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of the non-controlling interests sold by the Company
     (33.7 )
Consideration collected
     181.8  
Tax effect
     (50.4 )
Reserve recorded in shareholders’ equity
     97.7  
 
During the fiscal year ended June 30, 2015, the Company acquired a 0.65% interest in IRSA for a total amount of Ps. 50.7 million. This resulted in a decrease in non-controlling interests of Ps. 12.7 million and an increase in equity attributable to holders of the parent of Ps. 38.0 million, net of tax effect. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of Company´s interest acquired of
     12.7  
Consideration paid for non-controlling interests
     (50.7 )
Reserve recorded in shareholders’ equity
     (38.0 )
 
As a result of the transactions mentioned above, as of June 30, 2015, the equity interest in IRSA amounts to 64.30%, not considering effects of treasury stock.
 
IRSA Commercial Properties
 
During the fiscal year ended June 30, 2015, the Company, through IRSA, acquired an additional 0.10% interest in IRSA Commercial Properties for a total amount of Ps. 5.7 million. This resulted in a decrease in non-controlling interests of Ps. 0.9 million and an increase in equity attributable to the holders of the parent of Ps. 4.7 million. As of June 30, 2015, IRSA's equity interest in IRSA Commercial Properties amounts to 95.80%. The effect on shareholders’ equity of this change in the equity interest in IRSA Commercial Properties is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of Company’s interest acquired of                                                                                                        
     0.9  
Consideration paid for non-controlling interests                                                                                                        
     (5.6 )
Reserve recorded in shareholders’ equity                                                                                                        
  
(i) (4.7)
  
(i)  
The reserve includes Ps. 1.6 million for non-controlling interest
 
Dolphin
 
During February 2015, the Company through its subsidiaries, contributed an amount of US$ 146 million in Dolphin. Such amount was also allocated to increase Dolphin’s investment in IDBD. This resulted in a decrease in non-controlling interests of Ps. 21.0 million and an increase in equity attributable to the holders of the parent.
 

 
39
 
 
   
Ps. (million)
  
Carrying amount of non-controlling interest                                                                                                        
     21.0  
Consideration paid for non-controlling interests                                                                                                        
     -  
Reserve recorded in shareholders’ equity                                                                                                        
  
(i) 21.0
  
 
(i)  
The reserve includes Ps. 6.9 million for non-controlling interest
 
Disposal of Associates
 
On February 5, 2014, the Company, through Ritelco, sold its interest in Bitania 26 S.A., representing 49% of its capital stock, for an amount of US$ 4.2 million. Such transaction generated a net gain of approximately Ps. 13.3 million which are shown in the line "Other operating results, net" in the income statement.
 
BACS Banco de Crédito y Securitización S.A.
 
The Company through Tyrus, subscribed a purchase-sale agreement of shares of BACS Banco de Crédito y Securitización S.A., representing an interest of 6.125%. The transaction amounts to US$ 1.35 million. This operation is yet to be approved by the Banco Central de la República Argentina, according to regulations in force. The advance payment related to this transaction is disclosed in “Trade and other receivables”.
 
The Company through IRSA, on June 17, 2015, subscribed Convertible Notes, issued by BACS Banco  de Crédito y Securitización S.A. for a nominal value of 100,000,000, which are convertible into common stock.
 
Capital reduction of Rigby 183 LLC
 
On October 17, 2014, Rigby 183 LLC reduced its capital stock by distributing among existing shareholders, proportionally to their shareholdings, the gain made on the sale of the Madison building. The total amount distributed is US$ 103.8 million, of which the Company received US$ 77.4 million (US$ 26.5 million through IRSA International and US$ 50.9 million through IMadison LLC) and US$ 26.4 were distributed to other shareholders. As a result of such reduction, the Company has decided to reverse the corresponding accumulated currency translation on a pro rata basis, which amounted to Ps. 188.3 million. This reversal has been recognized in the line “Other operating results, net" in the statement of income.
 
Year ended June 30, 2014
 
Sale of farmlands
 
On June 27, 2014, Brasilagro sold a total area of 1,164 hectares of Araucaria field.
 
The sale was valued at Rs. 32.5 million (or Ps.117.5 million). In July 2014 the buyer made an initial payment of Rs. 4.5 million and remaining balance will be collected in five annual installments. The first installment of Rs. 4.5 million was collected in November 2014 and the second installment, of Rs. 6.9 million, in June 2015. The Company recorded a profit before tax on the sale of the Araucaria farmland for an amount of Rs. 21.0 million (or Ps. 75.8 million).
 
On May 27, 2014 Ombú Agropecuaria S.A. executed a purchase-sale agreement involving a condition sale of real property covering 883 hectares of “San Cayetano I” for a total amount of US$ 4.2 million (equivalents to Ps. 31.0 million). US$ 2.3 million have already been collected whereas the balance shall be collected in five consecutive semi-annual installments, with the last falling due in November 2016. Under the contract, the conveyance shall be recorded once the price has been fully collected off. Possession was granted upon execution of the contract. The Company recorded a profit before tax of US$ 1.8 million (Ps.15.6 million) on the sale.
 
Subscription of shares of Avenida Inc.
 
On August 29, 2013, the Company, through Torodur S.A., subscribed 3,703,704 shares of Avenida Inc., a Company incorporated in Delaware, United States, representing 24.79% of its outstanding capital. At that moment, this company had neither activity nor significant assets. Additionally, the Company acquired a warrant to increase such equity interest up to 37.04% of the company. The transaction price was Ps. 13 million, which were already paid in full. After acquisition, Avenida Inc. established a Company named "Avenida Compras S.A.", a Company incorporated in Argentina and engaged in e-commerce activity. Avenida Inc. owns 100% of Avenida Compras S.A..
 
Stock call option Agreement for the shares of Arcos del Gourmet S.A.
 
On September 16, 2013 IRSA Commercial Properties entered into an agreement with Messrs. Eduardo Giana, Pablo Bossi and Patricio Tobal (non-controlling shareholders of Arcos del Gourmet S.A.), whereby the latter grant to IRSA Commercial Properties an exclusive and irrevocable option to purchase 10% of the equity interest of Arcos del Gourmet S.A., which can be executed up to December 31, 2018. In the event the option is exercised, IRSA Commercial Properties should pay the amount of US$ 8.0 million.
 
Furthermore, in the mentioned agreement a fixed amount of US$ 2.0 million was arranged, which was cancelled, and another variable amount to be paid on a monthly basis, that results from applying a 4.5% on the amounts accrued on each prior calendar month as rental and admission fees, net of certain expenses, during 5 years from the opening of the shopping mall, in relation to the assignment of rights to collect dividends of Arcos during such period.
 
Acquisition of common shares of Condor Hospitality Trust Inc. (formerly Supertel Hospitality, Inc. due to change of corporate name) (“Condor”).
 
On January 9, 2014, the Company, through its subsidiary, Real Estate Strategies L.P. (“RES”), granted a loan to Condor for an amount of US$ 2.0 million. This loan included a conversion option whereby RES was allowed to apply the aggregate amount of the loan to purchase common shares of Condor under a “Subscription Rights Offering” or convert the loan directly into common shares of Condor. Additionally, from February 2012, the Company holds two financial instruments in Condor, preferred shares and warrants, which are still held on the balance sheet date. On June 6, 2014, under the "Subscription Rights Offering", RES exercised its conversion right to acquire 1,250,000 common shares at US$ 1.60 per share. As a result of this acquisition, the Company – through RES – acquired a 26.9% equity interest in Condor.
 
The fair value of the Company’s investment in Condor was based on the fair value of its net assets. Condor´s main assets consist of 65 hotels in United States operated by various hotel chains. The Company has allocated the price paid at the fair value of net assets acquired based on the information available on the balance sheet date. Such fair value amounted to Ps. 31.5 million, resulting in a gain on the acquisition of Ps. 15.4 million, which has been recognized under “Share of loss of associates and joint ventures” in the income statements for the fiscal year ended June 30, 2014.
 

 
40
 
 
Significant sale of investment properties
 
On November 15, 2013 IRSA signed the transfer deed for the sale of the 12th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The price of the transaction was Ps. 9.0 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 7.2 million.
 
On January 14, 2014, IRSA signed the transfer deed for the sale of the 11th floor and seven parking units of the Maipú 1300 Building. The total price of the transaction was Ps. 9.6 million (US$ 1.4 million). Such transaction generated a profit before tax of approximately Ps. 7.6 million.
 
On January 24, 2014, IRSA signed the transfer deed for the sale of the 7th floor and 28 parking units of the Bouchard 551 Building. The total price of the transaction was Ps. 124.6 million equivalents to US$ 16.0 million. Such transaction generated a profit before tax of approximately Ps. 98.8 million.
 
On April 1, 2014, IRSA signed the transfer deed for the sale of the 5th and 6th floor and complementary units in the Costeros Dique IV Building. The total price of the transaction was Ps. 12.4 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 10.3 million.
 
On April 7, 2014, IRSA signed the transfer deed for the sale of the 21th and 22th floors and two parking units of the Maipú 1300 Building and four parking units of the Libertador 498 Building. The price of the transaction was Ps. 24.1 million (US$ 3.0 million). Such transaction generated a profit before tax of approximately Ps. 19.6 million.
 
On April 10, 2014, IRSA signed the transfer deed for the sale of the 2nd floor of the Avenida de Mayo 589 Building and ten parking units of the Rivadavia 565 Building. The total price of the transaction was Ps. 24.2 million (US$ 3.0 million). Such transaction generated a profit before tax of approximately Ps. 19.9 million.
 
On May 6, 2014, IRSA signed the transfer deed for the sale of the Constitución 1159 Building. The price of the transaction was Ps. 23.3 million (US$ 2.9 million). Such transaction generated a profit before tax of approximately Ps. 13.4 million.
 
On May 14, 2014, IRSA signed the transfer deed for the sale to Transportadora de Caudales Juncadella of the unit 449 of the 8th floor of the Bouchard 551 Building. The price of the transaction was Ps. 61.8 million (US$ 7.7 million). Such transaction generated a profit before tax of approximately Ps. 49.2 million.
 
On May 19, 2014, IRSA signed the transfer deed for the sale to Inco Sociedad Anónima de Inversión, Industria y Comercio of the unit 1 of the ground floor of the Maipú 1300 Building. The price of the transaction was Ps. 6.5 million (US$ 0.8 million). Such transaction generated a profit before tax of approximately Ps. 5.2 million.
 
The properties mentioned above were classified as investment properties until the above mentioned transactions were executed, which represents a gross lease area of approximately 10,816 square meters.
 
All sales of the year led to a combined profit for the Company of Ps. 230.9 million, disclosed within the line “Gain from disposal of investment properties” in the income statement.
 
On May 22, 2014 IRSA Commercial Properties acquired commercial premises with an area of 40 m2, next to our shopping Alto Palermo, located on the ground floor of the building located in Av. Santa Fe 3255/57/59 in an amount of US$ 3.8 million.
 
Transactions with non-controlling interest
 
IRSA Commercial Properties
 
During the fiscal year ended June 30, 2014, the Company, through IRSA, acquired an additional 0.02% interest in IRSA Commercial Properties for a total amount of Ps. 1.2 million. This resulted in a decrease in non-controlling interests of Ps. 0.2 million and an increase in equity attributable to holders of the parent of Ps. 1.0 million. The effect on shareholders’ equity of this change in the equity interest in IRSA Commercial Properties is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of Company’s interest acquired of
     0.18  
Consideration paid for non-controlling interests
     (1.21 )
Reserve recorded in shareholders’ equity
  
(i) (1.03)
  
 
(i)  
The Reserve includes Ps. 0.36 million for non-controlling interest
 
Futuros y Opciones.com S.A.
 
On December 20, 2013 we sold 14,812 non-transferable nominative common shares, with a nominal value of Ps. 1 each and entitled to one vote per share, representing a 0.9075% interest of Futuros y Opciones.com S.A. (“FyO”) for a total amount of Ps. 0.1 million.
 
   
Ps. (million)
  
Sale’s collected value                                                                                                          
     0.11  
Increase in non-controlling interest                                                                                                          
     (0.21 )
Reserve recorded in shareholders’ equity                                                                                                          
     (0.10 )
 
Brasilagro
 
During the current fiscal year, we sold 10,400 shares of Brasilagro, representing a 0.02% interest, for a total amount of Ps. 0.27 million. Consequently, we recognized an increase in non-controlling interest for an amount of Ps. 0.25 million and a decrease in equity attributable to holders of the parent of Ps. 0.02 million. The effect on shareholders’ equity of this change in the equity interest in Brasilagro is summarized as follows:
 
   
Ps. (million)
  
Carrying amount of the non-controlling interests sold by Cresud                                                                                                          
     (0.25 )
Consideration collected                                                                                                          
     0.27  
Reserve recorded in shareholders’ equity                                                                                                          
     0.02  

 

 
41
 
 
On the other hand, on September 2, 2013, Brasilagro approved a share repurchase program for up to 3,511,130 common shares and for up to an aggregate amount not to exceed the balance of profits or available reserves disclosed in Brasilagro’s latest financial statements. As of June 30, 2014, Brasilagro purchased 99,900 common shares for an aggregate amount of Rs. 1.9 million. Below is a summary of the effects of such transaction on shareholders’ equity:
 
   
Ps. (million)
  
Amount paid for repurchase                                                                                                          
     (4.94 )
Decrease in non-controlling interest                                                                                                          
     4.92  
Reserve recorded in shareholders’ equity                                                                                                          
     (0.02 )
 
IRSA
 
On July 25, 2013, IRSA’s Board of Directors set forth the terms and conditions governing the purchase of the Company's own stock pursuant to Section 64 of Law N° 26,831 and the CNV’s regulations, for up to an aggregate amount of Ps. 200.0 million and up to 5% of the capital stock, in the form of common shares or Global Depositary Shares (GDS) representing 10 common shares each, and up to a daily limit of 25% of the average daily transaction volume experienced by the Company’s shares, along with the markets where they are listed, during the prior 90 business days, and at a price ranging from a minimum of Ps. 1 up to Ps. 8 per share. On September 18, 2013 the Board of Directors approved an increase to the maximum price, raising it to Ps.10 per common share and US$ 10.50 per GDS. On October 15, 2013, the Board of Directors approved a new increase to the maximum price, raising it to Ps.11.00 per common share and US$ 11.50 per GDS. On October 22, 2013 the Board of Directors approved a new increase to the maximum price, raising it to Ps.14.50 per common share and US$ 15.00 per GDS. During the fiscal year ended June 30, 2014, the Company purchased 533,947 common shares (N.V. Ps. 1 per share) for a total amount of Ps. 5.2 million and 437,075 GDS (representing 4,370,750 common shares) for a total amount of US$ 5.2 million.
 
On June 10, 2014, the Board of Directors of IRSA resolved to terminate the stock repurchase plan that was approved by resolution of the Board on July 25, 2013, and modified by resolutions adopted on September 18, 2013, October 15, 2013 and October 22, 2013. During the term of the Stock Repurchase Plan, IRSA has repurchased 4,904,697 shares for an aggregate amount of Ps. 37,905,631.
 
Year ended June 30, 2013
 
Sale of farmlands
 
On June 19, 2013, Cresud executed a title deed by means of which Cresud sold to Vargas Derka SH 5,613 hectares  of “La Suiza” ranch, which is engaged in livestock activities located near “Villa Angela”, Province of Chaco, remaining in this establishment 36,380 hectares used by the Company to cattle and crop activities.
 
The offer price for this transaction amounted to US$ 6.7 million, and was totally collected on the date of the execution of the title deed, generating a gain of Ps. 29.8 million.
 
On October 11, 2012 Brasilagro sold Horizontina, a field of land located in Tasso Fragoso, State of Maranhão, Brazil for a total amount of Rs. 75 million (Ps. 174.8 million). The payments were collected as follows: an initial payment of Rs. 1 million, Rs. 26 million in October, 2012 and Rs. 45 million upon execution of the conveyance, on January 22, 2013. The remaining balance as of June 30, 2015 amounts to Rs. 3 million, and its collection is subject to compliance with certain conditions. The gain of the sale was Ps. 53.9 million less commission, expenses and taxes.
 
The Horizontina field had an area of 14,359 hectares and was acquired on March 10, 2010 by the subsidiary Inmobiliaria Ceibo for a total amount of Rs. 37.7 million.
 
On April 25, 2013, Brasilagro sold a total area of 394 hectares of Araucaria field. The establishment, located in the municipality of Mineros – GO was acquired in 2007 and had, at the time of sale, a total area of 9,862 hectares.
 
The sale was priced at Rs. 11.7 million (Ps. 26.6 million). The buyer made an initial payment of Rs. 1.7 million and the remaining balance will be collected in eight installments every six months. The first installment of Rs. 2.1 million was collected in August, 2013, the second, of Rs 2.0 million in March 2014, the third, of Rs.1.9 million, in August 2014 and the fourth, of Rs. 1.9 million, in March 2015. The remaining balance as of June 30, 2015 will be collected in three semi-annual installments. The last installment is due at the moment of the execution of the title deed, in August, 2016. The Company recognized a profit before tax for the sale of the Araucaria field for an amount of Rs. 6.7 million (equivalent to Ps. 12.6 million).
 
On May 10, 2013, Brasilagro sold a total area of 4,895 hectares of Cremaq field. The establishment, located in the municipality of Ribeiro Gonçalves-PI, Brazil was purchased in 2007 and had, at the time of sale, a total area of 32,702 hectares.
 
On February 20, 2015, while studying the acquired zone, a difference of 62 hectares between measures and the sales agreement, dated May 11, 2013, was verified. This resulted into an increase of 11,166 bags in the sales price.
 
The sale was priced at Rs. 42.6 million (Ps. 97.6 million). The buyer made an initial installment of Rs. 4.6 million and the remaining balance was agreed to be collected in five installments. The first installment of Rs. 4.3 million was collected in August, 2013, the second, of Rs 4.0 million was collected in October 2013, the third, of Rs.17.5 million, in June 2014 and the fourth, of Rs. 17.1 million, in June 2015. The remaining balance will be collected upon execution of the conveyance deed, in June, 2016. The Company recognized a profit before tax for the sale Cremaq field of Rs. 26.5 million (Ps. 53.2 million).
 
Transactions with non-controlling interests
 
IRSA
 
During the fiscal year ended June 30, 2013, the Company acquired an additional 1.25% interest in IRSA for a total consideration of Ps. 45.8 million. This resulted in a decrease in non-controlling interests of Ps. 33.9 million and an increase in equity attributable to holders of the parent of Ps. 11.9 million. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:
 

 
42
 
 
   
Ps. (million)
  
Carrying amount of IRSA’s interest acquired of
     33.9  
Consideration paid for non-controlling interests
     (45.8 )
Reserve recorded in shareholders’ equity
     (11.9 )
 
IRSA Commercial Properties
 
During the fiscal year ended June 30, 2013, the Company, through IRSA and E-Commerce Latina S.A., acquired an additional 0.1% interest in IRSA Commercial Properties for a total consideration of Ps. 2.3 million. This resulted in a decrease in non-controlling interests of Ps. 0.8 million and an increase in equity attributable to holders of the parent of Ps. 1.5 million. The effect on shareholders’ equity of this change in the equity interest in IRSA Commercial Properties is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of IRSA Commercial Properties’s interest acquired of
     0.8  
Consideration paid for non-controlling interests
     (2.3 )
Reserve recorded in shareholders’ equity
     (i) (1.5 )
 
(i) The Reserve includes Ps. 0.5 million for non-controlling interest
 
Arcos del Gourmet S.A. (“Arcos”)
 
On June 07, 2013, the Company, through IRSA Commercial Properties, acquired an additional 1.815% equity interest of its controlled company Arcos for a total amount of US$ 0.8 million. The carrying amount of the non-controlling interest in Arcos on the date of acquisition was Ps. 7,357 (representing an 11.815% interest). This resulted in a decrease in non-controlling interest of Ps. 857 and an increase in equity attributable to holders of the parent of Ps. 3,687. The effect on shareholder´s equity of the parent of this change in the equity interest in Arcos during year 2013, is summarized as follows:
 
 
Ps. (million)
  
Carrying amount of Arcos del Gourmet’s interest acquired of
     0.8  
Consideration paid for non-controlling interests
     (4.5 )
Reserve recorded in shareholders’ equity
     (i) (3.7 )
 
(i)     The reserve includes Ps. 1.4 million for non-controlling interest
 
Acquisition of joint venture
 
On November 29, 2012, IRSA Commercial Properties acquired shares of common stock, representing 50% of Entertainment Holdings S.A. (“EHSA”)’s capital stock and votes for Ps. 32.0 million. Under the acquisition agreement, IRSA Commercial Properties is entitled to exercise joint control over EHSA. EHSA is an Argentine company whose main asset consists of an indirect interest of 50% in the capital and voting rights of La Rural S.A. (“LRSA”), whereby it has joint control over this Company together with Sociedad Rural Argentina (“SRA”), who owns the remaining 50%. Thus, IRSA Commercial Properties is the owner of an indirect interest of 25% in LRSA, whose main asset consists of an usufruct agreement on the Predio Ferial de Buenos Aires, located between Cerviño, Sarmiento, Santa Fe Avenues and Oro street, in the City of Buenos Aires (the “Predio Ferial”) entered in 1999 into with SRA, owner of such Predio Ferial.
 
The amount of Ps. 6.1 million has been included as an asset, in the line trade and other receivables together with accrued interests.
 
The fair value of the IRSA Commercial Properties’  investment in the joint venture was determined based on the fair value of EHSA’s net assets, with the rights of use being the main asset. IRSA Commercial Properties has allocated the price paid at the fair value of the net assets acquired. Such fair value amounted to Ps. 15.2 million, which means a goodwill amount of Ps. 10.7 million recognized under the line “Investments in associates and joint venture” in the statement of Financial position as of June 30, 2013.
 
The fair value of the right of use has been determined by the application of the discounted cash flow method. This estimate considered a discount rate that reflects the market assessments regarding uncertainties in terms of the cash flow amount and timing. The amount of net future cash flows was estimated based on the specific features of the property, the agreements in force, market information and future forecasts as of the valuation date. Net income forecasts, revenues growth rates and discount rates are among the most important assumptions used in the valuation.
 
Disposal of financial assets
 
During fiscal year ended June 30, 2013, the Company sold 17,105,629 ordinary shares of Hersha’s Hospitality Trust (Hersha) for a total amount of US$ 92.5 million, with a decrease on the equity interest from 9.13% (at the beginning of the year) to 0.49%.
 
In November and December 2012, IRSA sold all of its shareholdings in NH Hoteles S.A. (138,572 shares for a consideration of € 0.38 million) and in NH Hoteles S.A. (387,758 shares for a total consideration of US$ 1.4 million).
 
In December 2012, IRSA sold all of its shareholdings in Metrovacesa F (1,238,990 shares for a consideration of € 2.7 million); Metrovacesa SM (229,995 shares for a total consideration of € 0.5 million) and Metrovacesa F (919,087 shares for a consideration of US$ 2.7 million).
 
Significant sales of investment properties
 
On August 31, 2012, the Company sold through IRSA certain functional units of the “Libertador 498 Building” of the Autonomous City of Buenos Aires. The total price of the transaction amounted to Ps. 15 million and was collected upon the execution of the title conveyance deeds. This transaction generated a profit before tax of Ps. 12.3 million.
 
On September 14, 2012, IRSA sold certain functional units on floors 18 and 19, as well as parking areas, of the Bouchard 551 Building. The total price of the transaction was US$ 8.5 million paid upon execution of the conveyance deed. This transaction generated a profit before tax of Ps. 16.6 million.
 

On October 4 and 11, 2012, IRSA signed the transfer deed for the sale of several functional units (stores and parking spaces) of the “Libertador 498 Building”. The transactions price was set at Ps. 29.4 million, amount that has been completely collected. This transaction generated a profit before tax of Ps. 24.1 million
 

 
43
 
 
On January 8, 2013, IRSA sold several functional units (stores and parking spaces) of the “Costeros Dique IV Building”. The total price of the transaction was Ps. 9.2 million. This transaction generated a profit before tax of Ps. 7.5 million.
 
On May 8, 2013, IRSA signed the transfer deed for the sale of the 17th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The total price of the transaction was Ps. 7.8 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 5.7 million.
 
On May 20, 2013, IRSA signed the transfer deed for the sale of the 6th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The transactions price was set at Ps. 7.6 million (US$ 1.45 million), amount that has been completely collected. This transaction generated a profit before tax of Ps. 5.7 million.
 
On June 28, 2013, IRSA signed the transfer deed for the sale of 4th, 5th and 6th floors and 56 parking units of the Bouchard 551 Building. The total price of the transaction was Ps. 148.7 million, equivalent to US$ 27.6 million. This transaction generated a profit before tax of Ps. 106.2 million.
 
The properties mentioned above were classified as investment properties until the above mentioned transactions were executed, which represents a gross lease area of approximately 14,442 square meters.
 
All sales of the year led to a combined profit for the Company of Ps. 178.0 million, disclosed within the line “Gain from disposal of investment properties” in the income statement.
 
Acquisition of Rigby 183 LLC
 
On June 30, 2012, the Company held, through its subsidiary IMadison LLC, a 49% interest in the capital stock of Rigby 183 LLC (“Rigby”), a company that owns office buildings for rental at Madison Avenue 183, New York, USA. On November 27, 2012, the Company, through its subsidiary IRSA International LLC, acquired an additional equity interest of 25.5% in Rigby’s capital stock, thus taking control over said company. As a result of the acquisition, the Company expects to increase its footprint in the US real estate market. The goodwill from the acquisition, which amounts to Ps. 45.7 million, is attributable to the synergies expected to be achieved by combining the Company’s and Rigby’s operations.
 
The acquisition-related costs, which amount to Ps. 2.6 million, were charged under “General and administrative expenses” line in the statements of income.
 
The fair value of the investment property acquired for Ps. 679.2 million was assessed by a qualified independent appraiser. The fair value of trade and other receivables amounts to Ps. 2.3 million, including trade receivables in the amount of Ps. 0.1 million. As of the acquisition date, the Company estimates that these receivables are recoverable. The fair value of the non-controlling interest in Rigby, an unlisted company, has been determined on a proportional basis to the fair value of net acquired assets.
 
The Company has recognized gains of Ps. 124.1 million derived from the reassessment of the fair value of the 49% interest held in Rigby before the business combination. In addition, all exchange gains (losses) accumulated in shareholder’s equity from the interest held in Rigby before the business combination (Ps. 12.9 million) were charged to income. These gains were disclosed under "Other operating results, net" line in the income statements.
 
The incomes Rigby has generated since November 27, 2012 and that have been disclosed in the consolidated income statements amount to Ps. 40.9 million. Rigby has also run a net gain of Ps. 8.1 million during said period. If Rigby had been included in the consolidation since July 1, 2012, the consolidated income statements would have shown pro forma revenues in the amount of Ps. 2,202.9 million and pro-forma net income of Ps. 297.5 million.
 
Disposal of joint ventures
 
On June 28, 2013, IRSA sold, assigned and transferred to Euromayor S.A. de Inversiones the 100% of its equity interest in Canteras Natal Crespo S.A., accounting for a 50% interest in that company’s capital stock for an aggregate amount of US$ 4.2 million; out of that amount, US$ 1.4 million was cashed in July 2013, with the balance being collected as follows: US$ 2.4 million on March 31, 2014 and US$ 0.4 million against delivery to IRSA of certain lots in the development to be carried out in Canteras Natal Crespo S.A.’s property. IRSA was granted a security interest on the 100% of Canteras Natal Crespo S.A.’s shares to secure payment of the remaining balance.
 
Disposal of subsidiaries
 
During the fiscal year ended June 30, 2013, IRSA sold to Doneldon S.A., the 100% of Sedelor S.A.'s, Alafox S.A.'s and Codalis S.A.'s capital stock, all of them companies incorporated in the Republic of Uruguay, with no business activity. Later, IRSA sold to Cresud the 100% of Doneldon S.A.'s capital stock.
 
Transactions and authorizations pending
 
Urban Properties and investments
 
Paraná plot of land
 
On June 30, 2009, the Company, through IRSA Commercial Properties, subscribed a “Letter of Intent” by which it stated its intention to acquire from Wal-Mart Argentina S.A. a plot of land of about 10,022 square meters located in Paraná, Province of Entre Ríos, to be used to build, develop and operate a shopping center or mall.
 
On August 12, 2010, the agreement of purchase was executed. The purchase price stood at US$ 0.5 million to be paid as follows: i) US$ 0.05 million had been settled as a prepayment on July 14, 2009, ii) US$ 0.1 million was settled upon executing such agreement, and iii) US$ 0.35 million will be paid upon executing the title deed. The mentioned payments were recorded as an advance under “Trade and other receivables” line.
 
On December 29, 2011, possession of the real estate was granted, and a minute was signed in which the parties agreed that the deed transferring ownership would be granted on June 30, 2012, or within sixty (60) consecutive days from the date in which the selling party evidenced with a certified copy before the buying party that the real estate was not subject to any encumbrance, burden, limit or restriction to the ownership, except for the electroduct administrative easement in favor of EDEER S.A..
 
On June 29, 2012, the parties have agreed to extend the term for the execution of the title conveyance deed, which shall be executed within sixty (60) days from the date the seller provides reliable notification to the buyer that the property is not subject to any levy, encumbrance, restrictions on ownership, except for the right of way already mentioned. As of the consolidated financial statements date, evidence of such notice has not been provided.
 

 
44
 
 
Acquisition of commercial center goodwill
 
The Company, through IRSA Commercial Properties, has signed an offering letter for acquiring, building and running a commercial center in a real estate owned by INC S.A. (“INC”), located in the City of San Miguel de Tucumán, Province of Tucumán. The price of this transaction was US$ 1.3 million. Out of this total, US$ 0.05 million were paid. The mentioned payment was recorded as an advance under “Trade and other receivables” line.
 
Antitrust Law
 
Law N° 25,156, known as "Antitrust Law" as amended, prevents anticompetitive practices and requires administrative authorization for transactions that according to the Antitrust Law would lead to market concentration According to this law, such transactions include mergers, acquisitions and/or transfers either of businesses or assets by which the acquirer controls or substantially influences another party. Transactions completed by entities with an annual sales volume of more than Ps. 200.0 million must be submitted to the Comisión Nacional de Defensa de la Competencia (hereinafter referred to as the "Antitrust Commision") for approval. Certain exemptions apply. Submissions may be filed either prior to the transaction or within a week after its completion. The Antitrust Commision may (i) authorize the transaction, (ii) condition the transaction to the accomplishment of certain acts, or (iii) reject the authorization.
 
In general, acquisitions effected by the Company are within the scope of the Antitrust Law. In this cases, the Company directly requests authorization. In other cases, the Company may request the Antitrust Commision to issue a prior statement about whether a particular transaction should be either notified or submitted for approval by the Company.
 
As of June 30, 2015 and 2014, the following cases are pending resolution by the Antitrust Commision:
 
(i)  
The Company requested the Antitrust Commission to issue a statement about the Company's obligation to either notify or submit for authorization the acquisition of the property formerly owned by Nobleza Piccardo S.A.I.C.Y F.. The Antitrust Commision stated that the operation had to be notified. The Company appealed this decision. Subsequently, the Court of Appeals confirmed the Antitrust Commission’s decision regarding the obligation to notify and, therefore, on February 23, 2012, local form F1 was filed, which is being processed as of the date hereof.
 
(ii)  
Purchase of Arcos shares: On December 3, 2009 the Company requested that the CNDC issued a ruling on the notification requirement. The CNDC confirmed that the transaction had to be notified; as a result, notice was served in December 2010 and as of the consolidated financial statements date it is still pending.
 
(iii)  
Acquisition of shares in Nuevo Puerto Santa Fe (NPSF): On August 23, 2011 the Company informed the CNDC of the direct and indirect acquisition of NPSF (IRSA Commercial Properties directly acquired 33.33% of NPSF and indirectly a 16.66% through its controlled company Torodur SA). On December 14, 2014 the CNDC notified approval of the transaction.
 
(iv)  
Acquisition of shares in Entertainment Holdings SA (EHSA): On December 7, 2012, the Company informed the CNDC of the acquisition of shares in EHSA, which indirectly owns 50% of La Rural S.A. – a company that operates a convention center known as Predio Ferial de Palermo. As of the consolidated financial statements date, the transaction is pending approval by the CNDC.
 
Capital Expenditures
 
Our capital expenditures totaled Ps. 499.5(1) million,  Ps. 435.7(2) million and Ps. 1,048.0(3) million for the fiscal years ended on June 30, 2015, 2014 and 2013, including other property and equipment acquired in business combinations. Our capital expenditures consisted in the purchase of real estate and farms, acquisition and improvement of productive agricultural assets, completion of building a shopping center, construction of real estate and acquisition of land reserves.
 
Our capital expenditures for the new fiscal year will depend on the prices of real estate, land for agriculture and cattle as well as the evolution of commodity prices.
 
Fiscal Year Ended June 30, 2015
 
During the fiscal year ended June 30, 2015 we invested Ps. 318.0 million in the urban properties and investment business, mainly due to (a) improvements in our hotels Sheraton Libertador, Intercontinental and Llao Llao for Ps. 1.2 million, Ps. 9.0 million and Ps. 4.5 million, respectively, (b) acquisition of furniture and fixtures, machinery and equipment, vehicles and other buildings and facilities for Ps. 35.0 million, (c) improvements made to our shopping centers for Ps. 60.4 million, (d) development of properties for Ps. 186.5 million, corresponding Ps. 1.5 million to "Distrito Arcos" project and Ps. 185.0 million to Shopping Neuquén project, (e)  supliers advances for investment acquisitions for Ps. 14.0 million, (f) Ps.  5.9 million improvements in our Office buildings and other rental properties and (g) Ps. 1.6 million were related to the acquisition of plots of lands.
 
In addition, our main investments in the agriculture business during the fiscal year 2015 were Ps. 181.5 million, mainly due (a) acquisition and development of owner occupied farmland for Ps. 153.3 million (including Ps. 93.3 million of subsidiary Brasilagro), (b)  Ps. 8.4 million in investment properties, (c) Ps. 5.7 million in machinery and equipment, (d) Ps. 4.7 million in vehicles, (e) Ps. 8.7 million in other building and facilities and (f) Ps. 0.7 million in furniture and fixtures.

 
1 Includes the acquisition of investment properties, the acquisition of property, plant and equipment and suppliers advances for acquisition of property, plant and equipment for Ps. 484.3 million according to the Statement of cash flows, non-cash transactions for Ps. 2.3 million as described in Note 21- Cash flow information and capitalized borrowing costs for Ps. 13.0 as described in Note 10 – Investment properties, of the Consolidated Financial Statements as of June 30, 2015.
 
2 Includes the acquisition of investment properties, the acquisition of property, plant and equipment and suppliers advances for acquisition of property, plant and equipment for Ps. 434.9 million according to the Statement of cash flows, non-cash transactions for Ps. 0.8 million as described in Note 21- Cash flow information of the Consolidated Financial Statements as of June 30, 2014.
 
3 Includes the acquisition of investment properties, the acquisition of property, plant and equipment and suppliers advances for acquisition of property, plant and equipment for Ps. 366.3 million according to the Statement of cash flows, non-cash transactions for Ps. 2.5 million as described in Note 22 - Cash flow information, and acquisition of subsidiaries for Ps. 679.2 million as described in Note 11 – Investment Properties, of the Consolidated Financial Statements as of June 30, 2013.

 
45
 
 
Fiscal Year Ended June 30, 2014
 
During the fiscal year ended June 30, 2014 we invested Ps. 318.4 million in the urban properties and investment business, mainly due to (a) improvements in our hotels Sheraton Libertador, Intercontinental and Llao Llao for Ps. 5.6 million, Ps. 2.1 million and Ps. 2.3 million, respectively, (b) acquisition of furniture and fixtures, machinery and equipment, and other buildings and facilities for Ps. 9.5 million, (c) improvements made to our shopping centers for Ps. 61.1 million, (d) development of properties for Ps. 179.3 million, corresponding Ps. 99.9 million to "Arcos" project and Ps. 79.4 million to Shopping Neuquén project, (e)  supliers advances for investment acquisitions for Ps. 29.6 million, (f) Ps.  24.0 million improvements in our Office buildings and other rental properties and (g) Ps. 0.5 million were related to the acquisition of plots of lands.
 
In addition, our main investments in the agriculture business during the fiscal year 2014 were Ps. 117.3 million, mainly due (a) acquisition and development of owner occupied farmland for Ps. 96.9 million (including Ps. 58.2 million of subsidiary Brasilagro), (b)  Ps. 7.0 million in investment properties, (c) Ps. 6.1 million in machinery and equipment, (d) Ps. 3.2 million in vehicles, (e) Ps. 3.0 million in other building and facilities and (f) Ps. 1.1 million in furniture and fixtures
 
Fiscal Year Ended June 30, 2013
 
During the fiscal year ended June 30, 2013, we invested Ps. 920.9 million, mainly due to (a) improvements in our hotels Sheraton Libertador, Intercontinental and Llao Llao for Ps. 0.9 million, Ps. 2.6 million and Ps.0.4 million, respectively, (b) acquisition of furniture and fixtures, machinery and equipment, and other buildings and facilities for Ps. 11.6 million, (c)  improvements made to our shopping centers for Ps. 56.9 million, (d)  development of properties for Ps. 144.2 million, corresponding Ps. 117.9 million to “Arcos” project and Ps. 26.3 million to Shopping Neuquén project (e) improvements in our Office buildings and other rental properties for Ps. 7.6 million, (f) Ps. 679.2 million were related  to the purchased an additional 25.5% equity interest in Rigby 183 LLC ’s capital stock, (g) Ps.15.8 million are related to suppliers advances and (h) Ps. 1.8 million were related to the acquisition of plots of lands.
 
In addition, our main investments in the agricultural business during fiscal year 2013 were Ps. 127.1 million, mainly due (a) acquisition and development of owner occupied farmland for Ps. 109.4 million ((including Ps. 61.5 million of our subsidiary Brasilagro), (b) Ps. 10.4 million in machinery, (c) Ps. 2.6 million in trading properties, (d) Ps. 1.6 million in vehicles, (e) Ps. 2.4 million in other building and facilities and (f) Ps. 0.7 million in furniture and fixtures.
 
Recent Developments
 
Cresud’s Recent Development
 
Issuance of Notes
 
On August 12, 2015, we issued Notes for an aggregate principal amount in two series:
 
·  
Series 21 Notes, for a principal amount of Ps. 192.2 million, with a maturity of 18 months after the issuance date, which will accrue interest at mixed rate. Fixed rate of 27.5% during the first nine months and floating rate (Badlar plus 375 basis points), after that. Interest will be payable quarterly in arrears. The issuance price was 100.0% of the nominal value.
 
·  
Series 22 Notes, for a principal amount of US$ 22.7 million, with an issuance price of 97.65% of the nominal value resulting US$ 22.2 million, and falling due 48 months after the issuance date, will accrue interest at fixed annual rate of 4%. Interest will be payable quarterly in arrears whereas principal will be amortized in two payments in month 44 and 48.
 
Annual Shareholders Meeting.
 
On October 30, 2015, was held the Ordinary and Extraordinary Shareholders’ Meeting in which was approved the following items:
 
•  
Consideration of documents contemplated in section 234, paragraph 1, of the Argentine Companies Law No. 19,550 for the fiscal year ended June 30, 2015.
•  
Reinstatement of the “Legal Reserve” account. Treatment of allocation of the “Additional Paid-In Capital” account. Consideration of Reclassification of Reserves.
•  
Consideration of Board of Directors’ performance.
•  
Consideration of Supervisory Committee’s performance.
•  
Consideration of compensation payable to the Board of Directors for $14,310,941 (total compensation) for the fiscal year ended June 30, 2015. Delegation on the Board of Directors of powers to approve the Audit Committee’s budget.
•  
Consideration of compensation payable to the Supervisory Committee for the fiscal year ended June 30, 2015.
•  
 Determination of the number and election of Regular Directors and Alternate Directors, as applicable.
•  
Appointment of Regular and Alternate Members of the Supervisory Committee.
•  
Appointment of Certifying Accountant for the next fiscal year and determination of its compensation. Delegation of powers.
•  
Updating of report on Shared Services Agreement.
•  
Treatment of amounts paid as personal assets tax levied on the shareholders.
•  
Consideration of increase of the amount of the Global Note Program for a maximum outstanding amount of up to US$ 300,000,000 (three hundred million dollars) (or its equivalent in other currencies) the creation of which was approved by the shareholders’ meeting dated October 31, 2012 (the “Program”) by an additional amount of up to US$ 200,000,000 (two hundred million Dollars) (or its equivalent in other currencies).
•  
Consideration of: (i) delegation to the Board of Directors of the broadest powers to implement the increase and/or reduction in the Program amount; (ii) renewal of the Board of Directors’ powers to (a) approve, enter into, deliver and/or execute any agreement, contract, document, instrument and/or security related to the Program and/or the issuance of the various series and/or tranches of notes thereunder; (b) apply for and process before the Argentine Securities Commission the authorization for the public offering of such notes; (c) if applicable, apply for and process before any authorized securities exchange or market of Argentina and/or abroad the authorization for listing and trading of such notes; and (d) carry out any acts, dealings, filings and/or proceedings related to the Program and/or the increase in its amount and/or the issuance of the various series and/or tranches of notes thereunder; and (iii) authorization for the Board of Directors to subdelegate the powers and authorizations referred to in items (i) and (ii) above to one or more of its members.
 
In addition it was approved to adjourn the Ordinary and Extraordinary Shareholders’ Meeting to November 26, 2015, in order to consider and approve the following items:
 
•  
Consideration of net income for the fiscal year ended June 30, 2015. Consideration of payment of a cash dividend for up to $88,100 thousand.
•  
Consideration of allocation of treasury shares. Delegation of powers.
 
Sale of IRSA´s shares
 
As of the date of issuance of these annual report, we sold, through various market transactions, 410,181 ADR´s of IRSA, representing 10 common shares of IRSA  for the amount of US$ 7.1 million. Thus, our investment in IRSA would decrease by 1.1%.
 

 
46
 
 
IRSA’s Recent Developments
 
Annual Shareholders Meeting.
 
On October 30, 2015, was held the Ordinary and Extraordinary Shareholders’ Meeting of IRSA in which was approved the following items:
 
•  
Consideration of documents contemplated in Section 234, paragraph 1, of the Argentine Companies Law No. 19,550 for the fiscal year ended June 30, 2015.
•  
 Consideration of Board of Directors’ performance.
•  
 Consideration of Supervisory Committee’s performance.
Consideration of compensation payable to the Board of Directors for $18,596,284 (total compensation) for the fiscal year ended June 30, 2015. Delegation on the Board of Directors of powers to approve the Audit Committee’s budget.
•  
Consideration of compensation payable to the Supervisory Committee for the fiscal year ended June 30, 2015. 
•  
Determination of the number and election of Regular Directors and Alternate Directors, as applicable. 
•  
Appointment of Regular and Alternate Members of the Supervisory Committee. 
•  
Appointment of Certifying Accountant for the next fiscal year and determination of its compensation. Delegation of powers. 
•  
Updating of report on Shared Services Agreement.
•  
 Treatment of amounts paid as personal assets tax levied on the shareholders.
•  
 Consideration of renewal of delegation on the Board of Directors of the powers to determine the time and currency of issue and further terms and conditions of the notes to be issued under the Global Note Program for up to US$ 300,000,000 currently outstanding, in accordance with the resolutions adopted at the Shareholders’ Meeting dated October 31, 2011.
 
In addition it was approved to adjourn the Ordinary and Extraordinary Shareholders’ Meeting of IRSA to November 26, 2015, in order to consider and approve the following items:
 
•  
 Treatment and allocation of net income for the fiscal year ended June 30, 2015. Consideration of payment of a cash dividend for up to $72,000 thousand.
•  
Consideration of Special Merger Financial Statements of Unicity SA; Special Merger Financial Statements of Solares de Santa María SA; Special Spin-Off Financial Statements of E-Commerce Latina SA; Special Spin-off-Merger Financial Statements of E-Commerce Latina SA; Special Merger Individual Financial Statements of IRSA Inversiones y Representaciones Sociedad Anónima (IRSA) and Consolidated Financial Statements of IRSA for Merger with Solares de Santa María SA and Unicity SA and Spin-Off-Merger with E-Commerce Latina SA prepared as of June 30, 2015, as well as Supervisory Committee’s and Auditor’s Reports. Consideration of preliminary merger agreement with Solares de Santa María SA and Unicity SA and preliminary spin-off-merger agreement with E-Commerce Latina SA and further documents. Authorizations and delegations of powers. Appointment of representative to execute final agreement and carry out additional proceedings.
 
Investment in IDBD
 
On July 6, 2015, the arbitrator granted an injunction requested by Extra, therefore Dolphin appointed only three directors for the next meeting and may appoint such number of directors until the arbitrator issues a final decision about who is the purchaser under the BMBY process.
 
On July 9 and 16, 2015, Dolphin submitted certain clarifications to the Proposal Sent to IDBD and DIC dated June 29, 2015.
 
On July 9, 2015, the main clarifications were as follows:
 
·  
The termination or expiration of the Proposal to IDBD and DIC would not repeal the commitments undertaken by Dolphin under the proposal submitted by Dolphin to IDBD on May 6, 2015 always provided that such commitments continued in full force and effect subject to the proposed terms, or Dolphin’s remaining commitment to inject NIS8.5 million in IDBD pursuant to its irrevocable proposal dated December 29, 2014.
 
·  
A further condition would be added to the Proposal to IDBD and DIC whereby if Dolphin’s interest in the rights public offering were lower than NIS8.5 million, Dolphin would remain obliged vis-à-vis IDBD to inject the remaining amount arising from subtracting NIS8.5 million and the amount effectively injected at this instance by Dolphin.
 
·  
IDBD would replace its commitment to exercise DIC’s Series 1 warrants for NIS92.5 million with the commitment to exercise the Series 1 warrants for at least the amount that results from subtracting (a) the Capital Contribution Amount; less (b) NIS100 million, always provided that such amount does not exceed NIS92.5 million.
 
On July 13, 2015, Dolphin extended the maturity of the Proposal to IDBD and DIC until July 16, 2015. In addition, on July 16, 2015, Dolphin submitted additional clarifications to the Proposal to IDBD and DIC dated June 29, 2015 and July 9, 2015, which provided as follows:
 
·  
Dolphin agrees that the new shares to be acquired by Dolphin or any entity controlled by Eduardo Sergio Elsztain under the public offering of shares to be made by IDBD during October 2015 would not grant to it the right to participate in the Tender Offer always provided that such new shares are still held by Dolphin or an entity controlled by Eduardo Sergio Elsztain. Notwithstanding, nothing will prevent Dolphin and/or the entity controlled by Eduardo Sergio Elsztain that holds such new shares to be acquired under the public offering to be made in October 2015 by IDBD from freely disposing of them.
 
On July 16, 2015, IDBD’s Board of Directors approved a capital increase by means of a public offering pursuant to the terms proposed by Dolphin in the Proposal to IDBD and DIC, and to exercise DIC’s warrants, all based on Dolphin’s irrevocable commitment to participate in the referred capital increase. IDBD plans to carry out the public offering between October 1 and November 15, 2015, subject to the company’s corporate approvals, other statutory consents required and the fact that the exercise of DIC’s warrants can be made pursuant to the terms and conditions set forth in Dolphin’s proposal.
 
On July 16, 2015, DIC’s Board of Directors accepted the Proposal to IDBD and DIC and instructed its management to take such steps as necessary in order to make a rights offering pursuant to Dolphin’s proposal. On August 28, 2015, DIC published a shelf offering report for the issuance of rights to its shareholders. On September 6, 2015, DIC completed the rights offering process, issuing four series of warrants to its shareholders, which are exercisable into DIC shares. As of the date hereof, IDBD has not completed the capital injection in DIC.
 
On August 16, 2015, the Arrangement Trustees submitted a petition to the Tel-Aviv Jaffo Court for it to determine that: (a) IFISA would be subject to the commitments in the Arrangement jointly and severally with Dolphin; (b) the shares held by IFISA or any other company controlled by Eduardo Sergio Elsztain (including Dolphin) would not be eligible to take part in the Tender Offer; and (c) the shares held by any company controlled by any of the controlling shareholders of IDBD, including any corporations controlled by Eduardo Sergio Elsztain (including Dolphin) and transferred to other entities would not be eligible to take part in the Tender Offer. On August 31, 2015, the competent court asked the Arrangement Trustees to make a supplementary filing to the one dated August 16, 2015, identifying the parties to whom such request was addressed, which filing was made on the above mentioned date. On September 7, 2015 the court dismissed the Arrangement Trustees' filing for failure to submit the supplementary filing requested by the competent court on August 31, 2015.
 
On August 17, 2015, the Arrangement Trustees submitted to IDBD, its Board of Directors, Dolphin and Extra (among others) an alternative scheme to the one proposed by Dolphin on May 27, 2015 as part of Dolphin’s and Extra’s obligations under the Tender Offer (the “Trustees' Proposal”) which was filed with the competent court. The Trustees’ Proposal provided as follows:
 
·  
Replacement of the obligation to carry out Tender Offers for a total of NIS512 million with the obligation by Dolphin and Extra (and/or their related parties) to inject NIS512 million in IDBD against the issuance of bonds. The NIS512 million would be injected in two tranches of NIS256 million each (the “First Tranche” and the “Second Tranche”, respectively).
 
i)  
The First Tranche would be completed by December 31, 2015, and against its injection IDBD would issue in favor of such investors other than Dolphin, Extra and/or any of their related parties (the “Minority Investors”) bonds for a principal amount of NIS256 million, by reopening Series 9 (“Series 9”), or by issuing a new series of bonds under terms and conditions replicating those of Series 9 (“IDBD’s New Bonds”).
 
ii)  
The Second Tranche would be completed by January 31, 2016 and against its injection the Minority Investors would receive IDBD’s New Bonds for a principal amount of NIS256 million.
 
iii)  
Following the exercise of the First Tranche and Second Tranche, Minority Investors would deliver 64 million shares to the obligors under the Tender Offer.
 
iv)  
In addition, on January 31, 2016, Dolphin and Extra (or any of their related parties) would purchase the remaining shares held by the Minority Investors for a total of NIS90 million, payable on that same date.
 
·  
If the sale of Clal is consummated, IDBD will carry out a partial bond repurchase offering at par value among all series of bonds.
 
·  
The Trustees’ Proposal would be carried out before IDBD launches a new issuance of shares or rights or, alternatively, each new share or right issued would not be part of the proposal as submitted.
 
·  
The Trustees’ Proposal is not approved by the Minority Investors; and such approval would be sought after the proposal is accepted by IDBD, Dolphin and Extra.
 
On August 30, 2015, IDBD sent a request on Dolphin and Extra for them to express their position on the Trustees’ Proposal, without setting a specific date for their response.
 
On September 3, 2015 Dolphin rejected the Trustees' Proposal and, therefore, it is invalid as of the date of issuance of these Financial Statements.
 
On September 9, 2015, The Arrangement Trustees filed to the Tel Aviv District Court an amended application for instructions (the “Application of the Arrangement Trustees”), to which Dolphin, IFISA, Extra and others were added as parties, requesting Court to instruct that IFISA is obliged to all the Investors' obligations under the Arrangement; that the IDBD shares held by any entity controlled by Eduardo Sergio Elsztain are not entitled to participate in the tender offers and that IDBD shares held or were held by Eduardo Sergio Elsztain and Mr. Ben Moshe and/or by any other entity controlled by them, and were transferred or will be transferred to others, are also not entitled to participate in the tender offers.
 
On September 24, 2015, the arbitrator granted the arbitration award related to the BMBY process, pursuant to which Dolphin and IFISA were designated as buyers in the BMBY process, and consequently Extra was designated as the seller; in the aforementioned framework Extra has to sell all the shares held in IDBD (92,665,925 shares) at a price of NIS1.64 per share.
 
 
 
 
 
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On September 24, 2015, the Arrangement Trustees submitted to the Court an application for a temporary injunction prohibiting Dolphin, IFISA, Extra and other vehicle and/or their representatives to carry out any action or transactions regarding the Company's shares, until the Court's decision in the Application of the Arrangement Trustees, as described above.
 
Furthermore, on October 11, 2015, the BMBY process concluded and IFISA purchased all the shares of IDBD (92,665,925 shares) held by Extra, for a total consideration of approximately NIS152 million (equivalent to US$39.7 million as of the date of the transaction). For more information, please see “Item 4—Recent Developments”.
 
On October 1, 2015, Dolphin and IFISA submitted to the Court their response to the Application of the Arrangement Trustees’. Dolphin asked the court to dismiss the Arrangement Trustees petition, and their position included the following arguments: (a) IFISA is not obliged to comply with Dolphin's obligations according to the Arrangement; (b) IFISA and any other corporation controlled by Eduardo Sergio Elsztain are eligible to participate as offerees in the Tender Offers according to the Arrangement and (c) The Arrangement Trustees' requirement regarding the eligibility of shares to participate in the tender offers should to be dismissed. Also, Dolphin undertook that upon the closing of the BMBY, 106.6 million shares held by it will not participate in the Tender Offers, as long as these shares are held by entities controlled by Eduardo S. Elsztain
 
On October 7, 2015, the Arrangement Trustees submitted to the Court their response to Dolphin and IFISA concerning the Application of the Arrangement Trustees’.
 
Furthermore, on October 11, 2015, the BMBY process concluded and IFISA purchased all the shares of IDBD (92,665,925 shares) held by Extra, for a total consideration of approximately NIS152 million (equivalent to US$39.7 million as of the date of the transaction). Upon the closing of the transaction, all Extra’s directors in IDBD presented their irrevocable resignation to IDBD’s Board of Directors and the Shareholders Agreement automatically terminated in accordance with its terms. Furthermore, on the same date, Dolphin pledged additional shares as security of the performance of the Tender Offers, rising the number to 64,067,710 pledged shares.
 
. On October 19, 2015, Dolphin and IFISA submitted their response to Court regarding the Application of the Arrangement Trustees in which, among other things, Dolphin clarified that as the offeror in the Tender Offers, it does not intent and will not participate as an offeree in the Tender Offers. Notwithstanding, according to Dolphin’s position, it has the right to offer to any other shareholder of IDBD, including entities controlled by Eduardo Sergio Elsztain, to purchase shares within the Tender Offers and also to sell shares to third parties (including those controlled by Eduardo Sergio Elsztain), and the shares being sold are able to participate as offerees in the Tender Offers, without derogating from Dolphin’s undertakings according to which 106,600,000 shares held by it will not participate in the Tender Offers, as long as they are held by entities controlled by Eduardo Sergio Elsztain).
 
On October 20, 2015, the Court decided to grant declaratory remedies requested in the Application of the Arrangement Trustees, according to which:
 
·  
The shares held by Dolphin and any other company controlled by Eduardo Sergio Elsztain are not entitled to participate as offerees in the Tender Offers.
 
·  
The shares held or that were held by Dolphin and/or by companies controlled by Eduardo Sergio and which were transferred or will be transferred by them to other parties, will not be entitled to participate in the Tender Offers.
 
·  
These remedies will not apply to shares which were acquired from the minority shareholders within the framework of the trade in the stock exchange and which came into the possession of IFISA.
 
The Court rejected the request of the Arrangement Trustees to determine that IFISA is obliged to undertake all the commitments under the terms of the Arrangement, but stated that Dolphin violated its commitment to make IFISA to commit under the undertakings in accordance with the terms of the Arrangement. Dolphin and IFISA reported to IDBD that they intend to appeal the Court decision.
 
On October 26, 2015, and following the October 20, 2015 court decision and the declaratory remedies submitted, Dolphin and IFISA sent a letter to IDBD ("Dolphin and IFISA's Letter") that, according to their position, and as detailed in the letter: (a) The reservation prescribed by the court vis-à-vis the shares which were acquired from the minority shareholders in trading on the stock exchange and which came into the possession of IFISA, applies to the 127,441,396 shares of IDBD held by IFISA and 131,600 shares of IDBD held by Dolphin, which should be entitled to participate as an offeree in the Tender Offers; and (b) with respect of the 51,760,322 additional shares of IDBD presently held by Dolphin, originating in acquisitions from minority shareholders in IDBD, it may be interpreted from the judgement that, those shares cannot participate as an offeree in the Tender Offers, so long as they are held by Dolphin, however Dolphin is not prevented from selling these shares to any third parties, and that in such a case, that third party shall have the right to participate in the Tender Offers for those shares.
 
On October 29, 2015, the Arrangement Trustees filed an urgent application for a contempt of court order against Dolphin and IFISA (the "Application for Contempt") and to enforce them to follow the court's instructions of October 20, 2015, alleging that Dolphin and IFISA's letter , published by IDBD on October 27, 2015, which informed of the quantity of shares purchased from the minority shareholders within the framework of the trade in the stock exchange is contrary to the court's decision and thus Dolphin and IFISA are acting in contempt of court.
 
On October 29, 2015, Dolphin and IFISA filed an appeal to the Supreme Court, with respect to the court decision of October 20, 2015, also requesting to hold an urgent hearing on the appeal. The hearing on the appeal was scheduled for December 16, 2015.
 
On November 2, 2015, Dolphin and IFISA submitted their response to the Application for Contempt, requesting court to dismiss the application as the Contempt of Court Ordinance does not apply to declaratory remedies and as Dolphin and IFISA did not violate any court order.
 
On November 4, 2015, the Arrangement Trustees filed a rejoinder to Dolphin´s and IFISA's response to the Application for Contempt, requesting the Court to clarify that the Reservation (as defined below) determined in the Court's decision dated October 20, 2015 shall apply exclusively in the case the following conditions apply:: (1) that the shares were acquired in the market from the public; (2) the acquisition was made within the framework of trading on the TASE; and (3): that the shares are currently held by IFISA; accordingly, the Court was requested to clarify that the Dolphin´s and IFISA's position as filed in the letter dated October 26, 2015 is not and cannot be the correct interpretation of the Judgment.
 
On November 4, 2015, Dolphin and IFISA filed their response to the rejoinder of the Arrangement Trustees, requesting the Court to dismiss the Arrangement Trustees' request to clarify the judgement.
 
On November 5, 2015, the Court decided to deny the Application for Contempt filed by Arrangement Trustees. However, the Court stated in an obiter-dictum that Dolphin and IFISA's interpretation of the Reservation in the Decision dated October 20, 2015, within Dolphin and IFISA's letter, stand in contradiction insofar as with regard to the scope of the Reservation.
 
On November 5, 2015, the Arrangement Trustees sent a letter to Dolphin and IFISA, demanding them, in light of the Court's decision of the same day, to amend Dolphin and IFISA's letter and to inform the Securities Authority and IDBD that all the tender offers will be addressed to the minority shareholders of IDBD and that Dolphin and/or IFISA and any corporation under the control of Mr. Elsztain, will not be offerees in the tender offers and that every share which will be transferred by them to third party, if transferred, will also not be entitled to be an offeree in the tender offer.
 
On November 5, 2015, the Arrangement Trustees sent a letter to IDBD, demanding it, in light of the Court's decision of the same day, to amend Dolphin and IFISA's letter and to inform the public and the Securities Authority immediately that Dolphin and IFISA's Letter as published by  IDBD, is inconsistent with the court's decision and that all the shares held by Dolphin and IFISA or any corporation within the Elsztain Group or which shall be purchased from those corporations, shall not carry a right to participate in the tender offers as an offeree.
 
On November 10, 2015, following the request of the ISA to IDBD, IDBD approached Dolphin and IFISA in order to obtain their position with regard to the amount of shares held by corporations controlled by Mr. Eduardo Sergio Elsztain and which are entitled to participate in the Tender Offers according to the Reservation in the Court's decision dated October 20, 2015 (the "First Decision"; the "Reservation") and following the Court's decision dated November 5, 2015 (the "Second Decision"). In response to this request, Dolphin and IFISA notified IDBD that their position, as expressed in Dolphin and IFISA's letter, remains unchanged.
 
On November 10, 2015, Dolphin and IFISA filed an application to the Supreme Court to schedule the hearing on the appeal, which was scheduled for December 16, 2016, to an earlier date, due to the fact that Dolphin has to publish a Tender Offer by December 31, 2015, in order to have a high level of certainty regarding the legal situation as soon as possible.
 
On November 12, 2015, IDBD reported that, at its request, Dolphin extended the validity of its commitment with regard to the public offering so that it will be performed no later than November 17, 2015 (instead of the original date of November 15, 2015), which was further extended until December 1, 2015. In addition, IDBD was notified by Dolphin, that discussions are being held between Dolphin and the Arrangement Trustees for a potential amendment to the Arrangement with respect to the Tender Offers, pursuant to which the undertakings to execute the Tender Offers will be transformed to an injection of funds into IDBD and bonds to be issued by IDBD instead of a potential public offering as mentioned above. IDBD further reported that the Arrangement Trustees sent a letter stating that the amendments to the Arrangement regarding the Tender Offers are not acceptable for the bondholders, and that the bondholders may convoke a bondholders´ meeting to discuss such issues if IDBD´s Board of Directors do not disapprove such proposal.
 
Company is assessing its defense strategy, as well as the impact of the closing of the BMBY process with IFISA as the purchaser of the shares of IDBD held by Extra
 
On November 11, the lock-up under the TASE regulations expired, and therefore there are no shares restricted under this provisions as of the date of hereof.
 

 
 
48
 
Class Action Claim
 
In June 2015, an application for the court to approve the commencement of a class action (the “Class Action”) was filed by four individuals who argue that they were among the creditors of IDBH and that as a result of IDBH’s approved Arrangement they received shares in IDBD and that therefore they were entitled to participate in the Rights Offerings made in 2014 and 2015.The Class action was filed before the applicable courts of Israel against IDBD, Dolphin, Eduardo Sergio Elsztain, Extra and Mordechai Ben Moshe (in their capacities both as controlling shareholders of IDBD and as board members of IDBD) and against the members of IDBD’s Board of Directors and alternate directors who were in office between 2014 and 2015. The amount of the claim is NIS1,048 million (equivalent to US$277.6 million as of June 30, 2015).
 
As concerns the legal action, pursuant to the applicable laws the proceedings are divided into two stages: (i) the preliminary stage, in which the plaintiff pleads the court to allow the complaint to be admitted as a class action, in which the plaintiff shall prove by producing reasonable evidence that it satisfies the minimum requirements for the class action to qualify as such pursuant to the applicable laws; and (ii) if such requirements are met and the case is admitted as a class action, the substantive proceedings will start.
 
At present, the Class Action is at the preliminary stage.
 
Pursuant to the applicable laws the defendants have a 90-day term to file their defense (such term does not include the period from July 21 to September 5, 2015, when the Israeli courts are on recess and an eight days recess during the Jewish holiday of Sukot).
 
Based on the Israeli legal counsel, it is more likely than not that the Class Action will be dismissed against Dolphin.
 
In the application for Class Action, the plaintiffs argued, among other things, that IDBD’s controlling shareholders and its Board of Directors acted in concert to frustrate the sale of Clal’s shares to JT Capital Fund (“JT”) and privileged their own interests, causing them material damages as under the terms of the Arrangement they would have been entitled to receive a larger payment had the above mentioned sale been consummated.
 
In addition, they sustain that the Rights Offerings made in 2014 and 2015 discriminated against the minority shareholders and were carried out without obtaining the required consents (given the personal interest of the controlling shareholders), resulting in the dilution of plaintiffs’ rights’ economic value.
  
Loan agreements with Inversiones Financieras del Sur S.A.
 
On July 28, 2015, IRSA's subsidiary Dolphin granted a loan to IFISA, a company indirectly controlled by Eduardo Sergio Elsztain for an aggregate amount of US$7.2 million, which will mature on July 2016 and will accrue interests at a rate of f Libor 1M + 3%.
 
           In addition, on October 9, 2015, through IRSA's subsidiary REIG V L.P. (“Reig V”) IRSA granted another loan for an aggregate amount of US$40 million to IFISA, which will mature on October 2016 and will accrue interests at a rate of f Libor 1M + 3%.
 
 
Repurchase of Notes Series V
 
On August 25, 2015, IRSA repurchased a nominal amount of Ps. 113,762,000 of our Series V Notes for an aggregate amount of Ps.120.5 million, which were cancelled at maturity.
 
Sale of units in the Intercontinental Plaza Building
 
On September 10, 2015, IRSA Commercial Properties closed the sale to an unrelated third party of 5,963 square meters that represent seven floors of office space, 56 parking units and three storage units in the Intercontinental Plaza Building located in the neighborhood of Montserrat in the City of Buenos Aires. After such sale, 7,159 square feet remain in IRSA Commercial Properties‘portfolio. The purchase price was Ps.324.5 million, which has been fully paid.
 
Issuance of Series I Notes
 
On September 18, 2015 IRSA Commercial Properties issued Series I Notes under its Global Note Program in an aggregate principal amount of Ps.407,260,000 (equivalent to US$43,441,066.67). Series I Notes have a maturity of 18 months from its issue date, and will bear a mixed interest rate of 26.5% per year during the first three months, and Private Badlar Rate (Tasa Badlar Privada) plus 400 bps per year during the remaining period, payable on a quarterly basis.
 
Sale of units in the Maipú 1300 Building
 
On November 6, 2015, IRSA closed the sale to an unrelated third party of 864 square meters that represent two floors of office space, and 4 parking units. After such sale, 2,134 square feet remain in IRSA's portfolio. The purchase price was U$S 3 million, which has been fully paid.
 
 
General
 
We are a leading Latin American agricultural company engaged in the production of basic agricultural commodities with a growing presence in the agricultural sector of Brazil, through our investment in Brasilagro, as well as in other Latin American countries.  We are currently involved in several farming activities including grains and sugarcane production, beef cattle raising and milk production. Our business model focuses on the acquisition, development and exploitation of agricultural properties having attractive prospects for agricultural production and/or value appreciation and the selective sale of such properties where appreciation has been realized. In addition, we lease lands to third parties and perform agency and agro-industrial services, including a meat packing plant. Our shares are listed on Mercado de Valores de Buenos Aires (“MVBA”) and the NASDAQ.
 
We are also directly engaged in the Argentine real estate business through our subsidiary IRSA, one of Argentina’s leading real estate companies. IRSA is engaged in the development, acquisition and operation of shopping centers, premium offices, and luxury hotels in Argentina, as well as the development of residential properties. IRSA’s shares are listed on the MVBA and the NYSE. We own  64.30% of the outstanding common shares of IRSA and a majority of our directors are also directors of IRSA.
 
During the fiscal years ended June 30, 2013, 2014 and 2015, we had consolidated revenues of Ps. 3,528.5 million, Ps. 4,604.0 and Ps. 5,651.8 million, and consolidated net income/(loss) of Ps. 154.3 million, Ps. (1,408.4)  million and Ps. 176.2 million, respectively. During the fiscal years ended June 30, 2014 and June 30, 2015, our total consolidated assets decreased 3.2% from Ps. 15,783.7 million to Ps. 15,275.4 million, and our consolidated shareholders’ equity decreased 12.0% from Ps. 4,434.8 million to Ps. 3,902.0 million.
 
We operate in two businesses areas, namely, “Agricultural” and “Investment and Development Properties” businesses, as further described below.
 
Our Agricultural business is further comprised of eight reportable segments:
 

 
49
 
 
·  
Our “Crops” segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton, and sunflowers. The Company is focused on the long-term performance of the land and seeks to maximize the use of the land through crop rotation; the use of technology and techniques. In this way, the type and quantity of harvested crops change in each agricultural campaign. Our Crops Segment had assets of Ps. 1,822.3 million and Ps. 2,199.2 million as of June 30, 2015 and 2014, respectively, representing 56% and 61% of our agricultural business assets at such dates, respectively. Our Crops segment generated operating loss of Ps. 252.9 million, Ps. 147.5 million and Ps. 110.1 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing (82%), 395% and (313%), of our consolidated operating income/loss from Agricultural Business for such years, respectively.
 
·  
Our “Cattle” segment consists of breeding, purchasing and/or fattening of free-range cattle for sale to meat processors and local livestock auction markets. Our Cattle segment had assets of Ps. 621.0 million and Ps. 499.5 million as of June 30, 2015 and 2014, respectively, representing 19% and 14% of our agricultural business assets at such dates, respectively. Our Cattle segment generated operating income of Ps. 36.7 million and Ps. 32.1 million for the fiscal years ended June 30, 2015 and 2014 respectively, representing 12% and (86%), of our consolidated operating income from Agricultural Business for such years, respectively and operating loss of Ps. 13.8 million for the fiscal year ended June 30, 2013, representing (39%), of our consolidated operating income from Agricultural Business for such year.
 
·  
Our “Dairy” segment consists of breeding and/or purchasing dairy cows for the production of raw milk for sale to local milk and milk-related products producers. Our Dairy segment had assets of Ps. 63.5 million and Ps. 57.4 million as of June 30, 2015 and  2014, respectively, representing 2.0% and 2.0% of our agricultural business assets at such dates, respectively. Our Dairy segment generated operating income of Ps. 4.2 million and Ps. 4.0 million for the fiscal years ended June 30, 2015 and 2014, respectively, representing 1%  and (11%), of our consolidated operating income from Agricultural Business for such years, respectively and operating loss of Ps. 1.0 million for the fiscal year ended June 30, 2013, representing (3%), of our consolidated operating income from Agricultural Business for such year.
 
·  
Our “Sugarcane” segment consists of planting, harvesting and sale of sugarcane. Our Sugarcane segment had assets of Ps. 411.3 million and Ps. 571.5 million as of June 30, 2015 and 2014, respectively, representing 13% and 16% of our agricultural business assets at such dates, respectively. Our Sugarcane segment generated operating loss of Ps. 12.1 million and Ps. 19.7 million for the fiscal years ended June 30, 2015 and 2014, respectively, representing (4%) and 53%, of our consolidated operating income from Agricultural Business for such years, respectively and operating income of Ps. 27.2 for the fiscal year ended June 30, 2013, representing 77%, of our consolidated operating income from Agricultural Business for such year.
 
·  
Our “Agricultural Rentals and Services” segment consists of services (for example: irrigation) and leasing of the Company’s farms to third parties. Our Agricultural Rentals and Services Segment had assets of Ps. 105.9 million and Ps. 61.2 million as of June 30, 2015 and 2014, respectively, representing 3% and 2% of our agricultural business assets at such dates, respectively. Our Agricultural Rentals and Services segment generated operating income of Ps. 14.8 million, Ps. 8.1 million and Ps. 11.5 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing 5%, (22%) and 33%, of our consolidated operating income from Agricultural Business for such years, respectively.
 
·  
Our “Land Transformation and Sales” segment comprises gains from the disposal and development of farmlands activities. Our Land Transformation and Sales segment had assets of Ps. 53.5 million and Ps. 51.5 million as of June 30, 2015 and 2014, respectively, representing  2% and 1% of our agricultural business assets at such dates, respectively. Our Land Transformation and Sales segment generated operating income of Ps. 551.4 million, Ps. 78.0 million and Ps. 132.6 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing 179%, (209%) and 377%, of our consolidated operating income from Agricultural Business for such years, respectively.
 
·  
Our “Agro-industrial” segment consists of feedlot farming and the slaughtering and processing in the meat refrigerating plant. Feedlot farming is distinctive and requires specific care and diets which differ from those provided to free-range cattle. This activity represents a separate operating segment due to the distinctive characteristics of the cattle feedlot system and the industrialized meat processing in the packing plant. Our Agro-industrial segment had assets of Ps. 41.5 million and Ps. 44.9 million as of June 30, 2015 and 2014, respectively, representing 1% and 1% of our agricultural business assets at such dates, respectively. Our Agro-Industrial segment generated operating income of Ps. 1.9 million for the fiscal year ended June 30, 2014, representing (5%) of our consolidated operating income from Agricultural Business for such year, and operating loss of Ps. 36.0 million and Ps. 29.6 million for the fiscal years ended June 30, 2015 and 2013, respectively, representing (12%) and (84%), of our consolidated operating income from Agricultural Business for such years, respectively.
 
·  
Our “Others” segment consists of the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure includes the brokerage and sale of inputs activities. Our Others segment had assets of Ps. 161.1 million and Ps.115.2 million as of June 30, 2015 and 2014, respectively, representing 5% and 3% of our agricultural business assets at such dates, respectively. Our Others segment generated operating income of Ps. 2.2 million,  Ps. 5.7 million and Ps. 18.4 million for the fiscal years ended June 30, 2015, 2014 and 2013, representing 1%, (15%) and 52% of our consolidated operating income for such years, respectively.
 
Our Investment and Development Properties is further comprised of six reportable segments:
 
·  
Our “Shopping Center Properties” segment includes results from the commercial exploitation and development of shopping centers. Such results originate mainly from the lease and the delivery of services related to the lease of commercial facilities and other spaces in the Company’s shopping centers. Our Shopping Center Properties segment had assets of Ps. 2,400.1 million and Ps. 2,316.2 million as of June 30, 2015 and 2014, respectively, representing 34% and 31% of our investment and development properties business assets at such dates, respectively. Our Shopping Center Properties segment generated operating income of Ps. 1,189.3 million, Ps.864.7 million and Ps. 686.0 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing 47%, 70% and 63%, of our consolidated operating income for such years, respectively.
 
·  
Our “Offices” segment includes the operating results of the Company’s lease of office space and other rental properties and service revenues related to this activity. Our Offices segment had assets of Ps. 1,035.7 million and Ps. 905.8 million as of June 30, 2015 and 2014, respectively, representing 15% and 12% of our investment and development properties business assets at such dates, respectively. Our Offices segment generated operating income of Ps. 98.6 million, Ps. 160.0 million and Ps. 123.6 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing 4%, 13% and 11%, of our consolidated operating income for such years, respectively.
 
·  
Our “Sales and Developments” segment includes the operating results of the sales of undeveloped parcels of land and/or trading properties, as the results related with its development and maintenance. Also included in this segment are the results of the sales of real property intended for rent, sales of hotels and other properties included in the International segment. Our Sales and Developments segment had assets of Ps. 465.7 million and Ps. 697.3 million as of June 30, 2015 and 2014, respectively, representing  7%  and 9% of our investment and development properties business assets at such dates, respectively. Our Sales and Developments segment generated operating income of Ps. 1,098.7 million, Ps. 238.5 million and Ps. 170.4 million for the fiscal years ended June 30, 2015, 2014 and 2013, respectively, representing 44%, 19% and 16%, of our consolidated operating income for such years, respectively.
 
·  
Our “Hotels” segment includes the operating results of the Company’s hotels principally comprised of room, catering and restaurant revenues. Our Hotels segment had assets of Ps. 182.3 million and Ps. 203.9 million as of June 30, 2015 and 2014, respectively, representing 3% and 3% of our investment and development properties business assets at such dates, respectively. Our Hotels segment generated operating income of Ps. 10.2 million for the fiscal years ended June 30, 2014, representing 1% of our consolidated operating income for such year and operating loss of Ps. 12.8 million and Ps. 22.4 million for the fiscal years ended June 30, 2015 and 2013, respectively, representing (1%) and (2%), of our consolidated operating income for such years, respectively.
 
·  
Our “International” segment includes the return on investments in subsidiaries and/or associates that mainly operate in the United States in relation to the lease of office buildings and hotels in that country and the return on investment in IDBD at fair value. Our International segment had assets of Ps. 911.2 million and Ps. 1,988.0 million as of June 30, 2015 and 2014, respectively, representing 14% and 27% of our investment and development properties business assets at such dates, respectively. Our International segment generated operating income of  Ps. 147.9 million and Ps. 129.3 million for the fiscal years ended June 30, 2015 and 2013, representing 6% and 12%, respectively and operating loss of Ps. 30.0 million for the fiscal years ended June 30, 2014, representing (2%), of our consolidated operating income for such year.
 
·  
Our “Financial Operations and Others” segment includes the financial activities carried out by the Company's associates, Banco Hipotecario S.A. and Tarshop S.A. and consumer finance residual financial operations of APSAMedia S.A. (currently merged with IRSA Commercial Properties). The e-commerce activities conducted through the associate Avenida Inc. are also included until the first quarter of the current fiscal year. This investment began to be considered a financial asset from the second quarter of this fiscal year. Our Financial Operations and Others segment had assets of Ps. 1,411.3 million and Ps. 1,261.2 million as of June 30, 2015 and 2014, respectively, representing 20% and 17% of our investment and development properties business assets at such dates, respectively. Our Financial Operations and Others segment generated operating loss of Ps. 3.3 million, Ps. 3.2 million and Ps. 5.5 million for the fiscal years ended June 30, 2015, 2014 and 2013, representing 0%, 0% and 12% of our consolidated operating income for such years, respectively.
 
Agricultural Business
 
As of June 30, 2015, we owned 31 farms with approximately 622,220 hectares distributed in Argentina, Brazil, Bolivia and Paraguay. Approximately 95,150 hectares of the land we own are used for crop production, approximately 74,273 hectares are for beef cattle production, 85,000 hectares are for sheep production, 2,864 hectares are for milk production and approximately 8,026 hectares are leased to third parties for crop and cattle production. The remaining 356,907 hectares of land reserves are primarily natural woodlands. In addition, we have the rights to hold approximately 132,000 hectares of land under concession for a 35-year period that can be extended for another 29 years. Out of this total, we have developed 22,986 hectares for crop production. Also, during fiscal year 2015 ended on June 30, 2015, we leased 56,137 hectares from third parties for crop production and 13,501 hectares for beef cattle production.
 
The following table sets forth, at the dates indicated, the amount of land used for each production activity (including owned and leased land and land under concession):
 
   
2015(1)(6)
    
2014(1)(6)
    
2013(1)(6)
    
2012(1)(5)(6)
  
Crops (2)
     187,438       201,648       182,513       181,079  
Cattle (3)
     88,643       95,160       91,053       95,995  
Milk/Dairy
     2,864       2,864       2,780       3,022  
Sheep
     85,000       85,000       85,000       85,000  
Land Reserves (4)
     467,568       467,532       461,729       459,979  
Own farmlands leased to third parties
     10,026       13,111       31,593       25,538  
Total (5)
     841,539       865,315       854,668       850,613  
 
(1) Includes 35.72% of approximately 8,299 hectares owned by Agro-Uranga S.A., an affiliated Argentine company in which we own a non-controlling 35.72% interest.
(2) Includes wheat, corn, sunflower, soybean, sorghum and others.
(3) Breeding and fattening.
(4) We use part of our land reserves to produce charcoal, rods and fence posts.
(5) It includes Brasilagro and our interest in CRESCA at 50%.
(6) Includes farms owned by Brasilagro and CRESUD sold in 2014 and 2015.
(7) Includes double crops
 
Strategy
 
We seek to maximize our return on assets and overall profitability by (i) identifying, acquiring and operating agricultural properties having attractive prospects for increased agricultural production and/or medium or long-term value appreciation and selectively disposing of properties as appreciation is realized, (ii) optimizing the yields and productivity of our agricultural properties through the implementation of state-of-the-art technologies and agricultural techniques and (iii) preserving the value of our significant long-term investment in the urban real estate sector through our subsidiary IRSA.
 
Focus on maximizing the value of our agricultural real estate assets
 
We conduct our agricultural activities with a focus on maximizing the value of our agricultural real estate assets. We rotate our portfolio of properties from time to time by purchasing properties which we believe have a high potential for appreciation and selling them selectively as opportunities arise to realize attractive capital gains. We achieve this by relying on the following principles:
 

 
50
 

 
 
•
Acquiring under-utilized properties and enhancing their land use: We seek to purchase under-utilized properties at attractive prices and develop them to achieve more productive uses. We seek to do so by (i) transforming non-productive land into cattle feeding land, (ii) transforming cattle feeding land into land suitable for more productive agricultural uses, (iii) enhancing the value of agricultural lands by changing their use to more profitable agricultural activities; and (iv) reaching the final stage of the real estate development cycle by transforming rural properties into urban areas as the boundaries of urban development continue to extend into rural areas. To do so, we generally focus on acquisitions of properties outside of highly developed agricultural regions and/or properties whose value we believe is likely to be enhanced by proximity to existing or expected infrastructure.
 
•
Applying modern technologies to enhance operating yields and property values. We believe that an opportunity exists to improve the productivity and long-term value of inexpensive and/or underdeveloped land by investing in modern technologies such as genetically modified and high yield seeds, direct sowing techniques, and machinery. We optimize crop yield through land rotation, irrigation and the use of fertilizers and agrochemicals. To enhance our cattle production, we use genetic technology and have a strict animal health plan controlled periodically through traceability systems. In addition, we have introduced state-of-the-art milking technologies in our dairy business.
 
•
Anticipating market trends. We seek to anticipate market trends in the agribusiness sector by (i) identifying opportunities generated by economic development at local, regional and worldwide levels, (ii) detecting medium- and long-term increases or decreases in supply and demand caused by changes in the world’s food consumption patterns and (iii) using land for the production of food and energy.
 
•
International expansion. We believe that an attractive opportunity exists to acquire and develop agricultural properties outside Argentina, and our objective is to replicate our business model in other countries. Although most of our properties are located in different areas of Argentina, we have begun a process of expansion into other Latin American countries, including Brazil, Bolivia, and Paraguay.
 
Increase and optimize production yields
 
We seek to increase and improve our production yields through the following initiatives:
 
Implementation of technology.
 
 
•
To improve crop production, we use state-of-the-art technology. We invest in machinery and the implementation of agricultural techniques such as direct sowing. In addition, we use high-potential seeds (GMOs) and fertilizers and we apply advanced land rotation techniques. In addition, we consider installing irrigation equipment in some of our farms.
 
•
To increase beef cattle production we use advanced breeding techniques and technologies related to animal health. Moreover, we optimize the use of pastures and we make investments in infrastructure, including installation of watering troughs and electrical fencing. In addition, we have one of the few vertically integrated beef cattle processing operations in Argentina through Sociedad Anónima Carnes Pampeanas S.A.
 
•
In our milking facility, we have implemented an individual animal identification system, using plastic tags for our beef cattle and “RFID” tags. We use software from Westfalia Co. which enables us to store individual information about each of our dairy cows.
 
Increased production.
 
Our goal is to increase our crop, cattle and milk production in order to achieve economies of scale by:
 
 
•
Increasing our owned land in various regions by taking advantage of attractive land purchase opportunities. In addition, we expand our production areas by developing lands in regions where agricultural and livestock production is not developed to its full potential. We believe in the use of technological tools for improving the productivity of our land reserves and enhancing their long-term value. However, current or future environmental regulations could prevent us from fully developing our lands by demanding us to maintain part of them as natural woodlands not allocated to production.
 
•
Diversifying our production and the weather risk by leasing farms, thus expanding our product portfolio and optimizing our geographic focus, in particular in areas that are not appealing in terms of land value appreciation but with attractive productivity levels. We believe that this diversification mix mitigates our exposure to seasonality, commodity price fluctuations, weather conditions and other factors affecting the agricultural and livestock sector.
 
•
Moreover, we believe that continuing to expand our agricultural operations outside of Argentina will help us improve even more our ability to produce new agricultural products, further diversifying our mix of products, and mitigating our exposure to regional weather conditions and country-specific risks.
 
Focus on preserving long-term value of our investment in our real estate subsidiary IRSA
 
We seek to maintain the long-term value of our significant investment in the urban real estate sector through IRSA.  We believe that IRSA is an ideal vehicle through which to participate in the urban real estate market due to its substantial and diversified portfolio of residential and commercial properties, the strength of its management and what we believe are its attractive prospects for future growth and profitability.
 

 
51
 


 
•
Shopping Center Properties. Our main purpose is to maximize our shareholders’ profitability. By using our know-how in the shopping center industry in Argentina as well as our leading position, we seek to generate a sustainable growth of cash flow and to increase the long-term value of our real estate assets. We attempt to take advantage of the unsatisfied supply in different urban areas of the region, as well as of our customers’ purchase experience. Therefore, we seek to develop new shopping centers in urban areas with attractive prospects for growth, including Buenos Aires’ Metropolitan area, some cities in the provinces of Argentina and possibly, other places abroad. To achieve this strategy, the close business relationship we have had for years with more than 1000 retail companies and trademarks composing our selected group of tenants is of utmost importance, as it allows us to offer an adequate mix of tenants for each particular case.
 
•
Offices. Since the Argentine economic crisis in 2001 and 2002, there have been limited investments in high-quality office buildings in Buenos Aires and, as a result, we believe there is currently substantial demand for top-notch office spaces. We seek to purchase and develop premium office buildings in the core districts in the City of Buenos Aires and other strategic locations that we believe offer attractive returns and potential for long-term capital gain. We expect to continue our focus on attracting premium corporate tenants to our office buildings. Furthermore, we intend to selectively consider new opportunities to acquire or construct new rental office buildings.
 
•
Hotels. We believe our portfolio of three luxury hotels is positioned to take advantage of the future growth in tourism and business travel in Argentina. We seek to continue with our strategy to invest in high-quality properties that are operated by leading international hotel companies to capitalize on their operating experience and international reputation. We also seek to continue to invest in improvements for our hotels.
 
•
Sales and Developments. We seek to purchase undeveloped properties in densely-populated areas and build apartment complexes offering green space for recreational activities. We also seek to develop residential communities by acquiring undeveloped properties with convenient access to the City of Buenos Aires, developing roads and other basic infrastructure such as electric power and water, and then selling lots for the construction of residential units. After the Argentine economic crisis in 2001 and 2002, the scarcity of mortgage financing restricted the growth in middle class home purchases and, as a result, we mainly focused on the development of residential communities for middle and high-income individuals, who do not need to finance their home purchases. We seek to continue to acquire undeveloped land at locations we consider attractive within and outside Buenos Aires. In each case, our intention is to purchase land with significant development or appreciation potential to resell. We believe that holding a portfolio of desirable undeveloped plots of land enhances our ability to make strategic long-term investments and affords us a valuable pipeline of new development projects for upcoming years.
 
•
International. In this segment, we seek investments that represent an opportunity of capital appreciation potential in the long term. After the international financial crisis in 2008, we took advantage of the price opportunity in the real estate sector in the United States and invested in two office buildings in Manhattan, New York. During this year we sold 74.5% of the office building located at Madison Avenue, City of New York, for a total amount of US$ 185 million, and we have retained a 49.9% equity interest in a US company whose main asset is the so-called “Lipstick” office building located in the City of New York. In addition, jointly with subsidiaries, we hold 34.0% of the voting power of the REIT Condor Hospitality Trust (NASDAQ:CDOR) and we hold, through Dolphin Fund, a 49.0% stake in the Israeli company IDBD, one of the largest and most diversified investment groups of Israel, which, through its subsidiaries, participates in numerous markets and industry sectors, including real estate, retail, agroindustry, insurance, telecommunications, etc. We intend to continue evaluating -on a selective basis- investment opportunities outside Argentina as long as they offer attractive investment and development opportunities.
 
•
 
Financial Operations and Other. We maintain our investment in Banco Hipotecario, the leading mortgage bank in Argentina, as we believe that we will be able to reach positive synergies in the long term hand in hand with the development of the mortgage market.
 
Our Principal Business Activities
 
During the fiscal year ended June 30, 2015, we conducted our operations on 31 owned farms, 1 farm under concession and 53 leased farms. Some of the farms we own are engaged in more than one productive activity at the same time.
 
Volume
(in tons)
  
Fiscal Year 2015
Production
    
Fiscal Year 2015
Sales
    
Stock
as of June 30, 2015
    
Stock
as of June 30, 2014
    
Stock
as of June 30, 2013
  
Wheat
     15,990       7,083       8,666       737       --  
Corn
     310,874       269,701       61,927       17,799       34,667  
Sunflower
     11,992       5,181       8,594       1,825       5,855  
Soybean
     279,608       250,125       102,464       84,351       45,928  
Sugarcane
     928,273       924,478       --       --       --  
Dairy (1)
     17,526       16,924       --       --       --  
Cattle
     7,812       8,871       70,660 (2)     72,865 (2)     64,167 (2)
 
(1) In thousands of liters.
(2) Heads
 

 

 
52
 
 
The following chart shows, for fiscal year 2015, the surface area in operation for each line of business:
 
 
The following chart illustrates, for the fiscal year ended on June 30, 2015, the surface area in operation and the hectares held as land reserves, classified into own, under lease or under concession:
 
 
 
 
Crops and Sugarcane
 
Our crop production is mainly based on grains and oilseeds and sugarcane. Our main crops include soybean, wheat, corn, and sunflower. Other crops, such as sorghum and peanut, are sown occasionally and represent only a small percentage of total sown land.
 
Production
 
The following table shows, for the fiscal years indicated, our crop production volumes measured in tons:
 
Production Volume(1)
  
FY2015
    
FY2014
    
FY2013
    
FY2012
  
Corn
     310,874       155,759       194,870       247,839  
Soybean
     279,608       242,349       220,540       196,515  
Wheat
     15,990       12,373       4,392       18,625  
Sorghum
     1,740       4,502       6,709       7,791  
Sunflower
     11,992       5,803       12,437       14,503  
Other
     6,999       2,476       5,002       6,774  
Total Crops (tons)
     627,203       423,262       443,950       492,047  
Sugarcane  (tons)
     928,273       657,547       1,156,848       576,048  
Cattle herd
     7,812       6,970       7,723       8,936  
Milking cows
     524       489       470       445  
Cattle (tons)
     8,336       7,459       8,193       9,381  
Milk (liters)
     17,525,818       19,320,317       18,459,472       16,562,904  
 
(1)  
Includes CRESCA at 50%. Does not include Agro-Uranga S.A.

 
53
 
 
Below is the geographical distribution of our agricultural production for the last four seasons (in tons):
 
2015 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Corn
     253,929       40,102       10,199       6,644       310,874  
Soybean
     132,101       111,751       30,471       5,285       279,608  
Wheat
     15,990       -       -       -       15,990  
Sorghum
     538       -       406       796       1,740  
Sunflower
     11,992       -       -       -       11,992  
Other
     6,917       -       -       82       6,999  
Total Grains and Other
     421,467       151,853       41,076       12,807       627,203  
Sugarcane
     -       830,204       98,069       -       928,273  

 
2014 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Corn
     93,388       50,102       11,445       826       155,761  
Soybean
     108,088       108,107       20,821       5,334       242,350  
Wheat
     12,373       -       -       -       12,373  
Sorghum
     1,367       -       2,487       648       4,502  
Sunflower
     5,756       -       47       -       5,803  
Other
     1,926       534       -       16       2,476  
Total Grains and Other
     222,898       158,743       34,800       6,824       423,265  
Sugarcane
     -       570,820       86,727       -       657,547  

 
2013 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Corn
     145,949       34,630       14,291       -       194,870  
Soybean
     82,476       106,276       31,601       187       220,540  
Wheat
     3,111       -       1,281       -       4,392  
Sorghum
     3,766       -       2,638       305       6,709  
Sunflower
     12,090       -       347       -       12,437  
Other
     2,644       2,358       -       -       5,002  
Total Grains and Other
     250,036       143,264       50,158       492       443,950  
Sugarcane
     -       1,014,234       142,614       -       1,156,848  

 
2012 Season
  
Argentina
    
Brazil
    
Bolivia
    
Paraguay
    
Total
  
Corn
     153,889       72,387       21,563       -       247,839  
Soybean
     83,221       83,319       29,976       -       196,516  
Wheat
     17,637       -       988       -       18,625  
Sorghum
     3,360       -       4,431       -       7,791  
Sunflower
     13,210       -       1,293       -       14,503  
Other
     5,494       1,280       -       -       6,774  
Total Grains and Other
     276,811       156,986       58,251       -       492,048  
Sugarcane
     -       576,030       18       -       576,048  

 

 
54
 


Sales
 
Below is the total volume of grains and sugarcane sold broken down into geographical areas, measured in tons:
 
   
FY2015
    
FY2014
    
FY2013
    
FY2012
  
Volume of Sales (3)
  
D.M.(1)
    
F.M.(2)
    
Total
    
D.M.(1)
    
F.M.(2)
    
Total
    
D.M.(1)
    
F.M.(2)
    
Total
    
D.M.(1)
    
F.M.(2)
    
Total
  
Corn
     269,701       -       269,701       179,893       -       179,893       233,369       37,775       271,144       202,345       21,769       224,114  
Soybean
     172,938       77,187       250,125       188,818       33,233       222,051       153,446       55,368       208,814       228,639       23,000       251,639  
Wheat
     6,969       114       7,083       11,359       -       11,359       10,735       -       10,735       15,246       5,500       20,746  
Sorghum
     1,569       -       1,569       3,843       -       3,843       5,807       -       5,807       8,497       -       8,497  
Sunflower
     5,181       -       5,181       9,745       -       9,745       10,551       -       10,551       18,095       -       18,095  
Other
     1,872       -       1,872       6,248       261       6,509       13,925       127       14,052       11,519       -       11,519  
Total
Grains (tons)
     458,230       77,301       535,531       399,906       33,494       433,400       427,833       93,270       521,103       484,341       50,269       534,610  
Sugarcane (tons)
     924,478       -       924,478       675,670       -       675,670       1,179,877       -       1,179,877       636,335       -       636,335  
Cattle herd
     8,871       -       8,871       8,842       -       8,842       9,627       -       9,627       15,014       -       15,014  
Milking cows
     903       -       903       465       -       465       496       -       496       451       -       451  
Beef-Cattle (tons)
     9,774       -       9,774       9,307       -       9,307       10,123       -       10,123       15,465       -       15,465  
Milk (in thousands of liters)
     16,924       -       16,924       18,787       -       18,787       17,870       -       17,870       16,267       -       16,267  
 
(1) Domestic Market.
(2) Foreign Market.
(3) Includes CRESCA at 50%. Does not include Agro-Uranga.
 
The following table shows the sown surface area assigned to crop production, classified into owned, under lease, under concession and leased to third parties for the fiscal years indicated below, measured in hectares:
 
   
2015(1)(2)
    
2014(1)(2)
    
2013(1)(2)
    
2012(1)(2)
  
Own
     128,795       122,632       127,952       127,793  
Under lease
     58,167       58,030       45,624       44,508  
Under concession
     21,547       20,986       8,937       8,778  
Leased to third parties
     3,267       7,616       18,223       23,595  
Total
     211,776       209,264       200,736       204,674  
 
(1)  
Sown land may differ from that indicated under “Uses of Land”, since some hectares are sown twice in the same season and therefore are counted twice.
(2)  
Includes CRESCA at 50%. Does not include Agro-Uranga.


 Stock
  
2015 Season
    
2014 Season
    
2013 Season
    
Variation
  
Corn
     61,927       17,799       34,667       247.9 %
Soybean
     102,464       84,351       45,928       21.5 %
Sunflower
     8,594       1,825       5,855       370.9 %
Sorghum
     198       530       3,577       (62.6 %)
Wheat
     8,666       737               1,075.8 %
Cotton
                     239       0.0 %
Sugarcane
                             0.0 %
Other
     4,925       32,782               (85.0 %)
Total
     186,774       138,024       90,266       35.3 %
 
We seek to diversify our mix of products and the geographic location of our farmlands to achieve an adequate balance between the two principal risks associated with our activities: weather conditions and the fluctuations in the prices of commodities. In order to reduce such risks, we own and lease land in several areas of Argentina with different climate conditions that allow us to sow a diversified range of products. Our leased land for crops is mostly located in the Pampas region, a favorable area for crop production. The leased farms are previously studied by technicians who analyze future production expectations based on the historic use of the land. The initial duration of lease agreements is typically one or three seasons. Leases of farms for production of crops generally consist of lease agreements with payments based on a fixed amount of Pesos per hectare or crop sharing agreements (“sharecropping”) with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of grains obtained or their equivalent value in Pesos. The principal advantage of leasing farms is that leases do not require us to commit large amounts of capital to the acquisition of lands but allow us to increase our scale in the short term and reduce the risk of inclement weather. The disadvantage of this strategy is that the cost of leasing can increase over time, in part, because increased demand for leased land increases the price of leased land.
 
In order to increase our production yields, we use, in addition to state-of-the-art technology, labor control methods which imply the supervision of the seeding’s quality (density, fertilization, distribution, and depth), crop monitoring (determination of natural losses and losses caused by harvester) and verification of bagged crop quality. In this way, we work jointly with our suppliers to achieve the best management of inputs, water and soil.
 
Wheat seeding takes place from June to August, and harvesting takes place from December to January. Corn, soybean and sunflower are sown from September to December and are harvested from February to August. Grains are available to be sold as commodities after the harvest from December to June and we usually store part of our production until prices recover after the drop that normally takes place during the harvesting season. A major part of production, especially soybean, wheat and sunflower seeds, corn and sorghum, is sold and delivered to buyers pursuant to agreements in which price conditions are fixed by reference to the market price at a specific time in the future that we determine. The rest of the production is either sold at current market prices or delivered to cover any futures contract that we may have entered into.
 

 
55
 
 
Agro-Uranga S.A.
 
We have a 35.72% interest in Agro-Uranga S.A. (“Agro-Uranga”). This company optimizes production processes and attains excellent results, with special emphasis in soil conservation, the application of rational techniques and care of the environment.
 
Agro-Uranga S.A. has two farms: Las Playas and San Nicolás, with a combined area of 8,299 hectares, located in the core region of the Pampas prairies.
 
26% of the planted hectares in Agro-Uranga is devoted to the production of its special products division, including popcorn, peas and inshell sunflower, whereas the remaining 76% derives from commodities, such as soybean, corn and wheat.
 
At present, with the assistance of its foreign trade team it is seeking to develop new products so as to significantly increase export volumes, encouraged by the world’s growing demand.
 
Lease of Farmlands
 
We conduct our business on owned and leased land. Rental payments increase our production costs, as the amounts paid as rent are accounted for as operating expenses. As a result, production costs per hectare of leased land are higher than for the land owned by us.
 
Our land leasing policy is designed to supplement our expansion strategy, using our liquidity to make production investments in our principal agricultural activities. On the other hand, our leasing strategy provides us with an added level of flexibility in the share of each of our products in total production, providing for greater diversification.
 
The initial duration of lease agreements is typically one crop season. Leases of farms for production of crops consist in lease agreements with payments based on a fixed amount of Pesos per hectare or crop sharing agreements (“sharecropping”) with payments in kind based on a percentage of the crops obtained or a fixed amount of tons of grains obtained or their equivalent value in Pesos. Leases of farmlands for cattle breeding consist in lease agreements with fixed payments based on a fixed amount of Pesos per hectare or steer kilograms or capitalization agreements with payments in kind or in cash based on the weight gain in kilograms.
 
During fiscal year 2015, we leased to third parties a total of 53 fields, covering 72,679 hectares, including 14,263 hectares in Brazil. Out of the total leased area, 58,167 hectares were assigned to agricultural production, including double crops, and 13,501 hectares to cattle raising. The properties for agricultural production were leased, primarily, for a fixed price prior to harvest and only a small percentage consisted of crop sharing agreements.
 
The following table shows a breakdown of the number of hectares of leased land used for each of our principal production activities:
 
   
2015
    
2014
    
2013
    
2012
  
Crops
     59,178       58,030       45,624       44,508  
Cattle
     13,501       18,549       12,635       12,635  
 
Due to the rise in the price of land, we adopted a policy of not validating excessive prices and applying strict criteria upon adopting the decision to lease, selecting those lands with values that would ensure appropriate margins.
 
Results
 
The following table shows the Company’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
Crops
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     986.7       836.8       750.4       17.9 %
Costs
     (1,795.4 )     (1,540.7 )     (1,227.8 )     16.5 %
Initial recognition and changes in the fair value of biological assets and agricultural products  at the point of harvest
     918.3       868.4       572.1       5.8 %
Changes in the net realizable value of agricultural products after harvest
     (34.5 )     (17.6 )     11.8       95.6 %
Gross profit
     75.1       146.9       106.4       (48.9 %)
General and administrative expenses
     (159.0 )     (147.2 )     (89.6 )     8.0 %
Selling expenses
     (160.4 )     (117.8 )     (115.9 )     36.1 %
Other operating results, net
     (8.6 )     (29.4 )     (11.0 )     (70.6 %)
Loss from operations
     (252.9 )     (147.5 )     (110.1 )     71.5 %
Share of profit / (loss) of associates and joint ventures
     0.8       11.0       8.1       (92.3 %)
Segment Loss
     (252.1 )     (136.5 )     (102.0 )     84.7 %
 
Sugarcane
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     197.8       123.9       160.3       59.7 %
Costs
     (368.2 )     (206.8 )     (302.2 )     78.1 %
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest
     187.5       96.2       197.3       94.8 %
Gross profit
     17.1       13.3       55.4       28.5 %
General and administrative expenses
     (19.8 )     (28.3 )     (24.2 )     (29.9 %)
Selling expenses
     (7.8 )     (4.9 )     (4.0 )     59.5 %
Other operating results, net
     (1.7 )     0.1       (0.0 )     (1,704.8 %)
(Loss)/Profit from operations
     (12.1 )     (19.7 )     27.2       (38.4 %)
Segment (Loss)/Profit
     (12.1 )     (19.7 )     27.2       (38.4 %)

 

 
56
 
Cattle
 
Our cattle production involves the breeding and fattening of our own animals. In some cases, if market conditions are favorable, we also purchase and fatten cattle which we sell to slaughterhouses and supermarkets.  As of June 2015, our cattle aggregated 70,660 heads, and we had a total surface area of 88,643 hectares of own and leased lands devoted to this business activity.  In addition, we have leased to third parties 13,501 hectares assigned to these activities.
 
During the fiscal year ended June 30, 2015, our production was 8,336 tons, a 12% year-on-year increase. The following table sets forth, for the fiscal years indicated below, the beef cattle production volumes measured in tons.
 
The following table sets forth, for the fiscal years indicated below, the cattle production volumes measured in tons:
 
   
2015(1)
    
2014(1)
    
2013(1)
  
Cattle production
     8,336       7,459       8,193  
 
(1)
Production measured in tons of live weight.  Production is the sum of the net increases (or decreases) during a given period in live weight of each head of cattle owned by us.
 
Our cattle breeding activities are carried out with breeding cows and bulls and our fattening activities apply to steer, heifers and calves. Breeding cows calve approximately once a year and their productive lifespan is from six to seven years. Six months after birth, calves are weaned and transferred to fattening pastures. Acquired cattle are directly submitted to the fattening process. Upon starting this process, cattle have been grazing for approximately one year to one and a half year in order to be fattened for sale. Steer and heifers are sold when they have achieved a weight of 380–430 kg and 280–295 kg, respectively, depending on the breed.
 
Pregnancy levels, which have been improving over the years, showed satisfactory levels of efficiency notwithstanding the adverse weather conditions. Genetics and herd management are expected to further improve pregnancy levels in the coming years. Reproductive indicators improved thanks to the implementation of technologies, which have included handling techniques and females artificial insemination with cattle genetics especially selected for the stock which is purchased from specialized companies in quality semen elaboration for meat production. We use veterinarian products manufactured by leading national and international laboratories. It is important to emphasize the work of a veterinarian advising committee, who are external to us and visit each establishment monthly to control and agree tasks.
 
Currently, the cattle raising farms are officially registered as export farmlands pursuant to the identification and traceability rules in force in Argentina. Animals are individually identified, thus allowing for the development of special businesses in this area.
 
Our cattle stock is organized into breeding and fattening activities. The following table shows, for the fiscal years indicated, the number of head of beef cattle for each activity:
 
   
2015
    
2014
    
2013
  
Breeding stock
     52,052       54,808       36,531  
Winter grazing stock
     12,950       11,607       21,107  
Milk farmstock
     5,658       6,450       6,529  
Total Stock (heads)
     70,660       72,865       64,167  
 
We seek to improve cattle production and quality in order to obtain a higher price through advanced breeding techniques. We cross breed our stock of Indicus, British (Angus and Hereford) and Continental breeds to obtain herds with characteristics better suited to the pastures in which they graze. To enhance the quality of our herds even further, we plan to continue improving our pastures through permanent investment in seeds and fertilizers, an increase in the watering troughs available in pastures, and the acquisition of round bailers to cut and roll grass for storage purposes.
 
Our emphasis on improving the quality of our herd also includes the use of animal health-related technologies. We comply with national animal health standards that include laboratory analyses and vaccination aimed at controlling and preventing disease in our herd, particularly FMD.
 
Direct costs of beef production consist primarily of crops for feeding and dietary supplementation purposes, animal health and payroll costs, among others.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     143.6       90.3       82.9       59.0 %
Costs
     (224.6 )     (160.7 )     (147.3 )     39.8 %
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest
     166.7       145.3       79.3       14.7 %
Changes in the net realizable value of agricultural products after harvest
     0.0       0.2       0.0       (98.3 %)
Gross Profit
     85.7       75.2       14.9       14.1 %
General and administrative expenses
     (25.8 )     (27.2 )     (13.7 )     (5.3 %)
Selling expenses
     (20.1 )     (13.9 )     (11.5 )     45.1 %
Other operating results, net
     (3.2 )     (2.0 )     (3.5 )     58.0 %
Profit/ (Loss) from operations
     36.7       32.1       (13.8 )     14.3 %
Share of profit / (loss) of associates and joint ventures
     0.0       0.0       0.0       (85.7 %)
Segment Profit / (Loss)
     36.7       32.1       (13.8 )     14.3 %

 

 
57
 

Dairy
 
As of June 30, 2015, we conducted our diary business in the dairy facility located in “El Tigre” farm in the Province of La Pampa, Argentina. We have a capacity of 2,189 cows in milking per day and seek to increase total productivity through the application of new technologies including improved genetic management for milk production, feeding strategic planning based on cattle specific requirements and the use of individual traceability to know the productivity history of each animal. Also we use computer science in milk business to make more efficient the manual labor by surveying the information supplied by the farm.
 
Within the process of de-commoditization and technological innovation, we implemented an identification and tracking system in compliance with European and SENASA standards. We also obtained Global Gap and HCCP certification. Our goal in this respect is to distinguish our production and obtain higher prices in production sales.
 
Our milk production is based on a herd of Holando Argentina dairy cows, genetically selected through the use of imported frozen semen of North American Holando bulls. Male calves are sold, at calving, for a given amount per head, whereas female calves are weaned after 24 hours, spend approximately 60 days in raising and approximately 100 days being fed on the basis of grass, grains and supplements. Young heifers then graze for an additional 12 to 15 month period, prior to artificial insemination at the age of 18 to 20 months and they calve nine months later. Heifers are subsequently milked for an average of 300 days. Milking dairy cows are once again inseminated during the 60 to 90 day subsequent period. This process is repeated once a year during six or seven years. The pregnancy rate for our dairy cows is 80-90%.
 
Our dairy herd is milked mechanically twice a day. The milk obtained is cooled to less than five degrees centigrade to preserve quality and is then stored in a tank for delivery once a day to trucks sent by buyers. Dairy cows are fed mainly with grass, supplemented as needed with grains, hay and silage. We have invested in certain technologies that focus on genetic improvement, animal health and feeding in order to improve our milk production. These investments include imports of top quality frozen semen from genetically improved North American Holstein bulls, agricultural machinery and devices such as feed-mixer trucks, use of dietary supplements and the installation of modern equipment to control milk cooling. We are currently acquiring dietary supplements for our dairy cows and have made investments with the aim of increasing the quantity and quality of forage (pasture, alfalfa and corn silage) in order to reduce feeding costs.
 
The following table sets forth, for the periods indicated, the average number of our dairy cows and average daily production per cow:
 
   
2015
    
2014
    
2013
  
Average dairy cows per day (heads)
     2,189       2,439       2,392  
Milk Production/Dairy Cow/Day (liters)
     21.48       19.69       20.44  
 
At the closing of fiscal year 2015, we had 5,658 heads of cattle on 2,864 hectares involved in the production of milk; whereas as of June 30, 2014, we had 6,450 heads of cattle on 2,864 hectares.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     71.9       53.9       38.8       33.4 %
Costs
     (133.3 )     (104.3 )     (74.8 )     27.7 %
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest
     74.9       62.8       40.7       19.2 %
Gross Profit
     13.6       12.4       4.7       9.3 %
General and administrative expenses
     (4.9 )     (5.9 )     (3.1 )     (14.4 %)
Selling expenses
     (3.7 )     (2.2 )     (1.8 )     63.1 %
Other operating results, net
     (0.8 )     (0.4 )     (0.8 )     85.4 %
Profit / (Loss) from operations
     4.2       4.0       (1.0 )     5.2 %
Segment Profit / (Loss)
     4.2       4.0       (1.0 )     5.2 %

Agricultural Rental and Services
 
We lease own farms to third parties for agriculture, cattle breeding and seed production, mainly in two types of farms. On the one hand, we lease our farms under irrigation in San Luis (Santa Bárbara and La Gramilla) to seed producers. These farms are ideal for obtaining steady production levels, given the quality of their soil and the weather conditions of the area, along with the even humidity provided by irrigation.
 
On the other hand, we lease farms recently put into production after agricultural development. In this way we manage to reduce our production risk, ensuring fixed rental income until the new farms reach stable productivity levels.
 
In addition, in this segment we include the irrigation service we provide to our own farms leased to third parties.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     37.2       29.1       30.8       27.6 %
Costs
     (19.2 )     (17.4 )     (12.1 )     10.5 %
Gross Profit
     18.0       11.8       18.8       52.7 %
General and administrative expenses
     (2.1 )     (2.7 )     (4.4 )     (19.8 %)
Selling expenses
     (0.7 )     (0.8 )     (1.7 )     (8.0 %)
Other operating results, net
     (0.3 )     (0.2 )     (1.1 )     51.4 %
Profit from operations
     14.8       8.1       11.5       82.5 %
Segment Profit
     14.8       8.1       11.5       82.5 %

Land Transformation and Sales
 
Land Acquisitions
 
We intend to increase our farmland portfolio by acquiring large extensions of land with high appreciation potential. We also intend to transform the land acquired from non-productive to cattle breeding, from cattle breeding to farming, or applying state-of-the-art technology to improve farming yields so as to generate higher land appreciation.
 
In our view, the sector’s potential lies in developing marginal areas and/or under-utilized areas. Thanks to the current technology, we may achieve similar yields with higher profitability than core areas, resulting in the appreciation of land values.
 
Over the past 10 years, prices of farmlands intended for agricultural production have increased in the southern hemisphere (mainly South America) but continue to be relatively low compared to the northern hemisphere (U.S. and Europe). Our financial strength relative to other Argentine producers gives us the chance to increase our land holdings at attractive prices, improve our production scale and create potential for capital appreciation.
 
Several important intermediaries, with whom we usually work, bring farmlands available for sale to our attention. The decision to acquire farmlands is based on the assessment of a large number of factors. In addition to the land’s location, we normally carry out an analysis of soil and water, including the quality of the soil and its suitability for our intended use (crops, beef cattle, or milk production), classify the various sectors of the lot and the prior use of the farmland; analyze the improvements in the property, any easements, rights of way or other variables in relation to the property title; examine satellite photographs of the property (useful in the survey of soil drainage characteristics during the different rain cycles) and detailed comparative data regarding neighboring farms (generally covering a 50-km area). Based on the foregoing factors, we assess the farmland in terms of the sales price compared against the production potential of the land and capital appreciation potential. We consider that competition for the acquisition of farmlands is, in general, limited to small farmers for the acquisition of smaller lots, and that there is scarce competition for the acquisition of bigger lots.
 
In addition, we may consider the acquisition of farmlands in marginal zones and their improvement by irrigation in non-productive areas as well as the installation of irrigation devices in order to obtain attractive production yields and create potential for capital appreciation.
 
The following chart shows certain information concerning our land acquisitions for each of the last 10 fiscal years ended on June 30:
 
Fiscal Year
  
Number of Farmlands
    
Amount of Acquisitions
(Ps. million)
  
2006 (1)
     1       45.9  
2007 (2)
     1       7.3  
2008 (3)
     2       4.5  
2009 (4)
     7       133.2  
2010 (5)
     -       5.0  
2011 (6)
     3       61.5  
2012
     -       -  
2013
     -       -  
2014
     -       -  
2015
     -       -  
 
(1)  
Includes the acquisition of “San Pedro” farmland of 6,022 hectares.
(2)  
Includes the acquisition of “8 de Julio” farmland of 90,000 hectares.
(3)  
Includes the acquisition of the remaining 25% of “La Adela” farmland of 18 hectares and 80% of “La Esperanza” farmland of 980 hectares.
(4)  
Includes the acquisition of "Estancia Carmen", "Puertas de Luján", "Las Londras", "San Cayetano", "San Rafael", and "La Fon Fon" farmlands and 50% of "Jerovia" farmland, of 10,911, 115, 4,566, 883, 2,969, 3,748 and 20,966 hectares, respectively.
(5)  
Includes exercise of the option over 50% of the “Jerovía” farmland of 3,646 hectares.
(6)  
Includes the acquisition of “La Primavera” and “4 Vientos” farmlands of 2,341 hectares and 2,659 hectares, respectively.
 
In addition, it includes the acquisition of 943 hectares of the Mendoza farlmland.
 
Land Sales
 
We periodically sell properties that have reached a considerable appraisal to reinvest in new farms with higher appreciation potential. We analyze the possibility of selling based on a number of factors, including the expected future yield of the farmland for continued agricultural and livestock exploitation, the availability of other investment opportunities and cyclical factors that have a bearing on the global values of farmlands.
 

 
58
 
 
The following chart shows certain information concerning our land sales for each of the last 10 fiscal years ended on June 30:
 
Fiscal Year
  
Number of Farmlands
    
Gross Proceeds from Sales
(Ps. million)
    
Profit (1)
(Ps. million )
  
2006 (2)
     1       16.1       9.9  
2007 (3)
     3       29.9       22.3  
2008 (4)
     2       23.0       20.0  
2009 (5)
     2       2.0       1.9  
2010 (6)
     1       18.6       13.7  
2011 (7)
     2       84.5       54.6  
2012 (8)
     3       118.3       63.2  
2013 (9)
     4       332.6       149.6  
2014 (10)
     2       148.5       91.4  
2015(11)
     4       814.3       569.6  

 
(1)  Includes the difference between the gross proceeds from sales (net of all taxes and commissions) and the book value of the assets sold.
(2)  Includes the sale of “El Gualicho” farmland of 5,727 hectares.
(3)  Includes the sale of 20,833 hectares of “Tapenagá” farmland and the partial sale of 14,516 hectares of “Los Pozos” farmland and 50 hectares of “El Recreo” farmland.
(4)  Includes the partial sale of 4,974 hectares of “Los Pozos” farmland and the partial sale of 2,430 hectares of “La Esmeralda” farmland.
(5)  Includes the partial sale of 1,658 hectares of “Los Pozos” farmland and the partial sale of 1,829 hectares of “El Recreo” farmland.
(6)  Includes the sale of 12,071 hectares of “Tali Sumaj.”
(7)  Includes the sale of “La Juanita” farmland, of 4,302 hectares, and the partial sale of 910 hectares of “La Fon Fon.”
(8)  Includes the sale of 2,447 hectares of “San Pedro” farmland, the partial sale of 1,194 hectares of “La Fon Fon” farmland, and the partial sale of 115 hectares of “Puerta de Lujan” farmland.
(9)  Includes the sale of 14,359 hectares of “Horizontina” farmland, the partial sale of 394 hectares of “Araucaria” farmland, the partial sale of “Cremaq” farmland of 4,985 hectares, and the partial sale of  5,613 hectares of La “Suiza” farmland.
(10)Includes the sale of 883 hectares of “San Cayetano” farmland and the partial sale of 1,164 hectares of “Araucaria” farmland.
(11)Includes the sale of 1,058 hectares of “La Adela” farmland, 24,624 hectares of “Chaco Paraguayo” farmland, 1,643 hectares of “Fon Fon” farmland and the remainder sale of 27,745 hectares of “Cremaq” farmland.
 
On July 31, 2014, we sold “La Adela” farm, of approximately 1,058 hectares, located in the District of Luján, Province of Buenos Aires, for a total amount of Ps. 210 million to our subsidiary IRSA, given the degree of development of the farm, its closeness to the city and high urban potential. Under IFRS accounting standards, this kind of sale transactions within the Company does not impact on our financial statements.
 
On April 3, 2014, CRESCA, a company in which our subsidiary Brasilagro holds 50% of its stock capital, executed a sale agreement for 24,624 hectares of undeveloped land in Paraguay for US$ 600 per hectare, for a total sales price of US$ 14.7 million. The purchaser paid US$ 1.8 million upon execution of the purchase agreement, and the balance in three installments. The transaction was recorded in our books on July 15, 2014 with the transfer of the title deed and surrender of possession of the land. The gain recorded as a result of this transaction was Ps. 19.1 million.
 
In June 2015 we sold the remaining fraction of our “Fon Fon” farm consisting of 1,643 hectares intended for agriculture located in Santa Cruz de la Sierra (Bolivia) for a total amount of US$ 7.21 million equivalent to US$ 4,388 per hectare. As of such date, possession was surrendered and the sum of US$ 1.5 million was received, with a balance of US$ 5.71 million still remaining that will be paid in six semi-annual installments from December of this year until June 2018. The gain recorded as a result of this transaction was Ps. 24.6 million.
 
On June 10, 2015, through our subsidiary Brasilagro, we sold the remaining 27,745 hectares in our “Cremaq” farm in the district of Baixa Grande do Ribeiro (Piaui). The total transaction amount was BRL 270.0 million (ps. 694.0 million). Out of this sum, 25% has already been collected and the balance will be paid upon execution of the title deed, scheduled to be signed 90 days after the execution of the sale undertaking (June 10, 2015). The gain recorded as a result of this transaction was Ps. 525.9 million.
 
Farmland Development
 
We consider that there is great potential in farmland development where, through the use of current technology, we may achieve similar yields with higher profitability than in core areas.
 
As of June 30, 2015, we owned land reserves in the region extending over more than 356,907 hectares of own farmlands that were purchased at very attractive prices. In addition, we have a concession over 107,584 hectares reserved for future development. We believe that there are technological tools available to improve productivity in these farms and, therefore, achieve appreciation in the long term. However, current or future environmental regulations could prevent us from fully developing our land reserves by requiring that we maintain part of this land as natural woodlands not to be used for production purposes.
 
During fiscal year 2015, we developed 1,493 hectares intended for agricultural production so as to reach 24,416 hectares in operation. Furthermore, we continued with the development of our “Agro Riego” farm in the province of San Luis, where we developed 210 hectares intended for agriculture including spray irrigation infrastructure, reaching 4,295 hectares in operation.
 

 
59
 
 
Our developments in Brazil, through our subsidiary Brasilagro, we developed 7,475 hectares of land intended for agriculture.
 
In connection with our business in Paraguay, we developed through CRESCA 2,367 hectares for agricultural production.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     -       -       -       -  
Costs
     (9.0 )     (8.2 )     (5.7 )     9.4 %
Gross Loss
     (9.0 )     (8.2 )     (5.7 )     9.4 %
Gain from disposition of farmlands
     569.5       91.4       149.6       523.4 %
Profit from operations
     551.4       78.0       132.6       606.6 %
Segment Profit
     551.4       78.0       132.6       606.6 %

Agro-industrial Activities
 
This segment consists in the fattening of beef cattle in feedlots and the slaughtering and processing of beef in meat packing plants. Feedlot cattle breeding requires specific care and diets that differ from those applicable to natural grass-fed beef cattle breeding.
 
Our feedlot operations are developed through our subsidiary Cactus and take place in a 170-hectare farm located in Villa Mercedes, Province of San Luis, which started to operate in September 1999. Cactus has been a pioneer in feedlot services with 18,000 heads of cattle capacity, depending on the size of the cattle.
 
Towards the end of this fiscal year, given the closeness of the feedlot facility to the district of Villa Mercedes, we decided to discontinue our livestock fattening business there.
 
Moreover, through our subsidiary Sociedad Anónima Carnes Pampeanas S.A. (“Carnes Pampeanas”) we own a meat packing plant in Santa Rosa, Province of La Pampa, with capacity to slaughter and process approximately 9,600 cattle heads per month.
 
During the last years, the smaller supply of beef cattle has adversely affected the value chain by reducing cold-storage plant utilization. This has left several plants struggling to remain operational in view of the poor returns and shortage of raw materials. Our investment in Carnes Pampeanas has not escaped unscathed of this situation.
 
Since December 2011, the packing plant had remained closed due to the difficult situation experienced by the industry. With the support of the Provincial Government of La Pampa and the Federal Government, combined with the Company’s confidence that the business could be successfully resumed, in August 2012 the packing plant was reopened and restarted production.
 
During fiscal year 2015, this segment recorded a net loss of Ps. 35.9 million compared to net income of Ps. 1.9 million in the previous fiscal year, mainly explained by an increase in the number of employees to support the higher operational volumes and higher consulting and SOX testing expenses related to the SAP implementation project. In addition, average slaughtering was 6,398 heads per month, as compared to 5,472 in fiscal year 2014.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     806.0       554.1       208.9       45.5 %
Costs
     (739.2 )     (479.7 )     (204.7 )     54.1 %
Gross profit / (loss)
     66.8       74.4       4.2       (10.2 %)
General and administrative expenses
     (25.3 )     (16.9 )     (11.0 )     50.1 %
Selling expenses
     (77.1 )     (54.8 )     (21.5 )     40.9 %
Other operating results, net
     (0.3 )     (0.9 )     (1.3 )     (66.8 %)
(Loss)/Profit from operations
     (36.0 )     1.9       (29.6 )     -  
Segment (Loss)/Profit
     (36.0 )     1.9       (29.6 )     -  

Other Segments
 
Futuros y Opciones.Com S.A.
 
In May 2000, we acquired 70% of the shares of FyO for Ps. 3.5 million. The site was launched in November 1999 and was aimed at becoming the most important agriculture business community in Latin America. FyO launched its e-commerce strategy in March 2001, in order to sell products, buy inputs, arrange loans, and obtain insurance, among other things. Currently, the main activity of FyO is grain broker.
 
The areas with the greatest potential for growth are: input commercialization and grain brokerage. Regarding input commercialization, the business volume was concentrated in a small number of suppliers, the agreements with the suppliers were improved in order to increase the margin of the business, and contracts of direct distribution were achieved. In terms of cereals, the grain trading unit was created, with the purpose of participating directly in the business by trading and offering services.
 
During fiscal year 2007, FyO started to trade futures and options: it acquired a share in the Buenos Aires futures and options exchange market (Mercado a Término de Buenos Aires) and has also become a dealer. The service consisting in hedging with futures has consolidated into an essential tool for our customers to manage their price risks. 
 

 
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FyO is committed to excellence through quality and continued improvement. For this reason, since 2008 all its business and administrative processes have been certified under ISO 9001:2008 standards.
 
As of June 30, 2015, our interest in FyO was 59.59 %.
 
As of the end of fiscal year 2015, the company’s total revenues from its grains brokerage business unit were Ps. 36.2 million with a trading volume of 1.8 million tons, in line with the volume traded in the 2014 period despite the drop in prices. The main crops traded were corn and soybean.
 
At the closing of fiscal year 2013, FyO acquired Granos Olavarría S.A., by purchasing a 96.37% interest in it. This company is engaged in cereal storage and brokerage activities, and during its second year of business it traded approximately 0.7 million tons.
 
In turn, invoicing by the inputs business fell 9% as compared to the previous fiscal year, reflecting the Argentine context, since in light of the fall in grain prices, growers did not invest in technology and rather sought to preserve their margins.
 
FyO’s Internet business is one of the most comprehensive and better positioned businesses in the sector, as it offers a full suite of products and services for customers and users. It has the leading portal in agricultural trading and in the social networks it has the largest community in the farming industry. Moreover, it leads the mobile sector through its two apps. From its onset, it has been adding to its customer portfolio leading international and domestic companies and reaching an increasing number of users and ascending presence in search engines such as Google. In August 2013, it revamped its site and launched new products, becoming one of the sites with the most advanced technology and innovations in the industry. At the closing of this fiscal year, it has reached over 600,000 visits per month and 95,000 registered users.
 
FyO’s goal is to continue consolidating itself as a leading company in grain trading, standing out from its competitors by offering a full suite of advisory services to its clients and contributing its broad experience in the industry along with its staff’s expertise.
 
Results
 
The following table shows this segment’s results for fiscal year 2015, compared to the two preceding fiscal years:
 
In millions of Ps.
  
Fiscal Year 2015
    
Fiscal Year 2014
    
Fiscal Year 2013
    
YoY var
2015 vs. 2014
  
Revenues
     117.8       124.0       83.3       (5.0 %)
Costs
     (96.8 )     (100.3 )     (71.2 )     (3.4 %)
Initial recognition and changes in the fair value of biological assets and agricultural products at the point of harvest
     -       -       (1.0 )     -  
Gross Profit
     20.9       23.7       11.1       (11.7 %)
General and administrative expenses
     (7.4 )     (10.6 )     (7.1 )     (30.4 %)
Selling expenses
     (12.7 )     (10.7 )     (6.9 )     18.0 %
Other operating results, net
     1.3       3.3       21.3       (59.4 %)
Profit from operations
     2.2       5.7       18.4       (60.6 %)
Share of Profit of associates and joint ventures
     -       0.4       1.1       -  
Segment Profit
     2.2       6.1       19.5       (63.5 %)

 

 
61
 
Farmland Portfolio
 
As of June 30, 2015, we owned, together with our subsidiaries, 31 farms, with a total surface area of 622,220 hectares.
 
The following table sets forth our farm portfolio as of June 30, 2015:
 
Use of Farmlands Owned and under Concession as of June 30, 2015
  
 
Locality
Province
  
Date of Acquisition
    
Surface Area (has)
  
Main Business
  
Cattle (has)
    
Sheep (has)
    
Dairy (has)
    
Agriculture (has)
    
Cattle (has)
  
El Recreo
Recreo
Catamarca
  
May 95
       12,395  
Natural woodlands
                              
Los Pozos
JV González
Salta
  
May ’95
       239,639  
Cattle/ Agriculture/ Natural woodlands
     43,276                   15,012       43,136  
San Nicolás (1)
Rosario
Santa Fe
  
May ‘97
       1,432  
Agriculture
                         1,409          
Las Playas (1)
Idiazabal
Córdoba
  
May ‘97
       1,534  
Agriculture/ Dairy
                         1,534          
La Gramilla/ Santa Bárbara
Merlo
San Luis
  
Nov ‘97
       7,072  
Agriculture Under irrigation
                         4,295          
La Suiza
Villa Angela
Chaco
  
Jun ‘98
       36,380  
Agriculture/ Cattle
     30,200                   3,692       18,853  
La Esmeralda
Ceres
Santa Fe
  
Jun ‘98
       9,370  
Agriculture/ Cattle
                         8,491          
El Tigre
Trenel
La Pampa
  
Apr ‘03
       8,360  
Agriculture/ Dairy
                   2,864       4,803       5,658  
El Invierno
Rancul
La Pampa
  
Jun ‘05
       1,946  
Agriculture
                           1,839          
San Pedro
Concepción de Uruguay
Entre Rios
  
Sep ‘05
       6,022  
Agriculture
     1,143                     4,216          
8 De Julio/ Estancia Carmen
Puerto Deseado
Santa Cruz
  
May ‘07/ Sep ‘08
       100,911  
Sheep
             85,000                          
Administración Cactus
Villa Mercedes
San Luis
  
Dec ‘97
       171  
Natural woodlands
     171                                  
Las Vertientes
Las Vertientes
Cordoba
     -       4  
Silo
                                        
La Esperanza
Rancul
La Pampa
  
Mar ‘08
       980  
Agriculture
                             334          
Las Londras
Santa Cruz
Bolivia
  
Nov ‘08
       4,566  
Agriculture
                             3,735          
San Rafael
Santa Cruz
Bolivia
  
Nov ‘08
       2,969  
Agriculture
                             2,735          
La Primavera
Santa Cruz
Bolivia
  
Jun ‘11
       2,340  
Agriculture
                             1,099          
Cuatro Vientos
Santa Cruz
Bolivia
  
Jun ‘11
       2,658  
Agriculture
                             790          
Jeroviá/Marangatú/Udra (2)
Mariscal Estigarribia
Paraguay
  
Feb ‘09
       58,754  
Agriculture/ Natural woodlands
     626                       5,562       1,697  
Finca Mendoza
Lujan de Cuyo
Mendoza
  
Mar ‘11
       389  
Natural woodlands
                                        
Establecimiento Mendoza
Finca Lavalle
Mendoza
  
Nov’03
       9  
Natural woodlands
                                        
Jatoba
Jaborandi/BA
Brazil
   Oct '06        31,606  
Agriculture
                             10,731          
Alto Taquari
Alto Taquari/MT
Brazil
   Aug '07        5,395  
Agriculture
                             3,622          
Araucaria
Mineiros/GO
Brazil
   Mar '07        8,124  
Agriculture
                             4,844          
Chaparral
Correntina/BA
Brazil
   Nov '07        37,183  
Agriculture
                             13,075          
Nova Buruti
Januária/MG
Brazil
   Dec '07        24,212  
Forestry
                                        
Preferencia
Barreiras/BA
Brazil
   Sep '08        17,799  
Cattle
     6,554                                  
Subtotal Own Farms
                 622,220         81,970       85,000       2,864       91,816       69,344  
Agropecuaria Anta SA (3)
Las Lajitas
Salta
             132,000         869                       23,547       1,316  
Subtotal Farms under Concession
                 132,000         869                       23,547       1,316  
Total
                 754,220         82,839       85,000       2,864       115,363       70,660  
 
(1) Hectares in proportion to our 35.72% interest in Agro-Uranga S.A.
(2)
Hectares in proportion to our 50.0% interest in CRESCA through Brasilagro.
(3) Hectares under concession. Includes 2,000 hectares operated by third parties.
 
Additional information about our Farmlands
 
El Recreo
 
“El Recreo” farm, located 970 kilometers northwest of Buenos Aires, in the Province of Catamarca, was acquired in May 1995. It has semi-arid climate and annual rainfall not in excess of 400 mm. This farm is maintained as a productive reserve.
 
Los Pozos
 
The “Los Pozos” farm, located 1,600 kilometers northwest of Buenos Aires, in the Province of Salta, was acquired in May 1995. This property is located in a semi-arid area with average annual rainfall of 500 mm. The area is naturally suited to cattle raising and forestry activities (poles and fence posts), and it has agricultural potential for summer crops such as sorghum and corn, among others. For the fiscal year ended June 30, 2015, we used 15,012 hectares in agricultural production. We completed the development of tropical pastures in almost 45,000 hectares. As of June 30, 2015, there were 40,274 heads of cattle in this farm.
 
San Nicolás
 
“San Nicolás” is a 4,005 hectares farm owned by Agro-Uranga S.A., and is located in the Province of Santa Fe, approximately 45 kilometers from the Port of Rosario. As of June 30, 2015, 7,032 hectares were planted for agricultural production, including double crops. The farm has two plants of silos with a storage capacity of 14,950 tons.
 
Las Playas
 
The “Las Playas” farm has a surface area of 4,294 hectares and is owned by Agro-Uranga S.A. It is located in the Province of Córdoba, and it is used for agricultural purposes. As of June 30, 2015, the farm had a sown surface area, including double crops, of 7,761 hectares for grain production.
 
La Gramilla and Santa Bárbara
 
These farms have a surface area of 7,072 hectares in Valle de Conlara, in the Province of San Luis. Unlike other areas in the Province of San Luis, this valley has a high quality underground aquifer which makes these farms well suited for agricultural production after investments were made in the development of lands, wells and irrigation equipment. In the course of the 2014/2015 farm season, a total of 4,295 hectares were sown, 569 hectares of which were sown under contractual arrangements with seed producers. We leased, in turn, 1,267 hectares to third parties. The remaining hectares are kept as land reserves.
 
La Suiza
 
 The “La Suiza” farm has a surface area of 36,380 hectares and is located in Villa Ángela in the Province of Chaco. It is used for raising cattle. As of June 30, 2015, “La Suiza” had a stock of approximately 18,853 heads of cattle. During the 2014/15 season, we used 3,692 hectares for agricultural production and 200 hectares for timber production.
 
La Esmeralda
 
The “La Esmeralda” farm has a surface area of 9,370 hectares and is located in Ceres in the Province of Santa Fe. This farm was acquired in June 1998. During the 2014/15 farm season, we used 8,491 hectares for production of corn, soybean, wheat, sunflower and sorghum.
 
El Tigre
 
The “El Tigre” farm was acquired on April 30, 2003 and has a surface area of 8,360 hectares. This farm has a high-tech dairy facility where we develop our milk production business in compliance with the highest quality standards. It is located in Trenel in the Province of La Pampa. As of June 30, 2015, 4,803 hectares were assigned to crop production, including double crops, and 2,864 hectares were assigned to milk production. This farm produced 17.52 million liters of milk in the fiscal year ended June 30, 2015, with an average of 2,189 cows being milked and an average daily production of 21.48 liters per cow.
 
El Invierno
 
The “El Invierno” farm was acquired on June 24, 2005 and has a surface area of 1,946 hectares.  It is located in Rancul in the Province of La Pampa, 621 kilometers to the west of Buenos Aires. During the fiscal year ended June 30, 2015, we used the land exclusively for crop production and planted 1,839 hectares.
 
San Pedro
 
 The “San Pedro” farm was purchased on September 1, 2005. It has a surface area of 6,022 hectares and is located in Concepción del Uruguay, Province of Entre Ríos, which is 305 kilometers north of Buenos Aires. In the course of the 2014/2015 farm season, 4,216 hectares were used for agricultural production, including double crops, and 1,143 hectares were leased to third parties for livestock activities.
 
8 de Julio and Estancia Carmen
 
The “8 de Julio” farm was acquired on May 15, 2007 and has a surface area of 90,000 hectares.  It is located in the department of Deseado in the Province of Santa Cruz. Due to its large surface area, this farm offers excellent potential for sheep production. In addition, we believe the land has potential for future tourism and recreational activities, as the southeast border of the farm stretches over 20 kilometers of coast. "Estancia Carmen" was acquired on September 5, 2008 and has a surface area of 10,911 hectares. It is located in the Province of Santa Cruz, next to our "8 de Julio" farm.
 

 
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Cactus
 
The feedlot has a surface area of 171 hectares. It is located in Villa Mercedes, Province of San Luis. Given its degree of urban development and closeness to the city, we decided to discontinue fattening activities in this facility.
 
Las Vertientes
 
The “Las Vertientes” storage facility has a surface area of 4 hectares and 10,000 tons capacity, and is located in Las Vertientes, Río Cuarto, in the Province of Córdoba.
 
La Esperanza
 
In 2008 we acquired “La Esperanza” farm located in the Province of La Pampa with a surface area of 980 hectares. The transaction was agreed for a price of US$ 1.3 million that has been paid in full. During the year ended June 30, 2015, we used this farm solely for crop production.
 
Finca Mendoza
 
On March 2, 2011, the Company purchased, jointly with Zander Express S.A., a rural property composed of thirteen plots of land located in the District of Perdriel, Luján de Cuyo Department, in the Province of Mendoza. As a result of this acquisition, CRESUD has become owner of a 40% undivided estate in all and each of the properties, while Zander Express S.A. holds the remaining 60%. The total agreed price for this transaction was US$ 4.0 million; therefore, the amount of US$ 1.6 million was payable by CRESUD.
 
Bolivia
 
Las Londras
 
On January 22, 2009, the bill of purchase for "Las Londras" farm was cast into public deed; it has a surface area of 4,566 hectares, and is located in the Province of Guarayos, Republic of Bolivia. During the 2014/2015 farm season it was used for crop production.
 
San Rafael
 
On November 19, 2008, the bill of purchase for "San Rafael" farm was cast into public deed. This farm is located in the Province of Guarayos, Republic of Bolivia, and has a surface area of 2,969 hectares, which were used for crop production during the 2014/2015 farm season.
 
Cuatro Vientos
 
On June 3, 2011, we executed the purchase agreement for the “Cuatro Vientos” farm, with a surface area of approximately 2,658 hectares, allocated to sugarcane production. Its purchase price was US$ 8.4 million.
 
La Primavera
 
On June 7, 2011 we acquired “La Primavera” farm, with a surface area of approximately 2,340 hectares. During the 2014 season, this farm was used for crop production.
 
Brazil (through our subsidiary Brasilagro)
 
Jatobá
 
Jatobá is a farm in the northeastern region of Brazil, with a total surface area of 31,606 hectares, 10,731 of which are intended for agriculture. Jatobá was acquired in March 2007 for BRL 33 million. We consider that this farm is in a very advantageous location for the movement of crops, as it is close to the Candeias Port, in the State of Bahia.
 
Araucária
 
Araucária is a farm located in the municipal district of Mineiros, in the State of Goiás, and it has a total surface area of 8,124 hectares, 4,844 of which are used for agriculture. Araucaria was acquired in 2007 for BRL 70.4 million. Before we purchased it, Araucária had been used for grain planting. The farm was transformed, and at present it is planted with sugarcane.
 
Alto Taquarí
 
Alto Taquarí is located in the municipal district of Alto Taquarí, State of Mato Grosso, and it has a total surface area of 5,396 hectares, 3,622 of which are used for agriculture. The farm was acquired in August 2007 for BRL 33.2 million. Before we purchased it, the farm had been used for agriculture and Cattle raising. Following its transformation, it is being used for sugarcane production.
 
Chaparral
 
Chaparral is a 37,183-hectare farm, with 13,073 hectares used for agriculture. It is located in the municipal district of Correntina, State of Bahia. The farm was acquired in November 2007 for BRL 47.9 million.
 
Nova Buriti
 
Located in the municipal district of Januária, State of Minas Gerais, Nova Buriti has a surface area of 24,212 hectares, 19,004 of which are suitable for agriculture. Nova Buriti was acquired in December 2007 for BRL 21.6 million. It is located in the southeastern region of Brazil and it is close to the large iron industries. At present, it is undergoing proceedings for obtaining the environmental licenses required for starting operations.
 

 
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Preferencia
 
Preferencia is located in the municipal district of Barreiras, in the State of Bahia. It has a total surface area of 17,799 hectares, 6,554 of which are used for cattle activities. It was acquired for R$ 9.6 million in September 2008. The farm is being transformed into a pasturing area and will be later developed for agricultural purposes.
 
Paraguay (through our subsidiary Brasilagro)
 
Jeroviá / Marangatú /Udra
 
Cresud, through Brasilagro, who is in turn shareholder of CRESCA, holds a 50%  undivided interest in the “Jeroviá”, “Marangatú” and “UDRA” farms and related undeveloped plots of land, all of them located in Mariscal José Félix Estigarribia, Department of Boquerón, Paraguayan Chaco, Republic of Paraguay, totaling 117,508 hectares.
 
Silos
 
As of June 30, 2015, we had a storage capacity of approximately 27,341 tons (including 35.723% of the storage capacity of over 14,950 tons available at Agro-Uranga S.A.).
 
The following table shows, for the fiscal years presented, our storage facilities:
 
     As of year ended June 30,  
   
2015(2)
    
2014(2)
    
2013(2)
    
2012(2)
  
Las Vertientes (1)
     10,000       10,000       10,000       10,000  
San Nicolás (1)
     5,341       5,341       5,341       5,341  
Brasilagro
     12,000       74,000       74,000       74,000  
Total
     27,341       89,341       89,341       89,341  
 
(1) Owned by us through Agro-Uranga (which represents 35.723% of the total capacity).
(2) Includes Brasilagro.
 
Land Management
 
In contrast to traditional Argentine farms, run by families, we centralize policy making in an Executive Committee that meets on a weekly basis in Buenos Aires. Individual farm management is delegated to farm managers who are responsible for farm operations. The Executive Committee lays down commercial and production rules based on sales, market expectations and risk allocation.
 
We rotate the use of our pasture lands between agricultural production and cattle feeding and the frequency depends on the location and characteristics of the farmland. The use of preservation techniques (including exploitation by no till sowing) frequently allows us to improve farm performance.
 
Subsequent to the acquisition of the properties, we make investments in technology in order to improve productivity and increase the value of the property. It may be the case that upon acquisition, a given extension of the property is under-utilized or the infrastructure may be in need of improvement. We have invested in traditional fencing and in electrical fencing, watering troughs for cattle herds, irrigation equipment and machinery, among other things.
 
Principal Markets
 
Crops
 
Our crop production is mostly sold in the domestic market. The prices of our grains are based on the market prices quoted in Argentine grains exchanges such as the Buenos Aires Grains Exchange (Bolsa de Cereales de Buenos Aires) and the cereal exchanges in each country, that take as reference the prices in international grains markets. The largest part of this production is sold to exporters who offer and ship this production to the international market. Prices are quoted in relation to the month of delivery and the port in which the product is to be delivered. Different conditions in price, such as terms of storage and shipment, are negotiated between the end buyer and ourselves.
 
Cattle
 
Our beef cattle production is sold in the local market. The main buyers are slaughterhouses and supermarkets.
 
Prices in the beef cattle market in Argentina are basically fixed by local supply and demand. The Liniers Market (on the outskirts of the Province of Buenos Aires) provides a standard in price formation for the rest of the domestic market. In this market live animals are sold by auction on a daily basis. At Liniers Market, prices are negotiated by kilogram of live weight and are mainly determined by local supply and demand. Prices tend to be lower than in industrialized countries. Some supermarkets and meat packers establish their prices by kilogram of processed meat; in these cases, the final price is influenced by processing yields.
 
Dairy
 
During fiscal year 2015 we sold our entire milk production to the largest Argentine dairy company, Mastellone S.A., which in turn manufactures a range of mass consumption dairy products sold in Argentina and abroad. The price of the milk we sell is mainly based on the percentage of fat and protein that it contains and the temperature at which it is cooled. The price we obtain from our milk also rises or drops based on the content of bacteria and somatic cells.
 

 
64
 
 
Customers
 
For the fiscal year 2015 our sales from the agribusiness segment (excluding sales of farms) were made to approximately 300 customers. Sales to our ten largest customers represented approximately 45% to 50% of our net sales. Of these customers, our biggest three customers were, Mastellone Hnos. S.A., Brenco Companhia Brasileira de Energia Renovável and Molinos Río de la Plata S.A. We have signed non-binding letters of intent with some of our largest customers that allow us to estimate the volume of the demand for certain products and to plan production accordingly. We generally enter into short-term agreements with a term of less than a year.
 
Marketing Channels and Sales Methods
 
Crops
 
We normally work with grains brokers and other intermediaries to trade in the exchanges. We sell part of our production in advance through futures contracts and buy and sell options to hedge against a drop in prices. Approximately 87% of the futures and options contracts are closed through the Buenos Aires Grains Exchange and 13% in the Chicago Board of Trade for hedging purposes.
 
Our storage capabilities allow us to condition and store grains with no third-party involvement and thus to capitalize the fluctuations in the price of commodities. Our largest storage facilities in Argentina, with capacity for 10,000 tons, are located in “Las Vertientes”, close to Río Cuarto, Province of Córdoba. In addition, we store grains in silo bags. On the other hand, in Brazil we have a total storage capacity of 90,200 tons.
 
Cattle
 
We have several marketing channels. We sell directly to local meat processors and supermarkets, as well as in markets and auctions. Our customers include Arre Beef S.A., Frigorífico Bermejo, Quickfood S.A., Frigorífico Forres Beltrán S.A., Madelán S.A., Colombo y Colombo S.A., Iván O’Farrell S.R.L. and Colombo y Magliano S.A., for prices based on the price at Liniers Market.
 
We usually are responsible for the costs of the freight to the market and, in general, we pay commissions on our transactions.
 
Inputs
 
The current direct cost of our production of grains varies in relation to each crop and normally includes the following costs: tillage, seeds, agrochemicals and fertilizers. We buy in bulk and store seeds, agrochemicals and fertilizers to benefit from discounts offered during off-season sales.
 
Competition
 
The agricultural and livestock sector is highly competitive, with a huge number of producers. We are one of the leading producers in Argentina and the region. However, if we compare the percentage of our production to the country’s total figures, our production would appear as extremely low, since the agricultural market is highly atomized. Our leading position improves our bargaining power with suppliers and customers. In general, we obtain discounts in the region in the acquisition of raw materials and an excess price in our sales.
 
Historically, there have been few companies competing for the acquisition and leases of farmlands for the purpose of benefiting from land appreciation and optimization of yields in the different commercial activities. However, we anticipate the possibility that new companies, some of them international, may become active players in the acquisition of farmlands and the leases of sown land, which would add players to the market in coming years.
 
Seasonality
 
As is the case with any company in the agro-industrial sector, our business activities are inherently seasonal. Harvest and sales of corn and soybean in general take place from March to September. Sunflower is harvested from December to May. Wheat is harvested from October to January. Peanut is harvested from April to July. With respect to our international market, in Bolivia climate conditions allow a double season of soybean, corn and sorghum production and, accordingly, these crops are harvested in March and October, while wheat and sunflower are harvested between August and September. Other segments of our activities, such as our sales of cattle and milk and our forestry activities tend to be more of a successive character than of a seasonal character. However, the production of beef and milk is generally higher during the second quarter, when pasture conditions are more favorable. In consequence, there may be significant variations in results from one quarter to the other.
 
For information about main indicators for the fiscal years ended in June 30, 2015, 2014 and 2013, please see Section “B. Business Overview.”
 
Regulation and Government Supervision of our Agricultural Business
 
Farming and Animal Husbandry Agreements
 
Agreements relating to farming and animal husbandry activities are regulated by Argentine law, the Argentine Civil and Commercial Code and local customs.
 
According to Law No. 13,246, as amended by Law No. 22,298, all lease agreements related to rural properties and land are required to have a minimum duration of 3 years. Upon death of the tenant farmer, the agreement may continue with his successors. Upon misuse of the land by the tenant farmer or default on payment of the rent, the land owner may initiate an eviction proceeding.
 
Law No. 13,246, amended by Law No. 22,298, also regulates agreements for crop sharing pursuant to which one of the parties furnishes the other with farmland animals or land with the purpose to share benefits between tenant farmer and land owner. These agreements are required to have a minimum term of duration of 3 years. The tenant farmer must perform the obligations under the agreement himself and may not, assign it under any circumstances. Upon death, incapacity of the tenant farmer or other impossibility, the agreement may be terminated.
 

 
65
 
 
Quality control of Crops and Cattle
 
The quality of the crops and the health measures applied on the cattle are regulated and controlled by the Servicio Nacional de Sanidad y Calidad Agroalimentaria (“SENASA”), which is an entity within the Ministry of Economy and Public Finance that over sees the farming and animal sanitary activities.
 
Argentine law establishes that the brands should be registered with each provincial registry and that there cannot be brands alike within the same province.
 
Sale and Transportation of Cattle
 
Even though the sale of cattle is not specifically regulated, general contract provisions are applicable. Further, every province has its own rural code regulating the sale of cattle.
 
Argentine law establishes that the transportation of cattle is lawful only when it is done with the respective certificate that specifies the relevant information about the cattle. The required information for the certificate is established by the different provincial regulations, the inter-provinces treaties and the regulations issued by the SENASA.
 
Export Restriction of Beef
 
In addition, the Secretary of Agriculture, Livestock, Fishing and Food Products, within the orbit of the Ministry of Economy and Public Finance, oversees the farming and animal sanitary activities.
 
The Secretary of Agriculture, Livestock, Fishing and Food Products is in charge of distributing the annual regular quota of top quality chilled beef without bones, the “Cuota Hilton.” The destination of the Cuota Hilton is the European Union.
 
The Secretary of Agriculture, Livestock, Fishing and Food Products granted to our subsidiary Sociedad Anónima Carnes Pampeanas up to 1,175.85 tons to export beef under the Cuota Hilton for the July 2014-June 2015 period.
 
Environment
 
The development of our agribusiness activities depends on a number of federal, provincial and municipal laws and regulations related to environmental protection.
 
We may be subject to criminal and administrative penalties, including taking action to reverse the adverse impact of our activities on the environment and to reimburse third parties for damages resulting from contraventions of environmental laws and regulations. Under the Argentine Criminal Code, persons (including directors, officers and managers of corporations) who commit crimes against public health, such as poisoning or dangerously altering water, food or medicine used for public consumption and selling products that are dangerous to health, without the necessary warnings, may be subject to fines, imprisonment or both. Some courts have enforced these provisions in the Argentine Criminal Code to sanction the discharge of substances which are hazardous to human health. At the administrative level, the penalties vary from warnings and fines to the full or partial suspension of the activities, which may include the revocation or annulment of tax benefits, cancellation or interruption of credit lines granted by state banks and a prohibition against entering into contracts with public entities.
 
The Forestry Legislation of Argentina prohibits the devastation of forests and forested lands, as well as the irrational use of forest products. Landowners, tenants and holders of natural forests require an authorization from the Forestry Competent Authority for the cultivation of forest land. The legislation also promotes the formation and conservation of natural forests in properties used for agriculture and farming purposes.
 
As of June 30, 2015, we owned land reserves extending over 356,907 hectares, which are located in under-utilized areas where agricultural production is not yet fully developed. We also have 107,584 hectares under concession as reserves for future developments. We believe that technological tools are available to improve the productivity of such land and enhance its long-term value. However, existing or future environmental regulations may prevent us from developing our land reserves, requiring us to maintain a portion of such land as unproductive land reserves.
 
In accordance with legislative requirements, we have applied for approval to develop certain parts of our land reserves and were authorized to develop them partially and to maintain other areas as land reserves.  We cannot assure you that current or future development applications will be approved, and if so, to what extent we will be allowed to develop our land reserves. We intend to use genetically modified organisms in our agricultural activities. In Argentina, the development of genetically modified organisms is subject to special laws and regulations and special permits.
 
On November 28, 2007, Argentine Congress passed a law known as the Forest Law which sets minimum standards for the conservation of native forests and incorporates minimum provincial expenditures to promote the protection, restoration, conservation and sustainable use of native forests. The Forest Law prevents landowners, including owners of native forests, from deforesting or converting forested areas into non-forested land for other commercial uses without prior permission from each local government that gives the permit and requires the preparation, assessment and approval of an environmental impact report. The Forest Law also provides that each province should adopt its own legislation and regional regulation map within a term of one year. Until such provincial implementation is carried into effect, no new areas may be deforested. In addition, the Forest Law also establishes a national policy for sustainable use of native forests and includes the recognition of native communities and aims to provide preferential use rights to indigenous communities living and farming near the forest. In case a project affects such communities, the relevant provincial authority may not issue permits without formal public hearings and written consent of the communities.
 
In addition, the Rules issued by the CNV provide that publicly traded companies whose corporate purpose includes environmentally hazardous activities should report to their shareholders, investors and the general public their compliance with the applicable environmental laws and risks inherent to such activities, so as to be able to reasonably assess such hazards.
 

 
66
 
 
Our activities are subject to a number of national, provincial and municipal environmental regulations. Section 41 of the Argentine Constitution, as amended in 1994, provides that all Argentine inhabitants have the right to a healthy and balanced environment fit for human development and have the duty to preserve it. Environmental damage shall bring about primarily the obligation to redress it as provided by applicable law. The authorities shall protect this right, the rational use of natural resources, the preservation of the natural and cultural heritage and of biodiversity, and shall also provide for environmental information and education. The National Government shall establish minimum standards for environmental protection and Provincial and Municipal Governments shall determine specific standards and issue the applicable regulations.
 
On November 6, 2009, the Argentine Congress passed Law No. 25,675. This law regulates the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and sets environmental policy goals. Moreover, Law No. 25,675 establishes the activities that will be subject to an environmental impact assessment procedure and certain requirements applicable thereto. In addition, the Law sets forth the duties and obligations that will be triggered by any damage to the environment and imposes the obligation to restore it to its former condition or, if that is not technically feasible, to pay a compensation in lieu thereof. The Law also fosters environmental education and provides for certain minimum obligations to be fulfilled by natural and artificial persons.
 
The new Argentine Civil and Commercial Code has introduced as a novel feature the acknowledgement of collective rights, including the right to a healthy and balanced environment. Accordingly, the Argentine Civil and Commercial Code expressly sets forth that the law does not protect an abusive exercise of individual rights if such exercise could have an adverse impact on the environment and the rights with a collective impact in general.
 
Other Regulations
 
Consumer Relationship. Consumer or End User Protection. The Argentine Constitution expressly establishes in Article 42 that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts.
 
The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party of the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a mass-market economy where standard form contracts are widespread.
 
As a result, the Consumer Protection Law and the Argentine Civil and Commercial Code deem void and unenforceable certain contractual provisions included in consumer contracts entered into with consumers or end users, including those which:
 
·  
deprive obligations of their nature or limit liability for damages;
 
·  
imply a waiver or restriction of consumer rights and an extension of seller rights; and
 
·  
impose the shifting of the burden of proof against consumers.
 
In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party was entitled, including closing down of establishments for a term of up to 30 days.
 
The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services free of charge or for a price for their own final use or benefit or that of their family or social group. In addition, both laws provide that those who though not being parties to a consumer relationship as a result thereof acquire or use goods or services, for consideration or for non-consideration, for their own final use or that of their family or social group are entitled to such protection rights in a manner comparable to those engaged in a consumer relationship.
 
In addition, the Consumer Protection Law defines the suppliers of goods and services as the individuals or legal entities, either public or private, that in a professional way, even occasionally, produce, import, distribute or commercialize goods or supply services to consumers or users.
 
The Argentine Civil and Commercial Code defines a consumer agreement as such agreement that is entered into between a consumer or end user and an individual or legal entity that acts professionally or occasionally or a private or public company that manufactures goods or provides services, for the purpose of acquisition, use or enjoyment of goods or services by consumers or users for private, family or social use.
 
It is important to point out that the protection under the laws afforded to consumers and end users encompasses the entire consumer relationship process (from the offering of the product or service) and it is not only based on a contract, including the consequences thereof.
 
In addition, the Consumer Protection Law establishes a joint and several liability system under which for any damages caused to consumers, if resulting from a defect or risk inherent in the thing or the provision of a service, the producer, manufacturer, importer, distributor, supplier, seller and anyone who has placed its trademark on the thing or service shall be liable.
 
The Consumer Protection Law excludes the services supplied by professionals that require a college degree and registration in officially recognized professional organizations or by a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
 
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers, binds the offeror during the period in which the offer takes place and until its public revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and are considered part of the contract entered into by the consumer.
 

 
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Pursuant to Resolution No. 104/05 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Economy, the Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercorsur's Common Market Group which requires that those who engage in commerce over the Internet (E-Business) shall disclose in a precise and clear manner the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and gives rise to sanctions.
 
On September 17, 2014, the Consumer Protection Law was modified by the enactment of Law Nº 26,993, which is called “System for Conflict Resolution in Consumer Relationships” as it provides for the creation of new administrative and judicial procedures for this field of Law. It has created a two-instance administrative system: the Preliminary Conciliation Service for Consumer Relationships (Servicio de Conciliación Previa en las Relaciones de Consumo, COPREC) and the Consumer Relationship Audit, and a number of courts assigned to resolution of conflicts between consumers and producers of goods and services (Fuero Judicial Nacional de Consumo). In order to file a claim, the amount so claimed should not exceed a fixed amount equivalent to 55 adjustable minimum living wages, which are determined by the Ministry of Labor, Employment and Social Security. The claim is required to be filed with the administrative agency. If an agreement is not reached between the parties, the claimant may file the claim in court. The administrative system known as Preliminary Conciliation Service for Consumer Relationships (COPREC) is currently in full force and effect. However, the court system (fuero judicial nacional de consumo) is not in force yet, therefore, any court claims should be currently filed with the existing applicable courts. A considerable volume of claims filed against us are expected to be settled pursuant to the system referred to above, without disregarding the full force and effect of different instances for administrative claims existing in the provincial sphere and the City of Buenos Aires, which remain in full force and effect, where potential claims related to this matter could also be filed.
 
Antitrust Law
 
Law No. 25,156, as amended, prevents trust practices and requires administrative authorization for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar operations by which the acquirer controls or substantially influences a company, are considered as an economic concentration. Whenever an economic concentration involves a company or companies and the aggregate volume of business of the companies concerned exceeds in Argentina the amount of Ps. 200.0 million, in such case the respective concentration should be submitted for approval to the CNDC. The request for approval may be filed, either prior to the transaction or within a week after its completion.
 
When a request for approval is filed, the CNDC may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions, or (iii) reject the authorization. 
 
The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets absorbed, acquired, transferred or controlled in Argentina, do not exceed Ps. 20.0 million each are exempted from the administrative authorization. Notwithstanding the foregoing, when the transactions effected by the companies concerned during the prior 12-month period exceed in the aggregate Ps. 20.0 million or Ps. 60.0 million in the last 36 months, these transactions must be notified to the CNDC.
 
As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed Ps. 200.0 million, we should give notice to the CNDC of any concentration provided for by the Antitrust Law.
 
Taxes on the Transfer of Property and Sale of Meat and Grains
 
Value Added Tax. This tax is applicable to the sale of personal property, the hiring of works, the rendering of services and the import of goods and services operated in Argentina. The general tax rate is 21%.
 
The value added tax law imposes a reduced rate, equal to 10.5% on the sale price of live animals (including cattle, sheep, camels and goats) as well as their meat and edible remains, fruits and vegetables, all of which whether fresh, chilled, or frozen, which have not undergone any cooking or manufacturing process turning them into a manufactured product. This 10.5% reduced rate is also applicable to the sale of grains (cereals and oilseeds, excluding rice), and dry pulses (beans, peas, and lentils). In the case of milk, the sale is subject to a 21% rate (except for sales to final consumers, the federal government, the provinces, municipalities or the City of Buenos Aires or any subordinate agencies, school or university kitchens, health funds or entities under the scope of paragraphs e), f), g) and m) of Section 20 of the Income Tax Law, which are exempt).
 
The sale of land and immovable property is not subject to this tax.
 
Gross Sales Tax. This is a local tax (collected by the provinces and the City of Buenos Aires) that levies gross revenues derived from the ordinary development of a given business for profit. When the same business is developed in more than one jurisdiction, the tax is applicable pursuant to the regulations set forth in the Multilateral Agreement, which establishes the proportions allocable to each of the jurisdictions involved, so as to prevent double or multiple taxation. In the City of Buenos Aires, gross revenues derived from livestock raising and milk production are subject to this tax at a general rate of 1%. In certain provinces, the sale or primary goods is not taxable.
 
Stamp Tax. This is a local tax that 23 provinces and the City of Buenos Aires collect based on similar rules regarding subject matter, tax base and rates. In general, this tax is levied on instrumented acts, i.e. executed and delivered by means of documents (e.g. acts related to the constitution, transmission, or expiration of rights, contracts, contracts for sales of stock and company shares, public deeds relating to real property, etc.).
 
Both in the Province and the City of Buenos Aires (federal district) the stamp tax rate applicable to the transfer by public deed of real property is 3.6%. The purchase and sale of real estate through public deed, however, is not taxable –up to a certain value of the property- if the real estate is used for permanent dwelling purposes, and provided that it is the only property owned by the purchaser.

 
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IRSA’s Segments – Urban properties and investments
 
As of June 30, 2015, our investment in IRSA’s common shares amounts to 64.30%.
 
The following information corresponds to data of the segments extracted from our subsidiary IRSA Inversiones y Representaciones S.A.’s Annual Report and Financial Statements as of June 30, 2015.
 
The revenue figures for fiscal year 2015 described in the different tables correspond to the twelfth-month period reported in IRSA’s Financial Statements.
 
Offices
 
IRSA, through IRSA Commercial Properties, is engaged in the acquisition and management of office buildings and other rental properties in Argentina. As of June 30, 2015, IRSA directly and indirectly owned interests in office and other rental properties in Argentina, which comprised 254,730 square meters of gross leasable area. Out of these properties, 9 were office properties, which comprised 111,679 square meters of gross leasable area. For fiscal year 2015, we had revenues from Offices and other non-shopping center rental properties of Ps. 332.7 million.
 
All our office rental properties in Argentina are located in the City of Buenos Aires. For the year ended June 30, 2015, the average occupancy rate for all our properties in the Offices segment was approximately 91.7%.
 
On December 22, 2014, IRSA Commercial Properties acquired from IRSA, 83,789 m2 of its premium office portfolio including the buildings República, Bouchard 710, Della Paolera 265, Intercontinental Plaza and Suipacha 652 and the “Intercontinental II” plot of land in order to consolidate a vehicle which main corporate purpose is to develop and operate commercial properties in Argentina.
 
The purcase price of the transaction was US$308 million based on third party appraisals, US$61.6 million of which have already been paid,and the balance of US$246.4 million has been financed by IRSA at an annual effective rate of 8.5% maturing on January 23, 2017 and July 13, 2020.
 
Management
 
IRSA generally acts as the managing agent of the office properties in which we own an interest. These interests consist primarily of the ownership of entire buildings or a substantial number of floors in a building. The buildings in which we own floors are generally managed pursuant to the terms of a condominium agreement that typically provides for control by a simple majority of the interests (based on the area owned) in the building. As the managing agent of operations, we are responsible for handling services, such as security, maintenance and housekeeping. These services are generally outsourced. The cost of the services is passed-through and paid for by the tenants, except in the case of our units not rented, in which case we absorb the cost. Our leasable space is marketed through commissioned brokers, the media and directly by us.
 
Leases
 
IRSA usually leases our offices and other rental properties by using contracts with an average term of three years, with the exception of a few contracts with terms of five years. These contracts are renewable for two or three years at the tenant’s option. Contracts for the rental of office buildings and other commercial properties are generally stated in U.S. Dollars, and in accordance with Argentine law they are not subject to inflation adjustment. Rental rates for renewed periods are negotiated at market value.
 
Properties
 
The following table sets forth certain information regarding our direct and indirect ownership interest in offices and other non-shopping center rental properties:
 

 
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Annual accumulated rental income over fiscal years Ps./000(4)
        
     
Date of Acquisition
      
Gross Leasable Area (sqm) (1)
      
Occupancy (2)
      
IRSA’s Effective Interest
     Monthly Rental Income (in thousands of Ps.) (3)      
2015
      
2014
      
2013
      
Book Value
(in thousands of Ps.)
  
Offices
                                                      
Edificio República
  
04/28/08
       19,885       93.6 %     100.0 %     4,919       61,934       45,676       32,721       195,539  
Torre BankBoston
  
08/27/07
       14,873       100.0 %     100.0 %     3,954       41,932       34,744       25,146       134,924  
Bouchard 551
  
03/15/07
       -       -       100.0 %     135       10,176       23,519       30,008       8,226  
Intercontinental Plaza(8)
  
11/18/97
       22,535       100.0 %     100.0 %     -       55,973       40,108       30,178       48,783  
Bouchard 710
  
06/01/05
       15,014       100.0 %     100.0 %     4,170       48,327       34,606       26,025       82,044  
Dique IV, Juana Manso 295
  
12/02/97
       11,298       99.5 %     100.0 %     2,634       32,171       25,195       18,282       56,266  
Maipú 1300 (9)
  
09/28/95
       4,759       90.9 %     100.0 %     1,020       15,848       15,499       15,147       18,366  
Libertador 498
  
12/20/95
       620       100.0 %     100.0 %     372       1,952       3,184       2,946       4,511  
Suipacha 652/64
  
11/22/91
       11,453       96.7 %     100.0 %     1,385       16,023       12,636       8,689       13,711  
Madero 1020
  
12/21/95
       -       -       100.0 %     2       26       24       24       120  
Dot Building (5)
  
11/28/06
       11,242       100.0 %     80.0 %     2,067       27,416       18,985       12,924       126,365  
Subtotal Offices
           111,679       98.1 %     N/A       20,658       311,778       254,176       202,090       688,855  
                                                                       
Other Properties
                                                                      
Nobleza Picardo (6)
  
05/31/11
       106,610       74.8 %     50.0 %     144       7,960       8,238       7,117       4,297  
Other Properties (7)
     N/A       36,441       45.3 %     N/A       659       6,960       2,792       2,000       82,264  
Subtotal Other Properties
             143,051       67.4 %     N/A       803       14,920       11,030       9,117       86,561  
                                                                         
Total Offices (7)
             254,730       80.7 %     N/A       21,461       326,698       265,206       211,207       775,416  
 
(1) Corresponds to the total leasable surface area of each property as of June 30, 2015. Excludes common areas and parking spaces.
(2) Calculated by dividing occupied square meters by leasable area as of June 30, 2015.
(3) The lease agreements in effect as of June 30, 2015 were computed for each property.
(4) Corresponds to total consolidated lease agreements.
(5) Through IRSA Commercial Properties.
(6) Through Quality Invest S.A.
(7) Includes the following properties: Anchorena 665, Zelaya 3102, 3103 y 3105, Rivadavia 2768, Constitución 1111, Santa Maria del Plata, Puerto Retiro Plots 50%, Rio Parcel 50%, Libertador Parcel 50%.
(8) During May, 2015, IRSA reported that, through IRSA Commercial Properties, has signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, IRSA sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.”
(9) During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
 
The following table shows a schedule of the lease expirations of our office and other properties for leases outstanding as of June 30, 2015, assuming that none of the tenants exercise renewal options or terminate their lease early. Most tenants have renewal clauses in their leases.
 
Year of
expiration
  
Number of
Leases (1)
    
Surface area subject
to expiration (sqm)
(2) (3)
    
Percentage subject
to expiration
    
Amount
(Ps. ‘000)
    
Percentage of
Leases
  
2015
     21       36,077       11 %     34,851       10 %
2016
     44       39,579       12 %     101,819       30 %
2017
     61       70,084       22 %     147,468       44 %
2018+
     26       171,372       54 %     54,468       16 %
Total
     152       317,112       100 %     338,606       100 %
 
(1)  Includes Offices, the lease agreement of which has not yet been renewed as of June 30, 2015.
(2)  Does not include vacant leased square meters.
(3)  Does not include square meters or revenues from parking spaces.
 

 
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The following table shows our offices occupancy percentage (1) as of the end of fiscal years ended June 30, 2015 and 2014:
 
   
Occupancy Percentage(1)
  
   
2015
    
2014
  
Offices
            
Edificio República
     93.6 %     94.0 %
Torre BankBoston
     100.0 %     100.0 %
Bouchard 551
     -       100.0 %
Intercontinental Plaza(2)
     100.0 %     100.0 %
Bouchard 710
     100.0 %     99.8 %
Dique IV, Juana Manso 295
     99.5 %     94.4 %
Maipú 1300 (3)
     90.9 %     87.3 %
Libertador 498
     100.0 %     100.0 %
Suipacha 652/64
     96.7 %     100.0 %
DOT Building
     100.0 %     100.0 %
Subtotal Offices
     98.1 %     97.7 %

 
(1) Leased surface area in accordance with agreements in effect as of June 30, 2015 and 2014 as applicable.
(2) During May, 2015, we reported that, through IRSA Commercial Properties, we have signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, we sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.
(3) During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
 
The following table sets forth the annual average income per square meter for our offices during fiscal years ended June 30, 2015, 2014 and 2013.
 
   
Annual average income per square meter (ps./sqm) (1)
  
   
2015(2)
    
2014(2)
    
2013(2)
  
Offices
  
 
    
 
    
 
  
Edificio República
     3,115       2,297       1,646  
Torre BankBoston
     2,819       2,336       1,691  
Bouchard 557
     -       -       2,484  
Intercontinental Plaza(4)
     2,484       1,780       1,339  
Bouchard 710
     3,219       2,305       1,733  
Dique IV, Juana Manso 295
     2,847       2,230       1,618  
Maipú 1300(5)
     3,330       3,257       1,612  
Libertador 498
     3,149       5,137       4,752  
Suipacha 652/64
     1,399       1,103       759  
DOT Building
     2,439       1,689       1,150  
Others(3)
     61       47       96  
   
 
(1) Calculated by dividing annual rental income by the gross leasable area of offices based on our interest in each building as of June 30 for each fiscal year.
(2) Leasable square meters vary depending on availability for rent of land reserves (Nobleza Piccardo, Ferro etc.).
(3) Includes the following properties: Nobleza Piccardo, Ferro, Dot Adjoining Plot and Chanta 4, Constitución 1111 and Rivadavia 2774.
(4) During May, 2015, we reported that, through IRSA Commercial Properties, we have signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, we sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.” 
(5) During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
  

 

 
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New agreements and renewals
 
The following table sets forth certain information on lease agreements as of June 30, 2015:
 
Property
  
Number of Agreements(1)(5)
    
Annual Rental Income (2)
(Ps. ‘000)
    
Rental Income per sqm New and Renewed(3)
(Ps.)
    
Previous Rental Income per sqm(3) (Ps.)
    
No. of Non-Renewed Agreements
    
Non-Renewed Agreements Annual Rental Income (4)
  
Maipú 1300 (7)
     7.0       6,862       179.1       125.0       -       -  
Av. Libertador 498
     1.0       1,109       149.1       -       -       -  
Intercontinental Plaza(6)
     17.0       40,828       191.6       -       -       -  
Bouchard 710
     7.0       33,005       234.2       333.3       -       -  
Bouchard 557
     2.0       5,997       253.3       -       -       -  
Della Paolera 265
     4.0       20,997       178.4       -       -       -  
Edificio República
     6.0       25,356       250.9       260.5       -       -  
Juana Manso 295
     4.0       27,770       211.6       -       -       -  
DOT Building
     1.0       3,885       218.1       -       -       -  
Suipacha 664
     2.0       2,493       75.4       34.6       -       -  
Total Offices
     51.0       168,302       205.5       97.5       -       -  
 
(1)  
Includes new and renewed agreements executed in fiscal year 2015.
(2)  
Agreements stated in US Dollars converted into Pesos at the exchange rate prevailing in the initial month of the agreement multiplied by 12 months.
(3)  
Monthly value.
(4)  
Agreements stated in US Dollars converted into Pesos at the exchange rate prevailing in the last month of the agreement, multiplied by 12 months.
(5)  
Does not include agreements of parking spaces, antennas or terrace space.
(6)  
During May, 2015, we reported that, through IRSA Commercial Properties, we have signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, we sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.”
(7)  
During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
 
Additional information about our Offices
 
Edificio República, City of Buenos Aires
 
Edificio República was designed by the renowned architect César Pelli (the designer of the World Trade Center in New York and the Petronas Towers in Kuala Lumpur). It is a unique premium office building in downtown Buenos Aires with approximately 19,885 gross leasable square meters and 178 parking spaces. The main tenants include Apache Energía, Estudio Beccar Varela, BASF Argentina S.A., ENAP Sipetrol Argentina S.A., Facebook Argentina S.R.L., BACS Banco de Crédito y Securitización S.A., among other.
 
Torre BankBoston, City of Buenos Aires
 
The Bank Boston tower is a modern office building located at Carlos Maria Della Paolera 265 in the City of Buenos Aires. It was designed by the renowned architect Cesar Pelli and has 27 floors and 60 parking spaces and 31,670 square meters of gross leasable area. We have a 47% ownership interest in the building. At present, its main tenants include Exxon Mobile and Kimberly Clark de Argentina, among other.
 
Bouchard 551, City of Buenos Aires
 
Bouchard 551, known as “Edificio La Nación”, is an office building we acquired in March 2007, located in the Retiro area close to the intersection of the Leandro N. Alem and Córdoba avenues and opposite Plaza Roma. The building is a 23-story tower covering a surface area of 2,900 square meters in the low floors that becomes smaller as it goes higher up to 900 square meters approximately, and parking for 116 units.
 
Intercontinental Plaza, City of Buenos Aires
 
Intercontinental Plaza is a modern 24-story building located next to the Intercontinental Hotel in the historic neighborhood of Montserrat in downtown City of Buenos Aires. We own 61% of the building, which has a surface averaging 22,535 square meters of gross leasable area and 321 parking spaces. The principal tenants currently include Danone Argentina S.A., Cresud, IRSA Commercial Properties, and Industrias Pugliese S.A., among other. Until June 30, 2015, our main tenants included Total Austral S.A. During May, 2015, IRSA reported that, through IRSA Commercial Properties, has signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, IRSA sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.”
 
Dique IV, Juana Manso 295, Puerto Madero, City of Buenos Aires
 
About mid-May 2009 we completed an office building located in Puerto Madero’s Dock IV. It is a luxury building with a leasable area of approximately 11,298 square meters composed of large and versatile spaces. Its lay-out is optimum both for companies that require smaller office space at an average 200 square meters and for corporations that need the entire floor. The building has nine office stories and retail stores in the first story. The main tenant in the building is Exxon Mobile.
 
 

 
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Bouchard 710, City of Buenos Aires
 
Bouchard 710 is an office building located in the Retiro area. The building is a 12-story tower, with an average area per floor of 1,251 square meters, with 165 units for car parking. Tenants include Sibille S.C. (KPMG), and Microsoft de Argentina S.A., Samsung Electronics Argentina S.A., Energy Consulting Services S.A., Chubb Argentina de Seguros S.A and Booking.com S.A., among other. It has 15,014 square meters of gross leasable area.
 
Maipú 1300, City of Buenos Aires
 
Maipú 1300 is a 23-story office tower opposite Plaza San Martín, a prime office zone facing Avenida del Libertador, an important north-to-south avenue. The building is also located within walking distance of the Retiro commuter train station, the city’s most important public transportation hub, connecting rail, subway and bus transportation. We own 4,758 sqm, with an average area per floor of 440 square meters. The building’s principal tenants currently include PPD Argentina S.A., TV Quality SRL, El Surco Compañía de Seguros and Petrolera San José. During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
 
Suipacha 652/64, City of Buenos Aires
 
Suipacha 652/64 is a 7-story office building located in the office district of the city. We own the entire building and 62 parking spaces. The building has unusually large floors, most measuring 1,580 square meters. The building’s principal tenants currently include Gameloft Argentina S.A., Monitor de Medios Publicitarios S.A, Organización de Servicios Directos Empresarios (OSDE) and Tarshop S.A., among other. It has 11,453 square meters of gross leasable area.
 
Libertador 498, City of Buenos Aires
 
Libertador 498 is a 27-story office tower at the intersection of three of the most important means of access to the city. This location allows for easy access to the building from northern, western and southern Buenos Aires. We are owners of 1 floor with an average area per floor of 620 sqm and approximately 100 parking spaces. This building features a unique design in the form of a cylinder and a circular view of the entire city. The main tenants include Sideco Americana S.A., Goldman Sachs Argentina LLC, Empresa Argentina de Soluciones Satelitales S.A., Japan Bank for the International Cooperation, Gates Argentina S.A., Kandiko S.A. and Allergan Productos Farmacéuticos S.A.
 
Dot Building, City of Buenos Aires
 
Panamerican Mall S.A., our subsidiary, developed an office building with a gross leasable area of 11,242 sqm adjacent to Dot Baires Shopping. This building was opened in July 2010, which meant our landing in the booming rental office corridor in the northern area of the City of Buenos Aires. The principal tenants include General Electric International Inc., Mallinckrodt Medical Arg. Limited, Carrier and Boston Scientific Argentina S.A., Astrazeneca S.A., Covidien S.A., etc.
 
Other Office Properties
 
We also have interests in other office properties, all of which are located in the City of Buenos Aires. These properties are either entire buildings or floors in buildings.
 
Retail and Other Properties
 
Our portfolio of rental properties as of June 30, 2015 includes 4 non-shopping center leasable properties that may be leased as shops on streets, a lot in industrial premises, land reserves or other properties for various uses. Most of these properties are located in the City of Buenos Aires, although some are located in other cities in Argentina. These properties include Constitución 1111, Solares de Santa María, Madero 1020, Zelaya 3102 and Rivadavia 2774.
 
Catalinas Norte Plot
 
On May 26, 2010, jointly with the Government of the City of Buenos Aires, we executed a deed of conveyance of title whereby we acquired a property located at Avenida Eduardo Madero 150, between Av. Córdoba and San Martín. The total price of the transaction was fixed in the amount of Ps. 95 million, Ps. 19 million of which were paid upon the execution of the preliminary sales agreement (on December 17, 2009), whereas the balance of Ps. 76 million was paid upon the execution of the deed on May 26, 2010.
 
Shopping Center Properties
 
We are engaged in purchasing, developing and managing shopping centers through our subsidiary, IRSA Commercial Properties. As of June 30, 2015, IRSA Commercial Properties operated and owned a majority interest in fifteen shopping centers in Argentina, seven of which are located in the City of Buenos Aires (Abasto, Alcorta Shopping, Alto Palermo, Patio Bullrich, Buenos Aires Design, Dot Baires Shopping and Distrito Arcos), two of which are located in the greater Buenos Aires metropolitan area (Alto Avellaneda and Soleil Premium Outlet) and the other ones located in different Argentine provinces: Alto NOA in the City of Salta, Alto Rosario in the City of Rosario, Mendoza Plaza in the City of Mendoza, Córdoba Shopping Villa Cabrera in the City of Córdoba, La Ribera Shopping in the City of Santa Fe, and Alto Comahue in the City of Neuquén.
 
As of June 30, 2015, we owned, through IRSA, 95.80% of IRSA Commercial Properties. The remaining shares are held by the public investor and traded on the Bolsa de Comercio de Buenos Aires and the related ADRs are listed and traded on the NASDAQ (USA) under the ticker “IRCP.”
 
As of June 30, 2015, IRSA Commercial Properties’s shopping centers comprised a total of 333,911.5 square meters of gross leasable area (“GLA”) (excluding certain space occupied by hypermarkets which are not our tenants). For fiscal year 2015, the occupancy rate of IRSA Commercial Properties’s shopping center portfolio was approximately 98.7%.
 
During fiscal year 2015 we opened two new shopping centers: “Distrito Arcos,” located in the area of Palermo, City of Buenos Aires, in December 2014 and “Alto Comahue,” located in the City of Neuquén, Argentine Patagonian region, in March 2015. Income from these new developments, were Ps. 22.9 million and Ps. 11.7 million, respectively.
 

 
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We centralized management of our shopping centers in IRSA Commercial Properties, which is responsible for providing common area electrical power, a main telephone switchboard, central air conditioning and other basic common area services.
 
The following table shows certain information concerning our IRSA Commercial Properties subsidiary’s shopping centers as of June 30, 2015:
 
 
Date of Acquisition
  
Leasable Area
sqm (1)
    
IRSA Commercial Properties’ Interest
(3)
    
Occupancy Rate
(2)
    
Accumulated Annual Rental Income as of fiscal year ended (4)
 
    
Book Value
(in thousands of Ps.)
(5)
  
                         2015       2014      2013        
Shopping Centers (6)
                                            
Alto Palermo
Nov-97
     19,545.0       100.00 %     99.7 %     295,285       244,214       196,001       221,506  
Abasto Shopping  (7)
Jul-94
     36,669.1       100.00 %     100.0 %     301,685       238,021       192,495       271,860  
Alto Avellaneda
Nov-97
     36,728.6       100.00 %     99.9 %     199,920       160,894       128,114       131,850  
Alcorta Shopping
Jun-97
     15,432.9       100.00 %     100.0 %     140,533       105,791       82,470       115,950  
Patio Bullrich
Oct-98
     11,636.2       100.00 %     100.0 %     98,359       79,374       66,424       106,248  
Alto NOA
Mar-95
     19,072.9       100.00 %     100.0 %     50,669       38,746       31,150       31,316  
Buenos Aires Design
Nov-97
     13,888.2       53.70 %     94.6 %     35,320       27,360       23,145       12,930  
Alto Rosario (7)
Nov-04
     28,395.6       100.00 %     97.9 %     137,639       100,072       78,743       115,908  
Mendoza Plaza
Dec-94
     42,039.5       100.00 %     96.1 %     91,694       74,110       61,928       102,781  
Dot Baires Shopping
May-09
     49,847.9       80.00 %     99.7 %     199,474       158,306       128,196       382,624  
Córdoba Shopping Villa Cabrera
Dec-06
     15,328.0       100.00 %     99.8 %     54,445       39,763       32,314       56,451  
Soleil Premium Outlet
Jul-10
     13,993.1       100.00 %     99.4 %     59,366       44,178       27,927       84,301  
La Ribera Shopping (8)
Aug-11
     9,750.3       50.00 %     99.3 %     13,068       9,360       7,236       21,185  
Distrito Arcos (9)
Dec-14
     12,127.3       90.00 %      97.3 %     22,934       -       -       229,800  
Alto Comahue (10)
Mar-15
     9,456.9        90.10 %      94.2 %     11,690       -       -       309,959  
TOTAL GENERAL
       333,911.5               98.7 %     1,712,081       1,320,189       1,056,143       2,194,669  
 
 
(1) Total leasable area in each property. Excludes common areas and parking spaces.
          
(2) Calculated dividing occupied square meters by leasable area on the last day of the fiscal year.
          
(3) IRSA Commercial Properties’ effective interest in each of its business units. IRSA has a 95.80% interest in IRSA Commercial Properties.
          
(4)Corresponds to total leases, consolidated according to IFRS. Does not include income relating to common maintenance expenses and collective promotion fund.
         
(5) Cost of acquisition plus improvements, less accumulated depreciation, plus adjustment for inflation, if applicable.
          
(6) Through IRSA Commercial Properties.
(7) Excludes Museo de los Niños (3,732 square meters in Abasto and 1,261 square meters in Alto Rosario).
(8) We jointly own La Ribera Shopping through a joint venture and therefore its results of operations are not consolidated with ours.
(9) Opening was on December 18, 2014.
(10) Opening was on March 17, 2015.
 
          

 

 
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Tenant Retail Sales(1)
 
The following table contains a breakdown of approximate total tenant retail sales in million Pesos at the shopping centers in which we had an interest for the fiscal years shown:
 
      As of June 30
   
2015
    
2014
    
2013
   
(In Ps.)
Abasto
     3,150.2       2,447.0       1,939.0  
Alto Palermo
     2,662.1       2,111.2       1,609.8  
Alto Avellaneda
     2,895.1       2,333.8       1,868.8  
Alcorta Shopping
     1,474.7       1,120.4       822.7  
Patio Bullrich
     888.5       689.3       548.3  
Alto NOA
     1,068.6       766.1       609.2  
Buenos Aires Design
     326.0       272.2       241.5  
Mendoza Plaza
     1,906.7       1,514.7       1,206.7  
Alto Rosario
     1,951.8       1,378.3       1,060.2  
Córdoba Shopping- Villa Cabrera
     756.0       546.6       432.9  
Dot Baires Shopping
     2,570.6       2,008.3       1,566.6  
Soleil Premium Outlet
     938.4       664.0       366.4  
La Ribera Shopping
     398.1       280.8       209.9  
Distrito Arcos (2)
     339.9       0.0       0.0  
Alto Comahue (3)
     182.1       0.0       0.0  
Total Sales
     21,508.7       16,132.8       12,482.0  
 
 (1) Retail sales based upon information provided to us by tenants and past owners. The amounts shown reflect 100% of the retail sales of each shopping center, although in certain cases we own less than 100% of such shopping centers. Excludes sales from the booths and spaces used for special exhibitions.
(2) Opening December 18, 2014.
(3) Opening March 17, 2015.
 
Expiration of lease agreements
 
The following table shows a schedule of lease expirations for our shopping center properties for leases in place as of June 30, 2015, assuming that none of the tenants will exercise renewal options or terminate their lease earlier:
 
Leases Agreements Expiration as of June 30
  
Number of Leases Agreements to Expire (1)
    
Square Meters of Leases to Expire
    
Square Meter Percentage of Leasses to Expire
    
Amount of Lease Agreement to Expire (Ps.) (3)
    
Percentage of Leases Agreements to Expire
  
2016
     633       105,333.7       31 %     321,158,626.4       38 %
2017
     413       62,978.6       19 %     209,324,015.3       25 %
2018
     393       66,763.5       20 %     205,918,292.3       24 %
2019 and subsequent years
     215       98,835.7       30 %     106,729,754.2       13 %
Total (2)
     1,654       333,911.5       100 %     843,130,688.2       100 %
 
(1)  
Includes vacant stores relating to leases expired as of June 30, 2015. A lease agreement may be associated to one or more premises.
(2)  
Includes the base rent and does not reflect our ownership interest in each property.
(3)  
Annual basic rent as of June 30, 2015 under leases subject to expiration.
 

 
75
 
 
New Agreements and Renewals
 
The following table shows certain Information about lease agreements as of June 30, 2015:
 
                             
Average Annual Base Rent per sqm (Ps.)
      
Average Annual Base Rent per sqm (Ps.)
                  
 
Type of Business
    
Number of Agreements
      
Annual Base Rent Amount (Ps.)
      
Annual Admission Rights Amount (Ps.)
      
New and renewed
      
Former agreements
      
Number of non-renewed agreements (1)
      
Non-renewed agreements (1) Annual Base Rent Amount (Ps.)
  
Clothes and footwear
     391       223,614,392.90       61,844,417.00       5,314.50       4,036.40       581       307,355,562.50  
Miscellaneous
     90       47,196,397.60       19,970,450.30       3,160.80       2,415.70       137       49,714,790.90  
Restaurant
     88       35,261,497.90       6,666,073.80       3,848.60       2,698.70       125       53,098,038.70  
Home
     42       15,560,441.90       4,102,247.30       2,822.10       2,815.30       50       20,824,495.80  
Services
     27       7,061,303.30       978,818.40       1,541.90       1,155.50       42       9,410,003.90  
Technology
     23       15,404,643.00       1,849,358.60       2,500.70       2,122.50       31       35,472,465.20  
Entertainment
     5       1,636,560.00       5,000.00       150.4       86.2       22       21,520,094.60  
 Total
     666       345,735,236.60       95,416,365.40       3,705.50       2,841.70       988       497,395,451.60  
 
(1) Includes vacant stores as of June 30, 2015. Leasable Area with respect to such vacant stores is included under the type of business of the last tenant to occupy such stores
 
Occupancy Rate
 
The following table shows the occupancy rate as a percentage of gross leasable area as of the closing dates of the fiscal years set forth below:
 
   
As of June 30
  
   
2015
    
2014
    
2013
  
Abasto
     100.0 %     99.4 %     99.8 %
Alto Palermo
     99.7 %     98.9 %     98.4 %
Alto Avellaneda
     99.9 %     99.5 %     99.9 %
Alcorta Shopping
     100.0 %     99.8 %     99.8 %
Patio Bullrich
     100.0 %     99.6 %     99.7 %
Alto NOA
     100.0 %     99.7 %     99.7 %
Buenos Aires Design
     94.6 %     92.3 %     99.0 %
Mendoza Plaza
     96.1 %     95.0 %     97.7 %
Alto Rosario
     97.9 %     97.0 %     97.1 %
Córdoba Shopping Villa Cabrera
     99.8 %     99.8 %     100.0 %
Dot Baires Shopping
     99.7 %     99.7 %     99.4 %
Soleil Premium Outlet
     99.4 %     100.0 %     100.0 %
La Ribera Shopping
     99.3 %     99.6 %     97.7 %
Distrito Arcos (1)
     97.3 %     -       -  
Alto Comahue (2)
     94.2 %     -       -  
Weighted Average
     98.7 %     98.4 %     99.1 %
 
(1)  Opening December 18, 2014.
(2)  Opening March 17, 2015.
 
Rental Price
 
The following table shows the annual average accumulated rental price per square meter for the fiscal years ended June 30, 2015, 2014 and 2013:
 
   
Fiscal Year ended June 30,(1)
  
   
2015
    
2014(4)
    
2013
  
   
(in Ps.)
  
Abasto
     8,227.2       6,254.6       5,104.9  
Alto Palermo
     15,107.9       12,618.5       10,487.1  
Alto Avellaneda
     5,443.2       4,400.3       3,467.9  
Alcorta Shopping
     9,106.1       7,000.2       5,832.0  
Patio Bullrich
     8,452.8       6,762.3       5,685.5  
Alto NOA
     2,656.6       2,022.5       1,627.3  
Buenos Aires Design
     2,543.2       1,874.9       1,683.7  
Mendoza Plaza
     2,181.1       1,802.8       1,466.2  
Alto Rosario
     4,847.2       3,390.4       2,843.6  
Córdoba Shopping Villa Cabrera
     3,552.0       2,503.8       2,139.2  
Dot Baires Shopping
     4,001.7       3,389.3       2,578.4  
Soleil Premium Outlet Shopping
     4,242.5       2,908.4       2,052.1  
La Ribera Shopping
     1,340.3       1,129.7       863.7  
Distrito Arcos (2)
     1,891.1       -       -  
Alto Comahue (3)
     1,236.1       -       -  
 
(1)  Corresponds to consolidated annual accumulated rental prices according to the IFRS divided by gross leasable square meters. Does not include income from Fibesa or Patio Olmos.
(2)  Opening December 18, 2014.
(3)  Opening March 17, 2015.
(4)  Does not include income relating to common maintenance expenses and collective promotion fund.
 
Depreciation
 
Depreciation, based on a component approach, is calculated using the straight-line method to allocate the cost over the assets’ estimated useful lives.
 
Principal Terms of the Leases
 
Under Argentine Law, which was substantially amended upon enactment of the Argentine Civil and Commercial Code (“ACCC”), effective as of August 1, 2015, terms of commercial leases must be between two to fifty years, with most leases in the shopping center business having terms of no more than five years. The Company’s lease agreements are generally denominated in Pesos.
 
Leaseable space in the Company’s shopping centers is marketed through an exclusive arrangement with its real estate broker, Fibesa S.A. (“Fibesa”). The Company has a standard lease agreement, the terms and conditions of which are described below, which it uses for most tenants. However, the Company’s largest tenants generally negotiate better terms for their respective leases. No assurance can be given that lease terms will be as set forth in the standard lease agreement.
 
The Company charges its tenants a rent which consists of the higher of (i) a monthly base rent (the “Base Rent”) and (ii) a specified percentage of the tenant’s monthly gross sales in the store (the “Percentage Rent”), which generally ranges between 4% and 10% of tenant’s gross sales. Furthermore, pursuant to the rent escalation clause in most leases, a tenant’s Base Rent generally increases between 7% and 24% each year on an annual and cumulative basis from the thirteenth month of the lease effective term. Although many of our lease agreements contain readjustment clauses, these are not based on an official index nor do they reflect the inflation index.
 
Sources of Shopping Center Revenues
 
Set forth below is a breakdown of the sources of sales by tenants of the shopping centers stated in millions of Pesos for our fiscal years ended June 30, 2015, 2014 and 2013:
 
   
2015
    
2014
    
2013
  
Anchor Store
     1,299.3       1,098.4       869.5  
Clothes and footwear
     11,124.8       7,940.1       6,149.9  
Entertainment
     722.3       546.5       461.5  
Home
     617.1       486.4       401.4  
Technology
     2,994.2       2,526.5       1,921.1  
Restaurant
     1,938.4       1,476.8       1,161.5  
Miscellaneous
     2,589.4       1,922.3       1,438.2  
Services
     223.2       135.8       78.9  
Total
     21,508.7       16,132.8       12,482.0  

Additional Information about our Shopping Center Properties
 
Set forth below is information regarding our subsidiary IRSA Commercial Properties’ principal shopping centers.
 
Alto Palermo Shopping, City of Buenos Aires
 
Alto Palermo Shopping is a 146-store shopping center that opened in 1990 and is located in the densely populated middle-income neighborhood of Palermo in the City of Buenos Aires. Alto Palermo Shopping is located only a few minutes from downtown Buenos Aires and with nearby subway access at the intersection of Avenues Santa Fe and Coronel Díaz. Alto Palermo Shopping has a total constructed area of 65,029 square meters (including parking lot) that consists of 19,545.0 sqm of gross leasable area. The shopping center has an entertainment area and a food court with 18 stores. Alto Palermo Shopping is spread out over four levels and its parking lot may accommodate 654 cars for a fee over an area of 32,405 square meters. The shopping center target customer is a middle-income shopper aged 28 to 40.
 
In the fiscal year ended on June 30, 2015, the public visiting the shopping center generated nominal retail sales totaling approximately Ps. 2,662.1 million, 26.1% higher than the invoiced amount in the same period of the previous fiscal year. Sales per square meter reached Ps. 136,203.1. Total rental income increased from about Ps. 244.2 million for fiscal year ended June 30, 2014 to Ps. 295.3 million for fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 12,618.5 in 2014 and Ps. 15,107.9 in 2015. As of June 30, 2015, the occupancy rate of Alto Palermo Shopping was 99.7%.
 
Alto Avellaneda, Avellaneda, Greater of Buenos Aires
 
Alto Avellaneda is a 139-store shopping center that opened in October 1995 and is located in the densely populated neighborhood known as Avellaneda, on the southern border of the City of Buenos Aires. This shopping center is located near a railway station and close to downtown Buenos Aires City. Alto Avellaneda has a total constructed area of 108,598.8 square meters (including parking lot) that includes 36,728.6 sqm of gross leasable area. Alto Avellaneda has a six-screen multiplex movie theatre, the first Walmart megastore in Argentina, an entertainment center, a 19-restaurant food court and starting in April 28, 2008, it also hosts a Falabella department store. Walmart (whose occupied area is not included in the gross leasable area) acquired the space it occupies, but it pays a share of the common expenses of Alto Avellaneda’s parking lot. This shopping center offers free-of-charge parking space for 2,700 cars over an area of 47,856 square meters. Alto Avellaneda’s target customer is a middle-income shopper aged 16 to 30.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 2,895.1 million, which represents a year-on-year growth of 24.1%. Sales per square meter were Ps. 78,823.1. Total rental income increased from Ps. 160.9 million for fiscal year ended June 30, 2014 to Ps. 199.9 million for fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 4,400.3 in 2014 and Ps. 5,443.2 in 2015. As of June 30, 2015, the occupancy rate of Alto Avellaneda was 99.9%.
 
Alcorta Shopping, City of Buenos Aires
 
Alcorta Shopping is a 106-store shopping center that opened in 1992 and is located in the residential neighborhood of Palermo Chico, one of the most exclusive areas in the City of Buenos Aires, within a short drive from downtown Buenos Aires. Alcorta Shopping has a total constructed area of approximately 87,553.8 square meters (including parking lot) that consists of 15,432.9 square meters of gross leasable area. Alcorta Shopping has a 12-restaurant food court and a Carrefour hypermarket on the ground floor. Carrefour purchased the space it now occupies but it pays a share of the expenses of the shopping center’s parking lot. It is a three-level shopping center that includes a parking lot that charges a fee ( from June 2008) with approximately 1,300 spaces. Alcorta Shopping´s targeted clientele consists of high income individuals between the ages of 34 and 54.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,474.7 million, which represents fiscal year sales for approximately Ps. 95,554.7 per square meter and a year-on-year growth of 31.6%. Total rental income increased from approximately Ps. 105.8 million in fiscal year ended June 30, 2014 to Ps. 140.5 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 7,000.2 in 2014 and Ps. 9,106.1 in 2015. As of June 30, 2015, the occupancy rate of Alcorta Shopping was 100%.
 
Abasto Shopping, City of Buenos Aires
 
Abasto Shopping is a 169-store shopping center located in the City Buenos Aires. Abasto Shopping is directly accessible by Carlos Gardel subway station; it is six blocks away from Once railway station and near the highway to Ezeiza International Airport. Abasto Shopping opened on November 10, 1998. Our investment in Abasto amounted to US$ 111.6 million. The principal building is a landmark building, which during the period 1889 to 1984 operated as the primary fresh produce market for the City of Buenos Aires. The property was converted into a 116,646 square meter shopping center (including parking lot and common areas), with approximately 36,669.1 square meters of gross leasable area (40,401.4 sqm including Museo de los Niños). Abasto is ranked #4 in terms of gross leasable area in Argentina. The shopping center is near Torres de Abasto, our apartment complex, and Coto supermarket.
 
Abasto Shopping has a 26-restaurant food court, a 12-screen movie theatre complex seating approximately 3,100 people, covering a surface area of 8,021 sqm, entertainment area and Museo de los Niños with a surface area of 3,732.3 sqm (the latter is not included within the gross leasable area). The shopping center is distributed in five levels and includes a parking lot for 1,200 vehicles with a surface area of 40,169 sqm.
 
Abasto Shopping’s target customer is a middle-income shopper aged 25 to 45 that, in our opinion, represents an important portion of the population in this area of Buenos Aires.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 3,150.2 million, 28.7% higher than the sales recorded in the same period of the previous fiscal year. Sales per square meter were approximately Ps. 85,909.2. Total rental income increased from approximately Ps. 238.0 million in fiscal year ended June 30, 2014 to Ps. 301.7 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 6,254.6 in 2014 and Ps. 8,227.2 in 2015. As of June 30, 2015, the occupancy rate of Abasto Shopping was 100%.
 

 
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Patio Bullrich, City of Buenos Aires
 
Patio Bullrich is an 87-store shopping center which opened in 1988 and the first shopping center to start operations in the City of Buenos Aires. We acquired Patio Bullrich on October 1, 1998 for US$ 72.3 million.
 
Patio Bullrich is located in the Recoleta neighborhood, one of the most prosperous areas of the City of Buenos Aires. This neighborhood is a residential, cultural and tourist center that includes distinguished private homes, historical sites, museums, theatres and embassies. The shopping center is located within walking distance of the most prestigious hotels of the City of Buenos Aires and the subway, bus and train systems. Additionally, the shopping center is only 10 minutes by car from the downtown area of the city.
 
Patio Bullrich has a total constructed area of 29,982 square meters (including parking lot) that consists of 11,636.2 sqm of gross leasable area and common areas consisting of 12,472 square meters. The shopping center includes a four-screen multiplex movie theatre seating 1,381 people and an 11-store food court. The four-story shopping center has a parking lot that charges a fee with 215 spaces over an area of 4,825 square meters.
 
Patio Bullrich is one of the most successful shopping centers in Argentina in terms of sales per square meter. Its targeted clientele consists of high-income individuals.
 
In the fiscal year ended June 30, 2015, the shopping center generated nominal retail sales of approximately Ps. 888.5 million, which represents annual sales for approximately Ps.76,353.1 per square meter and a year-on-year growth of 28.9% compared to fiscal 2014. Total rental income increased from approximately Ps. 79.4 million in fiscal year ended June 30, 2014 to Ps. 98.4 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 6,762.3 in 2014 and Ps. 8,452.8 in 2015. As of June 30, 2015, the occupancy rate of Patio Bullrich was 100%.
 
Alto NOA, Salta, City of Salta
 
Alto Noa is a 89-store shopping center that opened in 1994. Alto Noa is located in the City of Salta, the capital of the Province of Salta, in the northwestern region of Argentina. The province of Salta has a population of approximately 1.2 million inhabitants with approximately 0.6 million inhabitants in the City of Salta. The shopping center has a total constructed area of approximately 30,876 square meters (including parking) which consists of 19,072.9 square meters of gross leasable area. Alto Noa has a food court with 14 restaurants, a large entertainment center, a supermarket and a multiplex cinema with eight screens. The shopping center occupies one floor and has a free parking lot for 551 cars. Alto Noa’s target customer is a middle-income shopper aged 28 to 40.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,068.6 million, which represents period sales for approximately Ps. 56,027.2 per square meter and a year-on-year growth of 39.5%. Total rental income increased from approximately Ps. 38.7 million in fiscal year ended June 30, 2014 to Ps. 50.7 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 2,022.5 in 2014 and Ps. 2,656.6 in 2015. As of June 30, 2015, the occupancy rate of Alto Noa was 100%.
 
Buenos Aires Design, City of Buenos Aires
 
Buenos Aires Design is a shopping center with 63 stores specialized in home decoration which opened in 1993. We own a 53.68% interest in Emprendimientos Recoleta S.A. (“ERSA”), the company which has the concession to operate Buenos Aires Design. The other shareholder of ERSA is Hope Funds S.A., which has a 46.32% interest.
 
As a result of a public auction, in February 1991, the City of Buenos Aires granted to ERSA a 20-year concession to use a plot of land in the Centro Cultural Recoleta, pursuant to an agreement executed in June 1993. The concession effective date was scheduled for November 19, 1993 and was set to expire on November 18, 2013. In 2010 the Government of the City of Buenos Aires, pursuant to Decree No. 867, extended the concession term for an additional five-year period, and the expiration date under the agreement became due on November 17, 2018. The concession agreement provides for ERSA to pay the City of Buenos Aires a monthly amount of Ps. 49,029. The concession may be terminated for any of the following reasons, among others: material breach of the obligations of the parties, which with regard to ERSA include: (i) breach of applicable law, (ii) change of the purpose of the area under concession; (iii) non payment of the monthly fee for two consecutive periods; (iv) destruction or abandonment of the area under concession; (v) bankruptcy or liquidation; (vi) restitution of the plot of land under concession, which shall only take place for public interest reasons.
 
In June 1991, we entered into an agreement with the shareholders of ERSA providing administration by us of Buenos Aires Design for a monthly administration fee of 10% of the net expenditures of expenses.
 
Buenos Aires Design is located in an exclusive neighborhood named Recoleta in the City of Buenos Aires, near Libertador Avenue and downtown Buenos Aires. Buenos Aires Design is located in one of Buenos Aires’ most popular tourist attraction areas as the most exclusive hotels and restaurants are located in this area and due to its closeness to the National Museum of Fine Arts, the Museum of Modern Art and other popular cultural institutions.
 
Buenos Aires Design has a total constructed area of 26,131.5 sqm (including parking) that consists of 13,888.2 sqm of gross leasable area. The shopping center has 10 restaurants anchored by the Hard Rock Café and a terrace that covers 3,700 square meters. The shopping center is divided into two floors and has a 174-car pay parking lot.
 
Buenos Aires Design’s targeted clientele consists of upper-middle income individuals between the ages of 25 and 45.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 326.0 million, which represents approximately Ps. 23,474.2 per square meter. Total rental income increased from approximately Ps. 27.4 million in fiscal year ended June 30, 2014 to Ps. 35.3 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 1,874.9 in 2014 and Ps. 2,543.2 in 2015. As of June 30, 2015, the occupancy rate of Buenos Aires Design was 94.6%.
 

 
 
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Alto Rosario, Santa Fe, City of Rosario
 
Alto Rosario is a 145-store shopping center located in the city of Rosario, the third largest city in Argentina in terms of population. It has a total constructed area of approximately 100,750 square meters (including parking), which consists of 28,395.6 square meters of gross leasable area (excluding Museo de los Niños). Alto Rosario has a food court with 17 restaurants, a large entertainment center, a supermarket and a Showcase cinema with 14 state-of-the-art screens. The shopping center occupies one floor and has a free parking lot for 1,736 cars. Alto Rosario’s targeted clientele consists of middle-income individuals between the ages of 28 and 40.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,951.8 million, which represents a year-on-year growth of 41.6%. Sales per square meter were approximately Ps. 68,735.0 million. Total rental income increased from approximately Ps. 100.1 million in fiscal year ended June 30, 2014 to Ps. 137.6 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 3,390.4 in 2014 and Ps. 4,847.2 in 2015. As of June 30, 2015, the occupancy rate of Alto Rosario was 97.9%.
 
Mendoza Plaza Shopping, Mendoza, City of Mendoza
 
Mendoza Plaza is a 144-store shopping center which opened in 1992 and is in the City of Mendoza, the capital of the Province of Mendoza. The city of Mendoza has a population of approximately 1.0 million inhabitants, making it the fourth largest city in Argentina. Mendoza Plaza Shopping consists of 42,039.5 square meters of gross leasable area and has a multiplex cinema covering an area of approximately 3,659 square meters with ten screens, the Chilean department store Falabella, a food court with 18 restaurants, an entertainment center and a supermarket, which is also a tenant. The shopping center has two levels and has a free parking lot for 2,600 cars. Mendoza Plaza’s targeted clientele consists of middle-income individuals between the ages of 28 and 40.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 1,906.7 million, which represents a year-on-year growth of 25.9%. Sales per square meter were approximately Ps. 45,354.3. Total rental income increased from approximately Ps. 74.1 million in fiscal year ended June 30, 2014 to Ps. 91.7 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 1,802.8 in 2014 and Ps. 2,181.1 in 2015. As of June 30, 2015, the occupancy rate of Mendoza Plaza Shopping was 96.1%.
 
Córdoba Shopping, Villa Cabrera, City of Córdoba
 
Córdoba Shopping Villa Cabrera is a 107-store shopping center with a covered area of 35,000 square meters, consisting of 15,328.0 square meters of GLA located in Villa Cabrera, City of Córdoba. It has a 12-screen movie theatre complex and a parking lot for 1,500 vehicles.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 756.0 million, which represents a year-on-year growth of 38.3%. Sales per square meter were approximately Ps. 49,323.6. Total rental income increased from Ps. 39.7 million in fiscal year ended June 30, 2014 to Ps. 54.4 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 2,503.8 in 2014 and Ps. 3,552.0 in 2015. As of June 30, 2015, the occupancy rate of Córdoba Shopping was 99.8%.
 
Dot Baires Shopping, City of Buenos Aires
 
Dot Baires Shopping is a shopping center that was opened in May 2009. It has 4 floors and 3 underground levels, a covered surface area of 173,000 square meters, out of which 49,847.9 constitute Gross Leasable Area, 156 retail stores, a hypermarket, a 10-screen multiplex movie theater and parking space for 2,200 vehicles.
 
Dot Baires Shopping is located in the Saavedra neighborhood, at the spot where Av. General Paz meets the Panamerican Highway and it is the largest shopping center in the City of Buenos Aires in terms of square meters. As of June 30, 2015, our equity interest in Panamerican Mall S.A. was 80%.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 2,570.6 million, which represents fiscal year sales for approximately Ps. 51,568.8 per square meter and a year-on-year growth of 28.0%. Total rental income increased from approximately Ps. 158.3 million in fiscal year ended June 30, 2014 to Ps. 199.5 million in fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 3,389.3 in 2014 and Ps. 4,001.7 in 2015. As of June 30, 2015, the occupancy rate of Dot Baires Shopping was 99.7%.
 
Soleil Premium Outlet, Greater Buenos Aires
 
In December 2007, we entered into an agreement with INC S.A. (“INCSA”), a non-related company, for the acquisition of Soleil Premium Outlet for an amount of US$ 20.7 million.
 
On July 1, 2010, we executed the final deed for partial conveyance of title of the going concern and closing minutes with INCSA, whereby INCSA transferred to us the shopping center’s going concern, which we started to operate on the referred date. The transaction was exclusive of any debt or credit prior to the transaction with respect to INCSA’s business, as well as the real property where a hypermarket currently operates located in the premises. On April 12, 2011, the Argentine Antitrust Authority (“CNDC”) granted its consent to the transaction.
 
From April 2013, as a result of its refurbishment and reengineering works, and a strong advertising campaign, it was renamed Soleil Premium Outlet. At present, it has a surface area of 48,313 square meters, 13,993.1 square meters of which are gross leasable area. It comprises 78 stores and 2,335 parking spaces. Soleil Premium Outlet is located in San Isidro, Province of Buenos Aires. It opened in Argentina more than 25 years ago and it is the first Premium Outlet in the country.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 938.4 million, which represents period average sales for approximately Ps. 67,063.3 per square meter and a year-on-year growth of 41.3%. Total rental income increased from approximately Ps. 44.2 million in fiscal year ended June 30, 2014 to Ps. 59.4 million for fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 2,908.4 in 2014 and Ps. 4,242.5 in 2015. As of June 30, 2015, the occupancy rate of Soleil Premium Outlet was 99.4%.
 
 
 
 

 
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La Ribera Shopping, City of Santa Fe
 
We hold fifty percent of Nuevo Puerto Santa Fe S.A.’s (NPSF) shares, a corporation that is tenant of a building in which “La Ribera” shopping center was built and currently operates, which has a surface area of 43,219 square meters, comprising 60 retail stores and a seven 2D and 3D-screen multiplex cinema. It also comprises a 510-square meter Cultural Center and 24,553 square meters in outdoor areas and free parking space. Its gross leasable area is approximately 9,750.3 square meters.
 
The shopping center is strategically located within the Port of Santa Fe, the most developed area in terms of real estate in the City of Santa Fe, 27 km away from the City of Paraná (Province of Entre Ríos) and 96 km away from the City of Rafaela (Province of Santa Fe). Its influence area represents a potential market consisting of over one million people.
 
In the fiscal year ended June 30, 2015, the public visiting the shopping center generated nominal retail sales that totaled approximately Ps. 398.1 million, which represents period average sales for approximately Ps. 40,828.4 per square meter and a year-on-year growth of 41.7%. Total rental income increased from Ps. 9.4 million in fiscal year ended June 30, 2014 to Ps. 13.1 million for the fiscal year ended June 30, 2015, which represents annual revenues per gross leasable square meter of Ps. 1,129.7 in 2014 and Ps. 1,340.3 in 2015. As of June 30, 2015, the occupancy rate of La Ribera Shopping was 99.3%.
 
Distrito Arcos, City of Buenos Aires
 
Distrito Arcos is a shopping center we inaugurated on December 18, 2014, and it is our shopping center number 14. Distrito Arcos is a premium outlet located in the neighborhood of Palermo, City of Buenos Aires. It has 12,127.3 square meters of gross leasable area and its first stage consists of 63 stores, 115 parking spaces y 15 selling stands.
 
During a second stage, we plan to build a fitness center, a houseware store and a great cultural offer with 66 stores and 20 selling stands, covering approximately 2,000 square meters of additional gross leasable area. Since its opening, visitors to the shopping center generated nominal retail sales that totaled approximately Ps. 339.9 million, which represent sales per square meter of approximately Ps. 28,026.3. Total rental income was approximately Ps. 22.9 million, which represents total revenues for the period per gross leasable area of Ps. 1,891.1.  As of June 30, 2015, the occupancy rate of Distrito Arcos was 97.3%.
 
Alto Comahue, City of Neuquén
 
Alto Comahue is a shopping center we inaugurated on March 17, 2015. Alto Comahue is our shopping center number 15 and is located in the City of Neuquén, in the Patagonian region of Argentina. It has a total footage of 35,000 square meters and 9,456.9 square meters of gross leasable area, approximately 1,000 roof-covered and open-air parking spaces and a large entertainment and leisure area. Alto Comahue offers 102 retail stores that house the most prestigious brands in Argentina, and will have a 6-screen multiplex movie theater and a theme restaurant, which will open in the upcoming months. It is a three-storey building consisting of a basement where the parking lot and service area are located; the ground floor consisting of 5,100 square meters for retail stores, and the first floor consisting of 720 square meters for restaurants with unique views of the city and 2,700 square meters of retail stores.
 
The development is a part of a mixed-use complex that further includes a supermarket that is currently in operation and 2 additional parcels of land. One of these parcels is assigned to development of a hotel and the other, which extends over 18,000 sqm -owned by the company-, to future development of houses. Since its opening, visitors to the shopping center generated nominal retail sales that totaled approximately Ps. 182.1 million, which represent sales per square meter of approximately Ps. 19,254.4. Total rental income was approximately Ps. 11.7 million, which represents total revenues for the period per gross leasable area of Ps. 1,236.1. As of June 30, 2015, the occupancy rate of Alto Comahue was 94.2%.
 
Competition
 
Because most of our shopping centers are located in densely populated areas, there are competing shopping centers within, or in close proximity to, our targeted areas. The number of shopping centers in a particular area could have a material effect on our ability to lease space in our shopping centers and on the amount of rent that we are able to charge. We believe that due to the limited availability of large plots of land and zoning restrictions in the City of Buenos Aires, it will be difficult for other companies to compete with us in areas through the development of new shopping center properties. Our principal competitor is Cencosud S.A. which owns and operates Unicenter shopping center and the Jumbo hypermarket chain, among others.
 

 
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The following table sets forth certain information relating to the most important owners and operators of shopping centers in Argentina:
 
Company
Shopping Center
Location (1)
  
Gross Leasable Area
    
Stores
    
National GLA Percentage (2)
    
Stores Percentage (2)
  
IRSA Commercial Properties S.A.
                            
 
Dot Baires Shopping
CABA
     49,848       156       2.67 %     2.25 %
 
Mendoza Plaza Shopping
Mendoza
     42,040       144       2.25 %     2.07 %
 
Abasto de Buenos Aires
CABA
     40,401       170       2.17 %     2.45 %
 
Alto Avellaneda
GBA
     36,729       139       1.97 %     2.00 %
 
Alto Rosario
Rosario
     29,656       146       1.59 %     2.10 %
 
Alto Palermo Shopping
CABA
     19,545       146       1.05 %     2.10 %
 
Alto Noa
Salta
     19,073       89       1.02 %     1.28 %
 
Alcorta Shopping
CABA
     15,433       106       0.83 %     1.53 %
 
Córdoba Shopping
Córdoba
     15,328       107       0.82 %     1.54 %
 
Soleil Premium Outlet
GBA
     13,993       78       0.75 %     1.12 %
 
Buenos Aires Design
CABA
     13,888       63       0.74 %     0.91 %
 
Distrito Arcos
CABA
     12,127       63       0.65 %     0.91 %
 
Patio Bullrich
CABA
     11,636       87       0.62 %     1.25 %
 
La Ribera Shopping
Santa Fe
     9,750       60       0.52 %     0.86 %
 
Alto Comahue
Neuquen
     9,457       102       0.51 %     1.47 %
 
Subtotal
       338,904       1,656       18.16 %     23.84 %
Cencosud S.A.
                                  
Subtotal
 
       651,105       1,465       34.90 %(3)     21.08 %
Other
                                    
Operators
                                    
Subtotal
 
       875,557       3,827       46.95 %     55.10 %
Total
         1,865,566       6,948       100 %     100 %
 
(1)  
“GBA” means Greater Buenos Aires, the Buenos Aires metropolitan area, and “CABA” means the Autonomous City of Buenos Aires.
(2)  
Percentage over all shopping centers in Argentina. The results may not add up to 100% due to rounding.
(3)  
Includes supermarkets.
 
Source: Argentine Chamber of Shopping Centers
 
Seasonality
 
Our business is directly affected by seasonality, affecting the level of our tenants’ sales. During summer holidays in Argentina (January and February) our tenants’ sales reach their minimum level, whereas during winter holidays (July) and in December (Christmas) they reach their maximum level. Clothing stores generally change their collections in spring and autumn, positively affecting our shopping centers’ sales. Sales at discount prices at the end of each season have an adverse impact on our business.
 
Sales and Development of Properties and Land Reserves
 
Residential Development Properties
 
The acquisition and development of residential apartment complexes and residential communities for sale is one of our core activities. Our development of residential apartment complexes consists of the new construction of high-rise towers or the conversion and renovation of existing structures such as factories or warehouses. In connection with our development of residential communities, we frequently acquire vacant land, develop infrastructure such as roads, utilities and common areas, and sell plots of land for construction of single-family homes. We may also develop or sell portions of land for others to develop complementary facilities such as shopping areas within residential developments.
 
In fiscal year ended June 30, 2015, revenues from the development and sale of properties segment amounted to Ps. 15.1 million, compared to Ps. 85.5 million posted in the fiscal year ended June 30, 2014.
 
Construction and renovation works on our residential development properties are currently performed, under our supervision, by independent Argentine construction companies that are selected through a bidding process. We enter into turnkey contracts with the selected company for the construction of residential development properties pursuant to which the selected company agrees to build and deliver the development for a fixed price and at a fixed date. We are generally not responsible for any additional costs based upon the turnkey contract. All other aspects of the construction, including architectural design, are performed by third parties.
 
Another modality for the development of residential transactions is the exchange of land for finished residential units. In these barter transaction, we deliver undeveloped plots of land and another firm is in charge of developing the residential the project. In this case, we receive finished square meters for commercialization, without taking part in the construction works.
 
 

 
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The following table shows certain information and gives an overview regarding our sales and development properties as of June 30, 2015, 2014 and 2013:
 
         
As of June 30,
        
Development
  
2015
    
2014
    
2013
  
Residential apartments
                  
Caballito Nuevo (5)
     2,139       986       6,983  
Condominios I and II (1)
     6,616       51,917       4,262  
Horizons (4)
     5,225       22,890       117,090  
Other residential apartments (2)
     -       44       811  
Subtotal residential apartments
     13,980       75,837       129,146  
Residential Communities
                        
Abril (3)
     644       1,750       1,113  
El Encuentro (5)
     461       7,944       11,698  
Subtotal Residential Communities
     1,105       9,694       12,811  
Land Reserve
                        
Canteras Natal Crespo
     -       -       39  
Neuquén(1)
     -       13,390       -  
Subtotal Land Reserves
     -       13,390       39  
Total
     15,085       98,921       141,996  
 
(1)  Through IRSA Commercial Properties.
(2)  Includes the following properties: Torres Jardín, Alto Palermo Park (fully sold), and San Martín de Tours.
(3)  Includes the sales of Abril’s shares.
(4)  Owned by Cyrsa.
(5)  Through IRSA.
 

 
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Development
Company
  
Interest
    
Date of Acquisition
    
Surface area sqm
    
Area intended for sale sqm
    
Area intended for Construction sqm
    
Sold
    
Title deed executed
  
Location
  
Accumulated income as of June 2015
    
Accumulated income as of June 2014
    
Accumulated income as of June 2013
    
Book Value
  
Residential
                                                                      
Available for sale (4)
                                                                      
Condominios del Alto I
IRSA Commercial Properties
     100 %  
04/30/1999
       -       2,082       -       71 %     67 %
Santa Fe
     6,314       2,614       4,262       21  
Condominios del Alto II
IRSA Commercial Properties
     100 %  
04/30/1999
       -       5,009       -       96 %     93 %
Santa Fe
     302       49,303       -       526  
Caballito Nuevo
IRSA
     100 %  
11/03/1997
       -       8,173       -       98 %     98 %
CABA
     2,139       986       6,983       -  
San Martin de Tours
IRSA
     100 %  
03/01/2003
       -       3,492       -       99 %     99 %
CABA
     -       -       -       181  
El Encuentro
IRSA
     100 %  
11/18/1997
       -       127,795       -       100 %     99 %
Buenos Aires
     461       7,944       11,698       -  
Abril Club de Campo – Plot division
IRSA
     100 %  
01/03/1995
       -       5,135       -       99 %     99 %
Buenos Aires
     644       1,75       1,113       -  
Abril Club de Campo - Casona (5)
IRSA
     100 %  
01/03/1995
       31,224       34,605       -       -       -  
Buenos Aires
     -       -       -       2,357  
Torres Jardín
IRSA
     100 %  
07/18/1996
       -       -               -       -  
CABA
     -       44       811       -  
Apartment
Entre Ríos 465/9
IRSA Commercial Properties
     100 %     -       -       -               -       -  
Buenos Aires
     -       -       -       1,4  
Horizons
IRSA
     50 %  
01/16/2007
       -       71,512       -       100 %     98 %
Buenos Aires
     5,225       22,89       117,09       3,13  
Units to be received
                               -                                 -       -       -       -  
Beruti (Astor Palermo) (1)
IRSA Commercial Properties
     100 %  
06/24/2008
       -       2,632       -       -       -  
CABA
     -       -       -       32,872  
Caballito Manzana 35
IRSA
     100 %  
10/22/1998
       -       8,258       -       -       -  
CABA
     -       -       -       52,205  
Canteras Natal Crespo (2 commercial parcels) IRSA      -      -       40,333       -       60,499       -       -   Buenos Aires     -        -       39        -  
CONIL - Güemes 836 - Mz 99 and  Güemes 902 - Mz 95 and Retail Stores
IRSA Commercial Properties
     100 %  
07/19/1996
       1,389       -       -       -       -  
Buenos Aires
     -       -       -       5,409  
Subtotal Residential
                       71,557       308,327       60,499                         15,085       85,531       141,996       98,101  
Land Reserves
                                                                                            
Isla Sirgadero
IRSA
     100 %  
02/16/2007
       8,360,000       -       -       -       -  
Santa Fe
     -       -       -       2,894  
San Luis Plot of Land
IRSA
     100 %  
05/29/1997
       74,828       -       -       -       -  
Buenos Aires
     -       -       -       1,564  
Pontevedra
IRSA
     100 %  
02/28/1998
       730,994       -       -       -       -  
Buenos Aires
     -       -       -       918  
Mariano Acosta
IRSA
     100 %  
02/28/1998
       967,29       -       -       -       -  
Buenos Aires
     -       -       -       804  
Merlo
IRSA
     100 %  
02/28/1998
       1,004,987       -       -       -       -  
Buenos Aires
     -       -       -       639  
Pilar R8 Km 53
IRSA
     50 %  
03/31/2008
       3,250,523       -       -       -       -  
San Luis
     -       -       -       1,584  
Subtotal Land Reserves
                       14,388,622       -       -                                 -       -       8,403  
Future Developments
                                                                                            
Mixed Used
                                                                                            
UOM Lujan (7)
IRSA Commercial Properties
     100 %  
05/31/2008
       1,160,000       -       -       N/A       N/A  
Buenos Aires
     -       -       -       41,972  
Nobleza Picardo (8)
IRSA Commercial Properties
     50 %  
05/31/2011
       159,995       -       127,996       N/A       N/A  
Buenos Aires
     -       -       -       40,059  
Puerto Retiro
IRSA
     50 %  
05/18/1997
       82,051       -       -       N/A       N/A  
CABA
     -       -       -       22,128  
Solares Santa María (9)
IRSA
     100 %  
07/10/1997
       716,058       -       -       N/A       N/A  
CABA
     -       -       -       171,461  
La Adela       100 %     08/01/2014       10,580,000       -       -       N/A       N/A   Buenos Aires      -       -       -       10,115  
Residential
                                               -       -         -       -       -       -  
Coto Abasto Air Space
IRSA Commercial Properties
     100 %  
09/24/1997
       -       -       21,536       N/A       N/A  
CABA
     -       -       -       10,429  
Neuquén – Housing Plots of Land
IRSA Commercial Properties
     100 %  
07/06/1999
       13       -       18       N/A       N/A  
Neuquén
     -       13,39       -       803  
Uruguay Zetol
IRSA
     90 %  
06/01/2009
       152,977       62,756       -       N/A       N/A  
Uruguay
     -       -       -       62,568  
Pereirairaola (Greenville) IRSA     100 %    04/21/2010        -       39,634       -                    Buenos Aires                             8,200  
Uruguay Vista al Muelle
IRSA
     90 %  
06/01/2009
       102,216       62,737       -       N/A       N/A  
Uruguay
     -       -       -       43,362  
Retail
                                                                                            
Caballito Shopping Plot of Land(10)
IRSA Commercial Properties
     100 %     -       23,791       -    
-
       N/A       N/A  
CABA
     -       -       -       45,812  
Potential Dot Expansion
IRSA Commercial Properties
     80 %     -       15,881       -       47,643       N/A       N/A  
CABA
     -       -       -       -  
Offices
                                                                                            
Philips Adjoining Plots– Offices 1 and 2
IRSA Commercial Properties
     80 %  
11/28/2006
       12,8       -       38,4       N/A       N/A  
CABA
     -       -       -       25,336  
Baicom
IRSA
     50 %  
12/23/2009
       6,905       -       34,5       N/A       N/A  
CABA
     -       -       -       4,183  
Intercontinental Plaza II (11)
IRSA Commercial Properties
     100 %  
02/28/1998
       6,135       -       19,598       N/A       N/A  
CABA
     -       -       -       1,564  
Catalinas Norte Plot of Land
IRSA
     100 %  
12/17/2009
       3,649       -       35,3       N/A       N/A  
CABA
     -       -       -       109,496  
Subtotal Future Developments
                       13,035,458       165,127       342,973                         -       13,390       -       597,528  
Total Land Reserves
                       27,495,637       435,209       403,472                         15,085       98,921       141,996       704,032  

(1) Area intended for sale means own square meters of residential apartments, including parking spaces and storage spaces. Stated at 100%, before any sale.
(2) Sold % comprises such sale transactions for which a Purchase Agreement (Boleto) has been executed, for which Possession has been taken or a Title Deed has been signed. Includes square meters of residential apartments, parking and storage spaces.
(3) The Title Deed executed % comprises such sale transactions for which a Title Deed has been executed. Includes the square meters of residential apartments, parking and storage spaces.
(4) In such case where IRSA/IRSA Commercial Properties received units under a barter agreement, the "Area intended for sale" corresponds to such area received rather than the entire development.
(5) The Area intended for sale includes 31,224 sqm of land and 4,712.81 sqm in the aggregate of La Casona (deducting 1,331.76 sqm of ground floor).
(6) The Area intended for sale does not include 171 commercial parking spaces to be received or rebate units.
(7) The Feasibility of Mixed Uses Permit has been applied for and provincial approval is pending.
(8) The 127,996 square meters derive from the current regulations, we are working on a preliminary project of 479,415 square meters intended for construction (pending approval).
(9) The Feasibility permit has been applied for 716,058 square meters intended for construction, and approval is pending from the Legislature of the City of Buenos Aires.
(10) Preliminary project of 71,374 square meters intended for construction, approval of urban parameters is pending.
(11) The 6,135 square meters of Land are those of the parcel, which includes Inter I and II. During May, 2015, we reported that, through IRSA Commercial Properties, we have signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, we sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.”
(12) On September 3, 2015, we signed the transfer deed for the sale of “Isla Sirgadero” plot of land. The price of the transaction was Ps. 10.7 million.

 
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Additional information about our Properties and Land Reserves
 
Residential Apartments and Lofts
 
In the residential market, we acquire undeveloped properties strategically located in densely populated areas of the City of Buenos Aires, particularly properties located near shopping centers and hypermarkets or those to be constructed. We then develop multi-building high-rise complexes targeting the middle- and high- income market. These are equipped with modern comforts and services, such as open “green areas,” swimming pools, sports and recreation facilities and 24-hour security. In the loft buildings market, our strategy is to acquire old buildings no longer in use located in areas with a significant middle and upper-income population. The properties are then renovated into unfinished lofts allowing buyers the opportunity to design and decorate them according to their preferences.
 
Residential Properties (available for Sale)
 
Condominios del Alto I – City of Rosario, Province of Santa Fe (IRSA Commercial Properties)
 
As of June 30, 2015, the project has been completed, and one parking space is available for sale.
 
Condominios del Alto II –City of Rosario, Province of Santa Fe (IRSA Commercial Properties)
 
As of June 30, 2015, works in parcel H have been completed; all units under the barter agreement have been received and 13 parking spaces and two storage spaces are available for sale.
 
San Martín de Tours – City of Buenos Aires
 
This is a unique Project located in Barrio Parque, an exclusive residential area in the City of Buenos Aires. During May 2006, the commercialization of the project was launched with successful results. The image of the product was originally developed under the name “Barrio Chico” through advertisements in the most important media. As of June 30, 2015, the project is completed and there are 2 parking spaces pending sale.
 
El Encuentro - Benavidez, Tigre – Province of Buenos Aires
 
In the district of Benavidez, Municipality of Tigre, 35 kilometers north of downtown Buenos Aires, there is a 110-hectare gated residential complex known as “El Encuentro”, consisting of a total of 527 lots and a total saleable area of 610,785.15 sqm with two privileged front accesses: the main one to Vía Bancalari and the service one to Highway No. 9, allowing an easy way to and from the city. As of June 30, 2015, all the units have been sold.
 
Abril – Hudson – Province of Buenos Aires
 
Abril is a 312-hectare private residential community located near Hudson City, approximately 34 kilometers south of the City of Buenos Aires. We have developed this property into a private residential community for the construction of single-family homes targeting the upper-middle income market. The project includes 20 neighborhoods subdivided into 1,273 lots of approximately 1,107 square meters each. Abril also includes an 18-hole golf course, 130 hectares of woodlands, a 4,000-square meter mansion and entertainment facilities. A bilingual school, horse stables and sports centers and the construction of the shopping center were concluded in 1999. The project is highly consolidated, and as of June 30, 2015 there is one lot pending execution of the relevant title deed.
 
“La Casona Abril” is located in the heart of the project. It is the antique manor of “Estancia Pereyra Iraola,” which was built in the decade of the thirties by architect José Mille. This little French-style palace of the XIX century has 4,700 sqm distributed over four floors and a garden of around 30,000 sqm.
 
Horizons, Vicente López, Olivos, Province of Buenos Aires
 
The IRSA-CYRELA Project, developed over two adjacent blocks, was launched in March last under the name Horizons. Horizons is one of the most significant developments in Greater Buenos Aires, featuring a new concept in residential complexes given its emphasis on the use of common spaces. This project includes two complexes with a total of six buildings: one complex faces the river and consists of three 14-floor buildings, the “Río” complex, and the other one, facing Libertador Avenue, consists of three 17-floor buildings, the “Parque” complex, thus totaling 59,000 square meters built of saleable area distributed in 467 units (excluding the units to be delivered as consideration for the purchase of the lands). Horizons is a unique and style-innovating residential complex offering 32 amenities, including a meeting room, work zone, heated swimming pools, mansion with spa, sauna, gym, children room, teen room, thematically landscaped areas, and aerobic trail. The showroom was opened to the public in March 2008 with great success. As of June 30, 2015, the project was fully built and 3 apartments, 3 parking spaces and 1 storage space are pending execution of the title deed. The stock available for sale consists of 8 parking spaces and 52 storage spaces.
 
Units to be received under barter agreements
 
Beruti Plot of Land – City of Buenos Aires (IRSA Commercial Properties)
 
On October 13, 2010, the Company, through its subsidiary IRSA Commercial Properties, and TGLT S.A. (“TGLT”) entered into a barter agreement in connection with a plot of land located at Beruti 3351/59 in the City of Buenos Aires for cash and future residential apartments to be constructed by TGLT in the plot. The transaction value was agreed on US$18.8 million, of which US$10.7 million has already been paid. TGLT is currently building an apartment building with residential and commercial parking spaces, in which, in accordance with the terms of the agreement, TGLT will transfer to IRSA Commercial Properties (i) certain units to be determined, representing 17.33% of the aggregate surface of the residential space, (ii) a number of parking spaces to be determined, representing 15.82% of the aggregate surface of the parking spaces, (iii) all the commercial parking spots in the future building. To ensure performance of the obligations assumed by TGLT under the deed of sale, a mortgage was granted in favor our subsidiary.
 
An organization called “Asociación Amigos Alto Palermo” filed a write of relief in order to prevent the construction works and obtained a precautionary measure for the suspension of the construction works. The Contentious-Administrative and Tax Appellate Court for the City of Buenos Aires ordered the release of the precautionary measure that suspended the works. At present, the write of relief is in the discovery stage, and no judgment has been rendered in that regard. On December 4, 2013, the term for the delivery of the units involved was extended for 11 months and on November 4, 2014 a new 11 month extension was signed. On June 11, 2015 final judgment was rendered in favor of us and TGLT.
 
Caballito Plot – City of Buenos Aires (IRSA)
 
On June 29, 2011, the Company and TGLT, a residential developer, entered into an agreement to barter a plot of land located in Mendez de Andes street in the neighborhood of Caballito in the Autonomous City of Buenos Aires for cash and future residential apartments to be constructed by TGLT on the mentioned land. The transaction was agreed upon at US$ 12.8 million. TGLT plans to construct an apartment building with parking spaces. In consideration, TGLT paid US$ 0.2 million (US$ 159,375) in cash and will transfer to IRSA: (i) a number of apartments to be determined representing 23.10% of total square meters of residential space; (ii) a number of parking spaces to be determined representing 21.10% of total square meters of parking space; and (iii) in case TGLT builds complementary storage rooms, a number to be determined, representing 21.10% of square meters of storage space. TGLT is committed to build, finish and obtain authorization for the three buildings making up the project within 36 to 48 months. TGLT mortgaged the land in favor of IRSA as guarantee.
 
A neighborhood association named Asociación Civil y Vecinal SOS Caballito secured a preliminary injunction which suspended the works to be carried out by TGLT in the abovementioned property. Once said preliminary injunction was deemed final, the Government of the City of Buenos Aires and TGLT were served notice of the complaint.
 

 
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CONIL – Avellaneda, Province of Buenos Aires (IRSA Commercial Properties)
 
These plots of the Company face Alto Avellaneda shopping center, totaling 2,398 sqm distributed in two opposite corners and according to urban planning standards, around 6,000 sqm may be built. Its intended use, either through an own development or sale to a third party, is residential with the possibility of a retail space as well. In November 2014, a barter deed was executed for the purpose of developing a residential project and as consideration for it, IRSA Commercial Properties will receive 1,365 sqm of retail stores located on the ground floors of blocks 99 and 95, on Güemes 836 and Güemes 902, respectively. Delivery of the consideration for block 95 is expected to take place in January 2018, and that corresponding to block 99 is scheduled for September 2018. The barter price was US$ 0.7 million.
Canteras Natal Crespo, La Calera – Province of Córdoba
 
On June 26, 2013, we sold 100% of our interest in Canteras Natal Crespo S.A. representing 50% of its capital stock, to Euromayor S.A. de Inversiones for US$ 4,215,000 according to the following payment schedule: US$ 3,815,000 in cash and US$ 400,000 through the transfer of almost 400,000 sqm for business purposes within the project to be developed in the site known as Laguna Azul. Delivery of the non-monetary consideration is expected for March 2017.
 
Land Reserves and development properties
 
Other Land Reserves – Isla Sirgadero, Pilar, Pontevedra, Mariano Acosta, Merlo and San Luis Plot
 
We grouped here those plots of land with a significant surface area the development of which is not feasible in the short term either due to their current urban and zoning parameters, their legal status or the lack of consolidation of their immediate environment. This group totals around 14 million sqm.
 
Future Developments
 
Mixed Uses
 
Ex UOM – Luján, Province of Buenos Aires (IRSA Commercial Properties)
 
This 115-hectare plot of land is located in the 62 Km of the West Highway, in the intersection with Route 5 and was originally purchased by Cresud on May 31, 2008 from Birafriends S.A. for US$ 3 million. In May 2012, IRSA Commercial Properties acquired the property through a purchase and sale agreement entered into between related parties, thus becoming the current owner. Our intention is to carry out a mixed-use project, taking advantage of the environment consolidation and the strategic location of the plot. IRSA Commercial Properties is seeking to change the zoning parameters, to enable the consummation of the project.
 
La Adela (IRSA)
 
“La Adela” farmland is located 60 kilometers northwest of the City of Buenos Aires, and it is one of our original farmlands. In December 2001, the dairy facility was closed down, using its total surface area for crop production. Between March 2005 and December 2007 we bought 72 additional hectares which were added to the existing 982 hectares. During the fiscal year ended June 30, 2014, 837 hectares were used for corn and soybean crops. In July 2014 we sold to our subsidiary IRSA the “La Adela” farm.
 
Ex Nobleza Piccardo Plant – San Martín, Province of Buenos Aires (IRSA Commercial Properties)
 
On March 31, 2011, Quality Invest S.A. (a subsidiary of IRSA Commercial Properties, with a 50% equity interest) and Nobleza Piccardo S.A.I.C. y F. (Nobleza) executed the title deed for the purchase of a plot of land extending over 160,000 square meters located in the District of San Martín, Province of Buenos Aires, currently used for industrial purposes and suitable in terms of characteristics and scales for mixed-use developments. The price for the property was US$ 33 million, 30 % of which was paid at such time. A first-priority mortgage was created for the balance of the price on the property, in favor of Nobleza. The balance plus interest at a nominal annual rate of 7.5% on the outstanding balance were paid in full –principal plus interest- in March 2013, by advancing payments.
 
Simultaneously with the execution of the title deed the parties entered into a lease agreement whereby Nobleza leased the whole property to Quality Invest S.A. for a term of up to 36 months from May 2011. This lease agreement contained a clause providing for partial return of the property from month 8 (eight) to month 14 (fourteen) after the date of execution thereof. Prior to expiration, an extension was executed for 2 (two) to 6 (six) months due to expire in December 2012, and Quality Invest obtained usufructuary rights to over half the plot of land. The return of the remaining area set forth in the agreement and due to occur in May 2014 was once again extended until December 31, 2014. On March 2, 2015 a Certificate was executed by Nobleza and Quality Invest for full return of the property, and the contractual relationship between the parties came to an end.
 
On May 16, 2012 the Municipality of San Martín granted a pre-feasibility permit for commercial use, entertainment, events, offices, etc., which would enable performance of a mixed-use development thereon.
 
Pursuant to an Ordinance enacted on December 30, 2014, a process was initiated to obtain a rezoning permit for the plot of land to be used mainly for Commercial Purpose, which considerably expands the uses and potential buildable square meters through new urban indicators; such process is pending approval of the enacted Ordinance by the Government of the Province of Buenos Aires pursuant to a Decree.
 
As approved in the Ordinance, on January 20, 2015 Quality Invest entered into a Zoning Agreement with the Municipality of San Martín which governs various issues related to applicable regulations and provides for a mandatory assignment of square meters in exchange for monetary contributions subject to fulfillment of certain administrative milestones of the rezoning process.
 
Solares de Santa María – City of Buenos Aires
 
Solares de Santa María is a 70-hectare property facing the Río de la Plata in the south of Puerto Madero, 10 minutes from downtown Buenos Aires. Through our subsidiary Solares de Santa María S.A. we are owners of this property. We intend to develop this property for mixed purposes, i.e. our development project involves residential complexes as well as offices, stores, hotels, sports and sailing clubs, services areas with schools, supermarkets and parking lots.
 
In the year 2000, we filed a master plan for the Santa María del Plata site, which was assessed by the Environmental Urban Plan Council (Consejo del Plan Urbano Ambiental, “COPUA”) and submitted to the Town Treasurer’s Office for its consideration. In 2002, the Government of the City of Buenos Aires issued a notice of public hearing and in July 2006, the COPUA made some recommendations about the project, and in response to the recommendations made by COPUA to the project on December 13, 2006, we filed an amendment to the project to adjust it to the recommendations made by COPUA, making material amendments to our development plan for the Area, which amendments included the donation of 50% of the site to the City of Buenos Aires for public use and convenience and a perimetrical pedestrian lane along the entire site on the river bank.
 
In March 2007, a committee of the Government of the City of Buenos Aires, composed of representatives from the Legislative and Executive Branches issued a report stating that such Committee had no objections to our development plan and requested that the General Treasury render a decision concerning the scope of the development plan submitted for the project. In November 2007, 15 years after the Legislative Branch of the City of Buenos Aires granted the general zoning standards for the site, the Government Chief of the City of Buenos Aires executed
 
Decree No. 1584/07, which passed the specific ruling, set forth certain rules for the urban development of the project, including types of permitted constructions and the obligation to assign certain spaces for public use and convenience.
 
Notwithstanding the approval of Decree No. 1584/07 in 2007, several municipal approvals are still pending and in December 2007, a municipal court rendered a decision restricting the implementation of our proposed development plan, due to objections made by a legislator of the City of Buenos Aires, alleging the suspension of Decree No. 1584/07, and each construction project and/or the municipal permits granted for business purposes. Notwithstanding the legality and validity of the Decree No. 1584/07, we entered into an agreement 5/10 that was executed with the Government of the City of Buenos Aires, which has been sent with a legislative bill to the Legislature of the City of Buenos Aires under number 976-J-2010, for approval.
 
On October 30, 2012 a new agreement was executed with the Government of the City of Buenos Aires, replacing all those already executed, whereby new obligations were agreed upon between the parties for the consummation of the project. To that end, such Agreement – as well as the previous ones – shall be countersigned and approved by the Legislative Branch of the City of Buenos Aires by enacting a bill that is attached to the project. As of to date, the project is pending such legislative treatment.
 

 
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Puerto Retiro – City of Buenos Aires
 
Puerto Retiro is an 8.2 hectare undeveloped riverside property bounded by the Catalinas and Puerto Madero office zones to the west, the Retiro railway station to the north and the Río de la Plata to the south and east. One of the only two significant privately owned waterfront properties in the City of Buenos Aires, Puerto Retiro may currently be utilized only for port activities, so we have initiated negotiations with municipal authorities in order to rezone the area. We own a 50% interest in Puerto Retiro.
 
On April 18, 2000, Puerto Retiro S.A. was served notice of a filing made by the Argentine Government, through the Ministry of Defense, seeking to extend the bankruptcy of Inversora Dársena Norte S.A. ("Indarsa") to the Company. Upon filing of the complaint, the bankruptcy court issued an order restraining the ability of Puerto Retiro to dispose of, in any manner, the real property it had purchased in 1993 from Tandanor.
 
 Indarsa had acquired 90% of the capital stock in Tandanor from the Argentine Government in 1991. Tandanor’s main business involved ship repairs performed in a 19-hectare property located in the vicinity of La Boca neighborhood and where the Syncrolift is installed.
 
 As Indarsa failed to comply with its payment obligation for acquisition of the shares of stock in Tandanor, the Ministry of Defense filed a bankruptcy petition against Indarsa, seeking to extend it to the Company.
 
 The evidentiary stage of the legal proceedings has already concluded. The Company lodged an appeal from the injunction order, and such order was confirmed by the Court of Appeals on December 14, 2000. The parties filed the arguments in due time and proper manner. After the case was set for judgment, the judge ordered the suspension of the judicial order requesting the case records for issuance of a decision based on the alleged existence of pre-judgmental status in relation to the criminal case against former officials of the Ministry of Defense and former directors of the Company, for which reason the case will not be adjudicated until a final judgment is entered in respect of the criminal case.
 
It has been made known to the commercial court that the expiration of the limitation period has been declared in the criminal action and the criminal defendants have been acquitted. However, this decision was reversed by the Criminal Court of Cassation (Cámara de Casación Penal). An extraordinary appeal was filed and rejected, therefore an appeal was directly lodged with the Argentine Supreme Court for improper refusal to permit the appeal, and a decision is still pending.
 
 Management and legal counsel to the Company believe that there are sufficient legal and technical arguments to consider that the petition for an extension of the bankruptcy will be dismissed by the court. However, in view of the particular features and progress of the case, this position cannot be held to be conclusive.
 
 In turn, Tandanor filed a civil action against Puerto Retiro S.A. and the other defendants in the criminal case for violation of Section 174 (5) based on Section 173 (7) of the Criminal Code. Such action seeks -on the basis of the nullity of the decree that approved the bidding process involving the Dársena Norte property- a reimbursement in favor of Tandanor for all such amounts it has allegedly lost as a result of a suspected fraudulent transaction involving the sale of the property disputed in the case.
 
 In July 2013 the answer to the civil action was filed, which contained a number of defenses. Tandanor requested the intervention of the National Government as third party co-litigant in this case, which petition was granted by the Court. In March 2015 both the National Government and the criminal complainant answered the asserted defenses. As of the date hereof no resolution has been issued in such regard. While the court does not issue a decision on the asserted defenses, it is hard to foresee whether Puerto Retiro will succeed or not in this case.
 
Residential
 
Coto Residential Project (IRSA Commercial Properties)
 
IRSA Commercial Properties owns approximately 23,000 sqm in air space over the top of the Coto hypermarket that is near to the Abasto Shopping Center in the heart of the City of Buenos Aires. IRSA Commercial Properties and Coto Centro Integral de Comercialización S.A. (Coto) executed and delivered a deed dated September 24, 1997, whereby IRSA Commercial Properties acquired the rights to receive parking units and the rights to build on top of the premises located in the block formed by the streets Agüero, Lavalle, Guardia Vieja and Gallo, in the Abasto neighborhood.
 
Neuquén Parcela Viviendas – Neuquén, Province of Neuquén (IRSA Commercial Properties)
 
Through Shopping Neuquén SA, we own a plot of 13,000 sqm and a construction capacity per FOT of 18,000 sqm of residential properties in an area with significant potential. This area is located close to the recently opened shopping center Alto Comahue, the hypermarket and a hotel to be constructed in months to come.
 
Zetol S.A. and Vista al Muelle S.A. – District of Canelones – Uruguay
 
In the course of fiscal year 2009 we acquired a 100% ownership interest in Liveck S.A., a company organized under the laws of Uruguay. In June 2009, Liveck had acquired a 90% stake in the capital stock of Vista al Muelle S.A. and Zetol S.A., two companies incorporated under the laws of Uruguay, for US$ 7.8 million. The remaining 10% ownership interest in both companies is in the hands of Banzey S.A. These companies have undeveloped lands in Canelones, Uruguay, close to the capital city of Uruguay, Montevideo.
 
We intend to carry out an urban project consisting in the development and commercialization of 13 apartment buildings. Such project has the “urban feasibility” status for the construction of approximately 200,000 sqm for a term of 10 years, which was granted by the Mayor’s Office of the Canelones department and by its Local Legislature. Zetol S.A. and Vista al Muelle S.A. agreed to carry out the infrastructure works for US$ 8 million as well as minimum amount of sqm of properties. The satisfaction of this commitment under the terms and conditions agreed upon will grant an additional 10-year effective term to the urban feasibility status.
 
The total purchase price for Zetol S.A. was US$ 7.0 million; of which US$ 2.0 million were paid. Sellers may opt to receive the balance in cash or through the delivery of units in the buildings to be constructed in the land owned by Zetol S.A. equivalent to 12% of the total marketable meters to be constructed.
 
In addition, Vista al Muelle S.A. owned since September 2008 a plot of land purchased for US$ 0.83 million. Then, in February 2010, plots of land were acquired for US$ 1 million, the balance of which as of to date amounts to US$ 0.28 plus interest and will be repaid in December 2014. In December 2010, Vista al Muelle S.A. executed the title deed of other plots for a total amount of US$ 2.66 million, of which US$ 0.3 million were paid. The balance will be repaid by delivering 2,334 sqm of units and/or retail stores to be constructed or in cash.
 
On June 30, 2009, the Company sold a 50% stake in Liveck S.A. to Cyrela Brazil Realty S.A for US$ 1.3 million. On December 17, 2010, together with Cyrela Brazil Realty S.A. we executed a stock purchase agreement pursuant to which we repurchased from Cyrela Brazil Realty S.A. a 50% shareholding in Liveck S.A. for US$ 2.7 million. Accordingly, as of June 30, 2015, our stake, through Tyrus, in Liveck is 100%.
 

 
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As a result of the plot barter agreements executed in due time between the Intendencia Municipal de Canelones (“IMC”), Zetol S.A. and Vista al Muelle S.A. in March 2014, the parcel redistribution dealing was concluded. This milestone, as set forth in the amendment to the Master Agreement executed in 2013, initiates the 10-year term for the investment in infrastructure and construction of the buildings mentioned above. At present, the urban project and the design of the first tower are being developed.
 
Pereiraola (Greenville), Hudson – Province of Buenos Aires
 
In April de 2010 we sold Pereiraola S.A., a company owner of certain lands adjacent to Abril Club de Campo that comprised 130 hectares, for US$ 11.7 million. The purchaser would develop a project that included the fractioning into lots, a condo-hotel, two polo fields, and apartment buildings. The delivery to the Company of 39,634 square meters of lots amounting to approximately US$ 3 million was included in the sale price. At present the project is at an advanced stage, and the 52 lots are expected to be received in 2016.
 
Retail
 
Caballito Plot – City of Buenos Aires (IRSA Commercial Properties)
 
This is a property of approximately 23,791 sqm in the City of Buenos Aires, neighborhood of Caballito, one of the most densely populated of the city, which IRSA Commercial Properties purchased in November 1997. This plot would allow developing a shopping center having 30,000 sqm, a hypermarket, a cinema complex, and several recreation and entertainment activity areas. At present, the legislature of the City of Buenos Aires has received a legislative bill to approve the zoning parameters corresponding to this property which already has the consent of the Executive Branch.
 
Dot Adjoining Plot – City of Buenos Aires (IRSA Commercial Properties)
 
On May 3, 2012, the Government of the City of Buenos Aires, through the General Office of Zoning Interpretation (Dirección General de Interpretación Urbanística) approved, through a pre-feasibility study, the parcel subdivision of the ex-Philips plot contingent upon the observance of the applicable building regulations in each of the resulting parcels. In addition, all the uses and parameters established under the municipal ordinance previously issued by the above mentioned authority are being observed.
 
On June 3, 2013, we were given notice that the Government of the City of Buenos Aires had approved the requested parcel subdivision of the ex-Philips plot. As a result, the property was divided into three parcels: 2 parcels of approximately 6,400 sqm and a parcel adjoining DOT Baires Shopping of 15,900 sqm intended for the future extension of the shopping center in 47,000 sqm.
 
Offices
 
Philips Adjoining Plots 1 and 2 – City of Buenos Aires (IRSA Commercial Properties)
 
These two parcels of 6,400 sqm with construction capacity of 19,200 sqm each, are at present a significant land reserve jointly with a plot where the extension of Dot Baires Shopping is planned. As a result of major developments, the intersection of Av. General Paz and the Panamerican Highway has experienced a significant growth in recent years. The project of theses parcels will conclude the consolidation of this area.
 
Baicom Plot - City of Buenos Aires
 
On December 23, 2009, we acquired 50% of a parcel located in the surroundings of the Buenos Aires Port, for a purchase price of Ps. 4.5 million. The property’s total surface area is 6,905 square meters and there is a construction permit associated for 34,500 square meters in accordance with the City of Buenos Aires urban construction rules and regulations.
 
Catalinas Norte Plot - City of Buenos Aires
 
Facing the River Plate, this plot is in a privileged location. Having been witness to one of the largest vertical developments in the city, the Catalinas district has consolidated itself as the paramount office real estate area in the city. The project, featuring 35,300 square meters to be built on the ground floor comprises a tower of 37 floors including 4 ground floors, an open ground floor, mezzanine, dining and multipurpose room on the first floor, 28 office floors, 2 terrace floors and one mechanical room.
 
Intercontinental Plaza II Plot - City of Buenos Aires (IRSA Commercial Properties)
 
The Intercontinental Plaza complex is located in the heart of the Montserrat district, situated a few meters away from the most important avenue in the city and the financial district. It comprises an office tower and the exclusive Intercontinental Hotel. In the 6,135 square meter plot, it would be feasible to develop a second office tower, including 19,600 square meters and 25 floors, that would supplement the one already erected in the intersection of Moreno and Tacuarí streets.
 
Hotels
 
During fiscal year 2015, we kept our 76.34% interest in Intercontinental hotel, 80.00% interest in Sheraton Libertador hotel and 50.00% interest in Llao Llao. We observed a decrease in the occupancy of our hotels due to a lower inflow of foreign and corporate tourists.
 
The following chart shows certain information regarding our luxury hotels:
 
                                           
Fiscal Year Sales as of June 30,
          
 
Hotels
  
Date of Acquisition
      
IRSA’s Interest
      
Number of rooms
      
Occupancy(1)
      
Average Price per Room Ps.(2)
      
2015
      
2014
      
2013
      
Book Value
  
Intercontinental (3)
  
11/01/1997
       76.34 %     309       68.74 %     1,276       143,281       123,925       87,081       56,140  
Sheraton Libertador (4)
  
03/01//1998
       80.00 %     200       75.75 %     1,142       93,801       74,178       52,089       31,690  
Llao Llao (5)
  
06/01/1997
       50.00 %     205       51.37 %     2,746       159,215       133,459       86,666       84,047  
Total
     -       -       714       65.69 %     1,564       396,297       331,562       225,836       171,877  
 
(1) Accumulated average in the twelve-month period.
  
(2) Accumulated average in the twelve-month period.
  
(3) Through Nuevas Fronteras S.A. (Subsidiary of IRSA).
  
(4) Through Hoteles Argentinos S.A.
  
(5) Through Llao Llao Resorts S.A.
 
  
 
 
 

 
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Additional information about our Hotels
 
Hotel Llao Llao, San Carlos de Bariloche, Province of Rio Negro
 
 In June 1997 we acquired the Hotel Llao Llao from Llao Llao Holding S.A. Fifty percent is currently owned by the Sutton Group. The Hotel Llao Llao is located on the Llao Llao peninsula, 25 kilometers from San Carlos de Bariloche and is one of the most important tourist hotels in Argentina. Surrounded by mountains and lakes, this hotel was designed and built by the famous architect Bustillo in a traditional alpine style and first opened in 1938. The hotel was renovated between 1990 and 1993 and has a total constructed surface area of 15,000 sqm and 158 original rooms. The hotel-resort also includes an 18-hole golf course, tennis courts, health club, spa, game room and swimming pool. The hotel is a member of The Leading Hotels of the World, Ltd., a prestigious luxury hospitality organization representing 430 of the world’s finest hotels, resorts and spas. The Hotel Llao Llao is currently being managed by Compañía de Servicios Hoteleros S.A., operator, among others, of the Alvear Palace Hotel, a luxury hotel located in the Recoleta neighborhood of Buenos Aires. During 2007, the hotel was subject to an expansion and the number of suites in the hotel rose to 201 rooms. The occupancy of the hotel decreased in the April-June quarter due to eruption of the Calbuco volcano which resulted in a significant reduction of bookings for stays for such period.
 
Hotel Intercontinental, City of Buenos Aires
 
In November 1997, we acquired 51% of the Hotel Intercontinental from Pérez Companc S.A. The Hotel Intercontinental is located in the downtown City of Buenos Aires neighborhood of Montserrat, near the Intercontinental Plaza office building. Intercontinental Hotels Corporation, a United States corporation, currently owns 24% of the Hotel Intercontinental. The hotel’s meeting facilities include eight meeting rooms, a convention center and a divisible 588 sqm ballroom. Other amenities include a restaurant, a business center, a sauna and a fitness facility with swimming pool. The hotel was completed in December 1994 and has 309 rooms. The hotel is managed by the Intercontinental Hotels Corporation. During this year the hotel remodeled floors 6, 7 and 8, totaling 61 remodeled rooms that required an investment of Ps. 8.8 million.
 
Hotel Sheraton Libertador, City of Buenos Aires
 
In March 1998 we acquired 100% of the Hotel Sheraton Libertador from Citicorp Equity Investment for an aggregate purchase price of US$ 23 million. This hotel is located in downtown Buenos Aires. The hotel contains 193 rooms and 7 suites, eight meeting rooms, a restaurant, a business center, a spa and fitness facilities with a swimming pool. In March 1999, we sold 20% of our interest in the Sheraton Libertador Hotel for US$ 4.7 million to Hoteles Sheraton de Argentina. The hotel is currently managed by Sheraton Overseas Management Corporation, a United States corporation. During this year the hotel lobby was remodeled. The investment amounted to Ps. 5.0 million.
 
Bariloche Plot, “El Rancho,” San Carlos de Bariloche, Province of Río Negro
 
On December 14, 2006, through our hotel operator subsidiary, Llao Llao Resorts S.A., we acquired a land covering 129,533 sqm of surface area in the City of San Carlos de Bariloche in the Province of Río Negro. The total price of the transaction was US$ 7.0 million, of which US$ 4.2 million were paid in cash and the balance of US$ 2.8 million was financed by means of a mortgage to be paid in 36 monthly, equal and consecutive installments of US$ 0.086 million each. The land is in the border of the Lago Gutiérrez, close to the Llao Llao Hotel in an outstanding natural environment and it has a large cottage covering 1,000 sqm of surface area designed by the architect Ezequiel Bustillo.
 
Savoy Hotel
 
On February 5, 2015, the Company indirectly sold 100% of its equity interest in Bitania 26 S.A., owner of Hotel “Savoy” in the city of Rosario (Province of Santa Fe), which accounts for 49% of its capital stock, for US$ 4.2 million. The income from the transaction amounted to approximately Ps. 13.3 million.
 
International
 
Lipstick Building, New York, United States
 
The Lipstick Building is a landmark building in the City of New York, located on Third Avenue and 53rd Street, in Midtown Manhattan, New York. It was designed by architects John Burgee and Philip Johnson (Glass House and Seagram Buildings among other remarkable works) and it has been named after its original elliptic form and the reddish color of its façade. Its gross leasable area is around 57,500 sqm distributed in 34 stories.
 
As of June 30, 2015, this building had an occupancy rate of 91.86% generating average revenues of US$ 64.74 per sqm.
 
Lipstick Building
  
Fiscal year ended June 30, 2015
    
Fiscal year ended June 30, 2014
    
YoY Var
  
Gross Leasable Area (sqm)
     58,094       58,092       -  
Occupancy
     91.86 %     88.94 %  
2.92pp
  
Rent (US$./sqm)
     64.74       63.69       1.65 %
 
As of June 30, 2015, 2 additional lease agreements had been executed totaling an aggregate surface area of 22,585 additional square meters, to be actually occupied during the next fiscal year, causing its occupancy rate to rise to 95.47% and its average rental price to US$ 65.09 per sqm.
 
Finally, in the southern wing of the lobby there is an exhibition since September 2014 showcasing part of the work and life of the celebrated Argentine architect César Pelli. The exhibition has been conceived, designed and executed in close cooperation with César Pelli’s architectural firm.
 
Sale of 183 Madison Ave, New York, NY
 
In September 2014, the Company, acting through its subsidiary Rigby 183 LLC (“Rigby”) closed the sale of the Madison 183 building, located in the city of New York, United States of America, for US$ 185 million, and discharged the mortgage on this asset for US$ 75 million. In December 2010 we had acquired a 49% stake in Rigby, owner of the building, which we valued at US$ 85.1 million. In November 2012 we increased our interest by 25.5%, and thus became holders of a 74.50% stake in Rigby’s stock capital. At the time of this purchase the building was valued at US$ 147.5 million. The building’s sale price, of US$ 185 million, implies an appreciation of 117% during the investment period. During the second quarter of 2015 we recorded a balance of Ps. 188.3 million due to reversal of the conversion reserve generated in Rigby resulting from the partial repayment of principal.
 

 
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Sale of remaining interest in Hersha Hospitality Trust
 
Hersha is a REIT listed on the New York Stock Exchange under the ticker “HT”. Hersha mainly invests in institutional hotels located in shopping centers, suburban commercial areas and secondary destinations and markets mainly located in the northeastern region of United States and in selected markets of the western coast of the United States. Hersha acquires properties in areas where it believes there is a developing market and has a proactive management that seeks to create and add value in the long term.
 
In the first quarter of 2015, IRSA indirectly held 1,000,000 common shares in Hersha, which were sold at an average price of US$ 6.74 per share. As a result, IRSA holds no share interest in Hersha.

Investment in Condor
 
We hold our investment in the Condor Hospitality Trust hotel REIT, through our subsidiary Real Estate Strategies, L.P. (“RES”), in which we hold a 66.8% interest. Condor is a REIT listed in Nasdaq and is focused on middle-class and long-stay hotels, in 21 states in the United States of America, which are operated by various operators and franchises such as Comfort Inn, Days Inn, Hampton Inn, Holiday Inn, Sleep Inn and Super 8, among others. In March 2015 a new CEO was appointed, who is working in relaunching the REIT. The REIT’s name has been changed from Supertel Hospitality Inc. to Condor Hospitality Trust, and its ticker in Nasdaq has been changed from “SPPR” to “CDOR”. The strategy is based on selective disposition of hotels within a lower category range and replace them with hotels in higher categories. The company’s results for the first six months of 2015 show an improvement in its rental and hotel occupancy operating ratios and sales of assets for attractive prices.
 
Investment in IDB Development Corporation
 
For this information, see “Item A. History and Development of the Company—Significant acquisitions, dispositions and development of business—Fiscal year ended June 30, 2015— Investment in IDBD” and “—Recent Developments.”
 
Financial Operation and Others
 
Our interest in Banco Hipotecario S.A.
 
As of June 30, 2015, IRSA held a 29.99% interest in Banco Hipotecario, which represented 14.08% of IRSA's consolidated assets as of such date. Established in 1886 by the Argentine government and privatized in 1999, Banco Hipotecario has historically been Argentina’s leading mortgage lender, provider of mortgage-related insurance and mortgage loan services. All of its operations are located in Argentina where it operates a nationwide network of 60 branches in the 23 Argentine provinces and the City of Buenos Aires, and 15 additional sales offices. Additionally, its subsidiary Tarshop S.A. has 27 sales offices.
 
Banco Hipotecario is an inclusive commercial bank that provides universal banking services, offering a wide variety of banking products and activities, including a wide range of individual and corporate loans, deposits, credit and debit cards and related financial services to individuals, small-and medium-sized companies and large corporations. As of June 30, 2015, Banco Hipotecario ranked thirteenth in the Argentine financial system in terms of shareholders’ equity and thirteenth in terms of total assetsAs of June 30, 2015, Banco Hipotecario’s shareholders’ equity was Ps. 4,700.7 million, its consolidated assets were Ps. 33,321.4 million, and its net income for the twelve-month period ended June 30, 2015 was Ps. 537.2 million. Since 1999, Banco Hipotecario’s shares have been listed on the Buenos Aires Stock Exchange in Argentina, and since 2006 it has had a Level I ADR program.
 
Banco Hipotecario continues its business strategy of diversifying its loan portfolio. As a result, non-mortgage loans to the non-financial private sector increased from Ps. 7,676.1 million as of December 31, 2012 to Ps. 10,708.0 million as of December 31, 2013, Ps. 14,845.9 million as of December 31, 2014 and Ps. 16,551.9 million as of June 30, 2015, increasing the interest in the aggregate loan portfolio to the non-financial private sector from 80.4% as of December 31, 2012 to 87.0% as of June 30, 2015. Non-performing loans represented 2.3% of its total portfolio as of June 30, 2015.
 
Furthermore, Banco Hipotecario has diversified its funding sources; it has reduced its international financing and has become one of the most frequent issuers of debt in Argentina by developing its presence in the local capital market and increasing its deposit base. Its financial debt represented 21.8% of the total financing as of June 30, 2015.
 
Its subsidiaries include BACS Banco de Crédito y Securitización S.A., a bank specialized in investment banking and securitization which consolidates with BACS Administradora de Activos S.A. S.G.F.C.I. a company specialized in asset management; BHN Inversión S.A. which consolidates with: BHN Vida S.A., a life insurance company, BHN Seguros Generales S.A., a fire insurance company for home owners; and Tarshop S.A., a company specialized in the sale of consumer financing products and cash advances to non-banking customers.
 
On October 10, 2012, Banco Hipotecario paid dividends for Ps.100 million, as approved in April 2011 by the Shareholders’ Meeting. Furthermore, on August 23, 2013, the General Shareholders’ Meeting resolved upon the distribution of Ps. 30 million on account of cash dividends on common shares, which were paid on September 20, 2013. In addition, the General Shareholders’ Meeting held on April 24, 2014 approved the distribution of cash dividends on common shares for Ps. 42 million that were made available to the shareholders in January 2015.
 
The following table shows Banco Hipotecario’s financing sources(1) as from the dates indicated:
 
 
At June 30,
    
% Change
  
 
2015
  
2014
    
2015 vs.2014
  
 
(in millions of Pesos, except for percentages)
  
                   
Bonds
    Ps. 4,926.7      Ps. 3,501.7       40.7 %
Subordinated Bonds
     100.0       -    
NM
  
Borrowings from Central Bank.
     0.1       0.1       42.0 %
Borrowings from banks and international entities
     297.4       558.4       -46.8 %
Deposits
     18,191.2       13,691.3       32.9 %
Total
    Ps. 23,515.4      Ps. 17,751.5       32.5 %
 
(1)  Excludes accrued interest.
 
IRSA’s Regulation and Government Supervision of its Real Estate Business
 
Legal Framework
 
Regulation and Governmental Supervision
 
The laws and regulations governing the acquisition and transfer of real estate, as well as municipal zoning ordinances are applicable to the development and operation of our properties.
 
Currently, Argentine law does not specifically regulate shopping center lease agreements. Since our shopping center leases generally differ from ordinary commercial leases, we have created provisions which govern the relationship with our shopping center tenants.
 
Leases
 
Argentine law imposes certain restrictions on property owners, including:
 
·  
a prohibition to include automatic price adjustment clauses based on inflation increases in lease agreements; and
 
·  
the imposition of a two-year minimum lease term for all purposes, except in particular cases such as embassy, consulate or international organization venues, room with furniture for touristic purposes for less than three months, custody and bailment of goods, exhibition or offering of goods in fairs or in cases where due to the circumstances, the subject matter of the lease agreement requires a shorter term.
 

 
88
 
Rent Increase
 
In addition, there are contradictory court rulings with respect to whether the rent price can or cannot be increased during the term of the lease agreement. For example, Section 10 of the Public Emergency Law prohibits the adjustment of rent under lease agreements subject to official inflation rates, such as the consumer price index or the wholesale price index. Most of our lease agreements have incremental rent increase clauses that are not based on any official index. As of the date of this document no tenant has filed any legal action against us challenging incremental rent increases, but we cannot assure that such actions will not be filed in the future and, if any such actions were successful, that they will not have an adverse effect on our company.
 
Limits on lease terms
 
Under the Argentine Civil and Commercial Code lease terms may not exceed fifty years, except for leases regulated by Law No. 25,248 (which provides that real estate leases containing purchase options–leasing inmobiliario- are not subject to term limitations). Generally, terms in our lease agreements go from 3 to 10 years.
 
Right to Termination
 
The Argentine Civil and Commercial Code provides that tenants of properties may rescind lease agreements earlier after the first six months of the effective date. Such rescission is subject to penalties which range from one to one and a half months of rent. If the tenant rescinds during the first year of the lease the penalty is one and a half month’s rent and if the rescission occurs after the first year of lease the penalty is one month’s rent.
 
It should be noted that the Argentine Civil and Commercial Code became effective on August 1, 2015 and that, among other rules, it repealed the Urban Lease Law (No. 23,091), which provided for a rule similar to the one described above, but established the obligation to give at least 60 days’ prior notice of exercise of the unilateral right to termination by the tenant. There are no court rulings yet with respect to the new regulations related to: (i) unilateral right to termination by tenant; i.e. whether the parties may waive the tenant’s right to terminate the agreement unilaterally; or in relation to (ii) the possibility of establishing a penalty different from the penalty described above in the event of termination.
 
Other
 
While current Argentine government policy discourages government regulation of lease agreements, there can be no assurance that additional regulations will not be imposed in the future by the Argentine Congress, including regulations similar to those previously in place. Furthermore, most of our leases provide that the tenants pay all costs and taxes related to the property in proportion to their respective leasable areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby adversely affecting our rental income. The Argentine Civil and Commercial Procedure Code enables the lessor to pursue what is known as an “executory proceeding” upon lessees’ failure to pay rent. In executory proceedings debtors have fewer defenses available to prevent foreclosure, making these proceedings substantially shorter than ordinary ones. In executory proceedings the origin of the debt is not under discussion; the trial focuses on the formalities of debt instrument itself. The aforementioned code also permits special eviction proceedings, which are carried out in the same way as ordinary proceedings. The Argentine Civil and Commercial Code requires that a notice be given to the tenant demanding payment of the amounts due in the event of breach prior to eviction, of no less than ten days for leases for residential purposes, and establishes no limitation or minimum notice for leases for other purposes. However, historically, large court dockets and numerous procedural hurdles have resulted in significant delays to eviction proceedings, which generally last from six months to two years from the date of filing of the suit to the time of actual eviction.
 
Development and Use of the Land
 
Buenos Aires Urban Planning Code. Our real estate activities are subject to several municipal zoning, building, occupation and environmental regulations. In the city of Buenos Aires, where the vast majority of our real estate properties are located, the Buenos Aires Urban Planning Code (Código de Planeamiento Urbano de la Ciudad de Buenos Aires) generally restricts the density and use of property and controls physical features of improvements on property, such as height, design, set-back and overhang, consistent with the city’s urban landscape policy. The administrative agency in charge of the Urban Planning Code is the Secretary of Urban Planning of the City of Buenos Aires.
 
Buenos Aires Building Code. The Buenos Aires Building Code (Código de Edificación de la Ciudad de Buenos Aires) complements the Buenos Aires Urban Planning Code and regulates the structural use and development of property in the city of Buenos Aires. The Buenos Aires Building Code requires builders and developers to file applications for building permits, including the submission to the Secretary of Work and Public Services (Secretaría de Obras y Servicios Públicos) of architectural plans for review, to assure compliance therewith.
 
We believe that all of our real estate properties are in material compliance with all relevant laws, ordinances and regulations.
 
Sales and Ownership
 
Buildings Law. Buildings Law No. 19,724 (Ley de Pre horizontalidad) was repealed by the new Argentine Civil and Commercial Code which became effective on August 1, 2015. The new regulations provide that for purposes of execution of agreements with respect to built units or units to be built, the owner is required to purchase insurance in favor of prospective purchasers against the risk of frustration of the operation pursuant to the agreement for any reason. A breach of this obligation prevents the owner from exercising any right against the purchaser–such as demanding payment of any outstanding installments due – unless he/she fully complies with their obligations, but does not prevent the purchaser from exercising its rights against seller.
 
Protection for the Disabled Law. The Protection for the Disabled Law No. 22,431, enacted on March 20, 1981, as amended, provides that in connection with the construction and renovation of buildings, obstructions to access must be eliminated in order to enable access by handicapped individuals. In the construction of public buildings, entrances, transit pathways and adequate facilities for mobility impaired individuals must be provided for.
 
Buildings constructed before the enforcement of the Protection for the Disabled Law must be adapted to provide accesses, transit pathways and adequate facilities for mobility-impaired individuals.
 
Those pre-existing buildings, which due to their architectural design may not be adapted to the use by mobility-impaired individuals, are exempted from the fulfillment of these requirements.
 
The Protection for the Disabled Law provides that residential buildings must ensure access by mobility impaired individuals to elevators and aisles. Architectural requirements refer to pathways, stairs, ramps and parking.
 
Real Estate Installment Sales Law. The Real Estate Installment Sales Law No. 14,005, as amended by Law No. 23,266 and Decree No. 2015/85, imposes a series of requirements on contracts for the sale of subdivided real estate property regarding, for example, the sale price which is paid in installments and the deed, which is not conveyed until final payment of such price. The provisions of this law require, among other things:
 
·  
The registration of the intention to sell the property in subdivided plots with the Real Estate Registry (Registro de la Propiedad Inmueble) corresponding to the jurisdiction of the property. Registration will only be possible with regard to unencumbered property. Mortgaged property may only be registered where creditors agree to divide the debt in accordance with the subdivided plots. However, creditors may be judicially compelled to agree to the division.
 
·  
The preliminary registration with the Real Estate Registry of the purchase instrument within 30 days of execution of the agreements.
 
Once the property is registered, the installment sale may not occur in a manner inconsistent with the Real Estate Installment Sales Act, unless seller registers its decision to desist from the sale in installments with the Real Estate Registry. In the event of a dispute over the title between the purchaser and third-party creditors of the seller, the installment purchaser who has duly registered the purchase instrument with the Real Estate Registry will obtain the deed to the plot. Further, the purchaser can demand conveyance of title after at least 25% of the purchase price has been paid, although the seller may demand a mortgage to secure payment of the balance of the purchase price.
 
After payment of 25% of the purchase price or the construction of improvements on the property equal to at least 50% of the property value, the Real Estate Installment Sales Act prohibits the rescission of the sales contract for failure by the purchaser to pay the balance of the purchase price. However, in such event the seller may take action under any mortgage on the property.
 

 
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Other Regulations
 
Consumer Relationship. Consumer or End User Protection. The Argentine Constitution expressly establishes in Article 42 that consumers and users of goods and services have a right to protection of health, safety and economic interests in a consumer relationship. Consumer Protection Law No. 24,240, as amended, regulates several issues concerning the protection of consumers and end users in a consumer relationship, in the arrangement and execution of contracts.
 
The Consumer Protection Law, and the applicable sections of the Argentine Civil and Commercial Code are intended to regulate the constitutional right conferred under the Constitution on the weakest party of the consumer relationship and prevent potential abuses deriving from the stronger bargaining position of vendors of goods and services in a mass-market economy where standard form contracts are widespread.
 
As a result, the Consumer Protection Law and the Argentine Civil and Commercial Code deem void and unenforceable certain contractual provisions included in consumer contracts entered into with consumers or end users, including those which:
 
·  
deprive obligations of their nature or limit liability for damages;
 
·  
imply a waiver or restriction of consumer rights and an extension of seller rights; and
 
·  
impose the shifting of the burden of proof from the consumer to the seller in order to protect the consumers.
 
In addition, the Consumer Protection Law imposes penalties ranging from warnings to the forfeiture of concession rights, privileges, tax regimes or special credits to which the sanctioned party was entitled, including closing down of establishments for a term of up to 30 days.
 
The Consumer Protection Law and the Argentine Civil and Commercial Code define consumers or end users as the individuals or legal entities that acquire or use goods or services free of charge or for a price for their own final use or benefit or that of their family or social group. In addition, both laws provide that those who though not being parties to a consumer relationship as a result thereof acquire or use goods or services, for consideration or for non-consideration, for their own final use or that of their family or social group are entitled to such protection rights in a manner comparable to those engaged in a consumer relationship.
 
In addition, the Consumer Protection Law defines the suppliers of goods and services as the individuals or legal entities, either public or private that in a professional way, even occasionally, produce, import, distribute or commercialize goods or supply services to consumers or users.
 
The Argentine Civil and Commercial Code defines a consumer agreement as such agreement that is entered into between a consumer or end user and an individual or legal entity that acts professionally or occasionally either with a private or public company that manufactures goods or provides services, for the purpose of acquisition, use or enjoyment of goods or services by consumers or users for private, family or social use.
 
The protection under the laws afforded to consumers and end users encompasses the entire consumer relationship process (from the offering of the product or service) and it is not only based on a contract, including the consequences thereof.
 
In addition, the Consumer Protection Law establishes a joint and several liability system under which for any damages caused to consumers, if resulting from a defect or risk inherent in the thing or the provision of a service, the producer, manufacturer, importer, distributor, supplier, seller and anyone who has placed its trademark on the thing or service shall be liable.
 
The Consumer Protection Law excludes the services supplied by professionals that require a college degree and registration in officially recognized professional organizations or by a governmental authority. However, this law regulates the advertisements that promote the services of such professionals.
 
The Consumer Protection Law determines that the information contained in the offer addressed to undetermined prospective consumers, binds the offeror during the period in which the offer takes place and until its public revocation. Further, it determines that specifications included in advertisements, announcements, prospectuses, circulars or other media bind the offeror and are considered part of the contract entered into by the consumer.
 
Pursuant to Resolution No. 104/05 issued by the Secretariat of Technical Coordination reporting to the Argentine Ministry of Economy, the Consumer Protection Law adopted Resolution No. 21/2004 issued by the Mercorsur's Common Market Group which requires that those who engage in commerce over the Internet (E-Business) shall disclose in a precise and clear manner the characteristics of the products and/or services offered and the sale terms. Failure to comply with the terms of the offer is deemed an unjustified denial to sell and gives rise to sanctions.
 
On September 17, 2014, a new Consumer Protection Law was enacted by the Argentine Congress –Law No. 26,993. This law, known as “System for Conflict Resolution in Consumer Relationships,” provided for the creation of new administrative and judicial procedures for this field of Law. It created a two-instance administrative system: the Preliminary Conciliation Service for Consumer Relationships (Servicio de Conciliación Previa en las Relaciones de Consumo, COPREC) and the Consumer Relationship Audit, and a number of courts assigned to resolution of conflicts between consumers and producers of goods and services (Fuero Judicial Nacional de Consumo). In order to file a claim, the amount so claimed should not exceed a fixed amount equivalent to 55 adjustable minimum living wages, which are determined by the Ministry of Labor, Employment and Social Security. The claim is required to be filed with the administrative agency. If an agreement is not reached between the parties, the claimant may file the claim in court. The administrative system known as Preliminary Conciliation Service for Consumer Relationships (COPREC) is currently in full force and effect. However, the court system (fuero judicial nacional de consumo) is not in force yet, therefore, any court claims should be currently filed with the existing applicable courts. A considerable volume of claims filed against us are expected to be settled pursuant to the system referred to above, without disregarding the full force and effect of different instances for administrative claims existing in the provincial sphere and the City of Buenos Aires, which remain in full force and effect, where potential claims related to this matter could also be filed.
 
Antitrust Law. Law No. 25,156, as amended, prevents monopolistic practices and requires administrative authorization for transactions that according to the Antitrust Law constitute an economic concentration. According to this law, mergers, transfers of goodwill, acquisitions of property or rights over shares, capital or other convertible securities, or similar operations by which the acquirer controls or substantially influences a company, are considered as an economic concentration. Whenever an economic concentration involves a company or companies and the aggregate volume of business of the companies concerned exceeds in Argentina the amount of Ps. 200.0 million, in such case the respective concentration should be submitted for approval to the Argentine Antitrust Authority (“Comisión Nacional de Defensa de la Competencia”, “CNDC”). The request for approval may be filed, either prior to the transaction or within a week after its completion.
 
When a request for approval is filed, the CNDC may (i) authorize the transaction, (ii) subordinate the transaction to the accomplishment of certain conditions, or (iii) reject the authorization. 
 

 
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The Antitrust Law provides that economic concentrations in which the transaction amount and the value of the assets absorbed, acquired, transferred or controlled in Argentina, do not exceed Ps. 20.0 million each are exempted from the administrative authorization. Notwithstanding the foregoing, when the transactions effected by the companies concerned during the prior 12-month period exceed in the aggregate Ps. 20.0 million or Ps. 60.0 million in the last 36 months, these transactions must be notified to the CNDC.
 
As our consolidated annual sales volume and our parent’s consolidated annual sales volume exceed Ps. 200.0 million, we should give notice to the CNDC of any concentration provided for by the Antitrust Law.
 
Credit Card Law. Law No. 25,065, as amended by Law No. 26,010 and Law No. 26,361, governs certain aspects of the business activity known as “credit card system.” Regulations impose minimum contract contents and approval thereof by the Argentine Ministry of Industry, as well as limitations on chargeable interest by users and commissions charged by the retail stores that adhere to the system. The Credit Card Law applies both to banking and non-banking cards, such as “Tarjeta Shopping,” issued by Tarshop. Pursuant to Communication “A” 5477 issued by the Central Bank, loans granted under credit cards by non-financial entities cannot exceed 25% of the monthly interest rate published by the Central Bank for loans to individuals without security interests.
 
Environment. Our activities are subject to a number of national, provincial and municipal environmental provisions.
 
Article 41 of the Argentine Constitution, as amended in 1994, provides that all Argentine inhabitants have the right to a healthy and balanced environment fit for human development and have the duty to preserve it. Environmental damage shall bring about primarily the obligation to restore it as provided by applicable law. The authorities shall control the protection of this right, the rational use of natural resources, the preservation of the natural and cultural heritage and of biodiversity, and shall also provide for environmental information and education. The National Government shall establish minimum standards for environmental protection whereas Provincial and Municipal Governments shall fix specific standards and regulatory provisions.
 
On November 6, 2009, the Argentine Congress passed Law No. 25,675. Such law regulates the minimum standards for the achievement of a sustainable environment and the preservation and protection of biodiversity and fixes environmental policy goals.
 
Law No. 25,675 establishes the activities that will be subject to an environmental impact assessment procedure and certain requirements applicable thereto. In addition, such Law sets forth the duties and obligations that will be triggered by any damage to the environment and mainly provides for restoration of the environment to its former condition or, if that is not technically feasible, for payment of compensation in lieu thereof. Such Law also fosters environmental education and provides for certain minimum reporting obligations to be fulfilled by natural and legal entities.
 
In addition, the CNV Rules require the obligation to report to the CNV any events of any nature and fortuitous acts that seriously hinder or could potentially hinder performance of our activities, including any events that generate or may generate significant impacts on the environment, providing details on the consequences thereof.
 
The new Argentine Civil and Commercial Code has introduced as a novel feature the acknowledgement of collective rights, including the right to a healthy and balanced environment. Accordingly, the Code expressly sets forth that the law does not protect an abusive exercise of individual rights if such exercise could have an adverse impact on the environment and the rights with a collective impact in general.
 

 

 
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Subsidiaries and associated companies
 
The following table includes a description of our subsidiaries and associated companies as of June 30, 2015:
 
Subsidiaries
  
Effective Ownership and Voting Power Percentage
  
Property/Activity
         
Agro Managers S.A
     46.84 %
Agro Managers S.A. is engaged in doing by itself or on behalf of third parties investments in the country or overseas through long and short term loans with or without  warranties, derivatives, stocks and commodities as well as any kind of debentures or credit notes.
Agro-Uranga S.A
     35.72 %
Agro-Uranga S.A. is an agricultural company which owns 2 farmlands (Las Playas and San Nicolás) that have 8.299 hectares on the state of  Santa Fe and Córdoba.
Agropecuaria Acres del Sud S.A.
     100 %(1)
Agropecuaria Acres del Sud SA is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Alafox
     100 %(2)
Alafox S.A. is involved in investments in entities organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Brasilagro Companhia Brasileira de Propiedades Agrícolas
     39.76 %(3)
Brasilagro is mainly involved in four areas: sugar cane, crops and cotton, forestry activities, and livestock.
Codalis
     100 %(2)
Codalis S.A. is involved in investments in entities organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Doneldon
     100 %
Doneldon S.A. is involved in investments in entities organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Futuros y Opciones.Com S.A.
     59.59 %
A leading agricultural web site which provides information about markets and services of economic and financial consulting through the Internet. The company has begun to expand the range of commercial services offered to the agricultural sector by developing direct sales of supplies, crops brokerage services and cattle operations.
           
FyO Trading S.A.
     59,63 %
FyO Trading S.A.’s purpose is to engage, in its own name or on behalf of or associated with third parties, in activities related to the production of agricultural products and raw materials, export and import of agricultural products and national and international purchases and sales of agricultural products and raw materials.
Granos Olavarria S.A.
     59,63 %(4)
Granos Olavarría S.A. is principally engaged to the warehousing of cereals and brokering of grains.
           
Helmir S.A.
     100 %
Helmir S.A. is involved in investments in entities organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and to the management and administration of the capital stock it owns on companies controlled by it.
IRSA Inversiones y Representaciones Sociedad Anónima
     64.30 %(3)
It is a leading Argentine company devoted to the development and  management of real estate.
           
Ombú Agropecuaria S.A
     100 %(5)
Ombú Agropecuaria S.A  is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Sedelor
     100 %(2)
Sedelor S.A. is involved in investments in entities organized in Uruguay or abroad through the purchase and sale of bonds, shares, debentures and any kind of securities and commercial paper under any of the systems or forms created or to be created, and in the management and administration of the capital stock it owns on companies controlled by it.
Sociedad Anónima Carnes Pampeanas S.A.  (formerly known as Exportaciones Agroindustriales Argentinas S.A.)
     100 % (6)
Sociedad Anónima Carnes Pampeanas, a company that owns a cold storage plant in Santa Rosa, Province of La Pampa, with capacity to slaughter and process approximately 9,500 cattle head per month.
 
Yatay Agropecuaria S.A
     100 %(7)
Yatay Agropecuaria S.A is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
Yuchán Agropecuaria S.A
     100 %(8)
Yuchán Agropecuaria S.A is principally engaged in the trading of agricultural products and by-products, and the acquisition/sales, leasing and construction of urban and rural properties.
 
(1) Includes Doneldon’s, Alafox´s Sedelor´s and Helmir's interest.
(2) Corresponds to Doneldon´s interest.
(3) Excludes effect of treasury stock.
(4) Includes Futuros y Opciones.Com S.A.’s interest.
(5) Includes Codalis’s, Alafox´s and Sedelor´s interest.
(6) Includes Helmir's interest.
(7) Includes Doneldon’s, Sedelor’s, Codalis’s and Helmir's  interest.
(8) Includes Doneldon’s, Alafox’s and Codalis’s interest.

 
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Overview of Agricultural Properties
 
As of June 30, 2015, we owned, together with our subsidiaries, 31 farmlands, which have a total surface area of 622,220 hectares.
 
The following table sets forth our properties’ size (in hectares), primary current use and book value. The market value of farmland is generally higher the closer a farmland is located to Buenos Aires:
 
Owned Farmlands as of June 30, 2015
  
   
Facility
Province
Country
  
Gross Size
    
Date of Acquisition
  
Primary Current Use
  
Net Book Value
  
           
(in hectares)
            
(Ps. Millions) (1)
  
                             
  1  
El Recreo
Catamarca
Argentina
     12,395    
May 95
  
Natural woodlands
     1.3  
  2  
Los Pozos
Salta
Argentina
     239,639    
May ’95
  
Cattle/ Agriculture/ Natural woodlands
     152.6  
  3/4  
San Nicolás/Las Playas (2)
Santa Fe/Córdoba
Argentina
     2,966    
May ‘97
  
Agriculture/ Dairy
     20.0  
  5/6  
La Gramilla/ Santa Bárbara
San Luis
Argentina
     7,072    
Nov ‘97
  
Agriculture Under irrigation
     44.9  
  7  
La Suiza
Chaco
Argentina
     36,380    
Jun ‘98
  
Agriculture/ Cattle
     43.7  
  8  
La Esmeralda
Santa Fe
Argentina
     9,370    
Jun ‘98
  
Agriculture/ Cattle
     16.3  
  9  
El Tigre
La Pampa
Argentina
     8,360    
Apr ‘03
  
Agriculture/ Dairy
     34.2  
  10  
El Invierno
La Pampa
Argentina
     1,946    
Jun ‘05
  
Agriculture
     9.2  
  11  
San Pedro
Entre Rios
Argentina
     6,022    
Sep ‘05
  
Agriculture
     49.0  
  12/13  
8 De Julio/ Estancia Carmen
Santa Cruz
Argentina
     100,911    
May ‘07/ Sep ‘08
  
Sheep
     11.0  
  14  
Administración Cactus
San Luis
Argentina
     171    
Dec ‘97
  
Natural woodlands
     1.5  
  15  
Las Vertientes
Cordoba
Argentina
     4       -  
Silo
     0.7  
  16  
La Esperanza
La Pampa
Argentina
     980    
Mar ‘08
  
Agriculture
     4.3  
  17  
Finca Mendoza
Mendoza
Argentina
     389 (5)  
Mar ‘11
  
Natural woodlands
     0.1  
  18  
Establecimiento Mendoza
Mendoza
Argentina
     9    
Nov’03
  
Natural woodlands
     6.8  
19/20/21/22
  
Las Londras/San Rafael/ Cuatro Vientos/ La Primavera
Santa Cruz
Bolivia
     12,533    
Nov-08/Jan-11
  
Agriculture
     281.9  
23/24/25
  
Jeroviá/Marangatú/Udra (3)
Mariscal  Estigarribia
Paraguay
     58,754    
Feb-09
  
Agriculture /Natural Woodlands
     214.2  
  26/31  
Brasilagro(4)
  
Brazil
     124,319             Agriculture /Forestry /Cattle     968.0  
     
Subtotal
         622,220                 1,859.7  

 
(1)
Acquisition costs plus improvements and furniture necessary for the production, less depreciation.
(2)
Hectares and carrying amount in proportion to our 35.72% interest in Agro-Uranga S.A.
(3)
Hectares and carrying amount in proportion to our 50.00% interest in Cresca through Brasilagro.
(4)
See the section “Overview of Brasilagro’s Properties”.
(5)
Corresponds to our 40% ownership of Establecimiento Mendoza.

Overview of Brasilagro’s Properties
 
As of June 30, 2015, we owned, together with our subsidiaries, 6 farmlands, which have a total surface area of 124.319 hectares, acquired at a highly convenient value compared to the average of the region, all of them with a great appreciation potential.
 
     
Total Area
      
Net Book Value
  
Properties
Place
  
(ha)
  
Use
  
(Ps. Millions)
  
Jatobá Farmland
Jaborandi/BA
     31,606  
Agriculture
     227.5  
Alto Taquari Farmland
Alto Taquari/MT
     5,395  
Agriculture
     110.7  
Araucária Farmland
Mineiros/GO
     8,124  
Agriculture
     190.6  
Chaparral Farmland
Correntina/BA
     37,183  
Agriculture
     259.9  
Nova Buriti Farmland
Januária/MG
     24,212  
Forestry
     72.7  
Preferência Farmland
Barreiras/BA
     17,799  
Cattle
     106.6  
 
Subtotal Brazil
     124,319         968.0  
                     
Jeroviá/Marangatú/Udra
Mariscal Estigarribia, Paraguay
     58,754  
Agriculture /Natural Woodlands
     214.2  
                     
                     
 
Total
     183,073         1,182.1  
                     

Overview of Urban properties and investment business
 
As of June 30, 2015, most of our property  was located in Argentina. We lease our headquarters, located at Bolívar 108, (C1066AAB) Ciudad Autónoma de Buenos Aires. We do not currently lease any material properties other than our headquarters.
 

 
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The following table sets forth certain information about our properties as of June 30, 2015:
 
Property (6)
  
Date of Acquisition
    
Leasable/ Sale m2(1)
  
Location
  
Net Book Value Ps.(2)
    
Encumbrance
    
Outstanding principal amount Ps./000
    
Maturity Date
    
Balance due at maturity
Ps./000
    
Rate
  
Use
  
Occupancy rate (7)
  
Intercontinental Plaza(9)
  
18/11/1997
       22,535  
City of Buenos Aires
     48,783       -       -       -       -       -  
Office Rental
     100.0 %
Bouchard 710
  
01/06/2005
       15,014  
City of Buenos Aires
     82,044       -       -       -       -       -  
Office Rental
     100.0 %
Bouchard 551
  
15/03/2007
       -  
City of Buenos Aires
     8,226       -       -       -       -       -  
Office Rental
     100.0 %
Libertador 498
  
20/12/1995
       620  
City of Buenos Aires
     4,511       -       -       -       -       -  
Office Rental
     100.0 %
Maipú 1300 (10)
  
28/09/1995
       4,759  
City of Buenos Aires
     18,366       -       -       -       -       -  
Office Rental
     90.9 %
Madero 1020
  
21/12/1995
       -  
City of Buenos Aires
     120       -       -       -       -       -  
Office Rental
     100.0 %
Suipacha 652
  
22/11/1991
       11,453  
City of Buenos Aires
     13,711       -       -       -       -       -  
Office Rental
     96.7 %
República Building
  
28/04/2008
       19,885  
City of Buenos Aires
     195,539       -       -       -       -       -  
Office Rental
     93.6 %
Dique IV, Juana Manso 295
  
02/12/1997
       11,298  
City of Buenos Aires
     56,266       -       -       -       -       -  
Office Rental
     99.5 %
Torre Bank Boston
  
27/08/2007
       14,873  
City of Buenos Aires
     134,924       -       -       -       -       -  
Office Rental
     100 %
Terreno Catalinas Norte
  
17/12/2009
       N/A  
City of Buenos Aires
     109,496       -       -       -       -       -  
Other Rentals
     N/A  
Dot Building (3)
  
28/11/2006
       11,242  
City of Buenos Aires
     126,365       -       -       -       -       -  
Office Rental
     100.0 %
Other Properties (5)
   N/A       N/A  
City of Buenos Aires
     83,105       -       -       -       -       -  
Other Rentals
     N/A  
Alto Palermo Shopping (3)
  
23/11/1997
       19,545.0  
City of Buenos Aires
     221,506       -       -       -       -       -  
Shopping Center
     99.7 %
Abasto Shopping (3)
  
17/07/1994
       36,669.1  
City of Buenos Aires
     271,860       -       -       -       -       -  
Shopping Center
     100 %
Alto Avellaneda (3)
  
23/11/1997
       36,728.6  
Province of Buenos Aires
     131,850       -       -       -       -       -  
Shopping Center
     99.9 %
Paseo Alcorta (3)
  
06/06/1997
       15,432.9  
City of Buenos Aires
     115,950       -       -       -       -       -  
Shopping Center
     100 %
Patio Bullrich (3)
  
01/10/1998
       11,636.2  
City of Buenos Aires
     106,248       -       -       -       -       -  
Shopping Center
     100 %
Alto Noa (3)
  
29/03/1995
       19,072.9  
City of Salta
     31,316       -       -       -       -       -  
Shopping Center
     100 %
Buenos Aires Design (3)
  
18/11/1997
       13,888.2  
City of Buenos Aires
     12,930       -       -       -       -       -  
Shopping Center
     94.6 %
Alto Rosario(3)
  
09/11/2004
       28,395.6  
City of Rosario
     115,908       -       -       -       -       -  
Shopping Center
     97.9 %
Mendoza Plaza Shopping (3)
  
02/12/2004
       42,039.5  
City of Mendoza
     102,781       -       -       -       -       -  
Shopping Center
     96.1 %
Córdoba Shopping – Villa Cabrera (3)
  
31/12/2006
       15,328.0  
City of Cordoba
     56,451    
Hipoteca -Anticresis
       1.4    
Ene-17
       3.3    
Libor+1.5%+CER
  
Shopping Center
     99.8 %
Dot Baires Shopping (3)
  
01/05/2009
       49,847.9  
City of Buenos Aires
     382,624       -       -       -               -  
Shopping Center
     99.7 %
Soleil Factory (3)
  
01/07/2010
       13,993.1  
Province of Buenos Aires
     84,301       -       -       -       -       -  
Shopping Center
     99.4 %
Alto Comahue (3)
  
06/07/1999
       9,456.9  
Province of Neuquen
     309,959       -       -       -       -       -  
Shopping Center (in construction)
     94.2 %
Distrito Arcos (3)
  
01/12/2011
       12,127.3  
City of Buenos Aires
     229,800       -       -       -       -       -  
Shopping Center (in construction)
     97.3 %
Santa María del Plata
  
10/07/1997
       716,058  
Province of Buenos Aires
     222,787       -       -       -       -       -  
Land Reserve
     N/A  
Patio Olmos (3)
  
25/09/2007
       5,147  
City of Cordoba
     27,319       -       -       -       -       -  
Land Reserve
     N/A  
Caballito Plot of Land
  
11/03/1997
       8,173  
City of Buenos Aires
     49,697       -       -       -       -       -  
Land Reserve
     N/A  
Other Land Reserve (4)
    N/A       14,388,622  
City and Province of Buenos Aires.
     38,868       -       -       -       -       -  
Land Reserve
     N/A  
Luján (3)
  
31/05/08
       1,160,000  
Province of Buenos Aires.
     24,291       -       -       -       -       -  
Land Reserve
     N/A  
Hotel Llao Llao
  
01/06/1997
       24.000  
Ciudad de Bariloche
     84,047       -       -       -       -       -  
Hotel
     51.37 %
Hotel Intercontinental
  
01/11/1997
       37.600  
City of Buenos Aires
     56,140       -       -       -       -       -  
Hotel
     68.74 %
Hotel Libertador
  
01/03/1998
       17.463  
City of Buenos Aires
     31,690       -       -       -       -       -  
Hotel
     N/A  
 
(1) Total leasable area for each property. Excludes common areas and parking spaces.
(2) Cost of acquisition or development plus improvements, less accumulated depreciation, less allowances.
(3) Through IRSA Commercial Properties.
(4) Includes the following land reserves: Pontevedra plot; Isla Sirgadero; Mariano Acosta, San Luis and Merlo (through IRSA) and Intercontinental Plot (through IRSA Commercial Properties).
(5) Includes the following properties: Anchorena 665, Zelaya 3102, 3103 y 3105, Rivadavia 2768, Constitución 1111, Santa Maria del Plata, Puerto Retiro Plots 50%, Rio Parcel 50%, Libertador Parcel 50%.
(6) All assets are owned by us or through any our subsidiary.
(7) Percentage of occupation of each property. The land reserves are assets that the company remains in the portfolio for future development.
(8) During May, 2015, IRSA reported that, through IRSA Commercial Properties, has signed an agreement to transfer to a non related party 8,470 sqm corresponding to nine office floors and the sign of the deed and the delivery of the units was on June 30, 2015. During September, 2015, IRSA sold through IRSA Commercial Properties seven floors of Intercontinental Plaza, for more information please see “Item 4. Recent Developments.”
(9) Includes Ps. 21,900 thousand of Book Value that corresponds to “Terreno Bariloche.”
(10)During November, 2015, IRSA sold two office floors and four units of parking space of Maipú 1300, for more information please see “Item 4. Recent Developments.”
 

 
 

 
94
 

Insurance
 
Agricultural Business
 
We carry insurance policies with insurance companies that we consider to be financially sound.
 
We employ multi-risk insurance for our farming facilities and industrial properties, which covers property damage, negligence liability, fire, falls, collapse, lightning and gas explosion, electrical and water damages, theft, and business interruption.
 
Such insurance policies have specifications, limits and deductibles which we believe are customary. Nevertheless, they do not cover damages to our crops.
 
We carry directors and officer’s insurance covering management’s civil liability, as well as legally mandated insurance, including employee personal injury.
 
We also provide life or disability insurance for our employees as benefits.
 
We believe our insurance policies are adequate to protect us against the risks for which we are covered. Nevertheless, some potential losses are not covered by insurance and certain kinds of insurance coverage may become prohibitively expensive.
 
The types of insurance used by us are the following:
 
Insured Property
Risk Covered
  
Amount Insured
(in Thousand of
    
Book Value
(in Thousand of
  
     
Ps.)
    
Ps.)
  
Buildings, machinery, silos, installation and furniture and equipment
Theft, fire and technical insurance
     327,729       475,346  
Vehicles
Theft, fire and civil and third parties liability
     17,546       6,387  

 
Urban properties and investment business
 
IRSA carries insurance for directors and officers covering management’s civil liability, as well as legally mandated insurance, including employee personal injury. IRSA does not provide life or disability insurance for its employees as benefits. IRSA believes its insurance policies are adequate to protect it against the risks for which it is covered. Nevertheless, no assurances can be given that the insurance amount purchased by IRSA will be enough to protect itself from significant losses. See “Risk Factors - Risks Relating to IRSA’s Business.”
 
IRSA carries all-risk insurance for its shopping centers and other buildings covering damages to the property caused by fire, explosion, gas leak, hail, storm and winds, earthquakes, vandalism, theft and business interruption. IRSA also has civil liability insurance covering all potential damages to third parties or goods arising from the development of its businesses throughout the whole Argentine territory. IRSA is in compliance with all the legal requirements relating to mandatory insurance, including statutory coverage under the Occupational Risk Law, life insurance required under collective bargaining agreements and other insurance required by the laws and decrees. Its history of damages is limited to only one claim made as a result a fire in Alto Avellaneda Shopping in March 2006, in which the loss was substantially recovered from its insurers. These insurance policies have all the specifications, limits and deductibles that are customary in the market and which IRSA believes are adequate for the risks to which it is exposed in its daily operations. IRSA also has purchased civil liability insurance to cover its directors’ and officers’ liability.
 
Control Systems
 
IRSA Commercial Properties has a computer systems to monitor tenants’ sales in all of our shopping centers (except stands). IRSA Commercial Properties also conduct regular manual audits of its tenants accounting sales records in all of our shopping centers. Almost every store in those shopping centers has a point of sale that is linked to a main computer server in the administrative office of such shopping center. Likewise, it uses the information generated from the computer monitoring system for statistics regarding total sales, average sales, peak sale hours, etc., for marketing purposes and as a reference for the processes of internal audit. The lease contracts for tenants in Alto Avellaneda, Alto Palermo, Alcorta Shopping, Patio Bullrich, Buenos Aires Design, Abasto, Alto Rosario, Alto NOA, Dot Baires Shopping, Córdoba Shopping, Soleil Premium Outlet, La Ribera Shopping and Mendoza Plaza Shopping contain a clause requiring tenants to be linked to the computer monitoring system, there being certain exceptions to this requirement.
 
Item 4A.  Unresolved Staff Comments
 
None.
 
 
 
The following management’s discussion and analysis of our financial condition and results of operations should be read together with “Selected Consolidated Financial Data” and our Audited Consolidated Financial Statements and related notes appearing elsewhere in this annual report. This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include such words as, “expects”, “anticipates”, “intends”, “believes” and similar language. Our actual results may differ materially and adversely from those anticipated in these forward-looking statements as a result of many factors, including without limitation those set forth elsewhere in this annual report. See Item 3 “Key Information – D. Risk Factors” for a more complete discussion of the economic and industry-wide factors relevant to us.
 
For purposes of the following discussion and analysis, unless otherwise specified, references to fiscal years 2015, 2014 and 2013 relate to the fiscal years ended June 30, 2015, 2014, and 2013 respectively.
 
We maintain our accounting books and records in Pesos. Our Audited Consolidated Financial Statements as of June 30, 2015 and 2014 have been prepared in accordance with the accounting policies based on the IFRS issued by the IASB and the interpretations issued by the IFRIC applicable as of such date.
 
For more information plase see Note 41 to our Audited Consolidated Financial Statements, “Foreign currency assets and liabilities”.
 

 
95
 


Revenue Recognition
 
We derive our revenues primarily from:
 
(i) the production and sale of crops, sugarcane, cattle and dairy,
 
(ii) leasing of our farmlands from third parties;
 
(iii) commodity brokerage activities; and
 
(iv) through the consolidation of our financial statements with IRSA's, we record revenue from the rental and operation of services at offices and shopping centers in Argentina, the development and sale of properties, consumer finance transactions, and hotel operations.
 
Revenues from sales of goods are recognized when: (a) any significant risks and rewards of ownership of such goods have been transferred; (b) the entity is no longer related to the management of the assets sold and neither does the entity retain control over them; (c) the amount of the revenues and costs associated with the transaction can be reliably measured; and (d) there is a likelihood that the entity will receive the economic benefits associated with the transaction.
 
The revenues arising from the supply of services are recognized when (a) the amount of the revenues and costs associated with the services can be reliably measured; (b) there is a likelihood that the entity will receive the economic benefits associated with the transaction, and (c) the degree of progress of the service can be reliably measured.
 
Agricultural business
 
The revenues from the agriculture and livestock business activities originate mainly in sales of both agricultural and livestock products and biological assets, in the supply of different services related to agribusiness and in the lease of agricultural land.
 
Revenues from sales are accounted for when the agricultural products or the biological assets are delivered and the customers acquire ownership and assume the associated risks, all of which habitually happens when the products are either received, or directly picked up by customers, the collection of receivables is likely and the value of revenues may be reliably measured. Net sales of agricultural products represent the amount billed, net of discounts and bonuses, if any.
 
In addition, there is the supply of different services associated with the agricultural and livestock breeding business (including, though not limited to, irrigation and feedlot services) as well as brokerage services. Revenues from services are accounted for when the services are rendered.
 
We also lease land to third parties in the framework of operating leases. Revenues from leases are accounted for using the straight-line method throughout the lease period.
 
Urban Properties and Investments Business
 
Our revenues derive basically from leasing and operating space at offices and shopping centers in Argentina, developing and selling properties, financing consumption and operating hotels. This section reflects our policies concerning revenue recognition as well as the policies of our subsidiaries, both those in which we have a controlling stake and those in which we have joint control.
 
Development and Sale of Properties
 
Revenues from the development and sales of real estate include mainly the revenues from the sale of properties held for sale. The revenues from the sale of real estate are booked when the significant risks and rewards of ownership have been transferred to the buyer. This usually happens when the purchase and sale deeds are signed and when the transaction is not subject to conditions (except when the expectation is that the payment or completion will significantly occur after such exchange). When sales are subject to conditions, it is only when the conditions are satisfied that the sales are booked.
 
We apply the IFRIC 15 “Agreements for the Construction of Real Estate'”. The IFRIC 15 lays down the guidelines to decide which standard to apply when accounting for the construction of real estate, that is the IAS 11 “Construction Contracts ” or the IAS 18 “Revenue”. IFRIC 15 interprets that an agreement satisfies the requirements to be considered a construction contract under IAS 11 when the buyer is in a position to specify the main structural elements of the design of the property before or during the works. In addition, IFRIC 15 interprets that an agreement is for the sale of goods within the scope of IAS 18 when the construction works is conducted independently from the agreement and the buyer only has limited influence on the design. The Company analyzed the nature of its agreements and determined that they fall within the scope of IAS 18. Therefore, the Company recognizes revenues associated with the sale of residential homes and commercial units when the legal conveyance takes place according to IAS 18.
 
We also enter into barter transactions where the Company normally exchanges undeveloped parcels of land with third-party developers for future property to be developed on the bartered land. In certain circumstances, the Company also receives cash as part of these transactions. The legal title together with all risks and rewards of ownership to the land are transferred to the developer upon sale. The Company generally requires the developer of the subject parcel to issue surety insurance or to mortgage the land in favor of the Company as performance guarantee. If the developer does not fulfill its obligations, the Company forecloses on the land through the execution of the mortgage or the surety insurance policy, in addition to imposing a cash penalty for breach.
 
The Company determines that its barter transactions have commercial substance and that the conditions for revenue recognition on the transfer of land are met at the time the transaction is consummated. Revenue is then recognized at the fair value of the goods delivered, adjusted by the amount of cash received, if any. In exchange for delivery of the land, the Company receives cash, if any, and an in-kind receivable. Such receivable is initially recognized at fair value but is not subsequently re-measured. In exchange for delivering the parcel, the Company receives cash and/or a right to receive future units to be developed on the subject parcels. The in-kind receivable is initially recognized at cost (being the fair value of the transferred land) as an intangible asset in the statement of financial position in the line item “Right to receive future units (Barter transactions)”. The mentioned intangible asset is not adjusted in subsequent years unless there are indicia of impairment.
 
The Company may sell residential units to third-party buyers once they are finished and have been transferred by the developer. In these cases, the revenues from these transactions are recognized when the significant risks and rewards of ownership have been actually transferred to the buyer. This normally happens when the title deed to the property is drawn up.
 
However, the Company may start to sell the residential units during the construction period or even before the construction period starts. In these cases, buyers generally make an initial payment to the Company, with the outstanding balance being paid at the time when the unit sold to the buyer is actually delivered. In these cases, it is only when the units have been transferred to the buyers and the title deeds are signed, in other words, at the time of the legal closing, that the revenues from these sales are booked. And the reason for this is that in the event of the developer failing to complete the residential units, and thus, failing to deliver them to the buyer, the Company will be contractually bound to reimburse the buyer for any initial payment received plus a fine. The Company may then institute legal proceedings against the developer on grounds of defaulting on the agreement. The Company considers that the most significant risk associated with the asset held by the Company (that is, the right to receive the units) is non-performance by the developer (that is, failure to complete the construction of the units) which risk is not been transferred to the buyers at the moment when the initial payment is received.
 

 
96
 

Office Buildings and Other Leases and Services
 
Revenues from office and other property rentals include mainly the revenues from office rentals in the form of operating leases, revenues from services and the expenses recovered from lessees.
 
Revenues from the rental of offices and other properties assigned in lease under operating leases are recognized in the statement of income using the straight-line method for the duration of such operating leases. When incentives are conferred, these are accounted for as a part of consideration for the use of the property and are therefore recognized by application of the straight-line method.
 
Contingent leases are booked as income in the periods in which they are collected. Rental increases are booked when they are agreed upon with the lessees.
 
Lease agreements also stipulate that the common area maintenance expenses associated with the Company’s buildings and other rental properties are to be borne by the lessees, generally in a percentage proportion. Common area maintenance expenses comprise all those expenses that are necessary or advisable to operate, maintain, manage, safeguard, preserve, repair, supervise, cover with insurance and perfect the Company’s rental buildings and properties. It is the Company who carries out management functions over its rental properties. The Company assumes responsibility for initially paying these expenses, which are subsequently recovered from lessees. The Company considers that it acts as principal in these cases. Revenues for these items are recognized when the services are supplied and are included within revenues from rentals and services, though separate from common area maintenance expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
Shopping Center Properties
 
The revenues derived from the businesses conducted in the Company’s shopping centers mainly comprise revenues from retail store rentals in the form of operating leases, admission fees, commissions and revenues from the different services rendered to the Company’s lessees.
 
All lease agreements in Argentina are cancelable pursuant to Argentine Law 23,091 “Lease law” as amended by Law 24,808 “Lease Law”. Under the law, a lease is not cancelable within the first six months of the agreement, but provides that after that initial non-cancelable period, tenants may rescind agreements at any time upon giving prior written notice to lessors. Cancellations are subject to one-and-a-half month’s rent if rescinded during the first year of the lease and one month’s rent if rescinded after the first year of the lease.
 
The Company analyzed the definition of the lease term under IAS 17, which lays down that a noncancellable lease is a lease that can be cancelled only (a) in the event of any remote contingency, (b) when the lessor has given permission, (c) if the lessee enters into a new lease with the same lessor, or (d) when the lessee pays an additional amount at the inception of the lease that results in assuming that lease continuity is reasonably certain.
 
The Company has determined that in all operating leases, the term of the lease for accounting purposes coincides with the lease term. The Company concluded that in spite of the ability to cancel leases contemplated by the law, lessees would incur significant economic penalties and other setbacks if their leases were cancelled prior to their expiration dates. The Company considers that the scope of these setbacks is such that lease continuity on the part of lessees is reasonably certain at the inception of the lease. The Company drew this conclusion in view of factors such as (i) the strategic geographical location of the Company’s investment properties; (ii) the characteristics of lessees (most of whom are locally and internationally renowned chain stores), (iii) the limited availability of similar spaces in areas where the Company has its investment properties; (iv) lessees’ brand images and other competition-related aspects; (v) the significant expenses incurred by lessees to renew, maintain and improve the spaces rented for them to reflect the lessee’s own image; and (vi) that most of the Company’s lessees only have shopping center outlets with only a few, or sometimes without, stores at the street level.
 
Lessees at shopping centers are generally bound to pay a lease that consists in the highest of: (i) a basic monthly rental (the "Base Rent"), and (ii) a specific percentage of monthly gross retail sales of the lessee (the "Percentage Rent") (which generally ranges from 4% to 10% of gross sales of the lessee). In addition, pursuant to the rental indexation clause in most leases, the lessee's Base Rent is generally increased between 7% and 12% per year during the term of the lease.
 
In addition, certain lease agreements include provisions that set forth variable rentals based on specific sales volumes or some other type of index.
 
The revenues derived from rentals of stores and other spaces in shopping centers in the form of operating leases with scheduled rental increases are recognized on a straight-tine basis over the term of those leases. Any incentives conferred by the Company to the lessees, if any, are recognized as reductions in the revenues from rentals on a straight-line basis over the term of the lease.
 
Contingent rentals, that is, the rentals whose prices are not pre-established and may not be determined at the inception of the lease, are recognized as revenues in the periods in which they are known and can be determined. The increases in rentals are accounted for at the time they are agreed upon with the lessees.
 
Lessees at the Company’s shopping centers generally pay a non-reimbursable admission fee at the time they sign a lease agreement or when they renew an existing agreement. These admission fees are considered as additional revenues from rentals and are recognized in the statement of income on a straight-line basis over the term of the respective lease agreements.
 
The Company also acts as a real estate broker in negotiating and entering into the lease agreements for its shopping centers: it therefore receives commissions when acting in such capacity. A transaction is deemed to have been successful when both parties have signed the respective lease agreement. Commissions are considered to be additional revenues from rentals and are recognized in the statement of income on a straight-line basis over the term of the respective lease agreement.
 
Lease agreements also stipulate that the common area maintenance expenses associated with the Company’s shopping centers are to be borne by the lessees, generally in a percentage proportion. Common area maintenance expenses comprise all those expenses that are necessary or advisable to operate, maintain, manage, safeguard, preserve, repair, supervise, cover with insurance and perfect the Company’s shopping centers. It is the lessor who determines whether it is necessary or advisable to incur a given common area maintenance expense. The Company assumes responsibility for initially paying these expenses, which are subsequently recovered from lessees. The Company considers that it acts as principal in these cases.
 
Revenues for these items are included within revenues from rentals and services, though separate from common area maintenance expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
Pursuant to the lease agreements, lessees are also obligated to participate in Common Advertising Funds (“FPC”) aimed at providing for the Company’s advertising and promotional activities. Participation in these funds generally comprises a percentage calculated over the lease prices accrued every month. Revenues for these items are equally included within revenues from rentals and services, though separate from advertising and promotional expenses. These expenses are charged to the statement of income as soon as they are incurred.
 
In addition, revenues from shopping centers also include revenues from management and other services, such as parking lots. In addition, revenue includes income from property management fees.  These revenues are recognized in profit and loss for the year when the services are rendered.
 

 
97
 

Hotels
 
Revenues from hotel operations include mainly room services, catering and other services. Revenues from the sale of products at hotels are accounted for when the products are delivered and any significant risks and rewards of ownership are transferred to the buyer. Any revenues derived from sales of services are recognized at the time of rendering the service. All other revenues are booked on an accrual basis.
 
Argentine Macroeconomic Environment
 
The table below shows Argentina’s GDP growth, inflation, Dollar exchange rates and the appreciation (devaluation) of the Peso against the U.S. Dollar for the indicated periods.
 
   
Fiscal year ended June 30,
  
   
2015
    
2014
    
2013
  
GDP growth
     1.2 %     0.0 %     5.5 %
Inflation (IPIM)(1)
     13.4 %     27.7 %     13.5 %
Inflation (CPI)(2)
     15.0 %     15.0 % (4)     10.5 %
Appreciation (depreciation) of the Peso against the U.S. Dollar
     (12 %)     (50.6 %)     (19.1 %)
Average exchange rate per US$1.00(3)
  
Ps.8.6098
    
Ps.6.9333
    
Ps.4.9339
  
 
(1)  
IPIM is the wholesale price index as measured by the Argentine Ministry of Economy and Production.
(2)  
CPI is the consumer price index as measured by the Argentine Ministry of Economy and Production.
(3)  
Represents average of the selling and buying exchange rate.
(4)  
In January 2014 the Argentine government established IPCNu, which more broadly reflects consumer prices by considering price information from the 23 provinces of Argentina and the City of Buenos Aires. Therefore, the consumer price index for the fiscal year ended June 30, 2014 only takes into account the six month period starting on January 1, 2014.
 
Sources: INDEC, Argentine Ministry of Economy and Production, Banco de la Nación Argentina.
 
According to the IMF, Argentina’s growth projections for 2016 show that GDP expected to contract by 0.3%. This decrease is based largely on the mismatch in the balance of payments and deterioration in the availability of external financing due largely to the poor state of negotiations with the holdouts of Argentina’s sovereign bonds.
 
Consumption continues to be the main driver of economic activity: sales in shopping centers and supermarkets grew 33.3% and 26,1%,  respectively, in nominal terms as of June 2015 compared with the same period of 2014, mainly due to higher salaries in nominal terms.
 
Argentine GDP  grew in 2015, compared to GDP contraction in 2014. Consumption was the primary driver of economic activity, as shopping center sales grew 36.6% in 2015 compared to 2014, driven by the increase in nominal salaries. As of June 2015, the unemployment rate was at 6.6% of the country’s economically active population, a year on year decrease of 12 percentage points.
 
Argentina’s country risk, measured by the Emerging Market Bond Index, decreased 93 basis points for the 12 months ended June 30, 2015, maintaining a high spread vis-à-vis the rest of the countries in the region. The debt premium paid by Argentina was at 631 points in June 2015, compared to 304 paid by Brazil and 194 paid by Mexico.
 
Changes in short- and long-term interest rates, unemployment and inflation may reduce the availability of consumer credit and the purchasing power of individuals who frequent shopping centers. These factors, combined with low GDP growth, may reduce general consumption rates in our shopping centers. Since most of the lease agreements in our shopping centers, our main source of revenue, require tenants to pay a percentage of their total sales as rent, a general reduction in consumption may reduce our revenue. A reduction in the number of shoppers in our shopping centers and consequently, in the demand for parking, may also reduce our revenues from services rendered.
 
Factors that Affect our Results
 
Effects of the Argentine macroeconomic environment
 
Most of our assets are located in Argentina, where we conduct our operations. Therefore, our financial condition and the results of our operations are significantly dependent upon the economic conditions prevailing in Argentina.
 
Changes in short- and long-term interest rates, unemployment and inflation may reduce the availability of consumer credit and the purchasing power of individuals who frequent shopping centers. These factors, combined with low GDP growth, may reduce general consumption rates in our shopping centers. Since most of the lease agreements in our shopping centers, our main source of revenue, require tenants to pay a percentage of their total sales as rent, a general reduction in consumption may reduce our revenue. A reduction in the number of shoppers in our shopping centers and consequently, in the demand for parking, may also reduce our revenues from services rendered.
 

 
98
 

Effects of inflation
 
From 1997 until the end of 2001, the Argentine government’s policies substantially reduced the level of inflation. Therefore, during that period inflation did not significantly affect our financial condition and results of operations. The following are annual inflation rates since 2002, published by the Argentine Ministry of Economy and Production:
 
Year ended June 30,
  
Consumer Price Index
Wholesale Price Index
2002
    
28.4
%
88.2
%
2003
    
10.2
%
8.1
%
2004
    
4.9
%
8.6
%
2005
    
9.0
%
7.7
%
2006
    
11.0
%
12.1
%
2007
    
8.8
%
9.4
%
2008
    
9.3
%
13.8
%
2009
    
5.3
%
5.6
%
2010
    
11.0
%
15.5
%
2011
    
9.7
%
12.5
%
2012
    
9.9
%
12.8
%
2013
    
10.5
%
13.5
%
2014
    
15.0
%(1)
27.7
%
2015
    
15.0
%
13.4
%
 
(1) In January 2014 the Argentine government established IPCNu, which more broadly reflects consumer prices by considering price information from the 23 provinces of Argentina and the City of Buenos Aires. Therefore, the consumer price index for the fiscal year ended June 30, 2014 only takes into account the six month period starting on January 1, 2014.
 
 Continuing increases in inflation are likely to have an adverse effect on our operations. Additionally, the minimum lease amounts paid by tenants in our shopping centers are generally adjusted in accordance with the CER, an inflation index published by the Central Bank. Although higher inflation rates in Argentina may increase the minimum lease amount, given that tenants tend to pass on any increases in their own expenses to consumers, higher inflation may lead to increased sale prices charged by tenants for their products, which will ultimately reduce their sales volumes and consequently the portion of rent we receive based on their total sales.
 
Since the INDEC modified its methodology used to calculate the consumer price index in January 2007, there have been concerns about the accuracy of Argentina’s official inflation statistics, which led to the creation of the IPCNu in February 2014 in order to address the quality of official data. However, despite the changes adopted by the INDEC to the measurement procedure with the IPCNu, there are still some differences between the figures resulting from this indicator and those recorded by private consultants, the Argentinian Congress and the provincial statistic agencies. See “Risk Factors—There are concerns about the accuracy of Argentina’s official inflation statistics.”
 
Critical Accounting Policies and Estimates
 
 Our Audited Consolidated Financial Statements are prepared in accordance with and compliance with IFRSs as issued by the IASB, and the accounting policies employed are set out in our Company’s Accounting Policies section in the financial statements. In applying these policies, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. The actual outcome could differ from those estimates. Some of these policies require a high level of judgment because the areas are especially subjective or complex.
 
The discussion below should also be read in conjunction with our disclosure of significant IFRSs accounting policies, included in Note 2 to our Audited Consolidated Financial Statements, “Summary of significant accounting policies”.
 
We believe that the most critical accounting policies and significant areas of judgment and estimation are in:
 
·  
Business combinations – purchase price allocation;
 
·  
Fair value of financial instruments;
 
·  
Allowance for doubtful accounts;
 
·  
Taxation;
 
·  
Trading properties;
 
·  
Impairment testing of goodwill and other non-current assets;
 
·  
Venture capital organization;
 
·  
Aquisition of assets carried out between entities under common control;
 
·  
Biological assets and agricultural produce at the point of harvest;
 
Business combinations – purchase price allocation
 
We account for the acquisition of subsidiaries using the acquisition method. Accounting for business combinations requires us the determination of the fair value of the various assets and liabilities of the acquired business. We use all available information to make these fair value determinations, and for major acquisitions, may hire an independent appraisal firm to assist us in making these fair value estimates. In some instances, assumptions with respect to the timing and amount of future revenues and expenses associated with an asset might have to be used in determining its fair value.
 
Actual timing and amount of net cash flows from revenues and expenses related to that asset over time may differ materially from those initial estimates, and if the timing is delayed significantly or if the net cash flows decline significantly, the asset could become impaired.
 
During the fiscal year ended June 30, 2015, we did not acquire new businesses.
 

 
99
 

Fair Value of Financial Instruments
 
Fair values of derivative financial instruments are computed with reference to quoted market prices on trade exchanges, when available. The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. We use our judgment to select a variety of methods and make assumptions that are based on market conditions existing at statement of financial position. When no quoted prices in an active market are available, fair values (particularly with derivatives) are based on recognized valuation methods.
 
The Company developed an internal valuation model to determine the fair value of the IDBD shares under these circumstances. This model is principally based and is sensitive to the number of shares eligible to be tendered. In one end of the spectrum, all of the shares outstanding  may be tendered, and on the opposite end, only the Creditors’ shares are eligible for tendering as per the judge’s ruling. The objective of the methodology is to arrive at a fair value of the IDBD’s share by subtracting from the quoted market price the value of the right to participate in the tender offer embedded in such quoted price. The relative weight of the “right to participate in the tender offer” embedded in IDBD’s quoted market price is sensitive and varies depending on the number of shares deemed eligible for tendering. Each scenario reflects a different number of shares eligible for tendering. A probability of occurrence has been assigned to each scenario based on available evidence. This methodology results in a weighted-probability value representing the fair value of IDBD’s shares recognized in the financial statements. The Company considers this value as a reasonable proxy for the fair value of the IDBD share.
 
We use a range of valuation models for the measurement of Level 2 and Level 3 instruments, details of which may be obtained from the following table:
 

Description
Pricing model
  
Pricing method
  
Parameters
  
Range
  
Foreign currency-contracts
Present value method
  
Theoretical price
  
Money market curve, interest-rate curve; Foreign exchange curve.
     -  
Commitment to tender offer IDBD
Black-Scholes
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve).
  
Underlying asset price
3.5 to 4.7
Share price volatility
30% to 40%
Money market interest rate 0.7% to 1%
  
Other Borrowings
Weighted probability of the difference between market price and the Commitment to tender offer of shares in IDBD
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve). IRSA 2017 interest-rate and scenario weights.
  
Underlying asset price
1.55 to 2.35
Share price volatility
60% to 80%
Money market interest rate 0.02% to 0.9%
  
IDBD Shares
Weighted probability of the difference between market price and the Commitment to tender offer of shares in IDBD
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve). IRSA 2017 interest-rate and scenario weights.
  
Underlying asset price
1.55 to 2.35
Share price volatility
60% to 80%
Money market interest rate 0.02% to 0.9%
  
Call option of Arcos
 
Discounted cash flow
     -  
Projected income and discounted interest rate.
     -  
Interest rate swaps
 
Cash flow
  
Theoretical price
  
Interest rate and cash flow forward contract.
     -  
Preferred shares of Condor
Binomial tree
  
Theoretical price
  
 Underlying asset price (market price), share price volatility (historical) and money market interest-rate curve (Libor rate).
  
Underlying asset price 1.96 to 2.65
Share price volatility 56% to 76%
Money market interest rate 0.67% to
0.83%
  
Warrants of Condor
Black-Scholes
  
Theoretical price
  
Underlying asset price (market price), share price volatility (historical) and money market interest-rate curve (Libor rate).
  
Underlying asset price 1.96 to 2.65
Share price volatility 56% to 76%
Money market interest rate 0.67% to
0.83%
  

 
Allowance for Doubtful Accounts
 
We maintain an allowance for trade receivables to account for estimated losses resulting from the inability of customers to make required payments. When evaluating the adequacy of an allowance for trade receivables, we base our estimates on the aging of accounts receivable balances and historical write-off experience, customer credit worthiness and changes in customer payment terms.
 
If the financial condition of customers were to deteriorate, actual write-offs might be higher than expected.
 
Taxation
 
We are subject to income taxes in numerous jurisdictions. Our tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the Company’s total tax charge necessarily involves a degree of estimation and judgment in respect of certain items whose tax treatment may not be always determined with certainty due to interpretation. The final resolution of some of these items may give rise to material profits, losses and/or cash flows. The complexity of our structure makes the estimation and judgment more challenging. The resolution of issues may not always be within our control and may depend on the efficiency of legal action, if necessary. Issues can, and often do, take many years to resolve. Payments in respect of tax liabilities for an accounting period result from payments on account and on the final resolution of open items. As a result there can be substantial differences between the tax charge in the consolidated income statement and tax payments.
 
We recognize deferred tax assets only to the extent it is probable that future taxable profit will be available against which the temporary differences can be utilized. We assess the realizability of deferred tax assets by considering whether it is probable that some portion or all of the deferred tax assets will not be realized. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
 
The amounts recognized in our Audited Consolidated Financial Statements in respect of each matter are derived from our best estimate and judgment as described in Note 5 to our Audited Consolidated Financial Statements.
 
Trading Properties
 
Trading properties include land and work in progress in respect of development sites with a view to sale. Trading properties are carried at the lower of cost or net realizable value. On each development, judgment is required to assess whether the cost of land and any associated construction work in progress is in excess of its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs to completion and estimated selling costs.
 
The estimation of the net realizable value of our trading properties under development is inherently subjective due to a number of factors, including their complexity, unusually large size, the substantial expenditure required and long timescales to completion. In addition, as a result of these timescales to completion, the plans associated with these developments could be subject to significant variation. As a result, the net realizable values of our trading properties are subject to a degree of uncertainty and are made on the basis of assumptions, which may not prove to be accurate.
 
If actual results differ from the assumptions upon which the external valuer has based its valuation, this may have an impact on the net realizable value of our trading properties, which would in turn have an effect on our financial condition.
 

 
100
 

Impairment Testing of Goodwill and Other Non-current Assets
 
IFRS requires us to undertake an annual test for impairment of its property, plant and equipment, investment property and finite-lived intangible assets, to test for impairment if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
Impairment testing is an area involving management judgment, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, we are required to make certain assumptions in respect of highly uncertain matters including management’s expectations of estimates of future cash flows, market rents for similar properties in the same location and condition, and discount rates.
 
For purposes of the impairment testing, we group assets at the lowest levels for which there are separately identifiable cash flows, known as cash generating units or CGUs. Given the nature of our assets and activities, most of our individual assets do not generate independent cash flows that are independent of those from CGUs. Therefore, we estimate the recoverable amount of the CGU to which the asset belongs, except where the fair value less costs to sell of the individual asset is higher than its book value; or the value in use of the asset can be estimated as being close to its fair value less costs to sell, where fair value can be reliably determined.
 
Generally, we consider each shopping center, office building and undeveloped property as a separate CGU. Details of the methods, estimates and assumptions we make in our annual impairment testing of goodwill are included in Note 6 in the Consolidated Financial Statements. No impairment of goodwill was identified.
 
Venture Capital Organization
 
We generally account for our investments in associates under the equity method. However, IAS 28 “Investments in Associates” provides an exemption from applying the equity method where investments in associates are held through “Venture Capital Organizations” (VCO) or venture capital entities, as defined in Spanish, even when we are not a VCO. This type of investment may be accounted for at fair value with changes in net income for the years because such measure proves to be more useful to users of financial statements than the equity method.
 
Acquisition of Assets Carried Out Between Entities Under Common Control
 
The Company has elected to recognize acquisition of assets or groups of assets carried out between entities under common control who also qualify as “Business Combination” according to IFRS 3, using the acquisition method.
 
Biological Assets and Agricultural Produce at the Point of Harvest
 
We measure biological assets, which include unharvested crops, beef and dairy cattle, sheep, and sugarcane plantations (at initial recognition, when the biological asset has attained significant biological growth, and at each subsequent measurement reporting date) and agricultural produce, which include harvested crop, raw meat, raw milk, wool and others, at fair value less costs to sell. We measure biological assets that have not attained significant biological growth or when the impact of biological transformation on price is not expected to be material, at cost less any impairment losses, which approximates fair value.
 
When an active market exists for biological assets, we use the quoted market price in the most relevant market as a basis to determine the fair value of our biological assets, as in the case of cattle. For other biological assets where there is neither an active market or market-determined prices during the growth cycle, we determine their fair value through the use of discounted cash flow (“DCF”) valuation.
 
The DCF method requires us to populate the models with highly subjective assumptions, including observable and unobservable inputs. The models we use to estimate the fair value of our biological assets are generally based on data not observable in the market, and the use of unobservable inputs is significant to the overall valuation of the assets.
 
The key assumptions used in our models include future market prices, estimated yields at the point of harvest, and estimated costs of harvesting and other costs.
 
The market prices used in our DCF models are determined by reference to observable data in the relevant market for the agricultural produce. We estimate our harvesting costs and other costs based on historical and statistical data. We estimate yields based on several factors, including the location of the farmland, soil type, environmental conditions, infrastructure and other restrictions and growth at the time of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors out of our control, including but not limited to extreme or unusual weather conditions, plagues and other diseases.
 
All of these assumptions are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices, costs and discount factors used may result in a significant increase or decrease to the fair value of biological assets recognized at any given time. Cash flows are projected based on estimated production. Estimates of production in themselves are dependent on various assumptions, in addition to those described above, including but not limited to several factors such as location, environmental conditions and other restrictions. Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash flows used in the assessment of fair value (the valuation models and their assumptions are reviewed annually, and, if necessary, adjusted).
 
Further details on valuation methods, sensitivity analysis and other factors is included in Note 5 to our Audited Consolidated Financial Statements.
 
Business Segment Information
 
IFRS 8 requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”). Such function is carried out by the Company’s Executive Committee in deciding how to allocate resources and in assessing performance, without prejudice of the powers and responsibilities of the management body, that is to say, the Board of Directors. CODM evaluates the business based on the differences in the nature of its products, operations and risks. The amount reported for each segment item is the measure reported to the CODM for these purposes. In turn, the Board of Directors’ management is assessed by the Shareholders’ Meeting, which is the governance body.
 
Operating segments identified are disclosed as reportable segments if they meet any of the following quantitative thresholds:
 
·  
The operating segment’s reported revenue, including both sales to external customers and inter-segment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments;
 
·  
The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:
 
·  
the combined reported profit of all operating segments that do not report a loss; and
 
·  
the combined reported loss of all operating segments that report a loss.
 
·  
Its assets are 10% or more of the combined assets of all operating segments.
 

 
101
 
 
As well as this, the operating segments that do not meet any of the quantitative thresholds can be considered as reportable segments if the management estimates that this information could be useful for the users of the financial statements.
 
If, after determining reportable segments in accordance with the preceding quantitative thresholds, the total external revenue attributable to those segments amounts to less than 75% of the total Company’s consolidated external revenue, additional segments are identified as reportable segments, even if they do not meet the thresholds described above, until at least 75% of the Company’s consolidated external revenue is included in reportable segments. Once the 75% of the Company’s consolidated external revenue is included in reportable segments, the remaining operating segments may be aggregated in the "All other segments" column.
 
Segment information has been prepared and classified according to different types of businesses in which the Company conducts its activities. The Company operates in two businesses areas, namely, Agricultural business and Investment and Development Properties business.
 
The Company’s Agricultural business is further comprised of eight reportable segments: (the reporting segments of crops, cattle, dairy, sugarcane, agricultural rentals and services and other segments are included within “Agriculture” activities):
 
·  
The “Crops” Segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton, and sunflowers. The Company is focused on the long-term performance of the land and seeks to maximize the use of the land through crop rotation; the use of technology and techniques. In this way, the type and quantity of harvested crops change in each agricultural campaign.
 
·  
The “Cattle” Segment consists of breeding, purchasing and/ or fattening of free-range beef cattle for sale to meat processors and local livestock auction markets.
 
·  
The “Dairy” Segment consists of breeding and/ or purchasing dairy cows for the production of raw milk for sale to local milk and milk-related products producers.
 
·  
The “Sugarcane” Segment consists of planting, harvesting and sale of sugarcane.
 
·  
The “Agriculture Rentals and Services” Segment consists of services (for example: irrigation) and leasing of the Company’s farms to third parties.
 
·  
The “Land Transformation and Sales” Segment comprises gains from the disposal and development of farmlands activities.
 
·  
The “Agro-industrial” Segment consists of feedlot farming and the slaughtering and processing in the meat refrigerating plant. Feedlot farming is distinctive and requires specific care and diets which differ from those provided to free-range cattle. This activity represents a separate operating segment due to the distinctive characteristics of the cattle feedlot system and the industrialized meat processing in the packing plant.
 
·  
The "Other Segments" column consists of the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure includes the brokerage and sale of inputs activities.
 
The Company’s Urban Properties and Investments business is further comprised of six operative segments:
 
·  
The “Shopping Center Properties” Segment includes results from the commercial exploitation and development of shopping centers. Such results originate mainly from the lease and the delivery of services related to the lease of commercial facilities and other spaces in the Company’s shopping centers.
 
·  
The “Offices” Segment includes the operating results of our lease of office space and other rental properties and service revenues related to this activity.
 
·  
The “Development and Sale of Properties” Segment includes the operating results of the sales of undeveloped parcels of land and/or trading properties, as the results related with its development and maintenance. Also included in this segment are the results of the sales of real property intended for rent, sales of hotels and other properties included in the International segment.
 
·  
The “Hotels” Segment includes the operating results of the Company’s hotels principally comprised of room, catering and restaurant revenues.
 
·  
The “International” Segment includes the return on investments in subsidiaries and/or associates that mainly operate in the United States in relation to the lease of office buildings and hotels in that country and the return on investment in IDBD at fair value.
 
·  
The "Financial Operations and Others" Segment primarily includes the financial activities carried out by the Company's associates, Banco Hipotecario S.A. and Tarshop S.A. and consumer finance residual financial operations of APSAMedia S.A. (currently merged with IRSA Commercial Properties). The e-commerce activities conducted through the associate Avenida Inc. are also included until the first quarter of the current fiscal year. This investment began to be considered a financial asset from the second quarter of this fiscal year.
 
For ease of presentation, the following table present summarized information for the two lines of business of the Company, i.e. agriculture and Urban Properties and Investments activities. The following tables represent the reportable segments of each of the Company’s lines of business.
 

 
102
 
 
Below is a summarized analysis of the lines of business of the Company for the years ended June 30, 2015, 2014 and 2013.
 
   
Year ended June 30, 2015
  
   
Agricultural business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues
     2,361,010       2,547,062       4,908,072  
Costs
     (3,385,675 )     (633,467 )     (4,019,142 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,347,447       -       1,347,447  
Changes in the net realizable value of agricultural produce after harvest
     (34,471 )     -       (34,471 )
Gross Profit
     288,311       1,913,595       2,201,906  
Gain from disposal of investment properties
     -       1,150,230       1,150,230  
Gain from disposal of farmlands
     569,521       -       569,521  
General and administrative expenses
     (246,470 )     (378,125 )     (624,595 )
Selling expenses
     (284,830 )     (195,866 )     (480,696 )
Other operating results, net
     (18,123 )     28,679       10,556  
Profit from operations 
     308,409       2,518,513       2,826,922  
Share of profit / (loss) of associates and joint ventures
     846       (1,036,256 )     (1,035,410 )
Segment Profit 
     309,255       1,482,257       1,791,512  
Investment properties
     77,202       3,493,645       3,570,847  
Property, plant and equipment
     2,078,497       256,891       2,335,388  
Trading properties
     -       136,084       136,084  
Goodwill
     8,395       24,440       32,835  
Units to be received under barters
     -       90,486       90,486  
Biological assets
     586,847       -       586,847  
Inventories
     495,919       23,134       519,053  
Interests in associates and joint ventures
     33,343       2,381,670       2,415,013  
Total segment assets
     3,280,203       6,406,350       9,686,553  
 
 
   
Year ended June 30, 2014
  
   
Agricultural business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues
     1,812,108       2,155,760       3,967,868  
Costs
     (2,617,972 )     (648,279 )     (3,266,251 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,172,739       -       1,172,739  
Changes in the net realizable value of agricultural produce after harvest
     (17,447 )     -       (17,447 )
Gross Profit
     349,428       1,507,481       1,856,909  
Gain from disposal of investment properties
     -       230,918       230,918  
Gain from disposal of farmlands
     91,356       -       91,356  
General and administrative expenses
     (239,630 )     (300,066 )     (539,696 )
Selling expenses
     (208,932 )     (150,109 )     (359,041 )
Other operating results, net
     (29,540 )     (47,922 )     (77,462 )
(Loss) / Profit from operations 
     (37,318 )     1,240,302       1,202,984  
Share of profit / (loss) of associates and joint ventures
     11,479       (436,766 )     (425,287 )
Segment (Loss) / Profit 
     (25,839 )     803,536       777,697  
Investment properties
     51,432       3,540,437       3,591,869  
Property, plant and equipment
     2,417,078       237,860       2,654,938  
Trading properties
     -       143,059       143,059  
Goodwill
     10,428       24,784       35,212  
Units to be received under barters
     -       85,077       85,077  
Assets held for sale
     -       1,357,866       1,357,866  
Biological assets
     651,582       -       651,582  
Inventories
     432,634       17,220       449,854  
Interests in associates and joint ventures
     37,226       1,966,019       2,003,245  
Total segment assets
     3,600,380       7,372,322       10,972,702  

 

 
103
 


   
Year ended June 30, 2013
  
   
Agricultural
business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues
     1,355,430       1,728,248       3,083,678  
Costs
     (2,045,779 )     (601,236 )     (2,647,015 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     888,493       -       888,493  
Changes in the net realizable value of agricultural produce after harvest
     11,756       -       11,756  
Gross Profit
     209,900       1,127,012       1,336,912  
Gain from disposal of investment properties
     -       177,999       177,999  
Gain from disposal of farmlands
     149,584       -       149,584  
General and administrative expenses
     (153,675 )     (198,773 )     (352,448 )
Selling expenses
     (173,976 )     (117,230 )     (291,206 )
Other operating results, net
     3,345       92,425       95,770  
Profit from operations 
     35,178       1,081,433       1,116,611  
Share of profit / (loss) of associates and joint ventures
     9,191       (20,864 )     (11,673 )
Segment Profit 
     44,369       1,060,569       1,104,938  
                         
Investment properties
     25,317       4,306,984       4,332,301  
Property, plant and equipment
     1,675,420       231,734       1,907,154  
Trading properties
     -       129,677       129,677  
Goodwill
     6,438       75,852       82,290  
Units to be received under barters
     -       93,225       93,225  
Biological assets
     402,594       -       402,594  
Inventories
     239,010       16,428       255,438  
Interests in associates and joint ventures
     31,223       1,154,830       1,186,053  
Total segment assets
     2,380,002       6,008,730       8,388,732  

 

 
104
 
 
(I)  
Agriculture line of business:
 
The following tables present the reportable segments of the agriculture line of business of the Company for the years ended June 30, 2015, 2014 and 2013:
 
   
June 30, 2015
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business
  
Revenues (i)
     986,717       143,562       71,940       197,828       37,175       1,437,222       -       806,018       117,770       2,361,010  
Costs                                                                      
     (1,795,443 )     (224,556 )     (133,259 )     (368,172 )     (19,201 )     (2,540,631 )     (9,002 )     (739,201 )     (96,841 )     (3,385,675 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     918,319       166,734       74,919       187,475       -       1,347,447       -       -       -       1,347,447  
Changes in the net realizable value of agricultural produce after harvest
     (34,474 )     3       -       -       -       (34,471 )     -       -       -       (34,471 )
Gross Profit / (Loss)
     75,119       85,743       13,600       17,131       17,974       209,567       (9,002 )     66,817       20,929       288,311  
Gain from disposal of farmlands            
     -       -       -       -       -       -       569,521       -       -       569,521  
General and administrative expenses           
     (159,036 )     (25,753 )     (4,920 )     (19,821 )     (2,140 )     (211,670 )     (2,106 )     (25,334 )     (7,360 )     (246,470 )
Selling expenses              
     (160,378 )     (20,109 )     (3,667 )     (7,770 )     (717 )     (192,641 )     (2,383 )     (77,146 )     (12,660 )     (284,830 )
Other operating results, net            
     (8,636 )     (3,158 )     (773 )     (1,669 )     (336 )     (14,572 )     (4,601 )     (288 )     1,338       (18,123 )
Profit / (Loss) from Operations 
     (252,931 )     36,723       4,240       (12,129 )     14,781       (209,316 )     551,429       (35,951 )     2,247       308,409  
Share of profit of associates             
     845       1       -       -       -       846       -       -       -       846  
Segment Profit / (Loss) 
     (252,086 )     36,724       4,240       (12,129 )     14,781       (208,470 )     551,429       (35,951 )     2,247       309,255  
                                                                                 
Investment properties         
     -       -       -       -       77,202       77,202       -       -       -       77,202  
Property, plant and equipment     
     1,420,781       187,100       21,951       293,386       28,681       1,951,899       53,522       18,102       54,974       2,078,497  
Goodwill                                                                      
     5,352       -       -       2,400       -       7,752       -       -       643       8,395  
Biological assets     
     57,813       375,357       40,555       113,122       -       586,847       -       -       -       586,847  
Inventories                                                                      
     307,853       58,529       1,010       2,418       -       369,810       -       23,415       102,694       495,919  
Interests in associates           
     30,530       20       -       -       -       30,550       -       -       2,793       33,343  
Total segment assets (ii)  
     1,822,329       621,006       63,516       411,326       105,883       3,024,060       53,522       41,517       161,104       3,280,203  

 
(i)  
Of all of the Company’s revenues corresponding to the agricultural business, Ps. 1,668.86 million is originated in Argentina and Ps. 692.15 million in other countries, principally Brazil which acconts for Ps. 553.97 million.
(ii)   Of all of the Company’s assets included in the segment corresponding to the agricultural business, Ps. 1,378.99 million is located in Argentina and Ps. 1,902.36 million in other countries, principally Brazil for Ps. 1,187.37 million.
 
   
June 30, 2014
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business
  
Revenues (i)
     836,822       90,315       53,935       123,851       29,142       1,134,065       -       554,084       123,959       1,812,108  
Costs                                                                      
     (1,540,681 )     (160,660 )     (104,334 )     (206,751 )     (17,374 )     (2,029,800 )     (8,228 )     (479,689 )     (100,255 )     (2,617,972 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     868,351       145,321       62,840       96,227       -       1,172,739       -       -       -       1,172,739  
Changes in the net realizable value of agricultural produce after harvest
     (17,624 )     177       -       -       -       (17,447 )     -       -               (17,447 )
Gross Profit / (Loss)             
     146,868       75,153       12,441       13,327       11,768       259,557       (8,228 )     74,395       23,704       349,428  
Gain from disposal of farmlands          
     -       -       -       -       -       -       91,356       -       -       91,356  
General and administrative expenses           
     (147,193 )     (27,183 )     (5,746 )     (28,261 )     (2,669 )     (211,052 )     (1,130 )     (16,880 )     (10,568 )     (239,630 )
Selling expenses       
     (117,829 )     (13,854 )     (2,249 )     (4,871 )     (779 )     (139,582 )     (3,873 )     (54,751 )     (10,726 )     (208,932 )
Other operating results, net 
     (29,355 )     (1,999 )     (417 )     104       (222 )     (31,889 )     (82 )     (868 )     3,299       (29,540 )
Profit / (Loss) from Operations 
     (147,509 )     32,117       4,029       (19,701 )     8,098       (122,966 )     78,043       1,896       5,709       (37,318 )
Share of profit of associates          
     11,029       7       -       -       -       11,036       -       -       443       11,479  
Segment Profit / (Loss) 
     (136,480 )     32,124       4,029       (19,701 )     8,098       (111,930 )     78,043       1,896       6,152       (25,839 )
                                                                                 
Investment properties         
     -       -       -       -       51,432       51,432       -       -       -       51,432  
Property, plant and equipment      
     1,701,388       158,507       19,451       423,902       9,794       2,313,042       51,534       18,930       33,572       2,417,078  
Goodwill                                                                      
     6,745       -       -       3,025       -       9,770       -       -       658       10,428  
Biological assets 
     154,630       312,068       37,263       142,873       -       646,834       -       65       4,683       651,582  
Inventories                                                                      
     302,052       28,881       651       1,702       -       333,286       -       25,878       73,470       432,634  
Interests in associates          
     34,395       23       -       -       -       34,418       -       -       2,808       37,226  
Total segment assets (ii)
     2,199,210       499,479       57,365       571,502       61,226       3,388,782       51,534       44,873       115,191       3,600,380  

 
(i)  Of all of the Company’s revenues corresponding to the agricultural business, Ps. 1,277.62 million is originated in Argentina and Ps. 534.49 million in other countries, principally Brazil which accounts for Ps. 415.02 million.
(ii)  Of all of the Company’s assets included in the segment corresponding to the agricultural business, Ps. 1,252.06 million is located in Argentina and Ps. 2,348.32 million in other countries, principally Brazil which accounts for Ps. 1,727.36 million.
 

 
   
June 30, 2013
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business
  
Revenues (i)
     750,376       82,939       38,818       160,259       30,834       1,063,226       -       208,921       83,283       1,355,430  
Costs                                                                  
     (1,227,832 )     (147,290 )     (74,826 )     (302,206 )     (12,052 )     (1,764,206 )     (5,675 )     (204,681 )     (71,217 )     (2,045,779 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     572,081       79,336       40,741       197,317       -       889,475       -       -       (982 )     888,493  
Changes in the net realizable value of agricultural produce after harvest
     11,801       (45 )     -       -       -       11,756       -       -       -       11,756  
Gross Profit / (Loss)
     106,426       14,940       4,733       55,370       18,782       200,251       (5,675 )     4,240       11,084       209,900  
Gain from disposal of farmlands  
     -       -       -       -       -       -       149,584       -       -       149,584  
General and administrative expenses    
     (89,585 )     (13,719 )     (3,125 )     (24,163 )     (4,416 )     (135,008 )     (572 )     (10,986 )     (7,109 )     (153,675 )
Selling expenses       
     (115,923 )     (11,482 )     (1,842 )     (4,006 )     (1,711 )     (134,964 )     (10,628 )     (21,507 )     (6,877 )     (173,976 )
Other operating results, net  
     (11,014 )     (3,545 )     (803 )     (27 )     (1,135 )     (16,524 )     (147 )     (1,305 )     21,321       3,345  
Profit / (Loss) from Operations 
     (110,096 )     (13,806 )     (1,037 )     27,174       11,520       (86,245 )     132,562       (29,558 )     18,419       35,178  
Share of profit of associates         
     8,117       -       -       -       -       8,117       -       16       1,058       9,191  
Segment Profit / (Loss) 
     (101,979 )     (13,806 )     (1,037 )     27,174       11,520       (78,128 )     132,562       (29,542 )     19,477       44,369  
                                                                                 
Investment properties              
     -       -       -       -       25,317       25,317       -       -       -       25,317  
Property, plant and equipment              
     1,115,211       136,824       21,440       303,283       456       1,577,214       58,026       20,287       19,893       1,675,420  
Goodwill                                                                  
     4,443       -       -       1,995       -       6,438       -       -       -       6,438  
Biological assets    
     56,395       197,136       28,134       111,063       -       392,728       -       66       9,800       402,594  
Inventories                                                                  
     154,730       23,184       433       939       -       179,286       -       10,419       49,305       239,010  
Interests in associates            
     28,858       -       -       -       -       28,858       -       -       2,365       31,223  
Total segment assets (ii)
     1,359,637       357,144       50,007       417,280       25,773       2,209,841       58,026       30,772       81,363       2,380,002  

 
(i)  
Of all of the Company’s revenues corresponding to the agricultural business, Ps. 803.9 million is originated in Argentina and Ps. 551.6 million in other countries, principally Brazil which accounts for Ps. 453.2 million.
(ii)   Of all of the Company’s assets included in the segment corresponding to the agricultural business, Ps. 883.1 million is located in Argentina and Ps. 1,496.9 million in other countries, principally Brazil which accounts for Ps. 1,190.1 million.
 

 
(II)           Urban properties and investments
 
The following tables present the reportable segments of the Urban Properties and Investments line of business of the Company for the years ended June 30, 2015, 2014 and 2013:
 
 
     June 30, 2015  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operations
and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,778,310       332,728       13,707       396,297       25,873       147       2,547,062  
Costs                                                                      
     (291,183 )     (36,368 )     (19,457 )     (278,672 )     (7,121 )     (666 )     (633,467 )
Gross Profit / (Loss)
     1,487,127       296,360       (5,750 )     117,625       18,752       (519 )     1,913,595  
Gain from disposal of investment properties
     -       -       1,150,230       -       -       -       1,150,230  
General and administrative expenses  
     (136,151 )     (58,971 )     (49,690 )     (77,567 )     (55,746 )     -       (378,125 )
Selling expenses             
     (112,825 )     (21,130 )     (9,146 )     (52,386 )     -       (379 )     (195,866 )
Other operating results, net            
     (48,810 )     (117,610 )     13,093       (461 )     184,886       (2,419 )     28,679  
Profit / (Loss) from Operations               
     1,189,341       98,649       1,098,737       (12,789 )     147,892       (3,317 )     2,518,513  
Share of profit / (loss) of associates and joint ventures
     -       (2,570 )     (1,712 )     1,254       (1,191,116 )     157,888       (1,036,256 )
Segment Profit / (Loss)
     1,189,341       96,079       1,097,025       (11,535 )     (1,043,224 )     154,571       1,482,257  
                                                         
Investment properties          
     2,320,845       978,125       187,824       -       -       6,851       3,493,645  
Property, plant and equipment          
     48,345       30,599       1,242       175,386       1,319       -       256,891  
Trading properties         
     1,484       -       134,600       -       -       -       136,084  
Goodwill                                                                      
     13,719       6,180       4,541       -       -       -       24,440  
Units to be received under barters       
     -       -       90,486       -       -       -       90,486  
Inventories                                                                      
     15,711       -       497       6,926       -       -       23,134  
Investments in associates and joint ventures 
     -       20,746       46,555       -       909,911       1,404,458       2,381,670  
Total segment assets (ii)
     2,400,104       1,035,650       465,745       182,312       911,230       1,411,309       6,406,350  
 
 
(i)     Of all of the Company’s revenues corresponding to urban properties and investment business, Ps. 2,522 million is originated in Argentina and Ps. 26 million in United States.
(ii)    Of all of the Company’s assets included in urban properties and investment business, Ps. 5,389 million is located in Argentina and Ps. 1,639 million in other countries, principally in Israel for Ps. 907.0 million and Uruguay for Ps. 106.0 million, respectively.
 
105
 


 
   
June 30, 2014
  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operations
and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,383,008       271,159       85,531       331,562       83,926       574       2,155,760  
Costs                                                                      
     (296,688 )     (45,367 )     (34,963 )     (216,768 )     (53,510 )     (983 )     (648,279 )
Gross Profit / (Loss)
     1,086,320       225,792       50,568       114,794       30,416       (409 )     1,507,481  
Gain from disposal of investment properties
     (82 )     -       231,000       -       -       -       230,918  
General and administrative expenses         
     (101,538 )     (41,945 )     (37,466 )     (59,585 )     (59,476 )     (56 )     (300,066 )
Selling expenses           
     (73,427 )     (20,751 )     (13,706 )     (42,335 )     -       110       (150,109 )
Other operating results, net      
     (46,568 )     (3,060 )     8,137       (2,680 )     (895 )     (2,856 )     (47,922 )
Profit / (Loss) from Operations                
     864,705       160,036       238,533       10,194       (29,955 )     (3,211 )     1,240,302  
Share of profit / (loss) of associates and joint ventures
     -       (895 )     6,368       789       (616,313 )     173,285       (436,766 )
Segment Profit / (Loss)
     864,705       159,141       244,901       10,983       (646,268 )     170,074       803,536  
                                                         
Investment properties          
     2,275,053       834,480       423,442       -       -       7,462       3,540,437  
Property, plant and equipment           
     20,455       36,415       3,744       175,745       1,501       -       237,860  
Trading properties        
     1,484       -       141,575       -       -       -       143,059  
Goodwill                                                                      
     8,582       11,661       4,541       -       -       -       24,784  
Units to be received under barters      
     -       -       85,077       -       -       -       85,077  
Assets held for sale (iii)
     -       -       -       -       1,357,866       -       1,357,866  
Inventories                                                                      
     10,625       -       584       6,011       -       -       17,220  
Investments in associates and joint ventures     
     -       23,208       38,289       22,129       628,658       1,253,735       1,966,019  
Total segment assets (ii)
     2,316,199       905,764       697,252       203,885       1,988,025       1,261,197       7,372,322  

 
 
(i)  Of all of the Company’s revenues corresponding to urban properties and investment business, Ps. 2,072 million is originated in Argentina and Ps. 84 million in United States.
(ii)  Of all of the Company’s assets included in urban properties and investment business, Ps. 5,273 million is located in Argentina and Ps. 2,099 million in other countries, principally in United States for Ps. 1,988 million.
(iii)  See Note 44 to the Audited Consolidated Financial Statements for details.
 

 

 
106
 


 
   
June 30, 2013
  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operation and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,103,044       217,171       141,996       225,836       38,998       1,203       1,728,248  
Costs
     (245,528 )     (46,975 )     (106,558 )     (169,071 )     (31,587 )     (1,517 )     (601,236 )
Gross Profit / (Loss)
     857,516       170,196       35,438       56,765       7,411       (314 )     1,127,012  
Gain from disposal of investment properties
     -       -       177,999       -       -       -       177,999  
General and administrative expenses
     (67,597 )     (34,984 )     (32,901 )     (49,883 )     (13,158 )     (250 )     (198,773 )
Selling expenses
     (58,907 )     (11,360 )     (16,456 )     (28,919 )     -       (1,588 )     (117,230 )
Other operating results, net
     (45,020 )     (247 )     6,342       (369 )     135,082       (3,363 )     92,425  
Profit / (Loss) from Operations
     685,992       123,605       170,422       (22,406 )     129,335       (5,515 )     1,081,433  
Share of profit / (loss) of associates and joint ventures
     -       (2,514 )     1,569       83       (82,552 )     62,550       (20,864 )
Segment Profit / (Loss)
     685,992       121,091       171,991       (22,323 )     46,783       57,035       1,060,569  
                                                         
Investment properties
     2,249,180       857,782       447,363       -       744,587       8,072       4,306,984  
Property, plant and equipment
     17,385       29,830       3,972       180,348       199       -       231,734  
Trading properties
     1,484       106       128,087       -       -       -       129,677  
Goodwill
     8,582       11,661       4,540       -       51,069       -       75,852  
Units to be received under barters
     -       -       93,225       -       -       -       93,225  
Inventories
     10,003       -       463       5,962       -       -       16,428  
Investments in associates and joint ventures
     -       23,385       32,759       21,339       802       1,076,545       1,154,830  
Total segment assets (ii)
     2,286,634       922,764       710,409       207,649       796,657       1,084,617       6,008,730  

 
(i)  
Of all of the Company’s revenues corresponding to urban properties and investment business, Ps. 1,689 million is originated in Argentina and Ps. 39 million in United States, respectively.
(ii)  
Of all of the Company’s assets included in the urban properties and investment business, Ps. 5,131 million is located in Argentina and Ps. 877 million in other countries, principally in United States for Ps. 797 million.
 

 
107
 

The agricultural business, which includes cattle, dairy cattle and agroindustrial activities are mainly concentrated in Argentina. The crop activities of the Company are primarily concentrated in Argentina, Brazil, Bolivia and Paraguay, while sugar cane production is developed in Brazil and Bolivia.
 
The shopping center properties of the Company are all located in Argentina, the country of domicile of the Company. Substantially, offices and other rental properties of the Company are located in Argentina. Properties of the Company located in the United States, are disclosed in column "International". Hotels of the Company are located in Argentina and the United States. The trading properties of the Company are also located in Argentina and Uruguay.
 
During the fiscal years ended as of June 30, 2015, 2014 and 2013, the “Office” segment revenues include Ps.52,693 million, Ps.44,067 million and Ps.34,229 million, which represent 16% of the segment’s total revenues in the three fiscal years and are derived from activities of a single tenant.
 
Starting in the fourth quarter of the 2015 fiscal year, the Company modified the presentation of the income statement with respect to the financial information by segments, for better alignment and consistency with the current business model and metrics used by the CODM and how they consider and analyse segment information for purposes of assessing operating performance by segment. This change in segment information presentation affected the presentation of information relating to the shopping centers and offices segments. This revised form of presentation excludes from the income statement by segment the common maintenance expenses and expenses relating to the collective promotion fund as well as any revenues relating to the recovery of such expenses. Only the surplus or deficit represented by the net amount between such expenses and related revenues is included in the income statement by segment.
 

The Company has used this revised segment presentation in the comparative discussion of the results of operations for the fiscal years included below.
 
In addition, in the fourth quarter of the 2015 fiscal year, the Company has modified how it presents the gain/loss on the sale of investment property in segment information, which is revised by CODM. The information revised by CODM includes the gain/loss on the sale of investment properties within sales and development segment, regardless of the segment where the property would have been originally located. These modifications affected the segments of sales and development and international. Considering that in the comparative periods presented there were not sales of investment properties in the international segment, it was not necessary to retroactively adjust the amounts pertaining to prior fiscal years.  
 
The CODM regularly reviews the following categories of assets: investment properties; property, plant and equipment; trading properties; goodwill; rights to receive future units under barter agreements; inventories; biological assets; investments in associates; and the investment in the Entertainment Holding S.A. joint venture. The aggregate of these assets are disclosed in these financial statements as “operating segment assets”. The measurement principles for the operating segment assets are based on the IFRS principles adopted in the preparation of the consolidated financial statements, except for the Company’s share of assets of the joint ventures Cresca S.A., CYRSA S.A., Nuevo Puerto Santa Fe S.A., Puerto Retiro S.A., Baicom Networks S.A., and Quality Invest S.A., which are all reported to the CODM under the proportionate consolidation method. Under this method, each of the operating segment assets reported to the CODM includes the proportionate share of the Company in the same operating assets of these joint ventures. As an example, the investment properties amount reported to the CODM includes (i) the investment property balance as per the statement of financial position plus (ii) the Company’s share of the investment properties of these joint ventures. Under IFRS 11, the investment properties of these joint ventures are included together with all other of the joint ventures’ net assets in the single line item titled “Investments in associates and joint ventures” in the statement of financial position.
 
The CODM evaluates performance of business segments based on segment profit, defined as profit or loss from operations before financing and taxes. The measurement principles for the Company’s segment reporting structure are based on the IFRS principles adopted in the Consolidated Financial Statements, except for the Company’s share of profit or loss of joint ventures.
 
At the time of assessing the performance of business segments and deciding upon the allocation of resources, the Executive Committee uses information on operating income assets and liabilities of each such segment In the Consolidated Financial Statements, the transactions and balances between related parties which may affect more than one segment are eliminated.
 
Goods and services exchanged between segments are calculated on the basis of market prices. Intercompany transactions between segments, if any, are eliminated.
 
The following tables present a reconciliation between the total results of segment operations and the results of operations as per the income statements. The adjustments relate to the presentation of the results of operations of joint ventures accounted for under the equity method under IFRS.
 

 
108
 
 
   
June 30, 2015
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Common maintenance expenses and collective promotion fund
    
Total Income Statements
  
Revenues                                                                    
     4,908,072       (53,473 )     (90,002 )     887,208       5,651,805  
Costs                                                                    
     (4,019,142 )     62,335       88,375       (901,283 )     (4,769,715 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,347,447       (23,295 )     -       -       1,324,152  
Changes in the net realizable value of agricultural produce after harvest
     (34,471 )     -       -       -       (34,471 )
Gross Profit / (Loss)                                                                    
     2,201,906       (14,433 )     (1,627 )     (14,075 )     2,171,771  
Gain from disposal of investment properties
     1,150,230       -       -       -       1,150,230  
Gain from disposal of farmlands                                                                    
     569,521       (19,059 )     -       -       550,462  
General and administrative expenses                                                                    
     (624,595 )     4,173       2,602       -       (617,820 )
Selling expenses                                                                    
     (480,696 )     6,217       321       -       (474,158 )
Other operating results, net                                                                    
     10,556       2,949       (1,296 )     -       12,209  
Profit/(Loss) from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     2,826,922       (20,153 )     -       (14,075 )     2,792,694  
Share of profit / (loss) of associates and joint ventures
     (1,035,410 )     10,438       -       -       (1,024,972 )
Profit/(Loss) from operations before Financing and Taxes
     1,791,512       (9,715 )     -       (14,075 )     1,767,722  
 
 
   
June 30, 2014
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Common maintenance expenses and collective promotion fund
    
Total Income Statements
  
Revenues                                                                    
     3,967,868       (62,085 )     (38,074 )     736,302       4,604,011  
Costs                                                                    
     (3,266,251 )     58,857       36,505       (743,703 )     (3,914,592 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,172,739       (20,086 )     -       -       1,152,653  
Changes in the net realizable value of agricultural produce after harvest
     (17,447 )     -       -       -       (17,447 )
Gross Profit / (Loss)                                                                    
     1,856,909       (23,314 )     (1,569 )     (7,401 )     1,824,625  
Gain from disposal of investment properties
     230,918       -       -       -       230,918  
Gain from disposal of farmlands                                                                    
     91,356       -       -       -       91,356  
General and administrative expenses                                                                    
     (539,696 )     3,423       2,334       -       (533,939 )
Selling expenses                                                                    
     (359,041 )     5,949       366       -       (352,726 )
Other operating results, net                                                                    
     (77,462 )     3,585       (1,131 )     -       (75,008 )
Profit/(Loss) from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     1,202,984       (10,438 )     -       (7,401 )     1,185,226  
Share of profit / (loss) of associates and joint ventures
     (425,287 )     16,636       -       -       (408,651 )
Profit/(Loss) from operations before Financing and Taxes
     777,697       6,279       -       (7,401 )     776,575  

 

 
109
 
 
   
June 30, 2013
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Common maintenance expenses and collective promotion fund
    
Total Income Statements
  
Revenues                                                                    
     3,083,678       (137,889 )     (11,528 )     594,290       3,528,551  
Costs                                                                    
     (2,647,015 )     116,004       10,296       (599,780 )     (3,120,495 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     888,493       (1,749 )     -       -       886,744  
Changes in the net realizable value of agricultural produce after harvest
     11,756       -       -       -       11,756  
Gross Profit / (Loss)                                                                    
     1,336,912       (23,634 )     (1,232 )     (5,490 )     1,306,556  
Gain from disposal of investment properties
     177,999       -       -       -       177,999  
Gain from disposal of farmlands                                                                    
     149,584       -       -       -       149,584  
General and administrative expenses                                                                    
     (352,448 )     4,291       1,774       -       (346,383 )
Selling expenses                                                                    
     (291,206 )     11,631       112       -       (279,463 )
Other operating results, net                                                                    
     95,770       2,952       (654 )     -       98,068  
Profit/(Loss) from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     1,116,611       (4,760 )     -       (5,490 )     1,106,361  
Share of profit / (loss) of associates and joint ventures
     (11,673 )     1,855       -       -       (9,818 )
Profit/(Loss) from operations before Financing and Taxes
     1,104,938       (2,905 )     -       (5,490 )     1,096,543  
 
Total segment assets are allocated based on the operations of the segment and the physical location of the asset. According to the analysis above, segment assets include the proportionate share of the assets of joint ventures. The statement of financial position under IFRS shows the net investment in these joint ventures as a single item.
 
The following tables present a reconciliation between total segment assets as per segment information and total assets as per the statement of financial position. Adjustments are mainly related to the filing of certain classes of assets in segment information and to the proportional consolidation of joint ventures mentioned previously.
 
   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Total Operating Assets as per Segment Information
     9,686,553       10,972,702       8,388,732  
Less:
                        
Proportionate share in reportable assets per segment of certain joint ventures (*)
     (478,107 )     (442,360 )     (256,962 )
Plus:
                        
Investments in joint ventures (**)                                                                          
     357,673       372,034       300,809  
Other non-reportable assets                                                                          
     5,709,324       4,881,312       3,978,146  
Total Consolidated Assets as per Statement of financial position
     15,275,443       15,783,688       12,410,725  
 
 
(*) The following amounts related to the proportionate share of operating segment assets of certain of The Company´s  joint ventures are reported as part of the total operating segment assets by segment.

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Investment properties                                                                          
     95,888       137,253       160,900  
Property, plant and equipment                                                                          
     358,193       272,982       65,700  
Trading properties                                                                          
     3,130       5,908       20,160  
Goodwill                                                                          
     5,223       5,235       5,238  
Biological assets                                                                          
     7,970       10,899       1,902  
Inventories                                                                          
     7,703       10,083       3,062  
Total proportionate share in assets per segment of joint ventures
     478,107       442,360       256,962  
 
 
(**) Represents the equity-accounted amount of those joint ventures, which were proportionate-consolidated for segment information purposes.
 
Comparability of information
 
During the fiscal year ended June 30, 2015, the Real Brasileño (Rs.) has depreciated against the Argentine Peso and other currencies by around 20.0%, which affects the comparability of the figures reported in the current financial statements given its negative impact on the financial position and results of operations of the Company, due mainly to the foreign exchange rate exposure to net assets and liabilities denominated in foreign currency and investments in joint ventures with a functional currency different from the Real.
 
During this fiscal year ended June 30, 2014 Argentina’s Peso devalued against the U.S. Dollars and other currencies by approximately 51%, which causes an impact on the comparability of the figures disclosed in the financial statements stemming from exposure to the exchange rate, above all in our revenues from office rentals and our net assets and liabilities, denominated in foreign currency; as well as the Income/(loss) from our International segment.
 

 
110
 

Shopping Center Properties
 
During fiscal year 2015 we inaugurated two new shopping centers: “Distrito Arcos,” located in the area of Palermo, City of Buenos Aires, in December 2014 and “Alto Comahue,” located in the City of Neuquén, Argentine Patagonian region, in March 2015. Income from these new developments, were Ps. 22.9 million and Ps. 11.7 million, respectively.
 
Offices
 
In December 2014, there was a transfer within the Company of 83,789 sqm of rental buildings from IRSA Inversiones y Representaciones S.A. to IRSA Commercial Properties This transaction, though at the consolidated level it did not have effects because it was a related party transaction, was considered a business Combination for the Company, and therefore, costs related to this transaction for Ps. 110.5 million were recognized as income during fiscal year 2015 in “Other operating results, net”.
 
During fiscal year 2015, the revenues and costs from our Offices segment saw their comparability affected by partial sales of properties intended for lease allocated to that segment. In this respect, during fiscal years 2015 and 2014, there were sales for 10,792 sqm of leasable surface area (approximately 8.8% of total leasable area at the beginning of the fiscal year), and 8,744 sqm of leasable surface area (approximately 6.2% of total leasable area at the beginning of the fiscal year), respectively (See Note 3).
 
International
 
           The revenues and costs from the international segment were mainly affected by the only 3-month consolidation in the year 2015, compared to the 12-month consolidation in the year 2014, of the results of Rigby 183 LLC (“Rigby 183”), owner of the Madison 183 building, located in the City of New York, which was sold in September 2015, and to a lesser extent, by the effect of devaluation described above.
 
Financial Operations and Others
 
The operating result of the Financial Operations and Others segment primarily reflects the residual consumer financing activities of the Company, which have been decreasing progressively during fiscal years under discussion.
 
During fiscal year 2015, the results of this segment were affected by different transactions performed by the Company in relation to the investment in Avenida, including the exercise of warrants, the dilution of part of our interest in this company in view of the entry of a new investor and the sale of 5% of our shareholding. As a result of all these transactions, from the second quarter of fiscal year 2015, we ceased to have significant influence on Avenida and therefore, we ceased to recognize it as an investment in an associate, accounted for under the equity method, and we started to recognize it as a financial asset valued at fair value through profit or loss, which are recognized in financial and holding results, net and are excluded in the segment reporting.
 

 
111
 
Cresud’s Results of Operations for the fiscal years ended on June 30, 2015, 2014 and 2013
 
The following terms used herein have the meanings specified below:
 
Agricultural Business
 
Revenues
 
Sales: Our sales consist of revenue on the sales of crops, milk and cattle. Sales are recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. Revenue from cattle feeding operations, primarily comprised of feeding, animal health and yardage, and revenue from operating leases and brokerage activities are recognized as services are performed.
 
Costs.
 
Cost of Production: Our cost of production consists of costs directly related to the transformation of biological assets and agricultural produce.
 
Cost of Sales: Our cost of sales consists of:
 
(i) the book value of the product sold at the time of sale; and
 
(ii) certain direct costs related to the sales of agricultural produce and other selling expenses.
 
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest.
 
Biological assets and agricultural produce at the point of harvest are accounted for at fair value, less the cost of sales, upon their initial recognition and as of each balance sheet date, except where their fair value cannot be reliably measured. Biological assets and agricultural produce at the point of harvest are measured at their approximate cost where few or no transformations have taken place since costs were originally incurred or where the impact on the biological transformation price is not expected to be material. Changes in fair value less the cost of sales are charged to income as incurred.
 
Changes in the net realizable value of agricultural produce after harvest
 
Our gain (loss) from holding inventories consists of changes in their carrying amount.
 
Urban Properties and Investments Business
 
Shopping Center Properties
 
Revenues derived from our shopping center development activities are mostly comprised by revenues from operation leases, admission fees, commissions and revenues from several services rendered to our lessees. In addition, certain lease agreements include provisions that set forth variable rentals based on specific sales volumes or some other type of index.
 
Revenues include revenues from managed operations, such as, parking lots. Revenues also include revenues from property management.
 
 Offices
 
Revenues from office and other property rentals include rental income from offices under operating leases, revenues from the recovery of services and expenses paid by tenants.
 
Sale and Development of Properties
 
Revenues from the sale and development of properties include the gains derived from the developments and the proceeds from the sale of commercial properties.
 
Hotels
 
Revenues from hotel operations include mainly room services, catering and other services.
 

 
112
 

Fiscal year ended June 30, 2015 compared to fiscal year ended June 30, 2014
 
Operating Results
REVENUES
 
Total sales revenues of the Company increased 23.7%, from Ps. 3,967.9 million for fiscal year 2014 to Ps. 4,908.1 million for fiscal year 2015. This was mainly due to a 30.3% increase in the Agricultural business, from Ps.1,812.1 million in fiscal year 2014 to Ps. 2,361.0 million in fiscal year 2015 and a 18.2% increase in the Urban Properties and Investments business, from  Ps. 2,155.8 million in fiscal year 2014 to Ps. 2,547.1 million in fiscal year 2015.

 Agricultural Business
 
   
Fiscal year ended on June 30, 2015
  
Revenues
  
Income statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     963,300       23,417       -       986,717  
Cattle
     56,650       2,524       84,388       143,562  
Dairy
     71,940       -       -       71,940  
Sugarcane
     197,828       -       -       197,828  
Agricultural rental and services
     37,048       -       127       37,175  
Agricultural Subtotal
     1,326,766       25,941       84,515       1,437,222  
Land transformation and sales
     -       -       -       -  
Agro-industrial
     806,018       -       -       806,018  
Other segments
     117,770       -       -       117,770  
Total Agricultural Business Revenues
     2,250,554       25,941       84,515       2,361,010  

   
Fiscal year ended on June 30, 2014
  
Revenues
  
Income statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     817,702       19,120       -       836,822  
Cattle
     61,691       2,242       26,382       90,315  
Dairy
     53,935       -       -       53,935  
Sugarcane
     123,851       -       -       123,851  
Agricultural rental and services
     29,044       -       98       29,142  
Agricultural Subtotal
     1,086,223       21,362       26,480       1,134,065  
Land transformation and sales
     -       -       -       -  
Agro-industrial
     548,740       -       5,344       554,084  
Other segments
     123,872       87       -       123,959  
Total Agricultural Business Revenues
     1,758,835       21,449       31,824       1,812,108  
 
Sales revenues increased 28%, from Ps. 1,758.8 million in fiscal year 2014 to Ps. 2,250.6 in fiscal year 2015. This was due to an increase of Ps. 149.9 million in the Crops segment, an increase of Ps. 53.2 million in the Cattle segment, an increase of Ps. 18.0 million in the Dairy segment, an increase of Ps. 74 million in the Sugarcane segment, an increase of Ps. 8 million in the Agricultural rental and services segment, an increase of Ps. 251.9 million in the Agroindustrial segment, offset by a decrease of Ps. 6.2 million in Other segments.
 
In turn, revenues from our interests in joint ventures increased 20.9% from Ps. 21.4 million in fiscal year 2014 to Ps. 25.9 million in fiscal year 2015, mainly as a result of a 22.5% increase in Crops sold to Cresca, from Ps. 19.1 million in fiscal year 2014 to Ps. 23.4 million in fiscal year 2015.
 
Similarly, inter-segment revenues increased 165.6%, from Ps. 31.8 million in fiscal year 2014 to Ps. 84.5 million in fiscal year 2015, mainly as a result of livestock sales during the year to our subsidiary Sociedad Anónima Carnes Pampeanas which was reclassified from the Cattle segment to the Agroindustrial segment.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, sales revenues increased 30.3%, from Ps. 1,812.1 million in fiscal year 2014 to Ps. 2,361.0 million in fiscal year 2015.
 
Crops
 
Total sales revenues from the Crops segment increased 17.9%, from Ps. 836.8 million in fiscal year 2014 to Ps. 986.7 million in fiscal year 2015, mainly as a result of:
 
·  
an increase of  102,129 tons in the volume of Crops sold during fiscal year 2015 compared to the previous fiscal year; and
 
·  
partially offset by a reduction of 4.6% in the average price of sold Crops, from Ps. 1,931 per ton in fiscal year 2014 to Ps. 1,843 per ton in fiscal year 2015 mainly due to lower prices of wheat and sunflower.
 
The following table shows the sales of Crops in detail:
 
   
Sale of Crops (in tons)
  
   
Fiscal year ended June 30,
  
   
2015
    
2014
    
Variation
  
Corn
     269,701       179,893       89,808  
Soybean
     250,125       222,051       28,074  
Wheat
     7,083       11,359       (4,276 )
Sorghum
     1,569       3,843       (2,274 )
Sunflower
     5,181       9,745       (4,564 )
Other
     1,872       6,509       (4,637 )
Total Sales
     535,531       433,400       102,129  

Cattle

Total sales revenues from the Cattle segment increased 59.0%, from Ps. 90.3 million in fiscal year 2014 to Ps. 143.6 million in fiscal year 2015, mainly as a result of:
 
·  
a 59% increase in the average price per kilogram sold, from Ps. 10.1 per kilogram in fiscal year 2014 to Ps. 16 per kilogram in fiscal year 2015.
 
·  
a 0.3% in the cattle sales volume, from  8,842 tons in fiscal year 2014 to 8,871 tons in fiscal year 2015.
 
Dairy
 
Total sales revenues from the Dairy segment increased 33.4%, from Ps. 53.9 million in fiscal year 2014 to Ps. 71.9 million in fiscal year 2015, mainly as a result of:
 
·  
a 42.8% increase in the average price of milk, from Ps. 2.49 per liter in fiscal year 2014 to Ps. 3.55 per ton in fiscal year 2015;
 
·  
a 149% increase in the average price per kilogram sold of milking cows from Ps. 5.24 per kilogram in fiscal year 2014 to Ps. 13.06 per kilogram in fiscal year 2015;
 
·  
a 94.3% increase in the volume of sales of milking cows, from 465 tons in fiscal year 2014 to 903 tons in fiscal year 2015;
 
·  
partially offset by a 9.9% decrease in the volume of sales of milk, from 18.7 million liters in fiscal year 2014 to 16,9 million liters in fiscal year 2015.
 
Sugarcane
 
Total sales revenues from the Sugarcane segment increased 59.7%, from Ps. 123.9 million in fiscal year 2014 to Ps. 197.8 million in fiscal year 2015, mainly as a result of:
 
·  
248,808 (36.8%) more tons of sugarcane sold in fiscal year 2015 as compared to the previous fiscal year, mainly by BrasilAgro; and
 
·  
a 16,7% increase in the average price of sugarcane sold, from Ps. 183.3 per ton in fiscal year 2014 to Ps. 214 per ton in fiscal year 2015.
 
Agricultural rental and services
 
Total revenues from the Agricultural rental and services segment increased by 27.6%, from Ps. 29.1 million in fiscal year 2014 to Ps. 37.2 million in fiscal year 2015, mainly as a result of:
 
·  
a 58% increase in leases, due to machinery rentals from Brasilagro and new lease agreements from Bolivia;
 
·  
a 3.7 % increase in revenues from production of seeds mainly due to an increase in the production volume of soybean; and
 
·  
a decrease of 2.6 % in revenues from irrigation services due to a decrease of 136 % in total milliliters sold compared to fiscal year 2014.
 
Agro-industrial
 
Total revenues from the Agro-industrial increased 45.5%, from Ps. 554.1 million in fiscal year 2014 to Ps. 806.0 million in fiscal year 2015, mainly as a result of:
 
·  
a 17% increase in slaughtering volumes and the differential resulting from the higher price of beef and sub-products; and
 
·  
a 50% increase in sales to the domestic market with upward price trend, offset by
 
·  
a 3.18% reduction in exports.
 
Other Segments
 
Total revenues from Other segments decreased 5.0%, from Ps. 124.0 million in fiscal year 2014 to Ps. 117.8 million in fiscal year 2015, mainly as a result of:
 
·  
an increase of Ps. 21.1 million in sales on consignment, offset by
 
·  
a reduction of Ps. 15.1 million in commodity brokerage services.
 

 
 

 
113
 
Urban Properties and Investments Business
 
     
Fiscal year ended on June 30, 2015
  
 
Revenues
    
Income Statement(1)
      
Interests in joint ventures
      
Inter-segment eliminations
      
Common maintenance expenses
and collective promotion fund
      
Segment reporting
  
Shopping Center Properties
     2,570,868       13,069       -       (805,627 )     1,778,310  
Offices
     397,326       9,238       5,487       (79,323 )     332,728  
Sales and Developments
     8,482       5,225       -       -       13,707  
Hotels
     396,297       -       -       -       396,297  
International
     28,131       -       -       (2,258 )     25,873  
Financial operations and Others
     147       -       -       -       147  
Total Urban Properties and Investments Business Revenues
     3,401,251       27,532       5,487       (887,208 )     2,547,062  
 
(1) Includes revenues from sales, leases and services (Ps. 2,514.0 million) and revenues from expenses and collective promotion funds  (Ps. 887.2 million).
 
   
Fiscal year ended on June 30, 2014
  
Revenues
  
Income statement(1)
    
Interests in joint ventures
    
Inter-segment eliminations
    
Common maintenance expenses
and collective
promotion fund
    
Segment reporting
  
Shopping Center Properties
     2,031,625       9,280       1,808       (659,705 )     1,383,008  
Offices
     327,954       8,466       4,442       (69,703 )     271,159  
Sales and Developments
     62,641       22,890       -       -       85,531  
Hotels
     331,562       -       -       -       331,562  
International
     90,820       -       -       (6,894 )     83,926  
Financial operations and Others
     574       -       -       -       574  
Total Urban Properties and Investments Business Revenues
     2,845,176       40,636       6,250       (736,302 )     2,155,760  
                                         
(1)  
Includes revenues from sales, leases and services (Ps. 2,108.9 million) and revenues from expenses and collective promotion funds (Ps. 736.3 million)
 
Total revenues from the Urban Properties and Investments business increased 19.5%, from Ps. 2,845.2 million in fiscal year 2014 to Ps. 3,401.3 million in fiscal year 2015. This was due to an increase of Ps. 395.3 million in the Shopping Center Properties segment, an increase of Ps. 61.6 million in the Offices segment, and an increase of Ps. 64.7 million in the Hotel segment, offset by a decrease of Ps. 0.4 million in the Financial Operations and Others segment, a decrease of Ps. 58.1 million in the International segment, and a decrease of Ps. 71.8 million in the Sales and Developments segment.
 
In turn, revenues from our interests in joint ventures decreased by 32.2%, from Ps. 40.6 million in fiscal year 2014 to Ps. 27.5 million in fiscal year 2015, mainly attributable to a reduction in sales revenues derived from the Horizons development, from our joint venture with CYRSA S.A.
 
Similarly, inter-segment revenues decreased 12.2%, from Ps. 6.2 million in fiscal year 2014 (of which Ps. 4.4 million is attributable to the Offices segment) to Ps. 5.5 million in fiscal year 2015 (attributable to the Offices segment).
 
On the other hand, revenues from expenses and collective promotion fund increased by 20.5%, from Ps. 736.3 million in fiscal year 2014 (of which Ps. 659.7 million is attributable to the Shopping Center Properties segment) to Ps. 887.2 million in fiscal year 2015 (of which Ps. 805.6 million is attributable to the Shopping Center Properties segment).
 
Hence, according to business segment reporting and considering all our joint ventures, inter-segment eliminations, and maintenance fee and common advertising funds, sales revenues increased 18.1%, from Ps. 2,155.8 million in fiscal year 2014 to Ps. 2,547.1 million in fiscal year 2015.
 
Shopping Center Properties
 
Revenues from the Shopping Center Properties segment increased 28.6%, from Ps. 1,383.0 million in fiscal year 2014 to Ps. 1,778.3 million in fiscal year 2015. Such variation was mostly attributable to:
 
·  
an increase of Ps. 317.7 million in revenues from base and contingent rent as a result of a 33.3% rise in our tenants’ sales, from Ps. 16,132.8 million in fiscal year 2014 to Ps. 21,508.7 million in fiscal year 2015;
 
·  
an increase of Ps. 30.0 million in revenues from admission fees;
 
·  
an increase of Ps. 30.6 million in parking fees; and
 
·  
an increase of Ps. 17.0 million in revenues from property letting fees, management fees and other.
 
Offices
 
Revenues from the Offices segment increased 22.7%, from Ps. 271.2 million in fiscal year 2014 to Ps. 332.7 million in fiscal year 2015. Such revenues were impacted by the partial sale of investment properties in fiscal year 2015, which resulted in a reduction of the segment total leasable area.
 
 Considering comparable properties in both fiscal years, rental revenues from properties which did not experience a decrease in their leasable area increased by 30.6%, from Ps. 214.0 million in fiscal year 2014 to Ps. 279.6 million in fiscal year 2015, mostly as a result of the currency devaluation and improved occupancy, whereas rental revenues from properties which leasable area was reduced went down by 45%, from Ps. 45.5 million in fiscal year 2014 to Ps. 25.0 million in fiscal year 2015.
 

 
114
 
 
As of year-end, the 2015 average occupancy rate of premium offices stood at 98.1% and the average rent was around US$ 26 per m2.
 
Sales and Developments
 
Without considering our joint ventures, revenues from the Sales and Developments segment decreased by 86.4% from Ps. 62.6 million in fiscal year 2014 to Ps. 8.5 million in fiscal year 2015. Such reduction was mainly attributable to reduced revenues from the sale of the Condominios I and II (Ps. 45.3 million) and El Encuentro (Ps. 7.5 million) developments. On the other hand, revenues from our joint ventures (Horizons) fell by 77.2%, accounting for a decrease of Ps. 17.7 million. Hence, total revenues derived from this segment fell by 84.0%, from Ps. 85.5 million in fiscal year 2014 to Ps. 13.7 million in fiscal year 2015.
 
Hotels
 
Revenues from our Hotels segment increased by 19.5% from Ps. 331.6 million in fiscal year 2014 to Ps. 396.3 million in fiscal year 2015, mainly as a result of a 34.2% increase in the average room rate of our hotels (in terms of Argentine Pesos), partially offset by a 67.2% decrease in the average occupancy rate in fiscal year 2014 to 65.7% in fiscal year 2015 (mainly at our Llao Llao hotel).
 
International
 
Revenues from the International segment decreased by 69.2% from Ps. 83.9 million in fiscal year 2014 to Ps. 25.9 million in fiscal year 2015, mostly due to the fact that the results of Rigby 183 LLC – owner of the rental Madison 183 building - were consolidated for 3 months only in fiscal year 2015 because it was sold in September 2014, whereas such results were consolidated for 12 months in fiscal year 2014.
 
Financial operations and Others
 
Revenues from the Financial Operations and Others segment decreased from Ps. 0.6 million in fiscal year 2014 to Ps. 0.1 million in fiscal year 2015, as a result of reduced revenues from the Company’s personal financing residual activity.
 
COSTS
 
Total costs of the Company increased 23.1%, from Ps. 3,266.3 million in fiscal year 2014 to Ps. 4,019.1 million in fiscal year 2015. This was mainly as a result of a 29.3% increase in costs associated with the Agricultural business, from Ps. 2,618.0 million in fiscal year 2014 to Ps. 3,385.7 million in fiscal year 2015 and a 2.3% decrease in costs associated with the Urban Properties and Investments business from Ps. 648.3 million in fiscal year 2014 to Ps. 633.5 million in fiscal year 2015.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2015
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (1,752,576 )     (42,867 )     -       (1,795,443 )
Cattle
     (135,452 )     (4,716 )     (84,388 )     (224,556 )
Dairy
     (133,259 )     -       -       (133,259 )
Sugarcane
     (368,172 )     -       -       (368,172 )
Agricultural rental and services
     (19,201 )     -       -       (19,201 )
Agricultural Subtotal
     (2,408,660 )     (47,583 )     (84,388 )     (2,540,631 )
Land transformations and sales
     (9,002 )     -       -       (9,002 )
Agro-industrial
     (739,074 )     -       (127 )     (739,201 )
Other Segments
     (96,841 )     -       -       (96,841 )
Total Agricultural Business Costs
     (3,253,577 )     (47,583 )     (84,515 )     (3,385,675 )

   
Fiscal year ended on June 30, 2014
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (1,509,500 )     (31,181 )     -       (1,540,681 )
Cattle
     (150,810 )     (4,408 )     (5,442 )     (160,660 )
Dairy
     (104,334 )     -       -       (104,334 )
Sugarcane
     (206,751 )     -       -       (206,751 )
Agricultural rental and services
     (17,374 )     -       -       (17,374 )
Agricultural Subtotal
     (1,988,769 )     (35,589 )     (5,442 )     (2,029,800 )
Land transformations and sales
     (8,228 )     -       -       (8,228 )
Agro-industrial Activities
     (453,307 )     -       (26,382 )     (479,689 )
Other Segments
     (100,170 )     (85 )     -       (100,255 )
Total Agricultural Business Costs
     (2,550,474 )     (35,674 )     (31,824 )     (2,617,972 )
 
Total costs increased by 27.6% from Ps. 2,550.5 million in fiscal year 2014 to Ps. 3,253.6 million in fiscal year 2015. This was caused mainly by an increase of Ps. 254.8 million in the Crops segment, an increase of Ps. 63.9 million in the Cattle segment, an increase of Ps. 28.9 million in the Dairy segment, an increase of Ps. 161.4 million in the Sugarcane segment, an increase of Ps. 1.8 million in the Agricultural rental and services segment, an increase of Ps. 0.8 million in the Land transformations and sales segment, and an increase of Ps. 259.5 million in the Agro-industrial segment,  offset by a decrease of Ps. 3.4 million in the Other segments.
 
In turn, the cost of our joint ventures experienced a net increase of Ps. 11.9 million, from 35.6 million in fiscal year 2014 to Ps. 47.6 million in fiscal year 2015, mainly as a result of an increase of Ps. 11.7 million in the cost of Cresca’s Crops, from Ps. 31.2 million in fiscal year 2014 to Ps. 42.9 million in fiscal year 2015.
 
Similarly, inter-segment costs rose by Ps. 52.7 million from Ps. 31.8 million in fiscal year 2014 to Ps. 84.5 million in fiscal year 2015, mainly as a result of the cost of Cattle sales during the year to our subsidiary Sociedad Anónima Carnes Pampeanas which was reclassified from the Cattle segment to the Agro-industrial segment.
 

 
115
 
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, costs increased by 29.3%, from Ps. 2,618.0 million in fiscal year 2014 to Ps. 3,385.7 million in fiscal year 2015.
 
Crops
 
Costs from the Crops segment increased by 16.5%, from Ps. 1,540.7 million in fiscal year 2014 to Ps. 1,795.4 million in fiscal year 2015. Costs from the Crops segment are detailed in the following table:
 
       
   
Fiscal year 2015
    
Fiscal year 2014
  
   
Thousands of Ps.
  
Cost of sales
     873,118       778,362  
Cost of production
     922,325       752,319  
Total Costs
     1,795,443       1,540,681  

The cost of sales from the Crops segment increased by 10.8%, from Ps. 778.4 million in fiscal year 2014 to Ps. 873.1 million in fiscal year  2015, mainly as a result of:
 
·  
a 23.6% increase in the volume of tons sold as compared to the previous fiscal year; and
 
·  
partially offset by a 10.4% decrease in the average cost per ton of crops sold in fiscal year 2015, from Ps. 1,819 per ton in fiscal year 2014 to Ps. 1,630 per ton in fiscal year 2015, due to an increase in the average crops domestic market price.
 
The cost of sales as a percentage of sales was 93.0% in fiscal year 2014 and 88.5% in fiscal year 2015.
 
The cost of production from the Crops segment increased by 22.6%, from Ps. 752.3 million in fiscal year 2014 to Ps. 922.3 million in fiscal year 2015, mainly as a result of:
 
·  
a 14.3% increase in direct production costs during this fiscal year as compared to the previous one, mainly affected by the inflationary context that impacts both on the prices of leases and supplies used (agrochemicals and seeds);
 
·  
higher production volumes in fiscal year 2015 as compared to fiscal year 2014; and
 
·  
a larger number of hectares in operation in our own farms in fiscal year 2015 as compared to fiscal year 2014.
 
Total cost of production per ton increased 3.0%, from Ps. 1,863 per ton in fiscal year 2014 to Ps. 1,808 per ton in fiscal year 2015, mainly as a result of higher yields in fiscal year 2015 as compared to fiscal year 2014, exceeding the increase in costs.
 
Cattle
 
Costs of the Cattle segment increased 39.8%, from Ps. 160.7 million in fiscal year 2014 to Ps. 224.6 million in fiscal year 2015. Costs from the Cattle segment are detailed in the following table:
 
   
Fiscal year 2015
    
Fiscal year 2014
  
   
Thousands of Ps.
  
Cost of sales
     121,580       76,734  
Cost of production
     102,976       83,926  
Total Costs
     224,556       160,660  
 
The cost of sales increased by 58.4%, from Ps. 76.7 million in fiscal year 2014 to Ps. 121.6 million in fiscal year 2015, mainly as a result of:
 
·  
a 57.3% increase in the cost per kilogram sold in fiscal year 2015; and
 
·  
a 0.7% increase in cattle sales volumes in fiscal year 2015.
 
The cost of production from the Cattle segment rose by 22.7%, from Ps. 83.9 million in fiscal year 2014 to Ps. 103.0 million in fiscal year 2015. The higher cost of production from the Cattle segment in fiscal year 2015 was mainly attributable to:
 
·  
an in increase of Ps. 13.5 million in feeding costs due to the rise in prices and higher feed costs due to the increase of animals in our own farms fattened in feedlots;
 
·  
an increase of Ps. 3.9 million in payroll expense.
 
Dairy
 
Costs of the Dairy segment increased 27.7%, from Ps. 104.3 million in fiscal year 2014 to Ps. 133.3 million in fiscal year 2015. Costs from the Dairy segment are detailed in the following table:
 
   
Fiscal year 2015
    
Fiscal year 2014
  
   
Thousands of Ps.
  
Cost of sales
     68,359       51,686  
Cost of production
     64,900       52,648  
Total Costs
     133,259       104,334  
 
The cost of sales from the Dairy segment increased by 32.3%, from Ps. 51.7 million in fiscal year 2014 to Ps. 68.4 million in fiscal year  2015, mainly as a result of:
 
·  
an increase of 32% and 119% in milk and milking cows price levels, respectively; and
 
·  
a 94.3% increase in the sales volume of milking cows, partially offset by
 
·  
a 9.9% reduction in milk sales volume.
 
Cost of production of the Dairy segment increased 23%, from Ps. 52.6 million in fiscal year 2014 to Ps. 64.9 million in fiscal year 2015. This increase was mainly due to the impact of increased feeding, health and payroll costs.
 
 
116
 
Sugarcane
 
Costs of the Sugarcane segment increased 78.1%, from Ps. 206.8 million in fiscal year 2014 to Ps. 368.2 million in fiscal year 2015. Costs from the Sugarcane segment are detailed in the following table:
 
   
Fiscal year 2015
    
Fiscal year 2014
  
   
Thousands of Ps.
  
Cost of sales
     188,432       105,618  
Cost of production
     179,740       101,133  
Total Costs
     368,172       206,751  
 
The cost of sales from the Sugarcane segment increased by 78.4%, from Ps. 105.6 million in fiscal year 2014 to Ps. 188.4 million in fiscal year  2015, mainly as a result of:
 
·  
an increase of 248,808 tons of sugarcane sold in fiscal year 2015 compared to the previous fiscal year, mainly in our subsidiary Brasilagro; and
 
·  
an increase in the average cost per ton of sugarcane sold in fiscal year 2015, from Ps. 156 per ton in fiscal year 2014 to Ps. 204 per ton in fiscal year 2015.
 
The cost of sales as a percentage of sales was 85.3% in fiscal year 2014 and 95.3% in fiscal year 2015.
 
The cost of production of the Sugarcane segment increased 77.7%, from Ps. 101.1 million in fiscal year 2014 to Ps. 179.7 in fiscal year 2015, mainly as a result of a higher production volume in fiscal year 2015 compared to fiscal year 2014.
 
The total cost of production per ton increased 25.9%, from Ps. 154 per ton in fiscal year 2014 to Ps. 184 per ton in fiscal year 2015.
 
Agricultural rental and services
 
The cost of sales from the Agricultural rental and services segment increased by 10.5%, from Ps. 17.4 million in fiscal year 2014 to Ps. 19.2 million in fiscal year  2015, mainly as a result of:
 
·  
higher lease costs in Brasilagro, due to the amortization of new soil improvement works and structural expenses in the Preferencia, Chaparral, Jatobá and Araucaria lands;
 
·  
lower costs from seed production services by 2.8%; and
 
·  
a 3.9% increase in irrigation service costs.
 
Land transformations and sales
 
Cost of sales from the Land transformations and sales segment increased 9.4%, from Ps. 8.2 million in fiscal year 2014 to Ps. 9.0 million in fiscal year 2015. Such increase is mainly attributable to a reclassification due to discontinued activities at the feedlot land and, to a lesser extent, to increases in salary-related items, in particular the share incentive plan.
 
Agro-industrial
 
Costs of the Agro-industrial segment increased 54.1%, from Ps. 479.7 million in fiscal year 2014 to Ps. 739.2 million in fiscal year 2015, due to an inflationary context that hindered the increase in the gross marginal contribution:
 
Other Segments
 
The cost of sales of the Other segments decreased 3.4%, from Ps. 100.3 million in fiscal year 2014 to Ps. 96.8 million in fiscal year 2015, mainly as a result of a 16% reduction in the costs from the brokerage business related to commodity trading transactions through our subsidiary FyO and lower costs generated by the resale of supplies and others by 8%.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2015
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Common maintenance expenses
and collective promotion funds
    
Segment reporting
  
Shopping Center Properties
     (1,103,042 )     (3,983 )     (3,860 )     819,702       (291,183 )
Offices
     (110,443 )     (5,248 )     -       79,323       (36,368 )
Sales and Developments
     (13,936 )     (5,521 )     -               (19,457 )
Hotels
     (278,672 )     -       -               (278,672 )
International
     (9,379 )     -       -       2,258       (7,121 )
Financial operations and Others
     (666 )     -       -               (666 )
Total Urban Properties and Investments Business Costs
     (1,516,138 )     (14,752 )     (3,860 )     901,283       (633,467 )
 
 
 
117
 
 
   
Fiscal year ended on June 30, 2014
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Common maintenance expenses
and collective promotion funds
    
Segment reporting
  
Shopping Center Properties
     (956,719 )     (2,754 )     (4,321 )     667,106       (296,688 )
Offices
     (110,273 )     (4,437 )     (360 )     69,703       (45,367 )
Sales and Developments
     (18,971 )     (15,992 )                     (34,963 )
Hotels
     (216,768 )                             (216,768 )
International
     (60,404 )                     6,894       (53,510 )
Financial operations and Others
     (983 )                             (983 )
Total Urban Properties and Investments Business Costs
     (1,364,118 )     (23,183 )     (4,681 )     743,703       (648,279 )

Cost of sales from our Urban Properties and Investments business increased 11.1%, from Ps. 1,364.1 million in fiscal year 2014 to Ps. 1,516.1 million in fiscal year 2015. This was mainly due to an increase of Ps. 61.9 million in the Hotel segment, slightly offset by a decrease of Ps. 9.0 million in the Offices segment, a decrease of 5.5 million in the Shopping Center Properties segment, a decrease of Ps. 15.5 million in the Sales and Developments segment, a decrease of Ps. 0.3 million in the Financial Operations and Others segment, and a decrease of Ps. 46.4 million in the International segment.
 
On the other hand, expenses and collective promotion funds costs increased 21.2%, from Ps. 743.7 million in fiscal year 2014 to Ps. 901.3 million in fiscal year 2015, mainly due to expenses and collective promotion funds expenses from Shopping Center Properties, which increased by 22.9%, from Ps. 667.1 million in fiscal year 2014 to Ps. 819.7 in fiscal year 2015, as a result of: (i) an increase of Ps. 59.8 million in maintenance, security, cleaning, repair and similar expenses (mainly attributable to increases in security and cleaning services and utility rates), (ii) an increase of Ps. 27.9 million in advertising expenses, (iii) an increase of Ps. 30.1 million in salaries and wages, social security contributions and other payroll expenses; (iv) an increase of Ps. 20.8 million in taxes, rates and contributions and other expenses, and (v) an increase of Ps. 14.0 million in other items (mostly as a result of travel and office supplies expenses).
 
In addition, costs from our joint ventures experienced a net decrease of 36.6%, from Ps. 23.2 million in fiscal year 2014 to Ps. 14.7 million in fiscal year 2015, mainly as a result of lower costs resulting from reduced sales of the Horizons development.
 
Finally, costs from inter-segment operations decreased by 17.0%, from Ps. 4.7 million in fiscal year 2014 to Ps. 3.9 million in fiscal year 2015, mainly as a result of a change in the cost allocation of our Shopping Center Properties.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, costs decreased by 2.3%, from Ps. 648.3 million in fiscal year 2014 to Ps. 633.5 million in fiscal year 2015.
 
Shopping Center Properties
 
Costs from the Shopping Center Properties segment decreased by 1.9%, from Ps. 296.7 million in fiscal year 2014 to Ps. 291.2 million in fiscal year 2015. This reduction is mainly attributable to:
 
·  
a reduction of Ps. 35.9 million in costs from a deficit in expenses and collective promotion funds from our Shopping Centers Properties; and
 
·  
a decrease of Ps. 4.2 million in our depreciation and amortization expense;
 
·  
partially offset by increased costs resulting from: an increase of Ps. 12.9 million in maintenance, security, cleaning, repair and similar expenses (mainly attributable to increases in security and cleaning services and utility rates); an increase of Ps. 10.0 million in salaries and wages, social security contributions and other payroll expenses; an increase of Ps. 8.7 million in taxes, rates and contributions and other expenses (mostly attributable to an increase in provincial property taxes and municipal utility rates, among other things), and an increase of Ps. 5.6 million in fees and compensation from services.
 
 Costs from the Shopping Center Properties segment, as a percentage of revenues derived from this segment, decreased from 21.5% in fiscal year 2014 to 16.4% in fiscal year 2015.
 
Offices
 
 Costs from the Offices segment decreased by 19.8%, from Ps. 45.4 million in fiscal year 2014 to Ps. 36.4 million in fiscal year 2015. Such decrease was attributable to the partial sales of investment property for rental completed in fiscal year 2015.
 
 Costs attributable to non-comparable properties decreased by 44.3%, from Ps. 5.5 million to Ps. 3.0 million, mainly as a result of the above mentioned sales.
 
 In the absence of partial sales, costs - considering comparable properties in both fiscal years - decreased by 19.3%, from Ps. 36.6 million to Ps. 30.4 million, mainly as a result of a lower amortization and depreciation expense.
 
Costs from the Offices segment, as a percentage of revenues derived from this segment, decreased from 16.7% in fiscal year 2014 to 10.9% in fiscal year 2015.
 
Sales and Developments
 
Costs attributable to this segment often vary significantly period over period, given that the several sales completed by the Company over the time are not recurring. Without considering our joint ventures, costs from our Sales and Developments segment decreased by 22.3% from Ps. 17.5 million in fiscal year 2014 to Ps. 13.6 million in fiscal year 2015. Such reduction was mainly attributable to lower costs from the sale of units of Condominios I and II (Ps. 6.8 million), partially offset by higher costs from maintenance of land reserves and real property for sale (Ps. 4.7 million).
 
On the other hand, costs from our joint ventures (Horizons) went down by 78.1%, accounting for a decrease of Ps. 11.0 million. Hence, total costs from this segment fell by 44.3%, from Ps. 35.0 million in fiscal year 2014 to Ps. 19.5 million in fiscal year 2015.
 
Costs from the Sales and Developments segment, as a percentage of revenues derived from this segment, increased by 40.9% in fiscal year 2014 to 141.9% in fiscal year 2015.
 

 
118
 

 Hotels
 
Costs from the Hotels segment increased by 28.6%, from Ps. 216.8 million in fiscal year 2014 to Ps. 278.7 million in fiscal year 2015, mainly as a result of:
 
·  
an increase of Ps. 41.1 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
an increase of Ps. 11.1 million in the cost of food, beverages and other hotel-related expenses; and
 
·  
an increase of Ps. 7.7 million in maintenance and repair expenses, among other items.
 
Costs from the Hotels segment, as a percentage of revenues derived from this segment, increased from 65.4% in fiscal year 2014 to 70.3% in fiscal year 2015.
 
International
 
Costs from the International segment decreased by 86.7%, from Ps. 53.5 million in fiscal year 2014 to Ps. 7.1 million in fiscal year 2015 mostly due to the fact that the results of Rigby 183 LLC – owner of the rental Madison 183 building - were consolidated for only 3 months in fiscal year 2015 whereas such results were consolidated for 12 months in fiscal year 2014. This building was sold in September 2014. In addition, the three-month period in fiscal year 2015 does not include amortization and depreciation since the property had been classified as available for sale as of June 30, 2014.
 
Costs from the International segment, as a percentage of revenues derived from this segment, decreased from 63.8% in fiscal year 2014 to 27.5% in fiscal year 2015.
 
Financial Operations and Others
 
Costs from the Financial Operations and Others segment decreased by 32.2% from Ps. 1.0 million in fiscal year 2014 to Ps. 0.7 million in fiscal year 2015, as a result of lower costs from the Company’s personal financing residual activity. As a percentage of revenues derived from this segment, it increased from 171.3% in fiscal year 2014 to 453.1% in fiscal year 2015.
 
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest.
 
   
Fiscal year ended on June 30, 2015
  
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     897,498       20,821       -       918,319  
Cattle
     164,260       2,474       -       166,734  
Dairy
     74,919       -       -       74,919  
Sugarcane
     187,475       -       -       187,475  
Agricultural rental and services
     -       -       -       -  
Agricultural Subtotal
     1,324,152       23,295       -       1,347,447  
Land transformations and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     1,324,152       23,295       -       1,347,447  

   
Fiscal year ended on June 30, 2014
  
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     848,578       19,773       -       868,351  
Cattle
     145,008       313       -       145,321  
Dairy
     62,840       -       -       62,840  
Sugarcane
     96,227       -       -       96,227  
Agricultural rental and services
     -       -       -       -  
Agricultural Subtotal
     1,152,653       20,086       -       1,172,739  
Land transformations and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     1,152,653       20,086       -       1,172,739  

 
The Company’s revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest increased 14.9%, from Ps. 1,152.7 million in fiscal year 2014 to Ps. 1,324.2 million in fiscal year 2015.
 
In turn, the Company’s revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest derived from our interests in joint ventures increased 16.0%, from Ps. 20.1 million in fiscal year 2014 to Ps. 23.3 million in fiscal year 2015.
 
On the other hand, there were no inter-segment eliminations in connection with revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest.
 

 
119
 
 
Hence, according to business segment reporting and considering all our joint ventures, revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest increased by 14.9%, from Ps. 1,172.7 million in fiscal year 2014 to Ps. 1,347.4 million in fiscal year 2015.
 
Crops
 
Production income from the Crops segment increased by 5.8%, from Ps. 868.4 million in fiscal year 2014 to Ps. 918.3 million in fiscal year  2015, mainly as a result of:
 
·  
a 17.8% increase in the total production volume from 351,759 tons in fiscal year 2014 to 414,331 tons in fiscal year 2015;
 
·  
partially offset by a 3.3% decrease in crops production average price; and
 
·  
a 68.5% decrease in expected revenues.
 
As of June 30, 2015, the harvested area was 98.3% of our total sown area, compared to 95.7% as of June 30, 2014.
 
The following table shows the number of tons produced and total production income as of June 30, 2015 and 2014:
 
   
Crops Production Income (in tons and thousands of Ps.)
  
   
Fiscal year ended on June 30,
  
   
2015
    
2014
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Corn
     100,543       83,565       86,300       79,475  
Soybean
     279,356       625,511       241,205       563,639  
Wheat
     16,211       12,688       12,373       11,929  
Sorghum
     1,202       694       4,058       1,468  
Sunflower
     11,720       26,967       5,883       15,657  
Other
     5,300       20,420       1,940       3,390  
Total
     414,331       769,846       351,759       675,559  

Estimated results from the valuation of our crops in progress at fair value decreased 68.5%, from Ps. 168.0 million in fiscal year 2014 to Ps. 52.9 million in fiscal year 2015, mainly due to a reduction of 65.4% in corn crops.
 
Cattle
 
Production income from the Cattle segment increased by 14.7%, from Ps. 145.3 million in fiscal year 2014 to Ps. 166.7 million in fiscal year  2015, mainly as a result of:
 
·  
a 51.8% increase in the average price per kilogram produced, from Ps. 9.7 per kilogram in fiscal year 2014 to Ps. 14.8 per kilogram in fiscal year 2015; and
 
·  
a 12.1% increase in cattle production volume from 6,948 tons in fiscal year 2014 to 7,905 tons in fiscal year 2015;
 
·  
offset by a 36% reduction in holding gains.
 
The calving rate decreased slightly (3.6%), whereas the death rate decreased by 27.2% during fiscal year 2015 as compared to fiscal year 2014. This variation in the death rates of calves was mainly due to a 73.7% reduction in sheep deaths, partially offset by 21.6% increase in death of beef cattle.
 
The number of hectares devoted to cattle production decreased from 95,160 hectares in fiscal year 2014 to 88,643 hectares in fiscal year 2015 due to a smaller number of leased land devoted to cattle production.
 
Dairy
 
Production income from the Dairy segment increased by 19.2%, from Ps. 62.8 million in fiscal year 2014 to Ps. 74.9 million in fiscal year 2015, mainly as a result of:
 
·  
the result from holding of milking cows, which increased 3.0%, from a gain of Ps. 8.6 million in fiscal year 2014 to a gain of Ps. 8.9 million in fiscal year 2015, as the inflationary context led to a significant rise in prices;
 
·  
a 31.9% increase in the average price of milk, from Ps. 2.59 per liter in fiscal year 2014 to Ps. 3.42 per liter in fiscal year 2015; and
 
·  
an increase of 7.1% in milk production volumes and a 41.6% increase in the average price, partially offset by
 
·  
a 9.3% decrease in the milk production volume, from 19.3 million of liters in fiscal year 2014 to 17.5 million of liters in fiscal year 2015. This reduction in production volume was mainly due to a lower average number of milking cows per day, from 2,439 in fiscal year 2014 to 2,189 in fiscal year 2015, partially offset by a 9.1% increase in the efficiency level of average daily milk production per cow, from 19.7 liters in fiscal year 2014 to 21.5 liters in fiscal year 2015.
 
Sugarcane
 
Production income from the Sugarcane segment increased by 94.8%, from Ps. 96.2 million in fiscal year 2014 to Ps. 187.5 million in fiscal year  2015, mainly as a result of:
 
·  
a 41.2% increase in total production volume from 657,547 tons in fiscal year 2014 to 928,273 tons in fiscal year 2015; and
 
·  
an 8.0% increase in the average production price of sugarcane.
 

 
120
 
 
The 41.2% increase in the production volume from the Sugarcane segment was attributable to a 12.3% increase in our average yield from 81.2 ton/ha to 91.2 ton/ha mainly due to higher harvested hectares in fiscal year 2015.
 
The following table shows the actual tons produced and income as of June 30, 2015 and 2014:
 
   
Sugarcane Production Income (in tons and thousands of Ps.)
  
   
Fiscal year ended on June 30,
  
   
2015
    
2014
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Sugarcane
     928,273       178,802       657,547       117,250  
 
 
Estimated results from the valuation of our sugarcane crops in progress at fair value increased significantly from a loss of 10.3 million in fiscal year 2014 to a gain of Ps. 8.7 million in fiscal year 2015 mainly generated by Brasilagro. This variation originated mainly in Brazil, and was caused by the following factors:
 
·  
an increase in the number of estimated hectares from a year-on-year decrease of 13% in fiscal year 2014 to a year-on-year increase of 25% in fiscal year 2015;
 
·  
an increase in the estimated yields from a from a year-on-year decrease of 2% in fiscal year 2014 to a year-on-year increase of 2% in fiscal year 2015; and
 
·  
a decrease in the estimated unit costs from a year-on-year increase of 15% in fiscal year 2014 to a year-on-year increase of 9% in fiscal year 2015.
 
Changes in the net realizable value of agricultural produce after harvest
 
   
Fiscal year ended on June 30, 2015
  
Changes in the net realizable value of agricultural produce after harvest
  
Income statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (34,474 )     -       -       (34,474 )
Cattle
     3       -       -       3  
Dairy
     -       -       -       -  
Sugarcane
     -       -       -       -  
Agricultural rental and services
     -       -       -       -  
Agricultural Subtotal
     (34,471 )     -       -       (34,471 )
Land transformations and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     (34,471 )     -       -       (34,471 )

   
Fiscal year ended on June 30, 2014
  
Changes in the net realizable value of agricultural produce after harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (17,624 )     -       -       (17,624 )
Cattle
     177       -       -       177  
Dairy
     -       -       -       -  
Sugarcane
     -       -       -       -  
Agricultural rental and services
     -       -       -       -  
Agricultural Subtotal
     (17,447 )     -       -       (17,447 )
Land transformations and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     (17,447 )     -       -       (17,447 )

Income from changes in the net realizable value of agricultural produce after harvest decreased significantly, from a loss of Ps. 17.4 million in fiscal year 2014 to a loss of Ps. 34.4 million in fiscal year 2015.  This was caused mainly by a reduction of Ps. 16.8 million in the Crops segment (mainly due to the first quarter’s 21% reduction in the net realizable value of corn in Argentina) and, to a lesser extent, by a Ps. 0.2 million increase in the Cattle segment.
 
No interest in joint ventures or inter-segment elimination was recorded in income from changes in the net realizable value of agricultural produce after harvest.
 
GROSS PROFIT
 
As a result of the above mentioned factors, the Company’s gross profit increased 18.6%, from Ps. 1,857.0 million in fiscal year 2014 to Ps. 2,201.9 million in fiscal year 2015. This was caused mainly by:
 
·  
a 17.5% decrease in the Agricultural Business, from Ps. 349.4 million income in fiscal year 2014 to Ps. 288.3 million income in fiscal year 2015; and
 
·  
a 26.9% increase in the Urban Properties and Investments business, from a Ps. 1,507.5 million income in fiscal year 2014 to a Ps. 1,913.6 million income in fiscal year 2015.
 

 
121
 


Agricultural Business
 
As a result of the above mentioned factors, gross profit decreased 17.5%, from Ps. 349.4 million in fiscal year 2014 to Ps. 288.3 million in fiscal year 2015.
 
Crops
 
Gross profit from this segment decreased by 48.9%, from Ps. 146.9 million in fiscal year 2014 to Ps. 75.1 million in fiscal year 2015.
 
Cattle
 
Gross profit from this segment increased by 14.1%, from Ps. 75.2 million in fiscal year 2014 to Ps. 85.7 million in fiscal year 2015.
 
Dairy
 
Gross profit from this segment increased by 9.3%, from Ps. 12.4 million in fiscal year 2014 to Ps. 13.6 million in fiscal year 2015.
 
Sugarcane
 
Gross profit from this segment increased by 28.5%, from Ps. 13.3 million in fiscal year 2014 to Ps. 17.1 million in fiscal year 2015.
 
Agricultural rental and services
 
Gross profit from this segment increased by 52.7%, from Ps. 11.8 million in fiscal year 2014 to Ps. 18.0 million in fiscal year 2015.
 
Land transformations and sales
 
Gross loss from this segment increased by 9.4%, from Ps. 8.2 million in fiscal year 2014 to Ps. 9.0 million in fiscal year 2015.
 
Agro-industrial
 
Gross profit from this segment decreased by 10.2%, from Ps. 74.4 million in fiscal year 2014 to Ps. 66.8 million in fiscal year 2015.
 
Other Segments
 
Gross profit from this segment decreased by 11.7%, from Ps. 23.7 million in fiscal year 2014 to Ps. 20.9 million in fiscal year 2015.
 
Urban Properties and Investments Business
 
Gross profit from the Urban Properties and Investments business increased 26.9% from Ps. 1,507.5 million in fiscal year 2014 to Ps. 1,913.6 million in fiscal year 2015. This was mainly due to an increase of Ps. 400.8 million in the Shopping Center Properties segment; an increase of Ps. 70.6 million in the Offices segment; an increase of Ps. 2.8 million in the Hotels segment, partially offset by a reduction of Ps. 56.3 million in the Sales and Developments segment, a reduction of Ps. 11.7 million in the International segment and a reduction of Ps. 0.1 million in the Financial Operations and Others segment.
 
Shopping Center Properties
 
Gross profit from the Shopping Center Properties segment increased by 36.9%, from Ps. 1,086.3 million in fiscal year 2014 to Ps. 1,487.1 million in fiscal year 2015.
 
Offices
 
Gross profit from the Offices segment increased by 31.3%, from Ps. 225.8 million in fiscal year 2014 to Ps. 296.4 million in fiscal year 2015.
 
Sales and Developments
 
Gross profit from the Sales and Developments segment fell by 111.4% from a gain of Ps. 50.6 million in fiscal year 2014 to a loss of Ps. 5.7 million in fiscal year 2015.
 
Hotels
 
Gross profit from the Hotels segment increased by 2.5%, from Ps. 114.8 million in fiscal year 2014 to Ps. 117.6 million in fiscal year 2015.
 
International
 
Gross profit from the International segment decreased by 38.3%, from Ps. 30.4 million in fiscal year 2014 to Ps. 18.8 million in fiscal year 2015.
 
Financial operations and Others
 
Gross loss from the Financial operations and Others segment increased by Ps. 0.1 million, from a loss of Ps. 0.4 million in fiscal year 2014 to a loss of Ps. 0.5 million in fiscal year 2015.
 
Income from sale of investment properties
 
Income from sale of investment properties derived from the Urban Properties and Investments business increased 398.1%, from a Ps. 230.9 million income in fiscal year 2014 to a Ps. 1,150.2 million income in fiscal year 2015, mainly as a result of the sale of functional units at: Intercontinental Plaza (Ps. 338.4 million), Madison Ave. office building (Ps. 296.5 million), an increase in sales of Bouchard 551 (Ps. 308.4 million) and Maipú 1300 (Ps. 25.3 million); partially offset by reduced sales from: Av. de Mayo 595 (Ps. 19.2 million), Constitución 1159 (Ps. 13.4 million) and Costeros Dique IV (Ps. 10.6 million), among other transactions.
 
Gain from disposal of farmlands
 
Gain from disposal of farmlands derived from the Land transformations and sales segment increased 523.4%, from Ps. 91.4 million income in fiscal year 2014 to Ps. 569.5 million income in fiscal year 2015, mainly as a result of:
 

 
122
 

During fiscal year 2015
 
On April 3, 2014, Cresca S.A. executed a deed of sale for an area of 24,624 hectares located in Chaco Paraguayo. The total price was U$S 14.7 million payable as follows: U$S 1.8 million was cashed upon the execution of the deed of sale; U$S 4.3 million at the time of the title conveyance; U$S 3.7 million on July 2015 interest-free; and U$S 4.9 million on July 2016 interest-free. Possession was surrendered upon the execution of the title deed and upon the creation of a mortgage as guarantee of the remaining balance on July 14, 2014. The Company recorded a gain of Ps. 19.1 million as a result of this transaction.
 
On June 10, 2015, Brasilagro sold the remaining area of 27,744 hectares of the Cremaq farm located in the municipal district of Baixa Grande do Ribeiro (Piaui). The transaction price was RS. 270 million (equivalent to Ps. 694 million), out of which RS 67.5 million was cashed (equivalent to Ps. 196.8 million), with the balance being payable in an estimated term of 90 days. The Company recorded a gain of Ps. 525.9 million as a result of this transaction.
 
On October 17, 2013, Yuchán Agropecuaria executed an agreement providing for the sale, subject to retention of title, of an 1,643 hectare property in the “La Fon Fon II” farm for a total price of U$S 7.21 million (equivalent to Ps. 59.0 million). As of the date of issuance of these financial statements, the amount of US$ 1.5 million was cashed, with the remaining balance of US$ 5.71 million being payable in six semi-annual installments beginning in December this year and ending in June 2018. The agreement provides that title conveyance will be registered once the full price has been paid. On June 24, 2015, Yuchán Agropecuarria surrendered the possession of the property. The Company recorded a gain of US$ 2.7 million (equivalent to Ps. 24.6 million) as a result of this transaction in this fiscal year.
 
During fiscal year 2014
 
On June 27, 2014, Brasilagro sold a fraction of 1,164 hectares in the “Araucaria” farm located in the municipal district of Mineiros, State of Goias, Brazil, that had been purchased in 2007. After the sale, the farm has a total area of 8,178 hectares, out of which approximately 5,982 hectares are arable land. The sale price was RS. 32.5 million (equivalent to Ps. 117.5 million). In July 2014, the buyer made an initial payment of RS. 4.5 million, and the remaining balance is payable in five installments, the first of which, for RS. 4.5 million, matures in November 2014 and the last one at the time of execution of the title deed, in August 2018. The Company recorded a gain of RS. 21.0 million (equivalent to Ps. 75.8 million) from the sale of the Araucaria farm.
 
On May 27, 2014, Ombú Agropecuaria S.A. executed an agreement providing for the sale, subject to retention of title, of an 882.96 hectare property in the “San Cayetano I” farm for a total price of US$ 4.2 million. Out of this amount, the sum of US$ 1 million has been already collected and the balance is payable in 5 consecutive semi-annual installments, the last of which falls due in November 2016. The agreement provides that title conveyance will be registered once the full price has been paid. Possession was surrendered on the date of execution of the agreement. The Company recorded a gain of US$ 1.8 million for this sale.
 
GENERAL AND ADMINISTRATIVE EXPENSES
 
Total administrative expenses of the Company increased 15.7%, from Ps. 539.7 million for fiscal year 2014 to Ps. 624.6 million for fiscal year 2015. This was mainly due to an increase of Ps. 6.8 million in the Agricultural business and an increase of Ps. 78.1 million in the Urban Properties and Investments business.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2015
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (155,733 )     (3,303 )     -       (159,036 )
Cattle
     (25,925 )     172       -       (25,753 )
Dairy
     (4,920 )     -       -       (4,920 )
Sugarcane
     (19,821 )     -       -       (19,821 )
Agricultural rental and services
     (2,140 )     -       -       (2,140 )
Agricultural Subtotal
     (208,539 )     (3,131 )     -       (211,670 )
Land transformations and sales
     (2,106 )     -       -       (2,106 )
Agro-industrial
     (25,334 )     -       -       (25,334 )
Other Segments
     (7,360 )     -       -       (7,360 )
Total Agricultural Business General and Administrative Expenses
      (243,339 )         (3,131 )       -        (246,470 ) 
 

   
Fiscal year ended on June 30, 2014
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (146,512 )     (681 )     -       (147,193 )
Cattle
     (27,118 )     (65 )     -       (27,183 )
Dairy
     (5,746 )     -       -       (5,746 )
Sugarcane
     (28,261 )     -       -       (28,261 )
Agricultural rental and services
     (2,603 )     (66 )     -       (2,669 )
Agricultural Subtotal
     (210,240 )     (812 )     -       (211,052 )
Land transformations and sales
     (1,130 )     -       -       (1,130 )
Agro-industrial
     (16,880 )     -       -       (16,880 )
Other Segments
     (8,761 )     (1,807 )     -       (10,568 )
Total Agricultural Business General and Administrative Expenses
     (237,011 )     (2,619 )     -       (239,630 )


 
123
 
 
General and administrative expenses from our Agricultural business increased 2.7%. from Ps. 237.0 million in fiscal year 2014 to Ps. 243.3 million in fiscal year 2015. This was mainly due to an increase of Ps. 11.8 in the Crops segment, an increase of Ps. 1.0 million in the Land transformations and sales segment, and an increase of Ps. 8.5 million in the Agro-industrial segment, slightly offset by a reduction of Ps. 1.4 million in the Cattle segment, a reduction of Ps. 0.8 million in the Dairy segment, a reduction of Ps. 8.4 million in the Sugarcane segment, a reduction of Ps. 0.5 million in the Agricultural rental and services segment, and a reduction of Ps. 3.2 million in the Other segments. The main causes of this variation were:
 
·  
the changes in Doneldon’s administrative expenses from Bolivia since a severance payment was accrued for (HF) and bonus allowances started to be set up (US); bonuses for fiscal year 2014 were paid for (which had not been accrued for because of a subsequent change in the Company’s policy) and bonuses for fiscal year 2015 were accrued for in fiscal year 2015;
 
·  
an increase in Carnes Pampeanas S.A.’s headcount to support the increase in operation volume and overtime; and
 
·  
a 26% increase in expenses as a result of the effects of inflation.
 
In turn, general and administrative expenses from our joint ventures increased by 19.5%, from Ps. 2.6 million in fiscal year 2014 to Ps. 3.1 million in fiscal year 2015.
 
On the other hand, no general and administrative expenses arose from inter-segment eliminations.
 
Hence, according to business segment reporting and considering all our joint ventures, general and administrative expenses increased by 2.9%, from Ps. 239.6 million in fiscal year 2014 to Ps. 246.5 million in fiscal year 2015.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2015
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (135,512 )     (233 )     (406 )     (136,151 )
Offices
     (58,202 )     (279 )     (490 )     (58,971 )
Sales and Developments
     (48,750 )     (530 )     (410 )     (49,690 )
Hotels
     (76,271 )     -       (1,296 )     (77,567 )
International
     (55,746 )     -       -       (55,746 )
Financial operations and Others
     -       -       -       -  
Total Urban Properties and Investments Business General and Administrative Expenses
     (374,481 )     (1,042 )     (2,602 )     (378,125 )

   
Fiscal year ended on June 30, 2014
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (100,710 )     (148 )     (680 )     (101,538 )
Offices
     (41,169 )     (145 )     (631 )     (41,945 )
Sales and Developments
     (36,955 )     (511 )     -       (37,466 )
Hotels
     (58,562 )     -       (1,023 )     (59,585 )
International
     (59,476 )     -       -       (59,476 )
Financial operations and Others
     (56 )     -       -       (56 )
Total Urban Properties and Investments Business General and Administrative Expenses
     (296,928 )     (804 )     (2,334 )     (300,066 )

General and administrative expenses from our Urban Properties and Investments Business increased 26.1%. from Ps. 296.9 million in fiscal year 2014 to Ps. 374.5 million in fiscal year 2015. This was mainly due to an increase of Ps. 34.6 million in the Shopping Center Properties segment; an increase of Ps. 17.0 million in the Offices segment; an increase of Ps. 18.0 million in the Hotels segment, an increase of Ps. 12.2 million in the Sales and Developments segment, partially offset by a reduction of Ps. 3.7 million in the International segment and a reduction of Ps. 0.1 million in the Financial operations and Others segment.
 
On the other hand, administrative expenses from our joint ventures increased by 30.0%, from Ps. 0.8 million in fiscal year 2014 to Ps. 1.0 million in fiscal year 2015.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, administrative expenses increased by 26.0%, from Ps. 300.1 million in fiscal year 2014 to Ps. 378.1 million in fiscal year 2015. Based on the reported business segment reporting and considering our joint ventures and inter-segment eliminations, administrative expenses as a percentage of sales increased from 13.9% in fiscal year 2014 to 14.8% in fiscal year 2015.
 
Shopping Center Properties
 
Administrative expenses from the Shopping Center Properties segment increased by 34.1%, from Ps. 101.5 million in fiscal year 2014 to Ps. 136.2 million in fiscal year 2015, mainly due to:
 
·  
an increase of Ps. 25.7 million in Directors’ fees;
 
·  
an increase of Ps. 3.3 million in fees and compensation from services;
 
·  
an increase of Ps. 1.9 million in amortization and depreciation, and
 
·  
an increase of Ps. 3.8 million in other miscellaneous items, such as, maintenance, security, cleaning, repair and similar expenses, and taxes, rates and contributions.
 
 Administrative expenses from the Shopping Center Properties segment as a percentage of revenues derived from that segment slightly increased from 7.3% in fiscal year 2014 to 7.7% in fiscal year 2015.
 

 
124
 
Offices
 
Administrative expenses from the Offices segment increased by 40.6%, from Ps. 41.9 million in fiscal year 2014 to Ps. 59.0 million in fiscal year 2015, mainly due to: (i) an increase of Ps. 5.3 million in fees and compensation from services; (ii) an increase of Ps. 5.2 million in salaries and wages, social security contributions and other payroll expenses; (iii) an increase of Ps. 2.4 million in Directors’ fees; (iv) an increase of Ps. 2.0 million in travel and office supplies expenses, and (v) an increase of Ps. 1.5 million in bank expenses.
 
As a percentage of revenues derived from the Offices segment, general and administrative expenses increased from 15.5% in fiscal year 2014 to 17.7% in fiscal year 2015.
 
Sales and Developments
 
General and administrative expenses from the Sale and Developments segment increased by 32.6%, from Ps. 37.5 million in fiscal year 2014 to Ps. 49.7 million in fiscal year 2015, mainly due to: (i) an increase of Ps. 4.4 million in fees and compensation from services; (ii) an increase of Ps. 2.0 million in salaries and wages, social security contributions and other payroll expenses; (iii) an increase of Ps. 2.0 million in Directors’ fees; (iv) an increase of Ps. 1.7 million in travel and office supplies expenses, and (v) an increase of Ps. 1.3 million in bank expenses. General and administrative expenses from the Sales and Developments segment, as a percentage of revenues derived from this segment, increased from 43.8% in fiscal year 2014 to 362.5% in fiscal year 2015.
 
Considering the gain from disposal of investment properties, such percentages decreased from 16.2 % in fiscal year 2014 to 4.3% in fiscal year 2015.
 
Hotels
 
General and administrative expenses from the Hotels segment increased by 30.2%, from Ps. 59.6 million in fiscal year 2014 to Ps. 77.6 million in fiscal year 2015, mainly due to:
 
·  
an increase of Ps. 9.5 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
an increase of Ps. 3.3 million in maintenance and repair expenses, and
 
·  
an increase of Ps. 2.0 million in the cost of fees from services and an increase of Ps. 1.5 million in the cost of food, beverages and other hotel-related expenses, among other items.
 
General and administrative expenses from the Hotels segment, as a percentage of revenues derived from this segment, increased from 18.0% in fiscal year 2014 to 19.6% in fiscal year 2015.
 
International
 
General and administrative expenses from the International segment decreased by Ps. 3.7 million from Ps. 59.5 million in fiscal year 2014 to Ps. 55.7 million in fiscal year 2015, mostly due to the fact that the results of Rigby 183 LLC – owner of the rental building Madison 183 which was sold in September 2014- were consolidated for only 3 months in fiscal year 2015 whereas such results were consolidated for 12 months in fiscal year 2014, and to lower expenses incurred in connection with our interest in IDBD.
 
General and administrative expenses from the International segment, as a percentage of revenues derived from this segment, increased from 70.9% in fiscal year 2014 to 215.5% in fiscal year 2015.
 
Financial Operations and Others
 
General and administrative expenses associated to our Financial Operations and Others segment did not show significant changes for the fiscal years under discussion.
 
SELLING EXPENSES
 
Total selling expenses of the Company increased 33.9%, from Ps. 359.0 million for fiscal year 2014 to Ps. 480.7 million for fiscal year 2015. This was mainly due to an increase of Ps. 75.9 million in the Agricultural business and an increase of Ps. 45.8 million in the Urban Properties and Investments business.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2015
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (157,541 )     (2,837 )     -       (160,378 )
Cattle
     (20,084 )     (25 )     -       (20,109 )
Dairy
     (3,667 )             -       (3,667 )
Sugarcane
     (7,770 )             -       (7,770 )
Agricultural rental and services
     (717 )     -       -       (717 )
Agricultural Subtotal
     (189,779 )     (2,862 )     -       (192,641 )
Land transformations and sales
     (1,103 )     (1,280 )     -       (2,383 )
Agro-industrial
     (77,146 )             -       (77,146 )
Other Segments
     (12,660 )     -       -       (12,660 )
Total Agricultural Business Selling Expenses
     (280,688 )     (4,142 )     -       (284,830 )

   
Fiscal year ended on June 30, 2014
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (115,497 )     (2,332 )     -       (117,829 )
Cattle
     (13,769 )     (85 )     -       (13,854 )
Dairy
     (2,249 )     -       -       (2,249 )
Sugarcane
     (4,871 )     -       -       (4,871 )
Agricultural rental and services
     (754 )     (25 )     -       (779 )
Agricultural Subtotal
     (137,140 )     (2,442 )     -       (139,582 )
Land transformations and sales
     (3,873 )     -       -       (3,873 )
Agro-industrial
     (54,751 )     -       -       (54,751 )
Other Segments
     (10,726 )     -       -       (10,726 )
Total Agricultural Business Selling Expenses
     (206,490 )     (2,442 )     -       (208,932 )
 
 
 
125
 

 
Selling expenses from our Agricultural business increased 35.9% from Ps. 206.5 million in fiscal year 2014 to Ps. 280.7 million in fiscal year 2015. This was caused mainly by an increase of Ps. 42.5 million in the Crops segment, an increase of Ps. 6.3 million in the Cattle segment, an increase of Ps. 1.4 million in the Dairy segment, an increase of Ps. 2.9 million in the Sugarcane segment, an increase of Ps. 22.4 million in the Agro-industrial segment, and an increase of Ps. 1.9 million in the Other segments, partially offset by a reduction of Ps. 0.1 million in the Agricultural rental and services segment and a reduction of Ps. 1.5 million in the Land transformation and sales segment.
 
In turn, selling expenses from our interests in joint ventures increased by 69.6% from Ps. 2.4 million in fiscal year 2014 to Ps. 4.1 million in fiscal year 2015, in connection with our Cresca joint venture.
 
On the other hand, no inter-segment eliminations arose from selling expenses.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, selling expenses increased by 36.3%, from Ps. 208.9 million in fiscal year 2014 to Ps. 284.8 million in fiscal year 2015.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2015
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (111,922 )     (783 )     (120 )     (112,825 )
Offices
     (20,633 )     (497 )     -       (21,130 )
Sales and Developments
     (8,351 )     (795 )     -       (9,146 )
Hotels
     (52,185 )     -       (201 )     (52,386 )
International
     -       -       -       -  
Financial Operations and Others
     (379 )     -       -       (379 )
Total Urban Properties and Investments Business Selling Expenses
     (193,470 )     (2,075 )     (321 )     (195,866 )

   
Fiscal year ended on June 30, 2014
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (72,531 )     (687 )     (209 )     (73,427 )
Offices
     (20,307 )     (444 )     -       (20,751 )
Sales and Developments
     (11,330 )     (2,376 )     -       (13,706 )
Hotels
     (42,178 )     -       (157 )     (42,335 )
International
     -       -       -       -  
Financial operations and Others
     110       -       -       110  
Total Urban Properties and Investments Business Selling Expenses
     (146,236 )     (3,507 )     (366 )     (150,109 )

Selling expenses from our Urban Properties and Investments business increased 32.3%, from Ps. 146.2 million in fiscal year 2014 to Ps. 193.5 million in fiscal year 2015. This was mainly due to an increase of Ps. 39.4 million in the Shopping Center Properties segment, an increase of Ps. 10.1 million in the Hotels segment, an increase of Ps. 0.4 million in the Offices segment, and an increase of Ps. 0.5 million in the Financial Operations and Others segment, partially offset by a reduction of Ps. 4.6 million in the Sales and Developments segment.
 
On the other hand, selling expenses from our joint ventures went down by 40.8%, from Ps. 3.5 million in fiscal year 2014 (out of which Ps. 2.4 million was allocated to the Sales and Developments segment) to Ps. 2.1 million (out of which Ps. 0.8 million was allocated to the Sales and Developments segment) in fiscal year 2015. This reduction is mainly attributable to lower expenses from our Cyrsa S.A. joint venture as a result of the recognition of fewer sales from the Horizons development in fiscal year 2015.
 
Hence, based on the information by segment, selling expenses increased by 30.5% from Ps. 150.1 million in fiscal year 2014 to Ps. 195.9 million in fiscal year 2015. Based on the information by segment, selling expenses as a percentage of revenues experienced a slight increase from 7.0% in fiscal year 2014 to 7.7% in fiscal year 2015.
 
Shopping Center Properties
 
Selling expenses from the Shopping Center Properties segment increased by 53.7%, from Ps. 73.4 million in fiscal year 2014 to Ps. 112.8 million in fiscal year 2015, mainly due to:
 
·  
an increase of Ps. 18.1 million in taxes, rates and contributions, mainly due to a higher turnover tax liability;
 
·  
an increase of Ps. 7.7 million in advertising expenses;
 
·  
an increase of Ps. 5.1 million in bad debtors; and
 
·  
an increase of Ps. 6.1 million in salaries and wages, social security contributions and other payroll expenses.
 
Selling expenses from the Shopping Center Properties segment as a percentage of revenues derived from that segment increased from 5.3 % in fiscal year 2014 to 6.3% in fiscal year 2015.
 

 
126
 

Offices
 
Selling expenses from our Offices segment increased by 1.8%, from Ps. 20.8 million in fiscal year 2014 to Ps. 21.1 million in fiscal year 2015, mainly as a result of an increase in the turnover tax liability due to the transfer of buildings, offset by a reduction in bad debtors.
 
Selling expenses from the Offices segment, as a percentage of revenues derived from this segment, decreased from 7.6% in fiscal year 2014 to 6.3% in fiscal year 2015.
 
Sales and Developments
 
Selling expenses from the Sales and Developments segment decreased by 33.3%, from Ps. 13.7 million in fiscal year 2014 to Ps. 9.1 million in fiscal year 2015, mainly as a result of a reduction in expenses directly related to the sales volume: taxes, rates and contributions by Ps. 3.4 million and sales commissions by Ps. 1.1 million.
 
Selling expenses from the Sales and Developments segment, as a percentage of revenues derived from this segment, increased from 16.0% in fiscal year 2014 to 66.7% in fiscal year 2015.
 
Hotels
 
Selling expenses from our Hotels segment increased by 23.7%, from Ps. 42.3 million in fiscal year 2014 to Ps. 52.4 million in fiscal year 2015, mainly due to:
 
·  
an increase of Ps. 3.1 million in advertising and other selling expenses;
 
·  
an increase of Ps. 2.6 million in taxes, rates and contributions; and
 
·  
an increase of Ps. 2.6 million in salaries and wages, social security contributions and other payroll expenses, among other items.
 
Selling expenses from our Hotels segment as a percentage of revenues derived from this segment stood at approximately 13% in both fiscal years.
 
Financial operations and Others
 
Selling expenses from our Financial operations and Others segment increased by Ps. 0.5 million, from a gain of Ps. 0.1 million in fiscal year 2014 to a loss of Ps. 0.4 million in fiscal year 2015, mainly as a result of an increase in bad debtors in connection with the Company’s personal financing residual activity.
 
OTHER OPERATING RESULTS, NET
 
Other operating results, net of the Company increased Ps. 88.0 million, from a Ps. 77.5 million loss in fiscal year 2014 to an income of Ps. 10.6 million in fiscal year 2015.
 
Agricultural Business
 

   
Fiscal year ended on June 30, 2015
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (7,708 )     (928 )     -       (8,636 )
Cattle
     (2,242 )     (916 )     -       (3,158 )
Dairy
     (773 )     -       -       (773 )
Sugarcane
     (1,669 )     -       -       (1,669 )
Agricultural rental and services
     (336 )     -       -       (336 )
Agricultural Subtotal
     (12,728 )     (1,844 )     -       (14,572 )
Land transformations and sales
     (4,601 )     -       -       (4,601 )
Agro-industrial
     (288 )     -       -       (288 )
Other Segments
     1,338       -       -       1,338  
Total Agricultural Business Other operating results, net
     (16,279 )     (1,844 )     -       (18,123 )
 
   
Fiscal year ended on June 30, 2014
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (28,992 )     (363 )     -       (29,355 )
Cattle
     (1,955 )     (44 )     -       (1,999 )
Dairy
     (417 )     -       -       (417 )
Sugarcane
     104       -       -       104  
Agricultural rental and services
     (189 )     (33 )     -       (222 )
Agricultural Subtotal
     (31,449 )     (440 )     -       (31,889 )
Land transformations and sales
     (82 )     -       -       (82 )
Agro-industrial
     (868 )     -       -       (868 )
Other Segments
     3,261       38       -       3,299  
Total Agricultural Business Other operating results, net
     (29,138 )     (402 )     -       (29,540 )
 
Other operating results, net from the Agricultural business increased from a loss of Ps. 29.1 million in fiscal year 2014 to a loss of Ps. 16.3 million in fiscal year 2015, mainly as a result of a Ps. 20.7 million decrease in the Crops segment, partially offset by a Ps. 1.8 million increase in the Sugarcane segment, Ps. 4.5 million in the Land transformation and sales segment and Ps. 2.0 million in the Other segments.
 
In turn, other operating results, net from our interests in joint ventures decreased by 358.7% from a Ps. 0.4 million loss in fiscal year 2014 to a Ps. 1.8 million loss in fiscal year 2015, in connection with our Cresca joint venture.
 

 
127
 
 
On the other hand, no inter-segment eliminations arose from operating results, net.
 
Hence, according to business segment reporting and considering all our joint ventures, other operating results, net increased from a Ps. 29.5 million loss in fiscal year 2014 to a Ps. 18.1 million loss in fiscal year 2015.
 
Crops
 
Other operating results, net of the Crops segment decreased Ps. 20.7 million, from a Ps. 29.4 million loss in fiscal year 2014 to a Ps. 8.6 million loss in fiscal year 2015, mainly as a result of the commodity derivatives held by Brasilagro and Cresud (Ps. 23.1 million), partially offset by the charge to income of the reversal of Brasilagro’s labor and legal contingency liability in fiscal year 2014.
 
Sugarcane
 
Other operating results, net of the Sugarcane segment increased by Ps. 1.8 million, from a Ps. 0.1 million gain in fiscal year 2014 to a Ps. 1.7 million loss in fiscal year 2015.
 
Other Segments
 
Other operating results, net of the Other segments decreased by Ps. 1.9 million, from a Ps. 3.3 million gain in fiscal year 2014 to a Ps. 1.3 million gain in fiscal year 2015.
 
The rest of the segments of the Agricultural business did not record significant changes.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2015
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (47,650 )     (1,160 )     -       (48,810 )
Offices
     (118,371 )     56       705       (117,610 )
Sales and Developments
     12,503       (1 )     591       13,093  
Hotels
     (461 )     -       -       (461 )
International
     184,886       -       -       184,886  
Financial operations and Others
     (2,419 )     -       -       (2,419 )
Total Urban Properties and Investments Business other operating results, net
     28,488       (1,105 )     1,296       28,679  

   
Fiscal year ended on June 30, 2014
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (45,953 )     (723 )     108       (46,568 )
Offices
     (1,786 )     (2,297 )     1,023       (3,060 )
Sales and Developments
     8,300       (163 )     -       8,137  
Hotels
     (2,680 )     -       -       (2,680 )
International
     (895 )     -       -       (895 )
Financial operations and Others
     (2,856 )     -       -       (2,856 )
Total Urban Properties and Investments Business other operating results, net
     (45,870 )     (3,183 )     1,131       (47,922 )
 
Other operating results, net from the Urban Properties and Investments business increased by Ps. 74.4 million from a Ps. 45.9 million loss in fiscal year 2014 to a Ps. 28.5 million gain in fiscal year 2015, mainly as a result of a Ps. 184.9 million gain derived from the International segment.
 
The effect from the consolidation of our joint ventures is not material on this line. According to business segment reporting and considering all our joint ventures and inter-segment eliminations, other operating results, net improved from a Ps. 47.9 million loss in fiscal year 2014 to a Ps. 28.7 million gain in fiscal year 2015.
 
Shopping Center Properties
 
The net loss from other operating results of the Shopping Center Properties segment increased by 4.8%, from Ps. 46.6 million in fiscal year 2014 to Ps. 48.8 million in fiscal year 2015, mainly as a result of a Ps. 2.7 million increase in the donation charge.
 
The net loss from other operating results, as a percentage of revenues derived from the Shopping Center Properties segment, decreased from 3.4% in fiscal year 2014 to 2.7% in fiscal year 2015.
 
Offices
 
The net loss from other operating results of our Offices segment increased Ps. 114.5 million from Ps. 3.1 million in fiscal year 2014 to Ps. 117.6 million in fiscal year 2015, mainly as a result of expenses incurred in the transfer of assets from IRSA to IRSA Commercial Properties for Ps. 110.5.
 
The net loss from operating results of our Offices segment, as a percentage of revenues derived from this segment, increased from 1.1% in fiscal year 2014 to 35.3% in fiscal year 2015.
 
Sales and Developments
 
The net gain from other operating results of our Sales and Developments segment increased Ps. 4.9 million from Ps. 8.1 million in fiscal year 2014 to Ps. 13.1 million in fiscal year 2015, mainly due to:
 
·  
the gain recorded in fiscal year 2015 from the sale of our equity interest in Bitania for Ps. 16.1 million;
 
·  
a reduction of Ps. 2.1 million in the reserve for lawsuits and contingencies; and
 
·  
the non-recurrence in fiscal year 2015 of an “admission fee” charged in connection with the sale of a hotel plot in Neuquén recorded in fiscal year 2014.
 
 
 
128
 
 
Hotels
The net loss from operating results of our Hotel segment decreased by Ps. 2.3 million, from Ps. 2.7 million in fiscal year 2014 to Ps. 0.5 million in fiscal year 2015, mainly as a result of a reduction in the reserve for lawsuits and other contingencies.
 
The net loss from operating results of our Hotels segment, as a percentage of revenues derived from this segment, decreased from 0.8% in fiscal year 2014 to 0.1% in fiscal year 2015.
 
International
 
Other operating results, net from this segment increased from a net loss of Ps. 0.9 million in fiscal year 2014 to a net gain of Ps. 184.9 million in fiscal year 2015, mainly as a result of the gain from the partial reversal of accumulated translation differences following Rigby 183 LLC’s partial liquidation.
 
Financial operations and Others
 
Other operating results, net from our Financial operations and Others segment decreased by Ps. 0.5 million from Ps. 2.9 million in fiscal year 2014 to Ps. 2.4 million in fiscal year 2015, mainly due to lower taxes deducted by BHSA on lower dividends distributed in fiscal year 2015 to our subsidiaries Ritelco and Tyrus.
 
PROFIT / (LOSS) FROM OPERATIONS
 
As a result of the above mentioned factors, the Company’s profit / (loss) from operations increased by Ps. 1,607.5 million (135.6%), from a gain of Ps. 1,185.2 million in fiscal year 2014 to a gain of Ps. 2,792.7 million in fiscal year 2015.
 
Agricultural Business
 
Profit / (loss) from operations of the Agricultural business increased by Ps. 345.7 million (926.4%), from a 37.3 million loss in fiscal year 2014 to a Ps. 308.4 million gain in fiscal year 2015.
 
Crops
 
Profit / (loss) from operations of this segment increased by Ps. 105.4 million (71.5%), from a 147.5 million loss in fiscal year 2014 to a Ps. 252.9 million loss in fiscal year 2015.
 
Cattle
 
Profit / (loss) from operations of this segment increased by Ps. 4.6 million (14.3%), from a Ps. 32.1 million gain in fiscal year 2014 to a Ps. 36.7 million gain in fiscal year 2015.
 
Dairy
 
Profit / (loss) from operations of this segment increased by Ps. 0.2 million (5.2%), from a Ps. 4.0 million gain in fiscal year 2014 to a Ps. 4.2 million gain in fiscal year 2015.
 
Sugarcane
 
Profit / (loss) from operations of this segment decreased by Ps. 7.5 million, from a 19.7 million loss in fiscal year 2014 to a Ps. 12.1 million loss in fiscal year 2015.
 
Agricultural rental and services
 
Profit / (loss) from operations of this segment increased by Ps. 6.7 million (82.5%), from a Ps. 8.0 million gain in fiscal year 2014 to a Ps. 14.8 million gain in fiscal year 2015.
 
Land transformations and sales
 
Profit / (loss) from operations of this segment increased by Ps. 473.4 million, from a Ps. 78.0 million gain in fiscal year 2014 to a Ps. 551.4 million gain in fiscal year 2015.
 
Agro-industrial Activities
 
Profit / (loss) from operations of this segment increased by Ps. 37.8 million, from a Ps. 1.9 million gain in fiscal year 2014 to a Ps. 35.6 million gain in fiscal year 2015.
 
Other Segments
 
Profit / (loss) from operations of this segment decreased by Ps. 3.5 million, from a Ps. 5.7 million gain in fiscal year 2014 to a Ps. 2.2 million gain in fiscal year 2015.
 
Urban Properties and Investments Business
 
Profit from operations of this segment increased by Ps. 1,278.2 million (103.1%), from a Ps. 1,240.3 million gain in fiscal year 2014 to a Ps. 2,518.5 million gain in fiscal year 2015. This was mainly due to an increase of Ps. 1,362.7 million in the Shopping Center Properties, Sales and Developments, and International segments, partially offset by a Ps. 84.5 million reduction in the Offices, Hotels, and Financial Operations and Others segments.
 
Shopping Center Properties
 
Profit / (loss) from operations of our Shopping Center Properties segment increased by 37.5%, from a gain of Ps. 864.7 million in fiscal year 2014 to a gain of Ps. 1,189.3 million in fiscal year 2015.
 
Profit from operations of our Shopping Center Properties segment, as a percentage of the revenues derived from this segment, decreased from 79.6% in fiscal year 2014 to 66.9% in fiscal year 2015.
 
 
129
 
 
Offices
 
Profit from operations of our Offices segment decreased by 38.4%, from a gain of Ps. 160.0 million in fiscal year 2014 to a gain of Ps. 98.6 million in fiscal year 2015.
 
Profit from operations of our Offices segment, as a percentage of the revenues derived from this segment, decreased from 70.9% in fiscal year 2014 to 29.7% in fiscal year 2015.
 
Sales and Developments
 
Profit from operations of our Sales and Developments segment increased by 360.6%, from a gain of Ps. 238.5 million in fiscal year 2014 to a gain of Ps. 1,098.7 million in fiscal year 2015.
 
Profit from operations of our Sales and Developments segment, as a percentage of the revenues derived from this segment, increased from 471.7% in fiscal year 2014 to 8,015.9% in fiscal year 2015.
 
Hotels
 
Profit / (loss) from operations of our Hotels segment decreased from a gain of Ps. 10.2 million in fiscal year 2014 to a loss of Ps. 12.8 million in fiscal year 2015.
 
International
 
Profit / (loss) from operations of our International segment increased from a loss of Ps. 30.0 million in fiscal year 2014 to a gain of Ps. 147.9 million in fiscal year 2015.
 
Financial operations and others
 
Profit / (loss) from operations of our Financial operations and Others segment increased from a loss of Ps. 3.2 million in fiscal year 2014 to a gain of Ps. 3.3 million in fiscal year 2015.
 
Share of (loss) / profit of associates and joint ventures
 
Share of loss of associates and joint ventures increased by Ps. 616.3 million, from a loss of Ps. 408.7 million in fiscal year 2014 to a loss of Ps. 1,025.0 million in fiscal year 2015. This was caused mainly by:
 
·  
a Ps. 613.7 million increase in our related companies’ interest in the Urban Properties and Investments business in fiscal year 2015. Such increase was mainly attributable to a Ps. 25.4 million increase in losses from our interest in New Lipstick LLC and a Ps. 65.7 million increase in losses from our interest in Condor (International segment), a Ps. 41.2 million increase in gains from our investment in BHSA, offset by negative results from our investment in IDBD for Ps. 588.9 million, mainly as a result of the recovery in the market value of this company’s stock; and
 
·  
a Ps. 2.6 million reduction in revenues from the Agricultural business, mainly as a result of the revenues incurred in the investment in Agro-Uranga (Crops segment).
 
 
130
 
 
NET FINANCIAL RESULTS
 
We had a lower net financial loss of Ps. 1,286.2 million, from a loss of Ps. 2,574.4 million in fiscal year 2014 to a loss of Ps. 1,288.2 million in fiscal year 2015. This was primarily due to:
 
·  
a lower loss of Ps. 1,337.5 million in net exchange differences in fiscal year 2015;
 
·  
a higher loss of Ps. 167.9 million in net financial interest recorded in fiscal year 2015;
 
·  
a higher income of Ps. 32.2 million in revaluation of receivables from sale of farms in fiscal year 2015;
 
·  
a lower loss of Ps. 282.2 million in derivative financial instruments in fiscal year 2015; and
 
·  
slightly offset by a gain of Ps. 1.7 million generated by the results from Financial Operations and Others in fiscal year 2015.
 
Our net financial loss in fiscal year 2015 was mainly attributable to (i) a Ps. 686.4 million loss generated by exchange differences mainly as a result of a higher liability position in US dollars due to the issuance of new series of notes; (ii) a loss of Ps. 886.7 million generated by interest accrued on debt financing, mainly due to increased indebtedness and higher interest rates; and (iii) a loss of Ps. 83.5 million generated mainly by derivative instruments due to IDBD’s tender offer.
 
There was a 12% variation in the U.S. Dollar buying rate during fiscal year 2015 (it increased from Ps. 8.033 as of June 30, 2014 to Ps. 8.988 as of June 30, 2015) as compared to the previous fiscal year, when the U.S. Dollar quotation had experienced a larger variation of 50% (from Ps. 5.348 as of June 30, 2013 to Ps. 8.033 as of June 30, 2014).
 
Income tax
 
Our income tax expense increased Ps. 692.8 million, from a Ps. 389.4 million gain in fiscal year 2014 to Ps. 303.3 million loss in fiscal year 2015. The Company recognizes the income tax expense on the basis of the deferred tax liability method, thus recognizing temporary differences between accounting and tax assets and liabilities measurements. The main temporary differences for the Agricultural business derive from valuation of cattle stock and sale and replacement of property, plant and equipment, while those corresponding to the Urban Properties and Investments business derive from the sale and replacement of investment properties.
 
For purposes of determining the deferred assets and liabilities, the tax rate expected to be in force at the time of their reversion or use, according to the legal provisions enacted as of the date of issuance of these financial statements, has been applied to the identified temporary differences and tax losses.
 
Profit / (loss) for the Fiscal Year
 
Due to the above mentioned factors, our profit / (loss) for the fiscal year increased by Ps. 1,584.6 million (112.51%) from a Ps. 1,408.4 million net loss for fiscal year 2014 to a Ps. 176.2 million net income in fiscal year 2015. Profit / (loss) for fiscal years 2015 and 2014 is attributable to the controlling company’s shareholders and non-controlling interest, as per the following detail:
 
·  
Profit / (loss) for the fiscal year attributable to the controlling company’s shareholders increased from a loss of Ps. 1,067.9 million in fiscal year 2014 to a loss of Ps. 249.6 million in fiscal year 2015; and
 
·  
the non-controlling interest in controlled companies went from a loss of Ps. 340.5 million in fiscal year 2014 to a gain of Ps. 425.8 million in fiscal year 2015, mainly due to a increase of Ps. 356.2 million in the non-controlling interest of our subsidiary Brasilagro, a increase of Ps. 161.8 million in the non-controlling interest of our subsidiary IRSA, and a increase of Ps. 112.7 million in other companies from the Urban Properties and Investments business.
 


Fiscal year ended June 30, 2014 compared to fiscal year ended June 30, 2013
 
Operating results
REVENUES

Total sales revenues of the Company increased 28.7% from Ps. 3,083.7 million for fiscal year 2013 to Ps. 3,967.9 million for fiscal year 2014. This was mainly due to a 33.7% increase in the Agricultural business, from Ps. 1,355.4 million in fiscal year 2013 to Ps. 1,812.1 million in fiscal year 2014 and a 24.7% increase in the Urban Properties and Investments business, from Ps. 1,728.2 million in fiscal year 2013 to Ps. 2,155.8 million in fiscal year 2014.

Agricultural Business

   
Fiscal year ended on June 30, 2014
  
Revenues
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment Reporting
  
Crops
     817,702       19,120       -       836,822  
Cattle
     61,691       2,242       26,382       90,315  
Dairy
     53,935       -       -       53,935  
Sugarcane
     123,851       -       -       123,851  
Agricultural Rental and Services
     29,044       -       98       29,142  
Agricultural Subtotal
     1,086,223       21,362       26,480       1,134,065  
Land Transformation and Sales
     -       -       -       -  
Agro-industrial
     548,740       -       5,344       554,084  
Other Segments
     123,872       87       -       123,959  
Total Agricultural Business Revenues
      1,758,835       21,449       31,824       1,812,108  

   
Fiscal year ended on June 30, 2013
  
Revenues
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     745,932       4,260       184       750,376  
Cattle
     74,534       2,145       6,260       82,939  
Dairy
     38,818       -       -       38,818  
Sugarcane
     160,259       -       -       160,259  
Agricultural Rental and Services
     30,815       -       19       30,834  
Agricultural Subtotal
     1,050,358       6,405       6,463       1,063,226  
Land Transformation and Sales
     -       -       -       -  
Agro-industrial
     207,755       -       1,166       208,921  
Other Segments
     83,258       25       -       83,283  
Total Agricultural Business Revenues
     1,341,371       6,430       7,629       1,355,430  
 
Sales revenues increased 31.1%, from Ps. 1,341.4 million in fiscal year 2013 to 1,758.8 in fiscal year 2014. This was due to an increase of Ps. 71.8 million in the Crops segment, an increase of Ps. 15.1 million in the Dairy segment, an increase of Ps. 341.0 million in the Agro-industrial segment, and an increase of Ps. 40.6 million in the Other segments, offset by a reduction of Ps. 12.8 million in the Cattle segment, a reduction of Ps. 36.4 million in the Sugarcane segment and a reduction of Ps. 1.7 million in the Agricultural rental and services segment.
 
In turn, revenues from our joint ventures increased 233.6% from Ps. 6.4 million in fiscal year 2013 to Ps. 21.4 million in fiscal year 2014, mainly as a result of a 344.2% increase in Crops sold by Cresca, from Ps. 4.3 million in fiscal year 2013 to Ps. 19.1 million in fiscal year 2014.
 
Similarly, inter-segment revenues increased 317.1%, from Ps. 7.6 million in fiscal year 2013 to Ps. 31.8 million in fiscal year 2014, mainly as a result of livestock sales during the year to our subsidiary Sociedad Anónima Carnes Pampeanas which was reclassified from the Cattle segment to the Agro-industrial segment.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, revenues increased by 33.7%, from Ps. 1,355.4 million in fiscal year 2013 to Ps. 1,812.1 million in fiscal year 2014.
 
 
131
 
 
Crops
 
Revenues from the Crops segment increased 11.5%, from Ps. 750.4 million in fiscal year 2013 to Ps. 836.8 million in fiscal year 2014, mainly as a result of:
 
·  
a 34.1% increase in the average price of sold crops, from Ps. 1,440 per ton in fiscal year 2013 to Ps. 1,931 per ton in fiscal year 2014;
 
·  
partially offset by a reduction of 87,702 tons in the volume of crops sold during fiscal year 2014 compared to the previous fiscal year; and
 
·  
a reduction of 1.0% in the production volume from 355,390 tons in fiscal year 2013 to 351,759 in fiscal year 2014.
 
The following table shows the sales of crops in detail:
 
   
Sale of Crops (in tons)
  
   
Fiscal year ended on June 30,
  
   
2014
    
2013
    
Variation
  
Corn
     179,893       271,144       (91,251 )
Soybean
     222,051       208,814       13,237  
Wheat
     11,359       10,735       624  
Sorghum
     3,843       5,807       (1,964 )
Sunflower
     9,745       10,551       (806 )
Other
     6,509       14,052       (7,543 )
Total Sales
     433,400       521,103       (87,703 )

Cattle
 
Sales revenues from the Cattle segment increased 8.9%, from Ps. 82.9 million in fiscal year 2013 to Ps. 90.3 million in fiscal year 2014, mainly as a result of:
 
·  
a 20.0% increase in the average price per kilogram sold, from Ps. 8.5 per ton in fiscal year 2013 to Ps. 10.2 million in fiscal year 2014;
 
·  
an 8.7% reduction in the cattle sales volume, from 9,627 tons in fiscal year 2013 to 8,791 tons in fiscal year 2014; and
 
·  
a 9.7% reduction in the volume of cattle production, from 7,723 tons in fiscal year 2013 to 6,973 tons in fiscal year 2014.
 
Dairy
 
Sales revenues from the Dairy segment increased 38.9%, from Ps. 38.8 million in fiscal year 2013 to Ps. 53.9 million in fiscal year 2014, mainly as a result of:
 
·  
a 33.6% increase in the average price of milk, from Ps. 2.02 per liter in fiscal year 2013 to Ps. 2.70 per liter in fiscal year 2014;
 
·  
a 6.1% increase in the average number of milking cows; and
 
·  
a 5.1% increase in the volume of sales, from 17,871 liters in fiscal year 2013 to 18,787 liters in fiscal year 2014.
 
Sugarcane
 
Sales revenues from the Sugarcane segment decreased 22.7%, from Ps. 160.3 million in fiscal year 2013 to Ps. 123.9 million in fiscal year 2014, mainly as a result of:
 
·  
504,206 less tons of sugarcane sold in fiscal year 2014 as compared to the previous fiscal year, mainly by Brasilagro. The lower amount of tons of sugarcane sold during the fiscal year is explained by harvesting timing differences, as in the previous season it was concentrated from June to October 2012 and thus included the 11-12 and 12-13 harvests, while in the current season it was concentrated from April to September 2013; and
 
·  
partially offset by a 36.8% increase in the average price of sugarcane sold, from Ps. 136 per ton in fiscal year 2013 to Ps. 186 per ton in fiscal year 2014.
 
Agricultural Rental and Services
 
Sales revenues from the Agricultural rental and services segment decreased by 5.5%, from Ps. 30.8 million in fiscal year 2013 to Ps. 29.1 million in fiscal year 2014, mainly as a result of:
 
·  
a 39.3% reduction in leases, due to Cresud’s failure to renew several agreements, including Las Lajitas, Los Leones, Anta el dorado, Ancami and Ceiballito (for Ps. 9 million);
 
·  
a 117.6% increase in revenues from production of seeds (Ps. 4.9 million) mainly due to the higher price of corn and soybean and to a lesser extent, the production volume; and
 
·  
an increase of 24.6% in revenues from irrigation services originated by the impact of the exchange rate, showing an increase of Ps. 0.87 million and a rise of 20% in the milliliters sold as compared to fiscal year 2013.
 
Agro-industrial
 
Sales revenues from the Agro-industrial segment increased 165.2%, from Ps. 208.9 million in fiscal year 2013 to Ps. 554.1 million in fiscal year 2014, mainly as a result of:
 
·  
an 80% increase in slaughtering volumes and the differential resulting from the higher price of beef and sub-products; and
 
·  
it should be noted that from November 2013 to February 2014 the produce slaughtered under the kosher ritual was exported to Israel, increasing sales volumes; and
 
·  
another relevant factor in such increase has been the sustained appreciation of the exchange rate as compared to the previous year.
 
Other Segments
 
Sales revenues from the Other Segments increased by 48.8%, from Ps. 83.3 million in fiscal year 2013 to Ps. 124.0 million in fiscal year 2014, mainly due to:
 
·  
an increase of Ps. 22.5 million in resales of supplies and others; and
 
·  
an increase of Ps. 16.5 million in commodity brokerage services.
 
Urban Properties and Investments Business
 
     
Fiscal year ended on June 30, 2014
  
 
Revenues
    
Income Statement
 		      
Interests in joint ventures
      
Inter-segment eliminations
      
Common maintenance expenses
and collective promotion funds
      
Segment reporting
  
Shopping Center Properties
     2.031.625       9.280       1.808       (659.705 )     1.383.008  
Offices
     327.954       8.466       4.442       (69.703 )     271.159  
Sales and Developments
     62.641       22.890                       85.531  
Hotels
     331.562       -                       331.562  
International
     90.820       -               (6.894 )     83.926  
Financial Operations and Others
     574       -                       574  
Total Urban Properties and Investments business Revenues
     2.845.176       40.636       6.250       (736.302 )     2.155.760  
 
(1) Includes revenues from sales, leases and services (Ps. 2,108.9 million) and revenues from expenses and collective promotion fund (Ps. 736.3 million)
    
 
 
 
132
 
 
     
Fiscal year ended on June 30, 2013
  
 
Revenues
    
Income Statement
 		      
Interests in joint ventures
      
Inter-segment eliminations
      
Common maintenance expenses
and collective promotion funds
      
Segment reporting
  
Shopping Center Properties
     1,613,285       6,958             (517,199 )     1,103,044  
Offices
     281,084       7,372       3,899       (75,184 )     217,171  
Sales and Developments
     24,867       117,129                       141,996  
Hotels
     225,836                               225,836  
International
     40,905                       (1,907 )     38,998  
Financial Operations and Others
     1,203       -               -       1,203  
Total Urban Properties and Investments business Revenues
     2,187,180       131,459       3,889       (594,290 )     1,728,248  
 
(1)  
Includes revenues from sales, leases and services (Ps. 1,592.9 million) and revenues from expenses and collective promotion fund (Ps. 594.3 million).
 
Sales revenues from the Urban Properties and Investments business increased 24.74%, from Ps. 2,187.2 million in fiscal year 2013 to Ps. 2,845.2 million in fiscal year 2014. This was mainly due to an increase of Ps. 418.3 million in the Shopping Center Properties segment, an increase of Ps. 46.9 million in the Offices segment, an increase of Ps. 105.7 million in the Hotels segment, an increase of Ps. 49.9 million in the International segment, and an increase of Ps. 37.8 million in the Sales and Developments segment, partially offset by a reduction of Ps. 0.6 million in the Financial operations and Others segment.
 
On the other hand, revenues from expenses and collective promotion fund increased by 23.9%, from Ps. 594.3 million in fiscal year 2013 (out of which Ps. 517.2 million is attributable to the Shopping Center Properties segment) to Ps. 736.3 million in fiscal year 2014 (out of which Ps. 659.7 million is attributable to the Shopping Center Properties segment).
 
In turn, revenues from our interests in joint ventures decreased by 69.0%, from Ps. 131.5 million in fiscal year 2013 to Ps. 40.6 million in fiscal year 2014. Such decrease is mostly attributable to reduced sales revenues derived from the Horizons project, from our joint venture with Cyrsa.
 
Similarly, inter-segment revenues increased 60.3%, from Ps. 3.9 million in fiscal year 2013 to Ps. 6.3 million in fiscal year 2014, mainly as a result of the refurbishment during the year of some square meters at Abasto shopping center. Also during the year, we started to lease a portion of the administrative offices of such establishment.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, revenues increased by 24.7%, from Ps. 1,728.2 million in fiscal year 2013 to Ps. 2,155.7 million in fiscal year 2014.
 
Shopping Center Properties
 
Revenues from the Shopping Center Properties segment increased 25.4%, from Ps. 1,103.0 million in fiscal year 2013 to Ps. 1,383.0 million in fiscal year 2014. Such variation was mainly due to:
 
·  
an increase of Ps. 235.3 million in revenues from fixed and variable rentals as a result of a 30.8% rise in our tenant’s total sales, from Ps. 12,336.6 million in fiscal year 2013 to Ps. 16,132.7 million in fiscal year 2014; and
 
·  
an increase Ps. 37.9 million in revenues from admission fees and parking fees.
 
Offices
 
Revenues from the Offices segment increased 24.9%, from Ps. 217.2 million in fiscal year 2013 to Ps. 271.2 million in fiscal year 2014. Such revenues were impacted by the partial sale of investment properties in fiscal year 2014, which resulted in a reduction of the segment total leasable area.
 
Considering comparable properties in both fiscal years, rental revenues from properties which did not experience a decrease in their leasable area increased by 35%, from Ps. 152.3 million in fiscal year 2013 to Ps. 205.6 million in fiscal year 2014, mostly as a result of the currency devaluation and improved occupancy, whereas rental revenues from properties which leasable area was reduced accounted for almost the same figure in both years (around Ps. 59 million).
 
As of year-end, the 2014 occupancy rate of premium offices stood at 98.3% and the average rent was around US$ 26 per m2.
 
Sales and Developments
 
Revenues from this segment often vary significantly period over period due to:
 
·  
the non-recurrence of property sales and the agreed-upon sale price;
 
·  
the number of properties under construction; and
 
·  
the completion date of such developments.
 
Without considering our joint ventures, revenues from the Sales and Developments segment increased 151.4% from Ps. 24.9 million in fiscal year 2013 to Ps. 62.6 million in fiscal year 2014. Such increase was mainly attributable to higher revenues from the sale of units of Condominios I and II for Ps. 47.7 million.
 
On the other hand, revenues from out joint ventures (Horizons) went down by Ps. 94.2 million, resulting in a 39.8% net reduction in the revenues derived from this segment, from Ps. 142.0 million in fiscal year 2013 to Ps. 85.5 million in fiscal year 2014.
 
 
133
 
 
Hotels
 
Revenues from our Hotels segment increased by 46.9% from Ps. 225.8 million in fiscal year 2013 to Ps. 331.6 million in fiscal year 2014, mainly as a result of a 38% increase in the average room rate (in terms of Argentine Pesos) and in the average occupancy rate of our hotels from 67.2% in fiscal year 2013 to 68.7% in fiscal year 2014 (mainly due to an improvement in the average occupancy rate at Llao Llao).
 
International
 
Revenues from the International segment increased 122.0%, from Ps. 40.9 million in fiscal year 2013 to Ps. 90.8 million in fiscal year 2014, mainly due to the following factors:
 
·  
the abovementioned devaluation of the Argentine Peso and, to a lesser extent;
 
·  
the fact that the results of Rigby 183 LLC – owner of the rental Madison 183 building - were consolidated for 12 months in fiscal year 2014 whereas such results were consolidated for 9 months in fiscal year 2013.
 
Financial Operations and Others
 
Revenues from the Financial operations and Others segment went down from Ps. 1.2 million in fiscal year 2013 to Ps. 0.6 million in fiscal year 2014, as a result of reduced revenues from APSAMedia S.A.’s personal financing residual activity (the continuing company of Metroshop S.A., currently merged with IRSA Commercial Properties).
 
COSTS
 
Total costs of the Company increased 23.4%, from Ps. 2,647.0 million in fiscal year 2013 to Ps. 3,266.3 million in fiscal year 2014. This was mainly as a result of a 28.0% increase in the Agricultural business, from Ps. 2,045.8 million in fiscal year 2013 to Ps. 2,618.0 million in fiscal year 2014 and a 7.8% increase in the Urban Properties and Investments business from Ps. 0.60 million in fiscal year 2013 to Ps. 0.65 million in fiscal year 2014.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2014
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (1,509,500 )     (31,181 )     -       (1,540,681 )
Cattle
     (150,810 )     (4,408 )     (5,442 )     (160,660 )
Dairy
     (104,334 )     -       -       (104,334 )
Sugarcane
     (206,751 )     -       -       (206,751 )
Agricultural Rental and Services
     (17,374 )     -       -       (17,374 )
Agricultural Subtotal
     (1,988,769 )     (35,589 )     (5,442 )     (2,029,800 )
Land Transformation and Sales
     (8,228 )     -       -       (8,228 )
Agro-industrial
     (453,307 )     -       (26,382 )     (479,689 )
Other Segments
     (100,170 )     (85 )     -       (100,255 )
Total Agricultural Business Costs
     (2,550,474 )     (35,674 )     (31,824 )     (2,617,972 )

   
Fiscal year ended on June 30, 2013
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (1,216,190 )     (11,642 )     -       (1,227,832 )
Cattle
     (142,621 )     (3,319 )     (1,350 )     (147,290 )
Dairy
     (74,826 )     -       -       (74,826 )
Sugarcane
     (302,206 )     -       -       (302,206 )
Agricultural Rental and Services
     (12,052 )     -       -       (12,052 )
Agricultural Subtotal
     (1,747,895 )     (14,961 )     (1,350 )      (1,764,206 )
Land Transformation and Sales
     (5,675 )     -       -       (5,675 )
Agro-industrial
     (198,402 )     -       (6,279 )     (204,681 )
Other Segments
     (71,286 )     69       -       (71,217 )
Total Agricultural Business Costs
     (2,023,258 )     (14,892 )     (7,629 )     (2,045,779 )
 
Total costs increased 26.1%, from Ps. 2,023.3 million in fiscal year 2013 to Ps. 2,550.5 million in fiscal year 2014. This was caused mainly by an increase of Ps. 293.3 million in the Crops segment, an increase of Ps. 8.2 million in the Cattle segment, an increase of Ps. 29.5 million in the Dairy segment, an increase of Ps. 5.3 million in the Agricultural rental and services segment, an increase of Ps. 2.6 million in the Land transformation and sales segment, an increase of Ps. 254.9 million in the Agro-industrial segment and an increase of Ps. 28.9 million in the Other segments, offset by a reduction of Ps. 95.5 million in the Sugarcane segment.
 
In turn, the cost of our joint ventures experienced a net increase of Ps. 20.8 million, from 14.9 million in fiscal year 2013 to Ps. 35.7 million in fiscal year 2014, mostly as a result of an increase of Ps. 19.6 million in the cost of Cresca’s Crops, from Ps. 11.6 million in fiscal year 2013 to Ps. 31.2 million in fiscal year 2014.
 
Similarly, inter-segment costs rose by Ps. 24.2 million from Ps. 7.6 million in fiscal year 2013 to Ps. 31.8 million in fiscal year 2014, mainly as a result of the cost of cattle sales during the year to our subsidiary Sociedad Anónima Carnes Pampeanas which was reclassified from the Cattle segment to the Agro-industrial segment.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, revenues increased by 28.0%, from Ps. 2,045.8 million in fiscal year 2013 to Ps. 2,618.0 million in fiscal year 2014.
 
 
134
 
 
Crops
 
Costs from the Crops segment increased 25.5%, from Ps. 1,227.8 million for fiscal year 2013 to Ps. 1,540.7 million for fiscal year 2014. Costs from the Crops segment are detailed in the following table:
 
       
   
Fiscal year
2014
    
Fiscal year
2013
  
   
Thousands of Ps.
  
Cost of sales
     788,361       626,922  
Cost of production
     752,319       600,910  
Total Costs
     1,540,680       1,227,832  

The cost of sales from the Crops segment increased 24.2%, from Ps. 626.9 million in fiscal year 2013 to Ps. 788.4 million in fiscal year 2014, mainly as a result of:
 
·  
a 51.2% increase in the average cost per ton of crops sold in fiscal year 2014, from Ps. 1,203 in fiscal year 2013 to Ps. 1,819 in fiscal year 2014, mainly as a result of the higher average market prices of crops; and
 
·  
slightly offset by a 16.8% reduction in the volume of tons sold as compared to the previous fiscal year.
 
The cost of sales as a percentage of sales was 83.5% in fiscal year 2013 and 94.3% in fiscal year 2014.
 
The cost of production from the Crops segment increased 25.2% from Ps. 600.9 million in fiscal year 2013 to Ps. 752.3 million in fiscal year 2014, mainly as a result of:
 
·  
a 23.2% increase in direct production costs during this fiscal year as compared to the previous one, mainly affected by the inflationary context that impacts both on the prices of leases and supplies used (agrochemicals and seeds);
 
·  
slightly offset by lower production volumes in fiscal year 2014 as compared to fiscal year 2013; and
 
·  
a larger number of hectares in operation in own farms in fiscal year 2014 as compared to fiscal year 2013.
 
Total cost of production per ton increased 24.5%, from Ps. 1,496 in fiscal year 2013 to Ps. 1,863 in fiscal year 2014, mainly as a result of higher direct costs of production in fiscal year 2014 as compared to fiscal year 2013.
 
Cattle
 
Costs of the Cattle segment increased 9.1%, from Ps. 147.3 million in fiscal year 2013 to Ps. 160.7 million in fiscal year 2014. Costs from the Cattle segment are detailed in the following table:
 
   
Fiscal year
2014
    
Fiscal year 2013
  
   
Thousands of Ps.
  
Cost of sales
     76,734       74,064  
Cost of production
     83,926       73,226  
Total Costs
     160,660       147,290  
 
The cost of sales decreased by 3.6%, from Ps. 74.1 million in fiscal year 2013 to Ps. 76.7 million in fiscal year 2014, mainly as a result of:
 
·  
a 8.2% reduction in cattle sales volumes in fiscal year 2014;
 
·  
partially offset by a higher cost per kilogram sold in fiscal year 2014.
 
The cost of production from the Cattle segment rose by 14.6%, from Ps. 73.2 million in fiscal year 2013 to Ps. 83.9 million in fiscal year 2014. The higher cost of production from the Cattle segment in fiscal year 2014 was mainly attributable to:
 
·  
higher payroll expenses;
 
·  
higher lease expenses, as in 2014 various farms intended for livestock production in the Province of Buenos Aires were leased; and
 
·  
higher feed costs due to the increase of animals in our own farms fattened in feedlots;
 
·  
offset by lower costs from our subsidiary Cactus due to the discontinuance of its livestock activities in 2014.
 
Dairy
 
Costs of the Dairy segment increased 39.4%, from Ps. 74.9 million in fiscal year 2013 to Ps. 104.3 million in fiscal year 2014. Costs from the Dairy segment are detailed in the following table:
 
   
Fiscal year
2014
    
Fiscal year 2013
  
   
Thousands of Ps.
  
Cost of sales
     51,686       37,667  
Cost of production
     52,648       37,159  
Total Costs
     104,334       74,826  

The cost of sales from the Dairy segment increased by 37.2%, from Ps. 37.7 million in fiscal year 2013 to Ps. 51.7 million in fiscal year 2014, mainly as a result of:
 
·  
a 5.1% increase in milk sales volumes; and
 
·  
a 33.5% increase in milk price levels that impacted on the cost of sales.
 
Cost of production of the Dairy segment increased 41.7%, from Ps. 37.2 million in fiscal year 2013 to Ps. 52.6 million in fiscal year 2014. This rise was mainly due to the impact of higher direct and indirect costs, affecting the cost of production per liter of milk, which increased from Ps. 2.01 in fiscal year 2013 to Ps. 2.73 in fiscal year 2014.
 
 
135
 
 
Sugarcane
 
Costs of the Sugarcane segment decreased 31.6%, from Ps. 302.2 million in fiscal year 2013 to Ps. 206.8 million in fiscal year 2014. Costs from the Sugarcane segment are detailed in the following table:
 
   
Fiscal year 2014
    
Fiscal year 2013
  
   
Thousands of Ps.
  
Cost of sales
     105,618       158,152  
Cost of production
     101,133       144,054  
Total Costs
     206,751       302,206  

The cost of sales from the Sugarcane segment decreased by 33.2%, from Ps. 158.2 million in fiscal year 2013 to Ps. 105.6 million in fiscal year 2014, mainly as a result of:
 
·  
a reduction of 504,2016 tons of sugarcane sold in fiscal year 2014 compared to the previous fiscal year, mainly in our subsidiary Brasilagro; and
 
·  
offset by an increase in the average cost per ton of sugarcane sold in fiscal year 2014, from Ps. 134 per ton in fiscal year 2013 to Ps. 156 per ton in fiscal year 2014.
 
The cost of sales as a percentage of sales was 98.7% in fiscal year 2013 and 85.3% in fiscal year 2014.
 
The cost of production of the Sugarcane segment decreased 29.8%, from Ps. 144.1 million in fiscal year 2013 to Ps. 101.1 million in fiscal year 2014, mainly as a result of a lower production volume in fiscal year 2014 as compared to fiscal year 2013, caused by harvesting timing differences, as in the previous season it was concentrated from June to October 2013 and thus included the 11-12 and 12-13 harvests, while in the current season it was concentrated from April to September 2013.
 
The total cost of production per ton increased 23.5%, from Ps. 124 per ton in fiscal year 2013 to Ps. 154 per ton in fiscal year 2014.
 
Agricultural rental and Services
 
The cost of sales from the Agricultural rental and Services segment increased by 44.2%, from Ps. 12.1 million in fiscal year 2013 to Ps. 17.4 million in fiscal year  2014, mainly as a result of:
 
·  
higher lease costs in Brasilagro, due to the amortization of new soil improvement works and structural expenses in the Preferencia farm, which was leased after such expenses had been incurred;
 
·  
higher costs from seed production services, reflecting the increase in the cost of supplies (mostly in US$) and in production volumes; and
 
·  
a 42.2% increase in irrigation service costs.
 
Land Transformation and Sales
 
Cost of sales from the Land transformation and sales segment increased 45.0%, from Ps. 5.7 million for fiscal year 2013 to Ps. 8.2 million for fiscal year 2014, mainly due to increases in salary-related items, in particular the share incentive plan.
 
Agro-industrial
 
Cost of sales from the Agro-industrial segment increased 134.4%, from Ps. 204.7 million for fiscal year 2013 to Ps. 479.7 million for fiscal year 2014, with a significantly lower incidence of raw materials from the meat packing plant on purchase prices, favoring the increase in the gross marginal contribution.
 
Other segments
 
The cost of sales of the Other segments increased 40.8%, from Ps. 71.2 million in fiscal year 2013 to Ps. 100.3 million in fiscal year 2014, mainly as a result of higher costs from the brokerage business related to the increase in the number of commodity trading transactions through FyO for Ps. 13.6 million and higher costs generated by the resale of supplies and others for Ps. 14.0 million.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2014
  
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Common maintenance expenses
and collective promotion funds
    
Segment reporting
  
Shopping Center Properties
     (956,359 )     (2,754 )     (4,321 )     667,106       (296,688 )
Offices
     110,633 )     (4,437 )     (360 )     69,703       (45,367 )
Sales and Developments
     (18,971 )     (15,992 )     -       -       (34,963 )
Hotels
     (216,768 )     -       -       -       (216,768 )
International
     (60,404 )     -       -       6,894       (53,510 )
Financial Operations and Others
     (983 )     -       -       -       (983 )
Total Urban Properties and Investments Business Costs
     (1,364,118 )     (23,183 )     (4,681 )     743,703       (648,279 )


 
136
 

   
Fiscal year ended on June 30, 2013
        
Costs
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Common maintenance expenses
and collective promotion funds
    
Segment reporting
  
Shopping Center Properties
     (763,460 )     (2,090 )     (2,667 )     522,689       (245,528 )
Offices
     (117,349 )     (4,810 )     -       75,184       (46,975 )
Sales and Developments
     (12,346 )     (94,212 )     -       -       (106,558 )
Hotels
     (169,071 )     -       -       -       (169,071 )
International
     (33,494 )     -       -       1,907       (31,587 )
Financial Operations and Others
     (1,517 )     -       -       -       (1,517 )
Total Urban Properties and Investments Business Costs
     (1,097,237 )     (101,112 )     (2,667 )     599,780       (601,236 )
 
Cost of sales from our Urban

Properties and Investments business increased 24.3%, from Ps. 1,097.2 million in fiscal year 2013 to Ps. 1,364.1 million in fiscal year 2014. This was mainly due to an increase of Ps. 192.9 million in the Shopping Center Properties segment, an increase of Ps. 6.6 million in the Sales and Developments segment, an increase of Ps. 47.7 million in the Hotels segment, and an increase of Ps. 26.9 million in the International segment, slightly offset by a decrease of Ps. 6.7 million in the Offices segment, and a decrease of Ps. 0.5 million in the Financial operations and Others segment.
 
In turn, costs from our joint ventures experienced a net decrease of 72.6%, from Ps. 101.1 million in fiscal year 2013 to Ps. 23.1 million in fiscal year 2014, mainly attributable to a reduction in costs as a result of fewer sales in the Horizons project.
 
Similarly, inter-segment costs rose by 74.1%, from Ps. 2.7 million in fiscal year 2013 to Ps. 4.7 million in fiscal year 2014, mainly as a result of changes in the cost allocation of our Shopping Center Properties.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, costs increased by 12.4%, from Ps. 601.2 million in fiscal year 2013 to Ps. 648.3 million in fiscal year 2014.
 
Shopping Center Properties
 
Costs from the Shopping Center Properties segment increased by 31.6%, from Ps. 245.5 million in fiscal year 2013 to Ps. 296.6 million in fiscal year 2014. This increase is mainly attributable to:
 
·  
an increase of Ps. 15.6 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
a Ps. 33.5 million increase in costs from a deficit in expenses and collective promotion fund from our Shopping Centers;
 
·  
an increase of Ps. 29.4 million in maintenance, security, cleaning, repair and similar expenses (mainly attributable to increases in security and cleaning services and utility rates); and
 
·  
a decrease of Ps. 17.9 million in our depreciation and amortization expense.
 
The costs from the Shopping Center Properties segment as a percentage of revenues derived from this segment remained steady at around 47%.
 
Offices
 
Costs from the Offices segment decreased by 3.4%, from Ps. 47.0 million in fiscal year 2013 to Ps. 45.4 million in fiscal year 2014. Such decrease was attributable to the partial sales of investment property for rental completed in fiscal year 2014.
 
Costs in the Offices and Others segment, considering similar properties in both fiscal years on account of the inexistence of partial sales, rose by 16.5% from Ps. 68.1 million to Ps. 79.3 million, primarily owing to increased depreciation and amortization costs.
 
On the other hand, costs attributable to non-comparable properties decreased by 17.8%, from Ps. 5.7 million to Ps. 4.7 million, mostly as a result of the above mentioned sales.
 
Costs from the Offices segment, as a percentage of revenues derived from this segment, decreased by 40.6% in fiscal year 2013 to 32.8% in fiscal year 2014.
 
Sales and Developments
 
Costs from this segment often vary significantly period over period due to:
 
·  
the non-recurrence of property sales and the agreed-upon sale price;
 
·  
the number of properties under construction; and
 
·  
the completion date of projects under construction.
 
 
 
137
 
 
Costs from our Sales and Developments segment decreased by 67.2%, from Ps. 106.6 million in fiscal year 2013 to Ps. 35.0 million in fiscal year 2014. Such decrease is mainly attributable to lower costs from the sale of Horizons units (Ps. 77.0 million); partially offset by higher costs from the sale of units at Condominios I and II (Ps. 7.6 million).
 
Costs from the Sales and Developments segment, as a percentage of revenues derived from this segment, decreased by 74.9% in fiscal year 2013 to 39.2% in fiscal year 2014.
 
Hotels
 
Costs from the Hotels segment increased by 28.2%, from Ps. 169.1 million in fiscal year 2013 to Ps. 216.8 million in fiscal year 2014, mainly as a result of:
 
·  
an increase of Ps. 25.2 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
an increase of Ps. 20.1 million in the cost of food, beverages and other hotel-related expenses; and
 
·  
an increase of Ps. 4.6 million in maintenance and repair expenses, among others.
 
Costs from the Hotels segment, as a percentage of revenues derived from this segment, decreased by 74.5% in fiscal year 2013 to 65.1% in fiscal year 2014.
 
International
 
Costs from the International segment increased by 80.3%, from Ps. 31.6 million in fiscal year 2013 to Ps. 53.5 million in fiscal year 2014, mainly as a result of:
 
·  
the devaluation of the Argentine Peso and, to a lesser extent;
 
·  
the fact that the results of Rigby 183 LLC – owner of the rental building Madison 183 - were consolidated for 12 months in fiscal year 2014 whereas such results were consolidated for 9 months in fiscal year 2013.
 
Costs from the International segment, as a percentage of revenues derived from this segment, decreased by 81.9% in fiscal year 2013 to 66.5% in fiscal year 2014.
 
Financial Operations and Others
 
Costs from the Financial operations and Others segment went down by 35.2% from Ps. 1.5 million in fiscal year 2013 to Ps. 1.0 million in fiscal year 2014, as a result of reduced revenues from APSAMedia S.A.’s personal financing residual activity (the continuing company of Metroshop S.A., currently merged with IRSA CP).
 
Costs from the Financial Operations and Others segment, as a percentage of revenues derived from this segment, decreased by 75.0% in fiscal year 2013 to 66.7% in fiscal year 2014.
 
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest:
 
   
Fiscal year ended on June 30, 2014
  
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     848,578       19,773       -       868,351  
Cattle
     145,008       313       -       145,321  
Dairy
     62,840       -       -       62,840  
Sugarcane
     96,227       -       -       96,227  
Agricultural rental and Services
     -       -       -       -  
Agricultural Subtotal
     1,152,653       20,086       -       1,172,739  
Land Transformation and Sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other segments
     -       -       -       -  
Total Agricultural Business
     1,152,653       20,086       -       1,172,739  

   
Fiscal year ended on June 30, 2013
  
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     571,020       1,061       -       572,081  
Cattle
     78,648       688       -       79,336  
Dairy
     40,741       -       -       40,741  
Sugarcane
     197,317       -       -       197,317  
Agricultural rental and Services
     -       -       -       -  
Agricultural Subtotal
     887,726       1,749       -       889,475  
Land Transformation and Sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other segments
     (982 )     -       -       (982 )
Total Agricultural Business
     886,744       1,749       -       888,493  

The Company’s revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest increased 30.0%, from Ps. 886.7 million in fiscal year 2013 to Ps. 1,152.7 million in fiscal year 2014.
 
In turn, the Company’s revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest derived from our interests in joint ventures increased 1.048,4%, from Ps. 1.7 million in fiscal year 2013 to Ps. 20.1 million in fiscal year 2014.
 
On the other hand, there were no inter-segment eliminations in connection with revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest.
 
Hence, according to business segment reporting and considering all our joint ventures, revenues from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest increased by 32.0%, from Ps. 888.5 million in fiscal year 2013 to Ps. 1,172.7 million in fiscal year 2014.
 
 
138
 
 
Crops
 
Production income from the Crops segment increased by 51.8%, from Ps. 572.1 million in fiscal year 2013 to Ps. 868.4 million in fiscal year 2014, mainly as a result of:
 
·  
a 44.2% increase in the average production price of crops;
 
·  
partially offset by a 1.0% reduction in the total production volume, from 355,390 tons in fiscal year 2013 to 351,759 tons in fiscal year 2014.
 
As of June 30, 2014 the harvested area was 97.4% of our total sown area, compared to 94.9% as of June 30, 2013.
 
The following table shows the number of tons produced and total production income as of June 30, 2014 and 2013:
 
Crops Production Income (in tons and thousands of Ps.)
 
   
Fiscal year ended on June 30,
  
   
2014
    
2013
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Corn
     86,300       85,737       107,257       83,416  
Soybean
     241,205       563,639       220,292       354,485  
Wheat
     12,373       11,929       4,505       3,740  
Sorghum
     4,058       1,468       5,486       3,118  
Sunflower
     5,884       15,657       12,437       21,230  
Other
     1,940       3,390       5,413       11,766  
Total
     351,760       681,820       355,390       477,755  

Estimated results from the valuation of our crops in progress at fair value increased 186.2%, from Ps. 56.6 million in fiscal year 2013 to Ps. 162.0 million in fiscal year 2014, mainly due to an increase of 186.8% in corn crops.
 
Cattle
 
Production income from the Cattle segment increased by 83.2%, from Ps. 79.3 million in fiscal year 2013 to Ps. 145.3 million in fiscal year  2014, mainly as a result of:
 
·  
a 10,0% increase in the average price per kilogram produced, from Ps. 8.8 per kilogram in fiscal year 2013 to Ps. 9.7 per kilogram in fiscal year 2014;
 
·  
offset by a 9.7% reduction in the volume of cattle production, from 7,723 tons in fiscal year 2013 to 6,973 tons in fiscal year 2014.
 
The calving rate increased slightly, whereas the death rate recorded a mild increase during fiscal year 2014 as compared to fiscal year 2013.
 
The number of hectares devoted to cattle production increased from 91,053 hectares in fiscal year 2013 to 95,745 hectares in fiscal year 2014 due to a smaller number of hectares devoted to cattle production leased to third parties.
 
Results from cattle holdings increased 717.7%, from a gain of Ps. 9.3 million in fiscal year 2013 to a gain of Ps. 75.8 million in fiscal year 2014, mainly as a result of the inflationary context and the currency devaluation occurred in the last semester, which resulted in a significant rise in prices.
 
Dairy
 
Production income from the Dairy segment increased 54.2%, from Ps. 40.7 million in fiscal year 2013 to Ps. 62.8 million in fiscal year 2014. This increase was mainly due to:
 
·  
the result from holding of milking cows, which increased 168.8%, from a gain of Ps. 3.2 million in fiscal year 2013 to a gain of Ps. 8.6 million in fiscal year 2014, as the inflationary context and the devaluation occurred during the last semester led to a significant rise in prices;
 
·  
a 33.5% increase in the average price of milk, from Ps. 1.94 per liter in fiscal year 2013 to Ps. 2.59 per liter in fiscal year 2014; and
 
·  
to a lesser extent, an increase of 4.3% in milk production volumes, from 18.5 million liters in fiscal year 2013 to 19.3 million liters in fiscal year 2014. This increase in production volume was mainly due to a higher average number of milking cows per day, from 2,439 in fiscal year 2013 to 2,588 in fiscal year 2014, partially offset by a 2.9% reduction in the efficiency level of average daily milk production per cow, from 20.8 liters in fiscal year 2013 to 20.2 liters in fiscal year 2014.
 
Sugarcane
 
Production income from the Sugarcane segment decreased 51.2%, from Ps. 197.3 million in fiscal year 2013 to Ps. 96.2 million in fiscal year 2014, mainly as a result of:
 
·  
actual production income; and
 
·  
a decrease in total production volume of 43.2%, from 1,156,848 tons in fiscal year 2013 to 657,547 tons in fiscal year 2014; and
 
·  
partially offset by a 23.3% increase in the average production price of sugarcane.
 
The 43.2% decrease in production volume from the Sugarcane segment was mainly due to a 11.5% reduction in our average yield and harvesting timing differences, as in the previous season it was concentrated from June to October 2012 and thus included the 11-12 and 12-13 harvests, while in the current season it was concentrated from April to September 2013.
 
The following table shows the actual tons produced and income as of June 30, 2014 and 2013:
 
Sugarcane Production Income (in tons and thousands of Ps.)
 
   
Fiscal year ended on June 30,
  
   
2014
    
2013
  
   
Tons
    
Ps.
    
Tons
    
Ps.
  
Sugarcane
     657,547       106,547       1,156,848       152,037  
 
 
 
139
 
 
Estimated results from the valuation of our sugarcane crops in progress at fair value
 
Estimated results from the valuation of our sugarcane crops in progress at fair value decreased significantly from a gain of Ps. 45.3 million in fiscal year 2013 to a loss of Ps. 10.3 million in fiscal year 2014 mainly generated by Brasilagro. This variation originated mainly in Brazil, and was caused by the following factors:
 
·  
the number of estimated hectares went down from a year-on-year decrease of 2% in fiscal year 2013 to a year-on-year decrease of 12% in fiscal year 2014;
 
·  
the estimated yields went down from a from a year-on-year increase of 3% in fiscal year 2013 to a year-on-year decrease of 1% in fiscal year 2014; and
 
·  
the estimated unit costs went up from a year-on-year increase of 11% in fiscal year 2013 to a year-on-year increase of 18% in fiscal year 2014.
 
Other Segments
 
Income from initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest from the Other segments increased significantly, from a loss of Ps. 1.0 million in fiscal year 2013 to Ps. 0.0 million in fiscal year 2014, due to the variation in the valuation of the timber stocks at fair value in fiscal year 2014.
 
Changes in the net realizable value of agricultural produce after harvest
 
   
Fiscal year ended on June 30, 2014
  
Changes in the net realizable value of agricultural produce after harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (17,624 )     -       -       (17,624 )
Cattle
     177       -       -       177  
Dairy
     -       -       -       -  
Sugarcane
     -       -       -       -  
Agricultural Rental and Services
     -       -       -       -  
Agricultural Subtotal
     (17,447 )     -       -       (17,447 )
Land Transformation and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     (17,447 )     -       -       (17,447 )

   
Fiscal year ended on June 30, 2013
  
Changes in the net realizable value of agricultural produce after harvest
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     11,801       -       -       11,801  
Cattle
     (45 )     -       -       (45 )
Dairy
     -       -       -       -  
Sugarcane
     -       -       -       -  
Agricultural Rental and Services
     -       -       -       -  
Agricultural Subtotal
     11,756       -       -       11,756  
Land Transformation and sales
     -       -       -       -  
Agro-industrial
     -       -       -       -  
Other Segments
     -       -       -       -  
Total Agricultural Business
     11,756       -       -       11,756  

Income from changes in the net realizable value of agricultural produce after harvest decreased significantly, from a gain of Ps. 11.8 million in fiscal year 2013 to a loss of Ps. 17.4 million in fiscal year 2014. This was caused mainly by a reduction of Ps. 29.4 million in the Crops segment (due to the discontinuance in fiscal year 2014 of corn exports made in fiscal year 2013, which resulted in a higher valuation of corn), offset by a slight increase of Ps. 0.2 million in the Cattle segment.
 
No interest in joint ventures or inter-segment elimination was recorded in income from changes in the net realizable value of agricultural produce after harvest.
 
GROSS PROFIT
 
As a result of the above mentioned factors, the Company’s gross profit increased 38.9%, from Ps. 1,336.9 million in fiscal year 2013 to Ps. 1,856.9 million in fiscal year 2014. This was caused mainly by:
 
·  
a 66.5% increase in the Agricultural Business, from a Ps. 209.9 million profit in fiscal year 2013 to a Ps. 349.4 million profit in fiscal year 2014; and
 
·  
a 33.7% increase in the Urban Properties and Investments business, from a Ps. 1,127.0 million profit in fiscal year 2013 to a Ps. 1,507.5 million profit in fiscal year 2014.
 
Agricultural Business
 
As a result of the above mentioned factors, gross profit increased 66.5%, from Ps. 209.9 million in fiscal year 2013 to Ps. 349.4 million in fiscal year 2014.
 
Crops
 
Gross profit from this segment increased 38.0%, from Ps. 106.4 million in fiscal year 2013 to Ps. 146.9 million in fiscal year 2014.
 
Cattle
 
Gross profit from this segment increased 403.0%, from Ps. 14.9 million in fiscal year 2013 to Ps. 75.2 million in fiscal year 2014.
 
 
140
 
 
Dairy
 
Gross profit from this segment increased 162.9%, from Ps. 4.7 million in fiscal year 2013 to Ps. 12.4 million in fiscal year 2014.
 
Sugarcane
 
Gross profit from this segment decreased 75.9%, from Ps. 55.4 million in fiscal year 2013 to Ps. 13.3 million in fiscal year 2014.
 
Agricultural Rental and Services
 
Gross profit from this segment increased 37.3%, from Ps. 18.8 million in fiscal year 2013 to Ps. 11.8 million in fiscal year 2014.
 
Land Transformation and Sales
 
Gross loss from this segment increased 45.0%, from Ps. 5.7 million in fiscal year 2013 to Ps. 8.2 million in fiscal year 2014.
 
Agro-industrial
 
Gross profit from this segment increased significantly, from Ps. 4.2 million in fiscal year 2013 to Ps. 74.4 million in fiscal year 2014.
 
Other Segments
 
Gross profit from this segment increased 113.9%, from Ps. 11.1 million in fiscal year 2013 to Ps. 23.7 million in fiscal year 2014.
 
Urban Properties and Investments Business
 
Gross profit from the Urban Properties and Investments business increased 33.8% from Ps. 1,127.0 million in fiscal year 2013 to Ps. 1,507.5 million in fiscal year 2014. This was mainly due to an increase of Ps. 228.8 million in the Shopping Center Properties segment; an increase of Ps. 55.6 million in the Offices segment; an increase of Ps. 15.1 million in the Sales and Developments segment, an increase of Ps. 58.0 million in the Hotels segment, and an increase of Ps. 23.0 million in the International segment, partially offset by a reduction of Ps. 0.1 million in the Financial Operations and Others segment.
 
Shopping Center Properties
 
Gross profit from the Shopping Center Properties segment increased by 26.7% from Ps. 857.5 million in fiscal year 2013 to Ps. 1,086.3 million in fiscal year 2014. Gross profit from the Shopping Center Properties segment as a percentage of revenues derived from this segment stood around 78%.
 
Offices
 
Gross profit from the Offices segment increased by 32.7% from Ps. 170.2 million in fiscal year 2013 to Ps. 225.8 million in fiscal year 2014. Gross profit from the Offices segment as a percentage of revenues derived from this segment went up from 59.4% in fiscal year 2013 to 67.2% in fiscal year 2014.
 
Sales and Developments
 
Gross profit from the Sales and Developments segment increased by 42.7% from Ps. 35.4 million in fiscal year 2013 to Ps. 50.6 million in fiscal year 2014. Gross profit from the Sales and Developments segment as a percentage of revenues derived from this segment went up from 25.1% in fiscal year 2013 to 60.8% in fiscal year 2014.
 
Hotels
 
Gross profit from the Hotels segment rose by 102.2% from Ps. 56.8 million in fiscal year 2013 to Ps. 114.8 million in fiscal year 2014. Gross profit from the Hotels segment as a percentage of revenues derived from this segment went up from 25.5% in fiscal year 2013 to 34.9% in fiscal year 2014.
 
International
 
Gross profit from the International segment rose by 310.4% from Ps. 7.4 million in fiscal year 2013 to Ps. 30.4 million in fiscal year 2014. Gross profit from the International segment as a percentage of revenues derived from this segment went up from 19% in fiscal year 2013 to 36.2% in fiscal year 2014.
 
Financial Operations and Others
 
Gross profit from the Financial Operations and Others segment decreased Ps. 0.1 million from a loss of Ps. 0,3 million in fiscal year 2013 to a loss of Ps. 0,4 million in fiscal year 2014. Gross profit from the Financial Operations and Others segment as a percentage of revenues derived from this segment went up from 26.1% in fiscal year 2013 to 71.2% in fiscal year 2014.
 
Gain from disposal of investment properties
 
Gain from disposal of investment properties derived from the Urban Properties and Investments business increased 29.7%, from a Ps. 178.0 million income in fiscal year 2013 to a Ps. 230.9 million income in fiscal year 2014, mainly as a result of the sale of functional units at: Maipú 1300 building (Ps. 28.3 million), Bouchard 551 building (Ps. 24.1 million), Av. De Mayo 595 building (Ps. 19.2 million), Constitución 1159 building (Ps. 13.4 million), Costeros Dique IV building (Ps. 2.9 million) and Rivadavia 565 building (Ps. 1.1 million), offset by lower revenues from sales of units at the Libertador 498 building (Ps. 36.7 million).
 
Income from sale of farmlands
 
Income from sale of farmlands derived from the Land Transformation and Sales segment decreased 38.9%, from Ps. 149.6 million income in fiscal year 2013 to Ps. 91.4 million income in fiscal year 2014, mainly as a result of:
 
 
141
 
 
During fiscal year 2014
 
On June 27, 2014, Brasilagro sold a fraction of 1,164 hectares in the “Araucaria” farm located in the municipal district of Mineiros, State of Goias, Brazil, that had been purchased in 2007. After the sale, the farm has a total area of 8,178 hectares, out of which approximately 5,982 hectares are arable land. The sale price was RS. 32.5 million (equivalent to Ps. 117.5 million). In July 2014, the buyer made an initial payment of RS. 4.5 million, and the remaining balance is payable in five installments, the first of which, for RS. 4.5 million, matures in November 2014 and the last one at the time of execution of the title deed, in August 2018. The Company recorded a gain of RS. 21.0 million (equivalent to Ps. 75.8 million) for the sale of the Araucaria farm.
 
On May 27, 2014, Ombú Agropecuaria S.A. executed an agreement providing for the sale, subject to retention of title, of an 882.96 hectare property in the “San Cayetano I” farm for a total price of US$ 4.2 million. Out of this amount, the sum of US$ 1 million has been already collected and the balance is payable in 5 consecutive semi-annual installments, the last of which falls due in November 2016. The agreement provides that title conveyance will be registered once the full price has been paid. Possession was surrendered on the date of execution of the agreement. The Company recorded a gain of US$ 1.8 million for this sale
 
During fiscal year 2013
 
On June 19, 2013 the deed of sale for 5,613 hectares of the “La Suiza” farm, located in Villa Ángela, Province of Chaco, was executed. The transaction price was Ps. 34.9 million.  The result from the sale was a gain of Ps. 29.8 million;
 
On October 11, 2012, Brasilagro sold the Horizontina farm, located in the municipal district of Tasso Fragoso. Sate of Maranhão, Brazil, for a total price of RS. 75 million (equivalent to Ps. 174.8 million). The Horizontina farm has a surface area of 14,359 hectares.  The result from the sale was a gain of Ps. 53.9 million;
 
On April 25, 2013, Brasilagro sold an aggregate of 394 hectares of the Araucaria farm, located in the municipal district of Mineros – GO, Brazil. The sale price was RS. 11.7 million (equivalent to Ps. 26.6 million). The result from the sale was a gain of Ps. 12.6 million; and
 
On May 10, 2013, Brasilagro sold an aggregate of 4,895 hectares of the Cremaq farm, located in the municipal district of Ribeiro Gonçalves-PI, Brazil. The sale price was RS. 42.1 million. The result from the sale was a gain of Ps. 53.2 million.
 
General and Administrative Expenses
 
Total administrative expenses of the Company increased 53.1%, from Ps. 352.4 million for fiscal year 2013 to Ps. 539.7 million for fiscal year 2014. This was mainly due to an increase of Ps. 86.0 million in the Agricultural business and an increase of Ps. 101.3 million in the Urban Properties and Investments business.
 
Agricultural Business
 

 
   
Fiscal year ended on June 30, 2014
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (146,512 )     (681 )     -       (147,193 )
Cattle
     (27,118 )     (65 )     -       (27,183 )
Dairy
     (5,746 )     -       -       (5,746 )
Sugarcane
     (28,261 )     -       -       (28,261 )
Agricultural Rental and Services
     (2,603 )     (66 )     -       (2,669 )
Agricultural Subtotal
     (210,240 )     (812 )     -       (211,052 )
Land Transformation and Sales
     (1,130 )     -       -       (1,130 )
Agro-industrial
     (16,880 )     -       -       (16,880 )
Other Segments
     (8,761 )     (1,807 )     -       (10,568 )
Total Agricultural Business General and Administrative Expenses
     (237,011 )      (2,619 )      -       (239,630 )
 

   
Fiscal year ended on June 30, 2013
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (87,683 )     (1,902 )     -       (89,585 )
Cattle
     (13,487 )     (232 )     -       (13,719 )
Dairy
     (3,125 )     -       -       (3,125 )
Sugarcane
     (24,163 )     -       -       (24,163 )
Agricultural Rental and Services
     (4,416 )     -       -       (4,416 )
Agricultural Subtotal
     (132,874 )     (2,134 )     -       (135,008 )
Land Transformation and Sales
     (572 )     -       -       (572 )
Agro-industrial
     (10,986 )     -       -       (10,986 )
Other Segments
     (7,109 )     -       -       (7,109 )
Total Agricultural Business General and Administrative Expenses
     (151,541 )     (2,134 )     -       (153,675 )

General and administrative expenses from our Agricultural business increased 56.4%, from Ps. 151.5 million in fiscal year 2013 to Ps. 237.0 million in fiscal year 2014. This was mainly due to an increase of Ps. 58.8 million in the Crops segment, an increase of Ps. 13.6 million in the Cattle segment, an increase of Ps. 2.8 million in the Dairy segment, an increase of Ps. 4.1 million in the Sugarcane segment, an increase of Ps. 0.6 million in the Land transformation and sales segment, and an increase of Ps. 5.9 million in the Agro-industrial segment, slightly offset by a reduction of Ps. 1.8 million in the Agricultural rental and services segment and a reduction of Ps. 1.0 million in the Other segments.  The main causes of this variation were:
 
·  
higher fees to Directors: in fiscal year 2014, the amounts paid were Ps. 14.4 million higher than those provisioned by the Shareholders’ Meeting for fiscal year 2013;
 
·  
higher dues and contributions for permanent disability (pension plan): Ps. 12.9 million and 6.9 million were paid as bonus plan during fiscal year 2014; and
 
·  
a 25% rise in expenses as a result of the inflationary context.
 
In turn, General and administrative expenses from our joint ventures went down 1.7%, from Ps. 2.1 million in fiscal year 2013 to Ps. 2.6 million in fiscal year 2014, mainly due to a 71% reduction in Cresca’s crop expenses, from Ps. 1.9 million in fiscal year 2013 to Ps. 0.7 million in fiscal year 2014 and a 100% increase in the expenses attributable to Cresca’s other segments, from Ps. 1.8 million in fiscal year 2014.
 
On the other hand, no general and administrative expenses arose from inter-segment eliminations.
 
Hence, according to business segment reporting and considering all our joint ventures, general and administrative expenses increased by 55.9%, from Ps. 153.7 million in fiscal year 2013 to Ps. 239.6 million in fiscal year 2014.
 
142
 
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2014
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (100,710 )     (148 )     (680 )     (101,538 )
Offices
     (41,169 )     (145 )     (631 )     (41,945 )
Sales and Developments
     (36,955 )     (511 )     -       (37,466 )
Hotels
     (58,562 )     -       (1,023 )     (59,585 )
International
     (59,476 )     -       -       (59,476 )
Financial Operations and Others
     (56 )     -       -       (56 )
Total Urban Properties and Investments Business General and Administrative Expenses
     (296,928 )     (804 )     (2,334 )     (300,066 )

   
Fiscal year ended on June 30, 2013
  
General and Administrative Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (66,350 )     (126 )     (1,120 )     (67,597 )
Offices
     (34,766 )     (110 )     (108 )     (34,984 )
Sales and Developments
     (30,979 )     (1,922 )     -       (32,901 )
Hotels
     (49,337 )     -       (546 )     (49,883 )
International
     (13,158 )     -       -       (13,158 )
Financial Operations and Others
     (250 )     -       -       (250 )
Total Urban Properties and Investments Business General and Administrative Expenses
     (194,840 )     (2,158 )     (1,774 )     (198,773 )

General and administrative expenses from the Urban Properties and Investments business increased 52.4%, from Ps. 194.8 million in fiscal year 2013 to Ps. 296.9 million in fiscal year 2014. This was mainly due to an increase of Ps. 34.4 million in the Shopping Center Properties segment, an increase of Ps. 6.4 in the Offices segment, an increase of Ps. 9.2 million in the Hotels segment, an increase of Ps. 6.0 million in the Sales and Developments segment, and an increase of Ps. 46.3 million in the International segment, partially offset by reduction of Ps. 0.2 million in the Financial Operations and Others segment.
 
Administrative expenses from our joint ventures went down by 62.8%, from Ps. 2.2 million in fiscal year 2013 (this figure includes Ps. 1.9 million attributable to the Sales and Developments segment) to Ps. 0.8 million in fiscal year 2014 (this figure includes Ps. 0.5 million attributable to the Sales and Developments segment).
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, administrative expenses increased by 51.0%, from Ps. 198.8 million in fiscal year 2013 to Ps. 300.1 million in fiscal year 2014. Based on the reported business segment reporting and considering our joint ventures and inter-segment eliminations, administrative expenses as a percentage of sales increased from 8.5% in fiscal year 2013 to 10.4% in fiscal year 2014.
 
Shopping Center Properties
 
Administrative expenses from the Shopping Center Properties segment increased by 50.2%, from Ps. 67.6 million in fiscal year 2013 to Ps. 101.5 million in fiscal year 2014, mainly due to:
 
·  
an increase of Ps. 13.3 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
an increase in Directors’ fees of Ps. 11.3 million; and
 
·  
an increase of Ps. 5.3 million in service fees.
 
Administrative expenses as a percentage of revenues derived from this segment increased from 6.1% in fiscal year 2013 to 7.3% in fiscal year 2014.
 
Offices
 
General and administrative expenses from our Offices segment increased 19.9%, from Ps. 35.0 million in fiscal year 2013 to Ps. 41.9 million in fiscal year 2014, mainly as a result of a Ps. 9.1 million increase in salaries and wages, social security contributions and other payroll expenses, partially offset by a Ps. 3.1 million reduction in Directors’ fees.
 
General and administrative expenses as a percentage of revenues derived from this segment stood decreased from 16.1% to 15.4%.
 
Sales and Developments
 
General and administrative expenses from our Sales and Developments segment increased 13.9%, from Ps. 32.9 million in fiscal year 2013 to Ps. 37.5 million in fiscal year 2014, mainly as a result of a Ps. 6.5 million increase in salaries and wages, social security contributions and other payroll expenses, partially offset by a Ps. 2.6 million reduction in Directors’ fees.
 
 General and administrative expenses from the Sales and Developments segment, as a percentage of revenues derived from this segment, increased by 23.2% in fiscal year 2013 to 43.9% in fiscal year 2014.
 
Hotels
 
General and administrative expenses from the Hotels segment increased by 19.4%, from Ps. 49.9 million in fiscal year 2013 to Ps. 59.6 million in fiscal year 2014, mainly due to:
 
·  
an increase of Ps. 4.0 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
an increase of Ps. 2.2 million in maintenance and repair expenses; and
 
·  
a Ps. 2.5 million increase in service fees, among other items.
 
General and administrative expenses from the Hotels segment, as a percentage of revenues derived from this segment, decreased from 22.1% in fiscal year 2013 to 18.0% in fiscal year 2014.
 
 
143
 
 
International
 
General and administrative expenses from the International segment increased Ps. 46.3 million, from Ps. 13.2 million in fiscal year 2013 to Ps. 59.5 million in fiscal year 2014, mainly due to:
 
·  
the devaluation of the Argentine Peso;
 
·  
expenses incurred in connection with our investment in IDBD and, to a lesser extent; and
 
·  
the fact that the results of Rigby 183 LLC – owner of the rental building Madison 183 - were consolidated for 12 months in fiscal year 2014 whereas such results were consolidated for 9 months in fiscal year 2013.
 
General and administrative expenses from the International segment, as a percentage of revenues derived from this segment, increased from 33.7% in fiscal year 2013 to 70.9% in fiscal year 2014.
 
Selling expenses
 
Total selling expenses of the Company increased 23.3%, from Ps. 291.2 million in fiscal year 2013 to Ps. 359.0 million in fiscal year 2014. This was mainly due to an increase of Ps. 35.0 million in the Agricultural business and an increase of Ps. 32.9 million in the Urban Properties and Investments business.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2014
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (115,497 )     (2,332 )     -       (117,829 )
Cattle
     (13,769 )     (85 )     -       (13,854 )
Dairy
     (2,249 )     -       -       (2,249 )
Sugarcane
     (4,871 )     -       -       (4,871 )
Agricultural Rental and Services
     (754 )     (25 )     -       (779 )
Agricultural Subtotal
     (137,140 )     (2,442 )     -       (139,582 )
Land Transformation and Sales
     (3,873 )     -       -       (3,873 )
Agro-industrial
     (54,751 )     -       -       (54,751 )
Other Segments
     (10,726 )     -       -       (10,726 )
Total Agricultural Business Selling Expenses
     (206,490 )     (2,442 )     -       (208,932 )
 
 
 
144
 

 
   
Fiscal year ended on June 30, 2013
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (115,417 )     (506 )     -       (115,923 )
Cattle
     (11,393 )     (89 )     -       (11,482 )
Dairy
     (1,842 )     -       -       (1,842 )
Sugarcane
     (4,006 )     -       -       (4,006 )
Agricultural Rental and Services
     (1,711 )     -       -       (1,711 )
Agricultural Subtotal
     (134,369 )     (595 )     -       (134,964 )
Land Transformation and Sales
     (10,628 )     -       -       (10,628 )
Agro-industrial
     (21,507 )     -       -       (21,507 )
Other Segments
     (6,834 )     (43 )     -       (6,877 )
Total Agricultural Business Selling Expenses
     (173,338 )     (638 )     -       (173,976 )
 
Selling expenses from the Agricultural Business increased 19.1%, from Ps. 173.3 million in fiscal year 2013 to Ps. 206.5 million in fiscal year 2014. This was mainly due to an increase of Ps. 2.4 million in the Cattle segment, an increase of Ps. 0.4 million in the Dairy segment, an increase of Ps. 0.9 million in the Sugarcane segment, an increase of Ps. 33.2 million in the Agro-Industrial segment, and an increase of Ps. 3.9 million in the Other segments, partially offset by a reduction of Ps. 0.1 million in the Crops segment, a reduction of Ps. 0.9 million in the Agricultural rental and services segment, and a reduction of Ps. 6.7 million in the Land transformation and sales segment.
 
In turn, selling expenses from our interests in joint ventures increased by 282.8% from Ps. 0.6 million in fiscal year 2013 to Ps. 2.4 million in fiscal year 2014, in connection with our Cresca joint venture.
 
On the other hand, no inter-segment eliminations arose from selling expenses.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, selling expenses increased by 20.1%, from Ps. 174.0 million in fiscal year 2013 to Ps. 208.9 million in fiscal year 2014.
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2014
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (72,531 )     (687 )     (209 )     (73,427 )
Offices
     (20,307 )     (444 )     -       (20,751 )
Sales and Developments
     (11,330 )     (2,376 )     -       (13,706 )
Hotels
     (42,178 )     -       (157 )     (42,335 )
International
     -       -       -       -  
Financial Operations and Others
     110       -       -       110  
Total Urban Properties and Investments Business Selling Expenses
     (146,236 )     (3,507 )     (366 )     (150,109 )

   
Fiscal year ended on June 30, 2013
  
Selling Expenses
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (58,048 )     (747 )     (112 )     (58,907 )
Offices
     (10,886 )     (474 )     -       (11,360 )
Sales and Developments
     (6,683 )     (9,773 )     -       (16,456 )
Hotels
     (28,919 )     -       -       (28,919 )
International
     -       -       -       -  
Financial Operations and Others
     (1,588 )     -       -       (1,588 )
Total Urban Properties and Investments Business Selling Expenses
     (106,124 )     (10,994 )     (112 )     (117,230 )

Selling expenses of the Urban Properties and Investments business increased 37.8%. from Ps. 106.1 million in fiscal year 2013 to Ps. 146.2 million in fiscal year 2014. This was mainly due to an increase of Ps. 14.4 million in the Shopping Center Properties segment, an increase of Ps. 13.4 million in the Hotels segment, an increase of Ps. 4.6 million in the Sales and Developments segment, and an increase of Ps. 9.4 million in the Offices segment, partially offset by and a reduction of Ps. 1.7 million in the Financial operations and Others segment.
 
In turn, selling expenses from our joint ventures went down by 68.2%, from Ps. 11.0 million in fiscal year 2013 (this figure includes Ps. 9.8 million attributable to the Sales and Developments segment) to Ps. 3.5 million in fiscal year 2014 (this figure includes Ps. 2.4 million attributable to the Sales and Developments segment). This reduction is mainly due to lower expenses from our Cyrsa joint venture in connection with the recognition of fewer sales from the Horizons project in fiscal year 2014.
 
Hence, according to business segment reporting and considering all our joint ventures and inter-segment eliminations, selling expenses increased by 28.0%, from Ps. 117.3 million in fiscal year 2013 to Ps. 150.1 million in fiscal year 2014. According to the business segment reporting reported and considering all our joint ventures and inter-segment eliminations, selling expenses remained steady at around 5% in both fiscal years.
 
Shopping Center Properties
 
Selling expenses from the Shopping Center Properties segment increased by 24.6%, from Ps. 58.9 million in fiscal year 2013 to Ps. 73.4 million in fiscal year 2014, mainly due to:
 
·  
a Ps. 10.2 million increase in taxes, rates and contributions;
 
·  
an increase of Ps. 5.2 in advertising and other selling expenses; and
 
·  
an increase of Ps. 2.7 million in salaries and wages, social security contributions and other payroll expenses;
 
·  
partially offset by a reduction of Ps. 4.1 million in bad debtors.
 
Selling expenses from our Shopping Center Properties segment as a percentage of revenues derived from this segment stood at around 5.3% in both fiscal years.
 
Offices
 
Selling expenses from our Offices segment increased by 82.7%, from Ps. 11.4 million in fiscal year 2013 to Ps. 20.8 million in fiscal year 2014, mainly due to:
 
·  
an increase of Ps. 4.6 million in bad debtors;
 
·  
an increase of Ps. 2.4 million in salaries and wages, social security contributions and other payroll expenses; and
 
·  
a Ps. 2.1 million increase in taxes, rates and contributions payable, mainly as a result of an increase in turnover tax.
 
Selling expenses from the Offices segment, as a percentage of revenues derived from this segment, increased from 3.9% in fiscal year 2013 to 6.1% in fiscal year 2014.
 
Sales and Developments
 
Selling expenses from the Sales and Developments segment decreased by 16.7%, from Ps. 16.5 million in fiscal year 2013 to Ps. 13.7 million in fiscal year 2014, mainly as a result of:
 
·  
a reduction of Ps. 2.7 million in taxes, rates and contributions; and
 
·  
a reduction of Ps. 2.7 million in fees and compensation from services, partially offset by an increase of Ps. 1.3 million in salaries and wages, social security contributions and other payroll expenses, and a Ps. 0.9 million increase in commissions.
 
Selling expenses from the Sales and Developments segment, as a percentage of revenues derived from this segment, increased from 11.6% in fiscal year 2013 to 16.0% in fiscal year 2014.
 
Hotels
 
Selling expenses from our Hotels segment increased by 46.4%, from Ps. 28.9 million in fiscal year 2013 to Ps. 42.3 million in fiscal year 2014, mainly due to:
 
·  
an increase of Ps. 6.5 million in taxes, rates and contributions;
 
·  
an increase of Ps. 2.1 million in salaries and wages, social security contributions and other payroll expenses; and
 
·  
an increase of Ps. 3.1 million in advertising and other selling expenses.
 
Selling expenses from our Hotels segment as a percentage of revenues derived from this segment stood at around 12.8% in both fiscal years.
 
 
145
 
 
Financial Operations and Others
 
Selling expenses from our Financial Operations and Others segment decreased by Ps. 1.7 million, from a loss of Ps. 1.6 million in fiscal year 2013 to a gain of Ps. 0.1 million in fiscal year 2014, mainly as a result of the recovery of the allowance for bad debts in connection with APSAMedia S.A.’s personal financing residual activity (the continuing company of Metroshop S.A., currently merged with IRSA Commercial Properties).
 
Other operating results, net
 
Other operating results, net of the Company decreased Ps. 173.2 million, from a Ps. 95.8 million gain in fiscal year 2013 to a Ps. 77.4 million loss in fiscal year 2014.
 
Agricultural Business
 
   
Fiscal year ended on June 30, 2014
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (28,992 )     (363 )     -       (29,355 )
Cattle
     (1,955 )     (44 )     -       (1,999 )
Dairy
     (417 )     -       -       (417 )
Sugarcane
     104       -       -       104  
Agricultural Rental and Services
     (189 )     (33 )     -       (222 )
Agricultural Subtotal
     (31,449 )     (440 )     -       (31,889 )
Land Transformation and Sales
     (82 )     -       -       (82 )
Agro-industrial
     (868 )     -       -       (868 )
Other Segments
     3,261       38       -       3,299  
Total Agricultural Business Other operating results, net
     (29,138 )     (402 )     -       (29,540 )

   
Fiscal year ended on June 30, 2013
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Crops
     (9,914 )     (1,100 )     -       (11,014 )
Cattle
     (3,190 )     (355 )     -       (3,545 )
Dairy
     (803 )     -       -       (803 )
Sugarcane
     (27 )     -       -       (27 )
Agricultural Rental and Services
     (1,135 )     -       -       (1,135 )
Agricultural Subtotal
     (15,069 )     (1,455 )     -       (16,524 )
Land Transformation and Sales
     (147 )     -       -       (147 )
Agro-industrial
     (1,305 )     -       -       (1,305 )
Other Segments
     21,321       -       -       21,321  
Total Agricultural Business Other operating results, net
     4,800       (1,455 )     -       3,345  

Other operating results, net from the Agricultural business decreased by 707.0%, from a Ps. 4.8 million gain in fiscal year 2013 to a Ps. 29.1 million loss in fiscal year 2014. This was mainly caused by a Ps. 18.3 million reduction in the Crops segment and a Ps. 18.0 million reduction in the Other segments, partially offset by a Ps. 0.9 million increase in the Agricultural rental and services segment, a Ps. 1.5 million increase in the Cattle segment, a Ps. 0.4 million increase in the Dairy segment, a Ps. 0.1 million increase in the Sugarcane segment, a Ps. 0.1 million increase in the Land transformation and sales segment, and a Ps. 0.4 million increase in the Agro-industrial segment.
 
In turn, other operating results, net from our interests in joint ventures increased by 72% from a Ps. 1.5 million loss in fiscal year 2013 to a Ps. 0.4 million loss in fiscal year 2014, in connection with our Cresca joint venture.
 
On the other hand, no inter-segment eliminations arose from operating results, net.
 
Hence, according to business segment reporting and considering all our joint ventures, other operating results, net increased by 983.1%, from Ps. 3.3 million in fiscal year 2013 to Ps. 29.5 million in fiscal year 2014.
 
Crops
 
Other operating results of the Crops segment decreased Ps. 18.3 million, from a Ps. 11.0 million loss in fiscal year 2013 to a Ps. 29.4 million loss in fiscal year 2014, mainly as a result of the commodity derivatives held by Brasilagro and Cresud (Ps. 20.6 million), partially offset by the charge to income of Brasilagro’s contingency allowance for Ps. 12.1 million.
 
Other Segments
 
Other operating results, net of the Other segments decreased Ps. 18.0 million, from a Ps. 21.3 million income in fiscal year 2013 to a Ps. 3.3 million income in fiscal year 2014.
 
The rest of the segments of the Agricultural business did not record significant changes.
 
Urban Properties and Investments Business
 
   
Fiscal year ended on June 30, 2014
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (45,953 )     (723 )     108       (46,568 )
Offices
     (1,786 )     (2,297 )     1,023       (3,060 )
Sales and Developments
     8,300       (163 )     -       8,137  
Hotels
     (2,680 )     -       -       (2,680 )
International
     (895 )     -       -       (895 )
Financial Operations and Others
     (2,856 )     -       -       (2,856 )
Total Urban Properties and Investments Business Other operating results, net
     (45,870 )     (3,183 )     1,131       (47,922 )
 
 
 
146
 

 
   
Fiscal year ended on June 30, 2013
  
Other operating results, net
  
Income Statement
    
Interests in joint ventures
    
Inter-segment eliminations
    
Segment reporting
  
Shopping Center Properties
     (45,199 )     (475 )     654       (45,020 )
Offices
     743       (990 )     -       (247 )
Sales and Developments
     6,374       (32 )     -       6,342  
Hotels
     (369 )     -       -       (369 )
International
     135,082       -       -       135,082  
Financial Operations and Others
     (3,363 )     -       -       (3,363 )
Total Urban Properties and Investments Business Other operating results, net
     93,268       (1,497 )     654       92,425  

Other operating results, net decreased from a Ps. 93.3 million gain in fiscal year 2013 to a Ps. 45.9 million net loss in fiscal year 2014, mainly due to a non-recurring gain of Ps. 137.0 million recognized in fiscal year 2013 as a result of the acquisition of an additional interest in Rigby 183 LLC.
 
The effect from the consolidation of our joint ventures is not material on this line. According to the information by segment and considering all our joint ventures and inter-segment eliminations, other operating results, net decreased from a net gain of Ps. 92.4 million in fiscal year 2013 to a net loss of Ps. 47.9 million in fiscal year 2014.
 
Shopping Center Properties
 
Other operating results, net from the Shopping Center Properties segment increased by 3.6%, from Ps. 45.0 million in fiscal year 2013 to Ps. 46.6 million in fiscal year 2014, mainly due to:
 
·  
an increase in lawsuits and contingencies of Ps. 1,8 million; and
 
·  
an increase in donations of Ps. 0.6 million;
 
·  
partially offset by a Ps. 0.3 million decrease in the project analysis and assessment expense.
 
The net loss from other operating results, as a percentage of revenues derived from the Shopping Center Properties segment, decreased from 4.1% in fiscal year 2013 to 3.4% in fiscal year 2014.
 
Offices
 
The net loss from other operating results of our Offices segment increased Ps. 2.9 million from Ps. 0.3 million in fiscal year 2013 to Ps. 3.1 million in fiscal year 2014, mainly due to:
 
·  
a non-recurring recovery from the allowance for asset impairment recorded in 2013 for Ps. 1.8 million; and
 
·  
an increase of Ps. 0.7 million in lawsuits and other contingencies.
 
The net loss from operating results of our Offices segment, as a percentage of revenues derived from this segment, increased from 0.1% in fiscal year 2014 to 1.1% in fiscal year 2014.
 
Sales and Developments
 
The net gain from other operating results of our Sales and Developments segment increased Ps. 1.8 million from Ps. 6.3 million in fiscal year 2013 to Ps. 8.1 million in fiscal year 2014, mainly due to:
 
·  
an “admission fee” charged in connection with the sale of a hotel plot in Neuquén;
 
·  
a Ps. 2.2 million decrease in the project analysis and assessment expense; and
 
·  
a reduction in lawsuits and contingencies during this year;
 
·  
partially offset by a non-recurring gain of Ps. 15.1 million from the sale of our equity interest in Canteras Natal Crespo S.A. (one of the Company’s joint ventures), recognized in fiscal year 2013.
 
Hotels
 
The net loss from operating results of our Hotel segment increased by Ps. 2.3 million, from Ps. 0.4 million in fiscal year 2013 to Ps. 2.7 million in fiscal year 2014, mainly as a result of an increase in the reserve for lawsuits and other contingencies.
 
The net loss from operating results of our Hotels segment, as a percentage of revenues derived from this segment, increased from 0.2% in fiscal year 2013 to 0.8% in fiscal year 2014.
 
International
 
Other operating results, net from this segment decreased from a Ps. 135.1 million net gain in fiscal year 2013 to a Ps. 0.9 million net loss in fiscal year 2014, mainly due to a non-recurring gain of Ps. 136.0 million generated in fiscal year 2013 as a result of the acquisition of an additional interest in Rigby 183 LLC.
 
 
147
 
 
Financial Operations and Others
 
The net loss from other operating results from our Financial Operations and Others segment decreased by Ps. 0.5 million from Ps. 3.4 million in fiscal year 2013 to Ps. 2.9 million in fiscal year 2014, mainly due to lower taxes deducted by BHSA on lower dividends distributed in fiscal year 2014 to our subsidiaries Ritelco and Tyrus.
 
Operating results
 
As a result of the above mentioned factors, the operating results of the Company increased by Ps. 86.4 million (7.7%), from a gain of Ps. 1,116.6 million in fiscal year 2013 to a gain of Ps. 1,203.0 million in fiscal year 2014.
 
Agricultural Business
 
Profit / (loss) from operations of the Agricultural business decreased Ps. 72.5 million (206.1%), from an income of Ps. 35.2 million in fiscal year 2013 to a loss of Ps.37.3 million in fiscal year 2014.
 
Crops
 
Profit / (loss) from operations of this segment decreased Ps. 37.4 million (34.0%) from a Ps. 110.1 million loss in fiscal year 2013 to a Ps. 147.5 million loss in fiscal year 2014.
 
Cattle
 
Profit / (loss) from operations of this segment increased Ps. 45.9 million (332.6%), from a loss of Ps. 13.8 million in fiscal year 2013 to an income of Ps.32.1 million in fiscal year 2014.
 
Dairy
 
Profit / (loss) from operations of this segment increased Ps. 5.1 million (488.5%), from a loss of Ps. 1.0 million in fiscal year 2013 to an income of Ps.4.0 million in fiscal year 2014.
 
Sugarcane
 
Profit / (loss) from operations of this segment decreased by Ps. 46.9 million (172.5%), from a gain of Ps. 27.2 million in fiscal year 2013 to a loss Ps.19.7 million in fiscal year 2014.
 
Agricultural Rental and Services
 
Profit / (loss) from operations of this segment decreased by Ps. 3.4 million (29.7%), from a Ps. 11.5 million gain in fiscal year 2013 to a Ps. 8.1 million gain in fiscal year 2014.
 
Land Transformation and Sales
Profit / (loss) from operations of this segment decreased by Ps. 54.5 million (41.1%), from a gain of Ps.132.6 million in fiscal year 2013 to a gain of Ps.78.0 million in fiscal year 2014.
 
Agro-industrial
 
Profit / (loss) from operations of this segment decreased by Ps. 31.5 million (106.4%), from a loss of Ps. 29.6 million in fiscal year 2013 to a gain of Ps.1.9 million in fiscal year 2014.
 
Other Segments
 
Profit / (loss) from operations of this segment decreased by Ps. 12.7 million (69.0%), from a gain of Ps.18.4 million in fiscal year 2013 to a gain of Ps.5.7 million in fiscal year 2014.
 
Urban Properties and Investments Business
 
Profit / (loss) from operations of this business increased Ps.158.9 million (14.7%) from an income of Ps.1,081.4 million in fiscal year 2013 to an income of Ps.1,240.3 million in fiscal year 2014. This was mainly due to an increase of Ps. 316.2 million in the Shopping Center Properties, Offices, Sales and Developments, Hotels and Financial operations and Others segment, partially offset by a Ps. 159.3 million reduction in the International segment.

Shopping Center Properties
 
Profit / (loss) from operations of our Shopping Center Properties segment increased by 26.1%, from a gain of Ps. 686.0 million in fiscal year 2013 to a gain of Ps. 864.7 million in fiscal year 2014.
 
Profit / (loss) from operations of our Shopping Center Properties segment as a percentage of revenues derived from this segment stood at approximately 62.0% in both fiscal years.
 
Offices
 
Profit / (loss) from operations of our Offices segment increased by 29.5%, from a gain of Ps. 123.6 million in fiscal year 2013 to a gain of Ps. 160.0 million in fiscal year 2014.
 
Profit / (loss) from operations of our Offices segment as a percentage of revenues derived from this segment increased from 43.5% in fiscal year 2013 to 48.0% in fiscal year 2014.
 
Sales and Developments
 
Profit / (loss) from operations of our Sales and Developments segment increased by 40.0%, from a gain of Ps. 170.4 million in fiscal year 2013 to a gain of Ps. 238.5 million in fiscal year 2014.
 
Profit / (loss) from operations of our Sales and Developments segment, as a percentage of the revenues derived from this segment, increased from 124.2% in fiscal year 2013 to 285.8% in fiscal year 2014.
 
 
148
 
 
Hotels
 
Profit / (loss) from operations of our Hotels segment went from a loss of Ps. 22.4 million in fiscal year 2013 to a gain of Ps. 10.2 million in fiscal year 2014.
 
International
 
Profit / (loss) from operations of our International segment decreased from a gain of Ps. 129.3 million in fiscal year 2013 to a loss of Ps. 30.0 million in fiscal year 2014.
 
Financial Operations and Others
 
Profit / (loss) from operations of our Financial Operations and Others segment increased from a loss of Ps. 5.5 million in fiscal year 2013 to a loss of Ps. 3.2 million in fiscal year 2014.
 
Share of (loss) / profit of associates and joint ventures
 
Share of (loss) / profit of associates and joint ventures decreased Ps. 398.9 million, from a Ps. 9.8 million loss in fiscal year 2013 to a Ps. 408.7 million loss in fiscal year 2014, mainly due to:
 
·  
a reduction of Ps. 415.9 million in the share of (loss) / profit from our interest in companies related to our Urban Properties and Investments business recorded in fiscal year 2014;
 
·  
partially offset by a Ps. 2.3 million increase in the Agricultural business, mainly as a result of the revenues derived from the investment in Agro-Uranga (Crops segment).
 
Net financial results
 
We had a higher net financial loss of Ps. 1,665.6 million, from a loss of Ps. 908.8 million in fiscal year 2013 to a loss of Ps. 2,574.4 million in fiscal year 2014. This was primarily due to:
 
·  
a higher loss of Ps. 1,417.8 million in net exchange differences in fiscal year 2014;
 
·  
a higher loss of Ps. 207.7 million in net financial interest recorded in fiscal year 2014;
 
·  
a higher income of Ps. 23.9 million in revaluation of receivables from sale of farms in fiscal year 2014;
 
·  
a higher loss of Ps. 358.2 million in derivative financial instruments in fiscal year 2014; and
 
·  
a higher income of Ps. 294.7 million generated by the results from financial transactions and other in fiscal year 2014.
 
Our net financial loss in fiscal year 2014 was mainly attributable to (i) a Ps. 1,900 million loss generated by exchange differences mainly as a result of a higher liability position in US Dollars due to the issuance of new series of notes; (ii) a loss of Ps. 737.9 million generated by interest accrued on debt financing, mainly due to increased indebtedness and higher interest rates; and (iii) a loss of Ps. 315.6 million generated mainly by derivative instruments due to IDBD’s tender offer.
 
There was a 50% variation in the U.S. Dollar buying rate during fiscal year 2014 (it increased from Ps. 5.348 as of June 30, 2013 to Ps. 8.033 as of June 30, 2014) as compared to the previous fiscal year, when the U.S. Dollar quotation had experienced a smaller variation, of 19% (from Ps. 4.487 as of June 30, 2012 to Ps. 5.348 as of June 30, 2013).
 
Income tax
 
Our income tax expense decreased Ps. 422.9 million, from a Ps. 33.5 million loss in fiscal year 2013 to Ps. 389.4 million income in fiscal year 2014. The Company recognizes the income tax expense on the basis of the deferred tax liability method, thus recognizing temporary differences between accounting and tax assets and liabilities measurements.  The main temporary differences for the Agricultural business derive from valuation of cattle stock and sale and replacement of property, plant and equipment, while those corresponding to the Urban Properties and Investments business derive from the sale and replacement of investment properties.
 
For purposes of determining the deferred assets and liabilities, the tax rate expected to be in force at the time of their reversion or use, according to the legal provisions enacted as of the date of issuance of these financial statements, has been applied to the identified temporary differences and tax losses.
 
Profit / (loss) for the Fiscal Year
 
Due to the above mentioned factors, our profit / (loss) for the fiscal year decreased by Ps. 1,562.7 million (1,012.8%) from a net income Ps. 154.3 million for fiscal year 2013 to a net loss Ps. 1,408.4 million in fiscal year 2014. Profit / (loss) for fiscal years 2014 and 2013 is attributable to the controlling company’s shareholders and non-controlling interest, as per the following detail:
 
·  
Profit / (loss) attributable to the controlling company’s shareholders decreased by Ps. 1,041.0 million, from a loss of Ps. 26.9 million in fiscal year 2013 to a loss of Ps. 1,067.9 million in fiscal year 2014; and
 
·  
the non-controlling interest in controlled companies decreased by Ps. 521.7 million (287.9%), from an income of Ps. 181.2 million in fiscal year 2013 to a loss of Ps. 340.5 million in fiscal year 2014, mainly due to a reduction of Ps. 69.2 million in Brasilagro, a reduction of Ps. 392.2 million in our subsidiary IRSA, and a reduction of Ps. 59.9 million in other companies from the Urban Properties and Investments business.
 
 
Liquidity
 
Our main sources of liquidity have historically been:
 
·  
cash generated by operations;
 
·  
cash generated by our issuance of common shares and non-convertible notes;
 
·  
cash proceeds from borrowings (including cash from bank loans and overdrafts) and financing arrangements (including cash from the exercise of warrants); and
 
·  
cash proceeds from sale of investment and trading properties and property, plant and equipment (including cash proceeds from the sale of farmlands).
 
 
149
 
Our main cash requirements or uses (other than in connection with our operating activities) have historically been:
 
·  
acquisition of subsidiaries and non-controlling interest in subsidiaries;
 
·  
acquisition of interest in associates and joint ventures;
 
·  
capital contributions to associates and joint ventures;
 
·  
capital expenditures in property, plant and equipment (including acquisitions of farmlands) and investment and trading properties;
 
·  
payments of short-term and long-term debt and payment of the related interest expense; and
 
·  
payment of dividends.
 
Our liquidity and capital resources include our cash and cash equivalents, proceeds from operating activities, sales of investment properties, trading properties and farms, obtained bank borrowings, long-term debts incurred and capital funding.
 
Cash Flows
 
The table below shows our cash flow for the fiscal years ended June 30, 2015, 2014 and 2013:
 
   
For the fiscal year ended June 30,
   
2015
    
2014
    
2013
  
   
(in millions of Pesos)
Net cash generated by operating activities
     494.5       883.2       648.5  
Net cash generated from/ (used in) investing activities
     873.9       (885.9 )     (93.0 )
Net cash used in financing activities
     (1,778.2 )     (446.2 )     (17.2 )
Net (decrease) increase in cash and cash equivalents
     (409.8 )     (449.0 )     538.3  
 
As of June 30, 2015, we had cash and cash equivalents of Ps. 633.7 million, a decrease compared to Ps. 1,003.0 million as of June 30, 2014. The decrease was primarily due to cash outflows related with the cancellation of non-convertible notes, financial loans and financial interests for Ps. 3,205.9 million, the repurchase of non-convertibles notes and equity interest for Ps. 337.9 million, the payment of derivative financial instruments for Ps. 233.1 million, the acquisition of investments in financial assets for Ps. 4,609.6 million, the acquisition of investment properties for Ps. 249.7 million, the acquisition of property, plant and equipment for Ps. 220.6 million, and capital contributions and acquisitions of interest in associates and joint ventures for Ps. 1,368.0 millions; partially offset by the cash inflows from operating activities of Ps. 494.5 million, the issuance of non-convertible notes for Ps. 693.4 million, an increase in the short and long-term debt of Ps. 1,497.8 million, and the disposal of investments in financial assets, investment properties and farms for Ps. 4,486.6 million, Ps. 2,446.7 million and Ps. 326.0 million, respectively.
 
As of June 30, 2014, we had cash and cash equivalents of Ps. 1,003.0 million, a decrease compared to Ps. 1,047.6 million as of June 30, 2013. The decrease was primarily due to cash inflows from operating activities of Ps. 883.2 million, the issuance of non-convertible notes for Ps. 1,051.8 million, an increase in the short and long-term debt of Ps. 793.5 million, and the disposal of investments in financial assets, investment properties and farms for Ps. 3,870.8 million, Ps. 402.2 million and Ps. 125.9 million, respectively;  partially offset by the cash outflows related with the cancellation of non-convertible notes, financial loans and financial interests for Ps. 1,966.6 million, the acquisition of investments in financial assets for Ps. 3,683.0 million, the payment of dividends for Ps. 243.6 million, the acquisition of investment properties for Ps. 271.9 million, the acquisition of property, plant and equipment for Ps. 133.4 million, and capital contributions and acquisitions of interest in associates and joint ventures for Ps. 1,192.1 millions.
 
As of June 30, 2015, we had negative working capital of Ps. 251.2 million (calculated as current assets less current liabilities as of such date).
 
We believe our working capital (calculated by subtracting current liabilities from current assets) and our cash from operating activities are adequate for our present and future requirements. In the event that cash generated from our operations is at any time insufficient to finance our working capital, we would seek to finance such working capital needs through debt financing or equity issuances or through the sale of selected non-core assets. For more information about our liquidity please see “Item 3(d) Risk Factors” and “Recent Developments.”
 
On September 10, 2015, IRSA Commercial Properties closed the sale to an unrelated third party of 5,963 square meters in the Intercontinental Plaza Building. The purchase price was Ps.324.5 million, which has been fully paid. For more information see “Recent Development”.
 
On September 18, 2015, IRSA Commercial Properties issued Series I Notes in an aggregate principal amount of Ps.407.3 million. Series I Notes have a maturity of 18 months from its issue date. In addition, on October 16, 2015 IRSA filed to de CNV the updated document of the Global Note Program for up to US$ 300,000,000.
 
On November 6, 2015, IRSA closed the sale to an unrelated third party of 864 square meters of Maipú 1300 Builidng, that represent two floors of office space, and 4 parking units. After such sale, 2,134 square feet remain in our portfolio. The purchase price was U$S 3 million, which has been fully paid.
 
 
150
 
 
Net cash provided by operating activities
 
Fiscal Year ended June 30, 2015 and 2014
 
Net cash provided by operations decreased from a net cash inflow of Ps.883.2 million during fiscal year ended June 30, 2014 to a net cash inflow of Ps. 494.5 million during fiscal year ended June 30, 2015. The decrease in net cash provided by operating activities was primarily due to a decrease in biological assets of Ps. 171.9 million and an increase of Ps. 748.2 million in trade and other receivables; that was partially offset by an increase of Ps. 295.6 million in operating gains, a decrease in inventories of Ps. 65.2 million and an increase of Ps. 314.7 million in trade and other payables during fiscal year ended June 30, 2015 compared to fiscal year ended June 30, 2014.
 
Our operating activities resulted in net cash inflows of Ps. 494.5 million for the fiscal year ended on June 30, 2015, mainly due to operating gains of Ps. 1,199.7 million, an increase of Ps. 144.8 million in trade and other payables, a decrease of Ps. 114.6 million in biological assets, and an increase of Ps. 84.9 million in payroll and social security liabilities, partially offset by the income tax paid of Ps. 429.9 million, an decrease of Ps. 131.7 million in inventories, and an increase of Ps. 748.2 million in trade and other receivables.
 
Fiscal Year ended June 30, 2014 and 2013
 
Net cash provided by operations increased from a net cash inflow of Ps.648.5 million during fiscal year ended June 30, 2013 to a net cash inflow of Ps. 883.2 million during fiscal year ended June 30, 2014. The increase in net cash provided by operating activities was primarily due to an increase of Ps. 156.1 million in operating gains, a decrease of Ps. 533.7 million in trade and other receivables, and a decrease in derivative financial instruments of Ps. 25.7 million; that was partially offset by a decrease of Ps. 390.0 million in trade and other payables and an increase in inventories of Ps. 139.9 million during fiscal year ended June 30, 2014 compared to fiscal year ended June 30, 2013.
 
Our operating activities resulted in net cash inflows of Ps. 883.2 million for the fiscal year ended on June 30, 2014, mainly due to operating gains of Ps. 903.8 million, a decrease of Ps. 268.3 million in trade and other receivables, a decrease of Ps. 286.6 million in biological assets, and an increase of Ps. 71.6 million in payroll and social security liabilities, partially offset by the income tax paid of Ps. 279.9 million, an increase of Ps. 196.8 million in inventories, and a decrease of Ps. 170.0 million in trade and other payables.
 
Net cash used in investing activities
 
Fiscal Year ended June 30, 2015 and 2014
 
Net cash used in investing activities increased from a net cash outflow of Ps. 885.9 million during fiscal year ended on June 30, 2014 to a net cash inflow of Ps. 873.9 million during fiscal year ended on June 30, 2015. This variation was mainly due to a decrease in acquisition of investment properties for Ps. 22.2 million, an increase of cash arising from the sale of farms for Ps. 200.0 million, an increase in the inflows of cash arising from the sale of financial instruments for Ps. 615.8 million and the sale of investment properties for Ps. 2,044.5 million; this increase was partially offset by an increase in acquisitions of investments in financial assets for Ps. 926.6 million, a decrease in acquisition of interest in associates and joint ventures for Ps. 109.8 million and an increase in acquisition  of property, plant and equipment for Ps. 87.2 million during fiscal year ended June 30, 2015 compared to fiscal year ended June 30, 2014.
 
Our investing activities resulted in net cash inflows of Ps. 873.9 million for the fiscal year ended on June 30, 2015 mainly due to the sale of financial instruments, farms, investment properties and associates and joint ventures for Ps. 4,486.6 million, Ps. 326.0 million, Ps. 2,446.7 million, and Ps. 55,8 million, respectively, and dividends collected for Ps. 18.0 million; partially offset by cash outflows related to acquisitions of investments in financial assets for Ps. 4,609.6 million, investment properties for Ps. 249.7 million, property, plant and equipment (including advances) for Ps. 234.6 million and subsidiaries, associates and joint ventures for Ps. 1,241.6 million, and capital contributions to associates and joint ventures for Ps. 126.4 million.
 
Fiscal Year ended June 30, 2014 and 2013
 
Net cash used in investing activities increased from a net cash outflow of Ps. 93.0 million during fiscal year ended on June 30, 2013 to a net cash outflow of Ps. 885.9 million during fiscal year ended on June 30, 2014. This variation was mainly due to an increase in acquisitions of investments in financial assets for Ps. 1,944.0 million, an increase in acquisition of interest in associates and joint ventures for Ps. 1,105.9 million, an increase in acquisition of investment properties for Ps. 58.9 million, and a decrease in the inflows of cash arising from the sale of  farms for Ps. 104.5 million; this increase was partially offset by an increase in the inflows of cash arising from the sale of financial instruments for Ps. 2,002.3 million and the sale of investment properties for Ps. 273.6 million, and a decrease in the outflows of cash applied in loans granted to associates and joint ventures for Ps. 57.7 million and acquisition of subsidiaries for Ps. 117.9 million during fiscal year ended June 30, 2014 compared to fiscal year ended June 30, 2013.
 
Our investing activities resulted in net cash outflows of Ps. 885.9 million for the fiscal year ended on June 30, 2014 mainly due to acquisitions of investments in financial assets for Ps. 3,683.0 million, investment properties for Ps. 271.9 million, property, plant and equipment (including advances) for Ps. 163.1 million and subsidiaries, associates and joint ventures for Ps. 1,131.8 million, and capital contributions to associates and joint ventures for Ps. 60.3 million; partially offset by cash inflows related to the sale of financial instruments, farms, investment properties and associates and joint ventures for Ps. 3,870.8 million, Ps. 125.9 million, Ps. 402.2 million, and Ps. 22.8 million, respectively, and dividends collected for Ps. 22.4 million.
 
Net cash used in financing activities
 
Fiscal Year ended June 30, 2015 and 2014
 
Net cash used in financing activities decreased from a net cash outflow of Ps.446.2 million during fiscal year ended June 30, 2014 to a  net cash outflow of Ps. 1,778.2 million during fiscal year ended June 30, 2015, mainly due to an increase of Ps. 494.9 million in the cancellation of non-convertible notes and financial interests, an increase of Ps. 744.4 million in payments of financial loans, a decrease in the inflow of cash arising from the issuance of non-convertible notes for Ps. 358.4 million, an increase of Ps. 31.1 million in acquisitions of non-controlling interest, an increase in the repurchase of non-convertible notes for Ps. 141.6 million, a decrease in the proceeds from derivative financial instruments for Ps. 60.7 million and a decrease of Ps. 123.1 million in contributions from non-controlling interest; the decrease was partially offset by an  increase in the cash arising from borrowings from financial entities for Ps. 704.3 million, a decrease in dividends paid for Ps. 210.1 million, a decrease in the repurchase of non-convertible notes for Ps. 64.9 million and an increased of Ps. 181.5 million in sale of equity in subsidiaries to non-controlling interest, during fiscal year ended June 30, 2015 compared to fiscal year ended June 30, 2014.
 
Our financing activities resulted in net cash outflows of Ps. 1,778.2 million for the fiscal year ended on June 30, 2015 mainly due to the cancellation of non-convertible notes, financial loans and financial interests for Ps. 1,072.0 million, Ps. 1,334.5 million and Ps. 799.4 million, respectively, payment of dividends for Ps. 33.5 million, payment of seller financing of shares for Ps. 105.9 million, capital reduction of subsidiaries for Ps. 228.1 million, payment of derivative financial instruments for Ps. 233.1 million, and repurchase of non-convertible notes and equity interest for Ps. 305.0 million and Ps. 32.9 million, respectively; partially offset by cash inflows associated with the issuance of non-convertible notes for Ps. 693.4 million, borrowings taking from financial entities for Ps. 1,497.8 million and from associates and joint ventures for Ps. 22.2 million, contribution from non-controlling interest for Ps. 15.9 million, and sale of equity in subsidiaries to non-controlling interest for Ps. 181.8 million.
 
 
 
151
 
 
Fiscal Year ended June 30, 2014 and 2013
 
Net cash used in financing activities decreased from Ps.17.2 million during fiscal year ended June 30, 2013 to Ps. 446.2 million during fiscal year ended June 30, 2014, mainly due to an increase of Ps. 577.6 million in the cancellation of non-convertible notes and financial interests, an increase of Ps. 81.6 million in payments of financial loans, a decrease in the cash inflows of cash arising from borrowings from financial entities for Ps. 85.2 million and from associates and joint ventures for Ps. 53.5 million; the decrease was partially offset by an increase  in the inflow of cash arising from the issuance of non-convertible notes for Ps. 251.4 million, a decrease of Ps. 48,7 million in acquisitions of non-controlling interest, a decrease of Ps. 147.8 million in distribution of share capital of subsidiaries, and an increase  of Ps. 131.0 million in contributions from non-controlling interest, during fiscal year ended June 30, 2014 compared to fiscal year ended June 30, 2013.
 
Our financing activities resulted in net cash outflows of Ps. 446.2 million for the fiscal year ended on June 30, 2014 mainly due to the cancellation of non-convertible notes, financial loans and financial interests for Ps. 799.6 million, Ps. 590.1 million and Ps. 576.9 million, respectively, payment of dividends for Ps. 243.6 million, and repurchase of non-convertible notes and equity interest for Ps. 163.5 million and Ps. 97.7 million, respectively; partially offset by cash inflows associated with the issuance of non-convertible notes for Ps. 1,051.8 million, borrowings taking from financial entities for Ps. 793.5 million and from associates and joint ventures for Ps. 17.2 million, contribution from non-controlling interest for Ps. 139.1 million, and proceeds from derivative financial instruments for Ps. 62.2 million.
 
Indebtedness
 
As of June 30, 2015, we had total loans in the amount of Ps. 8,299.1 million. The table below sets forth our indebtedness by maturing date:
 
      Schedule of Maturities or Amortization  
 
 
  
Currency
   LESS THAN 1 YEAR (1)     MORE THAN 1 YEAR AND UP TO 2 YEARS      MORE THAN 2 YEARS AND UP TO 3 YEARS      MORE THAN 3 YEARS AND UP TO 4 YEARS      MORE THAN 4 YEARS     TOTAL(2)     ANNUAL AVERAGE INTEREST RATE  
    (in million Pesos, constant currency as of June 30, 2015) (3)  
Bank and Other debt
                                            
Bank loans (4)
Ps.
     616.0       -       -       -       -       616.0    
15.01%; 22.54%
  
Bank loans
Ps.
     7.6       6.6       3.3       -       -       17.5    
Floating
  
Bank loans (3)
US$
     10.2       13.8       20.7       20.7       62.4       127.8    
Floating
  
Bank loans (4)
Ps.
     687.4       5.8       2.3       -       -       695.5    
20.2%'
  
Bank loans (4)
Ps.
     106.5       -       -       -       -       106.5    
22.51%
  
Other borrowings
NIS
     15.1       -       -       -       -       15.1       n/a  
Secured bank loans (3)
R$
     139.2       40.2       39.8       38.0       43.1       300.3    
Floating
  
Cresud’s Series XIV Notes (3)
US$
     0.1       -       290.2       -       -       290.3    
1.50%
  
Cresud’s Series XV Notes
Ps.
     120.8       -       -       -       -       120.8    
23.67%
  
Cresud’s Series XVI Notes (3)
US$
     5.0       -       499.3       499.3       -       1,003.6    
1.50%
  
Cresud’s Series XVII Notes
Ps.
     172.6       -       -       -       -       172.6    
Badlar + 250 bps
  
Cresud’s Series XVIII Notes (3)
US$
     1.1       -       -       154.0       154.0       309.1    
4.00%
  
Cresud’s Series XIX Notes
Ps.
     0.8       185.7       -       -       -       186.5    
27.5% ; Badlar + 350 bps
  
Cresud’s Series XX Notes (3)
US$
     0.8       56.2       -       -       -       57.0    
2.5%
  
IRSA Commercial Properties’s Series I Notes (3)
US$
     10.7       1,021.8       -       -       -       1,032.5    
7.88%
  
IRSA’s Series I Notes (3)
US$
     47.3       1,352.7       -       -       -       1,400.0    
8.50%
  
IRSA’s Series II Notes (3)
US$
     62.8       -       -       -       1,202.1       1,264.9    
11.50%
  
IRSA’s Series I Notes
Ps.
     214.1       -       -       -       -       214.1    
Badlar + 395 bps
  
IRSA’s Series II Notes
Ps.
     0.3       10.7       -       -       -       11.0    
Badlar + 450 bps
  
Syndicated loans
Ps.
     75.5       -       -       -       -       75.5    
15.01% ; 15.25%
  
Secured seller financing (3)
US$
     -       -       -       -       71.0       71.0       n/a  
Seller financing (3)
R$
     143.1       -       -       -       -       143.1    
Floating
  
Finance lease obligations (3)
R$
     9.9       6.6       3.2       2.6       -       22.3    
6.92%'
  
Secured finance lease obligations (3)
US$
     1.9       0.8       0.6       -       -       3.3    
10.75% ; from 7.14 to 13.28%
  
Secured obligations
Bol.
     3.1       3.4       -       -       -       6.5    
From 7 to 10.19%
  
Related parties
Ps.
     7.8       14.4       -       -       -       22.2    
Floating
  
Related parties
Ps.
     6.4       5.9       1.8       -       -       14.1    
15.25; 24%; Badlar + 300 bps
  
Total bank and other debt
       2,466.1       2,724.6       861.2       714.6       1,532.6       8,299.1          

(1) Includes accrued interest.
(2) Figures may not sum due to rounding.
(3) Exchange rate as of June 30, 2015 US$ 1.00 = Ps.9.088, R$ 1.00 = Ps.2.93 and NIS 1.00 = Ps. 2.407
(4) Includes bank overdrafts.
 
CRESUD’s Outstanding Notes
 
On September 7, 2011, we issued Series VIII Notes which are denominated in U.S. Dollars in a principal nominal amount of US$ 60 million, due 36 months after the issue date and fully repayable at maturity. They bear interest at a fixed rate of 7.5% payable semiannually on September 7 and March 7 each year.
 
As of June 30, 2015 this class has been fully paid.
 
On June 21, 2012, we issued three new series of Notes for a total amount of Ps. 383.5 million under our Global Note Program:
 
  • Series IX Notes, for a principal amount of Ps. 161.0 million, maturing 18 months after the issue date, and accruing interest at a variable rate (BADLAR Privada + 300 basis points), payable on quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 12, 15 and 18 months from the issue date.
  • Series X Notes, for a principal amount of US$ 31.5 million (equivalent to Ps. 142 million at issue date), maturing 24 months after the issue date, and payable in Pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 7.75% per annum, payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 18, 21 and 24 months from the issue date.
 
 
152
 
 
  • Series XI Notes, for a nominal value of Ps. 80.5 million due 36 months after the issue date, accrues interest at a variable rate (Badlar plus 375 basis points). These are paid on a quarterly basis in arrears while amortization is made in three consecutive payments, the first two payments in an amount equal to 33.33% each of the face value, and the last one in an amount equal to 33.34% of the face value, all of which amount to 100% of the face value of Series XI Notes on the 24th, 30th and 36th months from the issue date.
As of June 30, 2015 these classes have been fully paid.
 
On September 19, 2013, the Company issued Series Five of the Second Tranche of Series X Notes for a nominal value of US$ 30 million. As a consequence, the aggregate principal amount of Series X Notes was US$ 61.5 million, taking into consideration the US$ 31.5 million issued on June 21, 2012. The Second Tranche of Series X Notes is fully exchangeable for Series X Notes.
 
As of June 30, 2015 this class has been fully paid.
 
On February 22, 2013, we issued two new series of Notes for a total amount of Ps. 500 million under our Global Note Program:
  • Series XII Notes, for a principal amount of Ps. 102.1 million, maturing 21 months after the issue date, and accruing interest at a variable rate (BADLAR Private + 410 basis points), payable on quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 15, 18 and 21 months after the issue date.
  • Series XIII Notes, for a principal amount of US$ 79.4 million (equal to Ps. 397.9 million at issue date), maturing 27 months after the issue date, and payable in Pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 1.90% per annum, payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 24 and 27 months after the issue date.
As of June 30, 2015 these classes have been fully paid.
 
On May 22, 2013, we issued series XIV Notes for a total amount of US$ 32 million (equivalent to Ps. 167.5 million at issue date) under our Global Note Program, which will mature from 60 months from the issue date, the aforementioned notes will be payable in Pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 1.5% per annum, on payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 54 and 60 months after the issue date.
 
On November 18, 2013, we issued two new series of Notes for a total amount of Ps. 828 million under our Global Note Program:
  • Series XV Notes, for a principal amount of Ps. 176.4 million, maturing 24 months after the issue date, and accruing interest at a variable rate (BADLAR Private + 399 basis points), payable on quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 18, 21 and 24 months after the issue date.
  • Series XVI Notes for a total amount of US$ 109.11 million with an issuance price of 102.3% (equivalent to Ps. 661.2 million at issue date), which will mature from 60 months from the issue date, the aforementioned notes will be payable in Pesos at an applicable exchange rate in connection with each payment date. The notes accrue interest at a fixed rate of 1.5% per annum, on payable quarterly basis in arrears, and the principal amount is payable in quarterly payments due within 54 and 60 months after the issue date.
On September 12, 2014, the Ninth Series of simple corporate notes was issued in the equivalent amount of Ps. 455.3 million, in two classes.
  • Series XVII Notes, for a face value of Ps. 171.8 million and falling due 18 months after the issuance date, will accrue interest at a variable rate (Badlar plus 250 basis points). Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 18 months following the issuance date. The issuance price was 100.0% of the nominal value.
  • Series XVIII Notes, for a face value of US$ 33.7 million, with an issuance price of 102.179% of the nominal value resulting US$ 34.4 million equivalent to Ps. 289.7 million at issuance date and falling due 60 months after the issuance date, will accrue interest at fixed annual rate of 4%. Interest will be payable quarterly in arrears whereas the principal will be amortized in two consecutive payments on the 54 and 60 months following the issuance date.
On March 13, 2015, the tenth Series of simple corporate notes was issued in the amount equivalent to Ps. 352.8 million nominal value, in two classes.
  • Series XIX Notes, for a face value of Ps. 187.0 million and falling due 18 months after the issuance date, will accrue interest at fixed rate of 27.5% during the first twelve months and will accrue interest at floating rate the remaining six months (Badlar plus 350 basis points). The issuance price was 100% of the nominal value.  Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 18 months following the issuance date.
  • Series XX Notes, for a face value of US$ 18.2 million, with an issuance price of 104% of the nominal value resulting US$ 18.9 million equivalent to Ps. 165.8 million and falling due 24 months after the issuance date, will accrue interest at fixed annual rate of 2.5%. Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 24 months following the issuance date.
On August 12, 2015 the Eleventh Tranche of Notes was issued, comnsisting of two series, Series XXI and XXII, for a principal amount of Ps. 396.2 million, under the US$ 300 Million Program approved by the Shareholders’ Meeting. For more information see “Recent Development.”
 
IRSA’S Series I and II Notes due 2017 and 2020
 
On February 2, 2007, IRSA issued US$ 150 million at a nominal fixed rate 8.5%. The notes are due February 2017 and principal is paid at maturity. Interest is payable on February and August of each year from August 2007.
 
This issue was in the framework of the global issuance program of notes for a nominal value of up to US$ 200 million authorized by Resolution N° 15,529 and 15,537 of the CNV dated December 7 and December 21, 2007. On February 25, 2010, the Board of Directors of IRSA expanded the amount to up to US$ 400 million as mandated by the Ordinary and Extraordinary Meeting of Shareholders held on October 29, 2009.
 
As part of the expanded program, on July 20, 2010 IRSA issued NCN for an amount of US$ 150 million at a nominal fixed rate of 11.5%. The notes are due July 2020 and principal is paid at maturity. Interest is payable on January 20 and June 20 of each year from January 20, 2011.
 
IRSA NCN due 2017 and 2020 contain certain customary covenants and restrictions, including among others, limitations for the incurrence of additional indebtedness, restricted payments, disposal of assets, and entering into certain transactions with related companies.
 
Under the NCN indentures, IRSA is permitted to incur additional indebtedness provided its coverage of consolidated interest ratio is higher than 1.75. The coverage of consolidated interest ratio is defined as consolidated EBITDA divided by consolidated interest expense, subject to certain adjustments. EBITDA is defined as operating income plus, depreciation and amortization and other consolidated non-cash charges.
 
 
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Restricted payments include restrictions for payment of dividends and other outflows relating to prepayments of indebtedness or to acquisition of certain investments. These restricted payments could not be made in excess of the sum of:
 
·  
50% of IRSA’s cumulative consolidated net income; or 75% of IRSA’s cumulative consolidated net income if the coverage of consolidated interest ratio is at least 3.0 to 1; or 100% of IRSA’s cumulative consolidated net income if the coverage of consolidated interest ratio is at least 4.0 to 1;
 
·  
net cash proceeds from new capital contributions;
 
·  
reduction of the indebtedness of IRSA or its restricted subsidiaries;
 
·  
reduction in investments in debt certificates (other than permitted investments); and
 
·  
distributions received from unrestricted subsidiaries.
 
Issuance of Series III and Series IV Notes
 
On February 10, 2012, IRSA issued an aggregate principal amount of Ps. 300 million under the US$ 300 Million Program approved by the Shareholders’ Meeting:
 
·  
Series III Notes, for a principal amount of Ps. 153.2 million, accrue interest at BADLAR rate plus 249 basis points, and mature 18 months from their issue date. They are repayable in three consecutive payments due within 12, 15 and 18 months after their issue date, and;
 
·  
Series IV Notes, for a principal amount of US$ 33.8 million (equivalent to Ps. 146.9 million), accrue interest at a fixed rate of 7.45%, are subscribed and repayable in Pesos at the applicable exchange rate, and mature 24 months after the issue date. They are repayable in 4 equal consecutive payments due within 15, 18, 21 and 24 months after their issue date.
 
IRSA’S Series V and VI Notes due 2015 and 2017
 
On February 26, 2014, Series V and VI were issued for an amount of Ps. 220.2 million. Company's NCN due 2015 and Company's NCN due 2017 both contain certain customary covenants and restrictions, including among others, limitations for the incurrence of additional indebtedness, restricted payments, disposal of assets, and entering into certain transactions with related companies.
 
Series V Notes ("Class V"), were issued for an amount of Ps. 209.4 million. The securities were issued at par value and priced at a floating interest rate equal to Badlar rate plus 395 basis points. The principal of Class V will be repaid through a single payment on the maturity date. Class V matures within 18 months from the date of issue. Interest will be paid quarterly. Class V is fully canceled.
 
Series VI Notes ("Class VI"), were issued for an amount of Ps. 10.8 million. The securities were issued at par value and priced at a floating interest rate equal to Badlar rate plus 450 basis points. The principal of Class VI will be repaid through a single payment on the maturity date. Class VI matures within 36 months from the date of issue. Interest will be paid quarterly on May 26, 2014, August 26, 2014, November 26, 2014, February 26, 2015, May 26, 2015 and August 26, 2015, November 26, 2015, February 26, 2016, May 26, 2016, August 26, 2016, November 28, 2016 and February 27, 2017.
 
IRSA Commercial Properties Series I Notes
 
On May 11, 2007, IRSA Commercial Properties issued two parts of notes for a total amount of US$ 170 million. One of the series (Series I) consists of US$ 120 million notes at a nominal fixed rate of 7.87% due May 2017 while the other (Series II) comprises Ps. 154.0 million (equivalent to US$ 50 million) notes at a nominal fixed rate of 11.0% due in June 2012. Interest on the Series I is payable on May 11 and November 11 of each year from November 11, 2007; principal due in May 11, 2017. Interest on the Series II was paid on June 11 and December 11 of each year from December 11, 2007; principal was due in seven equal and consecutive semi-annual installments from June 11, 2009. As of June 30, 2012, Series II is completely canceled.
 
These issuances were part of a global issuance program of notes for a nominal value of up to US$ 200 million authorized by Resolution N° 15,614 of the CNV dated April 19, 2007. On October 29, 2009, the Ordinary and IRSA Commercial Properties' Extraordinary Meeting of Shareholders expanded the amount to up to US$ 400 million.
 
IRSA Commercial Properties Series I Notes due 2017 contain certain covenants, events of default and restrictions, as well as limitations on additional indebtedness, transactions with affiliates, mergers and total or partial disposal of the assets of IRSA Commercial Properties. For additional indebtedness IRSA Commercial Properties is required to comply with the financial ratio “coverage of consolidated interest”, which should be higher than 1.75. The coverage of consolidated interest ratio is defined as consolidated EBITDA divided by consolidated interest expense, subject to certain adjustments. EBITDA is defined as operating income plus, depreciation and amortization and certain other consolidated non-cash charges.
 
Issuance of Series I Notes
 
On September 18, 2015 we issued Series I Notes under our Global Note Program in an aggregate principal amount of Ps.407.3 million. Series I Notes have a maturity of 18 months from its issue date, and will bear a mixed interest rate of 26.5% per year during the first three months, and Private Badlar Rate (Tasa Badlar Privada) plus 400 bps per year during the remaining period, playable on a quarterly basis. For more information see “Recent Development.”
 
Other Debts
 
CRESUD
 
Banco Ciudad Financial Loan
 
On January 10, 2012, we subscribed a loan with Banco Ciudad for a total amount of US$ 20 million, disbursable in several installments.
 
The principal amount accrues interest at the higher of an annual nominal rate equal to the 180 day LIBOR rate plus a spread of 300 basis points or an annual nominal fixed rate of 6%. Interest is payable semi-annually and the principal amount is repayable on an annual basis, starting on the second anniversary of the first disbursement.
 
As of June 30, 2015, disbursements had been made for a total amount of US$ 15.2 million. The loan proceeds will be used for an investment project consisting of reconverting for agricultural purposes 15,934 hectares in the “Los Pozos” farm, currently assigned to livestock breeding.
 
 
 
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Production Investment Loan
 
On December 5, 2012, we subscribed a loan with Banco de la Provincia de Buenos Aires for an amount of Ps. 24.0 million, under the credit facility for production investment described in Communication A 5319 issued by the Argentine Central Bank. The loan accrues interest at a fixed rate of 15.01%, with interest payable on a semi-annual basis, and matures 42 months after the disbursement date. The principal amount is repayable in 7 semi-annual installments, with the first installment falling due in June 2013.
 
FyO – Production Investment Loan
 
On November 22, 2013, FyO subscribed a loan with Banco Hipotecario for an amount of Ps. 840,000, under the credit facility for production investment described in Communication A 5449 issued by the Argentine Central Bank. The loan accrues interest at a fixed rate of 15.25%, with interest payable on a monthly basis, and matures 36 months after the disbursement date. There is a grace period of one year for the repayment of the principal amount, after which the principal is repayable in 24 monthly consecutive installments.
 
Bolivia Investment Loan
 
On December 17, 2012, Agropecuaria Acres Del Sud S.A., CRESUD’s subsidiary, subscribed a loan with Banco Económico S.A. for an amount of BOB 13.5 million. The loan accrues interest at a fixed rate of 7.45%, with interest and principal being payable semi-annually. The loan matures 60 months after the disbursement date. The loan proceeds were used to plant sugarcane in the 4 Vientos and Primavera farms and to fund infrastructure expenses in channels, roads and bridges in 4 Vientos.
 
Banco de la Pampa Loan
 
On August 3, 2012 we subscribed a loan with Banco de La Pampa for an amount of Ps.  20.0 million. The loan accrues interest at the Encuesta variable rate less 200 basis points, with an annual nominal rate subject to a bottom of 10.50% and a ceiling of 14.50%. There is a grace period of one year and a half for the repayment of the principal amount, after which it is repayable in 6 semi-annual consecutive installments. The loan proceeds were used to make working capital investments in our subsidiary Sociedad Anónima Carnes Pampeanas S.A.
 
IRSA
 
Hoteles Argentinos Loan
 
On December 26, 2013, Hoteles Argentinos S.A. (“HASA”), IRSA’s subsidiary, subscribed a loan with Banco Hipotecario for an amount of Ps. 5.0 million, under the credit line for productive investment provided under Communication “A” 5449 of the Central Bank. The loan accrues interest at a fixed rate of 15.25%, with interest payable on a monthly basis, and matures 36 months after the disbursement date. There is a grace period of one year for the repayment of the principal amount, after which the principal is repayable in 24 monthly consecutive installments.
 
Llao Llao Loan
 
On December 23, 2013, Llao Llao Resorts S.A. (“Llao LLao”), IRSA’s subsidiary, subscribed a loan with Banco Hipotecario for an amount of Ps. 4.0 million, under the credit line for productive investment provided under Communication “A” 5449 of the Central Bank. The loan accrues interest at a fixed rate of 15.25%, with interest payable on a monthly basis, and matures 36 months after the disbursement date. There is a grace period of one year for the repayment of the principal amount, after which the principal is repayable in 24 monthly consecutive installments.
 
Nuevas Fronteras Mortgage Loan
 
On December 30, 2014, Nuevas Fronteras S.A. (“Nuevas Fronteras”), IRSA’s subsidiary, subscribed a loan with Banco Hipotecario for Ps. 7.0 million, under the credit line for production investment described in Communication “A” 5600 issued by the Central Bank. The loan accrues interest at a fixed rate of 24.0% during the first twelve months and at a variable rate (corrected Badlar + 50 bps) during the remaining twenty-four months, payable monthly and it is due 36 months after the disbursement date. Principal is subject to one-year grace period and then it is payable in 24 consecutive monthly installments.
 
IRSA Propiedades Comerciales S.A. (“IRSA Commercial Properties”)
 
ARCOS Syndicated Loan
 
On November 16, 2012, IRSA Commercial Properties subscribed a syndicated loan with local banks in the amount of Ps. 118 million, under the credit line for production investment described in Communication “A” 5319 issued by the Central Bank. The loan accrues interest at a fixed rate of 15.01%, payable monthly and it is due 36 months after the disbursement date. Principal is subject to one-year grace period and then it is payable in nine consecutive quarterly installments.
 
Bank Loans Communication 5319
 
On December 12, 2012 IRSA Commercial Properties subscribed a loan with Banco de la Provincia de Buenos Aires for Ps. 29.0 million, under the credit facility for production investment described in Communication “A” 5319 issued by the Central Bank. The loan accrues interest at a fixed rate of 15.01%, payable monthly and it is due 36 months after the disbursement date. Principal is subject to a 9-month grace period and then it will be repaid in 9 consecutive quarterly installments.
 
Neuquén Syndicated Loan
 
On June 12, 2013, IRSA Commercial Properties executed a syndicated loan with local banks in the amount of Ps. 111 million, under the credit facility for production investment described in Communication “A” 5380 issued by the Central Bank. The loan accrues interest at a fixed rate of 15.25%, payable monthly and it is due 36 months after the disbursement date. Principal is subject to a one-year grace period and then it will be repaid in 9 consecutive quarterly installments.
 
Capex Citibank 5449 – Other Loans
 
On December 23, 2013, IRSA Commercial Properties subscribed a loan with the Citibank N.A. local branch for an aggregate amount of Ps. 5.9 million, under the credit facility for production Investment described in Communication “A” 5449 issued by the Central Bank. The loan accrues interest at a fixed rate of 15.25%, payable quarterly and it is due 39 months after the disbursement date. Principal is subject to a one-year grace period and then it will be repaid in 9 consecutive quarterly installments.
 
Capex Citibank 5620 – Other Loans
 
On December 30, 2014, IRSA Commercial Properties subscribed a loan with the Citibank N.A. local branch for an aggregate amount of Ps. 10.3 million, under the credit facility for production Investment described in Communication “A” 5620 issued by the Central Bank. The loan accrues interest at a fixed rate of 26.50%, payable quarterly and it is due 36 months after the disbursement date. Principal is subject to a one-year grace period and then it will be repaid in 9 consecutive quarterly installments.
 
 
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Nuevo Puerto Santa Fe Loan
 
On December 26, 2013, NPSF, IRSA Commercial Properties’ subsidiary, executed a loan agreement with Banco Hipotecario for an aggregate amount of Ps. 10.0 million, under the credit facility for production investment described in Communication “A” 5449 issued by the Central Bank. The loan accrues interest at a fixed rate of 15.25%, payable monthly and it is due 36 months after the disbursement date. Principal is subject to a one-year grace period and then it will be repaid in 24 consecutive monthly installments.
 
Soleil Debt
 
On December 28, 2007, as a result of the purchase of Soleil plot of land, an agreement was executed with INCSA for the purpose of financing a balance price in the amount of US$ 12.6 million. Such loan accrues interest at a fixed rate of 5%, payable on annual basis. Principal shall be repaid when due on June 30, 2017. This financing agreement was prepaid in whole on August 22, 2014.
 
 Off balance sheet arrangements
 
We currently have no agreement that is not included in the balance sheet or significant transactions with non-consolidated entities that are not reflected in our consolidated Financial Statements. All of our interests and/or relationships with our subsidiaries or controlled entities on a joint basis are recorded in our consolidated Financial Statements.
 
 
Investments in technology amounted to Ps.10.4 million, Ps.9.3 million and Ps.12.1 million for the fiscal years 2015, 2014 and 2013 respectively. Our total technology investments aim to increase the productivity of purchased land have amounted to Ps.445.2 million since fiscal year 1995.
 
We reach our objectives within this area through the implementation of domestic and international technological development projects focusing mainly on:
 
 
•
Quality and productivity improvement.
 
•
Increase in appreciation value of land through the development of marginal areas.
 
•
Increase in the quality of food in order to achieve global food safety standards. We aim to implement and perform according to official and private quality protocols that allow us to comply with the requirements of our present and future clients. Regarding official regulations, in 2003 we implemented the Servicio Nacional de Sanidad y Calidad Agroalimentaria law on animal identification for livestock in six farms. Simultaneously, in 2004 we implemented Global GAP Protocols (formerly EurepGap) with the objective of complying with European Union food safety standards and as a mean for continuous improvement of the internal management and system production of our farms. Our challenge is to achieve global quality standards.
 
•
Certification of suitable quality standards, since in recent years worldwide agriculture has evolved towards more efficient and sustainable schemes in terms of environmental and financial standpoints, where the innocuousness and quality of the production systems is becoming increasingly important. In this context, Good Agricultural Practices (GAP) have emerged, as a set of practices seeking to ensure the innocuousness of agricultural products, the protection of the environment, the workers’ safety and well-being, and agricultural health, with a view to improving conventional production methods. Certification of such standards allows to demonstrate the application of Good Agricultural Practices to production systems and ensures product traceability, allowing to impose stricter controls to verify the enforcement of the applicable laws.
 
•
The implementation of a system of control and assessment of agricultural tasks for analyzing and improving efficiency in the use of agricultural machinery hired. For each of the tasks, a minimum standard to be fulfilled by contractors was set, which has led to do an improvement in the plant stand upon sowing, a better use of supplies and lower harvesting losses.
 
We do not have any patents or licenses that are material for conducting our business.
 
 
International Outlook:
 
As reported by the International Monetary Fund (“IMF”) in its “World Economic Outlook” (“WEO”), global activity increased by 3.4% in 2014, and world growth is expected to reach 3.5% in 2015 and 3.8% in 2016. From 2015 to 2016, developed economies are expected to grow at values a bit in excess of 2%, driven by the growth in the United States of 3.1%, and in the Euro area, of 1.5%.
 
Emerging and developing economies have recorded growth rates similar to those seen last year, and they are expected to grow 4.3% and 4.7% by the end of 2015 and 2016. The recovery of developed economies should have a positive impact on trade, although it could be lessened by lower commodity prices.
 
During 2013 and 2014, the financial markets generally continued their pickup after their lower performance of 2011. The MSCI World index showed strong recovery during 2013, and a less strong recovery during 2014. On the other hand, the MSCI Emerging Markets index follows a negative trend since 2013. The continued currency stimulation programs in the world, led mainly by the FED, have brought most of the upsurge in the developed markets.
 
Argentine Economy:
 
Argentine growth forecasts were revised down again as compared to those of last year. The IMF reduced its projection for GDP growth in 2014 to 0.5% and projected a slight contraction in GDP for 2015 of 0.3%. This correction was mainly due to deteriorated external financing conditions.
 
Consumption remained as the main driver of economic activity, as shopping center and supermarket sales grew at rates of 33.3% and 26.1%, respectively, comparing May 2015 and the same last year period.
 
According to INDEC the unemployment rate was at 6.9% of the economically active population, showing a slight increase of 0.3% on a year-on-year basis in December. In turn, nominal salaries increased 31.5% during the same period.
 
 
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Compared to the same period of the previous year, industrial activity decreased by 1.3% during the first half of 2015 (removing the seasonal component). Car production fell 11.8% on year-on-year basis in July 2015, the same as car exports, which fell 21.1%.
 
Regarding the balance of payments, in the first quarter of 2015 the current account deficit reached US$ 3,710 million, with US$ 452 million allocated to the goods and services trade balance, and US$ 3,231 million to the income account, which represents 72% of the foreign direct investment return.
 
During the past quarter, the financial account showed a surplus of US$ 5,379 million resulting from net income from the non-financial public sector and the BCRA for US$ 3,317 million, from the non-financial private sector for US$ 1,196 million, and from the financial sector for US$ 866 million.
 
The stock of international Reserves at the beginning of August 2015 stood at US$ 33,915 million, accounting for an increase of 17.4%, compared to last year and after the payment of the sovereign bond, BODEN 15, on October 3, 2015, the stock of of foreign currency reserves was US$ 27.7 billion.
 
Total gross external debt at the closing of March 2015 was estimated at US$ 145,931 million, an increase of US$ 1,840 million compared to the previous quarter.
 
The non-financial public sector and Argentine Central Bank debt for the quarter was estimated at US$ 78,154 million, an increase of 243 million from the previous quarter. The Argentine Central Bank’s liabilities increased by US$ 2,320 million mainly explained by disbursements and new tranche capitalization of the swap with the Popular Republic of China. The government security and bond outstanding balance diminished by US$ 1,702 million, mainly due to depreciation of the Euro with respect to the US Dollar and to a lesser extent due to secondary market transactions.
 
The non-financial private debt for the quarter was estimated at US$ 64,931 million, increasing by US$ 1,390 million compared to the previous quarter.
 
The financial sector debt excluding the Argentine Central Bank was estimated at US$ 2,846 million, showing an increase for the quarter of US$ 207 million.
 
In connection with the fiscal sector, revenues recorded a year-on-year increase of 33.9% as of May 2015, whereas primary expenditure grew by 34.3%, slightly over the increase in revenues, and was mostly oriented to items related to the sustainment of domestic demand.
 
In local financial markets, the Private Badlar rate in Pesos ranged from 19% to 23% in the period from July 2014 to June 2015, averaging 20.47% in June 2015 against 22.03% in June 2014. The Argentine Central Bank continued with its controlled floating exchange rate policy: the Peso sustained a 11.7% nominal depreciation in the period from July 2014 to June 2015.
 
In the fiscal year herein analyzed, Argentina’s country risk, measured as per the Emerging Market Bond Index, decreased by 93 basis points, maintaining a high spread vis-à-vis the rest of the countries in the region. The debt premium paid by Argentina was at 631 basis points in June 2015, compared to the 304 paid by Brazil and the 194 paid by Mexico.
 
Product Prospects
 
The sources of the following information are the Ministerio de Agricultura, Ganadería y Pesca de la República Argentina and the United States Department of Agriculture (“USDA”).
 
Wheat
 
World wheat production for the 2015/2016 campaign is projected by USDA at 732.79 million tons, 7 million tons more than the 2014/2015 campaign. Estimated harvested area is expected to increase by almost 1 million hectares at global level, while production yields are expected to stay at similar levels as the 2014/2015 campaign. The wheat production forecast for Argentina is 10.5 million tons, 16% less than 2014/2015 campaign, with wheat planted area projected to decrease from 5.26 to 4 million hectares.
 
Corn
 
USDA projections for the 2015/2016 season estimates that world production will reach 972.60 million tons, showing a derease with respect to the previous year. 2015/2016 yield is estimated at 5.54 million tons per hectare, down 1.6% from previous campaign. In the case of Argentina, the planted area is expected to decrease from 3.20 to 3.10 million hectares, pushing the expected production down from 26.5 million to 25 million tons for the 2015/2016 campaign.
 
Soybean
 
The USDA projections for the 2015/2016 season estimates that the world soybean production will remain at its 2014/2015 levels, at 320.49 million tons. In particular, USDA estimates that Argentina’s soybean production will decrease by 3.8 million tons, to 57 million tons in the 2015/2016 campaign.
 
Cattle
 
According to the USDA projections, world beef production is projected at 58.4 million tons in 2015, down 1.3 million tons from previous year production. In the case of Argentina, the expected production remain stable for 2015 with 2.7 million tons. The beef cattle market has remained sound, with listed prices that surpassed the peaks set last spring when the Province of Buenos Aires became flooded.
 
Dairy
 
The USDA estimates show, that the world production of milk will increase from the 2014 production levels of 485 million tons to 493 million tons by the end of 2015. In the case of Argentina, production is expected to increase to 10.7 million tons in 2015, 3.6% lower than 2014 due to unfavorable weather early in the year and ongoing adverse economic situation. As the dairy sector shrinks leaving the more efficient farmers, milk yields per cow are expected to rise.
 
Argentina continues to be the third largest exporter of whole powdered milk in the world. Exports for 2015 are estimated at 180,000 tons.
 
For additional information about our Agricultural business, please see Item 4. Information on the Company “B, Business Overview - Agricultural Business”.
 
Evolution of Shopping Centers in Argentina
 
Private consumption continues to be the driver of economic activity. The Consumer Confidence Index (CCI), that measures the purchasing expectations, prepared by the Center for Research in Finances (Centro de Investigación en Finanzas) of the School of Business of Universidad Torcuato Di Tella increased by 30.9% in June 2015 compared to the same month in 2014. The metric stood at the highest level since January 2012, and only 10% below the highest historical record in January 2007. The evolution of the Shopping Centers segment shows evidence thereof. Based on the information released by the Argentine Institute of Censuses and Statistics (“INDEC”), in June 2015 the sales at current prices –without removal of the seasonality component- reached a total amount of Ps. 3,669 million, which represented a 26.5% increase compared to the same month in 2014.
 
 
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In relation to the office market, according to Colliers International, the A+ and A office inventory in the City of Buenos Aires remained stable during the second quarter of 2015 at 1,646,885 sqm. With regard to the vacancy rate, there was a slight decrease from 8.1% in the first quarter of the year to 7.4% during the second quarter. The A+ buildings show a vacancy rate of 6.5% (6.9% in the previous period) and class A properties showed a vacancy rate of 7.9%, 1.1pp lower than the 9% recorded in the first quarter of 2015.
 
In terms of available footage, the second quarter of 2015 ended with 120,248 sqm offered for rental, 78% of which is represented by the sub-markets Macrocentro Sur, Zona Norte GBA and Puerto Madero. Net absorption recorded in the second quarter of the year was 12,838 sqm. This value is mainly explained by the performance of class A properties, while during the quarter an aggregate footage of 10,128 sqm has been absorbed. If the geographic distribution of this absorption is analyzed, it can be seen that the sub-market Zona Norte GBA accounts for 69% of this total area. Such area is followed –far behind- by the sub-markets Microcentro and Puerto Madero (accounting for 20 and 18%, respectively). Conversely, in Plaza Roma a negative absorption of 1,105 sqm was recorded, mainly explained by the vacancy of 6 floors in Torre Bouchard. In turn, the sub-markets Macrocentro, Macrocentro Sur and Plaza San Martin did no record changes in absorption, i.e. no new spaces have been occupied or have become vacant in the properties comprising such stock.
 
Average rental price recorded an increase in the second quarter from US$ 23.8 per square meter to US$ 24.7 per square meter. Upon performing an analysis by building category, it is shown that the average rental price of those in the A+ segment is US$ 26.3 per square meter (US$ 25.5 per square meter in the previous period), while the average price of those in class A is US$ 23.6 per square meter (US$ 22.7 per square meter in the previous quarter). In turn, the sub-market Macrocentro Norte is currently the market with the best prices in the market. The average value of the properties in such area amounts to US$ 31.2 per square meter (vacancy rate 2.8%).
 
Late in 2015, four new office buildings are expected to be included in the office inventory with a total footage of 44,000 sqm. Two of them will be located in the Plaza San Martín sub-market and the remaining ones will be located in Zona Norte C.A.B.A. and Macrocentro Sur. It should be noted that 38% of this new area will be subject to the LEED sustainability standards.
 
For information about Production and Sales, please see Item 5.A. “Consolidated Operating Results”.
 
 
Agricultural Business
 
In the ordinary course of business, FyO guarantees certain brokerage transactions. Under the agreement, FyO guarantees the performance of the producer in case it In the ordinary course of business, FyO guarantees certain brokerage transactions. Under the agreement, FyO guarantees the performance of the producer in case it does not comply with the physical delivery. We have recourse against the non-performing party. As of June 30, 2015, the value of transacted merchandise for which guarantees were granted amounted to Ps. 7.8 million. As of the date of this annual report, there were non-performing parties under the agreements for which we had to respond as guarantor. As of the date of this annual report, the value of transacted merchandise for which guarantees were granted amounted to Ps. 26.2 million.
 
Urban Properties and Investment Business
 
As of June 30, 2015, IRSA did not have any off-balance sheet transactions, arrangements or obligations with unconsolidated entities or others that are reasonably likely to have a material effect on our financial condition, results of operations or liquidity.
 
 
The following table shows our contractual obligations as of June 30, 2015.
 
Where the interest payable is not fixed, the amount disclosed has been determined by reference to the existing conditions at the reporting date.
 
As of June 30, 2015
  
Less than 1 year
    
Between 1 and 2 years
    
Between
2 and 3 years
    
Between
3 and 4 years
    
More than 4 years
    
Total (i)
  
Trade and other payables
     943,713       11,001       4,698       2,582      -       961,994  
Borrowings (excluding finance lease liabilities)
     2,215,239       3,296,084       616,654       717,850       2,118,068       8,963,895  
Finance lease
     11,785       7,291       3,859       2,552       -       25,487  
Derivative financial instruments
     270,499       269,949       -       -       -       540,448  
Total
     3,441,236       3,584,325       625,211       722,984       2,118,068       10,491,824  
 
(i)  
Includes accrued and prospecting interest, if applicable.
 
 
See the discussion at the beginning of this Item 5 and “Disclosure regarding forward looking statements” in the introduction of this annual report, for forward-looking statement safe harbor provisions.
 
For information about Production and Sales, please see Item 5.A. “Consolidated Operating Results”.
 
 
 
Board of Directors
 
We are managed by a board of directors, which consists of ten directors and three alternate directors. Each director and alternate director is elected by our shareholders at an annual ordinary meeting of shareholders for a three-year term, provided, however, that only one third of the board of directors is elected each year. The directors and alternate directors may be re-elected to serve on the board unlimited number of times. There are no arrangements or understandings pursuant to which any director or person from senior managements is selected.
 
 
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Our current board of directors was elected at the shareholders’ meetings held on October 31, 2013, November 14, 2014 and October 30,2015, for terms expiring in the years 2016, 2017 and 2018, respectively.
 
Our current directors are as follows:
 
Directors(1)
Date of Birth
Position in Cresud
Term Expires(2)
Date of Current Appointment
Current Position Held Since
Eduardo Sergio Elsztain
01/26/1960
Chairman
11/14/17
11/14/14
1994
Saúl Zang
12/30/1945
First Vice-Chairman
11/14/17
11/14/14
1994
Alejandro Gustavo Elsztain
03/31/1966
Second Vice-Chairman and CEO
06/30/16
10/31/13
1994
Gabriel A.G. Reznik
11/18/1958
Regular Director
10/30/18
10/30/15
2003
Jorge Oscar Fernández
01/08/1939
Regular Director
10/30/18
10/30/15
2003
Fernando Adrián Elsztain
01/04/1961
Regular Director
06/30/16
10/31/13
2004
David Alberto Perednik
11/15/1957
Regular Director and Chief Administrative Officer
06/30/16
10/31/13
2004
Pedro Damaso Labaqui Palacio
02/22/1943
Regular Director
10/30/18
10/30/15
2006
Daniel E. Mellicovsky
01/17/1948
Regular Director
11/14/17
11/14/14
2008
Alejandro Gustavo Casaretto
10/15/1952
Regular Director
11/14/17
11/14/14
2008
Gastón Armando Lernoud
06/04/1968
Alternate Director
11/14/17
11/14/14
1999
Enrique Antonini
03/16/1950
Alternate Director
06/30/16
10/31/13
2007
Eduardo Kalpakian
03/03/1964
Alternate Director
06/30/16
10/31/13
2007
           
 
(1)
The business address of our management is Moreno 877, 23rd Floor, (C1091AAQ) Buenos Aires, Argentina.
 
(2)
  Term expires at the annual ordinary shareholders’ meeting.
 
Gabriel A. G. Reznik, Jorge Oscar Fernandez, Pedro Dámaso Labaqui Palacio, Daniel Elias Mellicovsky, Enrique Antonini and Eduardo Kalpakian, qualify as independent, in accordance with the CNV’s Rules.
 
The following is a brief biographical description of each member of our board of directors:
 
Eduardo Sergio Elsztain. Mr. Elsztain studied Economic Sciences at University of Buenos Aires (Universidad de Buenos Aires). He has been engaged in the real estate business for more than twenty years. He is chairman of the board of directors of IRSA Inversiones y Representaciones Sociedad Anónima, Consultores Asset Management S.A., Arcos del Gourmet S.A., BACS Banco de Crédito & Securitización S.A., Banco Hipotecario S.A., Brasilagro Companhia Brasileira de Propiedades Agricolas, Tarshop S.A., E-Commerce Latina S.A., and Dolphin Netherlands BV, among other companies. He is also director of IDBD Development Corporation Ltd. Mr. Eduardo S. Elsztain is Fernando A. Elsztain’s cousin and Alejandro G. Elsztain’s brother.
 
Saúl Zang. Mr. Zang obtained a law degree from University of Buenos Aires (Universidad de Buenos Aires). He is a member of the International Bar Association and the Interamerican Federation of Lawyers. He is a founding member of Zang, Bergel & Viñes law firm. He is chairman of Puerto Retiro S.A., first vice-chairman of IRSA Inversiones y Representaciones Sociedad Anónima and vice-chairman of IRSA Propiedades Comerciales S.A., Tarshop S.A., and Fibesa S.A., among other companies. He is also director of Banco Hipotecario S.A., Nuevas Fronteras S.A., Brasilagro Companhia Brasileira de Propiedades Agricolas, IDBD Development Corporation Ltd, BACS Banco de Crédito & Securitización S.A., Tarshop S.A., and Palermo Invest S.A., among other companies.
 
Alejandro Gustavo Elsztain. Mr. Elsztain obtained a degree in agricultural engineering from University of Buenos Aires (Universidad de Buenos Aires). Currently he is chairman of Fibesa S.A. and Cactus Argentina S.A., and second vice-chairman of IRSA Inversiones y Representaciones Sociedad Anónima. He is also vice-chairman of Nuevas Fronteras S.A., and Hoteles Argentinos S.A. He is also director of Brasilagro Companhia Brasileira de Propiedades Agricolas and Emprendimientos Recoleta S.A., among other companies. Mr. Alejandro Gustavo Elsztain is brother of our Chairman Mr. Eduardo S. Elsztain and Daniel Ricardo Elsztain, and cousin of Fernando Adrián Elsztain.
 
Gabriel A. G. Reznik. Mr. Reznik obtained a degree in Civil Engineering from University of Buenos Aires (Universidad de Buenos Aires). He worked for IRSA Inversiones y Representaciones Sociedad Anónima since 1992 until May 2005 at which time he resigned. He had formerly worked for an independent construction company in Argentina. He is director of Emprendimientos Recoleta S.A., and Puerto Retiro S.A., as well as member of the board of Banco Hipotecario S.A., among other companies.
 
Jorge Oscar Fernández. Mr. Fernández obtained a degree in Economic Sciences from University of Buenos Aires (Universidad de Buenos Aires). He has performed professional activities at several banks, financial corporations, insurance firms and other companies related to financial services. He is also involved in many industrial and commercial institutions and associations.
 
Fernando Adrián Elsztain. Mr. Elsztain studied architecture at University of Buenos Aires (Universidad de Buenos Aires). He has been engaged in the real estate business as a consultant and as managing officer of a real estate company. He is chairman of the board of directors of Llao Llao Resorts S.A., Palermo Invest S.A. and Nuevas Fronteras S.A. He is also a director of IRSA Inversiones y Representaciones Sociedad Anónima, IRSA Propiedades Comerciales S.A., and Hoteles Argentinos S.A. He is also alternate director of Puerto Retiro S.A. and Banco Hipotecario S.A., among other companies. He is cousin of our CEO, Alejandro Elsztain, and of our Chairman, Mr. Eduardo S. Elsztain.
 
Pedro Damaso Labaqui Palacio. Mr. Labaqui obtained a law degree from University of Buenos Aires (Universidad de Buenos Aires). He is also director of Bapro Medios de Pago S.A., Permanent Syndic of Bayfe S.A. Fondos Comunes de Inversión, director and member of the Supervisory Committee of J. Minetti S.A.; and Director of REM Sociedad de Bolsa S.A.
 
David Alberto Perednik. Mr. Perednik obtained a degree in accounting from University of Buenos Aires (Universidad de Buenos Aires). He has worked for several companies such as Marifran Internacional S.A., a subsidiary of Louis Dreyfus Amateurs where he worked as Financial Manager from 1986 to 1997. He also worked as a Senior Consultant in the administration and systems department of Deloitte & Touche from 1983 to 1986. He is also chief administrative officer of IRSA Inversiones y Representaciones S.A. and IRSA Propiedades Comerciales S.A.
 
Daniel E. Mellicovsky. Mr. Mellicovsky obtained a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). He has served as director of several companies of the agricultural, food supplies, financial and hotel development sectors.
 
Alejandro Gustavo Casaretto Mr. Casaretto obtained a degree in agricultural engineering from University of Buenos Aires (Universidad de Buenos Aires). He has served as our technical manager, farm manager, and technical coordinator since 1975.
 
Gastón Armando Lernoud. Mr. Lernoud obtained a law degree from El Salvador University (Universidad de El Salvador) in 1992. He obtained a Masters degree in Corporate Law in 1996 from Palermo University (Universidad de Palermo). He was a senior associate member of Zang, Bergel & Viñes law firm until June 2002, when he joined our Company’s lawyers team.
 
 
159
 
 
Enrique Antonini. Mr. Antonini holds a degree in law from the University of Buenos Aires (Universidad de Buenos Aires). He is currently a member of the board of directors of Banco Mariva S.A. (since 1992), and Mariva Bursátil S.A. (since 1997). He has also served as director of IRSA Inversiones y Representaciones Sociedad Anónima from 1993 to 2002, and at present he is alternate director of IRSA Inversiones y Representaciones Sociedad Anónima. He is member of the Banking Lawyers Committee and the International Bar Association.
 
Eduardo Kalpakian. Mr. Kalpakian holds a degree in business from the University of Belgrano (Universidad de Belgrano). He has also an MBA from the CEMA University of Argentina. He has been director for 25 years of Kalpakian Hnos. S.A.C.I., a leading carpet manufacturer and flooring distributor in Argentina. Currently is vice-chairman of such company’s board and CEO. He is also vice-chairman of the board of La Dormida S.A.A.C.E I.
 
Employment contracts with our directors and certain senior managers
 
We do not have written contracts with our directors. However, Messrs. Eduardo S. Elsztain, Saúl Zang, Alejandro G. Elsztain, Fernando A. Elsztain, David A. Perednik, Alejandro G. Casaretto and Gastón Armando Lernoud are employed by us under the Labor Contract Law No. 20,744.
 
Law No. 20,744 governs certain conditions of the labor relationship, including remuneration, protection of wages, hours of work, holidays, paid leave, maternity protection, minimum age requirements, protection of young workers and suspension and termination of the contract.
 
Senior Management
 
Senior management performs its duties in accordance with the instructions of our board of directors. There are no arrangements by which a person is selected as a member of our senior management.
 
The following table shows information about our current senior management (designated by the board of directors meeting):
 
Name
Date of Birth
Position
Current Position Held Since
Alejandro G. Elsztain
03/31/1966
CEO
1994
Carlos Blousson
09/21/1963
General Manager for Argentina and Bolivia Operations
2008
David A. Perednik
11/15/1957
Chief Administrative Officer
1997
Matías I. Gaivironsky
02/23/1976
Chief Financial Officer
2011
Alejandro Casaretto 10/15/1952 Chief Regional Agricultural Officer 2008
 
The following is a biographical description of each of our senior managers who are not directors:
 
Matias Ivan Gaivironsky. Mr. Gaivironsky obtained a degree in business in the University of Burnos Aires (Universidad de Buenos Aires). He holds a Master in Finance from CEMA University. Since 1997 he has held several positions in IRSA, IRSA Propiedades Comerciales S.A, and our Company. Since December 2011 he has been Chief Financial Officer. Previously, in 2008 he was Tarshop S.A’s Chief Financial Officer.
 
Carlos Blousson. Mr. Blousson obtained a degree in agricultural engineering from University of Burnos Aires (Universidad de Buenos Aires). He has been working as our Chief Sales Officer since 1996. Prior to joining us, he worked as a futures and options operator at Vanexva Bursátil –Sociedad de Bolsa. Previously, he worked as a farmland manager and a technical advisor at Leucon S.A.
 
Executive Committee
 
Pursuant to our by-laws, our day-to-day business is managed by an executive committee consisting of a minimum of four and a maximum of seven directors and one alternate member, among which there should be the chairman, first vice-chairman and second vice-chairman of the board of directors. The current members of the Executive Committee are Messrs. Eduardo S. Elsztain, Saúl Zang, Alejandro Elsztain and Fernando A. Elsztain.
 
The executive committee is responsible for the management of the day-to-day business pursuant to authority delegated by our board of directors in accordance with applicable law and our by-laws. Our by-laws authorize the executive committee to:
 
 
•
designate the managers and establish the duties and compensation of such managers;
 
•
grant and revoke powers of attorney to attorneys-at-law on behalf of us;
 
•
hire, discipline and fire personnel and determine wages, salaries and compensation of personnel;
 
•
enter into contracts related to our business;
 
•
manage our assets;
 
•
enter into loan agreements for our business and set up liens to secure our obligations; and
 
•
perform any other acts necessary to manage our day-to-day business.
 
Supervisory Committee
 
Our Supervisory Committee is responsible for reviewing and supervising our administration and affairs, and verifying compliance with the bylaws and the decisions adopted at shareholders’ meetings pursuant to the provision of the General Companies Law. The members of the Supervisory Committee are appointed at the annual general ordinary shareholders’ meeting for a term of one year. The Supervisory Committee is composed of three members and three alternate members.
 
 
160
 
 
The following table shows information about the members of our Supervisory Committee, who were elected in the annual general ordinary shareholders’ meeting which was held on October 30, 2015:
 
Member
Date of Birth
Position
José Daniel Abelovich
07/20/1956
Member
Marcelo Héctor Fuxman
11/30/1955
Member
Noemí Ivonne Cohn
05/20/1959
Member
Roberto Daniel Murmis
04/07/1959
Alternate Member
Alicia Graciela Rigueira
12/02/1951
Alternate member
Sergio Leonardo Kolaczyk
11/28/1964
Alternate member
 
All members of the supervisory committee qualify as independent, in accordance with CNV Resolution No. 400/2002 Rules.
Set forth below is a brief biographical description of each member of our Supervisory Committee:
 
José Daniel Abelovich. Mr. Abelovich obtained a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). He is a founding member and partner of Abelovich, Polano & Asociados S.R.L. / firm member of Nexia International, a public accounting firm in Argentina. Formerly, he had been a manager of Harteneck, López y Cía/Coopers & Lybrand and has served as a senior advisor in Argentina for the United Nations and the World Bank. He is a member of the Supervisory Committees of IRSA Inversiones y Representaciones Sociedad Anónima, IRSA Propiedades Comerciales S.A, Shopping Alto Palermo S.A, Hoteles Argentinos S.A., Inversora Bolívar, and Banco Hipotecario S.A, among other companies.
 
Marcelo Héctor Fuxman. Mr. Fuxman obtained a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). He is a partner of Abelovich, Polano & Asociados S.R.L. / firm member of Nexia International, a public accounting firm in Argentina. He is also a member of the Supervisory Committees of IRSA Inversiones y Representaciones Sociedad Anónima, IRSA Propiedades Comerciales S.A, Shopping Alto Palermo S.A, Hoteles Argentinos S.A., Inversora Bolívar, and Banco Hipotecario S.A, among other companies.
 
Noemí Ivonne Cohn. Mrs. Cohn obtained a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). Mrs. Cohn is a partner at Abelovich, Polano & Asociados S.R.L. / firm member of Nexia International a public accounting firm in Argentina, and works in the audit area. Mrs. Cohn worked in the audit area in Harteneck, Lopez and Company, Coopers & Lybrand in Argentina and in Los Angeles, California. Mrs. Cohn is member of the Supervisory Committees of IRSA Inversiones y Representaciones Sociedad Anónima and the Company, among other companies.
 
Roberto Daniel Murmis. Mr. Murmis holds a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). Mr. Murmis is a partner at Abelovich, Polano & Asociados S.R.L / firm member of Nexia International. Mr. Murmis worked as an advisor to the Public Revenue Secretariat, Argentine Ministry of Economy. Furthermore, he is a member of the Supervisory Committee of IRSA Inversiones y Representaciones Sociedad Anónima, Shopping Alto Palermo S.A, Futuros y Opciones S.A., and Llao Llao Resorts S.A, among other companies.
 
Alicia Graciela Rigueira. Mrs. Rigueira holds a degree in accounting from the University of Buenos Aires (Universidad de Buenos Aires). Since 1998 she has been a manager at Estudio Abelovich, Polano & Asociados / firm member of Nexia International. From 1974 to 1998, Mrs. Rigueira performed several functions in Harteneck, Lopez y Cia. affiliated with Coopers & Lybrand. Mrs. Rigueira lectured at the School of Economic Sciences of Lomas de Zamora University.
 
Sergio Leonardo Kolaczyk. Mr. Kolaczyk obtained a degree in accounting from the Universidad de Buenos Aires (Universidad de Buenos Aires). He is a professional of Abelovich, Polano & Asociados S.R.L. / firm member of Nexia International. He is also an alternate member of IRSA Inversiones y Representaciones Sociedad Anónima and IRSA Propiedades Comerciales S.A’s Supervisory Committees.
 
KEY EMPLOYEES
 
There are no key employees.
 
 
Compensation of directors
 
Under the Argentine Law, if the compensation of the members of the Board of Directors is not established in the by-laws of the Company, it should be determined by the shareholders’ meeting. The maximum amount of total compensation to the members of the Board of Directors, including compensation for technical or administrative permanent activities, cannot exceed 25% of the earnings of the Company. That amount should be limited to 5% when there is no distribution of dividends to shareholders and will be increased proportionally to the distribution, in accordance with the formulas and scales set forth under the CNV’s Technical Rules. When one or more directors perform special commissions or technical or administrative activities, and there are no earnings to distribute or they are reduced , the shareholding meeting may approve compensation in excess of the above metioned limitis.
 
The compensation of our directors for each fiscal year is determined pursuant to Argentine law, and taking into consideration whether the directors performed technical or administrative activities and our fiscal year’s results. Once the amount is determined, it is considered at the shareholders’ meeting.
 
At our shareholders’ meeting held on October 30, 2015, was approved compensations for an aggregate amount of Ps.14,310,941 for all of our directors for the fiscal year ended June 30, 2015.
 
Compensation of Supervisory Committee
 
Our shareholders’ meeting held on October 30, 2015 further approved by majority vote not to pay a compensation to our Supervisory Committee.
 
Compensation of Senior Management
 
Our senior management is paid a fixed amount established by taking into consideration their background, capacity and experience and an annual bonus which varies according to their individual performance and our results.
 
The total and aggregate compensation paid to our senior management for the fiscal year 2014/2015, started in July 2014, was Ps. 4.5 million.
 
Compensation of the Audit Committee
 
The members of our Audit Committee do not receive any additional compensation other than that received for their services as members of our board of directors.
 
 
 
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Capitalization Program for our executive staff
 
During the fiscal year ended June 30, 2006, the Company developed the design of a capitalization program for its executive staff consisting in contributions made by both the employees and the Company.
 
Such program is intended for certain employees selected by the Company that it wishes to retain by increasing employee total compensation by means of an extraordinary reward in so far as certain requirements are fulfilled.
 
The payment of contributions into the plan and participation therein are voluntary. Once the intended beneficiary accepts to take part in the plan, he/she may make two types of contributions: a monthly contribution based on his/her salary and an extraordinary contribution, based on his/her annual bonus. It is suggested that contributions should be of up to 2.5% of salaries and of up to 15% of the annual bonus. And then there is the contribution payable by the Company which shall amount to 200% of the monthly contributions and of 300% of the extraordinary contributions made by the employees.
 
The funds resulting from the contributions made by the participants are transferred to an independent financial vehicle, specially created and situated in Argentina in the form of a mutual fund with the approval of the CNV. These funds can be freely redeemed at the request of participants.
 
The funds resulting from the contributions made by both companies are transferred to another independent financial vehicle, separate from the one previously mentioned.
 
In the future, the participants shall have access to 100% of the benefits under the plan (that is, including the contributions made by the Company for the benefit of the employees into the financial vehicle specially created) in any of the following circumstances:
 
·  
ordinary retirement as prescribed by labor law
 
·  
total or permanent disability, and
 
·  
death.
 
In case of resignation or termination without good cause, the participant may redeem the amounts contributed by us only if he or she has participated in the Plan for at least 5 years and if certain conditions have been fulfilled.
 
During this fiscal year ended June 30, 2015, 2014 and 2013, the Company has made contributions to the plan for Ps. 2.9 million, Ps. 10.2 million and Ps. 6.4 million, respectively.
 
Mid and Long Term Incentive Program
 
The Shareholders’ Meetings held on October 31, 2011, October 31, 2012 and October 31, 2013 ratified the resolutions approved thereat as regards the incentive plan for our Company’s executive officers, up to 1% of its shareholders’ equity by allocating the same number of own treasury stock (the “Plan”), and delegated on the Board of Directors the broadest powers to fix the price, term, form, modality, opportunity and other conditions to implement such plan.
 
The Company has developed a medium and long term incentive and retention stock program for its management team and key employees under which share-based contributions were calculated based on the annual bonus for the years 2011, 2012, 2013 and 2014.
 
The beneficiaries under the Plan are invited to participate by the Board of Directors and their decision to access the Plan is voluntary.
 
In the future, the Participants or their successors in interest will have access to 100% of the benefit (Cresud’s shares contributed by the Company) in the following cases:
 
·  
if an employee resigns or is dismissed for no cause, he or she will be entitled to the benefit only if 5 years have elapsed from the moment of each contribution
 
·  
total or permanent disability
 
·  
death.
 
While participants are part of the program and until the conditions mentioned above are met to receive the shares corresponding to the contributions based on the 2011 to 2013 bonus, participants will receive the economic rights corresponding to the shares assigned to them.
 
Regarding fiscal year 2014, the program sets forth an extraordinary reward consisting of freely available stock payable in a single opportunity on a date to be determined by the Company. The date was fixed for April 1, 2015 for payroll of our employees (who received CRESUD’s shares) and June 26, 2015 for payroll employees of IRSA, IRSA Propiedades Comerciales S.A., PAMSA, ERSA, ARCOS and FIBESA (who received IRSA’s shares).
 
In addition, we have decided to grant a bonus to all the personnel with more than two years of seniority as of June 30, 2014, and who do not participate in the program described above, which bonus consists of a number of shares equivalent to their compensation for June 2014.
 
The shares allocated to the Plan by our Company are shares purchased in 2009, which the Shareholders’ Meeting held on October 2011 has specifically decided to allocate to the program.
 
 
Benefits upon Termination of Employment
 
There are no contracts providing for benefits to directors upon termination of employment, other than those described under the following sections: (i) Item 6 “Directors, Senior Management and Employees – B. Compensation – Capitalization Plan and (ii) Item 6 “Directors, Senior Management and Employees – B. Compensation – Mid and Long Term Incentive Program.
 
Audit Committee
 
Management uses the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Report”) to assess effectiveness of internal control over financial reporting.
 
The COSO Report sets forth that internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of the entity’s objectives in the following categories:
 
·  
Effectiveness and efficiency of operations
 
·  
Reliability of financial reporting
 
·  
Compliance with applicable laws and regulations
 
 
 
162
 
 
Based on the above, the Company’s internal control system involves all levels of the company actively involved in exercising control:
 
·  
the board of directors, by establishing the objectives, principles and values, setting the tone at the top and making the overall assessment of results;
 
·  
the management of each area is responsible for internal control in relation to objectives and activities of the relevant area, i.e. the implementation of policies and procedures to achieve the results of the area and, therefore, those of the entity as a whole;
 
·  
the other personnel plays a role in exercising control, by generating information used in the control system or taking action to ensure control.
 
In accordance with the Capital Markets Law No. 26.831 and the Rules of the CNV, our board of directors has established an audit committee which would focus on assisting the board in exercising its duty of care, compliance with disclosure requirements, the enforcement of accounting policies, the management of our business risks, the management of our internal control systems, ethical conduct of our businesses, monitoring the sufficiency of our financial statements, our compliance with the laws, independence and capacity of independent auditors and performance of audit duties both by our Company and our external auditors. These responsabilities are meant to comply with the duties assigned by Law 26.831, the Technical Rules of the CNV, and other applicable laws.
 
On November 3, 2008, our board of directors appointed Jorge Oscar Fernández, Pedro Damaso Labaqui Palacio, and Daniel Elías Mellicovsky, all of them independent members, as members of the audit committee. The board of directors named Jorge Oscar Fernández as the financial expert in accordance with the relevant SEC rules. We have a fully independent audit committee as per the standards provided in Rule 10(A)-3(b)(1).
 
Remuneration Committee
 
There is no remuneration committee.
 
 
As of June 30, 2015, we had 2,826 employees.
 
As of such date, we had 1,099 employees in our Agricultural Business in Argentina, including our employees, FyO and SACPSA but not those of Agro-Uranga S.A. Approximately 52% are under collective labor agreements. We have good relations with each of our employees.
 
We employ 183 people in our International Agricultural businesses, composed of 153 employees of Brasilagro and 30 employees in the companies located in Bolivia.
 
Our Development and Sale of Properties and Other Non-Shopping Center Businesses segment had 34 employees, 6 of whom are represented by the Commerce Labor Union (Sindicato de Empleados de Comercio, or SEC) and 10 by the Horizontal Property Union (SUTERH). The Shopping Center segment had 973 employees including 472 under collective labor agreements. Our Hotels segment had 704 employees with 494 represented by the Tourism, Hotels and Gastronomy Union from the Argentine Republic (Unión de Trabajadores del Turismo, Hoteleros y Gastronómicos de la República Argentina) (UTHGRA).
 
The following table shows the number of employees in the Company’s various businesses as of the dates mentioned below:
 
      Agricultural Business(1)      
Real Estate Business
  
 
 
    
Permanent
      
Temporary
      
Development and Sale of Properties and Other Non-Shopping Center Businesses (2)
      
Shopping Centers
      
Hotels(3)  
      
Total
  
June 30, 2011
     772       48       82       811       678       2,391  
June 30, 2012
     848       17       92       833       662       2,452  
June 30, 2013
     857       11       91       787       662       2,408  
June 30, 2014
     756       16       89       872       647       2,380  
June 30, 2015(4)
     1,099       16       34       973       704       2,826  
 
 
(1)
Agricultural Business includes our employees and employees of FyO and SACPSA, but not those of Agro-Uranga S.A.
 
(2)
Includes IRSA, Consorcio Libertador S.A., and Consorcio Maipú 1300 S.A.
 
(3)
Hotels include Intercontinental, Sheraton Libertador and Llao Llao.
 
(4)
Duing April and May 2015, the employees who were assigned to IRSA, and used to be in charge of the building’s operations and the real estate business, were transferred to IRSA Commercial Properties.
 
 
 
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Share ownership of directors, members of the supervisory committee, and senior management as of June 30, 2015.
 
The following table sets forth the amount and percentage (expressed on a fully diluted basis) of our shares beneficially owned by our directors, Supervisory Committee and senior management as of June 30, 2015:
 
Name
Position
  
Number of Shares
    
Percentage
  
Directors
              
Eduardo Sergio Elsztain (1)
Chairman
     187,772,805       37.43 %
Saúl Zang
First vice-chairman
     4,012,506       0.80 %
Alejandro Gustavo Elsztain
Second vice- chairman / Chief Executive Officer
     7,145,810       1.42 %
Gabriel A. G. Reznik
Director
     -       -  
Jorge Oscar Fernández
Director
     3,034,219       0.60 %
Fernando Adrián Elsztain
Director
     -       -  
David Alberto Perednik
Director / Chief Administrative Officer
     104,971       0.02 %
Pedro Damaso Labaqui Palacio
Director
     -       -  
Daniel Elias Mellicovsky
Director
     -       -  
Alejandro Gustavo Casaretto
Director/Regional manager of Agricultural Real Estate
     136,260       0.03 %
Salvador Darío Bergel
Alternate Director
     -       -  
Gastón Armando Lernoud
Alternate Director
     53,704       0.01 %
Enrique Antonini
Alternate Director
     -       -  
Eduardo Kalpakian
Alternate Director
     -       -  
                   
Senior Management
                  
Matias Gaivironsky
Chief Financial Officer
     83,080       0.02 %
Carlos Blousson
Chief Executive Officer of the International Operation
     54,534       0.01 %
                   
Supervisory Committee
                  
José Daniel Abelovich
Member
     -       -  
Marcelo Héctor Fuxman
Member
     -       -  
Noemí Ivonne Cohn
Member
     -       -  
Roberto Daniel Murmis
Alternate member
     -       -  
Alicia Graciela Rigueira
Alternate member
     -       -  
Sergio Leonardo Kolaczyk
Alternate member
     -       -  
Executive Committee
                  
Eduardo Sergio Elsztain
Member
     187,772,805       37.43 %
Saúl Zang
Member
     4,012,506       0.80 %
Alejandro Gustavo Elsztain
Member
     7,145,810       1.42 %
 
(1)  Includes (i) 187,552,100 shares beneficially owned by IFISA, for which Mr. Eduardo S. Elsztain may be deemed beneficial owner, (ii) 880 common shares beneficially owned by Consultores Venture Capital Uruguay S.A. and (iii) 219,825 common shares owned directly by Mr. Eduardo S. Elsztain.
 
Option Ownership
 
No options to purchase shares have been granted to our Directors, Senior Managers, members of the Supervisory Committee, or Audit Committee.
 
Employees’ Participation in our Capital Stock
 
There are no arrangements for involving our employees in our capital stock or related to the issuance of options, shares or securities other than those described under the following sections: (i) ITEM 6: Directors, Senior Management and Employees – B. Compensation – Capitalization Plan and (ii) Item 6: Directors, Senior Management and Employees – B. Compensation – Mid and Long Term Incentive Program.
 
 
 
Information about Major Shareholders
 
Share Ownership
 
The following table sets forth information regarding ownership of our capital stock by each person known to us to own beneficially at least 5% of our common shares, ANSES and all our directors and officers as a group. Percentages are expressed on a fully diluted basis.
 
   
Share Ownership as of June 30, 2015
  
Shareholder
  
Number of Shares
    
Percentage
  
IFISA(1)(2)
     187,772,805       37.43 %
Senvest Management LLC
     2,554,766       5.09 %
Directors and officers(3)
     14,625,084       2.91 %
ANSES
     17,862,157       3.56 %
Total
     222,814,812       49.0 %
 
(1) Eduardo S. Elsztain is the Chairman of the board of directors of IFIS Limited, a corporation organized under the laws of Bermuda and Inversiones Financieras del Sur S.A., a corporation organized under the laws of Uruguay. Mr. Elsztain holds (through companies controlled by him and proxies) a majority of the voting power in IFIS Ltd., which owns 100% of IFISA.
(2) As a result, Mr. Elsztain may be deemed beneficial owner of 37.43% of our total shares, which includes (i) 187,552,100 shares beneficially owned by Inversiones Financieras del Sur S.A., for which Mr. Eduardo S. Elsztain may be deemed beneficial owner, (ii) 880 common shares beneficially owned by Consultores Venture Capital Uruguay S.A., (iii) 219,825 common shares owned directly by Mr. Eduardo S. Elsztain.
(3) Includes only direct ownership of our Directors and Senior Management, other than Mr. Eduardo S. Elsztain.
 
 
 

 
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Change in Capital Stock Ownership
 
   
As of June 30, (5)
  
   
2015
    
2014
    
2013
    
2012
    
2011
  
IFISA(1)(2)
     37.43 %     39.3 %     39.3 %     38.8 %     38.2 %
D.E. Shaw & Co L.P. (3)
     -       0.7 %     2.1 %     3.2 %     8.1 %
Senvest Management LLC
     5.1 %     3.6 %     0.7 %     0.3 %     0.3 %
Directors and officers(4)
     2.3 %     2.4 %     2.2 %     1.9 %     1.3 %
ANSES
     3.6 %     3.4 %     3.4 %     3.1 %     3.1 %
 
(1) Mr. Eduardo S. Elsztain is the Chairman of the board of directors of IFIS Limited, a corporation organized under the laws of Bermuda and Inversiones Financieras del Sur S.A., a corporation organized under the laws of Uruguay. Mr. Elsztain holds (through companies controlled by him and proxies) a majority of the voting power in IFIS Ltd., which owns 100% of IFISA.
(2) As a result, Mr. Eduardo S. Elsztain may be deemed beneficial owner of 37.43% of our total shares, which includes (i) 187,552,100 shares beneficially owned by Inversiones Financieras del Sur S.A., for which Mr. Eduardo S. Elsztain may be deemed beneficial owner, (ii) 880 common shares beneficially owned by Consultores Venture Capital Uruguay S.A., (iii) 219,825 common shares owned directly by Mr. Eduardo S. Elsztain.
(3) According to the Form filed with the SEC as of June 30, 2015.
(4) Includes only direct ownership of our Directors and Senior Management, other than Mr. Eduardo S. Elsztain.
(5) On a fully diluted basis.
 
Difference in Voting Rights
 
Our major shareholders do not have different voting rights.
 
Arrangements for change in control
 
There are no arrangements that may at a subsequent date in a change in control.
 
Securities held in the host country
 
As of June 30, 2015, our total issued and outstanding capital stock outstanding consisted of  501,642,804 common shares. As of June 30, 2015, there were approximately 46,292,702 Global Depositary Shares (representing 462,927,021 of our common shares, or 92.3% of all of our outstanding shares held) in the United States by approximately 84 registered holders of Global Depositary Shares.
 
As of June 30, 2015 our directors and senior officers controlled, directly or indirectly, approximately 39.75% of our common shares. As a result, these shareholders have, and will continue to have, significant influence on the election of our directors and the outcome of any action requiring shareholder approval.
 
 
We enter into transactions with related parties on an arm’s-length basis. A related party transaction means any transaction entered into directly or indirectly by us or any of our subsidiaries that is material based on the value of the transaction to (a) any director, officer or member of our management or shareholders; (b) any entity in which any such person described in clause (a) is interested; or (c) any person who is connected or related to any such person described in clause (a).
 
Lease of our Chairman’s offices
 
Our Chairman’s offices are located at Bolívar 108, City of Buenos Aires. We have leased this property from Isaac Elsztain e Hijos S.C.A., a company controlled by certain relatives of Eduardo S. Elsztain, our chairman, and also from Hamonet S.A., a company controlled by Fernando A. Elsztain, one of our Directors, and certain of his relatives.
 
A lease agreement was executed among us, IRSA, IRSA Commercial Properties and Isaac Elsztain e Hijos S.C.A., in March 2004, which is due in March 2017 and has a monthly payment lease of US$5 thousands, which is distributed and shared equally among the three companies.
 
In April 1, 2014, we, IRSA, IRSA Commercial Properties and Hamonet S.A. entered into a lease agreement for the lease of the executive offices located in 108 Bolívar St., 3rd and 4th floors, City of Buenos Aires. This lease has a term of 36 months and rent of US$ 5.001 per month, which is distributed and shared equally among the three companies.
 
Lease of our Headquarters
 
Our administrative headquarters are located at Intercontinental Plaza Building, located at 877 Moreno St., floor 23, in the Autonomous City of Buenos Aires, which belongs to IRSA Commercial Properties since December 2014, for more information about the acquisition of the Intercontinental Plaza Building, see Item 4.A. History and Development of the Company. We lease certain floors and this lease extends up to June, 2016, January, 2017 and August, 2017. The monthly lease is US$24.0 thousands plus maintenance fees and the applicable taxes and charges in proportion to the leased space. Additionally, IRSA leases part of the second floor of the Intercontinental Plaza Building, on a lease that extends up to December, 2017. The monthly lease payment is US$7.7 thousands plus maintenance fees and the applicable taxes and charges in proportion to the leased space.
 
In addition IRSA leases from IRSA Commercial Properties a space in the Abasto shopping center. The agreements are valid until November, 2015 and September, 2016. The monthly rent is US$19.0 thousands, plus a fixed amount for common expenses.
 
 
 
 

 
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Tarshop, leases from IRSA Commercial Properties three floors and certain parking lot spaces of our building located at 652 Suipacha St. The term of this lease extends up to 2017. The monthly lease payment is US$52.1 thousands plus maintenance fees and the applicable taxes and charges in proportion to the leased space.
 
Llao Llao Resorts S.A. rents from IRSA a floor on our Maipu 1300 building. This lease shall last until 2015 and has a monthly rate of US$ 1,950 plus any common expenses, taxes and fees, the parties are currently negotiation its extension.
 
Fibesa S.A. leases from IRSA Commercial Properties part of a floor in the Intercontinental Plaza Building, located in 877 Moreno St., of the Autonomous City of Buenos Aires, for a monthly rent of US$11.6 thousands plus maintenance fees, in proportion to the lease space. This agreement extends up to October, 2017.
 
BACS, leases from IRSA Commercial Properties a floor in the República Building, located in 1 Tucuman St., of the Autonomous City of Buenos Aires, for a monthly average amount of US$20.9 thousands plus maintenance fees, in proportion to the lease space. This agreement extends up to October, 2017.
 
BHN Sociedad de Inversión S.A., BHN Seguros Generales S.A. and BHN Vida S.A., leases from IRSA Commercial Properties a floor in the República Building, located in 1 Tucuman St., of the Autonomous City of Buenos Aires, for a monthly average amount of US$26.5 thousands plus maintenance fees, in proportion to the lease space. This agreement extends up to September, 2016.
 
Farmland Lease Agreement
 
We lease a farmland located in the Province of Córdoba, from San Bernardo de Córdoba S.A. (formerly known as Isaac Elsztain e Hijos S.C.A.), pursuant to a lease agreement effective as of June, 2014. The leased farmland has an extension of 12,635 hectares.
 
The rent to be paid is the equivalent in Pesos of 3.5 Kg. of beef per hectare. The beef price will be set, taking into account the price per kilo of beef quoted on Mercado de Hacienda de Liniers, the previous week of the payment date. In addition, the parties have agreed in a productivity prize of 15% of the weight that the cattle achieve above 240.000kg. This prize will be payable on September, only if the cattle achieves the amount of kilos.
 
We pay a rent of Ps. 0.5 million during the fiscal year ended June 30, 2014. Fernando Adrián Elsztain, our director is also president of Isaac Elsztain e Hijos S.C.A. In addition, Alejandro G. Elsztain who is alternate director of Isaac Elsztain e Hijos S.C.A. is also our second vice-chairman and CEO.
 
The referred lease agreement finished on June 30, 2015, and it was renewed for one year. The farmland extension of 12.600 hectares, and the rent to be paid is the equivalent in Pesos of 3,5kg of beef per hectare. The beef price will be set, taking into account the price per kilo of beef quoted on Mercado de Hacienda de Liniers, the previous week of the payment date.
 
In addition, the parties have agreed in a productivity prize of 15% of the weight that the cattle achieve above 240.000kg. This prize will be payable on September, only if the cattle achieves the amount of kilos.
 
We pay a rent of Ps. 0.7 million during the fiscal year ended June 30, 2015.
 
Consulting Agreement
 
Pursuant to the terms of the Consulting Agreement with Consultores Asset Management effective as of November 7, 1994, Consultores Asset Management provides us advisory services on matters related to capital investments in all aspects of the agricultural business. One of our shareholders and the Chairman of our board of directors is the owner of 85% of the capital stock of Consultores Asset Management and our First Vice Chairman of the board of directors holds the remaining 15% of its capital stock.
 
Pursuant to the terms of the Consulting Agreement, Consultores Asset Management provides us with the following services:
 
 
•
advises with respect to the investment of our capital in all aspects of agricultural operations, including, among others, sales, marketing, distribution, financing, investments, technology and business proposals;
 
•
acts on our behalf in such transactions, negotiating the prices, conditions, and other terms of each operation; and
 
•
gives advice regarding securities investments with respect to such operations.
 
The Consulting Agreement expressly provides that Consultores Asset Management may not advise us with respect to transactions that are entirely related to real estate.
 
Under the Consulting Agreement, we pay Consultores Asset Management for its services, an annual fee equal to 10% of our annual after-tax net income. We also reimburse Consultores Asset Management the administrative expenses incurred by it in performing its duties under the Consulting Agreement and: (i) remuneration to the directors and certifying accountants; (ii) remuneration of legal consultants; (iii) remuneration of auditors; (iv) representation costs; and (v) all other costs incurred by it in performing its services.
 
During fiscal year ended June 30, 2014 and 2013 there were not charges for consulting agreement fees. During fiscal year ended June 30, 2015 the charge for consulting agreement fees was of Ps. 11.4 million.
 
The Consulting Agreement is subject to termination by either party upon not less than 60 days prior written notice. If we terminate the Consulting Agreement without cause, we will be liable to Consultores Asset Management for twice the average of the amounts of the management fee paid to Consultores Asset Management for the two fiscal years prior to such termination.
 
Space for Fundación IRSA and Fundación Museo de los Niños at No Cost
 
On October, 1997, IRSA trough its subsidiary IRSA Commercial Properties granted Fundación IRSA the right to use 3,800 square meters of constructed area in the Abasto Shopping Center free of charge for a 30-year period.
 
Moreover, on November, 2005, IRSA Commercial Properties granted Fundación Museo de los Niños the right to use approximately 2,670 square meters of constructed area in the Shopping Rosario free of charge for a 30-year period.
 
Fundación IRSA is a charitable, non-profit organization whose Chairman is Eduardo S. Elsztain and whose Secretary, is Mariana Carmona de Elsztain, Mr. Elsztain’s wife. Fundación IRSA has used the available area to house a museum called “Museo de los Niños, Abasto,” an interactive learning center for children and adults, which opened to the public in April 1999. On September 27, 1999, Fundación IRSA assigned and transferred at no cost, the entirety of Museo de los Niños, as well as Abasto’s rights and obligations to Fundación Museo de los Niños.
 
Fundación Museo de los Niños is a charitable non-profit organization created by the same founders of Fundación IRSA and has the same members of the administration committee as Fundación IRSA. Fundación Museo de los Niños acts as special vehicle for the developments of “Museo de los Niños, Abasto” and “Museo de los Niños, Rosario.” On October 29, 1999, our shareholders approved the assignment of “Museo de los Niños, Abasto” agreement to Fundación Museo de los Niños. In addition, on December 12, 2005, an agreement granting the right to use of the space designated for Museo de los Niños, Rosario, at no cost, was signed.
 
During the fiscal years ended June 30, 2015, 2014 and 2013, we made donations to Fundación IRSA and Fundación Museo los Niños for a total amount of Ps. 4.7 million, Ps. 3.3 million and Ps. 1.4 million, respectively
Sale of Advertising Space in Media
 
We and our related parties usually execute agreements with third parties by which we sell/acquire, for their future use rights to advertise in media (TV, radio, newspapers, etc.) that are later used in advertising campaigns.
 
 
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Special reimbursement with different payment methods
 
We and our related parties undertake different commercial actions and promotions intended to promote the influx and consumption of the public in our shopping centers.
 
In some particular promotions it is offered, in specific dates or periods, different discount rates to the clients and/or financing planes with zero interest rates. We and our related parties entered into agreements with different financial entities outside of our economic group and/or related parties such as Banco Hipotecario and Tarshop.
 
These agreements generally establish different reimbursement rates to those costumers that do purchases in all the shops that are part of them using the payment methods specified by each financial entity and, in certain opportunities, additional financing plans with zero interest rates. The costs of the reimbursements given to the customers generally are distributed proportionally among the entities, while the cost of the financing at zero interest rate is assumed by the financial entities. We and our related parties act as intermediaries, making sure that the tenants adhere to the plan and advertising of these promotions. This operation doesn’t generate any cash influx or transfer of income or cost between us and our related parties.
 
Hospitality Services
 
We and our related parties hire, in certain occasions, hotel services and lease conference rooms for events to Nuevas Fronteras S.A., Hoteles Argentinos S.A. and Llao Llao Resorts S.A., subsidiaries of IRSA.
 
Occasionally, we and our related parties acquire rights to stay in the hotels of those companies, for their use in different corporate or promotional activities. As of June 30, 2015 and June 30, 2014, we and our related party had 128 and 723, days accommodation pending of utilization.
 
Agreement for the Exchange of Corporate Services between us, IRSA and IRSA Commercial Properties.
 
Considering that each of IRSA Commercial Properties, IRSA and us, have operating areas which are somewhat similar, the Board of Directors deemed it advisable to implement alternatives aimed at reducing certain fixed costs of its activities and to lessen their impact on operating results while seizing and optimizing the individual efficiencies of each of them in the different areas comprising the management of operations.
 
In this regard, on June 30, 2004,  IRSA Commercial Properties, IRSA and us, entered into an agreement for the exchange of corporate services, which was amended on August 23, 2007, August 14, 2008, November 27, 2009, March 12, 2010, July 11, 2011, October 15, 2012, November 12, 2013, February 24, 2014 and February 18, 2015.
 
The agreement for the exchange of corporate services among IRSA Commercial Properties, IRSA and us, currently provides for the exchange of services among the following areas: human resources, finance, institutional relationships, administration and control, insurance, contracts, technical, infrastructure and services, purchases, architecture and design and development and works department, real estate, hotels, board of directors, board of directors of the real estate business, general management department, security, audit committee, real estate administration, human resources of the real estate business, fraud prevention, internal audit, administration of the agribusiness investments environment and quality, among others
 
The exchange of services consists in the provision of services in relation to any of the aforementioned areas by one or more of the parties to the agreement for the benefit of the other party or parties, which are invoiced and paid primarily by an offset against the services provided by any of the areas and, secondarily, in case of a difference between the value of the services rendered, in cash.
 
Under this agreement the companies have entrusted to an external consultant the review and evaluation, on a semiannual basis, of the criteria applied in the corporate service settlement process and of the distribution bases and supporting documentation used in such process, through the issuance of a semiannual report.
 
On March 12, 2010, an amendment to the agreement for the exchange of corporate services was entered into to simplify issues originating from the consolidation of financial statements as a result of the increase in IRSA’s equity interest. As a result, certain employment agreements of, IRSA Commercial Properties and our corporate employees were transferred to us.
 
Later, as consequence of the ongoing process of generating the most efficient distribution of corporate resources among the different areas, on February 24, 2014, a new amendment to the agreement was entered by virtue of which the parties agreed to transfer to IRSA Commercial Properties and us the employments agreements of the corporate employees that develop exclusively in the real estate business. The labor costs of the employees continued to be distributed in accordance with the terms of the agreement for the exchange of corporate services, as amended.
 
In the future and in order to continue with the policy of generating the most efficient distribution of corporate resources among the different areas, this agreement may be extended to other areas shared by us with IRSA Commercial Properties and IRSA.
 
In spite of the above, we, IRSA and IRSA Commercial Properties continue to be independent in regard to the execution of their business and strategic decisions. Costs and benefits are allocated on the basis of operating efficiency and fairness without pursuing economic benefits for the companies.
 
Legal Services
 
During the fiscal years ended June 30, 2015, 2014 and 2013, we and our subsidiaries paid Zang, Bergel & Viñes Abogados an aggregate amount of approximately Ps.4.7 million, Ps.4.2 million and Ps.3.3 million, respectively, as payment for legal services. Certain of our directors are partners of Zang, Bergel & Viñes Abogados.
 
 
Security Loans
 
On August 6, 2008, Agrology (merged with Cresud) entered into a securities loan agreement with IFISA, by virtue if which Agrology granted 1,275,022 Global Depositary Shares, representing 10 common shares with a face value of Ps.1.0 per share of IRSA.
 
This loan does not imply the transfer of any voting or economic rights related to the Global Depositary Shares which will be held by Agrology. With regards to the voting rights, the parties agreed that we will grant a power of attorney to IFISA with the respective voting instructions. With regards to dividends, IFISA will transfer the funds to Agrology. This loan will accrue interest at a monthly rate equivalent to 3-month LIBOR, plus 150 basis points. It will be effective for 30 days and may be renewed for up to a maximum of 360 days. Later on, IFISA returned 21,080 Global Depositary Shares to Agrology S.A., representing 10 common shares, with a face value of Ps.1.0 per share.
 
Furthermore, on July 30, 2009, Agrology S.A. made an offer to IFISA, which was accepted, to extend the agreed due date of the loan for 360 days, modifying the amount of Global Depositary Shares of IRSA granted in loan from 1,275,022 to 1,253,942 million which are free of encumbrances and are freely available to Agrology S.A. On July 25, 2010, Agrology made a new offer, which was also accepted by IFISA, to extend the agreed due date of the loan for an additional 360 days. On September 8, 2010, Agrology S.A. entered into a new loan agreement with IFISA which granted 800,000 additional Global Depositary Shares of IRSA, under the same terms and conditions as the previous loan.
 
 
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On July 20, 2011, Agrology made a new offer, which was also accepted by IFISA, to extend the agreed due date of the original loan for an additional 360 days. The companies agreed that the credit can be taken completely or partially at any moment and that IFISA can ask for the Global Depositary Shares of IRSA or ordinary equity, and to lower the spread over Libor rate from 150 bps to 50 bps. On September 1, 2011, Agrology made a new offer, to extend the “800,000 additional Global Depositary Shares of IRSA” agreed due date of the loan for an additional 360 days. The offer to IFISA included the possibility for them to take the credit completely or partially at any moment, to ask either for the Global Depositary Shares of IRSA or for ordinary equity, and to lower the spread over Libor rate from 150 bps to 50 bps. On September 3, 2011, IFISA accepted the September 1, 2011 offer. On April 20, 2012, we entered into a securities loan agreement with IFISA, by virtue of which we granted 2,000,022 Global Depositary Shares, representing 10 common shares with a face value of Ps.1.0 per share of IRSA.
 
On August 22, 2012, we agreed with IFISA that due to our merger with Agrology, the three above-mentioned agreements will be combined into one agreement between IFISA and us.
 
On July 15, 2013, we signed a renewable credit line with Inversiones Financieras del Sur S.A. ("IFISA"), in which the company is the lender and IFISA the borrower. The credit line consists in the sum of up to 4,053,942 ADRs of IRSA, of which 3,334,517 have already been lended. On June 26, 2015 the parties agreed to extend the credit line and the maturity of this credit facility agreement was set to 30 days with the possibility to extend it to up to 365 days at an applicable annual rate of 3 month Libor + 50 bp.
 
Credit facility IFISA-Cresud.
 
On June 25, 2012 we entered a credit facility agreement with IFISA, pursuant to which we agreed to lend to IFISA up to US$ 6.0 million for a term of 180 days, at an annual interest rate of 7.75%. On November 24, 2012 this agreement was renegotiated and as a result extended for another 365 days, at an annual interest rate of 5.5%. On November 22, 2013 the parties agreed to extend the credit line for another 365 days and decided to set a rate equivalent to 1 year Libor + 300 bp.
 
On December 18, 2014 the parties agreed to extend the credit line in the sum up to US$6.000.000 for another 365 days starting upon the termination of the current agreement operating on November 25, 2015. In this negotiation, the parties agreed to set a rate of 1 year Libor + 3% (annual interest rate).
 
Credit facility IRSA – Cresud
 
In September 2011, we entered into a credit facility agreement with IRSA, pursuant to which IRSA agreed to lend us up to US$25 million for a term of 90 days, , at an annual interest rate of 7.75%. In May 2012, we entered into a credit facility agreement with IRSA, pursuant to which IRSA agreed to lend us up to US$7 million for a term of 180 days, at an annual interest rate of 7.5%.
 
As of June 30, 2015, all amounts due under this line of credit were cancelled.
 
Loan agreement between FYO and us
 
As of December, 2013, we entered into a credit facility agreement with FYO, pursuant to which we agreed to lend FYO up to US$4.3 million, which may be payable in Pesos at an exchange in compliance with the Communication “A” 3500 of the Central Bank. The term of this loan agreement extends up to August, 2014, with an interest rate of 3.0%. This loan was fully cancelled.
 
Loan agreement between IRSA and us
 
As of November, 2013, we entered into a loan agreement in favor of IRSA for a total amount of approximately US$ 26.5 million, which may be payable in Pesos at an exchange in compliance with the Communication “A” 3500 of the Central Bank. The term of this loan agreement is set on 6 months, with an interest rate of 1.5%. This loan was fully cancelled.
 
Line of Credit with Cyrsa
 
On August 27 2012, Cyrsa granted IRSA and Cyrela, its shareholders (50% each), individual credit line for a maximum amount of Ps. 190 million, each, maturing in February 2017. Daily interest accrued on each disbursed amount will be based on the Badlar Privada interest Rate.
 
Sale of Cresca S.A. to BrasilAgro Companhia Brasileira de Propriedades Agricolas S.A.
 
In December 2013, we sold to BrasilAgro Companhia Brasileira de Propriedes Agrícolas S.A. our indirect interest in Cresca S.A. which amounted to 50% of its capital stock, for a total amount of US$18.5 million. Cresca is a company owning 141,931 hectares of rural land in Paraguay, of which approximately 71,000 were arable at the moment of the transaction but less than 12,000 hectares of which were cultivated when acquired and approximately 71,000 hectares were protected by environmental regulation. In addition, Cresca has an option granted by Carlos Casado for the purchase of 100,000 additional hectares located in Paraguay. As of the closing date, Brasilagro made an initial payment of US$ 5 million and the remaining balance plus accrued interest was collected on December 2014.
 
Loan agreements with Banco Hipotecario
 
As of June 30, 2015 we have loans from Banco Hipotecario for a total amount of approximately Ps.29.8 million, which include credit facility for production investment (not includes bank overdraft), with an average interest rate of 17.3%, for more information, please see “Liquidity and Capital Resources Exchange Rates and Exchange Controls - Indebtedness”. We believe that each of these loans was made by Banco Hipotecario in the ordinary course of its consumer credit business, is of a type generally made available by Banco Hipotecario to the public and was made on market terms.
 
Master agreement for US Dollar-denominated forward transactions with Banco Hipotecario
 
We entered into a master agreement for the performance of Dollar-denominated forward transactions with Banco Hipotecario. This master agreement provides that the parties may carry out this type of transactions by fixing a certain forward price (“the Agreed Price”). Such transactions are settled in cash by paying the difference between the Agreed Price and the quoted price of the US Dollar on the settlement date. As of June 30, 2015 we have not derivative financial instruments from Banco Hipotecario.
 
Sale of “La Adela” Farm
 
In July 2014 we sold to our subsidiary IRSA the “La Adela” farm, with an area approximately 1,058 hectares, located in the District of Luján, Province of Buenos Aires, for a total amount of Ps. 210 million. Given its degree of development and closeness to the City of Buenos Aires, this farm has a high urbanistic potential; therefore, the purpose of selling it to IRSA is for it to launch a new real estate development.
 
Agreement for the lease or use of spaces in Shopping Centers
 
IRSA Commercial Properties regularly lease different spaces in its Shopping Centers (stores, stands, storage units and/or advertising spaces) to related parties such as Tarshop or Banco Hipotecario, among others.
 
The lease agreements generally have a three year term with monthly payments, percentages of participation over the maintenance fees and over the collective promotion fund, and the payment of expenses and taxes. The monthly payment is indexed on an annual basis. The agreements also establish the payment of a right of admission and a special payment regarding the collective promotion fund which is paid at the beginning of each agreement.
 
The right to use the stands located in the shopping centers generally is given by use permit agreements or, in particular cases, comodato agreements. In the first case, the agreements have a term that might be of one or two years, establish monthly payments and a down payment used for the payment of maintenance fees and the applicable charges to the collective promotion fund and the applicable taxes and charges in proportion to the leased space. In the comodato agreements, the gratuitous bailee is in charge of any maintenance fees and expenses related to the stand, but has not any monthly lease payment or any fee related to the collective promotion fund.
 
Regarding the storage units, these agreements are accessory to the lease of stores or the use of the stands, so as a consequence, their term matches the term of the main agreement. These agreements only establish the payment of a monthly lease, which is indexed on an annual basis, and does not include the payment of fees to the collective promotion fund or maintenance fees.
 
Moreover, IRSA Commercial Properties and our controlling companies offer different spaces located in its shopping centers for advertising of different businesses, brands and/or products (non-traditional advertising). The taxes generated due to the execution of these agreements are generally burden by the counterparty.
 
Transfer of tax credits
 
During the fiscal year ended June 30, 2015, We and Sociedad Anónima Carnes Pampeanas S.A (a company controlled by us), assigned upon IRSA Propiedades Comerciales S.A., Ps.1.63 million and Ps.30.4 million, respectively, corresponding to Value Added Tax export refunds related to such company’s business activity.
 
 
 
 
168
 
 
Related party Agreement with PAMSA
 
On December 1, 2006, IRSA Commercial Properties entered into an administration agreement with PAMSA. (IRSA commercial Properties control 80% of PAMSA). The management fee set forth in such agreement amounts to 12% of revenues from common maintenance expenses and collective promotion fund, plus 12% of capital expenditures and maintenance cost of the Dot and adjoining buildings.
 
Acquisition of investment properties from IRSA and intercompany loan between IRSA Commercial Properties and IRSA.
 
On December 22, 2014, IRSA transferred to IRSA Commercial Properties, 83,789 m2 of its premium office portfolio including the República building, Bouchard 710, Della Paolera 265, Intercontinental Plaza and Suipacha 652 and the “Intercontinental II” plot of land in order to consolidate a vehicle which main corporate purpose is to develop and operate commercial properties in Argentina.
 
The total amount of the transaction was US$308 million, US$61.6 million of which have already been paid, and the balance of US$246.4 million has been financed at an annual effective rate of 8.5% maturing on January 23, 2017 and July 13, 2020.
 
Convertible Notes of IRSA Commercial Properties.
 
IRSA Commercial Properties’ Convertible Notes originally matured on July 19, 2006. But a meeting of noteholders resolved to extend the maturity date of such Convertible Notes through July 19, 2014, the remaining terms and conditions remain unchanged. The Convertible Notes accrue interest (payable semi-annually) at a fixed annual rate of 10% and are convertible, at any time at the option of the holder, into shares of IRSA Commercial Properties’ common stock, par value of Ps. 0.10. The conversion rate per U.S. Dollar is the lesser of Ps. 3.08642 and the result obtained from dividing the exchange rate in effect at the conversion date by the par value of IRSA Commercial Properties’ common shares.
 
On December 31, 2012, the outstanding principal amount of such convertible notes was US$ 31.8 million, and IRSA owned US$ 31.7 millon principal amount of such convertible note on such date. On January 14, 2013, IRSA accepted the repurchase offer submitted by IRSA Commercial Properties for an amount face value of US$ 31.7 million, for a total price of US$ 35.4 million. On January 15, 2013, IRSA Commercial Properties paid to us the amount of Ps. 175.2 million.
 
IRSA Commercial Properties’ Convertible Notes expired on July 19, 2014.
 
Debt assignment
 
During the month of December 2014, IRSA Commercial Properties acquired the obligations arising from a line of credit for US$13.1 million that Panamerican Mall S.A. had granted to, IRSA´s subsidiary, Tyrus. As a result, we assumed the obligations of Tyrus as debtor in such line of credit.
 
Investment in mutual funds of BACS Administradora de Activos S.A. S.G.F.C.I.
 
We invest from time to time our liquid fund in mutual funds administrated by BACS Administradora de Activos S.A. S.G.F.C.I., which is a subsidiary of Banco Hipotecario. As of June 30, 2015, our investments in the mutual funds administrated by BACS Administradora de Activos S.A. S.G.F.C.I. amounted to Ps.28.7 million.
 
Investment in Dolphin Fund Ltd.
 
As of the date of this annual report, we have invested approximately US$300 million  in Dolphin Fund Ltd., trough our subsidiaries. Dolphin Fund Ltd, is an investment fund incorporated under the laws of Bermuda, whose investment manager is Consultores Venture Capital Uruguay S.A., a company controlled indirectly by our Chairman, Eduardo S. Elsztain. Such investments were made in order to carry out the investment in IDB Development Corp. For more information please see Item 4. Information on the Company – A. History and development of the Company – “Investment of IDB Development Corporation Ltd. (IDBD).
 
Line of Credit granted to IRSA
 
In November 2012, IRSA Commercial Properties and IRSA entered into an agreement by which IRSA Commercial Properties granted a line of credit for up to US$ 14.5 million for a period of one year at a rate of 5.5% to IRSA. In November 2013, the line of credit was renewed and in April 2014, was extended for up to a total amount of US$ 20 million.
 
On June 25, 2014, IRSA Commercial Properties has extended the Line of Credit, for up to US$ 60 million, due June 2015, at the rate of Libor 1 year + 3.0%. Additionally, the parties involved in the agreement were modified, including IRSA Commercial Properties and any of its subsidiaries as lenders and as loan takers Tyrus and IRSA. As of the date of this annual report the total amount granted from IRSA Commercial Properties to IRSA amounts to US$49.5 million.
 
Consequently, as of June 30, 2014, disbursements were made from ERSA to Tyrus of US$ 2.6 million, from IRSA Commercial Properties to Tyrus of US$ 10.6 million, and from Pamsa to Tyrus of US$ 10.2 million. As of June 30, 2015 the amounts described above were cancelled.
 
Line of Credit Inversiones Financieras del Sur S.A.
 
In June 2014, IRSA, through its subsidiary, Real Estate Investment Group IV LP, renewed a line of credit with Inversiones Financieras del Sur S.A. for an amount of up to 1.4 million shares of Hersha Hospitality Trust. The transaction was set for 30 days renewable for up to 360 calendar days and with an annual interest rate of Libor 3 months plus 50 basic points. This line of credit was cancelled during fiscal year 2015.
 
Loan agreements with Inversiones Financieras del Sur S.A.
 
On July 28, 2015, IRSA´s subsidiary Dolphin granted a loan to IFISA, a company indirectly controlled by Eduardo Sergio Elsztain for an aggregate amount of US$7.2 million, which will mature on July 2016 and will accrue interests at a rate of f Libor 1M + 3%.
 
In addition, on October 9, 2015, though IRSA's subsidiary Reig V, IRSA granted another loan for an aggregate amount of US$40 million to IFISA, which will mature on October 2016 and will accrue interests at a rate of f Libor 1M + 3%.
Shares and Convertible Notes of BACS Banco de Crédito y Securitización S.A.

IRSA through Tyrus, subscribed a purchase-sale agreement of shares of BACS Banco de Crédito y Securitización S.A., representing an interest of 6.125%. The transaction amounts to US$ 1.35 million. This operation is yet to be approved by the Banco Central de la República Argentina, according to regulations in force. The advance payment related to this transaction is disclosed in “Trade and other receivables”.

 
On June 17, 2015, IRSA subscribed Convertible Notes, issued by BACS Banco de Crédito y Securitización S.A. for a nominal value of 100,000,000, which are convertible into common stock.
  
 
 
This section is not applicable.
 
 
 
See Item 18 for our Audited Consolidated Financial Statements.
 
Legal or arbitration proceedings
 
We are not engaged in any material litigation or arbitration and no material litigation or claim is known to us to be pending or threatened against us, other than those described below.
 
 
169
 
 
Litigation with Exagrind S.A.
 
Cresud filed a lawsuit through Inversiones Ganaderas S.A. (IGSA) (a former subsidiary merged with the Company) on claims for damages and losses produced by a fire in one of the Company's farms, “San Rafael” farm, which is close to Exagrind’s property, Tali Sumaj, in the Province of Catamarca, Argentina. The fire took place on September 6, 2000. Exagrind claimed an amount of Ps. 2.9 million at that date. The extraordinary appeal to the High Court of Justice of the Province of Catamarca, questioning the resolution that ended the term to respond the case, arguing that at that moment, the period was not completed, was favorably received. Therefore, Cresud finally responded the case and showed proofs. As of the consolidated financial statements date, the parties have been notified that the term to submit allegations has started to run. In March 2007, the court ordered an inhibition of assets which was subsequently lifted. This decision was lifted in June 2007 and Tali Sumaj farm on attachment has been accepted in replacement. Exagrind S.A. requested that the measure be extended with an attachment of bank accounts; this ruling has been challenged and to date the accounts have not been attached. In June, 2010, the Company sold the farm to a third party. Since the litigation is still pending, the bond posted in favor of the buyer remains effective as security for the obligations undertaken The Company has recorded a provision amounting to Ps. 1.5 million, which is included within “Labor, legal and other claims”.
 
In addition, the Company is involved in several legal proceedings, including tax, labor, civil, administrative and other matters for which the Company has not established provisions based on the information assessed to date. In the opinion of management, the ultimate disposition of any threatened or pending matters, either individually or collectively, will not have a material adverse effect on the consolidated financial position, liquidity and results of operations of the Company. For ease of presentation, the Company has categorized these matters between those arising out of the Company’s agricultural and agro-industrial activities and those arising out of the Company’s investment and development properties business activities.
 
IRSA’s and IRSA Commercial Properties’ legal or arbitration proceedings
 
Set forth below is a description of certain material legal proceedings to which IRSA and IRSA Commercial Properties are a party. IRSA and IRSA Commercial Properties are not engaged in any other material litigation or arbitration and no other material litigation or claim is known to IRSA to be pending or threatened against it or its subsidiaries. Nevertheless, IRSA may be involved in other litigation from time to time in the ordinary course of business.
 
Acquisition of the building known as Ex- Escuela Gobernador Vicente de Olmos (City of Córdoba)
 
On November 20, 2006, the Company, through IRSA Commercial Properties, acquired through a public bidding the building known as Ex-Escuela Gobernador Vicente de Olmos located in the city of Córdoba for the amount of Ps. 32,522. As explained in Note 29, this property is affected to a concession contract.
 
After the title deed was made, the government of the province of Córdoba declared the property to be of public use and subject to partial expropriation in order to be used exclusively for the Libertador San Martin theatre.
 
IRSA Commercial Properties has answered a complaint in an action and to challenge the law that declared such public interest on unconstitutional grounds. In the alternative, it has challenged the appraisal made by the plaintiff and, additionally, it has claimed damages not included in the appraisal and resulting immediately and directly from expropriation.
 
At June 30, 2015, the property is still operated by the Company and is recorded under Investment properties.
 
Puerto Retiro
 
On November 18, 1997, in connection with our acquisition of our subsidiary Inversora Bolívar, we indirectly acquired 35.2% of the capital stock of Puerto Retiro. Inversora Bolívar had purchased such common shares of Puerto Retiro from Redona Investments Ltd. N.V. in 1996. In 1999, we, through Inversora Bolívar, increased our interest in Puerto Retiro to 50.0% of its capital stock. On April 18, 2000, Puerto Retiro was served notice of a filing made by the Argentine government, through the Ministry of Defense, seeking to extend the bankruptcy of Indarsa to the Company. Upon filing of the complaint, the bankruptcy court issued an order restraining the ability of Puerto Retiro to dispose of, in any manner, the real property it had purchased in 1993 from Tandanor. Puerto Retiro appealed the restraining order which was confirmed by the Court on December 14, 2000.
 
In 1991, Indarsa had purchased 90% of Tandanor, a former goverment-owned company, which owned a piece of land near Puerto Madero of approximately 8 hectares, divided into two parcels: Planta 1 and 2. After the purchase of Tandanor by Indarsa, in June 1993, Tandanor sold “Planta 1” to Puerto Retiro, for a sum of US$18 million pursuant to a valuation performed by J.L. Ramos, a well-known real estate brokerage firm in Argentina. Indarsa failed to pay to the Argentine government the price for its purchase of the stock of Tandanor, and as a result the Ministry of Defense requested the bankruptcy of Indarsa. Since the only asset of Indarsa was its holding in Tandanor, the Argentine government is seeking to extend Indarsa’s bankruptcy to other companies or individuals which, according to its view, acted as a single economic group. In particular, the Argentine government has requested the extension of Indarsa’s bankruptcy to Puerto Retiro which acquired Planta 1 from Tandanor.
 
The deadline for producing evidence in relation to these legal proceedings has expired. The parties have submitted their closing arguments and are awaiting a final judgment. However, the judge has delayed his decision until a final judgment in the criminal proceedings against the former Defense Minister and former directors of Indarsa has been delivered. It should be noticed, regarding the abovementioned criminal procedure, that on February 23, 2011 it was resolved to declare its expiration, and to dismiss certain defendants. However, this resolution is not final because it was appealed. We cannot give you any assurance that we will prevail in this proceeding, and if the plaintiff’s claim is upheld by the courts, all of the assets of Puerto Retiro would likely be used to pay Indarsa’s debts and our investment in Puerto Retiro, would be lost. As of June 30, 2014, we had not established any reserve with respect of this contingency.
 
Tandanor has filed a civil action against Puerto Retiro and the people charged in the referred criminal case looking forward to be reimbursed from all the losses which have arose upon the fraud committed. On 7th March,2015 Puerto Retiro respond filing certain preliminary objections, such as prescription among others. To the date, this proceeding has not been resolved.
 
Legal issues with the City Hall of Neuquén
 
In June 2001, Shopping Neuquén requested that the City of Neuquén allow it to transfer certain parcels of land to third parties so that each participant in the commercial development to be constructed would be able to build on its own land. Neuquén´s Executive Branch previously rejected this request under Executive Branch Decree No. 1437/2002 which also established the expiration of the rights arising from Ordinance 5178 due to not building the shopping center in time, including the loss of the land and of any improvement and expenses incurred. As a result, Shopping Neuquén had no right to claim indemnity charges and annulled its buy-sell land contracts.
 
Shopping Neuquén submitted a written appeal to this decision on January 21, 2003. It also sought permission to submit a revised schedule of time terms for the construction of the shopping center, taking into account the economic situation at that time and including reasonable short and medium term projections. Neuquén´s Executive Branch rejected this request in their Executive Branch Decree 585/2003. Consequently, on June 25, 2003, Shopping Neuquén filed an “Administrative Procedural Action” with the High Court of Neuquén requesting, among other things, the annulment of Executive Branch Decrees 1,437/2002 and 585/2003 issued by the City Executive Branch. On December 21, 2004, the High Court of Neuquén communicated its decision that the administrative procedural action that Shopping Neuquén had filed against the City of Neuquén had expired. Shopping Neuquén filed an extraordinary appeal for the case to be sent to the Argentine Supreme Court.
 
 
170
 
 
On December 13, 2006, while the case was under study in the Argentine Supreme Court, Shopping Neuquén signed an agreement with both the City and the Province of Neuquén that put an end to the lawsuit between them and stipulated a new timetable for construction of the commercial and housing enterprises (the “Agreement”). Also, Shopping Neuquén was permitted to transfer certain parcels to third parties so that each participant in the commercial development to be constructed would be able to build on its own land, with the exception of the land in which the shopping center would be constructed. The Legislative Council of the City of Neuquén duly ratified the Agreement. The City Executive Branch promulgated the ordinance issued on February 12, 2007.
 
The only pending issue was the determination of the City of Neuquén attorneys’ fees that were to be borne by Shopping Neuquén. As the date of their annual report Shopping Neuquén came to an agreement or paid all of the City´s lawyers but one, with whom the amount of the pending fees are being contested in Court.
 
Shopping Neuquén finished the construction and opened the shopping center in March, 2015, obtaining also all necessary provincial and city authorizations for it.
 
Arcos del Gourmet
 
In December 2011, IRSA Commercial Properties started to develop, through our subsidiary Arcos, the “Arcos” project located in the neighborhood of Palermo, City of Buenos Aires. On December 10, 2013, Administrative and Tax Contentious Court of Appeal of the City of Buenos Aires ratified an injunction that suspends the opening of the shopping center on the grounds that it has failed to obtain certain government permits. Despite the fact that the construction has all government permits in place, IRSA Commercial Properties has filed an appeal against the decision and have requested that the injunction be lifted, with favorable expectations. In such sense, on April 10, 2014, the government of the City of Buenos Aires issued a new environmental compliance certificate. The plaintiff appealed this decision and the file has been placed on the Court of Appeal since September 23, 2014.
 
On the other hand, there is another judicial process currently being heard entitled “Federación de Comercio e Industria de la Ciudad de Buenos Aires y Otros c/ Gobierno de la Ciudad Autónoma de Buenos Aires s/ Amparo” . On August 29, 2014 the lower court rendered a decision rejecting the case.This resolution was appealed but afterwards, confirmed in December, 2014. Therefore, on December 18th, 2014, the “Arcos” Project was opened to the public, operating normally nowadays.
 
Furthermore, on May 18, 2015 IRSA was notified of the revocation of the Agreement for the Reorganization for Use and Exploitation Nº AF000261 (“Contrato de Readecuación de Concesión de Uso y Explotación NºAF000261”  issued by the Agency for the Management of the State Assets (“Agencia de Administración de Bienes del Estado” or “AABE”) through Resolution Nº 170/2014. This Resolution was not enacted due to breach of contract by Arcos del Gourmet nor it has implied up to the date of this annual report the interruption of the economic exploitation neither of the functioning of the shopping center that IRSA operate there. IRSA has filed the proper administrative and judicial motions to revoke the Resolution and as of the date of this annual report these proceedings are ongoing.
 
Other Litigation
 
As of July 5, 2006, the Administración Federal de Ingresos Públicos (“AFIP”) filed a preliminary injunction with the Federal Court for Administrative Proceedings against IRSA Commercial Properties for an aggregate amount of Ps.3.7 million, plus an added amount, provisionally estimated, of Ps.0.9 million for legal fees and interest. The main dispute is about the income tax due for admission rights. In the first instance, AFIP pleaded for a general restraining order. On November 29, 2006, the Federal Court issued an order substituting such restraining order for an attachment on the parcel of land located in Caballito neighborhood, City of Buenos Aires, where IRSA Commercial Properties is planning to develop a shopping center. As of June 30, 2011, under court proceedings, the building was subject to a legal attachment for Ps. 36.8 million. On December 12, 2012, the legal attachment was lifted and accredited in the file concerned in February 2013.
 
After we sold the Edificio Costeros, dique II, on November 20, 2009, we requested an opinion to the Argentine Antitrust Authority as to whether it was necessary to report this transaction. The Argentine Antitrust Authoriry advise us that it was required to notify the transaction. We challenged this decision, but it was confirmed. On December 5, 2011, we notified the transaction and on April 30, 2013 the transaction was appoved by the Argentine Antitrust Authority by Resolution 38.
 
On January 15, 2007 we were notified of two claims filed against us before the Argentine Antitrust Authority, one by a private individual and the other one by the licensee of the shopping center, both opposing the acquisition from the province of Córdoba of a property known as Ex-Escuela Gobernador Vicente de Olmos. On February 1, 2007 we responded the claims. On June 26, 2007, the Argentine Antitrust Authority notified us that it has initiated a summary proceeding to determine whether the completion of the transaction breaches the Antitrust Law. As of the date of this filing the result of this proceeding has not been determined.
 
On December 3, 2009, IRSA Commercial Properties filed a request for the Argentine Antitrust Authority’s opinion regarding IRSA Commercial Properties’ acquisition of common shares of Arcos del Gourmet S.A. The Argentine Antitrust Authority advised the parties that the transaction has to be notified. On December, 2010 the transaction was filed with the Argentine Antitrust Authority. As of the date of this annual report, the decision of the Argentine Antitrust Authority is still pending.
 
On April 11, 2011, Quality Invest requested the Argentine Antitrust Authority opinion regarding Quality’s acquisition Property of a warehouse owned by Nobleza Piccardo S.A.I.C. y F. located in San Martín, Province of Buenos Aires. The Argentine Antitrust Authority stated that there was an obligation to notify the situation, but Quality Invest filed an appeal against this decision. Subsequently, the Court of Appeals confirmed the Argentine Antitrust Authorities' decision regarding the obligation to notify and, therefore, on February 23, 2012, the transaction was filed. As of the date of this annual report, the Argentine Antitrust Authority is analyzing this decision.
 
On August 23, 2011, IRSA Commercial Properties notified the Argentine Antitrust Authority the direct and indirect adquisition of common shares of NPSF, the transaction involved the direct acquisition of 33.33% of NPSF and 16.66% through our controlled vehicle Torodur S.A. As of the date of this annual report the transaction is being analyzed by the Argentine Antitrust Authority.
 
On June 16, 2012, we sold to Cabaña Don Francisco S.A. certain Costeros Dique IV´s functional units, to be used for office space, and complementary units to be used for parking. In addition, we assigned upon the purchaser all rights and interests arising from lease agreements involving the conveyed units. As a result, an advisory opinion was requested from the Argentine Antitrust Authority as to the need to report such transaction. The Argentine Antitrust Authority resolved that the transaction was exempt from report on May 21, 2014.
 
On December 7, 2012, we filed with the Argentine Antitrust Authority the adquisition of EHSA, which has the beneficial ownership of 50% of La Rural S.A That company runs an exposition center known as Predio Ferial de Palermo. As of the date of this annual report, the Argentine Antitrust Authority is analyzing the transaction.
 
Through the issuance of Resolution No. 16,521 dated February 17, 2011 the CNV commenced a summary proceeding against the members of IRSA´s board of directors and its supervisory committee members (all of them at that time, including among others Mr. Eduardo S. Elsztain), alleging certain formal errors in the Inventory and Balance Sheet Book, specifically the failure by the Company to comply with certain formalities in the presentation of a table included in the Memoria (Annual Report); arising from an investigation carried out by the CNV in October 2010. Applicable law requires that the corrections of any errors in the Annual Report include a legend identifying each error and the way in which it was corrected, including insertion of the holographic signature from the chairman of the board. In this case, we first corrected the mistake and after the request from the CNV included the legend and the holographic signature of the chairman, required by the relevant formalities.
 
 
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IRSA´s response to the CNV’s allegations containing the arguments for the defense was filed in March 2011 and the first hearing was held in May 2011. In April, 2013, the CNV imposed (as a result of the aforementioned alleged charge) a fine on the members of IRSA´s board of directors and its supervisory committee members. The fine imposed by the CNV amounts to Ps. 270,000 equivalent to US$ 49,632 and it was imposed to IRSA and the members of the board together. The amount of the fine demonstrates the immaterial nature of the alleged violations. Even though the fine was paid, in April 2013, IRSA appealed such resolution, which is still ongoing in Court Room No. IV of the National Chamber of Appeals in Federal Administrative Procedures (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal).
 
For more information see “Item. 3(d) Risk Factors—Risk related to our Business—Our business is subject to extensive regulation and additional regulations may be imposed in the future”.
 
Dividends and dividend policy
 
Pursuant to Argentine law, the distribution and payment of dividends to shareholders is valid only if they result from net and realized earnings of the company pursuant to annual audited financial statements approved by the shareholders. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shares entitled to vote at the meeting.
 
In accordance with Argentine law and our by-laws, net and realized profits for each fiscal year are allocated as follows:
 
 
•
5% of such net profits is allocated to our legal reserve, until such reserve amounts to 20% of our capital stock;
 
•
a certain amount determined at a shareholders’ meeting is allocated to compensation of our directors and the members of our supervisory committee; and
 
•
additional amounts are allocated for the payment of dividends or to optional reserve funds, or to establish reserves for whatever other purpose our shareholders determine.
 
The following table shows the dividend payout ratio and the amount of dividends paid on each fully paid common share for the mentioned years. Amounts in Pesos are presented in historical, non-inflation adjusted Pesos as of the respective payment dates and refers to our unconsolidated dividends.
 
Year
  
Total Dividend
    
Dividend per Common Share (1)
  
   
(in million of Ps.)
    
(in Ps.)
  
2010
     -       -  
2011
     69.0       0.138  
2012
     63.8       0.149  
2013
     120.0       0.242  
2014
     120.0       0.242  
2015
     -       -  
 
(1)  
Corresponds to per share payments. To calculate the dividend paid per ADS, the payment per share should be multiplied by ten. Amounts in Pesos are presented in historical Pesos as of the respective payment date. See “Exchange Controls”.
 
From December 12, 2014, as resolved at the Shareholders’ Meeting held on October 31, 2014 and reconvened on November 14, 2014, the ratable distribution among the shareholders of 5,565,479 treasury shares was approved, representing 0.0114% per share and 1.1406% of the outstanding capital stock of 487,928,660.Future dividends with respect to our common shares, if any, will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, business opportunities, provisions of applicable law and other factors that our shareholders at a general shareholders’ meeting may deem relevant. As a result, we cannot give you any assurance that we will pay any dividends at any time in the future.
 
 
Annual Shareholders’ Meeting
 
On October 30, 2015, was held the Ordinary and Extraordinary Shareholders’ Meeting in which was approved the following items:
 
•  
Consideration of documents contemplated in section 234, paragraph 1, of the Argentine Companies Law No. 19,550 for the fiscal year ended June 30, 2015.
•  
Reinstatement of the “Legal Reserve” account. Treatment of allocation of the “Additional Paid-In Capital” account. Consideration of Reclassification of Reserves.
•  
Consideration of Board of Directors’ performance.
•  
Consideration of Supervisory Committee’s performance.
•  
Consideration of compensation payable to the Board of Directors for $14,310,941 (total compensation) for the fiscal year ended June 30, 2015. Delegation on the Board of Directors of powers to approve the Audit Committee’s budget.
•  
Consideration of compensation payable to the Supervisory Committee for the fiscal year ended June 30, 2015.
•  
 Determination of the number and election of Regular Directors and Alternate Directors, as applicable.
•  
Appointment of Regular and Alternate Members of the Supervisory Committee.
•  
Appointment of Certifying Accountant for the next fiscal year and determination of its compensation. Delegation of powers.
•  
Updating of report on Shared Services Agreement.
•  
Treatment of amounts paid as personal assets tax levied on the shareholders.
•  
Consideration of increase of the amount of the Global Note Program for a maximum outstanding amount of up to US$ 300,000,000 (three hundred million dollars) (or its equivalent in other currencies) the creation of which was approved by the shareholders’ meeting dated October 31, 2012 (the “Program”) by an additional amount of up to US$ 200,000,000 (two hundred million Dollars) (or its equivalent in other currencies).
•  
Consideration of: (i) delegation to the Board of Directors of the broadest powers to implement the increase and/or reduction in the Program amount; (ii) renewal of the Board of Directors’ powers to (a) approve, enter into, deliver and/or execute any agreement, contract, document, instrument and/or security related to the Program and/or the issuance of the various series and/or tranches of notes thereunder; (b) apply for and process before the Argentine Securities Commission the authorization for the public offering of such notes; (c) if applicable, apply for and process before any authorized securities exchange or market of Argentina and/or abroad the authorization for listing and trading of such notes; and (d) carry out any acts, dealings, filings and/or proceedings related to the Program and/or the increase in its amount and/or the issuance of the various series and/or tranches of notes thereunder; and (iii) authorization for the Board of Directors to subdelegate the powers and authorizations referred to in items (i) and (ii) above to one or more of its members.
 
In addition it was approved to adjourn the Ordinary and Extraordinary Shareholders’ Meeting to November 26, 2015, in order to consider and approve the following items:
 
•  
Consideration of net income for the fiscal year ended June 30, 2015 for $114,009 thousand. Consideration of payment of a cash dividend for up to $88,100 thousand.
•  
Consideration of allocation of treasury shares. Delegation of powers.
 
 
 
The following summary provides information concerning our share capital and briefly describes all material provisions of our bylaws and the Argentine Corporation Law.
 
Stock Exchanges in which our securities are listed
 
Our common shares are listed on the BASE under the trading symbol “CRES” and on NASDAQ under the trading symbol “CRESY.” As of June 30, 2015 our outstanding capital stock consisted of 501,642,804 common shares, Ps.1.00 par value per share.
 
As of that date of this annual report: (1) we had no other shares of any class or series issued and outstanding; and (2) there are no outstanding convertible notes to acquire our shares. Our common shares have one vote per share. All outstanding shares are validly issued, fully paid and non assessable. As of June 30, 2015, there were approximately 1,741 holders of our common shares.
 
Price history of our stock on the Buenos Aires Stock Exchange and NASDAQ
 
Our common shares are traded in Argentina on the BASE, under the trading symbol “CRES.” Since March 1997, our ADRs, each presenting 10 common shares, have been listed on the NASDAQ under the trading symbol “CRESY.” The Bank of New York is the depositary with respect to the ADRs.
 
The table below shows the high and low daily closing prices of our common shares in Pesos and the quarterly trading volume of our common shares on the BASE for the first quarter of 2009 through October 22, 2015. The table below also shows the high and low daily closing prices of our ADRs in U.S. Dollars and the quarterly trading volume of our ADRs on the NASDAQ. Each ADR represents ten common shares.
 

 
172
 
 
   
BASE
    
NASDAQ
  
   
Share Volume
    
Price Per Share (Ps.)
    
ADS Volume
    
US$ per ADS
  
 
High
    
Low
    
High
    
Low
  
Fiscal Year 2012
                                    
1st Quarter
     812,635       7.03       5.30       5,037,399       16.49       10.70  
2nd Quarter                      
     644,629       5.95       4.68       5,890,807       12.18       10.15  
3rd Quarter
     609,305       6.90       5.33       10,708,801       13.38       11.20  
4th Quarter
     1,328,881       6.45       4.45       15,006,469       12.06       6.86  
Annual
     3,395,450       7.03       4.45       36,643,476       16.49       6.86  
Fiscal Year 2013
                                                
1st Quarter
     1,324,543       5.87       4.83       6,183,866       8.80       7.35  
2nd Quarter
     644,473       5.80       4.95       3,520,607       8.48       7.79  
3rd Quarter
     1,376,099       8.10       5.70       6,124,332       9.66       8.29  
4th Quarter
     1,299,335       8.30       5.75       5,946,018       9.61       7.04  
Annual
     4,644,450       8.30       4.83       21,774,823       9.66       7.04  
Fiscal Year 2014
                                                
1st Quarter
     2,178,046       8.30       5.70       5,589,075       8.73       8.73  
2nd Quarter
     2,188,815       11.10       7.95       5,872,993       11.51       11.51  
3rd Quarter
     1,022,808       11.20       8.60       3,422,480       9.87       9.87  
4th Quarter
     2,459,599       14.15       9.16       6,982,485       12.90       12.90  
Annual
     7,849,268       14.15       5.70       21,867,033       12.90       8.73  
Fiscal Year 2015
                                                
1st Quarter
     1,688,010       16.45       12.00       5,524,817       14.08       10.58  
2nd Quarter
     2,259,425       15.80       10.80       3,634,128       12.04       9.18  
3rd Quarter
     1,331,000       17.90       12.00       7,600,906       14.83       9.92  
4th Quarter
     1,483,096       16.90       15.00       5,736,086       13.98       12.50  
Annual
     6,761,531       17.90       10.80       22,495,937       14.83       9.18  
Fiscal Year 2016
                                                
1st Quarter
     728,810       17.50       12.10       4,299,192       13.14       9.33  
July 2015
     231,643       17.50       12.10       1,256,840       13.14       11.24  
August 2015
     188,699       15.50       13.00       1,806,420       11.67       9.49  
September 2015
     308,468       14.55       12.10       1,235,932       10.41       9.33  
October, 2015
     1,295,996       17.50       13.00       1,435,169       12.78       9.64  
November 12, 2015     775,333       19.70       17.80       1,100,206       13.51        12.71  
Source: Bloomberg
 
As of June 30, 2015 the outstanding ADRs represented 46,292,702 ADSs (equivalent to 462,927,021 common shares or 92.3% of our total common stock capital).
 
 
This item is not applicable.
 
 
Argentine Securities Markets
 
In December 2012 the Argentine government has enacted a new Capital Markets Law No. 26,831, which sets out the rules to govern capital markets, its players, and the securities traded therein subject to the CNV regulation and monitoring.
 
On September 5, 2013, the CNV has enacted the Standards of the Comisión Nacional de Valores, by virtue of which it regulates the new provisions of the Capital Markets Law for issuers of securities, in regard to the initial public offering and reporting duties.
 
Almost all the provisions of the former Executive branch Decree No. 677/2011 (the “Transparency Decree”) have been incorporated in the Capital Market Law and in the Standards of the Comisión Nacional de Valores. The Capital Market Law provides rules and provisions guided by the following goals and principles:
 
·  
Promoting the participation of small investors, union associations, industry groups and trade associations, professional associations and all public savings entities in the capital market, particularly encouraging mechanisms designed to promote domestic savings and channel such funds towards the development of production;
 
·  
Strengthening mechanisms for the protection of and prevention of abuses against small investors for the protection of consumers’ rights;
 
·  
Promoting access of small and medium-sized companies to the capital market;
 
·  
Fostering the creation of a federally integrated capital market through mechanisms designed to achieve an interconnection of computer systems from different trading markets, with the use of state-of-the-art technology;
 
·  
Encouraging simpler trading procedures available to users to attain greater liquidity and competitiveness in order to provide the most favorable conditions for the implementation of transactions.
 
The CNV is a self-administered agency of the Argentine Government with jurisdiction covering the territory of Argentina, governed by the provisions contained in Capital Market Law, and the Standards of the CNV among other related statutory regulations. The relationship of the CNV and the Argentine Executive is maintained through the Ministerio de Economía y Finanzas Públicas (Ministry of Economy and Public Finance), which shall hear any appeals filed against decisions made by the CNV, notwithstanding any other legal actions and remedies contemplated in the Capital Market Law.
 
The CNV supervises and regulates the authorized markets in which the securities and the collective investment products are traded, the corporations authorized in the public offer regime, and all the other players authorized to operate in the public offer regime, as the registered agents, the trading agents, the financial advisors, the underwriters and distributors, the brokers, the settlement and clearing agents, the managers of collective investment products, the custodians of collective investment products, the collective depositories, and the risk rating agencies, among others. Argentine institutional investors and insurance companies are regulated by separate government agencies, whereas financial institutions are regulated mainly by the Argentine Central Bank.
 
 
173
 
 
Before offering securities to the public in Argentina, an issuer must meet certain requirements established by the CNV with regard to the issuer’s assets, operating history and management. Only securities approved for a public offering by the CNV may be listed on a stock exchange. However, CNV approval does not imply any kind of certification as to the quality of the securities or the solvency of the issuer, even though issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements in accordance with IFRS (excluding financial institutions under the supervision of the Argentine Central Bank, insurance companies under the supervision of the Insurance Superintendence and medium and small enterprises) and various other periodic reports with the CNV and the stock exchange on which their securities are listed, as well as to report to the CNV and the relevant stock exchange any event related to the issuer and its shareholders that may affect materially the value of the securities traded.
 
In Argentina, debt and equity securities traded on an exchange must, unless otherwise instructed by their shareholders, be deposited with a Central Securities Depository, in Argentina. Currently the only depositary authorized to act in accordance with the Capital Market Law and Standards of the CNV is Caja de Valores S.A. a corporation owned by the BASE, the Mercado de Valores de Buenos Aires (the “MERVAL”) and certain provincial exchange, and provides central depositary facilities, as well as acting as a clearinghouse for securities trading and as a transfer and paying agent for securities transactions.
 
Before the enactment of the Capital Markets Law and the Standards of the CNV there were 12 securities exchanges in Argentina, which were located in the City of Buenos Aires, Bahía Blanca, Chaco, Corrientes, Córdoba, La Plata, La Rioja, Mendoza, Rosario, Salta, Santa Fe, and Tucumán. Six of these exchanges (the BASE, Rosario, Córdoba, La Rioja, Mendoza, and Santa Fe) had affiliated stock markets in accordance with the requirements of Law No. 17,811 which was derogated by the Capital Marets Law.
 
Pursuant to the new Capital Markets Law, the CNV has authorized 9 stock markets since September 2014, which are: Mercado Abierto Electrónico S.A., Mercado a Término de Buenos Aires S.A., Mercado a Término de Rosario S.A., Mercado de Valores de Buenos Aires S.A., Mercado de Valores de Córdoba S.A., Mercado de Valores de Mendoza S.A., Mercado de Valores de Rosario S.A., Mercado de Valores del Litoral S.A. and Mercado Federal de Valores S.A.
 
The principal exchange for the Argentine securities market under the previous legislation was the BASE. Under the new Capital Markets Law the BASE has been authorized to operate as qualified entity, under the appointment of the MERVAL. As a result of the foregoing, we estimate that the MERVAL will be the principal exchange market in Argentina in which the securities will be listed.
 
The MERVAL is a corporation consisting of 134 shareholders who used to be the sole and exclusive individuals or entities authorized to trade in the BASE, either as principals or agents, before Capital Markets Law became into force. Since then, all agents registered and authorized to act as intermediaries by the CNV will be able to trade in any securities exchange, including the BASE as long as they obtain a membership of such stock exchange, not applying any longer the requirements to be a shareholder of such stock exchange.
 
The securities that may be listed on the MERVAL are: Stocks, Corporate Bonds, Convertible Corporate Bonds, Close-ended Investment Funds, Financial Trust, Indexes, Derivatives and Public Bonds. The MERVAL is legally qualified for admission, suspension, and delisting of securities according to its own rules approved by the CNV. Furthermore, the MERVAL works very closely with the CNV in surveillance activities.
 
Another relevant exchange of the securities market in Argentina is the Mercado Abierto Electrónico S.A. (“MAE”), which was recently authorized to operate by the CNV under the new regulations of the Capital Markets Law. The MAE works as an electronic platform to process Over the Counter transactions. It is an electronic exchange where both government securities and corporate bonds are traded through spot and forward contracts.
 
MAE brokers/dealers members, include national banks, provincial banks, municipal banks, private national banks, foreign banks, cooperative banks, financial institutions, foreign exchange entities and pure brokers/dealers (exclusively engaged in brokerage activities). Both Argentine or foreign capital banks and financial institutions may be the MAE’s brokers/dealers. Securities to be traded must be registered with the pertinent supervising authorities and may be traded in the MAE, in other exchanges or in both of them concurrently.
 
Argentina’s equity markets have historically been composed of individual investors, though in recent years there has been an increase in the level of investment by banks and insurance companies in these markets; however, Argentine mutual funds (fondos comunes de inversión) continue to have very low participation.
 
Acording to the information regarding the Argentine Institute of Capital Markets:
 
   
As of June 30,
  
   
2015
    
2014
  
Market capitalization (Ps. billion)
     4,025       3,958  
Average daily trading volume (Ps. million)
     149.6       43,9  
Number of listed companies
     99       104  
 
The Argentine securities markets are substantially more volatile than the securities markets in the United States and certain other developed countries The Merval Index experienced a 30.1% decrease in 2011, a 15.9% increase in 2012, a 88.9% increase in 2013, a 59.1% increase in 2014 and a 35.9% increase during the first six months of 2015. In order to control price volatility, the MERVAL operates a system pursuant to which the negotiation of a particular stock or debt security is suspended for a 15 minute period when the price of the security registers a variation on its price between 10% and 15% and between 15% and 20%. Any additional 5% variation on the price of the security after that results in additional 10 minute successive suspension periods.
 
 
This section is not applicable.
 
 
This section is not applicable.
 
 
This section is not applicable.
 
 
 
This section is not applicable.
 
 
174
 
 
 
Our Corporate Purpose
 
Our legal name is Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria. We were incorporated under the laws of Argentina on December 31, 1936 as a sociedad anónima (Stock Corporation) and were registered with Public Registry of Commerce on February 19, 1937 under number 26, on page 2, book 45 of National by-laws Volume. Pursuant to our by-laws, our term of duration expires on June 6, 2082.
 
Pursuant to article 4 of our by-laws our purpose is to perform the following activities:
 
 
•
commercial activities with respect to cattle and products pertaining to farming and animal husbandry;
 
 
•
real estate activities with respect to urban and rural properties;
 
 
•
financial activities, except for those regulated by Law No. 21,526 of financial entities;
 
 
•
farming and animal husbandry activities, for properties owned by us or by third parties; and
 
 
•
agency and advice activities for which there is not required a specific qualifying title.
 
Limited Liability
 
Shareholders’ liability for losses is limited to their equity interest in us. Notwithstanding the foregoing, under the Argentine Corporation Law No. 19,550, shareholders who voted in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or a company’s by-laws (or regulation, if any) may be held jointly and severally liable for damages to such company, other shareholders or third parties resulting from such resolution. In addition, a shareholder who votes on a business transaction in which the shareholder’s interest conflicts with that of the company may be liable for damages under the Argentine Corporation Law, but only if the transaction would not have been validly approved without such shareholder’s vote.
 
Capitalization
 
We may increase our share capital upon authorization by our shareholders at an ordinary shareholders’ meeting. Capital increases must be registered with the public registry of commerce referred to as the Public Registry of Commerce, and published in the Boletín Oficial. Capital reductions may be voluntary or mandatory and must be approved by the shareholders at an extraordinary shareholders’ meeting (asamblea extraordinaria). Reductions in capital are mandatory when losses have depleted reserves and exceeded 50% of capital. As of june 30, 2015 our share capital consisted of 501,642,804 common shares.
 
Our bylaws provide that preferred stock may be issued when authorized by the shareholders at an extraordinary shareholders’ meeting (asamblea extraordinaria) and in accordance with applicable regulations. Such preferred stock may have a fixed cumulative dividend, with or without additional participation in our profits, resolved by the shareholders’ meetings. We currently do not have outstanding preferred stock.
 
Preemptive Rights and Increases of Share Capital
 
Pursuant to our by-laws and Argentine Corporation Law No. 19,550, in the event of an increase in our share capital, each of our existing holders of our common shares has a preemptive right to subscribe for new common shares in proportion to such holder’s share ownership. For any shares of a class not preempted by any holder of that class, the remaining holders of the class will be entitled to accretion rights based on the number of shares they purchased when they exercised their own preemptive rights. Rights and accretion rights must be exercised simultaneously within 30 days following the time in which notices to the shareholders of a capital increase and of the rights to subscribe thereto are published for three days in the Boletín Oficial and a widely circulated newspaper in Argentina. Pursuant to the Argentine Corporation Law, such 30-day period may be reduced to 10 days by a decision of our shareholders adopted at an extraordinary shareholders’ meeting (asamblea extraordinaria).
 
Additionally, the Argentine Corporation Law permits shareholders at an extraordinary shareholders’ meeting (asamblea extraordinaria) to suspend or limit the preemptive rights relating to the issuance of new shares in specific and exceptional cases in which the interest of the Company  requires such action and, additionally, under the following specific conditions:
 
 
•
the issuance is expressly included in the list of matters to be addressed at the shareholders’ meeting; and
 
 
•
the shares to be issued are to be paid in-kind or in exchange for payment under pre-existing obligations.
 
Furthermore, Article 12 of the Negotiable Obligations Law permits shareholders at an extraordinary shareholders’ meeting (asamblea extraordinaria) to suspend preemptive subscription rights for the subscription of convertible bonds under the above-mentioned conditions. Preemptive rights may also be eliminated, so long as a resolution providing so has been approved by at least 50% of the outstanding capital stock with a right to decide such matters and so long as the opposition to such resolution does not surpass 5% of the share capital.
 
Shareholders’ Meetings and Voting Rights
 
Our bylaws provide that shareholders’ meetings may be called by our board of directors or by our Supervisory Committee or at the request of the holders of shares representing no less than 5% of the common shares. Any meetings called at the request of shareholders must be held within 30 days after the request is made. Any shareholder may appoint any person as its duly authorized representative at a shareholders meeting, by granting a proxy. Co-owners of shares must have single representation.
 
In general, the following matters can be considered only at an extraordinary shareholders’ meeting (asamblea extraordinaria):
 
 
•
matters that may not be approved at an ordinary shareholders’ meeting;
 
•
the amendment of our bylaws;
 
•
reductions in our share capital;
 
•
redemption, reimbursement and amortization of our shares;
 
•
mergers, and other corporate changes, including dissolution and winding-up;
 
•
limitations or suspensions to preemptive rights to the subscription of the new shares; and
 
•
issuance of debentures, convertible negotiable obligations and bonds that do not qualify as notes (obligaciones negociables).
 
 
175
 
 
In accordance with our by-laws, ordinary and special shareholders’ meetings (asamblea extraordinaria) are subject to a first and second quorum call, the second to occur upon the failure of the first. The first and second notice of ordinary shareholders’ meetings may be made simultaneously. In the event that both are made on the same day, the second must occur at least one hour after the first. If simultaneous notice was not given, the second notice must be given within 30 days after the failure to reach quorum at the first. Such notices must be given in compliance with applicable regulations.
 
A quorum for an ordinary shareholders’ meeting on the first call requires the presence of a number of shareholders holding a majority of the shares entitled to vote and, on the second call, the quorum consists of the number of shareholders present, whatever that number. Decisions at ordinary shareholders’ meetings must be approved by a majority of the votes validly exercised by the shareholders.
 
A quorum for an special shareholders’ meeting (asamblea extraordinaria) on the first call requires the presence of persons holding 60% of the shares entitled to vote and, on the second call, the quorum consists of the number of shareholders present, whatever that number. Decisions at special shareholders’ meeting (asamblea extraordinaria) generally must be approved by a majority of the votes validly exercised.
 
However, pursuant to the Argentine Corporation Law, all shareholders’ meetings, whether convened on a first or second quorum call, require the affirmative vote of the majority of shares with right to vote in order to approve the following decisions:
 
 
•
advanced winding-up of the company;
 
•
transfer of the domicile of the company outside of Argentina;
 
•
fundamental change to the purpose of the company;
 
•
total or partial mandatory repayment by the shareholders of the paid-in capital; and
 
•
a merger or a spin-off, when our company will not be the surviving company.
 
Holders of common shares are entitled to one vote per share. Owners of common shares represented by ADRs exercise their voting rights through the ADR Depositary, who acts upon instructions received from such shareholders and, in the absence of instructions, votes in the same manner as our majority of the shareholders present in the shareholders’ meeting.
 
The holders of preferred stock may not be entitled to voting rights. However, in the event that no dividends are paid to such holders for their preferred stock, the holders of preferred stock are entitled to voting rights. Holders of preferred stock are also entitled to vote on certain special matters, such as a transformation of the corporate type, early dissolution, change to a foreign domicile, fundamental change in the corporate purposes, total or partial replacement of capital losses, mergers in which our company is not the surviving entity, and spin-offs. The same exemption will apply in the event the preferred stock is traded on any stock exchange and such trading is suspended or canceled.
 
Dividends and Liquidation Rights
 
The Argentine Corporation Law establishes that the distribution and payment of dividends to shareholders is valid only if they result from realized and net earnings of the company pursuant to an annual balance sheet approved by the shareholders. Our board of directors submits our financial statements for the previous fiscal year, together with the reports of our Supervisory Committee, to the Annual Ordinary Shareholders’ Meeting. This meeting must be held by October 30 of each year to approve the financial statements and decide on the allocation of our net income for the year under review. The distribution, amount and payment of dividends, if any, must be approved by the affirmative vote of the majority of the present votes with right to vote at the meeting.
 
The shareholders’ meeting may authorize payment of dividends on a quarterly basis provided no applicable regulations are violated. In that case, all and each of the members of the board of directors and the supervisory committee will be jointly and severally unlimitedly liable for the refund of those dividends if, as of the end of the respective fiscal year, the realized and net earnings of the company are not sufficient to allow the payment of dividends.
 
When we declare and pay dividends on the common shares, the holders of our ADRs, each representing the right to receive ten ordinary shares, outstanding on the corresponding registration date, are entitled to receive the dividends due on the common shares underlying the ADRs, subject to the terms of the Deposit Agreement dated March 18, 1997 executed by and between us, The Bank of New York, as depositary and the eventual holders of ADRs. The cash dividends are to be paid in Pesos and, except under certain circumstances, are to be converted by the Depositary into U.S. Dollars at the exchange rate prevailing at the conversion date and are to be paid to the holders of the ADRs net of any applicable fee on the dividend distribution, costs and conversion expenses, taxes and public charges. Since January 2002 and due to the devaluation of the Peso, the exchange rate for the dividends will occur at a floating market rate.
 
Our dividend policy is proposed from time to time by our board of directors and is subject to shareholders’ approval at an ordinary shareholders’ meeting. Declarations of dividends are based upon our results of operations, financial condition, cash requirements and future prospects, as well as restrictions under debt obligations and other factors deemed relevant by our board of directors and our shareholders.
 
Dividends may be lawfully paid only out of our retained earnings determined by reference to the financial statements prepared in accordance with Argentine GAAP. In accordance with the Argentine Corporation Law, net income is allocated in the following order: (i) 5% is retained in a legal reserve until the amount of such reserve equals 20% of the company’s outstanding capital; (ii) dividends on preferred stock or common shares or other amounts may be retained as a voluntary reserve, contingency reserve or new account, or (iii) for any other purpose as determined by the company’s shareholders at an ordinary shareholders’ meeting.
 
Our legal reserve is not available for distribution. Under the applicable regulations of the Comisión Nacional de Valores, dividends are distributed pro rata in accordance with the number of shares held by each holder within 30 days of being declared by the shareholders for cash dividends and within 90 days of approval in the case of dividends distributed as shares. The right to receive payment of dividends expires three years after the date on which they were made available to shareholders. The shareholders’ meeting may authorize payment of dividends on a quarterly basis provided no applicable regulations are violated. In such case, all and each of the members of the board of directors and the supervisory committee will be jointly and severally liable for the refund of those dividends if, at the end of the respective fiscal year, the realized and net earnings of the company are not sufficient to allow for the payment of dividends.
 
 
•
to be applied to satisfy its liabilities; and
 
•
to be proportionally distributed among holders of preferred stock in accordance with the terms of the preferred stock. If any surplus remains, our shareholders are entitled to receive and share proportionally in all net assets available for distribution to our shareholders, subject to the order of preference established by our bylaws.
 
 
 
176
 
 
Approval of Financial Statements
 
Our fiscal year ends on June 30 of each year, after which we prepare an annual report which is presented to our board of directors and Supervisory Committee. The board of directors submits our financial statements for the previous fiscal year, together with the reports of our Supervisory Committee, to the annual ordinary shareholders’ meeting, which must be held within 120 days of the close of our fiscal year, in order to approve our financial statements and determine our allocation of net income for such year. At least 20 days before the ordinary shareholders’ meeting, our annual report must be available for inspection at our principal office.
 
Right of Dissenting Shareholders to Exercise Their Appraisal Right
 
Whenever certain actions are approved at an extraordinary shareholders’ meeting (asamblea extraordinaria) (such as the approval of a merger, a spin-off (except when the shares of the acquired company are publicly traded), a fundamental change of corporate purpose, a transformation from one type of corporation to another, a transfer of the domicile of our company outside of Argentina or, as a result of the action approved, the shares cease to be publicly traded) any shareholder dissenting from the adoption of any such resolution may withdraw from our company and receive the book value per share determined on the basis of our latest financial statements, whether completed or to be completed, provided that the shareholder exercises its appraisal rights within ten days following the shareholders’ meeting at which the resolution was adopted.
 
In addition, to have appraisal rights, a shareholder must have voted against such resolution or act within 15 days following the shareholders’ meeting if the shareholder was absent and can prove that he was a shareholder of record on the day of the shareholders meeting. Appraisal rights are extinguished with respect to a given resolution if such resolution is subsequently overturned at another shareholders’ meeting held within 75 days of the previous meeting at which the original resolution was adopted. Payment on the appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except where the resolution involved a decision that our stock ceases to be publicly traded, in which case the payment period is reduced to 60 days from the date of the resolution.
 
Ownership Restrictions
 
The CNV regulations require that transactions that cause a person’s holdings of capital stock of a registered Argentine company, to hold 5% or more of the voting power, should be immediately notified to the CNV. Thereafter, every change in the holdings that represents a multiple of 5% of the voting power should also be notified.
 
Directors, senior managers, executive officers, members of the supervisory committee, and controlling shareholders of an Argentine company whose securities are publicly listed, should notify the CNV on a monthly basis, of their beneficial ownership of shares, debt securities, and call and put options related to securities of such companies and their controlling, controlled or affiliated companies.
 
Holders of more than 50% of the common shares of a company or who otherwise have voting control of a company, as well as directors, officers and members of the supervisory committee, must provide the CNV with annual reports setting forth their holdings in the capital stock of such companies and monthly reports of any change in their holdings.
 
Tender Offers
 
Tender offers under Argentine law may be voluntary or mandatory. In either case, the offer must be made addressed to all shareholders. In the case of a mandatory tender offer, the offer must also be made to the holders of subscription rights, stock options or convertible debt securities that directly or indirectly may grant a subscription, acquisition or conversion right on voting shares.
 
Capital Markets Law No. 26,831 establishes that a person or entity wishing to acquire a “significant holding” (“participaciones significativas”) shall be required to launch a mandatory tender offer:
 
-  
A mandatory tender offer will not be required in those cases in which the purpose of the acquisition of the “significant holding” is not to acquire the control of a company.
 
The CNV defines a “significant holding” as holdings that represent an equal or a higher percentage than 15% and 51% of the voting shares as the case may be:
 
-  
When a person or an entity intends to acquire more than 15% of the shares of a company, a mandatory tender offer to purchase 50% of the corporate voting capital is required by law.
 
-  
If a person or an entity owns between 15% and 51% of the shares of a company, and wishes to increase its holdings by at least 6% within a 12 month period, a mandatory tender offer to acquire shares representing at least 10% of the voting capital will be legally required.
 
-  
When a person or an entity wishes to acquire more than 51% of the shares of a company, a mandatory tender offer to acquire 100% of the voting capital will be legally required.
 
-  
Finally, when a shareholder controls 95% or more of the outstanding shares of a company, (i) any minority shareholder may, at any time, demand that the controlling party make an offer to purchase all of the remaining shares of the minority shareholders and (ii) the controlling party can issue a unilateral statement of intention to acquire all of the remaining shares owned by the other stockholders.
 
Pursuant to the Argentine Corporation Law we may redeem our outstanding common shares only under the following circumstances:
 
 
•
to cancel such shares and only after a decision to reduce our capital stock (with shareholder approval at an extraordinary shareholders’ meeting (asamblea extraordinaria);
 
•
to avoid significant damage to our company under exceptional circumstances, and then only using retained earnings or free reserves that have been fully paid, which action must be ratified at the following ordinary shareholders’ meeting; or
 
•
in the case of the acquisition by a third-party of our common shares.
 
The Capital Markets Law provides for other circumstances under which our company, as a corporation whose shares are publicly listed, can repurchase our shares. The following are necessary conditions for the acquisition of our shares:
 
 
•
the shares to be acquired shall be fully paid,
 
•
there shall be a board of directors’ resolution containing a report of our supervisory committee and audit committee. Our board of director’s resolution must provide the purpose of the acquisition, the maximum amount to be invested, the maximum number of shares or the maximum percentage of capital that may be acquired and the maximum price to be paid for our shares. Our board of directors must give complete and detailed information to both shareholders and investors,
 
•
the purchase shall be carried out with net profits or with free or optional reserves, and we must prove to the CNV that we have the necessary liquidity and that the acquisition will not affect our solvency,
 
•
under no circumstances may the shares acquired by our company, including those that may have been acquired before and held by us as treasury stock, be more than 10% of our capital stock or such lower percentage established by the CNV after taking into account the trading volume of our shares.
 
 
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Any shares acquired by us that exceed 10% of our capital stock must be disposed of within 90 days from the date of acquisition originating the excess without prejudice of the liability corresponding to our board of directors.
 
Transactions relating to the acquisition of our own shares may be carried out through open market transactions or through a public offering:
 
•
in the case of acquisitions in the open market, the amount of shares purchased daily cannot exceed 25% of the mean daily traded volume of our shares during the previous 90 days.
•
in either case, the CNV can require the acquisition to be carried out through a public offering if the shares to be purchased represent a significant percentage in relation to the mean traded volume.
 
Regulation of the CNV as amended, provides general requirements that any company must comply with in the case of the acquisition of its shares under the Corporations Law or under the Capital Markets Law. The acquisition of its shares by a company must be:
 
•
approved by a resolution of the board of directors with a report of its supervisory committee,
•
notice must be given to the CNV with the expression of the motives of the decision,
•
be carried out with net profits or free reserves from the last financial statements and approved by the board of directors,
•
the board of directors has to prove to the CNV, that the company has the necessary liquidity and that the acquisition does not affect its solvency,
•
all shares acquired by the company, including those that may have been acquired before and held by it as treasury stock, may not exceed 10% of its capital stock.
 
There are no legal limitations to ownership of our securities or to the exercise of voting rights pursuant to the ownership of our securities, by non-resident or foreign shareholders.
 
Registrations and Transfers
 
Our common shares are held in registered, book-entry form. The registry for our shares is maintained by Caja de Valores S.A. at its executive offices located at 25 de mayo 362, (C1002ABH) Buenos Aires, Argentina. Only those persons whose names appear on such share registry are recognized as owners of our common shares. Transfers, encumbrances and liens on our shares must be registered in our share registry and are only enforceable against us and third parties from the moment registration takes place.
 
Amendment to the by-laws.
 
On the shareholders’ meeting held on October 10, 2007, our shareholders decided to amend the following sections of the by-laws: (i) Section Thirteen in order to adapt the performance bonds granted by directors to current rules and regulations, and (ii) Section Sixteen in order to incorporate the possibility of holding remote board meetings pursuant the provisions of section 65 of Executive Branch Decree 677/01.
 
On the shareholders’ meeting held on October 31, 2012, our shareholders decided to amend the Section XVII of the by-laws in order to modify the quorum and majorities of the remote board meetings.
 
 
We do not have any material contract entered into outside the ordinary course of business other than some of the operations previously described under the Related Party Transactions, the Recent Developments and Our Indebtedness sections.
 
 
Foreign Currency Regulation
 
All transactions involving the purchase and sale of foreign currency must be settled through the single free exchange market (Mercado Único Libre de Cambios, or “MULC”) where the Argentine Central Bank supervises the purchase and sale of foreign currency. Under Executive Branch Decree No. 260/2002, the Argentine government set up an exchange market through which all foreign currency exchange transactions are made. Such transactions are subject to the regulations and requirements imposed by the Argentine Central Bank. Under Communication “A” 3471, as amended, the Argentine Central Bank established certain restrictions and requirements applicable to foreign currency exchange transactions. If such restrictions and requirements are not met, criminal penalties shall be applied.
 
Outflow and Inflow of Capital
 
Inflow of capital
 
Under Argentine Foreign Investment Law No. 21,382, as amended, and the wording restated under Executive Branch Decree No. 1853/1993, the purchase of stock of an Argentine company by an individual or legal entity domiciled abroad or by an Argentine “foreign capital” company (as defined under the Foreign Investment Law) represents a foreign investment.
 
Under Executive Branch Decree No. 616/2005, as amended, the Argentine government imposed certain restrictions on the inflow and outflow of foreign currency into and from the Argentine exchange market, including that inflowing new indebtedness and debt renewals by persons domiciled abroad must be agreed and cancelled within periods not shorter than 365 calendar days, irrespective of the method of payment. Additionally, such debt may not be prepaid before the lapse of such period. Such restrictions do not apply to (i) foreign trade financing, or (ii) primary public offering of equity or debt instruments issued under the public offering procedure and listed on self-regulated markets.
 
 
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Pursuant to Communication “A” 4359, as amended, which regulated the Executive Branch Decree N° 616/2005, a registered, non-transferable and non-interest bearing deposit must be kept in Argentina for a period of 365 calendar days, in an amount equal to 30% of any inflow of funds into the domestic exchange market arising from (i) foreign debt (excluding foreign trade); and (ii) purchase of interests in Argentine companies that are not listed on self-regulated markets, except for direct investments and other transactions that may result in the inflow of foreign currency, or in indebtedness of a resident towards a nonresident. However, primary debt offerings by means of public offerings which are listed on a self-regulated market are exempted from such requirements. The mandatory deposit must be made in US Dollars and held in Argentine financial institutions and it may not be used to guarantee or as collateral of any type of credit transactions.
 
Communication “A” 4377, amended by Communication “A” 4762, 4933 and 5532, exempted from keeping the 30% mandatory deposit the following transactions:
 
i) Inflows of funds made by Multilateral and Bilateral Credit Agencies, either directly or through their related agencies.
 
ii) Financial indebtedness with non-resident financial or private sector, to the extent the funds, net of taxes and expenses, are applied to the purchase of foreign currency for the payment of external debt services or the formation of long-term assets.
 
iii) Any other financial indebtedness with non-resident financial or private sector, to the extend the inflows had been incurred and repaid in an average term no less than two years, including principal and interests and, to the extent, the funds are applied to investment in non financial assets by the private sector.
 
iv) Foreign currency settlements by Argentine residents derived from foreign currency loans granted by local financial institutions.
 
v) Direct investment contributions in local companies (pursuant to Communication “A” 4237 which defines “direct investment” as the participation in the capital stock which must be no less than 10%) and sale of interests in the capital stock of local companies to direct investors.
 
With respect to item v), there are some requirements aiming to comply with the accurate capitalization of the direct investment contribution regarding the actual capitalization and registration of the contribution with the Public Registry of Commerce in a term of 540 calendar days, otherwise, the mandatory deposit shall be made within 10 calendar days. This term shall be considered from the date in which the local company resolves not to accept the contribution and/or the rejection and/or suspension thereof.  Regarding the sale of interest in the capital stock of a local company by a direct investor, it shall be required the filing of the sale and purchase agreement or the public offer of acquisition, as the case may be. Within 20 business days of the settlement of the transaction through the MULC, it shall be required the filing of the registration of the amendment to the by-laws with the Public Registry of Commerce or a legalized copy of the Ledger Book, depending on the type of company (corporation or limited liability company).
 
Additionally, Communication “A” 4901, dated February 5, 2009, exempts from the obligation to keep such mandatory deposit in the case of inflows into the exchange market made by non residents, when the Pesos resulting from the settlement of the foreign currency are applied within the following ten business days to any of the purposes set forth by the classification of current transactions in international accounts, namely: a) discharge of advance payments or liabilities for income and personal asset taxes payable by individuals who are regarded as residents from a tax standpoint; b) payment by nonresidents of contributions to the social security system or payments to employee-owned or prepaid healthcare systems; c) payment of other taxes which, given their nature, are borne by nonresidents in their capacity as taxpayers, and always provided that such payment does not entitle the nonresident to claims vis-à-vis the tax authorities or third parties; and d) other rates and services supplied by residents. In addition, such exemption on mandatory deposits, subject to certain additional requirements, is also applicable to funds remitted from abroad by nonresident companies on behalf of employees from international corporate groups who are temporarily abroad, to local companies responsible for the settlement of taxes and for making the relevant payments.
 
As result of the enactment of Communication “A” 5604, dated on July 10, 2014, which introduced item 2.7. in the Communication “A” 5526 as it is mentioned below, which in turn was modified by Communication “A” 5643, including direct investments, and the latter modified by Communication “A” 5692, direct investments made by non residents to local companies, shall be maintained in local account in foreign currency from October 9 until December 31, 2015 to the extent such funds comply with the provisions set forth in item 2.7. of Communication “A” 5526.

Obligation for the settlement of funds through the MULC.
 
General rules. Exports.
 
Pursuant to Executive Decree No. 1606/2011 any foreign currency derived from foreign trade must be settled through the MULC.
 
Pursuant to Communication “A” 5300, as amended, within 15 business days as of the date of the disbursement of the funds abroad, corresponding to the payment of exportation of goods, advance payments of exports and pre financing loans for exports, such funds must be settled through the MULC. In all cases, the due date for the settlement of the funds derived from exports shall be the shortest time between 15 business day and the date applicable to the specific good according to the current rules. Such funds shall be credited in a local bank account duly opened in favor of the client.
 
In connection with the funds which were disbursed in bank accounts abroad, for the same concept referred to in the paragraph above, the due date for the transfer of such funds to a representative account of a local bank entity is 10 business days.
 
According to several regulations enacted by Argentine Central Bank, it is allowed the application of payment for exports abroad for the cancellations of exporter’s debt in the following cases:
 
 
a. advance payments and prefinancing loans for exports.
 
 
b. financing of local new investment projects for the increase of production of exportable goods or  importation substitutes, among others.
 
 
c. other financial indebtedness for bonds offering abroad and financial loans granted by foreign banks.
 
 
d. financial indebtedness with local financial entities to the extent the term (no less than 10 years), an average term (no less than 5 years) and interest rate (up to a 100 b.p. over labor 180 days) has been accomplished.
 
Services
 
Communication “A” 5264 set forth that the payments in foreign currency received by residents for the export of services and payment of losses for insurance policies hired with non residents under the applicable rules must be settled through the MULC within fifteen business days as of its collection abroad or locally or its deposit in foreign bank accounts.
 
 
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Such funds are exempted to be settled through the MULC to the extent such exemption is actually contemplated in the foreign exchange regulations and such amounts are applied for the cancellation of foreign financial indebtedness.
 
Outflow of capital, including the availability of cash or cash equivalents
 
Exchange Transactions Inquiry Program
 
On October 28, 2011, the Federal Administration of Public Revenues (Administración Federal de Ingresos Públicos, “AFIP”) established an Exchange Transactions Inquiry Program (“Inquiry Program”) through which the entities authorized by the Central Bank to deal in foreign exchange must inquire and register through an IT system the total Peso amount of each exchange transaction at the moment it is closed.
 
All foreign exchange sale transactions, whether involving foreign currency or banknotes, irrespective of their purpose or allocation, are subject to this inquiry and registration system, which determines whether transactions are “Validated” or “Inconsistent”.
 
Pursuant to Communication “A” 5239, later replaced by Communication “A” 5245, in the case of sales of foreign exchange (foreign currency or banknotes) for the formation of off-shore assets by residents without the obligation of subsequently allocating it to specific purpose, entities authorized to deal in foreign exchange may only allow transactions through the MULC by those clients who have obtained the validation and who comply with the rest of the requirements set forth in the applicable foreign exchange regulations. The following are exempted from the Inquiry Program, among others: a) international agencies and institutions that act as official export credit agencies, diplomatic and consular offices, bilateral agencies established under International Treaties; and b) local governments.
 
Sales of foreign exchange other than for the formation of off-shore assets by residents without a specific purpose are also exempted from the Inquiry Program, although, the financial entities must verify that the other requirements established by the MULC are accomplished.
 
On December 20, 2012, Resolution No. 3421 replaced Resolution No. 3356, both enacted by AFIP. The latest one sets forth a unified registration system to be fulfilled for the access to the foreign exchange market, in particular for the outflow of funds made by residents or non residents, in whichever purpose or destiny. Such resolution is related with Communications “A” 5245.
 
Financial Indebtedness
 
In accordance with Communication “A” 5265, as amended by Communication “A” 5604 (as of July 10, 2014) the transactions arising from financial indebtedness of the financial sector, private non-financial sector and local governments must be settled in the foreign exchange market.
 
The provisions reach indebtedness with bonds, financial loans and any other transaction by which a disbursement of funds from a non-resident had been carried out. The obligation of settlement through the MULC shall be conducted within 30 calendar days from the date of the disbursement abroad and the transfer shall be deposited in a local bank account.
 
Any new financial indebtedness paid through the MULC and any debt renewal with financial non-residents and private non-residents shall be settled, maintained and renewed for at least 365 calendar days from the date of the disbursement, and they may not be prepaid before such term, whatever the manner of the cancellation of the obligation with the creditor had been agreed and independently of whether said cancellation is channeled through the MULC or not.
 
The primary issuance of publicly securities traded in self regulated markets is exempted of the foregoing provisions.
 
On January 8, 2015, through Communication “A” 5692, the Central Bank extended the term established by Communication “A” 5643 through which the conditions established in item 2.7. of the Communication “A” 5526 related to the purchase of foreign currency for the formation of off-shore assets by residents, shall be applied to the financial indebtedness from October 9, 2014 until December 31, 2015. The inflow of funds through this channel shall be subject to provisions set forth in Decree 616/2005, meaning that mandatory deposit of 30% shall apply. Nevertheless, it shall be considered the final destination of the funds that are exempted from such mandatory deposit (i.e. financial indebtedness with non-resident financial or private sector, to the extend the inflows had been incurred and repaid in an average term no less than two years, including principal and interests and, to the extent, the funds are applied to investment in non financial assets by the private sector). By this regulation, the funds may be maintained in local account in foreign currency during the term authorized thereof.
 
Formation of off-shore assets by residents with and without subsequent allocation to specific purposes
 
On January 27, 2014, the Argentine Central Bank enacted Communication “A” 5526 which abrogated item II of Communication “A” 5318 (as of July 5, 2012) rule that, in turn, had suspended item 4.2. of Communication “A” 5236 (as of October 27, 2011) related to the purchase of foreign currency for the formation of off-shore assets by residents.. Communication “A” 5526, by entirely replacing item 4 of Communication “A” 5236 (which regulated the outflow of funds for the formation of off-shore assets for subsequent allocation without specific purposes to individuals who were Argentine residents, legal entities organized in Argentina and trust set up with contributions from the national public sector), made void the restrictions to the foreign exchange market to individuals who are residents, allowing them to purchase foreign currency as savings based on the income declared with the AFIP, prior to a validation system to be accomplished by such individuals. Additionally, the referred rule rearranged and, therefore replaced Annex to Communication “A” 5236.
 
On July 10, 2014, through Communication “A” 5604, the Argentine Central Bank made some additional changes to Communication “A” 5526, including the item 2.7. This item was amended by Communication “A” 5604 and Communication “A” 5757, the latter dated on May 21, 2015. As a result of such amendments it was set forth that new bond offerings and debt instruments issued under public offering procedure and listed on self regulated markets by local governments and /or private non-financial sector, that may be considered as external issuance, it shall be allowed the access to the foreign exchange market for the purchase of foreign currency to be deposited in local financial institutions (in a fixed term or special foreign currency account), simultaneously to the settlement of the funds received for the acquisition of such bonds or debt instruments abroad. Such permit shall be made for the total amount of the funds settled through the foreign exchange market and for a term of no longer than 270 calendar days. At least 80% of such funds must be applied to any future needs of net foreign currency required by the company involved. After the due date of 270 calendar days established by the Communication, the funds that had not been used, must be settled through the foreign exchange market within 10 business days. The referred funds shall not be subject to the mandatory deposit of 30% regulated by Communication “A” 4359, as amended.
 
Outflow of funds for payment to non-residents
 
According to Communication “A” 5264, amended by Communication “A” 5377 (issued on December 14, 2012) and Communication “A” 5604, there are no limits or restrictions applicable for residents who access the foreign exchange market to pay services, debts and profits to non-residents. The access to the MULC requires the filing of certain documentation by residents demonstrating the validity of transactions in which the funds are purchased for its remittance abroad.
 
Payment of services
 
As it was mentioned above, there is no restriction applicable for payments to be made to non-residents for performed services. The regulation covers all types of services without making any specifications. The financial entity shall require the filing of documentation supporting the authenticity of the transaction, the service rendered by the non-resident to the resident and the amount to be transferred abroad.
 
 
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Should performed services are not related to the activities actually developed by the resident; the financial entity shall require a copy of the contract by which the payment obligation arises from and an auditor report. Such requirements intend to demonstrate the actual rendering of services to the non-resident and the existence of the debt.
 
Payment of rents (interest, profits and dividends)
 
As of January 8, 2003, Communication “A” 3859, item 3, allowed Argentine companies to transfer abroad profits and dividends related to closed financial statements certified by independent accountants without being required to obtain the prior authorization of the Central Bank. Such Communication was replaced by Communication “A” 5264, amended by Communication “A” 5377.
 
The payments of profits and dividends to non-residents or ADR’s are authorized, insofar such payments are made according to financial statements duly closed, audited and approved by shareholders’ meeting.
 
The financial entity shall verify the accomplishment of the formalities established by Communication “A” 3602, as amended, and the fulfillment of the report of direct investment ruled by Communication “A” 4237 (please see below the Reporting System).
 
Payment of foreign financial indebtedness
 
Access to the exchange market is allowed for payments of principal amounts due, with the exception of the financial institutions subject to rediscounts granted by the Central Bank and which have restructured their debt with foreign creditors (Executive Branch Decree No. 739/2003 and Communication “A” 3940 of the Central Bank).
 
In general terms, access to MULC for payment of principal, interest and prepayment of financial indebtedness incurred by Argentine residents in the private non-financial sector and financial sector are subject to regulations set forth by Communications “A” 5265 as of January 3, 2012.
 
The sale of foreign currency for the payment of financial indebtedness must be made through check issued by the resident or debit to the resident local bank account. The financial entity must verify that the reporting system has been complied with in accordance with Communication “A” 3602. Additionally, the payment may only proceed if the funds disbursed remain in Argentina for at least 365 calendar days, in accordance with Executive Branch Decree N° 616/2005.
 
Interest payments: Pursuant to Communication “A” 5264, item 3.7., modified by Communication “A” 5604 on July 10, 2014 (after several amendments since its issuance), the access to the MULC for the purchase of foreign currency to pay interests for financial indebtedness may be made:
 
a.  
Up to 10 business day prior to the due date of each interest installment and to pay interest accrued within such interest period;
 
b.  
To pay interest accrued from the date of the settlement of the disbursement through the local foreign exchange market; or
 
c.  
To pay interest accrued from the date of the actual disbursement; provided that the funds disbursed abroad were credited in correspondent accounts of entities authorized to settle such funds through the local exchange market, within 48 hours from the date of their disbursement.
 
In all cases, the financial entity must verify the filing of the documents required by Communication “A” 3602 (affidavit related to the financial indebtedness) and Communication “A” 4237 (reporting of direct investment owned by non-residents) in case the creditor is part of the debtor’s economic group.
 
Principal Repayments and Prepayments: Pursuant to Communication “A” 5265, amended by Communication “A” 5604 (enacted on July 10, 2014) foreign currency necessary to pay principal on foreign indebtedness owed by the private non-financial sector may be acquired:
 
a.  
within 10 business days prior to the stated maturity of the applicable obligation; provided that the funds disbursed under such obligation have remained in Argentina for at least 365 days; or
 
b.  
with the anticipation required from an operating standpoint in order to pay to the creditor at maturity, in case of principal installments the payment of which depends on the satisfaction of specific conditions expressly contemplated in the contracts executed by and between the parties involved.
 
c.  
with an anticipation of more than 10 business day –partial or full- to the extent the disbursed funds have remained in Argentina for at least 365 and the payment is financed with the inflow of funds from abroad for capital contribution.
 
d.  
with the anticipation of more than 10 business day –partially or full- to the extent the minimum term of 365 days as of the disbursement of the funds has been accomplished and the prepayment is fully offset with the inflow through the MULC of new external financial with international entities and their agencies, official credit entities and financial entities from abroad, to the extent that such cancellation implies a condition for the new indebtedness and/or for the new bond offerings and debt instruments issued under public offering procedure and listed on self regulated markets, that may be considered as external issuance. In each case, it is a condition: (a) the average term of the new indebtedness is higher than the average term of the outstanding debt that it is prepaid considering both capital and interest, and (b) it may not imply an increase in the present value of the indebtedness for the debtor.
 
Direct Investment Reporting System
 
Direct Investments made in Argentina by non residents
 
Under Communication “A” 4237, the Argentine Central Bank established a reporting system in connection with direct investments and real estate investments made by non residents in Argentina and by residents abroad.
 
Non residents must comply every semester with the above mentioned reporting system if the amount of the investment in Argentina reaches or exceeds US$ 500,000. If such amount is not reached, the reporting system is optional.
 
Direct investments made outside Argentina by Argentine residents
 
Argentine residents are required to meet the reporting system set forth in Communication “A” 4237 every year if the value of their investments abroad reaches or exceeds US$1.0 million and its under US$5.0 million, and every semester if it reaches or exceeds US$ 5.0 million. If the value of such investments abroad does not reach US$1.0 million, compliance with the reporting system is optional.
 
 
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Sales of foreign exchange to non residents
 
The consent of the Argentine Central Bank is not required, unless the following conditions are met:
 
a.  
evidence is given that a smaller amount of foreign currency than the one intended to be purchased previously entered through the MULC during the nonresident’s period of stay in Argentina;
b.  
the original foreign exchange certificate through which the foreign currency entered is produced;
 
c.  
an equivalent to US$ 5,000 per client and per period of stay in Argentina is not exceeded.
 
For further details regarding the exchange regulations applicable in Argentina, investors should consult their professional advisers and read the full text of Executive Branch Decree 616/2005, Resolution No. 365/2005 of the Ministry of Economy and Production and Criminal Exchange Law No. 19,359, as well as the relevant regulations and supplementary provisions. Interested parties may consult such regulations through the website of the Ministry of Economy and Public Finance (http://www.infoleg.gob.ar) or the Central Bank (http://www.bcra.gob.ar).
 
Money Laundering
 
Argentine Law No. 25,246, as amended by Laws No. 26,118, 26,268 and 26,683, categorizes money laundering as a crime, which is defined as the exchange, transfer, management, sale or any other use of money or other assets obtained through a crime, by a person who did not take part in such original crime, with the potential result that such original assets (or new assets resulting from such original assets) have the appearance of having been obtained through legitimate means. In spite of the fact that there is a specific amount for the money laundering category (Ps.300,000), the crimes committed for a lower amount are also punished, but the prison sentence is reduced.
 
After the enactment of Law 26,683, money laundering was included in the Penal Code as an independent crime against economic and financial order and it was split from the title “Concealment” as originally disposed. Therefore, money laundering is a crime which may be prosecuted independently.
 
The money laundering law created the Financial Information Unit (“UIF”). The UIF is in charge of the analysis, treatment and transmission of information to prevent and impede the money laundering originating from, among others:
 
a.  
Crimes related to the traffic and illegal commercialization of drugs (Law No. 23,737)
 
b.  
Crimes related to arms traffic (Law No. 22,415);
 
c.  
Crimes related to illegal association o terrorist association;
 
d.  
Crimes committed by illegal associations organized to commit crimes for political or racial purposes;
 
e.  
Crimes against Public Administration;
 
f.  
Crimes of minor’s prostitution and child pornography;
 
g.  
Crimes related to terrorism financing.
 
The UIF analyzes the information received by entities that have the obligation to report suspicious activities or operations and, as the case may be, inform the Public Ministry to carry out the investigations that may be considered relevant or necessary.
 
The money laundering legal framework in Argentina also assigns information and control duties to certain private sector entities, such as banks, agents, non-profits organizations, stock exchanges, insurance companies, according to the regulations of the Financial Information Unit, and for financial entities, the Argentine Central Bank. These regulations apply to many Argentine companies, including us. These obligations consist mainly of: (i) maintaining internal policies and procedures aimed at money laundering prevention and financing of terrorism, especially through the application of the policy “know your client”; (ii) reporting any suspicious activity or operation and (iii) acting according the Money Laundering Law with respect to the confidentiality of the information obtained from the clients. For that purpose, each entity involved must appoint an officer responsible for the monitoring and control under the Money Laundering Law.
 
On May 8, 2009, and in its capacity as obliged subject under the rules enacted by UIF, the CNV issued Resolution No. 554 which incorporated within the exchange market many provisions aimed at comply with money laundering prevention pursuant to Law 25,246, as amended. In that regard, such resolution established that any entity subject to the supervision of CNV could only take part in securities transactions if they were ordered by parties that were registered or domiciled in jurisdictions not included in the list of tax havens detailed in Executive Branch Decree No 1344/98. Furthermore, the Resolution provided that securities transactions made by parties registered or domiciled in jurisdictions that are not included in such list, but that act as intermediaries of securities’ markets under the supervision of an agency similar to the CNV, were allowed only if such agency has signed a memorandum of mutual understanding with the CNV.
 
On February 2, 2012, Resolution No. 554 was replaced by Resolution No. 602 so as to adapt and complement the instructions issued by UIF applying to the entities under the supervision of CNV, including some payment modalities and control proceedings for the reception and deliver of funds to the clients, fixing amounts and instruments to be used. Moreover, such resolution updated the reference to the Executive Branch Decree which referred to tax havens (No. 1,037).
 
As part of a more comprehensive modification of the rules that govern the scope of supervision of CNV, derive from the enactment of Law No. 26,831, which approved a new regulatory regime for the public offer of securities, CNV issued a new re-arranged text of its rules. By Resolution No. 622/2013, CNV incorporates a new chapter of Money Laundering and Terrorist Financing including dispositions related to the fulfillment of duties to be complied by “Agentes de Negociación”, “Agentes de Liquidación y Compensación”, “Agentes de Distribución y Colocación” and “Agentes de Administración de Productos de Inversión Colectiva”, considered as obliged subject under the terms of sections 4, 5 and 22 of article 20 of Law No. 25,246. Such agents are obliged to comply with any provision arising from Law No. 25,246 and its amendments, regulations enacted by UIF, including decrees of National Executive Power with reference to the decisions adopted by the United Nations Security Council, in the fight against terrorism and to comply with the resolutions issued by the Ministry of Foreign Affairs, International Trade and Religion. Furthermore, “Agentes de custodia de productos de inversión colectiva (Sociedades Depositarias de Fondos Comunes de Inversión”); “Agentes de corretaje”, “Agentes de depósito colectivo” and listed companies with respect to contribution, irrevocable contributions or indebtedness made by a shareholder or a third person to become a shareholder in the future, are also reached by the resolution.
 
Those subjects must send by internet (through the online application of CNV) their tax identification number. Additionally, in case of companies, it must be informed the personal data of the “Compliance Officer” (both regular and alternate).
 
The CNV regulations provide that the subjects under their jurisdiction, may only take action to transactions in the scope of public offering of securities, stipulated, future or optional contracts of any nature and other instruments and financial products when made or directed by registered, domiciled or domestic subjects or those who reside in dominions, jurisdictions, territories or associated states that appear included in the list of cooperating countries provided in article 2º, subsection b) of executive branch Decree 589/2013.
 
 
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When those subjects are not included in the referred list and, in their origin jurisdictions,  are only registered intermediates of an entity subject to control and supervision of a body who fulfills similar duties such as the CNV, the transactions shall only have effect provided that the body in their origin jurisdiction has signed a memorandum of understanding, cooperation and exchange of information with the CNV.
 
With the purpose of strengthen the requirements in order to grant the authorization to operate in the exchange market, some new requisites were established in connection with: (i) competence and capacity; (ii) moral integrity and honesty and (iii) solvency. Such requisites are subject to the appraisal of CNV and must be fulfilled by managers, directors, auditors and any other individual who perform duties or activities within the company.
 
Some other measures are set forth related to listed companies or their shareholders or beneficial owners who had been convicted or condemned in connection with money laundering and/or terrorist financing activities or appeared in the list published by the United Nation Security Council.
 
E.  TAXATION
 
United States Taxation
 
The following summary describes the material United States federal income tax consequences of the ownership of our common shares and ADSs as of the date hereof. The discussion set forth below is applicable to U.S. Holders (as defined below). Except where noted, this discussion deals only with U.S. Holders that hold our common shares or ADSs as capital assets. This summary does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
 
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a bank;
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a dealer in securities or currencies;
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a financial institution;
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a regulated investment company;
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a real estate investment trust;
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an insurance company;
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a tax exempt organization;
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a person holding our common shares or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle;
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a trader in securities that has elected the mark-to-market method of accounting for your securities;
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a person liable for alternative minimum tax;
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a person who owns or is deemed to own 10% or more of the voting stock of our company;
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a partnership or other pass-through entity for United States federal income tax purposes; or
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a person whose “functional currency” is not the U.S. Dollar.
 
Furthermore, the discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income, or the effects of any state, local or non-United States tax laws. In addition, this summary is based, in part, upon representations made by the depositary (the “Depositary”) to us and assumes that the deposit agreement governing the ADSs, and all other related agreements, will be performed in accordance with their terms.
 
As used herein, the term “U.S. Holder” means a beneficial owner of common shares or ADSs that is for United States federal income tax purposes:
 
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an individual citizen or resident of the United States;
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a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
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an estate the income of which is subject to United States federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
 
If a partnership holds our common shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our common shares or ADSs, you should consult your tax advisors.
 
IF YOU ARE CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF COMMON SHARES OR ADSS YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO YOU AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
 
ADSs
 
In general, for United States federal income tax purposes, U.S. Holders of ADSs will be treated as the owners of the underlying common shares that are represented by the ADSs. Accordingly, deposits or withdrawals of our common shares by U.S. Holders for ADSs will not be subject to United States federal income tax.
 
Distributions on Common Shares or ADSs
 
Subject to the discussion under “Passive Foreign Investment Company” below, the gross amount of distributions on our common shares or ADSs (including amounts withheld to reflect Argentine withholding taxes, if any) will be taxable as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under United States federal income tax principles). Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of common shares, or by the Depositary, in the case of ADSs. Such dividends will not be eligible for the dividends-received deduction allowed to corporations under the Code.
 
 
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With respect to non-corporate United States investors, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares (or ADSs representing such shares) that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ADSs (which are listed on the NASDAQ), but not our common shares, are readily tradable on an established securities market in the United States. Thus, we do not believe that dividends that we pay on our common shares that are not represented by ADSs currently meet the conditions required for these reduced tax rates. Non-corporate holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met.
 
The amount of any dividend paid in Pesos will equal the U.S. Dollar value of the Pesos received calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by you, in the case of common shares, or by the Depositary, in the case of ADSs, regardless of whether the Pesos are converted into U.S. Dollars. If the Pesos received are not converted into U.S. Dollars on the day of receipt, you will have a basis in the Pesos equal to their U.S. Dollar value on the date of receipt. Any gain or loss you realize on a subsequent conversion or other disposition of the Pesos will be treated as United States source ordinary income or loss.
 
Subject to certain significant conditions and limitations, Argentine tax withheld from dividends, if any, may be treated as foreign income tax eligible for credit or deduction against your United States federal income tax liability. For purposes of the foreign tax credit, dividends paid on the common shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. Further, in certain circumstances, if you have held ADSs or common shares for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on ADSs or common shares. The rules governing the foreign tax credit are complex. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
 
To the extent that the amount of any distribution (including amounts withheld to reflect Argentine withholding taxes, if any) exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ADSs or common shares, and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend (as discussed above).
 
Taxation of Capital Gains
 
Subject to the discussion under “Passive Foreign Investment Company” below, upon the sale, exchange or other disposition of common shares or ADSs, you generally will recognize capital gain or loss equal to the difference between the U.S. Dollar value of the amount realized upon the sale, exchange or other disposition and the adjusted tax basis of the common shares or ADSs, determined in U.S. Dollars. The capital gain or loss will be long-term capital gain or loss if at the time of sale, exchange or other disposition you have held the common shares or ADSs for more than one year. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss you recognize will generally be treated as United States source gain or loss. Consequently, you may not be able to use the foreign tax credit arising from any Argentine tax imposed on the disposition of common shares or ADSs unless such credit can be applied (subject to applicable limitations) against tax due on other income treated as derived from foreign sources.
 
Passive Foreign Investment Company
 
Based on the current and projected composition of our income and the valuation of our assets, including goodwill, we do not believe we were a PFIC for United States federal income tax purposes for the taxable year ending June 30, 2015, and we do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation.
 
In general, we will be a PFIC for any taxable year in which either (i) at least 75% of the gross income of our company for the taxable year is passive income or (ii) at least 50% of the value (determined on the basis of a quarterly average) of our assets is attributable to assets that produce or are held for the production of passive income. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income. If we own at least 25% by value of the stock of another corporation, we will be treated for purposes of the PFIC tests as owning a proportionate share of the assets of the other corporation, and as receiving directly a proportionate share of the other corporation’s income.
 
If we are a PFIC for any taxable year during which you hold common shares or ADSs in our company, unless you make the mark-to-market election discussed below, you will be subject to special tax rules discussed below.
 
If we are a PFIC for any taxable year during which you hold our common shares or ADSs, you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge, of such common shares or ADSs. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the common shares or ADSs will be treated as excess distributions. Under these special tax rules (i) the excess distribution or gain will be allocated ratably over your holding period for the common shares or ADSs, (ii) the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and (iii) the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.
 
If we are a PFIC for any taxable year during which you hold our common shares or ADSs and any of our non-United States subsidiaries is also a PFIC, you would be treated as owning a proportionate amount (by value) of the common shares of the lower tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
 
In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
 
 
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In certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election is only available for stock traded on certain designated United States exchanges and foreign exchanges which meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable United States Treasury regulations. Consequently, the mark-to-market election may be available to you with respect to the ADSs because the ADSs are listed on the NASDAQ, which constitutes a qualified exchange under the regulations, although there can be no assurance that the ADSs will be regularly traded. You should note that only the ADSs and not the common shares are listed on the NASDAQ. The common shares are listed on the BASE. Consequently, the BASE would need to meet the trading, listing, financial disclosure and other requirements of the United States Treasury regulations. The ADSs or common shares would also need to be regularly traded on such exchanges in order for the ADSs or common shares to be potentially eligible for the mark-to-market election.
 
If we are a PFIC in any taxable year in which you hold our common shares or ADSs, but you do not make a mark-to-market election until a subsequent taxable year, you will be subject to special rules in the taxable year of the election. You should consult your own tax advisors regarding the application of the mark-to-market election in your particular situation.
 
If you make an effective mark-to-market election, you will include in income each year that we are a PFIC as ordinary income, rather than capital gain, the excess, if any, of the fair market value of your common shares or ADSs at the end of the taxable year over your adjusted tax basis in the common shares or ADSs and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of such common shares or ADSs over their fair market value at the end of each such taxable year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. Your basis in the common shares or ADSs will be adjusted to reflect any such income or loss amounts. Any gain or loss on the sale of the common shares or ADSs will be ordinary income or loss, except that such loss will be ordinary loss only to the extent of the previously included net mark-to-market gain.
 
If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. Mark-to-market inclusions and deductions will be suspended during taxable years in which we are not a PFIC, but would resume if we subsequently become a PFIC. You are urged to consult your own tax advisor about the availability of making such a mark-to-market election.
 
Alternatively, a United States investor that owns common shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat the company as a “qualified electing fund” under Section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.
 
A United States Holder who owns common shares or ADSs during any year that we are a PFIC must generally file IRS Form 8621.
 
You should consult your own tax advisors concerning the United States federal income tax consequences of holding the common shares or ADSs if we are considered a PFIC in any taxable year.
 
Argentine Personal Assets Tax
 
Amounts paid on account of the Argentine personal assets tax, if any, will not be eligible as a credit against your United States federal income tax liability, but may be deductible subject to applicable limitations in the Code.
 
Information Reporting and Backup Withholding
 
In general, information reporting requirements will apply to distributions on common shares or ADSs and to the proceeds of sale of a common share or ADS paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. Backup withholding may apply to such payments if you fail to provide a correct taxpayer identification number or certification of other exempt status or fail to report in full dividend and interest income.
 
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided you furnish the required information to the Internal Revenue Service.
 
Argentine Taxation
 
The following discussion is a summary of certain Argentine tax considerations associated with an investment in, ownership or disposition of, the common shares or the ADSs by (i) an individual holder that is resident in Argentina, (ii) an individual holder that is neither domiciled nor resident in Argentina, (iii) a legal entity organized under the laws of Argentina, (iv) a permanent establishment in Argentina of a foreign entity and (v) a legal entity that is not organized under the laws of Argentina, that does not have a permanent establishment in Argentina and is not otherwise doing business in Argentina on a regular basis. The discussion is for general information only and is based on current Argentine tax laws. Moreover, while this summary is considered to be a correct interpretation of existing laws in force as of the date of this filing, no assurance can be given that the courts or administrative authorities responsible for the administration of such laws will agree with this interpretation or that changes in such laws or interpretations will not occur.
 
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES ARISING UNDER ANY TAXING JURISDICTION.
 
Income tax
 
Law No. 26,893, enacted on September 12, 2013 and published in the Official Gazette on September 23, 2013, introduced several amendments to Income Tax Law No. 20,628 in connection with, among others,  the taxation of dividend distributions and gains derived from transfers of shares and other securities, including the derogation of Section 78 of Decree No. 2,284/1991, which provided that foreign holders with no permanent establishment in Argentina were exempt from paying income tax on the capital gains arising from the sale or other disposition of shares or ADSs.
 
On February 7, 2014, the Executive Branch issued Decree No. 2,334/13, which regulates Law No. 26,893.
 
The changes introduced by Law No. 26,893 are effective from the date of publication of such law in the Official Gazette and are applicable to taxable events consummated from such date onwards.
 
Taxation of Dividends
 
Until Law No. 26,893 became effective, dividends, whether in cash, in shares or in kind, approved by our shareholders were not subject to income tax withholding except for the application of the “Equalization Tax” described below.
 
 From the effectiveness of Law No. 26,893, dividends are subject to an income tax withholding (the “Dividend Tax”) at a 10% rate on the amount of such dividends in respect of both Argentine and non-Argentine resident shareholders. However, dividends received by Argentine entities (generally entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina) are not subject to the 10% tax .
 
 
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Notwithstanding the foregoing, according to Argentine law, and irrespective of the 10% tax mentioned in the previous paragraph, an additional income tax withholding will be applied to the amount of dividends distributed in excess of a company’s net taxable income determined in accordance with general income tax regulations for the fiscal years preceding the date of the distribution of such dividends (the “Equalization Tax”). The legislation requires that companies withhold 35% of the amount of distributed dividends in excess of the net taxable income of such distribution, as determined in accordance with the income tax law.  Dividends distributed by an Argentine company are not subject to this tax to the extent that those dividends arise from dividend income or other distributions received by such company from other Argentine companies.
 
Dividend distributions made in kind (other than cash) will be subject to the same tax rules as cash dividends. Stock dividends on fully paid shares are neither subject to Dividend Tax nor to Equalization Tax.
 
In case both the Dividend Tax and the Equalization Tax apply, the latter should be applied first and then the 10% rate of the Dividend Tax should be applied on the remaining amount of dividends (i.e. the effective rate of both taxes on dividends would be 41.5%). Certain tax treaties contemplate the application of a ceiling tax rate on dividends (i.e. 10% on gross dividends).
 
Taxation of Capital Gains
 
From the effectiveness of Law No. 26,893 income from sale, exchange, disposition or transfer of shares or ADSs is subject to income tax, irrespective of the person that obtains such income, exception made of transactions made by resident individuals involving shares and other securities that are listed on securities exchanges or markets and/or authorized to be offered to the public.
 
Resident individuals
 
Capital gains obtained by resident individuals from the sale of shares and other securities  are subject to income tax at a 15% rate on net income, unless such securities were traded in stock markets and/or have public offering authorization, in which case an exemption applies. The amendments introduced by the implementing Decree No. 2,334/13 state that the exemption includes income derived from the sale of shares and other securities made through a stock exchange market duly authorized by the CNV.
 
 It is not clear whether the term “includes” (as used in the implementing Decree 2334/2013) means that the exemption only refers to sales of securities made through a stock exchange market duly authorized by the CNV or whether the implementing Decree 2334/2013 intended to clarify that such sales were just one of the possibilities that may be covered by the exemption (in addition to publicly offering authorized securities, as provided in the Argentine Income Tax Law). Certain qualified tax authorities have publicly opined that the exemption exclusively refers to sales of securities made through a stock exchange market duly authorized by the CNV.
 
Losses arising from the sale, exchange or other disposition of shares or ADSs can be applied only to offset such capital gains arising from the sale, exchange or other disposition of these securities, for a five-year carryover period.
 
 
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Foreign beneficiaries
 
Capital gains obtained by non-Argentine individuals or non-Argentine entities from the sale, exchange or other disposition of shares  are subject to income tax, as the abovementioned exemption for shares is not applicable to non-Argentine beneficiaries. Therefore, the gain derived from the disposition of shares by foreign beneficiaries is subject to Argentine income tax at a 15% rate on the net capital gain or at a 13.5% rate on the gross price at the seller´s election. However there is currently no regulation under Argentine law with respect to how this election is made. When both seller and buyer are non-residents, the person liable to pay the tax shall be the buyer of the shares, quotas, equity interests and other securities transferred. However, as of the date of this annual report , no regulations have been issued stipulating the withholding and payment mechanism that the non-resident buyer should follow.
 
Notwithstanding the above, based on certain tax precedents, there may be support to argue that gains obtained by a non-resident from the disposal of ADSs should be regarded as foreign source income and, therefore, not subject to Argentine income tax. As this is a controversial issue, further analysis is required.
 
Argentine entities
 
Capital gains obtained by Argentine entities (in general entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non-Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina) derived from the sale, exchange or other disposition of shares or ADSs are subject to income tax at the rate of 35%.
 
Losses arising from the sale, exchange or other disposition of shares or ADSs can be applied only to offset such capital gains arising from the sale, exchange or other disposition of these securities, for a five-year carryover period.
 
WE RECOMMEND PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES CONCERNING THE SALE OR OTHER DISPOSITIONS OF SHARES AND ADSs.
 
Value Added Tax
 
The sale, exchange, disposition, or transfer of common shares or ADSs is not subject to Value Added Tax.
 
Tax on Personal Assets
 
Argentine entities, such as us, have to pay the personal assets tax corresponding to Argentine and foreign domiciled individuals and foreign domiciled entities for the holding of our shares. The applicable tax rate is 0.5% and is levied on the proportional net worth value (valor patrimonial proporcional), or the book value, of the shares arising from the last balance sheet of the Argentine entity calculated under Argentine GAAP. Pursuant to the Personal Assets Tax Law, the Argentine company is entitled to seek reimbursement of such paid tax from the applicable Argentine domiciled individuals and/or foreign domiciled shareholders.
 
Our shareholders approved the absorption of personal asset tax by us for the years 2002 to 2014. There can be no assurance that in the future this tax will be absorbed by us.
 
Tax on Minimum Notional Income (Impuesto a la Ganancia Mínima Presunta, “IGMP”)
 
Entities domiciled in Argentina, partnerships, foundations, sole proprietorships, trusts, certain mutual funds organized in Argentina, and permanent business establishments owned by foreign persons, among other taxpayers, shall apply a 1% rate to the total value of assets held by such persons, above an aggregate nominal amount of Ps.200,000. Nevertheless, common shares and ADSs issued by entities subject to such tax are exempt from the IGMP.
 
 
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Turnover Tax
 
 The gross turnover tax is a local tax; therefore, the rules of the relevant provincial jurisdiction should be considered, which may levy this tax on the purchase and sale, exchange or other disposition of common shares or ADSs, and/or the collection of dividends at an average rate of 6%, unless an exemption is applicable. In the particular case of the City of Buenos Aires, any transaction involving common shares and/or the collection of dividends and revaluations is exempt from this tax.
 
There is no gross income tax withholding system applicable to the payments made to foreign beneficiaries.
 
Stamp Tax
 
Stamp tax is a local tax that is generally levied on the formal execution of onerous transactions within a certain provincial jurisdiction or outside a certain provincial jurisdiction but with effects in such jurisdiction; Therefore, the rules of the relevant provincial jurisdiction should be considered for the issuance of instruments which implement onerous transactions (including issuance, subscription, placement and transfer) involving the common shares or ADSs, executed in those jurisdictions, or with effects in those jurisdictions.
 
Notwithstanding, for the City of Buenos Aires, any instrument related to the transfer of shares which public offering is authorized by the CNV is exempt from this tax.
 
Tax on Credits and Debits in Bank Accounts
 
Credits to and debits from bank accounts held at Argentine financial institutions, as well as certain cash payments, are subject to this tax, which is assessed at a general rate of 0.6%. There are also increased rates of 1.2% and reduced rates of 0.075%. Owners of bank accounts subject to the general 0.6% rate may consider 34% of the tax paid upon credits to such bank accounts as a tax credit while taxpayers subject to the 1.2% rate may consider 17% of all tax paid upon credits to such bank accounts as a credit. Such amounts can be utilized as a credit for income tax or tax on presumed minimum income.
 
Other Taxes
 
There are no Argentine federal inheritance or succession taxes applicable to the ownership, transfer or disposition of our common shares or ADSs. The provinces of Buenos Aires and Entre Ríos establish a tax on free transmission of assets, including inheritance, legacies, donations, etc. Free transmission of our shares could be subject to this tax. In the case of litigation regarding the shares before a court of the City of Buenos Aires, a 3% court fee would be charged, calculated on the basis of the claim.
 
Tax Treaties
 
Argentina has entered into tax treaties with several countries. There is currently no tax treaty or convention in effect between Argentina and the United States.
 
 
This section is not applicable
 
 
This section is not applicable.
 
 
We file annual, quarterly and other information with the SEC. You may read and copy any document that we file at the public reference rooms of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. Our Internet address is http://www.cresud.com.ar. It should be noted that nothing on our website should be considered part of this annual report on Form 20-F. You may request a copy of these filings at no cost, by writing or calling the office at +54 (11)-4814-7800.
 
 
This section is not applicable.
 
 
 In the normal course of business, we are exposed to foreign exchange risk, interest rate risks and other price risk, primarily related to changes in exchange rates and interest rates. We manage our exposure to these risks through the use of various financial instruments, none of which are entered into for trading purposes. We have established policies and procedures governing the use of financial instruments, specifically as they relate to the type and volume of such financial instruments. For further information on our market risks, please see Note 4 to our Audited Consolidated Financial Statements.
 
 
 
This item is not applicable
 
 
This item is not applicable
 
 
This item is not applicable
 
 
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The Bank of New York Mellon, as depositary for the ADSs (the “Depositary”) collects its fees for delivery directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. The Depositary also collects taxes and governmental charges from the holders of ADSs. The Depositary collects these fees and charges by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees (after attempting by reasonable means to notify the holder prior to such sale).
 
The Depositary has agreed to reimburse or pay on our behalf, certain reasonable expenses related to our ADS program and incurred by us in connection with the program (such as NASDAQ listing fees, legal and accounting fees incurred with preparation of Form 20-F and ongoing SEC compliance and listing requirements, distribution of proxy materials, investor relations expenses, etc). The Depositary has covered all such expenses incurred by us. During fiscal year 2015, no such reimbursement was received.
 
The amounts the Depositary reimbursed or paid are not perforce related to the fees collected by the depositary from ADS holders.
 
The following charges shall be incurred by any party depositing or withdrawing shares or by any party surrendering receipts or to whom receipts are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange regarding the receipts or deposited securities or a distribution of receipts), whichever applicable: (1) taxes and other governmental charges, (2) such registration fees as may from time to time be in effect for the registration of transfers of shares generally on the share register of the Company or foreign registrar and applicable to transfers of shares to the name of the Depositary or its nominee or the custodian or its nominee on the making of deposits or withdrawals hereunder, (3) such cable, telex and fax transmission expenses as are expressly provided in the deposit agreement, (4) such expenses as are incurred by the Depositary in the conversion of foreign currency (5) a fee of US$ 5.00 or less per 100 ADS (or portion), (6) a fee of US$ 0.02 or less per ADS (or portion) for any cash distribution made pursuant to the deposit agreement including, but not limited to, and (7) a fee for the distribution of securities, such fee being in an amount equal to the fee for the execution and delivery of ADS referred to above which would have been charged as a result of the deposit of such securities, but which securities are instead distributed by the Depositary to owners.
 
 
 
This section is not applicable.
 
 
A. This section is not applicable.
 
B. This section is not applicable.
 
C. This section is not applicable.
 
D. This section is not applicable.
 
E. This section is not applicable.
 
 
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer, Chief Financial Officer and Chief Administrative Officer, to allow our management to make timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. In connection with the preparation of this Annual Report on Form 20-F, we carried out an evaluation under the supervision and with the participation of members of our management team, including our Chief Executive Officer, Chief Financial Officer and Chief Administrative Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2015. Based upon this evaluation our Chief Executive Officer, Chief Financial Officer and Chief Administrative Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 20-F were effective at the reasonable assurance level.
 
We have been unable to obtain financial statements for IDBD for the year ended December 31, 2014 audited in accordance with U.S. GAAS that may be required to be included in this Annual Report on Form 20-F by Rule 3-09. As of June 30, 2015, we held 49% of IDBD and, as such, we did not control IDBD and did not have the power to direct IDBD or its management to provide us with such audited consolidated financial statements. In reliance on Rule 12b-21 promulgated under the Exchange Act we have provided unaudited consolidated financial statements for IDBD for the year ended December 31, 2014, which do not comply with Rule 3-09. As a result of including such financial information, we do not believe that the omission of the audited consolidated financial statements in accordance with Rule 3-09 will have a material impact on a reader’s understanding of our financial condition or our results of operations.
 
We are in the process of requesting a waiver from the SEC for filing the audited consolidated financial statements of IDBD for the year ended December 31, 2014 as may be required by Rule 3-09. We cannot provide you with any assurances that we will obtain this waiver. If the SEC does not grant this waiver to us, we will have to file an amendment to this annual report including the financial statements of IDBD for the year ended December 31, 2104 audited in accordance with U.S. GAAS as soon as such financial statements become available. See “Item 3. Key Information – D. Risk Factors.”
 
 
Our management is responsible for establishing and maintaining adequate Internal Control over Financial Reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our Internal Control over Financial Reporting includes a series of procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes, in accordance with International Financial Reporting Standards and includes  those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with International Financial Reporting Standards and that a company’s receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.
 
Because of its inherent limitations, Internal Control over Financial Reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
 
Management assessed the effectiveness of our Internal Control over Financial Reporting as of June 30, 2015. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control–Integrated Framework (1992). Based on this evaluation, management concluded that our Internal Control over Financial Reporting was effective as of June 30, 2015.
 
 
189
 
 
Remediation of Prior Year Material Weakness

We have previously disclosed in our annual report on Form 20-F for the year ended June 30, 2014 that we and our independent registered public accounting firm identified the following material weakness. The material weakness related to the failure to effectively interpret the impact of significant, non-routine complex contractual clauses associated with the investment in the associate IDBD.

A material weakness is a deficiency, or combination of deficiencies, in Internal Control over Financial Reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We have undertaken the following remedial steps to address the material weakness:
·
Hired additional qualified accounting personnel versed in the technical requirements of IFRS at the subsidiary level to interpret, analyze and account for significant complex contractual provisions;
·
Implemented a process to collect and consolidate all material contractual provisions at the subsidiary level to assist in the appropriate evaluation and documentation requirements required by IFRS;

·
Implemented additional review by management to confirm proper identification, analysis and implementation of relevant accounting standards going forward; and
·
Trained personnel at both corporate and subsidiary levels to better assess and evaluate contractual provisions and the impact of derivative financial instruments.

We have implemented and executed these actions above as part of our remediation plans and we have successfully tested them. As of June 30, 2015, we have concluded that the material weakness described in our annual report on Form 20-F for the year ended June 30, 2014 has been remediated.
 

C. ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM
 
       The effectiveness of the Company’s internal control over financial reporting as of June 30, 2015 has been audited by Price Waterhouse & Co S.R.L, Buenos Aires Argentina- member firm of PricewaterhouseCoopers International Limited-, an independent registered public accounting firm, as stated in their report which appears herein.
 

Other than the implementation and refinement of the controls necessary to remediate the previous year’s material weakness, there was no change in our internal control over financial reporting occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
 
 
In our annual ordinary shareholders’ meeting held on October 31, 2003, the audit committee was unanimously approved. Pursuant to this plan, the board of directors had to appoint the members of the audit committee who hold expertise in corporate administration, finance and accounting.
 
Our board of directors established an audit committee which would assist the Board in exercising its duty of care on disclosure requirements, the enforcement of accounting policies, management of our business risks, the management of our internal control systems, ethical conduct of our businesses, monitoring the sufficiency of our financial statements, our compliance with laws, independence and capacity of independent auditors and performance of our internal audit and our external auditors.
 
On November 3, 2008, our board of directors officially appointed Jorge Oscar Fernández, Daniel Mellicovsky, and Pedro Damaso Labaqui Palacio, all of them independent members, as members of the audit committee. Jorge Oscar Fernández is the financial expert in accordance with the relevant SEC rules. We have a fully independent audit committee as per the standard provided in Rule 10(A)-3(b)(1).
 
 
We have adopted a code of ethics that applies to our directors, officers and employees. Our code of ethics is posted in our website www.cresud.com.ar. On July 25, 2005, our Code of Ethics was amended by our board of directors. The amendment was reported in a report on Form 6K on August 1, 2005.
 
If we make any substantive amendment to the code of ethics or if we grant any waivers, including any implicit waiver, from a provision of the code of ethics, we will disclose the nature of such amendment or waiver in a Form 6-K or in our next Forms 20-F to be filed with the SEC.
 
 
Audit Fees
 
During the fiscal years ended June 30, 2015 and 2014, we were billed a total amount of Ps. 9.7 million and Ps. 8.0 million, respectively, for professional services rendered by our principal accountants for the audit of our financial statements and other services normally provided in connection with regulatory filings or engagements.
 
 
190
 
 
Audit-Related Fees
 
During the fiscal year ended june 30, 2015 and 2014 we were billed a total amount of Ps. 0.1 million and Ps. 0.1 million, respectively, for professional services rendered by our principal accountants for other services related to the audit of our financial statements and other services normally provided in connection with regulatory filings or engagements.
 
Tax Fees
 
During the fiscal year ended June 30, 2015 and 2014, we were billed a total amount of Ps. 0.01 million and Ps. 0.03, respectively, for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.
 
All Other Fees
 
During the fiscal years ended June 30, 2015, no such services were provided, while as of June 30, 2014, we were billed for a total amount of Ps. 0.8 million for other professional services rendered by our principal accountants.
 
Audit Committee Pre-Approval Policies and Procedures
 
Our audit committee approves, in advance, the engagement of auditors and their fees for audit and non-audit services pursuant to paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X.
 
Our Audit Committee pre-approves all services, fees and services provided by the external auditors to ensure auditors’ independence. One of the main tasks of the Audit Committee is to give it opinion in relation to the appointment of the external auditors, proposed by the Board of Directors to the General Shareholder’s Meeting. In order to accomplish such task, the Audit Committee shall:
 
 
•
Require any additional and complementary documentation related to this analysis;
 
 
•
Verify the independence of the external auditors;
 
 
•
Analyze different kinds of services that the external auditor would provide to the company. This description must also include an estimate of the fees payable for such services, specifically in order to maintain the principle of independence;
 
 
•
Inform the fees billed by the external auditor, separating the services related to audit services and other special services that could be not included in the audit services previously mentioned.
 
 
•
Take notice of any strategy proposed by of the external auditors and review it in accordance with the reality other business and the risks involved;
 
 
•
Analyze and supervise the working plan of the external auditors considering the business’ reality and the estimated risks;
 
 
•
Propose adjustments (if necessary) to such working plan;
 
 
•
Hold meetings with the external auditors in order to: (a) analyze the difficulties, results and conclusions of the proposed working plan; (b) analyze eventual possible conflicts of interests, related party transactions, compliance with the legal framework and information transparency;
 
 
•
Evaluate the performance of external auditors and their opinion regarding the Financial Statements.
 
 
This section is not applicable.
 
 
Issuer Purchases of Equity Securities
 
On August 26, 2008, our Board of Directors decided to establish a share repurchase plan  (the “2009 Plan”) under the provisions of the former Section 68 of the Law No. 17,811 (as amended by the transparency decree), currently amended and restated by the Capital Markets Law, in order to help reduce the decline and fluctuations of the price of our shares in the market.
 
During the fiscal year 2009, under the 2009 Plan, we purchased 30,000,000 common shares, for which we paid US$ 21.0 million and Ps.1.7 million, thus fulfilling the terms and conditions of the 2009 Plan. As a result, by the end of the fiscal year 2009 our investment in our own shares amounted to 5.98% of total capital stock.
 
Period
  
Total Number of Shares Purchased
    
Average Price Paid per Share (Ps.)
    
Total Number of Shares Purchased as Part of the Publicly Announced Plan
    
Maximum Number of Shares that may yet be purchased under the plan
  
08/29/08 – 08/31/08
     31,000       3.38       31,000       9,969,000  
09/01/08 – 09/30/08
     2,122,886       3.36       2,153,886       7,846,114  
10/01/08 – 10/31/08
     9,650,493       2.03       11,804,379       18,195,621  
11/01/08 – 11/30/08
     5,756,140       2.02       17,560,519       12,439,481  
12/01/08 – 12/31/08
     4,382,783       2.63       21,943,302       8,056,698  
01/01/09 – 01/31/09
     2,047,461       2.94       23,990,763       6,009,237  
02/01/09 – 02/28/09
     2,173,860       2.70       26,164,623       3,835,377  
03/01/09 – 03/31/09
     563,692       2.61       26,728,315       3,271,685  
04/01/09 – 04/30/09
     428,052       2.91       27,156,367       2,843,633  
05/01/09 – 05/31/09
     2,843,633       3.45       30,000,000       -  
Total
     30,000,000                          

 
In addition, during November 2009, our Board of Directors, in accordance with the resolutions of the Shareholders’ Meeting dated October 29, 2009, decided to initiate the process of distribution among the shareholders, on a pro rata basis, of 25,000,000 common shares, repurchased under the 2009 Plan. The allotment of shares was calculated over the outstanding capital stock up to October 29, 2009 of Ps. 471,538,610 (0.05301792784 shares per ADR). As a result of the calculation of the allotment, the fractions were settled in cash. 754 shares were not distributed.
 
 
191
 
 
On April 11, 2014 our Board of Directors decided to initiate a new shares repurchase plan (the “2014 Plan”), under the terms of Article 64 of the Capital Markets Law and the rules of the CNV. Such repurchases were made with our liquid and realized profits and free reserves. As of November 14, 2014, we finalized the 2014 Plan having repurchased a total of 8,633,316 shares, equivalent to 1.72% of the share capital, by a total of Ps. 87.1 million.

 
Period
  
Total Number of Common Shares Purchased (1)
    
Average Price Paid per Share
    
Total Number of ADR’s Purchased
    
Average Price Paid per Share
    
Total Number of Shares Purchased as Part of the Publicly Announced Plan (2)
    
Maximum Number of Shares that may yet be purchased under the plan
  
         
(Ps.)
          
(US$)
              
04/17/2014 - 04/30/2014
     14,7       6.74       59,162       11.18       606,32       18,506,949  
05/01/2014 - 05/31/2014
     33,537       10.23       171,5       12.11       1,748,537       16,758,412  
06/01/2014 - 06/30/2014
     100,512       12.81       313,011       12.33       3,230,622       13,527,790  
07/01/2014 - 07/31/2014
     4       13.40       115,111       13.62       1,155,110       12,372,680  
08/01/2014 - 08/31/2014
     13,657       13.23       142,989       12.28       1,443,547       10,929,133  
09/01/2014 - 09/30/2014
     -       -       44,918       11.86       449,18       10,479,953  
       Total
     166,406               846,691               8,633,316          
 
(1)  As of the date of transaction.
(2)  Correspond to the sum of common shares and ADR’s purchased. Each ADR represents 10 common shares.
 
In addition, during December 2014, our Board of Directors, in accordance with the resolutions of the Shareholders’ Meeting dated November 14, 2014, decided to initiate the process of distribution among the shareholders, on a pro rata basis, of 5,565,479 common shares, repurchased under the 2014 Plan. The allotment of shares was calculated over the outstanding capital stock up to December 12, 2014 of Ps. 487,928,660 (10 shares per ADR). As a result of the calculation of the allotment, the fractions were settled in cash. 746 shares were not distributed.
 
As a result as of the date of this annual report, the our investment in own shares amounts to 1,37% of total capital stock.
 
 
This section is not applicable.
 
 
Compliance with NASDAQ listing standards on corporate governance
 
Significant differences between our corporate governance practices and U.S. companies’ practices under NASDAQ Rules:
 
Our corporate governance practices are governed by the applicable Argentine law; particularly, the Argentine Corporations Law, the Capital Markets Law and the rules of the CNV, as well as by ours by-laws.
 
We have securities that are registered with the Securities and Exchange Commission and are listed on the NASDAQ, and are therefore subject to corporate governance requirements applicable to NASDAQ-listed non-US companies (a “NASDAQ-listed” company).
 
Pursuant to NASDAQ Rule 5615(a)(3), NASDAQ -listed non-U.S. companies that are categorized as “Foreign Private Issuers” may follow home country corporate governance practices in lieu of certain of the corporate governance requirements provided in NASDAQ Rules, provided that the foreign private issuer complies with certain mandatory sections of NASDAQ Rules, discloses each requirement that it does not follow and describes the home country practice followed in lieu of such requirement. The requirements of the NASDAQ Rules and the Argentine corporate governance practices that we follow in lieu thereof are described below:
 
 
192
 
 

 
NASDAQ Standards for U.S. companies
CRESUD’S CORPORATE PRACTICES
Rule 5250(d) - Distribution of Annual and Interim Reports.
In lieu of the requirements of Rule 5250(d), we follow Argentine law, which requires that companies issue publicly a Spanish language annual report, including annual Audited Consolidated Financial Statements prepared in accordance with generally accepted accounting principles in Argentina, by filing such annual report with the CNV and the stock exchange in which the securities are listed, within 70 calendar days following the close of our fiscal year. Interim reports must be filed with the CNV and the stock exchange in which the securities are listed within 42 calendar days following the close of each fiscal quarter. We provide our shareholders a copy of the annual and interim financial reports upon request. English language translations of our annual reports and interim reports are filed with the SEC on Form 20-F and Form 6-K, respectively. We also send the English language translation of our annual report and quarterly press releases on its website. Furthermore, under the terms of the Deposit Agreement, dated as of March 18, 1997, among us, The Bank of New York Mellon, as depositary, and owners of ADSs issued thereunder, we are required to furnish The Bank of New York Mellon with, among other things, English language translations of their annual reports. Annual reports are available for inspection by ADR holders at the offices of The Bank of New York located at, 101 Barclay Street, 22 Floor, New York, New York. Finally, Argentine law requires that 20 calendar days before the date of a shareholders’ meeting, the board of directors must provide to our shareholders, at our executive office or through electronic means, all information relevant to the shareholders’ meeting, including copies of any documents to be considered by the shareholders (which includes the annual report).
Rule 5605(b)(1) - Majority of Independent Directors.
In lieu of the requirements of Rule 5605(b)(1), we follow Argentine law which does not require that a majority of the board of directors be comprised of independent directors. Argentine law instead requires that public companies in Argentina, such as, us must have a sufficient number of independent directors to be able to form an audit committee of at least three members, the majority of which must be independent pursuant to the criteria established by the CNV.
Rule 5605(b)(2) - Executive Sessions of the Board of Directors.
In lieu of the requirements of Rule 5605(b)(2), we follow Argentine law which does not require independent directors to hold regularly scheduled meetings at which only such independent directors are present (i.e., executive sessions). Our board of directors as a whole is responsible for monitoring our affairs. In addition, under Argentine law, the board of directors may approve the delegation of specific responsibilities to designated directors or non-director managers of the Company. Also, it is mandatory for public companies to form a supervisory committee (composed of “syndics”) which is responsible for monitoring our legal compliance under Argentine law and compliance with our by-laws. Finally, our audit committee has regularly scheduled meetings and, as such, such meetings will serve a substantially similar purpose as executive sessions.
Rule 5605(d)(B) - Compensation of Officers.
In lieu of the requirements of Rule 5605(d)(B), we follow Argentine law which does not require companies to form a compensation committee comprised solely of independent directors. For the determination of the compensation of the chief executive officer and all other executive officers no decision of a majority of independent directors or a compensation committee comprised solely of independent directors is required under Argentine law. Under Argentine law, the board of directors is the corporate body responsible for determining the compensation of the chief executive officer and all other executive officers, so long as they are not directors. In addition, under Argentine law, the audit committee shall give its opinion about the reasonableness of management’s proposals on fees and option plans for our directors or managers.
Rule 5605(e) - Nomination of Directors.
In lieu of the requirements of Rule 5605(e), we follow Argentine law which requires that directors be nominated directly by the shareholders at the shareholders’ meeting and that they be selected and recommended by the shareholders themselves. Under Argentine law, it is the responsibility of the ordinary shareholders’ meeting to appoint and remove directors and to set their compensation.
Rule 5605(c)(1) - Audit Committee Charter.
In lieu of the requirements of Rule 5605(c)(1), we follow Argentine law which requires that audit committees have a charter but does not require that companies certify as to the adoption of the charter nor does it require an annual review and assessment thereof. Argentine law instead requires that companies prepare a proposed plan or course of action with respect to those matters which are the responsibility of our audit committee. Such plan or course of action could, at the discretion of our audit committee, include a review and assessment of the audit committee charter. We believe that we are in compliance with the requirements for audit committee charters provided for in the Sarbanes Oxley Act.
Rule 5605(c)(2) - Audit Committee Composition.
Argentine law does not require that companies have an audit committee comprised solely of independent directors and it is equally not customary business practice in Argentina to have such a committee. Argentine law instead requires that companies establish an audit committee with at least three members comprised of a majority of independent directors as defined by Argentine law. Nonetheless, although not required by Argentine law, we have a three member audit committee comprised of entirely independent directors in accordance with Rule 10(A)-3(b)(1) of the General rules and regulations promulgated under the Securities Exchange Act of 1934, as independence is defined in Rule 10(A)-3(b)(1). Further, Argentine law does not require companies to identify or designate a financial expert. As such, Although all the members of the audit committee have large corporate experience, as of the date of this annual report, the Board of Directors have not named designated a financial expert in accordance with the relevant SEC ruleson the audit committee. Although it is noted that all members of the audit committee have had significant corporate experience. In addition, we have a supervisory committee (“comisión fiscalizadora”) composed of three ‘syndics’ which are in charge of monitoring the legality, under Argentine law, of the actions of our board of directors and the conformity of such actions with our by-laws.
Rule 5620(c) - Quorum.
In lieu of the requirements of Rule 4350(f), we follow Argentine law and our bylaws, which distinguish between ordinary meetings and extraordinary meetings and require, in connection with ordinary meetings, that a quorum consist of a majority of stocks entitled to vote. If no quorum is present at the first meeting, a second meeting may be called, in which the shareholders present, regardless of their number, constitute a quorum. Resolutions may be adopted by an absolute majority of the votes present. Argentine law, and our bylaws, requires in connection with extraordinary meetings, that a quorum consist of 60% of the stock entitled to vote. However, if such quorum is not present at the first meeting, our bylaws provide that a second meeting may be called and may be held with the number of shareholders present. In both ordinary and extraordinary meetings, decisions are adopted by an absolute majority of votes present at the meeting, except for certain fundamental matters (such as mergers and spin-offs (when we are not the surviving entity and the surviving entity is not listed on any stock exchange), anticipated liquidation, change in its domicile outside of Argentina, total or partial recapitalization of its statutory capital following a loss, any transformation in our corporate legal form or a substantial change in our corporate purpose, or the issue of bonds) which require an approval by vote of the majority of all the stock entitled to vote (all stock being entitled to only one vote.
Rule 5620(b) -- Solicitation of Proxies.
In lieu of the requirements of Rule 5620(b), we follow Argentine law which requires that notices of shareholders’ meetings be published, for five consecutive days, in the Official Gazette and in a widely published newspaper in Argentina no earlier than 45 calendar days prior to the meeting and at least 20 calendar days prior to such meeting. In order to attend a meeting and be listed on the meeting registry, shareholders are required to submit evidence of their book-entry share account held at Caja de Valores S.A. up to three business days prior to the scheduled meeting date. If entitled to attend the meeting, a shareholder may be represented by proxy (properly executed and delivered with a certified signature) granted to any other person, with the exception of a director, syndic, member of the Supervisory Committee, manager or employee of the issuer, which are prohibited by Argentine law from acting as proxies. In addition, our ADS holders receive, prior to the shareholders’ meeting, a notice listing the matters on the agenda, a copy of the annual report and a voting card.
Rule 5630(s) -- Conflicts of Interest
In lieu of the requirements of Rule 5630(a), we follow Argentine law which requires that related party transactions be approved by the audit committee when the transaction exceeds one percent (1%) of the corporation’s net worth, measured pursuant to the last audited balance sheet,. Directors can contract with the corporation only on an arm’s length basis. If the contract is not in accordance with prevailing market terms, such transaction must be pre-approved by the board of directors (excluding the interested director). In addition, under Argentine law, a shareholder is required to abstain from voting on a business transaction in which its interests may be in conflict with the interests of the company. In the event such shareholder votes on such business transaction and such business transaction would not have been approved without such shareholder’s vote, such shareholder may be liable to the company for damages and the resolution may be declared void.
 
 
This section is not applicable.
 

 
193
 


 
 
 
We have responded to Item 18 in lieu of responding to this Item.
 
 
Reference is made to pages F-1 through F-374.
 
Index to Financial Statements (see page F-1).
 

 
194
 

Item 19.  Exhibits
 
Exhibit No.                                Description of Exhibit
 
1.1*
By-laws (Estatutos) of the registrant, which serve as the registrant’s articles of incorporation and by-laws, and an English translation thereof.
1.2****
English translation of the amendment to the bylaws.
1.3*********
Amended and restated English translation of the bylaws.
1.4
2.1*******
Indenture dated September 7, 2011, among us, as issuer, the Bank of New York Mellon, as trustee, co-registrar, principal paying agent and transfer agent, Banco Santander Rio, S.A., as registrar, paying agent, transfer agent and representative of the trustee in Argentina, and The Bank of New York Mellon (Luxembourg) S.A., as Luxembourg Paying and Transfer Agent, for the issuance of the U.S.$ 60,000,000, 7.50% Fourth Series, Class VIII Senior Notes Due 2014.
4.1*
Consulting Agreement among Cresud S.A.C.I.F. y A. and Dolphin Fund Management S.A. dated October 25, 1994.
4.2**
4.3****
4.4*****
4.5******
4.6*******
4.7********
4.8*********
4.9*********
4.10
8.1
List of Subsidiaries.
11.1*** 
Code of Ethics.
12.1
12.2
13.1
13.2
Certification pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Chief Financial Officer.
15.1
Consolidated financial statements of IDBD Development Corporation Ltd. as of and for the year ended December 31, 2014 unaudited (not in compliance with U.S. GAAS)

*Incorporated herein by reference to the exhibit to the registrant’s registration statement on Form F-1 (File No. 333-06548) filed with the SEC on March 3, 1997.
 
** Incorporated herein by reference to the report statement on Form 6-K (File No. 333-06548) filed with the SEC on July 1, 2004.
 
*** Incorporated herein by reference to the registrant’s report on Form 6-K (File No. 333-06548) filed with the SEC on August 1, 2005.
 
**** Incorporated herein by reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on December 27, 2007.
 
***** Incorporated herein reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on December 30, 2009.
 
****** Incorporated herein reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on December 30, 2010.
 
******* Incorporated herein reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on December 28, 2011.
 
******** Incorporated herein reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on October 30, 2012.
 
********* Incorporated herein reference to the annual report on Form 20-F (File No. 333-06548) filed with the SEC on October 31, 2014.
 

 
195
 


SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Form 20-F on its behalf.
 
 
  Cresud S.A.C.I.F. y A.  
       
Date Novermber 17, 2015
By:
/s/ Matías I. Gaivironsky  
    Name Matías I. Gaivironsky  
    Title Chief Financial Officer  
       


 
196
 


 
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria
   Page
Report of Independent Registered Public Accounting Firm                                                                                                                       
F - 2
Consolidated Statements of Financial Position  as of June 30, 2015 and 2014
F - 4
Consolidated Statements of Income  for the fiscal years ended June 30, 2015, 2014 and 2013
 
F - 6
Consolidated Statements of Comprehensive Income  for the fiscal years ended June 30, 2015, 2014 and 2013
 
F - 7
Consolidated Statements of Changes in Shareholders’ Equity  for the fiscal years ended June 30, 2015, 2014 and 2013
 
F - 8
Consolidated Statements of Cash Flows  for the fiscal years ended June 30, 2015, 2014 and 2013
 
F - 11
Notes to the Consolidated Financial Statements 
F - 12

 
F-1
 

Report of Independent Registered Public Accounting Firm
 


To the
Board of Directors and Shareholders of
Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria


    In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Cresud Sociedad Anónima Comercial, Inmobiliaria, Financiera y Agropecuaria and its subsidiaries at June 30, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in accompanying Management’s Annual Report on Internal Control Over Financial Reporting under Item 15.

Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 
 
F-2
 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





PRICE WATERHOUSE & Co. S.R.L.
 
By:/s/Carlos Martin Barbafina(Partner)
 
Carlos Martín Barbafina
Buenos Aires, Argentina
November 17, 2015

 



 
 
F-3
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Statements of Financial Position
as of June 30, 2015 and 2014
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
ASSETS
Note
     06.30.15       06.30.14  
Non-current assets
                  
Investment properties                                                                                       
10
     3,474,959       3,454,616  
Property, plant and equipment                                                                                       
11
     1,977,195       2,381,956  
Trading properties                                                                                       
12
     129,654       132,555  
Intangible assets                                                                                       
13
     175,763       175,007  
Biological assets                                                                                       
14
     458,879       444,853  
Investments in associates and joint ventures                                                                                       
8, 9
     2,772,685       2,375,339  
Deferred income tax assets                                                                                       
28
     652,186       852,642  
Income tax credit                                                                                       
       160,457       177,547  
Restricted assets                                                                                       
17
     4,301       50,897  
Trade and other receivables                                                                                       
18
     426,777       475,349  
Investment in financial assets                                                                                       
19
     622,845       275,012  
Derivative financial instruments                                                                                       
20
     207,602       233  
Total non-current assets                                                                                       
       11,063,303       10,796,006  
Current Assets
                  
Trading properties                                                                                       
12
     3,300       4,596  
Biological assets                                                                                       
14
     119,998       195,830  
Inventories                                                                                       
15
     511,350       439,771  
Restricted assets                                                                                       
17
     607,021       -  
Income tax credit                                                                                       
       30,749       19,694  
Assets held for sale                                                                                       
44
     -       1,357,866  
Trade and other receivables                                                                                       
18
     1,772,373       1,438,408  
Investment in financial assets                                                                                       
19
     504,102       495,633  
Derivative financial instruments                                                                                       
20
     29,554       32,897  
Cash and cash equivalents                                                                                       
21
     633,693       1,002,987  
Total current assets                                                                                       
       4,212,140       4,987,682  
TOTAL ASSETS                                                                                       
       15,275,443       15,783,688  
SHAREHOLDERS’ EQUITY
                  
Capital and reserves attributable to equity holders of the parent
                  
Share capital                                                                                       
       494,777       490,997  
Treasury stock                                                                                       
       6,866       10,566  
Inflation adjustment of share capital                                                                                       
       64,530       64,047  
Inflation adjustment of treasury stock                                                                                       
       895       1,378  
Share premium                                                                                       
       659,464       773,079  
Additional paid-in capital from treasury stock                                                                                       
       12,678       -  
Cost of treasury stock                                                                                       
       (32,198 )     (54,876 )
Share warrants                                                                                      
       -       106,264  
Changes in non-controlling interests                                                                                       
       53,806       (15,429 )
Cumulative translation adjustment                                                                                       
       443,096       633,607  
Equity-settled compensation                                                                                       
       81,988       70,028  
Legal reserve                                                                                       
       -       81,616  
Reserve for new developments                                                                                      
       -       17,065  
Special Reserve                                                                                      
       -       633,940  
Reserve for the acquisition of securities issued by the company
       32,198       200,000  
Accumulated deficits                                                                                       
       (246,069)       (1,066,428 )
Equity attributable to equity holders of the parent
       1,572,031       1,945,854  
Non-controlling interest                                                                                       
       2,329,927       2,488,932  
TOTAL SHAREHOLDERS’ EQUITY                                                                                       
       3,901,958       4,434,786  

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 
F
 
 
F-4
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Statements of Financial Position (Continued)
as of June 30, 2015 and 2014
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
 
Note
     06.30.15       06.30.14  
LIABILITIES
                  
Non-current liabilities
                  
Trade and other payables                                                                                
22
     264,054       216,760  
Borrowings                                                                                
25
     5,832,973       5,315,335  
Deferred income tax liabilities                                                                                
28
     150,691       470,045  
Derivative financial instruments                                                                                
20
     269,949       320,847  
Payroll and social security liabilities                                                                                
23
     5,539       5,041  
Provisions                                                                                
24
     386,948       220,489  
Total non-current liabilities                                                                                
       6,910,154       6,548,517  
Current liabilities
                  
Trade and other payables                                                                                
22
     1,306,835       1,004,180  
Income tax liabilities                                                                                
       142,361       73,429  
Payroll and social security liabilities                                                                                
23
     230,400       202,546  
Borrowings                                                                                
25
     2,466,030       2,639,491  
Derivative financial instruments                                                                                
20
     262,734       53,419  
Provisions                                                                                
24
     54,971       20,708  
Liabilities held for sale                                                                                
44
     -       806,612  
Total current liabilities                                                                                
       4,463,331       4,800,385  
TOTAL LIABILITIES                                                                                
       11,373,485       11,348,902  
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES
       15,275,443       15,783,688  

The accompanying notes are an integral part of these Consolidated Financial Statements.


 
F
 
F-5
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Income Statements
for the fiscal years ended June 30, 2015, 2014 and 2013
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
Note
     06.30.15       06.30.14       06.30.13  
Revenues
31
     5,651,805       4,604,011       3,528,551  
Costs                                                                            
32
     (4,769,715 )     (3,914,592 )     (3,120,495 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
       1,324,152       1,152,653       886,744  
Changes in the net realizable value of agricultural produce after harvest
       (34,471 )     (17,447 )     11,756  
Gross profit                                                                            
       2,171,771       1,824,625       1,306,556  
Gain from disposal of investment properties
3
     1,150,230       230,918       177,999  
Gain from disposal of farmlands                                                                             
3
     550,462       91,356       149,584  
General and administrative expenses                                                                            
33
     (617,820 )     (533,939 )     (346,383 )
Selling expenses                                                                            
33
     (474,158 )     (352,726 )     (279,463 )
Other operating results, net                                                                            
35
     12,209       (75,008 )     98,068  
Profit from operations                                                                            
       2,792,694       1,185,226       1,106,361  
Share of loss of associates and joint ventures
8,9
     (1,024,972 )     (408,651 )     (9,818 )
Profit from operations before financing and taxes
       1,767,722       776,575       1,096,543  
Finance income                                                                            
36
     241,109       288,188       200,857  
Finance cost                                                                            
36
     (1,684,328 )     (2,852,000 )     (1,124,746 )
Other financial results                                                                            
36
     155,058       (10,586 )     15,128  
Financial results, net                                                                             
       (1,288,161 )     (2,574,398 )     (908,761 )
Profit / (Loss) before income tax                                                                             
       479,561       (1,797,823 )     187,782  
(Loss) /Income tax expense                                                                             
28
     (303,350 )     389,415       (33,519 )
Profit / (Loss) for the year                                                                             
       176,211       (1,408,408 )     154,263  
                           
Attributable to:
                          
Equity holders of the parent                                                                             
       (249,619)       (1,067,880 )     (26,907 )
Non-controlling interest                                                                             
       425,830       (340,528 )     181,170  
                           
Loss per share attributable to equity holders of the parent during the year:
                          
Basic                                                                                 
       (0.51)       (2.15 )     (0.05 )
Diluted                                                                                 
       (i)(0.51)    
(i) (2.15)
    
(i) (0.05)
  

(i)  
Due to the loss attributable to equity holders of the parent during the fiscal years 2015, 2014 and 2013, there is no diluted effect on this result.

 
The accompanying notes are an integral part of these Consolidated Financial Statements.


       
       
F
 
 
F-6
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Statements of Comprehensive Income
for the fiscal years ended June 30, 2015, 2014 and 2013
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


      06.30.15       06.30.14       06.30.13  
Profit / (Loss) for the year                                                                                           
     176,211       (1,408,408 )     154,263  
Other comprehensive income:
                        
Items that may be reclassified subsequently to profit or loss:
                        
Currency translation adjustment                                                                                           
     (521,489 )     1,284,550       180,908  
Currency translation adjustment from associates and joint ventures
     81,606       (17,409 )     1,715  
Other comprehensive (loss) / income for the year (i)
     (439,883 )     1,267,141       182,623  
Total comprehensive loss for the year
     (263,672)       (141,267 )     336,886  
                         
Attributable to:
                        
Equity holders of the parent                                                                                           
     (440,130 )     (436,557 )     65,647  
Non-controlling interest                                                                                           
     176,458       295,290       271,239  

(i)  
Components of other comprehensive income have no impact on income tax.

 
The accompanying notes are an integral part of these Consolidated Financial Statements.


       
       

 
 
F-7
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

 
Consolidated Statements of Changes in Shareholders’ Equity
for the fiscal years ended June 30, 2015, 2014 and 2013
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

   
Share Capital
    
Treasury Stock
    
Inflation adjustment
of Share Capital
    
Inflation adjustment
of Treasury Stock
    
Share
premium
    
Additional paid-in capital
from treasury stock
    
Cost of Treasury
Stock
    
Share
warrants
    
Subtotal
    
Changes in
non-controlling interests
    
Cumulative translation adjustment
    
Equity-settled
compensation
    
Legal
 reserve
    
Reserve for new developments
    
Special
reserve (1)
    
Reserve for the acquisition of securities issued by the company
    
Accumulated deficit
    
Subtotal
    
Non-controlling interest
    
Total
shareholders’
equity
  
Balances as of June 30, 2014
     490,997       10,566       64,047       1,378       773,079       -       (54,876 )     106,264       1,391,455       (15,429 )     633,607       70,028       81,616       17,065       633,940       200,000       (1,066,428 )     1,945,854       2,488,932       4,434,786  
(Loss) /Profit for the year                                  
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (249,619)       (249,619)       425,830       176,211  
Other comprehensive (loss) for the year
     -       -       -       -       -       -       -       -       -       -       (190,511)       -       -       -       -       -       -       (190,511)       (249,372)       (439,883 )
Total comprehensive (loss) / income for the year
     -       -       -       -       -       -       -       -       -       -       (190,511)       -       -       -       -       -       (249,619)       (440,130)       176,458       (263,672)  
Appropriation of retained earnings resolved by Shareholders’ Meeting held on November 14, 2014:
                                                                                                                                                                
- Share Distribution
     5,565       (5,565 )     726       (726 )     -       -       54,876       -       54,876       -       -       -       -       -       -       (54,876 )     -       -       -       -  
- Share Premium                                
     -       -       -       -       (220,881 )     -       -       -       (220,881 )     -       -       -       -       -       -       -       220,881       -       -       -  
- Legal Reserve                                
     -       -       -       -       -       -       -       -       -       -       -       -       (81,616 )     -       -       -       81,616       -       -       -  
- Reserve for new developments
     -       -       -       -       -       -       -       -       -       -       -       -       -       (17,065 )     -       -       17,065       -       -       -  
- Other reserves                                
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       (633,940 )     -       633,940       -       -       -  
- Reserve for the repurchase of equity interest
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (112,926 )     112,926       -       -       -  
- Exercise of warrants
     80       -       -       -       1,132       -       -       (130 )     1,082       -       -       -       -       -       -       -       -       1,082       -       1,082  
Cash dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (136,696 )     (136,696 )
Capital reduction                                  
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (228,101 )     (228,101 )
Equity-settled compensation (Note 27)
     -       -       -       -       -       -       -       -       -       -       -       27,678       -       -       -       -       -       27,678       7,837       35,515  
Purchase of Treasury stock (Note 30)
     (3,068 )     3,068       (400 )     400       -       -       (32,198 )     -       (32,198 )     -       -       -       -       -       -       -       -       (32,198 )     -       (32,198 )
Maturity of share warrants (Note 30)
     -       -       -       -       106,134       -               (106,134 )     -       -       -       -       -       -       -       -       -       -       -       -  
Equity incentive plan granted (Note 27)
     1,203       (1,203 )     157       (157 )     -       12,678       -       -       12,678       -       -       (15,718 )     -       -       -       -       3,040       -       -       -  
Changes in non- controlling interest (Note 3)
     -       -       -       -       -       -       -       -       -       69,235       -       -       -       -       -       -               69,235       5,282       74,517  
Reimbursement of expired dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       510       510       301       811  
Capital contribution from non-controlling interest
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       15,914       15,914  
Balance as of June 30, 2015
     494,777       6,866       64,530       895       659,464       12,678       (32,198 )     -       1,207,012       53,806       443,096       81,988       -       -       -       32,198       (246,069)       1,572,031       2,329,927       3,901,958  

(1)       Related to CNV General Resolution N° 609/12. See Note 2.29.

The accompanying notes are an integral part of these Consolidated Financial Statements.

       
       

 
 
F-8
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Statements of Changes in Shareholders’ Equity
for the fiscal years ended June 30, 2014, 2013 and 2012
 (All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
   
Share Capital
    
Treasury Stock
    
Inflation adjustment
of Share Capital
    
Inflation adjustment
of Treasury Stock
    
Share
premium
    
Cost of Treasury
Stock
    
Share
warrants
    
Subtotal
    
Changes in
non-controlling interests
    
Cumulative translation adjustment
    
Equity-settled
compensation
    
Legal
 reserve
    
Reserve for new developments
    
Special
reserve (1)
    
Reserve for the acquisition of securities issued by the company
    
Accumulated deficit
    
Subtotal
    
Non-controlling interest
    
Total
shareholders’
equity
  
Balance as of June 30, 2013
     496,562       5,001       64,773       652       773,079       -       106,264       1,446,331       (21,996 )     2,284       8,345       46,835       337,065       695,628       -       (26,522 )     2,487,970       2,231,096       4,719,066  
Loss for the year                               
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (1,067,880 )     (1,067,880 )     (340,528 )     (1,408,408 )
Other comprehensive income for the year
     -       -       -       -       -       -       -       -       -       631,323       -       -       -       -       -       -       631,323       635,818       1,267,141  
Total comprehensive income / (loss) for the year
     -       -       -       -       -       -       -       -       -       631,323       -       -       -       -       -       (1,067,880 )     (436,557 )     295,290       (141,267 )
Appropriation of retained earnings resolved by Shareholders’ Meeting held on October 31, 2013:
                                                                                                                                                        
- Legal reserve                               
     -       -       -       -       -       -       -       -       -       -       -       34,781       -       (34,781 )     -       -       -       -       -  
- Other reserves                               
     -       -       -       -       -       -       -       -       -       -       -       -       -       (26,907 )     -       26,907       -       -       -  
- Cash dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       (120,000 )     -       -       -       (120,000 )     (134,432 )     (254,432 )
Equity-settled compensation (Note 27)
     -       -       -       -       -       -       -       -       -       -       62,742       -       -       -       -       -       62,742       16,429       79,171  
Changes in non- controlling interest (Note 3)
     -       -       -       -       -       -       -       -       6,567               -       -       -       -       -       -       6,567       84,089       90,656  
Purchase of Treasury stock (Note 30)
     (5,565 )     5,565       (726 )     726       -       (54,876 )     -       (54,876 )     -       -       -       -       -       -       -       -       (54,876 )     -       (54,876 )
Cancellation of Brasilagro warrants
     -       -       -       -       -       -       -       -       -       -       (1,059 )     -       -       -       -       -       (1,059 )     -       (1,059 )
Capital reduction                               
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (4,163 )     (4,163 )
Release of Reserve for new developments resolved by Shareholders’ Meeting held on April 11, 2014 (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       (200,000 )     -       200,000       -       -       -       -  
Reimbursement expired dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       1,067       1,067       623       1,690  
Balance as of June 30, 2014
     490,997       10,566       64,047       1,378       773,079       (54,876 )     106,264       1,391,455       (15,429 )     633,607       70,028       81,616       17,065       633,940       200,000       (1,066,428 )     1,945,854       2,488,932       4,434,786  

(1)  
Related to CNV General Resolution N° 609/12. See Note 2.29.

The accompanying notes are an integral part of these Consolidated Financial Statements.

       
       

 
 
F-9
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

 
Consolidated Statements of Changes in Shareholders’ Equity
for the fiscal years ended June 30, 2015, 2014 and 2013
 (All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

   
Share Capital
    
Treasury Stock
    
Inflation adjustment
of Share Capital
    
Inflation
adjustment
of
Treasury Stock
    
Share
premium
    
Share
warrants
    
Subtotal
    
Changes in
non-controlling interest
    
Cumulative translation adjustment
    
Equity-settled
compensation
    
Legal reserve
    
Reserve for new developments
    
Special
reserve (1)
    
Retained earnings /
Accumulated deficit
    
Subtotal
    
Non-controlling interest
    
Total shareholders’ equity
  
Balance as of June 30, 2012
     496,562       5,001       164,561       1,657       773,079       106,263       1,547,123       (6,889 )     (81,939 )     1,833       42,922       389,202       -       666,611       2,558,863       2,132,648       4,691,511  
(Loss) Gain for the year
     -       -       -       -       -       -       -       -       -       -       -       -       -       (26,907 )     (26,907 )     181,170       154,263  
Other comprehensive income for the year
     -       -       -       -       -       -       -       -       92,554       -       -       -       -       -       92,554       90,069       182,623  
Total comprehensive income / (loss) for the year
     -       -       -       -       -       -       -       -       92,554       -       -       -       -       (26,907 )     65,647       271,239       336,886  
Appropriation of retained earnings resolved by Shareholders’ Meeting held on October 31, 2012:
                                                                                                                                        
- Legal reserve                                
     -       -       -       -       -       -       -       -       -       -       3,913       -       -       (3,913 )     -       -       -  
- Other reserves                                
     -       -       -       -       -       -       -       -       -       -       -       (52,137 )     -       52,137       -       -       -  
- Appropriation of retained earnings
     -       -       (99,788 )     (1,005 )     -       -       (100,793 )     -       -       -       -       -       -       100,793       -       -       -  
- Cash dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       -       (120,000 )     (120,000 )     (93,816 )     (213,816 )
Changes in non-controlling interest (Note 3)
     -       -       -       -       -       -       -       (15,107 )     -       -       -       -       -       -       (15,107 )     (37,509 )     (52,616 )
Acquisition of non-controlling interest
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       102,723       102,723  
Capital contribution of non-controlling interest
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       8,092       8,092  
Conversion of notes
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       126       126  
Capital distribution                                   
     -       -       -       -       -       -       -       -       -       -       -       -       -       -       -       (152,101 )     (152,101 )
Equity-settled compensation (Note 27)
     -       -       -       -       -       -       -       -       -       6,512       -       -       -       -       6,512       4,037       10,549  
Exercise of warrants
     -       -       -       -       -       1       1       -       -       -       -       -       -       -       1       -       1  
Cumulative translation adjustment for interest held before business combination
     -       -       -       -       -       -       -       -       (8,331 )     -       -       -       -       -       (8,331 )     (4,584 )     (12,915 )
Reimbursement of expired dividends (Note 30)
     -       -       -       -       -       -       -       -       -       -       -       -       -       385       385       241       626  
Reallocation RG 609/12 CNV
     -       -       -       -       -       -       -       -       -       -       -       -       695,628       (695,628 )     -       -       -  
Balance as of June 30, 2013
     496,562       5,001       64,773       652       773,079       106,264       1,446,331       (21,996 )     2,284       8,345       46,835       337,065       695,628       (26,522 )     2,487,970       2,231,096       4,719,066  

(1)  
Related to CNV General Resolution N° 609/12. See Note 2.29.

The accompanying notes are an integral part of these Consolidated Financial Statements.

       
       

 
 
F-10
 

Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Consolidated Statements of Cash Flows
for the fiscal years ended June 30, 2015, 2014 and 2013
 (All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
Note
  
06.30.15
    
06.30.14
    
06.30.13
  
Operating activities:
                    
Cash generated from operations before income tax paid                                                       
21
     924,421       1,163,074       931,318  
Income tax paid                                                                              
       (429,907 )     (279,911 )     (282,799 )
Net cash generated from operating activities
       494,514       883,163       648,519  
Investing activities:
                          
Acquisition of subsidiaries, net of cash acquired
       -       -       (117,874 )
Acquisition of interest in associates and joint ventures
       (1,241,562 )     (1,131,806 )     (25,899 )
Capital contributions to associates and joint ventures
       (126,386 )     (60,299 )     (67,438 )
Proceeds from sale of associates and joint ventures
       55,842       22,754       -  
Purchases of investment properties                                                                              
       (249,677 )     (271,921 )     (212,988 )
Proceeds from sale of investment properties                                                                              
       2,446,687       402,218       128,595  
Purchases of property, plant and equipment                                                                              
       (220,633 )     (133,423 )     (137,534 )
Proceeds from sale of property, plant and equipment
       2,391       796       3,225  
Proceeds from sale of farmlands                                                                              
       325,962       125,935       230,412  
Payments of purchase of properties                                                                              
       -       (6,048 )     -  
Purchases of intangible assets                                                                              
       (10,134 )     (14,559 )     (2,691 )
Advances for purchase of property, plant and equipment
       (13,995 )     (29,647 )     (15,780 )
Acquisition of Investment in financial assets                                                                              
       (4,609,605 )     (3,682,960 )     (1,738,968 )
Proceeds from disposals of Investment in financial assets
       4,486,616       3,870,820       1,868,547  
Loans granted to associates and joint ventures
       -       (2,090 )     (59,836 )
Loans repayments received from associates and joint ventures
       10,443       1,913       1,774  
Dividends received                                                                              
       17,961       22,372       53,443  
Net cash generated from / (used in) investing activities
       873,910       (885,945 )     (93,012 )
Financing activities:
                          
Repurchase of convertible notes                                                                              
       (305,026 )     (163,466 )     -  
Repurchase of equity interest                                                                              
       (32,851 )     (97,726 )     -  
Proceeds from issuance of non-convertible notes
       693,382       1,051,823       800,404  
Payment of non-convertible notes                                                                              
       (1,071,997 )     (799,559 )     (423,118 )
Issuance of trust debt titles                                                                              
       -       14,950       -  
Payment of trust debt titles                                                                              
       (9,733 )     (5,424 )     -  
Borrowings                                                                              
       1,497,750       793,447       878,622  
Repayments of borrowings                                                                              
       (1,334,494 )     (590,114 )     (508,490 )
Payment of seller financing of shares                                                                              
       (105,861 )     -       -  
Payments of borrowings from associates and joint ventures
       (2,250 )     (1,640 )     -  
Borrowings from associates and joint ventures
       22,151       17,246       70,714  
Exercise of warrants                                                                              
       1,082       -       1  
Cancellation of Brasilagro warrants                                                                              
       -       (1,059 )     -  
Payment of seller financing                                                                              
       (3,142 )     (2,250 )     (26,347 )
Acquisition of non-controlling interest in subsidiaries
       (32,306 )     (1,208 )     (49,868 )
Distribution of share capital of subsidiaries                                                                              
       -       (4,263 )     (152,102 )
Dividends paid                                                                              
       (33,509 )     (243,637 )     (239,352 )
Sale of equity in subsidiaries to non-controlling interest
       181,781       313       -  
Capital reduction of subsidiaries                                                                              
       (228,101 )     -       -  
Acquisition of derivative financial instruments
       -       (37,961 )     -  
Payment of derivative financial instruments                                                                              
       (233,135 )     -       -  
Proceeds from derivative financial instruments
       1,506       62,158       -  
Contributions from non-controlling interest                                                                              
       15,914       139,058       8,092  
Interest paid                                                                              
       (799,402 )     (576,937 )     (375,716 )
Net cash used in financing activities                                                                              
       (1,778,241 )     (446,249 )     (17,160 )
Net (decrease) increase in cash and cash equivalents
       (409,817 )     (449,031 )     538,347  
Cash and cash equivalents at beginning of year
21
     1,002,987       1,047,586       471,922  
Foreign exchange gain on cash and cash equivalents
       40,523       404,432       37,317  
Cash and cash equivalents at end of year                                                                              
       633,693       1,002,987       1,047,586  

The accompanying notes are an integral part of these Consolidated Financial Statements.
 

       
       

 
 
F-11
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)
Free translation from the original prepared in Spanish for publication in Argentina


 

 
1.  
The Group’s business and general information

Cresud Sociedad Anónima, Comercial, Inmobiliaria, Financiera y Agropecuaria (“Cresud” or the “Company”) was founded in 1936 as a subsidiary of Credit Foncier, a Belgian company primarily engaged in providing rural and urban loans in Argentina and administering real estate holdings foreclosed by Credit Foncier. Credit Foncier was liquidated in 1959, and as part of such liquidation, the shares of Cresud were distributed to Credit Foncier’s shareholders. From the 1960s through the end of the 1970s, the business of Cresud shifted exclusively to agricultural activities.

In 2002, Cresud acquired a 19.85% interest in IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), a real estate company related to certain shareholders of Cresud. In 2009, Cresud increased its ownership percentage in IRSA to 55.64% and IRSA became Cresud’s principal subsidiary.

Cresud and its subsidiaries are collectively referred to hereinafter as the Group. See Note 2.3.for a description of the Group’s companies.

As of the end of year, the Group operates in two major lines of business: (i) Agricultural business, (ii) Urban Properties and Investments business. See Note 6 for a description of the Group’s segments.

The Group’s Agricultural business operations are comprised of crop production, cattle feeding, raising, fattening and slaughtering, milk production, sugarcane production and brokerage activities. The Group currently has agricultural operations and investments in Argentina, Brazil, Uruguay, Paraguay and Bolivia.

The Urban Properties and Investments business operations are conducted primarily through IRSA and IRSA’s principal subsidiary, IRSA Propiedades Comerciales (“IRSA CP” formerly Alto Palermo S.A.). Through IRSA and IRSA CP, the Group owns, manages and develops shopping centers across Argentina, a portfolio of office and other rental properties in the Autonomous City of Buenos Aires, the capital of Argentina, and since 2009 it entered into the United Stated of Americans (“USA”) real estate market, mainly through the acquisition of non-controlling interests in office buildings and hotels. Through IRSA or IRSA CP, the Group also develops residential properties for sale. The Group, through IRSA, is also involved in the operation of branded hotels. The Group uses the term “real estate” indistinctively in these consolidated financial statements to denote investment, development and/or trading properties activities.


 

 
F-12
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



1.  
The Group’s business and general information (Continued)

During fiscal year ended June 30, 2014, the Group made an investment in the Israeli market, through Dolphin Fund Ltd. (“DFL”) and Dolphin Netherlands B.V. (“DN B.V.”, and together with DFL “Dolphin”), in IDB Development Corporation Ltd. ("IDBD") an Israeli Company, with an initial interest of 26.65%. As of June 30, 2015 the indirect equity interest in IDBD amounts to 49.0%. IDBD is one of the Israeli largest and most diversified conglomerates, which is involved, through its subsidiaries, in several markets and industries, including real estate, retail, agribusiness, insurance, telecommunications, etc.; controlling or having non controlling interests in companies as: Clal Insurance (Insurance Company), Cellcom (Mobile phone services), Adama (Agrochemicals), Super-Sol (supermarket), PBC (Real Estate), among others. IDBD went public in Tel Aviv Stock Exchange ("TASE") since May, 2014.

The activities of the Group’s segment “Financial operations and others” is carried out mainly through Banco Hipotecario S.A. (“BHSA”), where it has a 29.99% interest (without considering treasury shares). BHSA is a commercial bank offering a wide variety of banking activities and related financial services to individuals, small, medium-sized and large corporations, including the provision of mortgaged loans. BHSA’s shares are listed on the Buenos Aires Stock Exchange (“BCBA”). Additionally, the Group has a 43.15% interest in Tarshop S.A (“Tarshop”) whose main business comprises credit cards activities and the provision of loans.

Cresud’s and IRSA Propiedades Comerciales’s shares are listed and traded on both the Buenos Aires Stock Exchange (“BCBA”) and the National Association of Securities Dealers Automated Quotation (“NASDAQ”). IRSA’s shares are listed and traded on both the BCBA and the New York Stock Exchange (“NYSE”). Brasilagro’s shares are listed and traded on both the Novo Mercado del BOVESPA and the New York Stock Exchange (“NYSE”).

These consolidated financial statements have been approved for issue by the Board of Directors on November 17, 2015.

2.  
Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

 

 
F-13
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

2.1.  
Basis of preparation

(i)  
Basis of preparation

These Consolidated Financial Statements have been prepared in accordance with and compliance with International Financial Reporting Standards (“IFRS”) issued by International Accounting Standards Board (“IASB”) and interpretations from International Financial Reporting Interpretation Committee (“IFRIC” and known before as the Standards Interpretation Committee “SIC”). All IFRS applicable as of the date of these consolidated financial statements have been applied. Additionally, the Group has adopted certain IFRS that are not effective as of June 30, 2015, but for which early adoption is accepted.

The Comisión Nacional de Valores (“CNV”), the National Securities Commission in Argentina, through General Resolutions N° 562/09 and 576/10, has provided for the application of Technical Resolutions N° 26 and 29 of the Federación Argentina de Consejos Profesionales de Ciencias Económicas (“FACPCE”), which adopt the International Financial Reporting Standards (“IFRS”), issued by the IASB, for companies subject to the public offering regime ruled by Law 17,811, due to the listing of their shares or corporate notes, and for entities that have applied for authorization to be listed under the mentioned regime.

(ii)  
Current and non-current classification

The Group presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position according to the operating cycle of each activity.

The operating cycle for the activities of investment property, hotels and agricultural operations of the Group is 12 months. As such, current assets and current liabilities include assets and liabilities that are either realized or settled within 12 months from the end of the fiscal year. The operating cycle of the Group’s trading property activities depends on each specific project, and thus cannot be clearly defined. Generally, assets and liabilities classified as trading properties are realized and settled in several years, ranging between 1 and 3 years or, in exceptional cases, even longed. As such, for purposes of classification, the Group has assumed the operating cycle for the activities to be 12 months.

All other assets and liabilities are classified as non-current assets or non-current liabilities. Current and deferred tax assets and liabilities (income tax payable) are presented separately from each other and from other assets and liabilities as current and non-current, respectively.

 

 
F-14
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

(iii)  
Presentation currency

The consolidated financial statements are presented in thousands of Argentine Pesos. Unless otherwise stated or the context otherwise requires, references to ‘Peso amounts’ or ‘Ps.’, are to Argentine Pesos, references to ‘US$’ or ‘US dollars’ are to United States dollars and references to ‘Rs.’ are to Brazilian Reais.

(iv)  
Fiscal and harvest year-end

The fiscal year begins on July 1 and ends on June 30 of the following year. However, the Group’s agricultural production is based on the harvest year for crops. A harvest year varies by plant according to the climate in which it is grown. Due to the geographic diversity of the farms, the planting period for a given plant may start earlier on one farm than on another, causing differences in their respective harvesting periods. The financial results are presented on a fiscal year basis.

(v)  
Accounting conventions

The consolidated financial statements have been prepared under the historical cost convention, as modified by financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss, share-based payments at fair value, biological assets and agricultural produce at the point of harvest measured at fair value less costs to sell, and agricultural produce after harvest measured at net realizable value.

(vi)  
Reporting cash flows

The Group reports cash flows from operating activities using the indirect method. Interest paid is presented within financing cash flows. Interest received is presented within investing activities. The acquisitions and disposals of investment properties are disclosed as cash flows from investing activities because this most appropriately reflects the Group’s business activities. Cash flows in respect to trading properties are disclosed as cash flows from operating activities because these items are routinely sold in the ordinary course of business.


 

 
F-15
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

(vii)  
Use of estimates

The preparation of consolidated financial statements at a certain date requires the Management of the Group to make estimations and evaluations affecting the amount of assets and liabilities recorded and contingent assets and liabilities disclosed at such date, as well as income and expenses recorded during the period. Actual results might differ from the estimates and evaluations made at the date of preparation of these financial statements. The most significant judgments made by Management in applying the Group’s accounting policies and the major estimations and significant judgments are described in Note 5.

2.1.  
New accounting standards

The following standards, amendments and interpretations have been published by the IASB and by the IFRIC. Below we outline the standards, amendments and interpretations that may potentially have an impact on the Group at the time of application.

Amendments to IAS 1 "Presentation of financial statements"

In December 2014, the IASB has released amendments to IAS 1 “Presentation of Financial Statements”. These amendments establish guidance on grouping significant items,  provides for the disclosure of relevant information for certain items and disclosures that are to be included in relation to accounting policies adopted by each entity and other additional disclosures in financial statements.

The application of this amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group.  Earlier adoption is permitted. The Group is currently assessing the potential impact of the amendments on its financial statements.

Amendments to IFRS 10 “Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28 “Investments in Associates and Joint Ventures”

In December 2014, the IASB has released amendments to IFRS 10, IFRS 12 and IAS 28. These amendments refer to the treatment of the consolidation exception for financial entities and their subsidiaries.

 

 
F-16
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

Amendments to IFRS 10 clarifies that the exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity. The exception may be applicable where the company controlling the investment entity accounts for subsidiaries at fair value. Additionally, amendments to IFRS 10 clarify that an investment entity should consolidate a subsidiary that is not an investment company and that provides services that support the investment entity’s activities, so that it acts as an extension of the investment entity. The remaining investments in subsidiaries of an investment entity should be measured at fair value through profit or loss.

Amendments to IAS 28 allow an entity which is not an investment entity, but has an interest in an associate or joint venture which is an investment entity, a policy choice when applying the equity method of accounting. The entity may choose to retain the fair value measurement applied by the investment entity associate or joint venture, or to unwind the fair value measurement and instead perform a consolidation at the level of the investment entity associate or joint venture.

Amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group.  Earlier adoption is permitted. The Group is currently assessing the potential impact of the amendments on its consolidated and separate financial statements on this balance sheet date.

Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – Treatment afforded to sales or contributions of assets between an investor and its associate or joint venture
 
On September 2014, the IASB has released amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures”. The first amendment adds guidance on how to treat losses of control in subsidiaries that does not contain a business as established by IFRS 3 “Business combinations”, thus limiting the amount that may be reclassified from other comprehensive income to income for the year solely to the participation of other investors not related to the investor; it further provides how the residual participation in these investments should be valued, after such loss of control. In the second case, the modifications refer to the recognition of profits and losses resulting from upstream and downstream transactions, between an entity and its associates or joint ventures, when they involve assets that may constitute or not a business, as such is defined in IFRS 3.

Amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. The Group is currently assessing the potential impact of the amendments on its financial statements.


 
F-17
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

Cycle of annual improvements to IFRS: Amendments to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”; IFRS 7 “Financial Instruments: Disclosures” and IAS 34 “Interim Financial Reporting”

On September 2014, the IASB, in its annual improvements, has released amendments to the following standards:

·  
IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”: A new classification category has been established for these assets and the amendment adds guidance on how to treat changes to disposal plans for those assets classified as held for sale.

·  
IFRS 7 “Financial Instruments: Disclosures”: It clarifies that amendments established in December, 2011 on offsetting financial assets and liabilities, and amendments established in September, 2014 will be of retroactive application to annual fiscal years as from January 1, 2013, in the first case, and January 1, 2016 in the second case. In addition, it sets forth the specific disclosure requirements related to servicing contracts related to financial assets transferred.

·  
IAS 34 “Interim Financial Reporting”: It clarifies that supplementary information included in interim financial statements through cross reference with other statements or reference information should be available with such interim financial statements.

The application of this amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. The Group is currently assessing the potential impact of the amendments on its financial statements.

IAS 27 Revised “Separate Financial Statements”

On August 12, 2014 the IASB has released an amendment to IAS 27 “Equity method in Separate Financial Statements”. The amendment reinstates the equity method as an option to account for investments in subsidiaries, joint ventures and associates in separate financial statements. Amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. Earlier adoption is permitted.

 

 
F-18
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

IFRS 9 “Financial Instruments”

On July 24, 2014, the IASB released the final version of IFRS 9 “Financial instruments”, which includes in one single standard all stages of the IASB project to replace IAS 39 “Financial instruments: Recognition and measurement”. Such stages are classification and measurement of financial instruments, impairment and accounting for hedging. This version adds a new impairment model based on expected losses and introduces some minor amendments to the classification and measurement of financial assets. The new standard replaces all previous versions of IFRS 9 and becomes effective for fiscal years starting on or after January 1, 2018, this is, for financial statements ended on June 30, 2019 for the Group. Earlier adoption is permitted.

The Group has adopted the first stages of IFRS 9 to the transition date.

Amendments to IAS16 “Property, Plant and Equipment” and IAS 41 “Agriculture”

On June, 2014 the International Accounting Standards Board issued the amendments to IAS 16 “Property, Plant and Equipment” and to IAS 41 “Agriculture” whereby the bearer plant concept is defined and bearer plants become part of the scope of IAS 16. A bearer plant is defined as a living plant that is used in the production or supply of agricultural produce, is expected to bear produce for more than one period and has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. Before, bearer plants were not defined and those related to agricultural production were covered by IAS 41.

Bearer plants are solely used to develop produce. The only significant future economic benefits derived from bearer plants result from the sale of the agricultural produce they generate.

Bearer plants meet the definition of property, plant and equipment of IAS 16 and their operation is similar to that of manufacturing. As a result, amendments require that bearer plants be accounted for as property, plant and equipment and covered by IAS 16, rather than IAS 41. The produce growing on bearer plants will continue to be governed by IAS 41.

Amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. Earlier adoption is permitted. The Group is currently assessing the potential impact in the preparation of consolidated financial statements on this balance sheet date.

 

 
F-19
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

IFRS 15 “Revenue from contracts with customers”

On May 28, 2014, the IASB has published the new IFRS 15 “Revenue from contracts with customers” (IFRS 15) that replaces IAS 11 “Construction contracts”, IAS 18 “Revenue from ordinary operating activities”, IFRIC 13 “Customer loyalty programs”, IFRIC 15 “Agreements for the construction of real estate”, IFRIC 18 “Transfer of assets from customers” and SIC-31 “Revenue – Barter transactions involving advertising services”. IFRS 15 provides the new revenue recognition model derived from contracts with customers. The core principle underlying the model is satisfaction of the obligations assumed with customers. IFRS 15 bases this principle on a single, five-step model that is developed extensively and in detail, including examples.

The new model of ordinary income applies to all contracts with customers, other than those covered by other IFRSs, such as leases insurance and financial instruments contracts. The standard does not address recognition of interest or dividend income.

IFRS 15 becomes effective for all fiscal years beginning as from January 1, 2017 and may be adopted earlier. Application is retroactive. On the balance sheet date, the Company is still assessing the impact that this standard shall have on its financial position and the results of operations.

Amendments to IAS 16 “Property, plant and equipment” and IAS 38 “Intangible assets”

On May 12, 2014, the IASB has published amendments to the IAS 16 “Property, plant and equipment” and IAS 38 “Intangible assets” denominated “Clarification of acceptable methods of depreciation and amortization” (Amendments to IAS 16 and IAS 38)”. The amendments provide further guidance on the calculation of depreciation and amortization of property, plant and equipment and intangible assets. The application of this amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. Earlier adoption is permitted. The Company has not yet assessed the impact that this standard shall have on its financial position and the results of its operations

Amendments to IFRS 11 “Joint Arrangements”

On May 6, 2014, the IASB has published amendments to IFRS 11 “Joint Arrangements”, entitled “Accounting for acquisition of interests in joint operations (Amendment to IFRS 11)”. The amendments clarify accounting for such acquisitions where the business involves joint operations. Amendments become effective for the fiscal year beginning January 1, 2016, that is, fiscal year ended June 30, 2017 for the Group. Earlier adoption is permitted. The Company has not yet assessed the impact that this standard shall have on its financial position and the results of its operations.

 

 
F-20
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

On the issue date of these financial statements there are no other standards, amendments and interpretations issued by the IASB and IFRIC that are yet to become effective and that are expected to have a material effect on the Group.

2.3.  
Scope of consolidation

(a)  
Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Group also analyze whether there is control when it does not hold more than 50% of the voting rights of an entity, but does have capacity to define its relevant activities because of de-facto control.

There may be de-facto control where the relative size of voting rights held by the Group in an entity in relation to the size and dilution of other shareholders gives the Group power to define the relevant activities of such entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition costs are charged to expense as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

IFRS 3 “Business Combination” allows up to 12 months to finalize the accounting for a business combination. Where the accounting for a business combination is not complete by the end of the reporting period in which the business combination occurred, the Group reports provisional amounts.

The Group has elected to recognize acquisition of assets or group of assets carried out between entities under common control who also qualify as “Business Combination” according to IFRS 3, using acquisition method.

The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

 

 
F-21
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

The excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquire and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statements as “Bargain purchases gains”.

Inter-company transactions, balances and unrealized gains and/or losses on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group. The majority of subsidiaries have the same year-end as the Group’s, however, a small number of subsidiaries have different year-ends. In these circumstances, special-purpose financial statements prepared as of June 30 of each year are used for purposes of the Group consolidation.

The Group conducts its business through several operating and holding subsidiaries. Unless otherwise stated, the subsidiaries listed below have share capital consisting solely of ordinary shares, which are held directly or indirectly by the Group and the proportion of ownership interests held equals to the voting rights held by the Group.

The country of incorporation or registration is also their place of business. Subsidiaries are shown in alphabetical order.

Ownership interest is shown considering ultimate percentage held by the Company. Subsidiaries are either controlled directly by the Company (i.e. IRSA), or indirectly by other subsidiary (i.e. IRSA Propiedades Comerciales S.A. through IRSA).

 

 
F-22
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


2.  
Summary of significant accounting policies (Continued)

       
June 30, 2015
    
June 30, 2014
    
June 30, 2013
  
Name of the entity
Place of business / country of incorporation
Main
Activities (*)
  
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
  
Direct equity interest:
                                        
Agrotech S.A (1)
Argentina
Investment
     -       -       -       -       95.00 %     -  
Brasilagro-Companhía Brasileira de Propiedades Agrícolas (2)
Brazil
Agricultural
     (***) 39.76 %     60.24 %     (***) 39.63 %     60.37 %     39.64 %     60.36 %
Cactus Argentina S.A. (3)
Argentina
Agro-industrial
     -       -       97.13 %     -       95.00 %     -  
Sociedad Anónima Carnes Pampeanas S.A.
Argentina
Agro-industrial
     95.00 %     -       39.38 %     -       38.92 %     -  
Futuros y Opciones.Com S.A.
Argentina
Brokerage
     59.59 %     40.41 %     59.59 %     40.41 %     60.50 %     39.50 %
Helmir S.A.
Uruguay
Investment
     100 %     -       100.00 %     -       100.00 %     -  
IRSA
Argentina
Real Estate
     (***) 63.91 %     35.70 %     (***) 64.56 %     34.55 %     64.56 %     34.55 %
Northagro S.A. (4)
Argentina
Investment
     -       -       -       -       100.00 %     -  
Pluriagro S.A. (4)
Argentina
Investment
     -       -       -       -       100.00 %     -  
Doneldon S.A.
Uruguay
Investment
     100 %     -       100.00 %     -       100.00 %     -  
Interest indirectly held through IRSA:
                                                    
IRSA Propiedades Comerciales S.A.
Argentina
Real Estate
     62.06 %     37.94 %     63.18 %     36.82 %     62.62 %     37.38 %
Apsamedia S.A.
Argentina
Consumer financing (**) and advertising
     -       -       -       -       62.62 %     37.38 %
Emprendimiento Recoleta S.A.
Argentina
Real Estate
     33.31 %     66.69 %     33.91 %     66.09 %     33.62 %     66.38 %
Fibesa S.A.
Argentina
Real Estate
     62.06 %     37.94 %     63.18 %     36.82 %     62.62 %     37.38 %
Hoteles Argentinos S.A.
Argentina
Hotel
     51.82 %     48.18 %     52.81 %     47.19 %     52.36 %     47.64 %
Dolphin Fund Ltd. (6)
Bermudas
Investment
     59.32 %     40.68 %     56.88 %     43.12 %     -       -  
I Madison LLC
United States
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Inversora Bolívar S.A.
Argentina
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
IRSA Development LP
United States
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
IRSA International LLC
United States
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Jiwin S.A.
Uruguay
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Liveck S.A.
Uruguay
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Llao Llao Resorts S.A. (5)
Argentina
Hotel
     32.39 %     67.61 %     33.01 %     66.99 %     32.73 %     67.28 %
Nuevas Fronteras S.A.
Argentina
Hotel
     49.45 %     50.55 %     50.39 %     49.61 %     49.96 %     50.04 %
Palermo Invest S.A.
Argentina
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Real Estate Investment Group LP
Bermudas
Investment
     41.46 %     58.54 %     42.25 %     57.75 %     41.89 %     58.11 %

 

 
F-23
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


2.  
Summary of significant accounting policies (Continued)

       
June 30, 2015
    
June 30, 2014
    
June 30, 2013
  
Name of the entity
Place of business / Country of incorporation
Main
Activities (*)
  
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
  
Real Estate Investment Group II LP
Bermudas
Investment
     52.17 %     47.83 %     53.17 %     46.83 %     52.71 %     47.29 %
Real Estate Investment Group III LP
Bermudas
Investment
     52.59 %     47.41 %     53.59 %     46.41 %     53.14 %     46.86 %
Real Estate Investment Group IV LP
Bermudas
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Real Estate Investment Group V LP
Bermudas
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Real Estate Strategies LP
Bermudas
Investment
     43.29 %     56.71 %     44.12 %     55.88 %     43.74 %     56.26 %
Real Estate Strategies LLC
United States
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Arcos del Gourmet S.A.
Argentina
Real Estate
     55.85 %     44.15 %     56.86 %     43.14 %     56.37 %     43.63 %
Conil S.A.
Argentina
Real Estate
     -       -       63.18 %     36.82 %     62.62 %     37.38 %
Panamerican Mall S.A.
Argentina
Real Estate
     49.65 %     50.35 %     50.54 %     49.46 %     50.10 %     49.90 %
E-Commerce Latina S.A.
Argentina
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Efanur S.A.
Uruguay
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Ritelco S.A.
Uruguay
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Shopping Neuquén S.A.
Argentina
Real Estate
     61.78 %     35.22 %     62.68 %     37.32 %     62.05 %     37.95 %
Solares de Santa María S.A.
Argentina
Real Estate
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Torodur S.A.
Uruguay
Investment
     62.06 %     37.94 %     63.18 %     36.82 %     62.62 %     37.38 %
Tyrus S.A.
Uruguay
Investment
     64.78 %     35.22 %     66.01 %     33.99 %     65.45 %     34.55 %
Unicity S.A.
Argentina
Investment
     64.78 %     35.22 %     65.45 %     33.99 %     65.45 %     34.55 %
Doneldon S.A.
Uruguay
Investment
     100 %     -       100 %     -       100 %     -  
Interest indirectly held through BrasilAgro:
                                                    
Araucária Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Cajueiro Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Ceibo Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Cremaq Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Engenho de Maracajú Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Flamboyant Ltda. 
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Jaborandi Agrícola Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Jaborandi Propriedades Agrícolas S.A.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %
Mogno Ltda.
Brazil
Agricultural
     39.63 %     60.37 %     39.63 %     60.37 %     39.64 %     60.36 %

 

 
F-24
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


2.  
Summary of significant accounting policies (Continued)

       
June 30, 2015
    
June 30, 2014
    
June 30, 2013
  
Name of the entity
Place of business / country of incorporation
Main
Activities (*)
  
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
    
% of ownership interest by the Group
    
% of ownership interest by the NCI (7)
  
Interest indirectly held through Cactus S.A. (3):
                                        
Sociedad Anónima Carnes Pampeanas S.A.
Argentina
Agro-industrial
     -       -       60.62 %     -       61.08 %     -  
Agrotech S.A. (1)
Argentina
Investment
     -       -       -       -       5.00 %     -  
IRSA
Argentina
Real Estate
     -       -       (***) 0.89 %     -       0.89 %     -  
Interest indirectly held through Futuros y Opciones.Com. S.A.:
                                                    
FyO Trading S.A.
Argentina
Brokerage
     59.63 %     40.37 %     59.63 %     40.37 %     60.50 %     39.50 %
Granos Olavarría S.A.
Argentina
Warehousing and brokerage
     59.63 %     40.37 %     59.63 %     40.37 %     -       -  
Interest indirectly held through Helmir. S.A.:
                                                    
IRSA
Argentina
Real Estate
     (***) 0.39 %     35.70 %     -       -       -       -  
Sociedad Anónima Carnes Pampeanas S.A.
Argentina
Agro-industrial
     -       5 %     -       -       -       -  
Cactus Argentina S.A. (3)
Argentina
Agro-industrial
     -       -       2.87 %     -       5.00 %     -  
Agropecuaria Acres del Sud S.A.
Bolivia
Agricultural
     39.76 %     -       39.76 %     -       -       -  
Yatay Agropecuaria S.A.
Bolivia
Agricultural
     30.70 %     -       30.70 %     -       -       -  
Interest indirectly held through Doneldon. S.A.:
                                                    
Agropecuaria Acres del Sud S.A.
Bolivia
Agricultural
     59.24 %     -       59.24 %     -       100.00 %     -  
Ombú Agropecuaria S.A.
Bolivia
Agricultural
     100.00 %     -       100.00 %     -       100.00 %     -  
Yatay Agropecuaria S.A.
Bolivia
Agricultural
     69.31 %     -       69.31 %     -       100.00 %     -  
Yuchán Agropecuaria S.A.
Bolivia
Agricultural
     100.00 %     -       100.00 %     -       100.00 %     -  
Sedelor S.A.
Uruguay
Investment
     100.00 %     -       100.00 %     -       100.00 %     -  
Codalis S.A.
Uruguay
Investment
     100.00 %     -       100.00 %     -       100.00 %     -  
Alafox S.A.
Uruguay
Investment
     100.00 %     -       100.00 %     -       100.00 %     -  

(1)  
As from January 1, 2014, all transactions carried out by Agrotech S.A, are understood as if they had been made by and for Cactus S.A. due to the pre-merger commitment signed on February 25, 2014.
(2)  
The Group has consolidated the investment in Brasilagro-Companhía Brasileira de Propiedades Agrícolas (“Brasilagro”) considering that the Company exercises “de facto control” over it. See Note 7 for further information regarding to Brasilagro.
(3)  
As from July 1st, 2014, all transactions carried out by Cactus Argentina S.A., are understood as if they had been made by and for Cresud S.A.C.I.F. y A. due to the pre-merger commitment signed in September 2014.
(4)  
On August 22, 2013 the Board of Directors of Cresud approved the withdrawal of the process of incorporation against the Superintendence of Corporations.
(5)  
The Group has consolidated the investment in Llao Llao Resorts S.A. considering their ownership interest together with the Company's participation in the making decisions.
(6)  
The Group has consolidated its indirect interest in Dolphin Fund Ltd. (DFL) considering its exposure to variable returns coming from its investment in DFL and the nature of the relationship between the Group and the shareholders with right to vote of DFL.
(7)  
Non-controlling interest (NCI)
 
(*)
Companies whose principal activity is “investment” are substantially holding companies that do not have significant assets and liabilities other than their respective interest holdings in operating entities.
(**)
Residual activity.
(***)
The effect of treasury shares as of June 30, 2015 and 2014 was not considered.

 

 
F-25
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in subsidiaries are considered significant. In quantitative terms, the investments that individually represent at least 20% of the total equity attributable to non-controlling interest in subsidiaries at the each year end. Therefore, in qualitative terms, are considered, among other factors, the specific risks to which each company is exposed to, their returns and the importance that each of them has for the Group.

Summarized financial information on subsidiaries with material non-controlling interests and other information are included in Note 7.

(b)  
Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The recorded amount is the difference between the fair value of the consideration paid and/or receive and the relevant share acquired and/or given of the carrying value of net assets of the subsidiary.

(c)  
Disposal of subsidiaries with loss of control

When the Group ceases to have control any retained interest in the entity is re-measured at its fair value at the date when control is lost, with changes in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

(d)  
Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and less than 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill identified on acquisition.

Investments in associates are accounted for using the equity method of accounting, except as otherwise indicated as explained below.

 

 
F-26
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.

The Group’s share of post-acquisition profit or loss is recognized in the income statements, and its share of post- acquisition movements in other comprehensive income is recognized in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group recognizes such losses until the carrying amount of the associate reduces to zero, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognizes the amount adjacent to ‘share of profit / (loss) of associates and joint ventures’ in the income statements.

Profits and losses resulting from upstream and downstream transactions between the Group and its associate are recognized in the Group’s financial statements only to the extent of unrelated investor’s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

For purposes of including the earnings of associates by applying the equity method, the Group uses financial statements of the associates as of the same date or a later date, provided the difference between the reporting date of the associate and that of the Group cannot be longer than three months. In these cases, the Group assesses and adjusts the results of such associates for material transactions or other material events occurred during the interim period.

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in associates are considered significant. In quantitative terms, the investments that individually represent at least 20% of the result of joint ventures in the Consolidated Income statements, and at least 20% of the total equity attributable to non-controlling interest in joint ventures at the each year-end are considered significant. Therefore, in qualitative terms, are considered, among other factors, the specific risks to which each company is exposed to, their returns and the importance that each of them has for the Group.

 

 
F-27
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

As indicated above, the Group generally accounts for its investments in associates under the equity method. However, IAS 28 “Investments in Associates” provides an exemption from applying the equity method where investments in associates are held through “Venture Capital Organizations” (VCO) or venture capital entities, as defined in Spanish, even when the Group is not a VCO. This type of investment may be accounted for at fair value through profit or loss for the years because such measure proves to be more useful to users of financial statements than the equity method.

Summarized financial information and other information for associates are included in Note 9.

(e)  
Joint arrangements

Joint arrangements are arrangements of which the Group and other party or parties have joint control bound by a contractual arrangement. Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.

Investments in joint ventures are accounted for under the equity method.

Under the equity method of accounting, interests in joint ventures are initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition of profits or losses and movements in other comprehensive income in the income statements and in other comprehensive income respectively.

When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.

 

 
F-28
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

The Group determines at each reporting date whether there is any objective evidence that the investment in the joint ventures is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes the difference to ‘share of profit / (loss) of associates and joint ventures’ in the income statements.

Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group takes into account both quantitative and qualitative aspects in order to determine which non-controlling interests in joint ventures are considered significant In quantitative terms, the investments that individually represent at least 20% of result of joint ventures in the Consolidated Income statements, and at least 20% of the total equity attributable to non-controlling interest in joint ventures at the each year-end are considered significant. Therefore, in qualitative terms, are considered, among other factors, the specific risks to which each company is exposed to, their returns and the importance that each of them has for the Group.

Therefore, in qualitative terms, are considered, among other factors, the specific risks to which each company is exposed to, their returns and the importance that each of them has for the Group.

Summarized financial information and other information for significant joint ventures are included in Note 8.

2.4.  
Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (“CODM”), the Group’s Executive Committee. This CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Executive Committee of the Group that makes strategic decisions. The operating segments are included in Note 6.


 
F-29
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

2.5.  
Foreign currency translation

(a)  
Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Argentine Pesos, which is the Group’s presentation currency.

(b)  
Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit or loss for the year.

Foreign exchange gains and losses are presented in the income statements within finance costs and finance income, as appropriate, unless they are capitalized as explained in Note 2.22.

(c)  
Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that financial position;
(ii) Income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) All resulting exchange differences are recognized in the statement of comprehensive income.

On the disposal of a foreign operation (that is, a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation) all of the exchange differences accumulated in equity in respect of that operation attributable to the equity holders of the Company are reclassified to profit or loss.

 

 
F-30
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognized in other comprehensive income.

2.6.  
Investment properties

Investment properties are those properties owned by the Group that are held either to earn long-term rental income or for capital appreciation, or both, and that is not occupied by the companies in the consolidated Group. Properties owned by the Group occupied by associates or joint ventures are accounted for as investment properties in the Consolidated Financial Statements. Investment property also includes property that is being constructed or developed for future use as investment property. The Group also classifies land whose future use has not been determined yet as investment properties.

Where a property is partially occupied by the Group, with the rest being held for rental income or capital appreciation, the Group accounts for the portions separately. The portion that is occupied by the Group is accounted for as property, plant and equipment under IAS 16 “Property, Plant and Equipment” and the portion that is held for rental income or capital appreciation, or both, is treated as investment properties under IAS 40 “Investment Property”.

The Group’s investment properties primarily comprise the Group’s portfolio of shopping centers and offices, farmland leased out to third parties, certain property under development and undeveloped land.

Investment properties are measured initially at cost. Cost comprises the purchase price and including directly attributable expenditures, such as legal fees, certain direct taxes, letting fees and in the case of properties under construction, the capitalization of financial costs.

Direct expenses related to lease contract negotiation (as well as payment to third parties for services rendered and certain specific taxes related to execution of such contracts) are capitalized as part of the book value of the relevant investment properties and amortized over the term of the lease.

 

 
F-31
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

For properties under development, capitalization of costs includes not only financial costs. Also includes all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. Capitalized costs include mainly the part attributable to third-party service costs, as well as the materials necessary for construction. Capitalization of such costs ceases when the property reaches the operating conditions indicated above. 

Borrowing costs associated with direct expenditure on properties under development or undergoing major refurbishment are capitalized. The finance cost capitalized is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalized is the gross interest incurred on those borrowings less any investment income arising on their temporary investment. Finance cost is capitalized as from the commencement of the development work until the date of practical completion. The capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted. Finance cost is also capitalized on the purchase cost of land or property acquired specifically for redevelopment in the short term but only where activities necessary to prepare the asset for redevelopment are in progress.

The Group has adopted the cost model for all of its investment properties. Therefore, at the date of each statement of financial position, investment properties are carried at amortized cost, less impairment losses, if any. Under the cost model, an investment property is impaired if its carrying amount exceeds its recoverable amount. Where individual components of an item of investment property have different useful lives, they are accounted for as separate items, which are depreciated separately. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. These costs may include the cost of improving or replacing parts that are eligible for capitalization when the costs of replacing the parts are incurred. The carrying amount of the replaced part is derecognized. Repairs and maintenance are charged to the income statements during the period in which they are incurred.

If an investment property becomes occupied by the Group, it is reclassified as property, plant and equipment at the commencement of such occupation. An item of property occupied by the Group is reclassified to investment property when its use has changed and occupation by the Group ceases. Where an investment property undergoes a change in use, evidenced by commencement of development with a view to sale, the property is transferred to trading properties.

Transfers in and out of the respective categories as described above do not change the carrying amount of the properties transferred, and they do not change the cost of the properties for measurement or disclosure purposes.

 

 
F-32
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

Land and property under constructions are not depreciated. Depreciation of the remaining investment properties is calculated, based on a component approach, using the straight-line method over the estimated useful life of each component. The remaining useful life as of June 30, 2015 is as follows:

Shopping center portfolio
Between 3 and 25 years
Offices and other rental properties portfolio
Between 9 and 29 years

At each period-end, assets are reviewed for any sign of impairment to its recoverable value, and/or residual useful life of the assets. If there are any indicators of impairment, the recoverable amount and/or the useful life of the impaired assets is estimated, and then they are adjusted, if applicable.

An asset’s carrying amount is written down immediately to the asset’s recoverable amount if its carrying amount is greater than its estimated recoverable amount (See Note 2.10).

Asset transfers, whether assets classified under investments properties are reclassified under other items or vice-versa, may only be carried out where there is a change of use evidenced by: a) commencement of occupation by the owner, where investment property is transferred to property, plant and equipment; b) commencement of development activities for sale purposes, where investment property is transferred to trading properties; c) the end of owner occupation, where it is transferred from property, plant and equipment to investment property; or d) commencement of an operating lease transactions with a third party, where trading properties is transferred to investment property.

The Group may sell its investment property when it considers that such property no longer forms part of the lease business. Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefits are expected to arise from their disposals. Gains or losses on disposals or retirements of investment properties are determined by comparing the net disposal proceeds and their carrying amounts at the date of disposal. The gains or losses are recognized in the income statements and disclosed separately under the line item “Gain from disposal of investment property”. Proceeds from the sale of such property are accounted for when the material risks and benefits have been transferred to the purchaser. As for unconditional agreements, proceeds are accounted for generally when title to property passes to the buyer and the buyer intends to make the respective payment therefor. In the case of conditional agreements, the sale is accounted for where such conditions have been met. Where consideration receivable for the sale of the properties is deferred, it is discounted to present value. The difference between the discounted amount and the amount receivable is treated as interest income and recognized over the period using the effective interest method.

 

 
F-33
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

2.7.  
Property, plant and equipment

This category primarily comprises land used for agricultural purposes, buildings or portions of a building used for administrative and corporate purposes, computers, motor vehicles, furniture, fixtures and fittings and improvements to the Group’s corporate offices.

The Group has also several hotel properties. Based on the respective contractual arrangements with hotel managers, the Group considers it retains significant exposure to the variations in the cash flows of the hotel operations, and accordingly, hotels are treated as owner-occupied properties and classified under “Property, plant and equipment”.

All property, plant and equipment (“PPE”) are stated at historical cost less depreciation and accumulated impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. Capitalized costs include mainly the part attributable to third-party service costs, as well as the materials necessary for construction. Capitalization of such costs ceases when the property reaches the operating conditions indicated above. 
 
Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying PPE are capitalized as part of its cost. A qualifying PPE is an asset that necessarily takes a substantial period of time to get ready for its intended use. Borrowing costs are capitalized while acquisition, construction or production is actively underway and cease once the asset is substantially complete or suspended if the development of the asset is suspended.

 

 
F-34
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. These costs may include the cost of improving or replacing parts that are eligible for capitalization. The carrying amount of those parts that are replaced is derecognized. Repairs and maintenance expenses are charged to the income statements during the period in which they are incurred. Depreciation, based on a component approach, is calculated using the straight-line method to allocate the cost over the assets’ estimated useful lives, as follows:

Hotel buildings and facilities
Between 14 and 24 years
Other buildings and facilities
Between 15 and 50 years
Furniture and fixtures
Between 3 and 10 years
Machinery and equipment
Between 3 and 10 years
Vehicles
5 years
Others
3 years

The assets’ net book amount and useful lives are reviewed, and adjusted if appropriate, at least at each financial year-end.

An asset’s carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount (See Note 2.10).

Gains from the sale of these assets are recognized when the significant risks and rewards have transferred to the buyer. This will normally take place on unconditional exchange, generally when legal title passes to the buyer and it is probable that the buyer will pay. For conditional exchanges, sales are recognized when these conditions are satisfied.

Gains and losses on disposals are determined by comparing the proceeds, with the carrying amount. Gains and losses from the disposal of farmlands are disclosed within “Gains from disposal of farmlands” in the income statements. All other gains and losses from the disposal of property, plant and equipment items are recognized within “Other operating results, net” in the income statements.

2.8.  
Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement.

 

 
F-35
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

A Group company is the lessor:

Properties leased out to tenants under operating leases are included in “Investment properties” in the statement of financial position. See Note 2.28 for the recognition of rental income (Finance lease – the Group does not have any assets leased out under finance leases).

A Group company is the lessee:

Operating lease – leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases.

The Group has entered into some operating lease agreements, mainly related to farming activities. By virtue of these contracts, the Group leases land open for agricultural exploitation during the harvest year. The lease price is generally set at a fixed amount in dollars or at a certain number of quintals of soybeans (or equivalent measurement unit) during the entire lease term. Lease payments can be made in installments or in advance at the beginning of the lease. The lease costs are recognized in the income statements in relation to the degree of ripeness of the harvest since the Group considers that this systematic base is more representative of the time pattern of the leases’ benefits.

Additionally, the Group acts as a lessee in other operating leases, mainly related to agricultural business. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Finance lease – leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the commencement of the lease at the lower of the fair value of the property and the present value of the minimum lease payments. Capitalized lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. The finance charges are charged to the income statements over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings Leases where the Group acts as lessee under finance leases include machinery and computer equipment.

 

 
F-36
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

2.9.  
Intangible assets

(a)  
Goodwill

Goodwill represents future economic benefits arising from assets that are not capable of being individually identified and separately recognized by the Group on an acquisition. Goodwill is initially measured as the difference between the fair value of the consideration transferred, plus the amount of non-controlling interest in the acquiree and, in business combinations achieved in stages, the acquisition-date fair value of the previously held equity interest in the acquiree; and the net fair value of the identifiable assets and liabilities assumed on the acquisition date.

At acquisition goodwill is allocated to those cash generating units expected to benefit from the acquisition for the purpose of impairment testing (See Note 2.10). Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill arising on the acquisition of subsidiaries is included within “Intangible assets” in the statement of financial position.

Goodwill may also arise upon investments in associates and joint ventures, being the surplus of the cost of investment over the Group’s share of the fair value of the net identifiable assets. Such goodwill is recorded within investments in associates or joint ventures and tested for impairment as part of the overall balances.

Goodwill arising on the acquisition of foreign entities is treated as an asset of the foreign entity denominated in the local currency and translated at the closing rate.

Goodwill is not amortized but tested for impairment on an annual basis, or more frequently if there is indicator of impairment.

(b)  
Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives of 3 years.

 

 
F-37
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

Costs associated with maintaining computer software programs are recognized as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met: (i) it is technically feasible to complete the software product so that it will be available for use; (ii) management intends to complete the software product and use or sell it; (iii) there is an ability to use or sell the software product; (iv) it can be demonstrated how the software product will generate probable future economic benefits; (v) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and (vi) the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalized as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognized as an expense as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period.

Computer software development costs recognized as assets are amortized over their estimated useful lives, which does not exceed 3 years.

(c)  
Rights to use

The Group acquired certain rights to develop land and facilities. These rights primarily comprise the right to develop the land and attached buildings and facilities known as Arcos del Gourmet (“Arcos”) and the “Anta Right Agreement”.

The Arcos land and attached facilities is owned by Administration of Railway Infrastructure ("ADIF"), a governmental agency created for the management of certain State´s properties, particularly assets pertaining to the railway system. The Arcos (or "Arches") are the old warehouse and adjacent spaces below the tracks of the San Martin railway lines which were abandoned. The right was acquired as part of the Arcos acquisition and is carried at acquisition cost less accumulated amortization. Amortization is calculated using the straight-line method over the period in which the economic benefits from the use of the asset. The Group must pay ADIF a fee on a monthly basis.

 

 
F-38
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

The Anta Right Agreement comprises the right to exploit 132,000 hectares of land for agriculture purposes in the Province of Salta, in Northern Argentina, under an agreement with the Provincial Government expiring on November 2038 with an option to extend it for an additional 29-year period.

The right was acquired by the Group in December 2005 and is carried at acquisition cost less accumulated amortization. Amortization is calculated using the straight-line method over 35 years. Under the Anta Right Agreement, the Group must pay to the Province of Salta a fee equivalent to a 10% of the annual turnover obtained by the development of the premises.

(d)  
Right to receive future units under barter agreements

The Group also enters into barter transactions where the Group normally exchanges undeveloped parcels of land with third-party developers for future property to be constructed on the bartered land. The Group generally receives monetary assets as part of the transactions and/or a right to receive future units to be constructed by developers. Such rights are initially recognized at cost (which is the fair value of the land assigned) and such rights are not adjusted later, unless there is any sign of impairment.

2.10.  
Impairment of assets

(a) Goodwill

For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units (“CGU”). In order to determine whether any impairment loss should be recognized, the carrying amount of the CGU or groups of CGUs is compared to their recoverable amount. Net book value of CGU and group of CGUs include goodwill and assets with limited useful life, including investment properties, property, plant and equipment, intangible assets and working capital net.

If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognized for goodwill are recorded in the income statement as a deduction from operating income and not reversed in a subsequent period.

The recoverable amount of a CGU is the higher of its fair value less costs-to-sell and its value-in-use. Fair value less costs to sell is the best estimate of the amount obtainable from the sale of a CGU in an arm’s length transaction between knowledgeable, willing parties less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from the CGUs or groups of CGUs.

 

 
F-39
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

(b) Property, plant and equipment, investment property and finite-life intangible assets

At the date of each statement of financial position, the Group reviews the carrying amounts of its property, plant and equipment, investment property and finite-life intangible assets to determine whether there is any indicator that those assets have suffered an impairment loss. If any such indicator exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the CGU to which the asset belongs.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the income statements.

Assets or CGU that have suffered an impairment loss are revised as of each balance sheet date to assess a potential reversal of such impairment. The impairment loss recognized in prior fiscal years may only be reversed if there has been a change in the estimates used to assess the recoverable value of assets or the CGU since the recognition of the impairment loss.

Where an impairment loss subsequently reverses the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in the income statements.

2.11.  
Trading properties

Trading properties comprises those properties either intended for sale in the process of construction for sale. Trading properties are carried at the lower of cost and net realizable value. Where there is a change in use of investment properties evidenced by the commencement of development with a view to sale, the properties are reclassified as trading properties at their cost, which is the carrying value at the date of change in use. They are subsequently carried at the lower of cost and net realizable value.

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the trading properties to their present location and condition.

 

 
F-40
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

For properties under development, capitalization of costs includes not only financial costs, but also all costs directly attributable to works in process, from commencement of construction until it is completed and property is in conditions to start operating. Capitalized costs include mainly the part attributable to third-party service costs, as well as the materials necessary for construction. Capitalization of such costs ceases when the property reaches the operating conditions indicated above. 

Borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying trading properties are capitalized as part of its cost. A qualifying trading property is an asset that necessarily takes a substantial period of time to get ready for its intended use. Borrowing costs are capitalized while acquisition, construction or production is actively underway and cease once the asset is substantially complete or suspended if the development of the asset is suspended.

Net realizable value is the estimated selling price in the ordinary course of business less costs to complete redevelopment and selling expenses. If the net realizable value is lower than the carrying amount, a write down is recognized for the amount by which the carrying amount exceeds its net realizable value. Write-downs are reversed when circumstances that caused the write-down cease to exist, or when net realizable value increases.

2.12.  
Inventories

Inventories include assets held for sale in the ordinary course of the Group’s business activities, assets in production or construction process for sale purposes, and materials, supplies or other assets held for consumption in the process of producing sales and/or services. Inventories primarily comprise harvested agricultural produce and consumable supplies, inventories from hotel properties, and other supplies and materials required to offer different services.

Consumable supplies comprise fertilizers, agrochemicals, vaccines, seeds, feed for livestock and other items used in the Group’s farming activities. Harvested agricultural produce comprise harvested crops, and raw meat.

 

 
F-41
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

For the Group’s operations in Argentina and Brazil, harvested crops are perpetually measured at net realizable value until the point of sale because there is an active market in the produce, there is a negligible risk that the produce will not be sold and there is a well-established practice in the industry carrying the inventories at net realizable value. Changes in net realizable value are recognized in the income statements in the period in which they arise under the line item “Changes in net realizable value of agricultural produce after harvest”.

On the other hand, harvested crops for the Group’s operations in Bolivia are measured at the lower of cost or net realizable value because there is no an active market in that country. Cost is determined using the weighted average cost method.

Consumable supplies and inventories from hotel operations and the rest of materials and assets classified in this category are measured at the lower of cost or net realizable value. The cost of consumable supplies and hotel inventories is determined using the weighted average cost method, whereas the cost of the hotel inventories is determined using the first-in-first out method.

Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Inventories are recorded at the cash cost and the difference between that and the actual amount paid is treated as finance cost.

2.13.  
Biological assets and agriculture produce at the point of harvest

Biological assets comprise unharvested crops (mainly corn, wheat, soybeans and sunflower), sugarcane, livestock (breeding and dairy cattle and cattle held for sale or meat production) and other less significant biological assets such as sheep and tree plantations.

The Group distinguishes between consumable and bearer biological assets. Consumable biological assets are those assets that may be harvested as agricultural produce or sold as biological assets, for example livestock intended for the production of meat and/or livestock held for sale. Bearer biological assets are those assets capable of producing more than one harvest, for example sugarcane, dairy cattle and breeding cattle. Consumable biological assets are generally classified as current while bearer biological assets are generally classified as non-current.

 

 
F-42
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

Expenses relating to the agricultural activity include items as planting, harvesting, irrigation, agrochemicals, fertilizers, veterinary services and others. The Group elected to expense all such costs when incurred and includes them as “Cost of agriculture production” within Costs in the income statements (See Note 32). Therefore, “Cost of agriculture production” represents the costs expensed whilst the biological assets are growing.

The line item “Cost of sales of biological assets and agricultural produce” within “Costs” in the income statements represents the recognition as an expense of agricultural produce held in inventory, valued at either cost or net realizable value, as applicable (See Note 2.12), or biological assets valued at fair value less costs to sell.

The fair value of a biological asset in its present location and condition is determined based on either the present value of expected net cash flows from the biological asset discounted at a current market-determined pre-tax rate or the current quoted market price in the most relevant market.

Biological assets are measured at fair value less costs to sell on initial recognition and at each statement of financial position date, except where fair value cannot be reliably measured. Cost approximates fair value when little or no biological transformation has taken place since the costs were originally incurred or the impact of biological transformation on price is not expected to be material. Costs to sell include all incremental costs directly attributable to the sale of the biological assets, excluding finance costs and income taxes.

In determining the fair value of a biological asset based on the expected net discounted cash flows, the following factors have been taken into account:

(i)  
The productive life of the asset;

(ii)  
The period over which the asset will mature;

(iii)  
The expected future sales price;

(iv)  
The cost expected to arise throughout the life of the asset; and

(v)  
A pre-tax nominal discount rate.

Expected future sale prices for all biological assets are determined by reference to observable data in the relevant market. Costs expected to arise throughout the life of the biological assets are estimated based on historical and statistical data.

 

 
F-43
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



 
2.
Summary of significant accounting policies (Continued)

The gain or loss arising from initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell of a biological asset is recognized in profit or loss in the period in which they are incurred within the line item “Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest”.

Agricultural produce harvested from the Group’s biological assets is initially measured at its fair value less costs to sell at the point of harvest. The fair value of agricultural produce is determined based on market price in the most relevant markets of each product. The gain or loss arising from initial recognition of agricultural produce as a result of harvesting is also recognized in profit or loss in the period in which it arises in the line item “Initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest”. Harvested produce is transferred to inventory at their fair value less costs to sell at the point of harvest. See Note 2.12 for measurement of inventories.

2.14.  
Financial instruments

(a)  
Classification

The Group has adopted IFRS 9 in advance as well as the related consequential amendments to other IFRSs, because this new accounting policy provides reliable and more relevant information for users to assess the amounts, timing and uncertainty of future cash flows.

Accordingly, the Group classifies its financial assets in the following categories: those to be measured subsequently at fair value, and those to be measured at amortized cost. This classification depends on whether the financial asset is a debt or an equity investment.

Debt investments

(i) Financial assets at amortized cost

A debt investment is classified as “amortized cost” only if both of the following criteria are met: (i) the objective of the Group’s business model is to hold the asset to collect the contractual cash flows; and (ii) the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. The nature of any derivatives embedded in the debt investment are considered in determining whether the cash flows of the investment are solely payment of principal and interest on the principal outstanding and are not accounted for separately.

 

 
F-44
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

As of the end of the current financial statements, the Group’s financial assets at amortized cost comprise certain items of cash and cash equivalents, trade and other receivables and investment in financial assets.

(ii) Financial assets at fair value through profit or loss

If either of the two criteria above is not met, the debt instrument is classified as “fair value through profit or loss”. The Group has not designated any debt investment as measured at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch.

Changes in fair values and gains from disposal of financial assets at fair value through profit or loss (except for derivative financial instruments mentioned in Note 2.15) are recorded within “Financial results, net” in the income statements.

As of the end of the current financial statements, the Group’s financial assets at fair value through profit or loss comprise derivative financial instruments, mutual funds, mortgage bonds, government bonds and preferred shares, among others.

Equity investments

All equity investments, which are not subsidiaries, associate companies and joint venture of the Group, are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the Group can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss.

The Group decided to recognize changes in the fair value of equity investments through profit or loss.

Changes in fair values and gains or losses from disposal of equity investments at fair value through profit or loss and dividends income are recorded within “Financial results, net” in the income statements.

(b)  
Recognition and measurement

Regular purchases and sales of financial assets are recognized on the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

 

 
F-45
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value though profit or losses are expensed in the income statements.

In general, the Group uses the transaction price method to determine fair value of a financial instrument upon initial recognition. In the other cases, the Group merely records a gain or a loss upon initial recognition only if the fair value of the instrument is supported by other comparable and observable current market transactions in the same instrument or from other available observable market data. Any gain or loss not recognized upon initial recognition of a financial asset are recognized later, only to the extent that there are changes in the factors (including time) that market participants would consider at the time of agreeing upon a price.

A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the financial asset is derecognized or impaired and through the amortization process using the effective interest rate method.

All equity investments, which are not subsidiaries, associate companies and joint venture of the Group, are measured at fair value.

The Group is required to reclassify all affected debt investments when and only when its business model for managing those assets changes.

(c)  
Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets measured at amortized cost is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that impairment can be reliably estimated.

Evidence of impairment may include indicators that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows.

 

 
F-46
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the income statements. As a practical expedient, the Group may measure impairment on the basis of an instrument’s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment loss is recognized in the consolidated income statements.

(d)  
Offsetting financial instruments

Financial assets and liabilities are offset when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.

2.15.  
Derivative financial instruments and hedging activities

Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

The Group manages exposures to various risks using hedging instruments that provide the appropriate economic outcome. The Group does not use derivative financial instruments for speculative purposes. To date, the Group has used future contracts, commodities put and call options, foreign exchange contracts and interest rate swaps as deemed appropriate.

The Group’s policy is to apply hedge accounting to hedging relationships where it is both permissible under IFRS 9, practical to do so and its application reduces volatility, but transactions that may be effective hedges in economic terms may not always qualify for hedge accounting under IFRS 9. To date the Group has not applied hedge accounting to any of its derivative financial instruments. Trading derivatives are classified as a current asset or liability on the statement of financial position. Gains and losses on derivatives are classified according to their nature. Gains and losses on commodity derivatives are classified within “Other operating income, net”. Gain and losses on all other derivatives are classified in the income statements where the results of the items covered are recognized.

 

 
F-47
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

The fair values of financial instruments that are traded in active markets are computed by reference to market prices. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end as each reporting period.

2.16.  
Groups of assets and liabilities available for sale

Groups of assets and liabilities are classified as available for sale when the Group is expected to recover their value by means of a sale transaction (rather than through use) and where such sale is highly probable. Groups of assets and liabilities available for sale are valued at the lower of their net book value and fair value less selling costs.

2.17.  
Restricted assets

This item is comprised by:  (i) cash in guarantee directly associated with the sale of the office building for rental located at Madison Ave. 183, New York, U.S. (Note 44) and sale of farmlands, (ii) deposits in investment mutual funds held as guarantee of certain short and long term loans, obtained for financing harvest expenses, development of lands and acquisitions of farmlands. According to the IFRS 9, these escrow accounts are to be accounted for as financial assets, and are initially recognized at fair value and then, at amortized cost.

2.18.  
Trade receivables

Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

An impairment provision of doubtful accounts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

In the case of larger homogeneous receivables, the impairment provision is calculated on an individual basis. When individually assessed, the Group records a provision for impairment which amounts to the difference between the value of the discounted expected future cash flows of the receivable  and its carrying amount, taking into account the existing collateral, if any. This provision takes into consideration the financial situation of the debtor, the resources, payment record and, if applicable, the realizable value of any collateral.

 

 
F-48
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

The Group collectively evaluates for impairment smaller-balance homogeneous receivables, which are grouped on the basis of similar risk characteristics, taking into account asset type, past-due status and other relevant factors. The Group applies allowance factors, which in the judgment of management represent the expected losses over the life of the receivables. In determining those factors, the Group considers the following: (i) delinquencies, (ii) loss history and the general behavior of clients, (iii) trends in volume and terms of receivables, (iv) the experience and depth of the debtors’ management, (v) national and local economic trends, (vi) concentrations of credit by individual credit size and by class of receivable, and (vii) the effect of external factors.

The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognized in the income statements within “Selling expenses”. Subsequent recoveries of amounts previously written off are credited against “Selling expenses” in the income statements.

2.19.  
Trade payables

Trade payables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.

2.20.  
Tenant deposits

The Group generally obtains deposits from tenants as a guarantee for returning the property at the end of the lease term in a specified good condition or for the lease payments for the leases period (which is generally 3 years). The deposits generally amount to one month of lease rentals. In accordance with IFRS 9, such deposits are treated as both a financial assets and a financial liability, and they are initially recognized at fair value. The difference between fair value and cash received is considered to be part of the minimum lease payments received for the operating lease (refer to Note 2.28 for the recognition of rental income). The deposits are subsequently measured at amortized cost.

2.21.  
Borrowings

Borrowings are recognized initially at fair value, net of costs incurred in the transaction. Borrowings are subsequently stated at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized as finance cost over the period of the borrowings using the effective interest method.

 

 
F-49
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

2.22.  
Borrowing cost

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.

In accordance with what we mentioned above, the Group capitalizes borrowing costs on qualifying investment properties, property, plant and equipment and trading properties.

2.23.  
Provisions

Provisions are recognized when (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) a reliable estimate of the amount of the obligation can be made. Provisions are not recognized for future operating losses.

The Group bases its accruals on up-to-date developments, estimates of the outcomes of the matters and legal counsel experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material effect on its results of operations and financial condition or liquidity.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as finance cost.

 

 
F-50
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

2.24.  
Employee benefits

(a)  
Pension plan

The Group operates a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as employee benefit expenses in the income statements when they are incurred.

(b)  
Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(c)  
Bonus plans

The Group recognizes a liability and an expense for bonuses based on a formula that takes into consideration the profit attributable to the Company’s shareholders after certain adjustments. The Group recognizes a provision where it is contractually obliged or where there is a past practice that has created a constructive obligation.

2.25.  
Share-based payments

The Group operates an equity incentive plan, under which certain selected employees, directors and top management of the Company, IRSA and IRSA CP have a right to receive shares of their respective employer companies, although they must remain with the employer entity for a certain period of time.

The Group’s subsidiary undertaking, Brasilagro, also operates a stock option plan, under which Brasilagro receives services from certain directors and top management. Additionally, Brasilagro issued warrants as consideration for the services received from its founding shareholders. On the other hand, the Group’s subsidiary Jaborandí S.A. issued warrants in exchange for services received from its shareholders.

 

 
F-51
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.
Summary of significant accounting policies (Continued)

The fair value of the equity settled awards is measured at the date of grant. Management measures the fair value using the valuation technique that it considers to be the most appropriate to value each class of award. Methods used may include Black-Scholes calculations or other models as appropriate. The valuations take into account factors such as non-transferability, exercise restrictions and behavioral considerations.

The fair value of the equity settled awards is recognized as an expense in the income statements over the vesting period on a straight-line basis, taking into consideration the best estimation of the awards that will eventually vest. Such estimate shall be revised provided subsequent information available indicates that the number of equity instruments expected to vest differs from original estimates.

If an equity instrument is cancelled during the vesting period, it is accounted for as an acceleration of vesting, and the amount that otherwise could have been recognized for services received over the remaining of vesting period is recognized immediately in the income statements. Any payment made by a counterparty due to cancellation of share-based payment shall be accounted for as a repurchase of equity instruments (that is, it is deducted from shareholders’ equity) unless the payment exceeds the fair value of the repurchased equity instruments measure at the repurchase date. The excess, if any, is recognized as an expense.

2.26.  
Current and deferred income tax

The Group’s tax expense for the year comprises the charge for tax currently payable and deferred income. Tax is recognized in the income statements, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the date of the statement of financial position in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

 

 
F-52
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the closing date of the consolidated financial statements and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except when opportunity of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

The Group is able to control the timing of dividends from its subsidiaries and hence does not expect taxable profit. Hence deferred tax is recognized in respect of the retained earnings of overseas subsidiaries only if at the closing date of the Consolidated Statement of Financial Position, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by the subsidiary.

Entities in Argentina are subject to the Minimum Presumed Income Tax (“MPIT”). Pursuant to this tax regime, an entity is required to pay the greater of the income tax or the MPIT. The MPIT provision is calculated on an individual entity basis at the statutory asset tax rate of 1% and is based upon the taxable assets of each company as of the end of the year, as defined by Argentine law. Any excess of the MPIT over the income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. When the Group assesses that it is probable that it will use the MPIT payment against future taxable income tax charges, the Group recognizes the MPIT as a current or non-current receivable, as applicable, within “Trade and other receivables” in the Consolidated Statement of Financial Position.

 

 
F-53
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

2.27.  
Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. Do not include bank overdrafts.

2.28.  
Revenue recognition

The Group is engaged in diverse operations primarily including agricultural and agro-industrial activities; investment and development properties and hotel operations. Revenue is measured at the fair value of the consideration received or receivable.

Revenue derived from the sale of goods is recognized when: (a) material risks and benefits derived from title to property have been transferred; (b) the company does not retain any management function on the assets sold nor does it have any control whatsoever on such assets; (c) the amount of revenues and costs associated to the transaction may be measured on a reliable basis; and (d) the company is expected to accrue the economic benefits associated to the transaction.

Revenue derived from the provision of services is recognized when (a) the amount of revenue and costs associated to the services may be measured on a reliable basis; (b) the company is expected to accrue the economic benefits associated to the transaction, and (c) the level of completion of services may be measured on a reliable basis.

Agricultural and agricultural-related activities of the Group:

Revenue from Group’s agricultural activities comes primarily from sales of agricultural produce and biological assets, from provision of services related to the activity and from leases from farmlands.

The Group recognizes revenue on product sales when the agricultural produce or biological assets are delivered and the customers take ownership and assume risk of loss, which is when the products are received by the customer at its or a designated location or collected directly by the customer from the cultivation bases, collection of the relevant receivable is probable and the selling price is fixed or determinable. Net sales of products represent the invoiced value of goods, net of trade discounts and allowances, if any.
 
The Group also provides agricultural-related (including but not limited to watering and feedlot services) and brokerage services to third parties. Revenue from services is recognized as services are rendered.

 

 
F-54
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

The Group also leases land to third parties under operating lease agreements. Lease income is recognized on a straight-line basis over the period of the lease.

Investment property activities:

· Shopping centers portfolio

Revenues derived from business activities developed in the Group’s shopping centers mainly include rental income under operating leases, admission rights, commissions and revenue from several services provided to the Group’s lessees.

All lease agreements in Argentina are cancelable pursuant to Argentine Law 23,091 “Lease law” as amended by Law 24,808 “Lease Law”. Under the law, a lease is not cancelable within the first six months of the agreement, but provides that after that initial non-cancelable period, tenants may rescind agreements at any time upon giving prior written notice to lessors. Cancellations are subject to one-and-a-half month’s rent if rescinded during the first year of the lease and one month’s rent if rescinded after the first year of the lease.

The Group analyzed the definition of the lease term in IAS 17, for its cancelable option, and which provides that a non-cancelable lease is a lease that is cancelable only (a) upon the occurrence of some remote contingency, (b) with the permission of the lessor, (c) if the lessee enters into a new lease with the same lessor or (d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.

The Group considered that all of its operating leases should be considered non-cancellable for accounting. The Group concluded that, even though a lease is cancelable under the law, tenants would incur significant “economic penalties” if the leases are terminated prior to expiry. The Group considered that these economic penalties are of such amount that continuation of the lease contracts by tenants appears to be reasonably certain at the inception of the respective agreements. Group reached this conclusion based on factors such as (i) the strategic geographical location and accessibility to customers of the Group’s investment properties; (ii) the nature and tenure of tenants (mostly well-known local and international retail chains), (iii) limited availability of identical revenue-producing space in the areas where the Group’s investment properties are located; (iv) the tenants’ brand image and other competitive considerations; (v) tenants’ significant expenses incurred in renovation, maintenance and improvements on the leased space to fit their own image; (vi) the majority of the Group’s tenants only have stores in shopping centers with some or none street stores.

 

 
F-55
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

Lessees of shopping centers are generally required to pay the higher of: (i) a base monthly rent (the “Base Rent”) and (ii) a specific percentage of gross monthly sales recorded by the Lessee (the “Supplementary Rent”), which generally ranges between 4% and 10% of gross sales. Moreover, in accordance with agreements entered into for most locations, the Base Rent is subject to scheduled increases, typically between 7% and 24% per year over the term of the lease.

In addition, some lease contracts include provisions that set forth variable rent based on specific volumes of sales and other types of ratios.

Rental income from shopping center properties leased out under operating leases is recognized in the income statements on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis.

Contingent rents, being lease payments that are not fixed at the inception of a lease, are recorded as income in the periods in which they are earned. Rent reviews are recognized when such reviews have been agreed with tenants.

Tenants in the Group’s shopping centers are also generally charged a non-refundable admission right upon entering a lease contract or renewing an existing one. Admission rights are treated as additional rental income and recognized in the income statements under a straight-line basis over the term of the respective lease agreement.

The Group acts as its own leasing agent for arranging and closing lease agreements in its shopping center properties and consequently earns letting fees. Letting fees are paid by tenants upon the successful closing of an agreement. A transaction is considered successfully concluded when both parties have signed the related lease contract. Letting fees received by the Group are treated as additional rental income and are recognized in the income statements on a straight-line basis over the term of the lease agreements.

Lease contracts also provide that common area maintenance charges of the Group’s shopping centers are borne by the corresponding lessees, generally on a proportionally basis. These common area maintenance charges include all such expenses convenient and necessary for various purposes including, but not limited to, the operation, maintenance, management, safety, preservation, repair, supervision, insurance and enhancement of the shopping centers. The lessor is responsible for determining the need and suitability of incurring a common area expense. The Group makes the original payment for such expenses, which are then reimbursed by the lessees. The Group has assessed the substance of the transactions and concluded that the group is acting as a principal since it has exposure to the significant risks and rewards associated with the rendering of services.

 

 
F-56
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

Service charge income is presented within rental income and services, separately from property operating expenses. Property operating expenses are expensed as incurred.

Under the lease contracts entered into, lessees also agree to participate in collective promotion funds (“FPC”) to be used in advertising and promoting the Group’s shopping centers. Each lessee’s participation is generally calculated as a percentage of the monthly rent accrued. Revenue so derived is also included under rental income and services segregated from advertising and promotion expenses. Such expenses are charged to income when incurred.

Revenue includes income from managed operations such as car parking lots. In addition, revenue includes income from property management fees. Revenue from services and management fees is recognized on an accrual basis as services are provided.

· Office and other rental properties portfolio

Rental income from office and other rental properties include rental income from office leased out under operating leases, income for services and expenses recovery paid from tenants.

Rental income from office and other rental properties leased out under operating leases is recognized in the income statements on a straight-line basis over the term of the leases. When lease incentives are granted, they are recognized as an integral part of the net consideration for the use of the property and are therefore recognized on the same straight-line basis.

Contingent rents, being lease payments that are not fixed at the inception of a lease, are recorded as income in the periods in which they are earned. Rent reviews are recognized when such reviews have been agreed with tenants.

Lease contracts also provide that common area maintenance expenses of the Group’s offices and other rental properties are borne by the corresponding lessees, generally on a proportionally basis. These common area maintenance expenses include all such expenses convenient and necessary for various purposes including, but not limited to, the operation, maintenance, management, safety, preservation, repair, supervision, insurance and enhancement of the offices and other rental properties. The Group makes the original payment for such expenses, which are then reimbursed by the lessees. The Group considered that it acts as a principal in these cases. The Group accrues reimbursements from tenants for recoverable portions of all these expenses as service charge revenue in the period the applicable expenditures are incurred and is presented separately from property operating expenses. Property operating expenses are recognized as incurred.

 

 
F-57
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

· Development and sale property activities of the Group:

Revenue primarily comprises the proceeds from development and sale of trading properties. Revenue from the sale of properties is recognized only when the significant risks and rewards have transferred to the buyer. This will normally take place on unconditional exchange of contracts (except where payment or completion is expected to occur significantly after exchange). For conditional exchanges, sales are recognized when these conditions are satisfied.

The Group applies IFRIC 15 “Agreements for the Construction of Real Estate”. IFRIC 15 gives guidance as to which standard applies when accounting for the construction of real estate; that is IAS 11 “Construction Contracts” or IAS 18 “Revenue”. IFRIC 15 interprets that an agreement meets the definition of a construction contract under IAS 11 when the buyer is able to specify the major structural elements of the design of the property either before or during construction. Furthermore, IFRIC 15 interprets that an agreement is for the sale of goods under IAS 18 when construction takes place independently of the agreement and the buyer has only a limited ability to influence the design. The Group has assessed the nature of its agreements and determined that they are within the scope of IAS 18. As a result, the Group recognizes revenue from the sale of open market private homes and commercial units entirely at the point of legal completion in accordance with IAS 18.

The Group also enters into barter transactions where the Group normally exchanges undeveloped parcels of land with third-party developers for future property to be developed on the bartered land. In certain circumstances, the Group also receives cash as part of these transactions. The legal title together with all risks and rewards of ownership to the land are transferred to the developer upon sale. The Group generally requires the developer of the subject parcel to issue surety insurance or to mortgage the land in favor of the Group as performance guarantee. If the developer does not fulfill its obligations, the Group forecloses on the land through the execution of the mortgage or the surety insurance policy, in addition to imposing a cash penalty for breach.

The Group determines that its barter transactions have commercial substance and that the conditions for revenue recognition on the transfer of land are met at the time the transaction is consummated. Revenue is then recognized at the fair value of the goods delivered, adjusted by the amount of cash received, if any. In exchange for delivery of the land, the Group receives cash, if any, and an in-kind receivable. Such receivable is initially recognized at fair value but is not subsequently re-measured. In exchange for delivering the parcel, the Group receives cash and/or a right to receive future units to be developed on the subject parcels. The in-kind receivable is initially recognized at cost (being the fair value of the transferred land) as an intangible asset in the statement of financial position in the line item “Right to receive future units (Barter transactions)”. The mentioned intangible asset is not adjusted in subsequent years unless there are indicia of impairment.

 

 
F-58
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

The Group may sell the residential apartments to third-party homebuyers once they are finalized and transferred from the developer. In these circumstances, revenue is recognized when the significant risks and rewards are transferred to the buyer. This will normally take place when the title deeds are transferred to the homebuyer.

However, the Group may market the residential apartments during construction or even before construction commences. In these situations, homebuyers generally surrenders a downpayment to the Group with the remaining amount being paid when the developer completes the property and transfers it to the Group, and the Group in turn transfers it to the buyer. Revenue is not recognized until the apartments are completed and the transaction is legally completed, that is when the apartments are transferred to the homebuyers and deeds of title are executed. This is because in the event the residential apartments are not completed by the developer and consequently not delivered to the homebuyer, the Group is contractually obligated to return to the homebuyer any down payment received plus a penalty amount. The Group may then seek legal remedy against the developer for non-performance of its obligations under the agreement. The Group exercised judgment and considers that the most significant risk associated with the asset the Group holds (i.e. the right to receive the apartments) consisting of the unfulfillment of the developer's obligations (i.e. to complete the construction of the apartments) has not been transferred to the homebuyers upon reception of the down payment.

· Hotel operations of the Group:

Revenue from hotel operations primarily comprises room accommodation, catering and other services. Revenue from product sales in hotels are recognized when the product is delivered and the significant risks and rewards of ownership are transferred to the buyer. Revenues from sales of services are recognized when the service is rendered. All revenues are recognized on an accruals basis.

2.29.  
Equity

Share Capital, Treasury Stock, Inflation Adjustment of Share Capital, Share Premium, Additional paid-in Capital from Treasury Stock, Cost of Treasury Stock

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds from this issuance.

 

 
F-59
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.           Summary of significant accounting policies (Continued)

Share repurchases made this fiscal year, as established by the amended CNV Rules issued in relation to the new Capital Markets Act 26,831 and its implementing Executive Order 1023/13 (published by CNV in 2013) are to be recorded as follows: 1) the acquisition cost of the repurchased shares is charged to “Cost of Treasury Stock”, 2) the nominal value of the repurchased shares is charged to “Share Capital”, the proportional part of the adjustment for inflation corresponding to such repurchased shares is charged to “Inflation Adjustment of Share Capital”, and is matched by a credit to “Treasury Stock” and “Inflation Adjustment of Share Capital and Treasury Stock”. This entry is reverted upon the sale of shares. Upon sale of the treasury shares, the difference between the net realizable value of the treasury shares sold and their acquisition cost shall be recorded, whether it is a gain or a loss, as part of owners’ contributions not yet capitalized to be called “Additional Paid-in Capital from Treasury Stock”.

Before CNV rules 2013 become effective, where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) was deducted from equity attributable to the Company’s equity holders until the shares were cancelled or reissued. Where such ordinary shares were subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, and was included in equity attributable to the Company’s equity holders.

Instruments issued by the Group that will be settled by the Company delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset are classified as equity.

Inflation adjustment of share capital

Under Argentine GAAP, the Group’s financial statements were previously prepared on the basis of general price-level accounting which reflected changes in the purchase price of the Argentine Peso in the historical financial statements through February 28, 2003. The inflation adjustment related to share capital was appropriated to an inflation adjustment reserve that formed part of shareholders' equity. The balance of this reserve could be applied only towards the issuance of common stock to shareholders of the Company. Resolution 592/11 of the CNV requires that at the transition date to IFRS certain equity accounts, such as the inflation adjustment reserve, are not adjusted and are considered an integral part of share capital.

 

 
F-60
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

Legal Reserve

According to Argentine law, 5% of the profit of the year is separated to constitute a legal reserve until they reach legal capped amounts (20% of total capital). This legal reserve is not available for dividend distribution and can only be released to absorb losses. The Group has not reached the legal limit of this reserve.

Special Reserve

Pursuant to CNV General Ruling N° 609/12, the Company set up a special reserve, to reflect the positive difference between the balance at the beginning of retained earnings disclosed in the first financial statements prepared according to IFRS and the balance at closing of retained earnings disclosed in the last financial statements prepared in accordance with previously effective accounting standards. This reserve may not be used to make distributions in kind or in cash, and may only be reversed to be capitalized, or otherwise to absorb potential negative balances in Retained Earnings.

Reserve for New Developments

The Company and subsidiaries may separate portions of their profits of the year to constitute voluntary reserves according to company law and practice. These special reserves may be for general purposes or for specific uses such as new developments. The voluntary reserves may be released for dividend distribution.

Reserve for the repurchase of securities issued by the Company

On April 11, 2014, Cresud reported on a potential repurchase of shares intended to curb the drop in prices and reduce fluctuations on the Company’s shares and ADR and strengthen its position in the market, thus minimizing potential temporary imbalances that may arise between supply and demand. On that same date, the Shareholders’ Meeting approved a partial release of the account “Reserve for new developments” in an amount of up to Ps. 200 million, in order to appropriate such amount of money to set up a reserve entitled “Reserve for the repurchase of securities” issued by the Company.

 

 
F-61
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


2.  
Summary of significant accounting policies (Continued)

2.30.  
Earnings per share

Basic profit / (loss) per share is calculated by dividing the net profit / (loss) for the year attributable to equity holders of the parent by the weighted average number of common shares outstanding during the year. Diluted net profit / (loss) per share is computed by dividing the net profit / (loss) for the year by the weighted average number of common shares outstanding, and when dilutive, adjusted for the effect of all potentially dilutive shares, including share options, on an as-if converted basis.

In computing diluted profit / (loss) per share, income available to common shareholders used in the basic profit / (loss) per share calculation is adjusted to any other income or loss items that would result from the assumed conversion of potential common shares. The weighted-average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Diluted profit / (loss) per share is based on the most advantageous conversion rate or exercise price over the entire term of the instrument from the standpoint of the security holder. The calculation of diluted profit / (loss) per share excludes potential common shares if their effect is anti-dilutive. The Company has considered the dilutive effect of outstanding warrants in calculating diluted profit / (loss) per share. See Note 37 for details.

2.31.  
Dividend distribution

Cash dividend distribution to the Group’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividends are approved.

As indicated in Note 30, the Group has been refunded dividends deposited with the Caja de Valores. Such amounts have been recorded either under Retained Earnings, if already forfeited or under Trade and other payables, if not forfeited.

2.32.  
Dividends income

Dividends earned are recorded when declared.

 

 
F-62
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



2.  
Summary of significant accounting policies (Continued)

2.33.  
Comparative information

Amounts as of June 30, 2014, which are disclosed for comparative purposes have been taken from the Consolidated Financial Statements as of such date. The financial statements originally issued have been subject to certain reclassifications required in order to present these figures comparatively with this year.

During the year ended June 30, 2015, the Real Brasileño (RS) has depreciated against the Argentine Peso and other currencies by around 20.0%, which affects the comparability of the figures reported in the current financial statements given its negative impact on the financial position and results of operations of the Group, due mainly to the foreign exchange rate exposure to net assets and liabilities denominated in foreign currency and investments in joint ventures with a functional currency different from the Real.

3.  
Acquisitions and disposals

Year ended June 30, 2015

Sale of Cresca farmland

On April 3, 2014, Cresca S.A. signed a bill of sale whereby it sells an area of 24,624 hectares located in Chaco Paraguayo. The total price is US$ 14.7 million (Ps. 56.3 million), which amount shall be collectable as follows US$ 1.8 million were collected upon execution of the bill of sale, US$ 4.3 million upon execution of the conveyance deed; US$ 3.7 million interest-free in July, 2015; US$ 4.9 million interest-free in July, 2016. Possession was delivered upon execution of the conveyance deed of title and constitution of a mortgage to secure payment of the balance, on July 14, 2014.

The Group has recognized gains of Ps. 19.1 million as result of this transaction.

Sale of Cremaq farmland

On June 10, 2015, Brasilagro sold the remaining area of 27,745 hectares of Cremaq field, an establishment, located in the municipality of Baixa Grande do Ribeiro (Piaui). The sale was priced at Rs. 270 million (Ps. 694.0 million), of which Rs. 67.5 million (Ps. 196.8 million) were collected, and the remaining balance will be collected within an estimated term of de 90 days.

The Group has recognized gains of Ps. 525.9 million as result of this transaction.


 

 
F-63
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

Sale of La Fon Fon II farmlands

On October 17, 2013, Yuchán Agropecuaria signed a purchase-sale agreement involving a sale subject to retention of title involving 1,643 hectares of "La Fon Fon II" for an overall amount of US$ 7.21 million (equivalents to Ps. 59.0 million). As of the consolidated financial statements date, the amount of US$ 1.5 million has been collected, and the remaining balance amounts to US$ 5.71 million that will be cancelled in 6 semi-annual installments, starting in December this year, and concluding in June, 2018. Under the contract, the conveyance shall be recorded with the Registry once the price has been fully paid off. On June 24, 2015, possession was granted by Yuchán Agropecuaria. During this year the Group recognized a profit before tax of US$ 2.7 million (equivalents to Ps. 24.6 million) as result of this transaction.

Sale of investment properties

On July 7, 2014, IRSA signed the transfer deed for the sale of the 19th and 20th floors of the Maipú 1300 Building. The total price of the transaction was Ps. 24.7. Such transaction generated a profit before tax of approximately Ps. 20.3 million.

On September 29, 2014, the Group through its subsidiary Rigby 183 LLC (“Rigby 183”) finalized the sale of the Madison 183 Building, located in the city of New York, United States, in the sum of US$ 185 million, thus paying off the mortgage levied on the asset in the amount of US$ 75 million. Such transaction generated a gain before tax of approximately Ps. 296.5 million.

On October 8, 2014, the Group through IRSA signed the transfer deed for the sale of the 22th and 23th floors of the Bouchard 551 Building. The total price of the transaction was Ps. 168.7 million. Such transaction generated a gain before tax of approximately Ps. 150.1 million.

On October 22, 2014, the Group through IRSA signed the transfer deed for the sale of the 10th floor and two parking units of the Maipú 1300 Building and one parking unit of the building Libertador 498. The total price of the transaction was Ps. 12.0 million. Such transaction generated a gain before tax of approximately Ps. 10.1 million.

On October 28, 2014, the Group through IRSA signed the transfer deed for the sale of 9th, 10th and 11th floors of the Bouchard 551 Building. The total price of the transaction was Ps. 279.4 million. Such transaction generated a gain before tax of approximately Ps. 238.6 million.

 

 
F-64
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

On November 7, 2014, the Group through IRSA signed the transfer deed for the sale of the 21th floor of the Bouchard 551 Building. The total price of the transaction was Ps. 75.6 million. Such transaction generated a gain before tax of approximately Ps. 66.1 million.

On December 10, 2014, the Group through IRSA signed the transfer deed for the sale of the 9th floor of the Maipú 1300 Building. The total price of the transaction was Ps. 12.5 million. Such transaction generated a gain before tax of approximately Ps. 10.7 million.

On May 5, 2015, the Group through IRSA CP has signed a bill of sale to transfer 8,470 square meters corresponding to nine offices floors and 72 parking units of Intercontinental Plaza Building. The  transaction price was Ps. 376.4 million, which has already been fully paid. On June 30, 2015, the title deed was executed and the possession of the units previously mentioned was granted. Gross profit before tax of this operation amounted to Ps. 338.4 million. 

On May 19, 2015, the Group through IRSA signed the transfer deed for the sale of the 15th floor of the Maipú 1300 Building and one parking unit in Libertador 498 Building. The total price of the transaction was US$ 13.5 million. Such transaction generated a profit before tax of approximately Ps. 11.6 million.

On June 5, 2015, the Group through IRSA signed the transfer deed for the sale of the 14th floor of the Maipú 1300 Building. The total price of the transaction was US$ 13.3 million. Such transaction generated a profit before tax of approximately Ps. 11.5 million.

All sales of the period led to a combined profit for the Group of Ps. 1,150.2 million approximately, disclosed within the line “Gain from disposal of investment properties” in the income statement.

Decreased shareholding in Avenida Inc.

On July 18, 2014, the Group, through Torodur S.A., exercised the warrant that remained associated to this investment and consequently its interest in Avenida Inc. increased to 6,172,840 shares or 35.46%. However, simultaneously, a new investor acquired 35.12% of interest in the Company, diluting the Group’s holding to 23.01% at such date.

On September 2, 2014, Torodur S.A. sold 1,430,000 shares representing 5% of the Avenida Inc.’s capital stock in the amount of Ps. 19.1 million (US$ 2.3 million), thus reducing equity interest to 17.68% of its share capital. Such transaction generated a gain of Ps. 8.8 million which are shown in the line "Other operating results, net" in the income statement.

 

 
F-65
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

As a result of the sale of the interest, the Group has ceased to recognize the equity interest in Avenida Inc. as investment in associates and began to consider it as a financial asset at fair value in the financial statements as of June 30, 2015.

Acquisition of additional interest in BHSA

During the year ended June 30, 2015, the Group acquired 3,289,029 additional shares of BHSA in a total amount of Ps. 14.2 million, thus increasing its interest in such company from 29.77% to 29.99%, without consideration of Treasury shares.

Investment in IDBD
 
On May 7, 2014, a transaction was closed whereby the Group, acting indirectly through Dolphin, acquired, jointly with C.A.A. Extra Holdings Limited, a non-related company incorporated under the laws of the State of Israel, controlled by Mordechay Ben Moshé (hereinafter, “ETH”), an aggregate number of 106.6 million common shares in IDBD representing 53.30% of its stock capital, under the scope of the debt restructuring of IDBD’s holding company, IDB Holdings Corporation Ltd. (“IDBH”), with its creditors (the “Arrangement”). Under the terms of the agreement entered into between Dolphin and E.T.H.M.B.M. Extra Holdings Ltd., a company controlled by Mordechay Ben Moshé, to which Dolphin and ETH acceded to (the “Shareholders' Agreement”), Dolphin, acquired a 50% interest in this investment, while ETH acquired the remaining 50%. The total investment amount was NIS 950 million, equivalent to approximately US$ 272 million at the exchange rate prevailing on that date. As of June 30, 2014, IRSA’s indirect interest in IDBD was approximately 23%.
 
Under the Arrangement, Dolphin and ETH agreed to participate on a joint and several basis in the capital increases resolved by IDBD’s Board of Directors in order to carry out its business plan for 2014 and 2015, in amounts of at least NIS 300 million in 2014 and NIS 500 million in 2015. As of June 30, 2014, Dolphin and ETH had contributed NIS 231.09 million of the commitment of NIS 300 million corresponding to the year 2014.
 
Moreover, as part of the Arrangement, Dolphin and ETH committed jointly and severally to make one or more tender offers (the “Tender Offers”) for the purchase of IDBD’s shares for a total amount of NIS 512.09 million (equivalent to approximately US$ 135.7 million at the exchange rate prevailing as of June 30, 2015), as follows: (i) by December 31, 2015 at least NIS 249.8 million for a price per share of NIS 7.798 (value as of June 30, 2015, subject to adjustment) and (ii) by December 31, 2016, for at least NIS 512.09 million, less the offer made in 2015, for a price per share of NIS 8.188 (value as of June 30, 2015, subject to adjustment). As security for the performance of the tender offers, a total of 28,020,191 shares of IDBD were pledged at the closing of the transaction.
 

 

 
F-66
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)
 
On the other hand, the Arrangement provided that Dolphin and ETH had to pay on a joint and several basis to the creditors who are parties to the Arrangement an additional amount of NIS 100 million in the event that IDBD executed the sale of its interest in Clal Insurance Enterprises Holdings Ltd. (“Clal”) before December 31, 2014, provided that: (i) the sale price was not lower than NIS 4,200 million and (ii) the closing of the transaction took place before June 30, 2015, with IDBD having received as of such date a payment of not less than NIS 1,344 million (gross). As of December 31, 2014, IDBD had not executed the sale of its interest in Clal and accordingly this commitment undertaken by Dolphin and ETH became ineffective.
 
On May 12, 2014, IDBD’s shares became listed on the “TASE”. Consequently, all the shares (including the pledged shares) were deposited in escrow with Bank Leumi Le-Israel as security in compliance with the lock-up provisions set forth in Chapter D of the TASE Regulations, which provide that initially listed shares may not be disposed of for a term of 18 months as from initial listing allowing the release of a 2.5% of the locked ups shares per month beginning on the fourth month since the initial listing date.
 
Pursuant to the provisions of IDBD’s rights offering memorandum dated June 9, 2014, on June 26, 2014, a total of 1,332,500 rights to subscribe shares and warrants were granted by IDBD to Dolphin at a ratio of 1 for every 40 shares held, which were exercised on July 1, 2014. Later on, during IDBD’s rights issuance process, Dolphin and ETH acquired 0.89 million additional rights for NIS 2.83 million, equivalent to approximately US$ 0.83 million, out of which 50% corresponded to Dolphin and 50% to ETH, all in accordance with the terms of the Shareholders´ Agreement.
 
The rights offered by IDBD allowed to subscribe in July 2014 for 13 common shares of IDBD for a price of NIS 65 (NIS 5 per share) and 27 warrants, 9 of each series (series 1, 2 and 3) to be issued by IDBD, at no cost. Each warrant issued by IDBD would allow acquiring one common share in IDBD. Series 1 expired on November 1, 2014 and were exercisable at NIS 5.50 per warrant. Series 2 matured on May 1, 2015 and were exercisable at NIS 6 per warrant. Series 3 matures on December 1, 2015 and is exercisable at NIS 6.50 per warrant.
 

 

 
F-67
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)
 
On July 1, 2014 Dolphin exercised all granted and acquired rights it held as of June 30, 2014 to acquire the additional shares in IDBD. As a result, Dolphin received 23.1 million shares and 16 million Series 1, 2 and 3 warrants. ETH held the same number of rights and acquired the same number of shares and warrants as Dolphin.
 
During the period from July 9 to July 14, 2014, Dolphin acquired through transactions in the open market 0.42 million shares and 0.34 million additional Series 2 warrants for NIS 1.77 million (equivalent to approximately US$ 0.52 million as of such date). 50% of such shares and Series 2 warrants were sold to ETH pursuant to the provisions of the Shareholders’ Agreement.
 
On November 2, 2014, Dolphin exercised 15,998,787 Series 1 warrants and ETH exercised its respective share of Series 1 warrants.
 
On January 19, 2015, Dolphin acquired in the open market 94,000 shares in IDBD for a total amount of NIS 0.13 million (equivalent to US$ 0.03 million as of the purchase date) and subsequently sold 50% to ETH in accordance with the terms of the Shareholders´ Agreement. In addition, Dolphin acquired 42,564 shares in Discount Investment Corporation Ltd (“DIC”), IDBD's subsidiary, for NIS 0.24 million (equivalent to US$ 0.06 million as of the purchase date), 50% of which was offered to ETH under the terms of the Shareholders´ Agreement. This time ETH decided not to acquire 50% of such shares.
 
Furthermore, on January 19, 2015, IDBD issued a shelf offering report for subscription rights (the “Rights Offering”) for approximately NIS 800 million (the “Maximum Immediate Consideration”) pursuant to an irrevocable offer from Dolphin, (as described in Note 9 to these financial statements), to grant on January 26, 2015, 1 right (the “New Right”) for every 25 shares held in IDBD. Each New Right would allow to subscribe on February 10, 2015 a number of 45 common shares in IDBD for NIS 68.04 (NIS 1.512 per share) and 20 Series 4 warrants, 19 Series 5 warrants and 17 Series 6 warrants issued by IDBD, at no cost. Each warrant issued by IDBD would allow acquiring a common share in IDBD. The Series 4 warrants expire on February 10, 2016 and are exercisable at NIS 1.663 per warrant. Series 5 warrants expire on February 12, 2017 and are exercisable at NIS 1.814 per warrant. Series 6 warrants expire on February 12, 2018 and are exercisable at NIS 1.966 per warrant
 
 

 

 
F-68
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)
 
    As a result of the Rights Offering, on January 26, 2015, Dolphin received 3.7 million New Rights. ETH received the same number of New Rights. The Rights Offering shelf offering report also stipulated that on February 5, 2015 the rights received could be traded on the public market during such single day only.
 
In addition, on February 5, 2015, Dolphin acquired 2.05 million New Rights for a total amount of NIS 0.94 million (equivalent to US$ 0.24 million as of the purchase date), 50% of which was offered to ETH under the terms of the Shareholders´ Agreement. At this time ETH decided not to acquire 50% of such New Rights.
 
On February 10, 2015 Dolphin exercised all New Rights received and acquired on the market. As a result, Dolphin received 258,970,184 shares, 115,097,859 Series 4 warrants, 109,342,966 Series 5 warrants and 97,833,180 Series 6 warrants. ETH did not exercise any of the New Rights it held. On such same date, Dolphin sold 71.39 million shares in IDBD to Inversiones Financieras del Sur S.A. (“IFISA”), an entity that is indirectly controlled by Eduardo Sergio Elsztain, at the closing price of NIS 1.39 per share, totaling NIS 99.23 million, equivalent to US$ 25.65 million at the exchange rate prevailing on the date of the transaction.
 
In addition, between February 9 and February 16, 2015, Dolphin acquired on the market 0.36 million shares of DIC for NIS 2.88 million, equivalent to US$ 0.74 million at the exchange rate prevailing on the date of each transaction, part of which was offered to ETH under the terms of the Shareholders´ Agreement. At this time ETH also decided not to acquire its pro rata interest of such shares according ti the Shareholders´ Agreement.
 
On May 1, 2015 the IDBD Series 2 warrants expired unexercised.
 
On May 31, 2015 Dolphin sold to IFISA 46 million Series 4 warrants for a total amount of NIS 0.46 million (equivalent to US$ 0.12 million as of the date of the transaction), on condition that IFISA agreed to exercise all of them when so required by IDBD to Dolphin, in accordance with the proposal made on May 6, 2015 as described in Note 9 to these financial statements.
 

 

 
F-69
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)
 
On June 3, 2015 in accordance with the, Dolphin May 6 proposal (as described in Note 9 to these financial statements), Dolphin exercised 44.2 million Series 4 warrants for a total amount of NIS 73.5 million (equivalent to US$ 19.2 million at the exchange rate prevailing on such date) and IFISA exercised 46 million  Series 4 warrants for a total amount of NIS 76.5 million.
 
As a result of the transactions described above, as of June 30, 2015, Dolphin held an aggregate number of 324,445,664 shares, 15,988,787 Series 3 warrants, 24,897,859 Series 4 warrants, 109,342,966 Series 5 warrants and 97,833,180 Series 6 warrants, accounting for a 49.0% share interest in IDBD. In addition, as of June 30, 2015 Dolphin held 406,978 shares of DIC, accounting for a direct interest of 0.48%.
 
As of June 30, 2015, IDBD’s Board of Directors consisted of nine members, three of which were appointed by Dolphin as regular directors: Eduardo Sergio Elsztain, Alejandro Gustavo Elsztain (on July 7 Roni Bar- On replaced him) and Saúl Zang.
 
During February and March 2015 Dolphin and ETH exchanged letters mainly in relation to claims from ETH in connection with the Rights Offering and ETH’s claim demanding a pro rata acquisition of the IDBD shares owned by Dolphin and subscribed for under the Rights Offering and all the shares acquired thereafter by IFISA asserting in the latter case the rights under the Shareholders´ Agreement (first refusal).
 
Based on the foregoing and in accordance with the provisions of the Shareholders’ Agreement with respect to dispute resolution, on April 30, 2015 (the “Preliminary Hearing”) arbitration proceedings were initiated in Tel Aviv, under Israeli law. The arbitration proceedings were intended to settle the dispute and the application and the interpretation of certain clauses of the Shareholders´ Agreement.  
 
The arbitration proceedings are intended to settle the issues referred to above, and application and interpretation of certain clauses of the Shareholders' Agreement.
 
                In addition, during the Preliminary Hearing, the parties agreed on the rules and procedures that would govern the conduct of the arbitration proceedings and a schedule for such purposes.
 
On May 28, 2015, before the filing of the arbitration claim, ETH triggered the Buy Me Buy You (“BMBY”) clause, in the Shareholders´ Agreement, which establishes that each party to the Shareholders’ Agreement may offer to the counterparty to acquire (or sell, as the case may be) the shares it holds in IDBD at a fixed price; and within 14 days from delivery of the BMBY notice (the “Notice”) recipient should let it know whether it desires to sell or acquire the other party’s shares pursuant to the terms of the Notice, in accordance with the provisions of the Shareholders’ Agreement. In such petition, ETH further added that the purchaser thereunder would be required to assume all obligations of the seller under the Arrangement.
 

 

 
F-70
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)
 
 In addition, on June 10 and 11, 2015, Dolphin gave notice to ETH of its intention to buy all the shares in IDBD held by ETH, asserted its defenses and its interpretation about application and construction of the BMBY, establishing that ETH’s interpretation of such mechanism was inaccurate, and that pursuant to the BMBY, Dolphin was not required to assume all of the obligations under the Arrangement, but that if the arbitrator shall decide that Dolphin is required to assume such obligations, then Dolphin would still be the purchasing party in the BMBY.
 
As a result, the parties pursued arbitration to settle their disputes and in respect of the correct interpretation of the BMBY clause, in order to firstly determine, who would be the purchaser under the BMBY clause, and secondly whether such party  would have to assume all of the obligations of the seller under the Arrangement.
 
 For such purposes, the arbitrator decided to divide the arbitration proceedings into two phases: the first one to deal with the disputes related to application and interpretation of the mechanism under the BMBY clause and the second one in relation to the parties’ additional claims.
 
 The parties then filed their respective arguments related to the application and interpretation of the BMBY clause mechanism, and two hearings were held on July 19 and July 22, 2015 in order to reach a decision on this matter.
 
 Moreover, on June 28 and 30, 2015 ETH filed a motion with the arbitratir requesting an injunction preventing changes in IDBD’s current Board of Director’s composition at IDBD’s annual shareholders’ meeting held on July 7, 2015.
 
On July 6, 2015, the arbitrator granted such injunction as requested by ETH, for which reason Dolphin appointed only 3 directors for the July 7 meeting and may appoint such number of directors until the arbitrator issues a final decision about who is the purchaser under the BMBY process. For more information, please see Note 44 about subsequent events to these financial statements.
 
As Dolphin is a subsidiary that qualifies as a VCO in accordance with the IAS 28 exemption referred to in Note 2.3 (d), the Company has recorded its interest in IDBD at fair value with changes in the income statement.
 
Disposal of financial assets

During August 2014, IRSA has sold, through its subsidiary REIG IV, the balance of 1 million shares of Hersha Hospitality Trust, at an average price of US$ 6.74 per share.

 

 
F-71
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

Transactions with non-controlling interests

IRSA

During the fiscal year ended June 30, 2015, the Group sold a 1.81% interest in IRSA for a total amount of Ps. 181.8 million. This resulted in an increase in non-controlling interests of Ps. 33.7 million and a decrease in equity attributable to holders of the parent of Ps. 97.7 million, net of tax effect. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:

   
Ps. (million)
  
Carrying amount of the non-controlling interests sold by the Group
     (33.7 )
Consideration collected
     181.8  
Tax effect
     (50.4 )
Reserve recorded in shareholders’ equity
     97.7  

During the fiscal year ended June 30, 2015, the Group acquired a 0.65% interest in IRSA for a total amount of Ps. 50.7 million. This resulted in a decrease in non-controlling interests of Ps. 12.7 million and an increase in equity attributable to holders of the parent of Ps. 38.0 million, net of tax effect. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:

   
Ps. (million)
  
Carrying amount of group´s interest acquired of
     12.7  
Consideration paid for non-controlling interests
     (50.7 )
Reserve recorded in shareholders’ equity
     (38.0 )

As a result of the transactions mentioned above, as of June 30, 2015, the equity interest in IRSA amounts to 64.30%, not considering effects of treasury stock.


 
F-72
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

IRSA CP

During the fiscal year ended June 30, 2015, the Group, through IRSA, acquired an additional 0.10% interest in IRSA CP for a total amount of Ps. 5.7 million. This resulted in a decrease in non-controlling interests of Ps. 0.9 million and an increase in equity attributable to the holders of the parent of Ps. 4.7 million. As of June 30, 2015, IRSA's equity interest in IRSA CP amounts to 95.80%. The effect on shareholders’ equity of this change in the equity interest in IRSA CP is summarized as follows:

   
Ps. (million)
  
Carrying amount of group’s interest acquired of                                                                                                        
     0.9  
Consideration paid for non-controlling interests                                                                                                        
     (5.6 )
Reserve recorded in shareholders’ equity                                                                                                        
  
(i) (4.7)
  

(i)  
The reserve includes Ps. 1.6 million for non-controlling interest

Dolphin

During February 2015, the Group through its subsidiaries, contributed an amount of US$ 146 million in Dolphin. Such amount was also allocated to increase Dolphin’s investment in IDBD. This resulted in a decrease in non-controlling interests of Ps. 21.0 million and an increase in equity attributable to the holders of the parent.

   
Ps. (million)
  
Carrying amount of non-controlling interest                                                                                                        
     21.0  
Consideration paid for non-controlling interests                                                                                                        
     -  
Reserve recorded in shareholders’ equity                                                                                                        
  
(i) 21.0
  
(i)  
The reserve includes Ps. 6.9 million for non-controlling interest

Disposal of Associates

On February 5, 2014, the Group, through Ritelco, sold its interest in Bitania 26 S.A., representing 49% of its capital stock, for an amount of US$ 4.2 million. Such transaction generated a net gain of approximately Ps. 13.3 million which are shown in the line "Other operating results, net" in the income statement.

 

 
F-73
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

BACS Banco de Crédito y Securitización S.A.

The Group through Tyrus, subscribed a purchase-sale agreement of shares of BACS Banco de Crédito y Securitización S.A., representing an interest of 6.125%. The transaction amounts to US$ 1.35 million. This operation is yet to be approved by the Banco Central de la República Argentina, according to regulations in force. The advance payment related to this transaction is disclosed in “Trade and other receivables”.

The Group through IRSA, on June 17, 2015, subscribed Convertible Notes, issued by BACS Banco  de Crédito y Securitización S.A. for a nominal value of 100,000,000, which are convertible into common stock.

Capital reduction of Rigby 183 LLC

On October 17, 2014, Rigby 183 LLC reduced its capital stock by distributing among existing shareholders, proportionally to their shareholdings, the gain made on the sale of the Madison building. The total amount distributed is US$ 103.8 million, of which the Group received US$ 77.4 million (US$ 26.5 million through IRSA International and US$ 50.9 million through IMadison LLC) and US$ 26.4 were distributed to other shareholders. As a result of such reduction, the Group has decided to reverse the corresponding accumulated currency translation difference on a pro rata basis, which amounted to Ps. 188.3 million. This reversal has been recognized in the line “Other operating results, net" in the statement of income.  

Year ended June 30, 2014

Sale of farmlands

On June 27, 2014, Brasilagro sold a total area of 1,164 hectares of Araucaria field.

The sale was valued at Rs. 32.5 million (or Ps.117.5 million). In July 2014 the buyer made an initial payment of Rs. 4.5 million and remaining balance will be collected in five annual installments. The first installment of Rs. 4.5 million was collected in November 2014 and the second installment, of Rs. 6.9 million, in June 2015. The Group recorded a profit before tax on the sale of the Araucaria farmland for an amount of Rs. 21.0 million (or Ps. 75.8 million).

 

 
F-74
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

On May 27, 2014 Ombú Agropecuaria S.A. executed a purchase-sale agreement involving a condition sale of real property covering 883 hectares of “San Cayetano I” for a total amount of US$ 4.2 million (equivalents to Ps. 31.0 million). US$ 2.3 million have already been collected whereas the balance shall be collected in five consecutive semi-annual installments, with the last falling due in November 2016. Under the contract, the conveyance shall be recorded once the price has been fully collected off. Possession was granted upon execution of the contract. The Group recorded a profit before tax of US$ 1.8 million (Ps.15.6 million) on the sale.

Subscription of shares of Avenida Inc.

On August 29, 2013, the Group, through Torodur S.A., subscribed 3,703,704 shares of Avenida Inc., a Company incorporated in Delaware, United States, representing 24.79% of its outstanding capital. At that moment, this company had neither activity nor significant assets. Additionally, the Group acquired a warrant to increase such equity interest up to 37.04% of the company. The transaction price was Ps. 13 million, which were already paid in full. After acquisition, Avenida Inc. established a Company named "Avenida Compras S.A.", a Company incorporated in Argentina and engaged in e-commerce activity. Avenida Inc. owns 100% of Avenida Compras S.A..

Stock call option Agreement for the shares of Arcos del Gourmet S.A.

On September 16, 2013 IRSA CP entered into an agreement with Messrs. Eduardo Giana, Pablo Bossi and Patricio Tobal (non-controlling shareholders of Arcos del Gourmet S.A.), whereby the latter grant to IRSA CP an exclusive and irrevocable option to purchase 10% of the equity interest of Arcos del Gourmet S.A., which can be executed up to December 31, 2018. In the event the option is exercised, IRSA CP should pay the amount of US$ 8.0 million.

Furthermore, in the mentioned agreement a fixed amount of US$ 2.0 million was arranged, which was cancelled, and another variable amount to be paid on a monthly basis, that results from applying a 4.5% on the amounts accrued on each prior calendar month as rental and admission fees, net of certain expenses, during 5 years from the opening of the shopping mall, in relation to the assignment of rights to collect dividends of Arcos during such period.

 

 
F-75
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

Acquisition of common shares of Condor Hospitality Trust Inc. (formerly Supertel Hospitality, Inc. due to change of corporate name) (“Condor”)

On January 9, 2014, the Group, through its subsidiary, Real Estate Strategies L.P. (“RES”), granted a loan to Condor for an amount of US$ 2.0 million. This loan included a conversion option whereby RES was allowed to apply the aggregate amount of the loan to purchase common shares of Condor under a “Subscription Rights Offering” or convert the loan directly into common shares of Condor. Additionally, from February 2012, the Group holds two financial instruments in Condor, preferred shares and warrants, which are still held on the balance sheet date. On June 6, 2014, under the "Subscription Rights Offering", RES exercised its conversion right to acquire 1,250,000 common shares at US$ 1.60 per share. As a result of this acquisition, the Group – through RES – acquired a 26.9% equity interest in Condor.

The fair value of the Group’s investment in Condor was based on the fair value of its net assets. Condor´s main assets consist of 65 hotels in United States operated by various hotel chains. The Group has allocated the price paid at the fair value of net assets acquired based on the information available on the balance sheet date. Such fair value amounted to Ps. 31.5 million, resulting in a gain on the acquisition of Ps. 15.4 million, which has been recognized under “Share of loss of associates and joint ventures” in the income statements for the fiscal year ended June 30, 2014.

Significant sale of investment properties

On November 15, 2013 IRSA signed the transfer deed for the sale of the 12th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The price of the transaction was Ps. 9.0 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 7.2 million.

On January 14, 2014, IRSA signed the transfer deed for the sale of the 11th floor and seven parking units of the Maipú 1300 Building. The total price of the transaction was Ps. 9.6 million (US$ 1.4 million). Such transaction generated a profit before tax of approximately Ps. 7.6 million.

On January 24, 2014, IRSA signed the transfer deed for the sale of the 7th floor and 28 parking units of the Bouchard 551 Building. The total price of the transaction was Ps. 124.6 million equivalents to US$ 16.0 million. Such transaction generated a profit before tax of approximately Ps. 98.8 million.

 

 
F-76
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

On April 1, 2014, IRSA signed the transfer deed for the sale of the 5th and 6th floor and complementary units in the Costeros Dique IV Building. The total price of the transaction was Ps. 12.4 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 10.3 million.

On April 7, 2014, IRSA signed the transfer deed for the sale of the 21th and 22th floors and two parking units of the Maipú 1300 Building and four parking units of the Libertador 498 Building. The price of the transaction was Ps. 24.1 million (US$ 3.0 million). Such transaction generated a profit before tax of approximately Ps. 19.6 million.

On April 10, 2014, IRSA signed the transfer deed for the sale of the 2nd floor of the Avenida de Mayo 589 Building and ten parking units of the Rivadavia 565 Building. The total price of the transaction was Ps. 24.2 million (US$ 3.0 million). Such transaction generated a profit before tax of approximately Ps. 19.9 million.

On May 6, 2014, IRSA signed the transfer deed for the sale of the Constitución 1159 Building. The price of the transaction was Ps. 23.3 million (US$ 2.9 million). Such transaction generated a profit before tax of approximately Ps. 13.4 million.

On May 14, 2014, IRSA signed the transfer deed for the sale to Transportadora de Caudales Juncadella of the unit 449 of the 8th floor of the Bouchard 551 Building. The price of the transaction was Ps. 61.8 million (US$ 7.7 million). Such transaction generated a profit before tax of approximately Ps. 49.2 million.

On May 19, 2014, IRSA signed the transfer deed for the sale to Inco Sociedad Anónima de Inversión, Industria y Comercio of the unit 1 of the ground floor of the Maipú 1300 Building. The price of the transaction was Ps. 6.5 million (US$ 0.8 million). Such transaction generated a profit before tax of approximately Ps. 5.2 million.

The properties mentioned above were classified as investment properties until the above mentioned transactions were executed, which represents a gross lease area of approximately 10,816 m2.

All sales of the year led to a combined profit for the Group of Ps. 230.9 million, disclosed within the line “Gain from disposal of investment properties” in the statement of income.

On May 22, 2014 IRSA CP acquired commercial premises with an area of 40 m2, next to our shopping Alto Palermo, located on the ground floor of the building located in Av. Santa Fe 3255/57/59 in an amount of US$ 3.8 million.

 

 
F-77
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.           Acquisitions and disposals (Continued)

Transactions with non-controlling interests

IRSA CP

During the fiscal year ended June 30, 2014, the Group, through IRSA, acquired an additional 0.02% interest in IRSA CP for a total amount of Ps. 1.2 million. This resulted in a decrease in non-controlling interests of Ps. 0.2 million and an increase in equity attributable to holders of the parent of Ps. 1.0 million. The effect on shareholders’ equity of this change in the equity interest in IRSA CP is summarized as follows:

   
Ps.
  
Carrying amount of group’s interest acquired of
     0.18  
Consideration paid for non-controlling interests
     (1.21 )
Reserve recorded in shareholders’ equity
  
(i) (1.03)
  

(i)  
The Reserve includes Ps. 0.36 million for non-controlling interest

Futuros y Opciones.com S.A.

On December 20, 2013 Cresud sold 14,812 non-transferable nominative common shares, with a nominal value of Ps. 1 each and entitled to one vote per share, representing a 0.9075% interest of FyO for a total amount of Ps. 0.1 million.

   
Ps. (million)
  
Sale’s collected value                                                                                                          
     0.11  
Increase in non-controlling interest                                                                                                          
     (0.21 )
Reserve recorded in shareholders’ equity                                                                                                          
     (0.10 )

BRASILAGRO

During the current fiscal year, the Group sold 10,400 shares of Brasilagro, representing a 0.02% interest, for a total amount of Ps. 0.27 million. Consequently, the Company recognized an increase in non-controlling interest for an amount of Ps. 0.25 million and a decrease in equity attributable to holders of the parent of Ps. 0.02 million. The effect on shareholders’ equity of this change in the equity interest in Brasilagro is summarized as follows:

   
Ps. (million)
  
Carrying amount of the non-controlling interests sold by the Group
     (0.25 )
Consideration collected                                                                                                          
     0.27  
Reserve recorded in shareholders’ equity                                                                                                          
     0.02  


 

 
F-78
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

On the other hand, on September 2, 2013, Brasilagro approved a share repurchase program for up to 3,511,130 common shares and for up to an aggregate amount not to exceed the balance of profits or available reserves disclosed in Brasilagro’s latest financial statements. As of June 30, 2014, Brasilagro purchased 99,900 common shares for an aggregate amount of Rs. 1.9 million. Below is a summary of the effects of such transaction on shareholders’ equity:

   
Ps. (million)
  
Amount paid for repurchase                                                                                                          
     (4.94 )
Decrease in non-controlling interest                                                                                                          
     4.92  
Reserve recorded in shareholders’ equity                                                                                                          
     (0.02 )

IRSA

On July 25, 2013, IRSA’s Board of Directors set forth the terms and conditions governing the purchase of the Company's own stock pursuant to Section 64 of Law N° 26,831 and the CNV’s regulations, for up to an aggregate amount of Ps. 200.0 million and up to 5% of the capital stock, in the form of common shares or Global Depositary Shares (GDS) representing 10 common shares each, and up to a daily limit of 25% of the average daily transaction volume experienced by the Company’s shares, along with the markets where they are listed, during the prior 90 business days, and at a price ranging from a minimum of Ps. 1 up to Ps. 8 per share. On September 18, 2013 the Board of Directors approved an increase to the maximum price, raising it to Ps.10 per common share and US$ 10.50 per GDS. On October 15, 2013, the Board of Directors approved a new increase to the maximum price, raising it to Ps.11.00 per common share and US$ 11.50 per GDS. On October 22, 2013 the Board of Directors approved a new increase to the maximum price, raising it to Ps.14.50 per common share and US$ 15.00 per GDS. During the fiscal year ended June 30, 2014, the Company purchased 533,947 common shares (N.V. Ps. 1 per share) for a total amount of Ps. 5.2 million and 437,075 GDS (representing 4,370,750 common shares) for a total amount of US$ 5.2 million.

On June 10, 2014, the Board of Directors of IRSA resolved to terminate the stock repurchase plan that was approved by resolution of the Board on July 25, 2013, and modified by resolutions adopted on September 18, 2013, October 15, 2013 and October 22, 2013. During the term of the Stock Repurchase Plan, IRSA has repurchased 4,904,697 shares for an aggregate amount of Ps. 37,905,631.


 

 
F-79
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.  
Acquisitions and disposals (Continued)

Year ended June 30, 2013

Sale of farmlands

On June 19, 2013, the title deed was executed, by which Cresud sold to Vargas Derka SH a portion of “La Suiza” ranch of 5,613 hectares engaged in livestock activities located near “Villa Angela”, Province of Chaco, remaining in this establishment 36,380 hectares used by the Company to cattle and crop activities.

The offer price amounts to US$ 6.7 million, which had been totally collected by the date of the execution of the title deed, generating a gain of Ps. 29.8 million.

On October 11, 2012 Brasilagro sold Horizontina, a field of land located in Tasso Fragoso, State of Maranhão, Brazil for a total amount of Rs. 75 million (Ps. 174.8 million). The payments were collected as follows: an initial payment of Rs. 1 million, Rs. 26 million in October, 2012 and Rs. 45 million upon execution of the conveyance, on January 22, 2013. The remaining balance as of June 30, 2015 amounts to Rs. 3 million, and its collection is subject to compliance with certain conditions. The gain of the sale was Ps. 53.9 million less commission, expenses and taxes.

The Horizontina field had an area of 14,359 hectares and was acquired on March 10, 2010 by the subsidiary Inmobiliaria Ceibo for a total amount of Rs. 37.7 million.

On April 25, 2013, Brasilagro sold a total area of 394 hectares of Araucaria field. The establishment, located in the municipality of Mineros – GO was acquired in 2007 and had, at the time of sale, a total area of 9,862 hectares.

The sale was priced at Rs. 11.7 million (Ps. 26.6 million). The buyer made an initial payment of Rs. 1.7 million and the remaining balance will be collected in eight installments every six months. The first installment of Rs. 2.1 million was collected in August, 2013, the second, of Rs 2.0 million in March 2014, the third, of Rs.1.9 million, in August 2014 and the fourth, of Rs. 1.9 million, in March 2015. The remaining balance as of June 30, 2015 will be collected in three semi-annual installments. The last installment is due at the moment of the execution of the title deed, in August, 2016. The Group recognized a profit before tax for the sale of the Araucaria field for an amount of Rs. 6.7 million (equivalent to Ps. 12.6 million).

On May 10, 2013, Brasilagro sold a total area of 4,895 hectares of Cremaq field. The establishment, located in the municipality of Ribeiro Gonçalves-PI, Brazil was purchased in 2007 and had, at the time of sale, a total area of 32,702 hectares.


 

 
F-80
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


3.  
Acquisitions and disposals (Continued)

On February 20, 2015, while studying the acquired zone, a difference of 62 hectares between measures and the sales agreement, dated May 11, 2013, was verified. This resulted into an increase of 11,166 bags in the sales price.

The sale was priced at Rs. 42.6 million (Ps. 97.6 million). The buyer made an initial installment of Rs. 4.6 million and the remaining balance will be collected in five installments. The first installment of Rs. 4.3 million was collected in August, 2013, the second, of Rs 4.0 million was collected in October 2013, the third, of Rs.17.5 million, in June 2014 and the fourth, of Rs. 17.1 million, in June 2015. The remaining balance will be collected upon execution of the conveyance deed, in June, 2016. The Group recognized a profit before tax for the sale Cremaq field of Rs. 26.5 million (Ps. 53.2 million).

Transactions with non-controlling interests

IRSA

During the fiscal year ended June 30, 2013, the Group acquired an additional 1.25% interest in IRSA for a total consideration of Ps. 45.8 million. This resulted in a decrease in non-controlling interests of Ps. 33.9 million and an increase in equity attributable to holders of the parent of Ps. 11.9 million. The effect on shareholders’ equity of this change in the equity interest in IRSA is summarized as follows:

   
Ps. (million)
  
Carrying amount of group’s interest acquired of                                                                                                          
     33.9  
Consideration paid for non-controlling interests                                                                                                          
     (45.8 )
Reserve recorded in shareholders’ equity                                                                                                          
     (11.9 )

IRSA CP

During the fiscal year ended June 30, 2013, the Group, through IRSA and E-Commerce Latina S.A., acquired an additional 0.1% interest in IRSA CP for a total consideration of Ps. 2.3 million. This resulted in a decrease in non-controlling interests of Ps. 0.8 million and an increase in equity attributable to holders of the parent of Ps. 1.5 million. The effect on shareholders’ equity of this change in the equity interest in IRSA CP is summarized as follows:

 
Ps. (million)
  
Carrying amount of group’s interest acquired of
     0.8  
Consideration paid for non-controlling interests
     (2.3 )
Reserve recorded in shareholders’ equity
      (i) (1.5 )
 
(i)  
The Reserve includes Ps. 0.5 million for non-controlling interest


 

 
F-81
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.
Acquisitions and disposals (Continued)

Arcos del Gourmet S.A. (“Arcos”)

On June 07, 2013, the Group, through IRSA CP, acquired an additional 1.815% equity interest of its controlled company Arcos for a total amount of US$ 0.8 million. The carrying amount of the non-controlling interest in Arcos on the date of acquisition was Ps. 7,357 (representing an 11.815% interest). This resulted in a decrease in non-controlling interest of Ps. 857 and an increase in equity attributable to holders of the parent of Ps. 3,687. The effect on shareholder´s equity of the parent of this change in the equity interest in Arcos during year 2013, is summarized as follows:

 
Ps. (million)
  
Carrying amount of group’s interest acquired of
     0.8  
Consideration paid for non-controlling interests
     (4.5 )
Reserve recorded in shareholders’ equity
      (i) (3.7 )
 
(i)  
The reserve includes Ps. 1.4 million for non-controlling interest

Acquisition of joint venture

On November 29, 2012, IRSA CP acquired shares of common stock, representing 50% of Entertainment Holdings S.A. (“EHSA”)’s capital stock and votes for Ps. 32.0 million. Under the acquisition agreement, IRSA CP is entitled to exercise joint control over EHSA. EHSA is an Argentine company whose main asset consists of an indirect interest of 50% in the capital and voting rights of La Rural S.A. (“LRSA”), whereby it has joint control over this Company together with Sociedad Rural Argentina (“SRA”), who owns the remaining 50%. Thus, IRSA CP is the owner of an indirect interest of 25% in LRSA, whose main asset consists of an usufruct agreement on the Predio Ferial de Buenos Aires, located between Cerviño, Sarmiento, Santa Fe Avenues and Oro street, in the City of Buenos Aires (the “Predio Ferial”) entered in 1999 into with SRA, owner of such Predio Ferial.

The amount of Ps. 6.1 million has been included as an asset, in the line trade and other receivables together with accrued interests.

The fair value of the IRSA CP’s investment in the joint venture was determined based on the fair value of EHSA’s net assets, with the rights of use being the main asset. IRSA CP has allocated the price paid at the fair value of the net assets acquired. Such fair value amounted to Ps. 15.2 million, which means a goodwill amount of Ps. 10.7 million recognized under the line “Investments in associates and joint venture” in the statement of Financial position as of June 30, 2013.

 

 
F-82
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.
Acquisitions and disposals (Continued)

The fair value of the right of use has been determined by the application of the discounted cash flow method. This estimate considered a discount rate that reflects the market assessments regarding uncertainties in terms of the cash flow amount and timing. The amount of net future cash flows was estimated based on the specific features of the property, the agreements in force, market information and future forecasts as of the valuation date. Net income forecasts, revenues growth rates and discount rates are among the most important assumptions used in the valuation.

Disposal of financial assets

During fiscal year ended June 30, 2013, the Group sold 17,105,629 ordinary shares of Hersha’s Hospitality Trust (Hersha) for a total amount of US$ 92.5 million, with a decrease on the equity interest from 9.13% (at the beginning of the year) to 0.49%.

In November and December 2012, IRSA sold all of its shareholdings in NH Hoteles S.A. (138,572 shares for a consideration of € 0.38 million) and in NH Hoteles S.A. (387,758 shares for a total consideration of US$ 1.4 million).

In December 2012, IRSA sold all of its shareholdings in Metrovacesa F (1,238,990 shares for a consideration of € 2.7 million); Metrovacesa SM (229,995 shares for a total consideration of € 0.5 million) and Metrovacesa F (919,087 shares for a consideration of US$ 2.7 million).

Significant sales of investment properties

On August 31, 2012, the Group sold through IRSA certain functional units of the “Libertador 498 Building” of the Autonomous City of Buenos Aires. The total price of the transaction amounted to Ps. 15 million and was collected upon the execution of the title conveyance deeds. This transaction generated a profit before tax of Ps. 12.3 million.

On September 14, 2012, IRSA sold certain functional units on floors 18 and 19, as well as parking areas, of the Bouchard 551 Building. The total price of the transaction was US$ 8.5 million paid upon execution of the conveyance deed. This transaction generated a profit before tax of Ps. 16.6 million.

On October 4 and 11, 2012, IRSA signed the transfer deed for the sale of several functional units (stores and parking spaces) of the “Libertador 498 Building”. The transactions price was set at Ps. 29.4 million, amount that has been completely collected. This transaction generated a profit before tax of Ps. 24.1 million.


 
F-83
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.
Acquisitions and disposals (Continued)

On January 8, 2013, IRSA sold several functional units (stores and parking spaces) of the “Costeros Dique IV Building”. The total price of the transaction was Ps. 9.2 million. This transaction generated a profit before tax of Ps. 7.5 million.

On May 8, 2013, IRSA signed the transfer deed for the sale of the 17th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The total price of the transaction was Ps. 7.8 million (US$ 1.5 million). Such transaction generated a profit before tax of approximately Ps. 5.7 million.

On May 20, 2013, IRSA signed the transfer deed for the sale of the 6th floor and two parking units of the Maipú 1300 Building and two parking units of the Libertador 498 Building. The transactions price was set at Ps. 7.6 million (US$ 1.45 million), amount that has been completely collected. This transaction generated a profit before tax of Ps. 5.7 million.

On June 28, 2013, IRSA signed the transfer deed for the sale of 4th, 5th and 6th floors and 56 parking units of the Bouchard 551 Building. The total price of the transaction was Ps. 148.7 million, equivalent to US$ 27.6 million. This transaction generated a profit before tax of Ps. 106.2 million.

The properties mentioned above were classified as investment properties until the above mentioned transactions were executed, which represents a gross lease area of approximately 14,442 square meters.

All sales of the year led to a combined profit for the Group of Ps. 178.0 million, disclosed within the line “Gain from disposal of investment properties” in the income statement.

Acquisition of Rigby 183 LLC

On June 30, 2012, the Group held, through its subsidiary IMadison LLC, a 49% interest in the capital stock of Rigby 183 LLC (“Rigby”), a company that owns office buildings for rental at Madison Avenue 183, New York, USA. On November 27, 2012, the Group, through its subsidiary IRSA International LLC, acquired an additional equity interest of 25.5% in Rigby’s capital stock, thus taking control over said company. As a result of the acquisition, the Group expects to increase its footprint in the US real estate market. The goodwill from the acquisition, which amounts to Ps. 45.7 million, is attributable to the synergies expected to be achieved by combining the Group’s and Rigby’s operations.

 

 
F-84
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


3.
Acquisitions and disposals (Continued)

The acquisition-related costs, which amount to Ps. 2.6 million, were charged under “General and administrative expenses” line in the statements of income.

The fair value of the investment property acquired for Ps. 679.2 million was assessed by a qualified independent appraiser. The fair value of trade and other receivables amounts to Ps. 2.3 million, including trade receivables in the amount of Ps. 0.1 million. As of the acquisition date, the Group estimates that these receivables are recoverable. The fair value of the non-controlling interest in Rigby, an unlisted company, has been determined on a proportional basis to the fair value of net acquired assets.

The Group has recognized gains of Ps. 124.1 million derived from the reassessment of the fair value of the 49% ownership interest in Rigby before the business combination. In addition, all exchange gains (losses) accumulated in shareholder’s equity from the ownership interest in Rigby before the business combination (Ps. 12.9 million) were charged to income. These gains were disclosed under "Other operating results, net" line in the income statements.

The incomes Rigby has generated since November 27, 2012 and that have been disclosed in the consolidated income statements amount to Ps. 40.9 million. Rigby has also run a net gain of Ps. 8.1 million during said period. If Rigby had been included in the consolidation since July 1, 2012, the consolidated income statements would have shown pro forma revenues in the amount of Ps. 2,202.9 million and pro-forma net income of Ps. 297.5 million.

Disposal of joint ventures

On June 28, 2013, IRSA sold, assigned and transferred to Euromayor S.A. de Inversiones the 100% of its equity interest in Canteras Natal Crespo S.A., accounting for a 50% interest in that company’s capital stock for an aggregate amount of US$ 4.2 million; out of that amount, US$ 1.4 million was cashed in July 2013, with the balance being collected as follows: US$ 2.4 million on March 31, 2014 and US$ 0.4 million against delivery to IRSA of certain lots in the development to be carried out in Canteras Natal Crespo S.A.’s property. IRSA was granted a security interest on the 100% of Canteras Natal Crespo S.A.’s shares to secure payment of the remaining balance.

Disposal of subsidiaries

During the fiscal year ended June 30, 2013, IRSA sold to Doneldon S.A., the 100% of Sedelor S.A.'s, Alafox S.A.'s and Codalis S.A.'s capital stock, all of them companies incorporated in the Republic of Uruguay, with no business activity. Later, IRSA sold to Cresud the 100% of Doneldon S.A.'s capital stock.

 

 
F-85
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.
Acquisitions and disposals (Continued)

Transactions and authorizations pending

Urban properties and investments

Paraná plot of land

On June 30, 2009, the Group, through IRSA CP, subscribed a “Letter of Intent” by which it stated its intention to acquire from Wal-Mart Argentina S.A. a plot of land of about 10,022 square meters located in Paraná, Province of Entre Ríos, to be used to build, develop and operate a shopping center or mall.

On August 12, 2010, the agreement of purchase was executed. The purchase price stood at US$ 0.5 million to be paid as follows: i) US$ 0.05 million had been settled as a prepayment on July 14, 2009, ii) US$ 0.1 million was settled upon executing such agreement, and iii) US$ 0.35 million will be paid upon executing the title deed. The mentioned payments were recorded as an advance under “Trade and other receivables” line.

On December 29, 2011, possession of the real estate was granted, and a minute was signed in which the parties agreed that the deed transferring ownership would be granted on June 30, 2012, or within sixty (60) consecutive days as from the date in which the selling party evidenced with a certified copy before the buying party that the real estate was not subject to any encumbrance, burden, limit or restriction to the ownership, except for the electroduct administrative easement in favor of EDEER S.A..

On June 29, 2012, the parties have agreed to extend the term for the execution of the title conveyance deed, which shall be executed within sixty (60) days as from the date the seller provides reliable notification to the buyer that the property is not subject to any levy, encumbrance, restrictions on ownership, except for the right of way already mentioned. As of the consolidated financial statements date, evidence of such notice has not been provided.

Acquisition of commercial center goodwill

The Group, through IRSA CP, signed an offering letter for acquiring, building and running a commercial center in a real estate owned by INC S.A., located in the City of San Miguel de Tucumán, Province of Tucumán. The price of this transaction was US$ 1.3 million, of which US$ 0.05 million were paid. The mentioned payment was recorded as an advance under “Trade and other receivables” line.

 

 
F-86
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.           Acquisitions and disposals (Continued)

This transaction was subject to certain conditions precedent, among which the Group through IRSA CP should acquire from INC S.A. the goodwill constituted by the commercial center operating in Soleil Factory. Having complied with such condition on July 1, 2010, IRSA CP should have started the works: i) 12 months after complying with such conditions, or ii) on May 2, 2011, whichever occurs earlier. However, before starting with the works, INC S.A. should have: i) granted the title deeds to IRSA CP's future units to IRSA CP, and ii) transferred to IRSA CP the rights to the registered architectural project and the effective permissions and authorizations to be carried out in IRSA CP's future units. As of June 30, 2015, the two conditions have not been fulfilled.

Antitrust Law

Law N° 25,156, known as "Antitrust Law" as amended, prevents anticompetitive practices and requires administrative authorization for transactions that according to the Antitrust Law would lead to market concentration According to this law, such transactions include mergers, acquisitions and/or transfers either of businesses or assets by which the acquirer controls or substantially influences another party. Transactions completed by entities with an annual sales volume of more than Ps. 200.0 million must be submitted to the Comisión Nacional de Defensa de la Competencia (hereinafter referred to as the "Antitrust Commission") for approval. Certain exemptions apply. Submissions may be filed either prior to the transaction or within a week after its completion. The Antitrust Commission may (i) authorize the transaction, (ii) condition the transaction to the accomplishment of certain acts, or (iii) reject the authorization.

In general, acquisitions effected by the Group are within the scope of the Antitrust Law. In this cases, the Group directly requests authorization. In other cases, the Group may request the Antitrust Commission to issue a prior statement about whether a particular transaction should be either notified or submitted for approval by the Group.

As of June 30, 2015 and 2014, the following cases are pending resolution by the Antitrust Commision:

(i) The Group requested the Antitrust Commission to issue a statement about the Group's obligation to either notify or submit for authorization the acquisition of the property formerly owned by Nobleza Piccardo S.A.I.C.y F. The Antitrust Commission stated that the operation had to be notified. The Group appealed this decision. Subsequently, the Court of Appeals confirmed the Antitrust Commission’s decision regarding the obligation to notify and, therefore, on February 23, 2012, local form F1 was filed, which is being processed as of the date these consolidated financial statements are issued.

 

 
F-87
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



3.           Acquisitions and disposals (Continued)

(ii) Purchase of Arcos shares: On December 3, 2009 the Group requested that the CNDC issued a ruling on the notification requirement. The CNDC confirmed that the transaction had to be notified; as a result, notice was served in December 2010 and as of the consolidated financial statements date it is still pending.

(iii) Acquisition of shares in Nuevo Puerto Santa Fe (NPSF): On August 23, 2011 the Group informed the CNDC of the direct and indirect acquisition of NPSF (IRSA CP directly acquired 33.33% of NPSF and indirectly a 16.66% through its controlled company Torodur SA). On December 14, 2014 the CNDC notified approval of the transaction.

(iv) Acquisition of shares in Entertainment Holdings SA (EHSA): On December 7, 2012, the Group informed the CNDC of the acquisition of shares in EHSA, which indirectly owns 50% of La Rural S.A. – a company that operates a convention center known as Predio Ferial de Palermo. As of the consolidated financial statements date, the transaction is pending approval by the CNDC.

4.           Financial risk management

Risk management principles and processes

The risk management function within the Group is carried out in respect of financial risks. Financial risks are risks arising from financial instruments to which the Group is exposed during or at the end of the reporting period. Financial risk comprises market risk (including foreign currency risk, interest rate risk and other price risk), credit risk, liquidity risk and capital risk.

The Group’s diverse activities are exposed to a variety of financial risks in the normal course of business. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize the Group’s capital costs by using suitable means of financing and to manage and control the Group’s financial risks effectively. The Group uses financial instruments to hedge certain risk exposures when deemed appropriate based on its internal management risk policies.

The Group’s principal financial instruments comprise cash and cash equivalents, receivables, payables, interest bearing assets and liabilities, other financial liabilities, other investments and derivative financial instruments. The Group manages its exposure to key financial risks in accordance with the Group’s risk management policies.

 

 
F-88
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.  
Financial risk management (Continued)

The Group´s risk management policies are established to all its subsidiaries companies in order to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group’s management framework includes policies, procedures, limits and allowed types of derivative financial instruments. The Group has established a Risk Committee, comprising Senior Management and a member of the Audit Committee, which reviews and oversees management’s compliance with these policies, procedures and limits and has overall accountability for the identification and management of risk across the Group.

This section provides a description of the principal risks and uncertainties that could have a material adverse effect on the Group’s strategy, performance, results of operations and financial condition. The principal risks and uncertainties facing the businesses, set out below, do not appear in any particular order of potential materiality or probability of occurrence.

(a)  
Market risk management

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Group’s market risks arise from open positions in foreign currencies, interest-bearing assets and liabilities, commodity price risk and equity securities price risks, to the extent that these are exposed to general and specific market movements. Management sets limits on the exposure to these risks that may be accepted, which are monitored on a regular basis.

The examples of sensitivities to market risks included below are based on a change in one factor while holding all other factors constant. In practice this is unlikely to occur, and changes in some of the factors may be correlated – for example, changes in interest rate and changes in foreign currency rates.

Foreign exchange risk and associated derivative financial instruments:

The Group publishes its consolidated financial statements in Argentine Pesos but conducts business in many foreign currencies. As a result, the Group is subject to foreign currency exchange risk due to exchange rate movements, which affect the Group’s transaction cost. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

 

 
F-89
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.  
Financial risk management (Continued)

The real estate, commercial, agro-industrial and/or financial activities of the Group's subsidiaries are primarily developed in Argentina and have as functional currency the Argentine Peso. The agricultural activities of the Group’s subsidiaries are primarily developed in Argentina, Brazil and Bolivia, where the functional currencies are the respective local currencies. A significant majority of the activity of these subsidiaries is conducted in such local currencies, thus not exposing the Group to foreign exchange risk. Other Group's subsidiaries have other functional currencies, principally US dollar. In the ordinary course of business, the Group, through its subsidiaries, transacts in currencies other than the respective functional currencies of the subsidiaries. These transactions are primarily denominated in US dollars and new Israeli shekel. Net financial position exposure to the functional currencies is managed on a case-by-case basis, partly by entering into foreign currency derivative instruments and/or by borrowing in foreign currencies, or other methods, considered adequate by the Management, according to circumstances.

Financial instruments are considered sensitive to foreign exchange rates when they are not in the functional currency of the entity that holds them. The following table shows the Group's US dollar-denominated (US$) and new Israeli shekel (NIS), net carrying amounts of its financial instruments broken down by functional currency in which the Company operates, for the years ended June 30, 2015 and 2014. The amounts are presented in Argentine Pesos, the presentation currency of the Group:

   
Net monetary position (Liability)/Asset
    
Net monetary position (Liability)/Asset
  
   
June 30, 2015
    
June 30, 2014
  
Functional currency
  
US$
    
NIS
    
US$
    
NIS
  
Argentine Peso                                                
     (4,826,015 )     -       (4,866,439 )     -  
Brazilian Reais                                                
     152,764       -       68,525       -  
Uruguayan Peso                                                
     (67,082 )     -       (63,254 )     -  
Bolivian Peso                                                
     122       -       (68,464 )     -  
US Dollar                                                
     -       (244,923 )     -       (86,581 )
Total                                                
     (4,740,211 )     (244,923 )     (4,929,632 )     (86,581 )

The Group estimates that, other factors being constant, a 10% appreciation of the US dollar against the respective functional currencies at year-end would result in an additional loss before income tax for the year ended June 30, 2015, 2014 and 2013 for an amount of Ps. 474.02 million, Ps. 492.96 million and Ps. 269.6 million, respectively. A 10% depreciation of the US dollar against the functional currencies would have an equal and opposite effect on the income statements.

 

 
F-90
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

Moreover, the Group estimates that, all other factors being equal, a depreciation of the NIS to the US$ by 10% as of the balance sheet date would increase loss before tax by Ps. 24.5 million as of June 30, 2015. An appreciation of 10% of the new Israeli shekel against functional currencies would have the same and opposite effect on the income statements.

This sensitivity analysis provides only a limited, point-in-time view of the foreign exchange risk sensitivity of certain of the Group’s financial instruments. The actual impact of the foreign exchange rate changes on the Group’s financial instruments may differ significantly from the impact shown in the sensitivity analysis.

On the other hand, the Group also uses derivative instruments, such as forward foreign exchange contracts to manage its exposure to foreign exchange risk. As of June 30, 2015 and 2014 foreign exchange contracts were pending, for a total amount of (Ps. 25,333) and (Ps. 36,361), respectively.

Interest rate risk and associated derivative financial instruments:

The Group is exposed to interest rate risk on its investments in debt instruments, short-term and long-term borrowings and derivative financial instruments.

The primary objective of the Group’s investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, the Group diversifies its portfolio in accordance with the limits set by the Group. The Group maintains a portfolio of cash equivalents and short-term investments in a variety of securities, including both government and corporate obligations and money market funds.

 

 
F-91
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

Investments in both fixed rate and floating rate instruments carry varying degrees of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. In general, longer dated securities are subject to greater interest rate risk than shorter dated securities. While floating rate securities are generally subject to less interest rate risk than fixed rate securities, floating rate securities may produce less income than expected if interest rates decrease. Due in part to these factors, the Group’s investment income may fall short of expectations or the Group may suffer losses in principal if securities that have declined in market value due to changes in interest rates are sold. As of June 30, 2014, the nominal value of rate interest swaps was US$ 10 million and Ps. 280 million and due between September 1, 2014 and December 31, 2014. These agreements were not subject to hedge accounting. On June 30, 2014, the Group recorded an asset in the amount of Ps. 1,089, related to the estimated fair value of the swaps on that date. The fair value of swaps was calculated using a discounted cash flow analysis. On June 30, 2014, the impact on the fair value of interest rate swaps in the event of a change in interest rates does not materially affect the results of operations or the financial position of the Group. As of June 30, 2015, the Group has no balances related to interest rate swaps.

The Group’s interest rate risk principally arises from long-term borrowings (Note 25). Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group manages this risk by maintaining an appropriate mix between fixed and floating rate interest bearing liabilities. These activities are evaluated regularly to determine that the Group is not exposed to interest rate movements that could adversely impact its ability to meet its financial obligations and to comply with its borrowing covenants.

The Group manages its cash flow interest rate risk exposure by different hedging instruments, including but not limited to interest rate swap, depending on each particular case. For example, interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates or viceversa. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals, the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

 

 
F-92
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

The interest rate risk policy is approved by the Board of Directors. Management analyses the Group’s interest rate exposure on a dynamic basis. Various scenarios are simulated, taking into consideration refinancing, renewal of existing positions and alternative financing sources. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions. Trade payables are normally interest-free and have settlement dates within one year. The simulation is done on a regular basis to verify that the maximum potential loss is within the limits set by management.

The following tables show a breakdown of the Group’s fixed-rate and floating-rate borrowings per currency denomination and functional currency of the subsidiary issuing the loans (excluding finance leases) for the years ended June 30, 2015 and 2014. All amounts are shown in thousands of Argentine Pesos the Group’s presentation currency:

   
June 30, 2015
Functional currency
  
Rate per currency denomination
  
Argentine Peso
    
Brazilian Reais
    
Bolivian Peso
    
Uruguayan Peso
    
US Dollar
    
Total
  
Fixed rate:
                                    
Argentine Peso
     826,038       -       -       -       -       826,038  
Bolivian Peso
     -       -       -       -       -          
Brazilian Reais
     -       184,631       -       -       -       184,631  
US Dollar
     5,361,806       -       -       70,959       10,784       5,443,549  
Subtotal fixed-rate borrowings
     6,187,844       184,631       -       70,959       10,784       6,454,218  
Floating rate:
                                                
Argentine Peso
     1,426,226       -       -       -       -       1,426,226  
Bolivian Peso
     -       -       6,509       -       -       6,509  
Brazilian Reais
     -       258,805       -       -       -       258,805  
US Dollar
     127,778       -       -       -       -       127,778  
Subtotal floating rate borrowings
     1,554,004       258,805       6,509       -       -       1,819,318  
Total borrowings as per analysis
     7,741,848       443,436       6,509       70,959       10,784       8,273,536  
Finance leases
     3,270       22,197       -       -       -       25,467  
Total borrowings as per statement of financial position
     7,745,118       465,633       6,509       70,959       10,784       8,299,003  

 

 
F-93
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

   
June 30, 2014
Functional currency
    
Rate per currency denomination
  
Argentine Peso
    
Brazilian Reais
    
Bolivian Peso
    
Uruguayan Peso
    
US Dollar
    
Total
    
Fixed rate:
                                      
Argentine Peso
     386,007       -       -       -       -       386,007    
Bolivian Peso
     -       -       8,402       -       -       8,402    
Brazilian Reais
     -       371,981       -       -       -       371,981    
US Dollar
     5,614,494       -       -       64,672       677,365       6,356,531    
Subtotal fixed-rate borrowings
     6,000,501       371,981       8,402       64,672       677,365       7,122,921    
Floating rate:
                             -       -            
Argentine Peso
     1,073,710       -       -       -       -       1,073,710    
Bolivian Peso
     -       -       -       -       -            
Brazilian Reais
     -       237,298       -       -       -       237,298    
US Dollar
     120,629       -       -       -       -       120,629    
Subtotal floating rate borrowings
     1,194,339       237,298       -       -       -       1,431,637    
Total borrowings as per analysis
     7,194,840       609,279       8,402       64,672       677,365       8,554,558    
Finance leases
     3,289       -       -       -       -       3,289    
Total borrowings as per statement of financial position
     7,198,129       609,279       8,402       64,672       677,365       8,557,847  
(i)
 
(i)  
Includes Ps. 603,021 included in Liabilities directly associated with assets classified as held for sale (Note 44).

The Group estimates that, other factors being constant, a 1% increase in floating rates at year-end would decrease profit before income tax for the years ended June 30, 2015 and 2014, in Ps. 14 million. A 1% decrease in floating rates would have an equal and opposite effect on the income statements. The table below shows the Group’s sensitivity to interest rate risks. The amounts are presented in Argentine Pesos.

   
June 30, 2015
  
Rate per currency denomination
  
Argentine Peso
    
Brazilian Reais
    
Bolivian Peso
    
Uruguayan Peso
    
Total
  
Floating rate:
                              
Argentine Peso
     14.26       -       -       -       14.26  
Bolivian Peso
     -       -       0.07       -       0.07  
Brazilian Reais
     -       2.72       -       -       2.72  
US Dollar
     1.28       -       -       -       1.28  
Total effects on Profit before income tax
     15.54       2.72       0.07       -       18.33  


 

 
F-94
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


4.
Financial risk management (Continued)

   
June 30, 2014
  
Rate per currency denomination
  
Argentine Peso
    
Brazilian Reais
    
Bolivian Peso
    
Uruguayan Peso
    
Total
  
Floating rate:
                              
Argentine Peso
     10.74       -       -       -       10.74  
Bolivian Peso
     -       -       -       -          
Brazilian Reais
     -       2.37       -       -       2.37  
US Dollar
     1.21       -       -       -       1.21  
Total effects on Profit before income tax
     11.95       2.37       -       -       14.32  

This sensitivity analysis provides only a limited, point-in-time view of this market risk sensitivity of certain of the Group’s financial instruments. The actual impact of the interest rate changes on the Group’s financial instruments may differ significantly from the impact shown in the sensitivity analysis.

Commodity price risk and associated derivative financial instruments:

The Group’s agricultural activities expose it to specific financial risks related to commodity prices. Prices for commodities have historically been cyclical, reflecting overall economic conditions and changes in capacity within the industry, which affect the profitability of entities engaged in the agricultural industry.

Generally, the Group uses derivative instruments to hedge risks arising out of its agricultural business operations. The Group uses a variety of commodity-based derivative instruments to manage exposure to price volatility stemming from its integrated crop production activities. These instruments consist mainly of crop forwards, future contracts and put and call option contracts. Contract positions are designed to ensure that the Group will receive a defined minimum price for certain quantities of its production. The Group combines option contracts with future contracts only as a means of reducing the exposure towards the decrease in commodity prices, as being a producer means that the price is uncertain until the time the products are harvested and sold. The Group manages maximum and minimum prices for each commodity and the idea is to choose the best spot price at which to sell.

 

 
F-95
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


4.  
Financial risk management (Continued)

The Group generally covers up to 50% of its crop production in order to finance its operating costs. The hedge consists of taking positions on purchased puts or sold futures and calls that assure a fixed exit price. In the past, the Group has never kept a short position greater than its crop inventories and does not intend to. On the other hand, it is not the Group’s current intention to be exposed in a long derivative position in excess of its actual production.

The following tables show the outstanding positions for each type of derivative contract for the years ended June 30, 2015 and 2014. The amounts are presented in thousands of Argentine Pesos.

   
June 30, 2015
  
Type of derivative
contract
  
Tons
    
Margin
    
Premium paid or (collected)
    
Derivatives at fair value
    
Gain/ (loss) for valuation at fair value at year-end
  
Futures:
                              
Sell
                              
Corn                                
     8,600       527       -       (879 )     (560 )
Soybeans                                
     107,727       4,792       -       (10,202 )     (3,668 )
Wheat                                
     7,000       6       -       -       (6 )
Purchase
                                        
Corn                                
     1,400       (50 )     -       -       27  
Soybeans                                
     2,200       (178 )     -       -       (201 )
Wheat                                
     1,000       503       -       -       (515 )
Options:
                                        
Sell put
                                        
Soybeans                                
     9,952       (1,312 )     (431 )     (1,389 )     (1,323 )
Purchase put
                                        
Soybeans                                
     20,412       -       2,877       995       (1,883 )
Sale call
                                        
Soybeans                                
     44,124       322       (2,903 )     (6,911 )     (4,009 )
Total                                
     202,415       4,610       (457 )     (18,386 )     (12,138 )

   
June 30, 2014
  
  Type of derivative
contract
  
Tons
    
Margin
    
Premium paid or (collected)
    
Derivatives at fair value
    
Gain/ (loss) for valuation at fair value at year-end
  
Futures:
                              
Sell
                              
Corn                                
     20,225       1,377       -       1,328       1,090  
Soybeans                                
     197,428       1,482       -       2,980       1,317  
Wheat                                
     1,100       72       -       6       (132 )
Purchase
                                        
Corn                                
     2,400       (116 )     -       (116 )     (117 )
Soybeans                                
     4,300       415       -       415       (358 )
Wheat                                
     1,700       137       -       137       (227 )
Options:
                                        
Sell put
                                        
Soybeans                                
     16,204       -       -       753       4,066  
Total                                
     243,357       3,367       -       5,503       5,639  

 

 
F-96
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

   
June 30, 2013
  
Type of derivative
 contract
  
Tons
    
Margin
    
Premium paid or (collected)
    
Derivatives at fair value
    
Gain/ (loss) for valuation at fair value at year-end
  
Futures:
                              
Sell
                              
Corn                                
     12,640       235       -       4,058       715  
Soybeans                                
     61,760       821       -       28,682       4,431  
Options:
                                        
Sell put
                                        
Soybeans                                
     12,240       -       6,168       7,135       967  
Corn                                
     300       3       -       -       (9 )
Total                                
     86,940       1,059       6,168       39,875       6,104  

Gains and losses on commodity-based derivative instruments were Ps. 8.1 million (gain), Ps. 14.8 million (loss) and Ps. 5.1 million (gain) for the years ended June 30, 2015, 2014 and 2013, respectively. These gains and losses are included in “Other operating results, net” in the income statements.

Crops future contract fair values are computed with reference to quoted market prices on future exchanges.

Other price risk:

The Group is exposed to equity securities price risk because of investments held in entities that are publicly traded (principally TGLT, preferred shares and warrants of Condor, shares and warrants of IDBD, and others), which are classified on the consolidated statement of financial position at “fair value through profit or loss”. The Group regularly reviews the prices evolution of these equity securities in order to identify significant movements.

As of June 30, 2015 and 2014 equity investments of the Group amounts to Ps. 1,179.4 million and Ps. 617.4 million, respectively.

 

 
F-97
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


4.
Financial risk management (Continued)

The Group estimates that, other factors being constant, a 10% decrease in quoted prices of equity securities and in derivative financial instruments portfolio at year-end would generate a loss before income tax for the year ended June 30, 2015 of Ps. 186:
 
 
   
Increase in loss before income tax
(in millions of Ps.)
  
Company
  
June 30, 2015
  
IDBD
     127.9  
Condor
     39.0  
TGLT
     7.2  
Avenida
     10.2  
Others
     1.7  
Total
     186  

An increase of 10% on these prices would have an equal and opposite effect in the statement of income.

This sensitivity analysis provides only a limited point-in-time view of the price risk sensitivity of certain of the Group’s equity securities. The actual impact of the price changes on the equity securities may differ significantly from the impact shown in the sensitivity analysis.

(b)  
Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in a financial loss to the Group. Credit limits have been established to ensure that the Group deals only with approved counterparties and that counterparty concentration risk is addressed and the risk of loss is mitigated. Counterparty exposure is measured as the aggregate of all obligations of any single legal entity or economic entity to the Group.

The Group is subject to credit risk arising from deposits with banks and financial institutions, investments of surplus cash balances, the use of derivative financial instruments and from outstanding receivables. Credit risk is managed on a country-by-country basis. Each local entity is responsible for managing and analyzing the credit risk.

The Group’s policy is to manage credit exposure to deposits, short-term investments and other financial instruments by maintaining diversified funding sources in various financial institutions. All the institutions that operate with the Group are well known because of their experience in the market and high quality credit. The Group places its cash and cash equivalents, investments, and other financial instruments with various high credit quality financial institutions, thus mitigating the amount of credit exposure to any one institution. The maximum exposure to credit risk is represented by the carrying amount of cash and cash equivalents and short-term investments in the statement of financial position.
 
F-98
 
 
 
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

The Group’s primary objective for holding derivative financial instruments is to manage currency exchange rate risk and interest rate risk and commodities prices. The Group generally enters into derivative transactions with high-credit-quality counterparties and, by policy, limits the amount of credit exposure to each counter party. The amounts subject to credit risk related to derivative instruments are generally limited to the amounts, if any, by which counterparty’s obligations exceed the obligations that the Group has with that counterparty. The credit risk associated with derivative financial instruments is representing by the carrying value of the assets positions of these instruments.

The Group’s policy is to manage credit risks associated with trade and other receivables within defined trading limits. All Group’s significant counterparties have internal trading limits. The Group’s customers are distinguished between those customers arising out of the investment and development properties activities of the Group from those arising out of its agricultural and agro-industrial operations. These two groups of customers are monitored separately due to their distinct characteristics.

Investment and development properties activities

Trade receivables from investment and development property activities are primarily derived from leases and services from shopping centers, office and other rental properties; receivables from the sale of trading properties and investment properties (primarily undeveloped land and non-retail rental properties). The Group has a large customer base and is not dependent on any single customer.

Trade receivables related to leases and services provided by the Group represent a diversified tenant base and account for 38% and 28% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. The Group has specific policies to ensure that rental contracts are transacted with counterparties with appropriate credit quality. The majority of the Group’s shopping center, office and other rental properties’ tenants are well recognized retailers, diversified companies, professional organizations, and others. Owing to the long-term nature and diversity of its tenancy arrangements, the credit risk of this type of trade receivables is considered to be low. Generally, the Group has not experienced any significant losses resulting from the non-performance of any counterpart to the lease contracts and, as a result, the allowance for doubtful account balance is low. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Group. If customers are independently rated, these ratings are used. If there is no independent rating, risk control assesses the credit quality of the customer, taking into account its past experience, financial position, actual experience and other factors. Based on the Group’s analysis, the Group determines the size of the deposit that is required from the tenant at inception. Management does not expect any losses from non-performance by these counterparties. See Note 18 for details.
 

 
F-99
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

On the other hand, property receivables related to the sale of trading properties represent 26% and 13% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. Payments on these receivables have generally been received when due. These receivables are generally secured by mortgages on the properties. Therefore, the credit risk on outstanding amounts is considered very low.

Agricultural and agro-industrial activities

Trade receivables from agriculture and agro-industrial activities are primarily derived from the sale of commodities, raw milk, cattle, and sugarcane; receivables from feed lot operations and raw meat products; receivables from the lease of farmland properties; receivables from the sale of farmland properties; and, other receivables from ancillary activities. Trade receivables from agriculture and agro-industrial activities represent 23% and 20% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. In contrast with the investment and development properties activities of the Group, the Group’s agribusiness is conducted through several international subsidiaries. The Group has subsidiaries in Argentina, Brazil and Bolivia. However, Argentina and Brazil together concentrate more than 89% and 93% of the Group’s grain production for the years ended June 30, 2015 and 2014, respectively. Each country has its own established market for the respective grain production. Generally, the entire country’s grain production is sold in the domestic market to well-known multinational exporters such as Molinos, Cargill or Bunge, and/or local exporters. Prices for grains are also generally based on the market prices quoted in the domestic markets which normally take as reference the prices in international grain exchanges such as the Chicago Board of Trade.

For the year ended June 30, 2015, 27% of sales of the combined sales of Argentina and Brazil were sold to well-known exporters, while for the year ended on June 30, 2014, 10% of sales of crops in Brazil were sold to two well-known exporters. The Group performs credit evaluations of its customers and generally does not require collateral. Although sales are highly concentrated, the Group does not believe that significant credit risk exists at the reporting period due to the high credit rating of these customers.

For the years ended June 30, 2015 and 2014, the grain production in Bolivia has not been significant representing only 9% and 5% of the total Group’s crop sales, respectively.

 

 
F-100
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

The Group concentrates its cattle production in Argentina where it is entirely sold in the domestic market. The main buyers are slaughterhouses and supermarkets and are well dispersed. Prices in the beef cattle market in Argentina are basically fixed by local supply and demand. The principal market is the Liniers Meat Market in Buenos Aires, which provides a standard in price formation for the rest of the domestic markets. Live animals are sold by auction on a daily basis in the market, whereas prices are negotiated by kilogram of live weight and are mainly determined by local supply and demand. Some supermarkets and meat packers establish their prices by kilogram of processed meat; in these cases, processing yields influences the final price.

The Group’s milk production is also based in Argentina. The Group has historically sold its entire milk production to Mastellone Hnos S.A., which is the largest dairy company in Argentina. Sales to Mastellone amounted to Ps. 71.9 and Ps. 50.8 million for the years ended June 30, 2015 and 2014, respectively, representing 3% and 2.8% of the Group’s agricultural consolidated revenue for those years, respectively, and 1% of the Group’s total revenues in both years. Although sales are concentrated, the Group does not believe that significant credit risk exists at the reporting period due to the high credit rating of Mastellone. As milk is a perishable product there is no ability for the Group to mitigate pricing risk through inventory management. The Group negotiates the prices of raw milk on a monthly basis in accordance with domestic supply and demand. Prices for milk are based on a number of factors including fat and protein content, bacteria levels and temperature. However, dairy prices have historically tended to have reasonable correlation with prices of agricultural inputs such as feed and fertilizer, and the Group monitors these relationships in order to adapt its tactics to suit.

The Group’s sugarcane production is based in Brazil and to a lesser extent in Bolivia. Brazil concentrates more than 95.5% of the Group’s total sugar production. Currently, the Group has one farm in Brazil dedicated to sugarcane production and the entire output is sold to a third-party, ETH Bioenergia S.A. (“ETH”), under an exclusive agreement dated March 2008. ETH is the largest ethanol producer in Brazil. Under the agreement, ETH is contractually obligated to purchase the entire production of two crop cycles of sugarcane comprising six agricultural years with five cuts, with the possibility of extending them for another full agricultural cycle upon prior agreement of the parties. The duration of each cycle may be extended if the parties wish to do so. Currently, the Group is selling to ETH at market price. Sales to ETH amounted to Ps. 178.4 million and Ps. 106 million for the years ended June 30, 2015 and 2014, respectively, representing el 7.5% and 6% of the Group’s agricultural consolidated revenue for those years, respectively. Although sales are concentrated, the Group does not believe that significant credit risk exists at the reporting period due to the high credit rating of ETH.

 

 
F-101
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

The management does not expect any significant losses resulting from the non-performance by these counterparties.

The maximum exposure to Group’s credit risk is represented by the carrying amount of each financial asset in the statement of financial position after deducting any impairment allowance. The Group’s overall exposure of credit risk arising from trade receivables is set out in Note 18.

(c)  
Liquidity risk management

The Group is exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements, and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage liquidity risks could have a material impact on the Group’s cash flow and statement of financial position. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding its existing and prospective debt requirements by maintaining diversified funding sources.

The Group monitors its current and projected financial position using several key internally generated reports: cash flow; debt maturity; and interest rate exposure. The Group also undertakes sensitivity analysis to assess the impact of proposed transactions, movements in interest rates and changes in property values on the key profitability, liquidity and balance sheet ratios.

The Group’s debt and derivative positions are continually reviewed to meet current and expected debt requirements. The Group maintains a balance between longer-term and shorter-term financings. Short-term financing is principally raised through bank facilities and overdraft positions. Medium- to longer-term financing comprises public and private bond issues, including private placements. Financing risk is spread by using a variety of types of debt. The maturity profile is managed in accordance with Group’s needs, by spreading the repayment dates and extending facilities, as appropriate.
 
 
F-102
 
 

4.
Financial risk management (Continued)
 
The tables below show financial liabilities, including Group’s derivative financial liabilities groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the tables are the contractual undiscounted cash flows and as a result, they do not reconcile to the amounts disclosed on the statement of financial position. However, undiscounted cash flows in respect of balances due within 12 months generally equal their carrying amounts in the statement of financial position, as the impact of discounting is not significant. The tables include both interest and principal flows.
 
Where the interest payable is not fixed, the amount disclosed has been determined by reference to the existing conditions at the reporting date.

At June 30, 2015
  
Less than 1 year
    
Between 1 and 2 years
    
Between 2 and 3 years
    
Between 3 and 4 years
    
More than 4 years
    
Total
  
Trade and other payables                                                 
     943,713       11,001       4,698       2,582       -       961,994  
Borrowings (Excluding finance leases liabilities) (i)
     2,215,239       3,296,084       616,654       717,850       2,118,068       8,963,895  
Finance leases                                                 
     11,785       7,291       3,859       2,552       -       25,487  
Derivative financial instruments
     270,499       269,949       -       -       -       540,448  
Total                                                 
     3,441,236       3,584,325       625,211       722,984       2,118,068       10,491,824  

At June 30, 2014
  
Less than 1 year
    
Between 1 and 2 years
    
Between 2 and 3 years
    
Between 3 and 4 years
    
More than 4 years
    
Total
  
Trade and other payables                                                 
     914,782       67,232       47,809       16,646       47,322       1,093,791  
Borrowings (Excluding finance leases liabilities) (i)
     3,555,212       882,910       2,677,153       1,004,124       2,067,023      
(ii)10,186,422
  
Finance leases
     2,130       678       531       -       -       3,339  
Derivative financial instruments
     53,419       144,808       176,039       -       -       374,266  
Total                                                 
     4,525,543       1,095,628       2,901,532       1,020,770       2,114,345       11,657,818  

(i)  
Includes accrued and prospecting interests.
(ii)  
Includes Ps. 603,021 included in Liabilities directly associated with assets classified as held for sale (Note 44).

(d)  
Capital risk management

The capital structure of the Group consists of shareholders’ equity and net borrowings. The type and maturity of the Group’s borrowings are analyzed further in Note 25. The Group’s equity is analyzed into its various components in the statement of changes in equity.

Capital is managed so as to promote the long-term success of the business and to maintain sustainable returns for shareholders.

 

 
F-103
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

The Group seeks to manage its capital requirements to maximize value through the mix of debt and equity funding, while ensuring that Group entities continue to operate as going concerns, comply with applicable capital requirements and maintain strong credit ratings.

The Group assesses the adequacy of its capital requirements, cost of capital and gearing (i.e. debt/equity mix) as part of its broader strategic plan. The Group continuously reviews its capital structure to ensure that (i) sufficient funds and financing facilities are available to implement the Group’s property development and business acquisition strategies, (ii) adequate financing facilities for unforeseen contingencies are maintained, and (iii) distributions to shareholders are maintained within the Group’s dividend distribution policy. The Group also protects its equity in assets by taking out insurance.

The Group’s strategy is to maintain key financing metrics namely, net debt to total equity ratio (gearing) and loan-to-value ratio (LTV) to ensure that asset level performance is translated into enhanced returns for shareholders whilst maintaining an appropriate risk reward balance to accommodate changing financial and operating market cycles.

The following table details the key metrics in relation to managing its capital structure of the Group. The levels of these metrics are within the ranges established by the Group’s strategy.

   
June 30,
2015
    
June 30,
2014
  
Gearing ratio (i)
     74.46 %     71.90 %
LTV ratio (ii)
     12.18 %     14.33 %

(i)  
Calculated as total debt divided by total capital (including equity plus total debt).
(ii)  
Calculated as total debt divided by total property at fair value (including trading properties, properties, plant and equipment, investment properties, farmland rights to receive units under barter agreements).

 

 
F-104
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

(e)  
Other non-financial risks

Nature risk:

The Group’s revenue arising from agricultural activities depends significantly on the ability to manage biological assets and agricultural produce. The ability to manage biological assets and agricultural produce may be affected by unfavorable local weather conditions and natural disasters. Weather conditions such as floods, droughts, hail, windstorms and natural disasters such as fire, disease, insect infestation and pests are examples of such unpredictable events. The Group manages this risk by locating its farmlands in different geographical areas. The Group has not taken out insurance for this kind of risks. The occurrence of severe weather conditions or natural disasters may affect the growth of our biological assets, which in turn may have a material adverse effect on the Group’s ability to harvest agricultural produce in sufficient quantities and in a timely manner.

Property risk:

There are several risks affecting the Group’s property investments. The composition of the Group’s property portfolio including asset concentration and lot size may impact liquidity and relative property performance. The Group has a large multi-asset portfolio and monitors its concentration and average investment property lot size.

A change in trends and economic conditions causes shifts in customer demands for properties with impact on new lettings, renewal of existing leases and reduced rental growth. Also changes increase risk of tenant insolvencies. The Group conducts several actions to mitigate some of these risks whenever possible. The variety of asset types and geographical spread as well as a diversified tenant base, with monitoring of tenant concentration, helps mitigating these risks.

The development, administration and profitability of shopping centers are impacted by various factors including: the accessibility and the attractiveness of the area where the shopping center is located, the intrinsic attractiveness of the shopping center, the flow of people, the level of sales of each shopping center rental unit, the increasing competition from internet sales, the amount of rent collected from each shopping center rental unit and the fluctuations in occupancy levels in the shopping centers. In the event that there is an increase in operational costs, caused by inflation or other factors, it could have a material adverse effect on the Group if its tenants are unable to pay their higher rent obligations due to the increase in expenses. Argentine Law N° 24,808 provides that tenants may rescind commercial lease agreements after the initial six months upon not less than sixty days written notice, subject to penalties of only one-and-a-half month rent if the tenant rescinds during the first year of the lease, and one-month rent if the tenant rescinds during the second year of the lease. The exercise of such rescission rights could materially and adversely affect the Group.

 

 
F-105
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



4.
Financial risk management (Continued)

Risks associated with development properties activities include the following:  the potential abandonment of development opportunities; construction costs exceeding original estimates, possibly making a project uneconomical; occupancy rates and rents at newly completed projects may be insufficient to make the project profitable. On the other hand, the Group’s inability to obtain financing on favorable terms for the development of the project; construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs; and the Group’s inability to obtain, or the delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations; preconstruction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of constructions; prices for residential units may be insufficient to cover development cost. The Group also takes several actions to monitor these risks and respond appropriately whenever it is under its control. The Group has in-house property market research capability and development teams that monitor development risks closely. The Group generally adopts conservative assumptions on leasing and other variables and monitors the level of committed future capital expenditure on development programs relative to the level of undrawn facilities.

The Group’s hotel properties face specific risks as well. The success of the Group’s hotel properties will depend, in large part, upon the Group’s ability to compete in areas such as access, location, quality of accommodations, room rate structure, quality and scope of food and beverage facilities and other services and amenities. The Group’s hotels may face additional competition if other companies decide to build new hotels or improve their existing hotels such that they are more attractive to potential guests. In addition, their profitability depends on (i) the Group’s ability to form successful relationships with international operators to run the hotels; (ii) changes in travel patterns, including seasonal changes; and (iii) taxes and governmental regulations which influence or determine wages, prices, interest rates, construction procedures and costs.

5.  
Critical accounting estimates, assumptions and judgments

The Group’s significant accounting policies are stated in Note 2. Not all of these significant accounting policies require management to make subjective or complex judgments or estimates. The following section is intended to provide an understanding of the policies that management considers critical because of the level of complexity, judgment or estimation involved in their application and their impact on the consolidated financial statements. These judgments involve assumptions or estimates in respect of future events. Actual results may differ from these estimates.

 

 
F-106
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.  
Critical accounting estimates, assumptions and judgments (Continued)

(a) Business combinations – purchase price allocation

The acquisition of subsidiaries is accounted for using the acquisition method. Accounting for business combinations requires the determination of the fair value of to the various assets and liabilities of the acquired business. The Group uses all available information to make these fair value determinations, and for major acquisitions, may hire an independent appraisal firm to assist in making fair value estimates. In some instances, assumptions with respect to the timing and amount of future revenues and expenses associated with an asset might have to be used in determining its fair value. These assumptions may differ materially from those initial estimates, and if the timing is delayed significantly or if the net cash flows decline significantly, the asset could become impaired.

(b) Impairment testing of goodwill and other non-current assets

As of the end of each fiscal year, the Group reviews the carrying amounts of its property, plant and equipment, investment property and finite-life intangible assets to determine whether there is any indicator that those assets have suffered an impairment loss. The indicators that must be taken into account in the analysis are, among other points, physical damage or significant changes to the manner in which the asset is used, worse than expected economic performance or a drop in revenues. Where the asset does not generate cash flows that are independent from others assets, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs.

Goodwill and Intangible assets that are not amortized are tested for impairment on an annual basis, or more frequently if there is an indicator of impairment. For the purposes of the impairment testing, goodwill is to be allocated since acquisition among each of the CGU or groups of cash generating units that are expected to benefit from the synergies of the respective business combinations, regardless of the allocation of other assets or liabilities owned by the acquired entity to these cash-generating units or groups of cash-generating units.

If the recoverable amount of an asset or CGU is lower than its carrying amount, the carrying value of the asset or CGU is thus written down to its recoverable value. The impairment losses are recorded immediately in the income statements.

Given the nature of its assets and activities, most of the Group´s individual assets do not generate cash flows that are independent of those from CGU. Therefore, the Group estimates the recoverable amount of the CGU for the purposes of the impairment test.


 

 
F-107
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


5.  
Critical accounting estimates, assumptions and judgments (Continued)

Generally, each shopping center, office building and undeveloped property is deemed to be separate CGU. As regards, farmlands used for agricultural activities, when farmland is used for single activities (i.e. crops), it is considered as one CGU, but when farmlands are used for more than one activity (i.e. crops and cattle), the farmland is further subdivided into two or more CGUs, as appropriate, for purposes of impairment testing.

There are no indicators of impairment in goodwill and other assets during the year ended June 30, 2014. As of June 30, 2015, the circumstances mentioned in Note 7 referred to Arcos del Gourmet S.A. were deemed to be potential proof of impairment and, therefore, the Company carried out relevant analysis on consolidated net assets in this transaction. To such end, the Company has determined the recoverable value of such assets using the discounted cash flow valuation method upon weighing various scenarios. The main inputs used in the model include projected operating income and a discount rate in line with the business. Each revenue and cost scenario was assigned an occurrence probability rate based on information available at the time of conducting the analysis. The Company concluded that it is not necessary to record any impairment of its related assets.

The following table shows the amounts of goodwill and non-current assets other than goodwill of the CGUs where goodwill was allocated at the date of acquisition for each of June 30, 2015 and 2014:

CGU
Country
Segment
Method of valuation
     06.30.15       06.30.14  
Abasto
Argentina
Shopping Centers
(i)
     3,307       3,307  
Alto Palermo
Argentina
Shopping Centers
(i)
     3,609       3,608  
Arcos del Gourmet S.A.
Argentina
Shopping Centers
(i)
     30,260       20,873  
Bouchard 551
Argentina
Offices and other rental properties
(i)
     2,878       2,878  
Santa María del Plata
Argentina
Sales and development
(i)
     4,535       4,535  
Torre Bank Boston
Argentina
Offices and other rental properties
(i)
     4,873       4,873  
Conil
Argentina
Sales and development
(i)
     -       344  
Jatobá
Brazil
Agriculture
(i)
     2,708       2,721  
Chaparral
Brazil
Agriculture
(i)
     2,035       2,046  
Cremaq
Brazil
Agriculture
(i)
     -       2,415  
Araucaria
Brazil
Agriculture
(i)
     3,667       3,250  
            57,872       50,850  
Closing value of non-current assets other tan goodwill (ii)
     1,725,644       1,918,578  
Total assets allocated to CGUs
     1,783,516       1,969,428  

(i)  
The following table details the models used for each segment.
(ii)  
Non-current assets include investment properties (primarily shopping centers and offices), properties, plant and equipment; intangible assets and net working capital.


 

 
F-108
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.  
Critical accounting estimates, assumptions and judgments (Continued)

The Group carried out the impairment test on these CGU on the basis of its value in use and determined that no impairment should be recognized on the value of these assets for any of the reported years.

For the CGU included in segments “International”, “Offices and others” and “Shopping centers” ” the Group uses the fair value of investment property estimated by independent appraisers. The involvement of an independent appraiser is required according to CNV Resolution N° 576/10.

For purposes of calculating the fair value for impairment tests and/or to disclose it in a note to the financial statements the Group uses various valuation techniques: discounted cash flows, capitalization method and market comparables, depending on the type of ownership involved, as indicated below.

Under the cash flows model, or discounted cash flows independent appraisers estimate the amount of net future cash flows based on the specific features of each property (including but not limited to location, sales, occupation and turnout, useful lives, among others), existing agreements, market information and future forecasts as of the valuation date. Net income forecasts and revenues growth rates are among the most important assumptions used in the valuation. This estimate also considers the discount rates that reflect the market assessments regarding uncertainties in terms of the cash flow amount and timing. Any inaccuracy in the most sensitive assumptions used by the appraisers may result in differences in the fair value of the Group’s properties.

The Group uses the capitalization method ("cap rate") for valuation of its investment properties at fair value. The methodology involves designing simulation models whereby the current annual operating income flaw of a given asset is considered to be a stabilized low in perpetuity, and is divided by a capitalization rate derived from market comparables; the rate is adjusted for any difference in the major features (either size, location and condition of asset) to determine its fair value. The Group considers that the new methodology reflects more reliably the fair market value of its shopping centers for it is based on the current annual net operating income of various assets and uses market information to determine the capitalization rate; as such, it is a more transparent method internationally recognized in the industry. Additionally, it is the same methodology used to value the shopping center segments in other companies, hence, it is more useful to make comparisons against such valuations.

 

 
F-109
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

As of June 30, 2015 and 2014 fair value of investment was computed using a weighted average capitalization rate of 12% and 10% (a 10% to 15% range was considered for the year 2015 and 9% to 12% for the year 2014).

Generally, an increase in the annual flow of operating income will lead to an increase in the fair value of investment properties. An increase in the capitalization rate will lead to a decline in the fair value of investment properties.

For those assets that are not currently operating under a concession contract, the discounted cash flow valuation is used.

Under the model of sales comparison approach (or comparable market data), the sale price of comparable property located nearby is adjusted by the differences in the most significant features of such property, such as, size and condition. The most relevant data included in this method is the price per square meter.

The following table details the models used for each segment:

CGU
     06.30.15       06.30.14  
Operating Shopping Center Properties
  
Capitalization
    
Capitalization
  
Shopping Center Properties (Concession)
  
Discounted cash flows
    
Discounted cash flows
  
Offices and other rental properties
  
Comparable market data
    
Comparable market data
  
International
     -    
Discounted cash flows
  
Sales and developments
  
Comparable market data
    
Comparable market data
  
Agriculture
  
Comparable market data
    
Comparable market data
  

Finally, for the CGUs included in the “Agriculture” business segment, the fair value of farmland is also estimated using the comparative sales method. In these cases, farmland is valued based on its production value, that is, its capacity to produce grains and/or raise cattle, as well as other factors, such as the weather or the geographic location. Farmland is classified in accordance with factors such as texture and quality, yield, topography, rain levels and soil drainage. Based on the factors listed before, different land classifications are assigned to each rural property in order to ascertain its value. Soil classifications quantify factors that contribute to the agricultural capacity of such soil, and range from the most productive to the least productive soil for agricultural activity. A price is assigned per hectare to each type of soil. This price per hectare is based on a quantitative and qualitative analysis which takes into consideration the current yield and productivity of that soil, the potential productivity of the soil based on its best use, the projected gross margin derived from the use of the soil, the rental value obtained from the use of the soil, if applicable, and the existence of comparable farmland of similar characteristics in the same topographic area. The results obtained as a result of the description above are compared to actual sale prices, if available, and the market current conditions, in order to ensure that such values are correct, consistent and fair.

 

 
F-110
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.  
Critical accounting estimates, assumptions and judgments (Continued)

Management believes these assumptions are conservative and that any reasonable change in them would not increase the book value of the CGUs so as to exceed its recoverable value.

(c) Biological assets and agricultural produce at the point of harvest

The Group measures biological assets that have attained significant biological growth and agricultural produce at the point of harvest at fair value less costs to sell. Biological assets include mainly unharvested crops, beef and dairy cattle, sheep and sugarcane plantations. The agricultural produce includes harvested crop, raw meat, raw milk, wool and others.

Crops and oilseeds

The Group’s crops generally include crops and oilseeds (corn, wheat, soybean and sunflower) as well as peanut. The Group measures biological assets that have attained significant biological growth at fair value less costs to sell. The Group measures biological assets that have not attained significant biological growth or when the impact of biological transformation on price is not expected to be material, at cost less any impairment losses, which approximates fair value.

The following table shows the stages and average periods where the Group´s crops have a significant biological growth, based on agronomical studies and other inputs:

Argentina

Crops
Total days (planting/harvest)
  
Average days
(planting/harvest)
  
Significant Biological Growth
Total days (planting/significant growth)
  
Average days (planting/significant growth)
  
Wheat
From 150 to 180
     165  
7 (milk grain stage)
From 110 to 140
     125  
Corn
From 150 to 180
     165  
R3 (milk grain stage)
From 80 to 110
     95  
Soybeans
From 120 to 160
     140  
R5 (Start of seed filling at node)
From 75 to 90
     82.5  
Sunflowers
From 120 to 150
     135  
R6 (end of flowering stage)
From 80 to 100
     90  
Peanut
From 180 to 270
     240  
R5 (Start of seed filling at node)
From 90 to 100
     95  
Cotton
From 130 to 180
     155  
3 (end of flowering stage)
From 90 to 120
     105  

 

 
F-111
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


5.
Critical accounting estimates, assumptions and judgments (Continued)

Bolivia

Crops
Total days (planting/harvest)
  
Average days
(planting/harvest)
  
Significant Biological Growth
Total days (planting/significant growth)
  
Average days (planting/significant growth)
  
Wheat
From 100 to 112
     106  
7 (milk grain stage)
From 80 to 90
     85  
Corn
From 130 to 140
     130  
R3 (milk grain stage)
From 88 to 96
     92  
Sorghum
From 110 to 130
     120  
7 (milk grain stage)
From 80 to 90
     85  
Soybeans
From 110 to 120
     117  
R5 (start of seed filling)
From 75 to 85
     80  
Sunflowers
From 105 to 115
     110  
R6 (end of flowering stage)
From 75 to 85
     80  

Brazil

Crops
Total days (planting/harvest)
  
Average days
(planting/harvest)
  
Significant Biological Growth
Total days (planting/significant growth)
  
Average days (planting/significant growth)
  
Corn
From 125 to 150
     137.5  
R3 (milk grain stage)
From 88 to 96
     92  
Soybeans
From 100 to 140
     120  
R5 (start of seed filling)
From 75 to 90
     82.5  

The Group’s fiscal year begins on July 1 and ends the following June 30 of the following year. However, production is based on the harvest year of each one of these crops. The harvest year varies according to the crop, the type or variety of hybrid and the climate where they are grown. The planting period for a given plant may start earlier on one farm than on another, causing differences in their respective harvesting periods.

The following table shows the production process for each of Group’s most significant crops and oilseeds, reflecting the average periods at which each stage of production occurs:

Argentina

Crops
Planting
Harvesting
Sell
Soybeans
Between September and February
Between March and June
From March onwards
Corn
Between August and February
Between March and September
From March onwards
Wheat
Between May and July
Between October and January
From October onwards
Sunflowers
Between August and December
Between December and May
From December onwards
Peanut
Between September and October
Between April and July
From April  onwards
Cotton
Between November and December
Between July and August
From July onwards


 

 
F-112
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

Bolivia

Crops
Planting
Harvesting
Sell
Summer Soybeans
Between November and December
Between March and May
From April to June
Winter Soybeans
Between June and July
Between October and November
From October to December
Winter corn
April
September
From September to December
Winter sorghum
March
July
From August to December
Wheat
Between April and May
Between August and September
From August to December
Sunflowers
April
Between August and September
From August to December
Corn / Summer Sorghum
Between October and November
Between March and April
From April to June/July

Brazil

Crops
Planting
Harvesting
Sell
Soybeans
Between October and December
Between February and May
From February onwards
Corn
Between October and November
Between March and May
From March  onwards
Corn (2)
Between February and March
Between June and July
From June onwards

Sugarcane

The Group’s sugarcane production is based in Brazil and to a lesser extent in Bolivia. This crop’s production requires specific weather conditions (tropical and subtropical climates) because it is a perennial and long-term crop with an average life cycle of five years. Each sugarcane planting generally yields five harvests. Once the production life cycle is over, crop renewal is brought about. Sugarcane planting is done between January and April each year, while harvesting and subsequent sale take place between April and November each year. The Group recognizes these crops at a fair value net of costs of sales from the moment of planting.

The following table shows the production process for each of Group’s sugarcane, reflecting the average periods at which each stage of production occurs.

Bolivia

Crops
Planting
Harvesting
Sell
Sugarcane
Between April and June
Between July and November
From July onwards

Brazil

Crops
Planting
Harvesting
Sell
Sugarcane
Between January and April
Between April and November
From April and November

 

 
F-113
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

Other biological assets:

The mares and sheep are measured at fair value less costs to sell at birth or acquisition date, accordingly.

Fair value of biological assets:

When an active market exists for biological assets, the Group uses the quoted market price in the principal market as a basis to determine the fair value of its biological. Live cattle is measured at fair value less selling costs, based on market quoted at an auction involving cattle of the same age, breed and genetic merit adjusted, if applicable, to reflect any difference. When there is no active market or market-determined prices are not available, (for example, unharvested crops with significant growth), the Group determines the fair value of a biological asset in its present location and condition based on the present value of expected net cash flows from the biological asset discount (“DCF”). The DCF model requires the input of highly subjective assumptions including observable and unobservable data. Generally the estimation of the fair value of biological assets is based on models or inputs that are not observable in the market and the use of unobservable inputs is significant to the overall valuation of the assets. Key assumptions utilized in the DCF method include future market prices, estimated yields at the point of harvest and estimated future costs of harvesting and other costs.

Market prices are generally determined by reference to observable data in the principal market for the agricultural produce. Harvesting costs and other costs are estimated based on historical and statistical data. Yields are estimated based on several factors including the location of the farmland and soil type, environmental conditions, infrastructure and other restrictions and growth at the time of measurement. Yields are subject to a high degree of uncertainty and may be affected by several factors out of the Group’s control including but not limited to extreme or unusual weather conditions, plagues and other crop diseases.

The key assumptions discussed above are highly sensitive. Reasonable shifts in assumptions including but not limited to increases or decreases in prices, costs and discount factors used may result in a significant increase or decrease to the fair value of biological assets recognized at any given time. Cash flows are projected based on estimated production. Estimates of production in themselves are dependent on various assumptions, in addition to those described above, including but not limited to several factors such as location, environmental conditions and other restrictions. Changes in these estimates could materially impact on estimated production, and could therefore affect estimates of future cash flows used in the assessment of fair value. (The valuation models and their assumptions are reviewed periodically, and, if necessary, adjusted).

 

 
F-114
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

As of June 30 of each year, the Group’s biological assets that are subject to a valuation model include unharvested crops and sugarcane plantations. The sensitivity analysis included below is divided among countries due to the existing differences between the different markets in which it operates.

Argentina

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated market prices, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops of Ps. 16.6 million, Ps. 26.2 million and Ps. 7.4 million, respectively. An increase of 10% in estimated market prices, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

As of June 30, 2015, 2014 and 2013, an increase of 10% in estimated costs, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops of Ps. 11.4 million, Ps. 14 million and Ps. 3.6 million, respectively. A decrease of 10% in estimated costs, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated yield, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops of Ps. 8.4 million, 18.5 million and Ps. 5.8 million, respectively. An increase of 10% in estimated yields, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

Brazil

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated market prices, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops and sugarcane plantations of Ps. 11.7 million, Ps. 6.7 million and Ps. 21.6 million, respectively. An increase of 1% in estimated market prices, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops and sugarcane plantations.

 

 
F-115
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

As of June 30, 2015, 2014 and 2013, an increase of 10% in estimated costs, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops of Ps. 31.0 million, Ps. 24.8 million and Ps. 15.6 million, respectively. A decrease of 1% in estimated costs, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated yields, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops and sugarcane plantations of Ps. 21.3 million, Ps. 23.5 million and Ps. 15.6 million, respectively. An increase of 1% in estimated yield, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

Bolivia

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated market prices, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops and sugarcane plantations of Ps. 7.8 million, Ps. 6.0 million and Ps. 5.4 million, respectively. An increase of 10% in estimated market prices, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

As of June 30, 2015, 2014 and 2013, an increase of 10% in estimated costs, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops and sugarcane plantations of Ps. 5.1 million, Ps. 3.7 million and Ps. 3.0 million, respectively. A decrease of 10% in estimated market price, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

As of June 30, 2015, 2014 and 2013, a decrease of 10% in estimated yield, with all other variables held constant, would result in a decrease in the fair value less cost to sell of the unharvested crops and sugarcane plantations of Ps. 4.6 million, Ps. 3.7 million and Ps. 3.4 million, respectively. An increase of 10% in estimated yield, with all other variables held constant, would result in a same and opposed effect at the fair value less costs to sell of unharvested crops.

 

 
F-116
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

(d) Trading properties

Trading properties include land and work in progress in respect of development sites with a view to sale. Trading properties are carried at the lower between cost and net realizable value. On each development, judgment is required to assess whether the cost of land and any associated construction work in progress is in excess of its net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs to completion and estimated selling costs.

The estimation of the net realizable value of the Group’s trading properties under development, is inherently subjective due to a number of factors, including their complexity, unusually large size, the substantial expenditure required and long timescales to completion. In addition, as a result of these timescales to completion, the plans associated with these developments could be subject to significant variation. As a result, the net realizable values of the Group’s trading properties are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate.

If actual results differ from the assumptions upon which the external valuer has based its valuation, this may have an impact on the net realizable value of the Group’s trading properties, which would in turn have an effect on the Group’s financial condition.

(e) Fair value of derivatives and other financial instruments

Fair values of derivative financial instruments are computed with reference to quoted market prices on trade exchanges, when available. The fair values of financial instruments that are not traded in an active market are determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at statement of financial position.

(f) Allowance for doubtful accounts

As described on Note 2.18, the Group makes some estimation in order to calculate the provision for doubtful accounts. If the amount estimated differs to the present value, actual write-offs would be more/less than expected.

 

 
F-117
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



5.
Critical accounting estimates, assumptions and judgments (Continued)

(g) Income taxes

The Group is subject to income taxes in different jurisdictions. Significant judgment is required in determining the overall provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

The Group assesses the realizability of deferred tax assets, by considering whether it is probable that some portion or all of the deferred tax assets will not be realized. In order to make this assessment, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. See Note 28 for details.

6.  
Segment information

IFRS 8 requires an entity to report financial and descriptive information about its reportable segments, which are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”). Such function is carried out by the Group’s Executive Committee in deciding how to allocate resources and in assessing performance, without prejudice of the powers and responsibilities of the management body, that is to say, the Board of Directors. CODM evaluates the business based on the differences in the nature of its products, operations and risks. The amount reported for each segment item is the measure reported to the CODM for these purposes. In turn, the Board of Directors’ management is assessed by the Shareholders’ Meeting, which is the governance body.

Operating segments identified are disclosed as reportable segments if they meet any of the following quantitative thresholds:

·  
The operating segment’s reported revenue, including both sales to external customers and inter-segment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments;

 

 
F-118
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

·  
The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:

o  
the combined reported profit of all operating segments that do not report a loss; and

o  
the combined reported loss of all operating segments that report a loss.

·  
Its assets are 10% or more of the combined assets of all operating segments.

As well as this, the operating segments that do not meet any of the quantitative thresholds can be considered as reportable segments if the management estimates that this information could be useful for the users of the financial statements.

If, after determining reportable segments in accordance with the preceding quantitative thresholds, the total external revenue attributable to those segments amounts to less than 75% of the total Group’s consolidated external revenue, additional segments are identified as reportable segments, even if they do not meet the thresholds described above, until at least 75% of the Group’s consolidated external revenue is included in reportable segments. Once the 75% of the Group’s consolidated external revenue is included in reportable segments, the remaining operating segments may be aggregated in the "All other segments" column.

Segment information has been prepared and classified according to different types of businesses in which the Group conducts its activities. The Group operates in two businesses areas, namely, Agricultural business and Investment and Development Properties business.

The Group’s Agricultural business is further comprised of eight reportable segments: (the reporting segments of crops, cattle, dairy, sugarcane, agricultural rentals and services and other segments are included within “Agriculture” activities):

·  
The “Crops” Segment consists of planting, harvesting and sale of crops as wheat, corn, soybeans, cotton, and sunflowers. The Group is focused on the long-term performance of the land and seeks to maximize the use of the land through crop rotation; the use of technology and techniques. In this way, the type and quantity of harvested crops change in each agricultural campaign.

 

 
F-119
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)
 
·  
The “Cattle” Segment consists of breeding, purchasing and/ or fattening of free-range beef cattle for sale to meat processors and local livestock auction markets.
 
·  
The “Dairy” Segment consists of breeding and/ or purchasing dairy cows for the production of raw milk for sale to local milk and milk-related products producers.
 
·  
The “Sugarcane” Segment consists of planting, harvesting and sale of sugarcane.
 
·  
The “Agriculture Rentals and Services” Segment consists of services (for example: irrigation) and leasing of the Group’s farms to third parties.
 
·  
The “Land transformation and sales” Segment comprises gains from the disposal and development of farmlands activities.

·  
The “Agro-industrial” Segment consists of feedlot farming and the slaughtering and processing in the meat refrigerating plant. Feedlot farming is distinctive and requires specific care and diets which differ from those provided to free-range cattle. This activity represents a separate operating segment due to the distinctive characteristics of the cattle feedlot system and the industrialized meat processing in the packing plant.
 
·  
The "Other Segments" column consists of the aggregation of the remaining operating segments, which do not meet the quantitative thresholds for disclosure includes the brokerage and sale of inputs activities.

The Group’s Urban Properties and Investments business is further comprised of six operative segments:

· The “Shopping centers Properties” Segment includes results from the commercial exploitation and development of shopping centers. Such results originate mainly from the lease and the delivery of services related to the lease of commercial facilities and other spaces in the Group’s shopping centers.

· The “Office” Segment includes the operating results of the Group’s lease of office space and other rental properties and service revenues related to this activity.

· The “Development and sale of properties” Segment includes the operating results of the sales of undeveloped parcels of land and/or trading properties, as the results related with its development and maintenance. Also included in this segment are the results of the sales of real property intended for rent, sales of hotels and other properties included in the International segment.

 

 
F-120
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

· The “Hotels” Segment includes the operating results of the Group’s hotels principally comprised of room, catering and restaurant revenues.

· The “International” Segment includes the return on investments in subsidiaries and/or associates that mainly operate in the United States in relation to the lease of office buildings and hotels in that country and the return on investment in IDBD at fair value.

· The "Financial operations and others" Segment primarily includes the financial activities carried out by the Group's associates, Banco Hipotecario S.A. and Tarshop S.A. and consumer finance residual financial operations of Apsamedia S.A. (currently merged with IRSA CP). The e-commerce activities conducted through the associate Avenida Inc. are also included until the first quarter of the current fiscal year. This investment began to be considered a financial asset as from the second quarter of this fiscal year.

For ease of presentation, the following table present summarized information for the two lines of business of the Group, i.e. agriculture and Urban Properties and Investments activities. The following tables represent the reportable segments of each of the Group’s lines of business.
 

 

 
F-121
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


 

6.
Segment information (Continued)

Below is a summarized analysis of the lines of business of the Group for the years ended June 30, 2015, 2014 and 2013:

   
Year ended June 30, 2015
  
   
Agricultural business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues                                                                                                         
     2,361,010       2,547,062       4,908,072  
Costs                                                                                                         
     (3,385,675 )     (633,467 )     (4,019,142 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,347,447       -       1,347,447  
Changes in the net realizable value of agricultural produce after harvest
     (34,471 )     -       (34,471 )
Gross Profit                                                                                                         
     288,311       1,913,595       2,201,906  
Gain from disposal of investment properties                                                                                                         
     -       1,150,230       1,150,230  
Gain from disposal of farmlands                                                                                                         
     569,521       -       569,521  
General and administrative expenses                                                                                                         
     (246,470 )     (378,125 )     (624,595 )
Selling expenses                                                                                                         
     (284,830 )     (195,866 )     (480,696 )
Other operating results, net                                                                                                         
     (18,123 )     28,679       10,556  
Profit from operations 
     308,409       2,518,513       2,826,922  
Share of profit / (loss) of associates and joint ventures                                                                                                         
     846       (1,036,256 )     (1,035,410 )
Segment Profit 
     309,255       1,482,257       1,791,512  
Investment properties                                                                                                         
     77,202       3,493,645       3,570,847  
Property, plant and equipment                                                                                                         
     2,078,497       256,891       2,335,388  
Trading properties                                                                                                         
     -       136,084       136,084  
Goodwill                                                                                                         
     8,395       24,440       32,835  
Units to be received under barters                                                                                                         
     -       90,486       90,486  
Biological assets                                                                                                         
     586,847       -       586,847  
Inventories                                                                                                         
     495,919       23,134       519,053  
Interests in associates and joint ventures                                                                                                         
     33,343       2,381,670       2,415,013  
Total segment assets                                                                                                         
     3,280,203       6,406,350       9,686,553  

 

 
F-122
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

   
Year ended June 30, 2014
  
   
Agricultural business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues                                                                                                         
     1,812,108       2,155,760       3,967,868  
Costs                                                                                                         
     (2,617,972 )     (648,279 )     (3,266,251 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,172,739       -       1,172,739  
Changes in the net realizable value of agricultural produce after harvest
     (17,447 )     -       (17,447 )
Gross Profit                                                                                                         
     349,428       1,507,481       1,856,909  
Gain from disposal of investment properties                                                                                                         
     -       230,918       230,918  
Gain from disposal of farmlands                                                                                                         
     91,356       -       91,356  
General and administrative expenses                                                                                                         
     (239,630 )     (300,066 )     (539,696 )
Selling expenses                                                                                                         
     (208,932 )     (150,109 )     (359,041 )
Other operating results, net                                                                                                         
     (29,540 )     (47,922 )     (77,462 )
(Loss) / Profit from operations 
     (37,318 )     1,240,302       1,202,984  
Share of profit / (loss) of associates and joint ventures                                                                                                         
     11,479       (436,766 )     (425,287 )
Segment (Loss) / Profit 
     (25,839 )     803,536       777,697  
Investment properties                                                                                                         
     51,432       3,540,437       3,591,869  
Property, plant and equipment                                                                                                         
     2,417,078       237,860       2,654,938  
Trading properties                                                                                                         
     -       143,059       143,059  
Goodwill                                                                                                         
     10,428       24,784       35,212  
Units to be received under barters                                                                                                         
     -       85,077       85,077  
Assets held for sale                                                                                                         
     -       1,357,866       1,357,866  
Biological assets                                                                                                         
     651,582       -       651,582  
Inventories                                                                                                         
     432,634       17,220       449,854  
Interests in associates and joint ventures                                                                                                         
     37,226       1,966,019       2,003,245  
Total segment assets                                                                                                         
     3,600,380       7,372,322       10,972,702  

 

 
F-123
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

   
Year ended June 30, 2013
  
   
Agricultural
business
(I)
    
Urban properties and investments
(II)
    
Total
  
Revenues                                                                                                         
     1,355,430       1,728,248       3,083,678  
Costs                                                                                                         
     (2,045,779 )     (601,236 )     (2,647,015 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     888,493       -       888,493  
Changes in the net realizable value of agricultural produce after harvest
     11,756       -       11,756  
Gross Profit                                                                                                         
     209,900       1,127,012       1,336,912  
Gain from disposal of investment properties                                                                                                         
     -       177,999       177,999  
Gain from disposal of farmlands                                                                                                         
     149,584       -       149,584  
General and administrative expenses                                                                                                         
     (153,675 )     (198,773 )     (352,448 )
Selling expenses                                                                                                         
     (173,976 )     (117,230 )     (291,206 )
Other operating results, net                                                                                                         
     3,345       92,425       95,770  
Profit from operations 
     35,178       1,081,433       1,116,611  
Share of profit / (loss) of associates and joint ventures                                                                                                         
     9,191       (20,864 )     (11,673 )
Segment Profit 
     44,369       1,060,569       1,104,938  
                         
Investment properties                                                                                                         
     25,317       4,306,984       4,332,301  
Property, plant and equipment                                                                                                         
     1,675,420       231,734       1,907,154  
Trading properties                                                                                                         
     -       129,677       129,677  
Goodwill                                                                                                         
     6,438       75,852       82,290  
Units to be received under barters                                                                                                         
     -       93,225       93,225  
Biological assets                                                                                                         
     402,594       -       402,594  
Inventories                                                                                                         
     239,010       16,428       255,438  
Interests in associates and joint ventures                                                                                                         
     31,223       1,154,830       1,186,053  
Total segment assets                                                                                                         
     2,380,002       6,008,730       8,388,732  

 

 
F-124
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

(I)  
Agriculture line of business:

The following tables present the reportable segments of the agriculture line of business of the Group for the years ended June 30, 2015, 2014 and 2013:

   
June 30, 2015
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business (i)
  
Revenues (i)
     986,717       143,562       71,940       197,828       37,175       1,437,222       -       806,018       117,770       2,361,010  
Costs                                                                      
     (1,795,443 )     (224,556 )     (133,259 )     (368,172 )     (19,201 )     (2,540,631 )     (9,002 )     (739,201 )     (96,841 )     (3,385,675 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     918,319       166,734       74,919       187,475       -       1,347,447       -       -       -       1,347,447  
Changes in the net realizable value of agricultural produce after harvest
     (34,474 )     3       -       -       -       (34,471 )     -       -       -       (34,471 )
Gross Profit / (Loss)
     75,119       85,743       13,600       17,131       17,974       209,567       (9,002 )     66,817       20,929       288,311  
Gain from disposal of farmlands  
     -       -       -       -       -       -       569,521       -       -       569,521  
General and administrative expenses                      
     (159,036 )     (25,753 )     (4,920 )     (19,821 )     (2,140 )     (211,670 )     (2,106 )     (25,334 )     (7,360 )     (246,470 )
Selling expenses                
     (160,378 )     (20,109 )     (3,667 )     (7,770 )     (717 )     (192,641 )     (2,383 )     (77,146 )     (12,660 )     (284,830 )
Other operating results, net    
     (8,636 )     (3,158 )     (773 )     (1,669 )     (336 )     (14,572 )     (4,601 )     (288 )     1,338       (18,123 )
Profit / (Loss) from Operations 
     (252,931 )     36,723       4,240       (12,129 )     14,781       (209,316 )     551,429       (35,951 )     2,247       308,409  
Share of profit of associates            
     845       1       -       -       -       846       -       -       -       846  
Segment Profit / (Loss) 
     (252,086 )     36,724       4,240       (12,129 )     14,781       (208,470 )     551,429       (35,951 )     2,247       309,255  
                                                                                 
Investment properties             
     -       -       -       -       77,202       77,202       -       -       -       77,202  
Property, plant and equipment                 
     1,420,781       187,100       21,951       293,386       28,681       1,951,899       53,522       18,102       54,974       2,078,497  
Goodwill                                                                      
     5,352       -       -       2,400       -       7,752       -       -       643       8,395  
Biological assets    
     57,813       375,357       40,555       113,122       -       586,847       -       -       -       586,847  
Inventories                                                                      
     307,853       58,529       1,010       2,418       -       369,810       -       23,415       102,694       495,919  
Interests in associates     
     30,530       20       -       -       -       30,550       -       -       2,793       33,343  
Total segment assets (ii)  
     1,822,329       621,006       63,516       411,326       105,883       3,024,060       53,522       41,517       161,104       3,280,203  

(i)  
From all of the Group’s revenues corresponding to agricultural business, Ps. 1,668.86 million is originated in Argentina and Ps. 692.15 million in other countries, principally Brazil for Ps. 553.97 million.
(ii)  
From all of the Group’s assets included in the segment corresponding to agricultural business, Ps. 1,378.99 million is located in Argentina and Ps. 1,902.36 million in other countries, principally Brazil for Ps. 1,187.37 million.

 

 
F-125
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

   
June 30, 2014
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business (i)
  
Revenues (i)
     836,822       90,315       53,935       123,851       29,142       1,134,065       -       554,084       123,959       1,812,108  
Costs                                                                      
     (1,540,681 )     (160,660 )     (104,334 )     (206,751 )     (17,374 )     (2,029,800 )     (8,228 )     (479,689 )     (100,255 )     (2,617,972 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     868,351       145,321       62,840       96,227       -       1,172,739       -       -       -       1,172,739  
Changes in the net realizable value of agricultural produce after harvest
     (17,624 )     177       -       -       -       (17,447 )     -       -               (17,447 )
Gross Profit / (Loss)         
     146,868       75,153       12,441       13,327       11,768       259,557       (8,228 )     74,395       23,704       349,428  
Gain from disposal of farmlands                  
     -       -       -       -       -       -       91,356       -       -       91,356  
General and administrative expenses   
     (147,193 )     (27,183 )     (5,746 )     (28,261 )     (2,669 )     (211,052 )     (1,130 )     (16,880 )     (10,568 )     (239,630 )
Selling expenses                  
     (117,829 )     (13,854 )     (2,249 )     (4,871 )     (779 )     (139,582 )     (3,873 )     (54,751 )     (10,726 )     (208,932 )
Other operating results, net                              
     (29,355 )     (1,999 )     (417 )     104       (222 )     (31,889 )     (82 )     (868 )     3,299       (29,540 )
Profit / (Loss) from Operations 
     (147,509 )     32,117       4,029       (19,701 )     8,098       (122,966 )     78,043       1,896       5,709       (37,318 )
Share of profit of associates                               
     11,029       7       -       -       -       11,036       -       -       443       11,479  
Segment Profit / (Loss) 
     (136,480 )     32,124       4,029       (19,701 )     8,098       (111,930 )     78,043       1,896       6,152       (25,839 )
                                                                                 
Investment properties                       
     -       -       -       -       51,432       51,432       -       -       -       51,432  
Property, plant and equipment                 
     1,701,388       158,507       19,451       423,902       9,794       2,313,042       51,534       18,930       33,572       2,417,078  
Goodwill                                                                      
     6,745       -       -       3,025       -       9,770       -       -       658       10,428  
Biological assets                    
     154,630       312,068       37,263       142,873       -       646,834       -       65       4,683       651,582  
Inventories                                                                      
     302,052       28,881       651       1,702       -       333,286       -       25,878       73,470       432,634  
Interests in associates                         
     34,395       23       -       -       -       34,418       -       -       2,808       37,226  
Total segment assets (ii)
     2,199,210       499,479       57,365       571,502       61,226       3,388,782       51,534       44,873       115,191       3,600,380  

(i)  
From all of the Group’s revenues corresponding to agricultural business, Ps. 1,277.62 million is originated in Argentina and Ps. 534.49 million in other countries, principally Brazil for Ps. 415.02 million.
(ii)  
From all of the Group’s assets included in the segment corresponding to agricultural business, Ps. 1,252.06 million is located in Argentina and Ps. 2,348.32 million in other countries, principally Brazil for Ps. 1,727.36 million.

 

 
F-126
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

   
June 30, 2013
  
   
Agriculture
                          
   
Crops
    
Cattle
    
Dairy
    
Sugarcane
    
Agricultural Rental and services
    
Agricultural
Subtotal
    
Land
Transformation
and Sales
    
Agro-industrial
    
Other
segments
    
Total Agricultural business (i)
  
Revenues (i)
     750,376       82,939       38,818       160,259       30,834       1,063,226       -       208,921       83,283       1,355,430  
Costs                                                                  
     (1,227,832 )     (147,290 )     (74,826 )     (302,206 )     (12,052 )     (1,764,206 )     (5,675 )     (204,681 )     (71,217 )     (2,045,779 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     572,081       79,336       40,741       197,317       -       889,475       -       -       (982 )     888,493  
Changes in the net realizable value of agricultural produce after harvest
     11,801       (45 )     -       -       -       11,756       -       -       -       11,756  
Gross Profit / (Loss)
     106,426       14,940       4,733       55,370       18,782       200,251       (5,675 )     4,240       11,084       209,900  
Gain from disposal of farmlands    
     -       -       -       -       -       -       149,584       -       -       149,584  
General and administrative expenses       
     (89,585 )     (13,719 )     (3,125 )     (24,163 )     (4,416 )     (135,008 )     (572 )     (10,986 )     (7,109 )     (153,675 )
Selling expenses          
     (115,923 )     (11,482 )     (1,842 )     (4,006 )     (1,711 )     (134,964 )     (10,628 )     (21,507 )     (6,877 )     (173,976 )
Other operating results, net  
     (11,014 )     (3,545 )     (803 )     (27 )     (1,135 )     (16,524 )     (147 )     (1,305 )     21,321       3,345  
Profit / (Loss) from Operations 
     (110,096 )     (13,806 )     (1,037 )     27,174       11,520       (86,245 )     132,562       (29,558 )     18,419       35,178  
Share of profit of associates                    
     8,117       -       -       -       -       8,117       -       16       1,058       9,191  
Segment Profit / (Loss) 
     (101,979 )     (13,806 )     (1,037 )     27,174       11,520       (78,128 )     132,562       (29,542 )     19,477       44,369  
                                                                                 
Investment properties          
     -       -       -       -       25,317       25,317       -       -       -       25,317  
Property, plant and equipment           
     1,115,211       136,824       21,440       303,283       456       1,577,214       58,026       20,287       19,893       1,675,420  
Goodwill                                                                  
     4,443       -       -       1,995       -       6,438       -       -       -       6,438  
Biological assets  
     56,395       197,136       28,134       111,063       -       392,728       -       66       9,800       402,594  
Inventories                                                                  
     154,730       23,184       433       939       -       179,286       -       10,419       49,305       239,010  
Interests in associates         
     28,858       -       -       -       -       28,858       -       -       2,365       31,223  
Total segment assets (ii)
     1,359,637       357,144       50,007       417,280       25,773       2,209,841       58,026       30,772       81,363       2,380,002  

(i)  
From all of the Group’s revenues corresponding to agricultural business, Ps. 803.9 million is originated in Argentina and Ps. 551.6 million in other countries, principally Brazil for Ps. 453.2 million.
(ii)  
From all of the Group’s assets included in the segment corresponding to agricultural business, Ps. 883.1 million is located in Argentina and Ps. 1,496.9 million in other countries, principally Brazil for Ps. 1,190.1 million.

 

 
F-127
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

6.
Segment information (Continued)

(ii)  
Urban properties and investments

The following tables present the reportable segments of the Urban Properties and Investments line of business of the Group for the years ended June 30, 2015, 2014 and 2013:

   
June 30, 2015
  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operations
and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,778,310       332,728       13,707       396,297       25,873       147       2,547,062  
Costs
     (291,183 )     (36,368 )     (19,457 )     (278,672 )     (7,121 )     (666 )     (633,467 )
Gross Profit / (Loss)
     1,487,127       296,360       (5,750 )     117,625       18,752       (519 )     1,913,595  
Gain from disposal of investment properties
     -       -       1,150,230       -       -       -       1,150,230  
General and administrative expenses
     (136,151 )     (58,971 )     (49,690 )     (77,567 )     (55,746 )     -       (378,125 )
Selling expenses
     (112,825 )     (21,130 )     (9,146 )     (52,386 )     -       (379 )     (195,866 )
Other operating results, net
     (48,810 )     (117,610 )     13,093       (461 )     184,886       (2,419 )     28,679  
Profit / (Loss) from Operations
     1,189,341       98,649       1,098,737       (12,789 )     147,892       (3,317 )     2,518,513  
Share of profit / (loss) of associates and joint ventures
     -       (2,570 )     (1,712 )     1,254       (1,191,116 )     157,888       (1,036,256 )
Segment Profit / (Loss)
     1,189,341       96,079       1,097,025       (11,535 )     (1,043,224 )     154,571       1,482,257  
                                                         
Investment properties
     2,320,845       978,125       187,824       -       -       6,851       3,493,645  
Property, plant and equipment
     48,345       30,599       1,242       175,386       1,319       -       256,891  
Trading properties
     1,484       -       134,600       -       -       -       136,084  
Goodwill
     13,719       6,180       4,541       -       -       -       24,440  
Units to be received under barters
     -       -       90,486       -       -       -       90,486  
Inventories
     15,711       -       497       6,926       -       -       23,134  
Investments in associates and joint ventures
     -       20,746       46,555       -       909,911       1,404,458       2,381,670  
Total segment assets (ii)
     2,400,104       1,035,650       465,745       182,312       911,230       1,411,309       6,406,350  

(i)  
From all of the Group’s revenues corresponding to urban properties and investment business, Ps. 2,522 million is originated in Argentina and Ps. 26 million in United States.
(ii)  
From all of the Group’s assets included in urban properties and investment business, Ps. 5,389 million is located in Argentina and Ps. 1,639 million in other countries, principally in Israel for Ps. 907 and Uruguay for Ps. 106 million, respectively.

 

 
F-128
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

   
June 30, 2014
  
   
Shopping Center Properties
    
Offices
    
Sales and developments
    
Hotels
    
International
    
Financial operations
and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,383,008       271,159       85,531       331,562       83,926       574       2,155,760  
Costs
     (296,688 )     (45,367 )     (34,963 )     (216,768 )     (53,510 )     (983 )     (648,279 )
Gross Profit / (Loss)
     1,086,320       225,792       50,568       114,794       30,416       (409 )     1,507,481  
Gain from disposal of investment properties
     (82 )     -       231,000       -       -       -       230,918  
General and administrative expenses
     (101,538 )     (41,945 )     (37,466 )     (59,585 )     (59,476 )     (56 )     (300,066 )
Selling expenses
     (73,427 )     (20,751 )     (13,706 )     (42,335 )     -       110       (150,109 )
Other operating results, net
     (46,568 )     (3,060 )     8,137       (2,680 )     (895 )     (2,856 )     (47,922 )
Profit / (Loss) from Operations
     864,705       160,036       238,533       10,194       (29,955 )     (3,211 )     1,240,302  
Share of profit / (loss) of associates and joint ventures
     -       (895 )     6,368       789       (616,313 )     173,285       (436,766 )
Segment Profit / (Loss)
     864,705       159,141       244,901       10,983       (646,268 )     170,074       803,536  
                                                         
Investment properties
     2,275,053       834,480       423,442       -       -       7,462       3,540,437  
Property, plant and equipment
     20,455       36,415       3,744       175,745       1,501       -       237,860  
Trading properties
     1,484       -       141,575       -       -       -       143,059  
Goodwill
     8,582       11,661       4,541       -       -       -       24,784  
Units to be received under barters
     -       -       85,077       -       -       -       85,077  
Assets held for sale (iii)
     -       -       -       -       1,357,866       -       1,357,866  
Inventories
     10,625       -       584       6,011       -       -       17,220  
Investments in associates and joint ventures
     -       23,208       38,289       22,129       628,658       1,253,735       1,966,019  
Total segment assets (ii)
     2,316,199       905,764       697,252       203,885       1,988,025       1,261,197       7,372,322  

(i)  
From all of the Group’s revenues corresponding to urban properties and investment business, Ps. 2,072 million is originated in Argentina and Ps. 84 million in United States.
(ii)  
From all of the Group’s assets included in urban properties and investment business, Ps. 5,273 million is located in Argentina and Ps. 2,099 million in other countries, principally in United States for Ps. 1,988 million.
(iii)  
See Note 44 for details.

 

 
F-129
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

   
June 30, 2013
  
   
Shopping Center Properties
    
Offices
   
Sales and developments
    
Hotels
    
International
    
Financial operation and others
    
Total Urban Properties and Investments
  
Revenues (i)
     1,103,044       217,171       141,996       225,836       38,998       1,203       1,728,248  
Costs                                                                      
     (245,528 )     (46,975 )     (106,558 )     (169,071 )     (31,587 )     (1,517 )     (601,236 )
Gross Profit / (Loss)
     857,516       170,196       35,438       56,765       7,411       (314 )     1,127,012  
Gain from disposal of investment properties
     -       -       177,999       -       -       -       177,999  
General and administrative expenses    
     (67,597 )     (34,984 )     (32,901 )     (49,883 )     (13,158 )     (250 )     (198,773 )
Selling expenses         
     (58,907 )     (11,360 )     (16,456 )     (28,919 )     -       (1,588 )     (117,230 )
Other operating results, net 
     (45,020 )     (247 )     6,342       (369 )     135,082       (3,363 )     92,425  
Profit / (Loss) from Operations                    
     685,992       123,605       170,422       (22,406 )     129,335       (5,515 )     1,081,433  
Share of profit / (loss) of associates and joint ventures
     -       (2,514 )     1,569       83       (82,552 )     62,550       (20,864 )
Segment Profit / (Loss)        
     685,992       121,091       171,991       (22,323 )     46,783       57,035       1,060,569  
                                                         
Investment properties        
     2,249,180       857,782       447,363       -       744,587       8,072       4,306,984  
Property, plant and equipment                
     17,385       29,830       3,972       180,348       199       -       231,734  
Trading properties             
     1,484       106       128,087       -       -       -       129,677  
Goodwill                                                                      
     8,582       11,661       4,540       -       51,069       -       75,852  
Units to be received under barters            
     -       -       93,225       -       -       -       93,225  
Inventories                                                                      
     10,003       -       463       5,962       -       -       16,428  
Investments in associates and joint ventures
     -       23,385       32,759       21,339       802       1,076,545       1,154,830  
Total segment assets (ii)
     2,286,634       922,764       710,409       207,649       796,657       1,084,617       6,008,730  

(i)  
From all of the Group’s revenues corresponding to urban properties and investment business, Ps. 1,689 million is originated in Argentina and Ps. 39 million in United States, respectively.
(ii)  
From all of the Group’s assets included in the urban properties and investment business, Ps. 5,131 million is located in Argentina and Ps. 877 million in other countries, principally in United States for Ps. 797 million.

 

 
F-130
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

Concerning agricultural business, cattle, dairy cattle and agroindustrial activities are mainly concentrated in Argentina. The crop activities of the Group are primarily concentrated in Argentina, Brazil, Bolivia and Paraguay, while sugar cane production is developed in Brazil and Bolivia.

The shopping center properties of the Group are all located in Argentina, the country of domicile of the Group. Substantially, offices and other rental properties of the Group are located in Argentina. Properties of the Group located in the United States, are disclosed in column "International". Hotels of the Group are located in Argentina and the United States. The trading properties of the Group are also located in Argentina and Uruguay.

During the fiscal years ended as of June 30, 2015, 2014 and 2013, the “Office and other rental properties” segment revenues include Ps. 52,693, Ps. 44,067 and Ps. 34,229, which represent 16% of the segment total revenues in the three fiscal years and correspond to a particular tenant.

In the last quarter of the fiscal year, the Group has changed the presentation of the income statement which is reviewed by the CODM for purposes of assigning resources and assessing performance for the fiscal year for a better alignment with the current business vision and the metrics used to such end. These amendments affected the shopping centers and office segments. The information examined by the CODM does not include the amounts pertaining to income from building administration expenses and collective promotion funds (“FPC”, as per its Spanish acronym) from the income statement, and so does it exclude total recovered costs, as they are not analyzed to assess the operating performance of the segment. The CODM examines the net amount from these items (total surplus or deficit between building administration expenses and collective promotion funds and recoverable expenses). These costs and income are presented now for reconciliation of all segments and their respective consolidating operating income. The amounts corresponding to prior fiscal years have been retroactively adjusted to reflect these changes in segment information.

In addition, in the last quarter of the fiscal year, the Group has modified how it presents the gain/loss on the sale of investment property in segment information, which is revised by CODM. The information revised by CODM includes the gain/loss on the sale of investment properties within sales and development segment, regardless of the segment where the property would have been originally located. These modifications affected the segments of sales and development and international. Considering that in the comparative periods presented there were not sales of investment properties in the international segment, it was not necessary to retroactively adjust the amounts pertaining to prior fiscal years. 

 

 
F-131
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

The CODM regularly reviews the following categories of assets: investment properties; property, plant and equipment; trading properties; goodwill; rights to receive future units under barter agreements; inventories; biological assets; investments in associates; and the investment in the Entertainment Holding S.A. joint venture. The aggregate of these assets are disclosed in these financial statements as “operating segment assets”. The measurement principles for the operating segment assets are based on the IFRS principles adopted in the preparation of the consolidated financial statements, except for the Group’s share of assets of the joint ventures Cresca S.A., CYRSA S.A., Nuevo Puerto Santa Fe S.A., Puerto Retiro S.A., Baicom Networks S.A., and Quality Invest S.A., which are all reported to the CODM under the proportionate consolidation method. Under this method, each of the operating segment assets reported to the CODM includes the proportionate share of the Group in the same operating assets of these joint ventures. As an example, the investment properties amount reported to the CODM includes (i) the investment property balance as per the statement of financial position plus (ii) the Group’s share of the investment properties of these joint ventures. Under IFRS 11, the investment properties of these joint ventures are included together with all other of the joint ventures’ net assets in the single line item titled “Investments in associates and joint ventures” in the statement of financial position.

The CODM evaluates performance of business segments based on segment profit, defined as profit or loss from operations before financing and taxes. The measurement principles for the Group’s segment reporting structure are based on the IFRS principles adopted in the Consolidated Financial Statements, except for the Group’s share of profit or loss of joint ventures.

At the time of assessing the performance of business segments and deciding upon the allocation of resources, the Executive Committee uses information on operating income assets and liabilities of each such segment In the Consolidated Financial Statements, the transactions and balances between related parties which may affect more than one segment are eliminated.

Goods and services exchanged between segments are calculated on the basis of market prices. Intercompany transactions between segments, if any, are eliminated.


 

 
F-132
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


 

 
6.
Segment information (Continued)
 
The following tables present a reconciliation between the total results of segment operations and the results of operations as per the income statements. The adjustments relate to the presentation of the results of operations of joint ventures accounted for under the equity method under IFRS.

   
June 30, 2015
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Expenses and collective promotion fund
    
Total Income Statements
  
Revenues
     4,908,072       (53,473 )     (90,002 )     887,208       5,651,805  
Costs
     (4,019,142 )     62,335       88,375       (901,283 )     (4,769,715 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,347,447       (23,295 )     -       -       1,324,152  
Changes in the net realizable value of agricultural produce after harvest
     (34,471 )     -       -       -       (34,471 )
Gross Profit / (Loss)
     2,201,906       (14,433 )     (1,627 )     (14,075 )     2,171,771  
Gain from disposal of investment properties
     1,150,230       -       -       -       1,150,230  
Gain from disposal of farmlands
     569,521       (19,059 )     -       -       550,462  
General and administrative expenses
     (624,595 )     4,173       2,602       -       (617,820 )
Selling expenses
     (480,696 )     6,217       321       -       (474,158 )
Other operating results, net
     10,556       2,949       (1,296 )     -       12,209  
Profit from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     2,826,922       (20,153 )     -       (14,075 )     2,792,694  
Share of profit / (loss) of associates and joint ventures
     (1,035,410 )     10,438       -       -       (1,024,972 )
Profit from operations before Financing and Taxes
     1,791,512       (9,715 )     -       (14,075 )     1,767,722  


 
F-133
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


6.
Segment information (Continued)

   
June 30, 2014
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Expenses and collective promotion fund
    
Total
Income Statements
  
Revenues
     3,967,868       (62,085 )     (38,074 )     736,302       4,604,011  
Costs
     (3,266,251 )     58,857       36,505       (743,703 )     (3,914,592 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     1,172,739       (20,086 )     -       -       1,152,653  
Changes in the net realizable value of agricultural produce after harvest
     (17,447 )     -       -       -       (17,447 )
Gross Profit / (Loss)
     1,856,909       (23,314 )     (1,569 )     (7,401 )     1,824,625  
Gain from disposal of investment properties
     230,918       -       -       -       230,918  
Gain from disposal of farmlands
     91,356       -       -       -       91,356  
General and administrative expenses
     (539,696 )     3,423       2,334       -       (533,939 )
Selling expenses
     (359,041 )     5,949       366       -       (352,726 )
Other operating results, net
     (77,462 )     3,585       (1,131 )     -       (75,008 )
Profit / (Loss) from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     1,202,984       (10,357 )     -       (7,401 )     1,185,226  
Share of (loss) / profit of associates and joint ventures
     (425,287 )     16,636       -       -       (408,651 )
Profit / (Loss) from operations before Financing and Taxes
     777,697       6,279       -       (7,401 )     776,575  

   
June 30, 2013
  
   
Total
segment information
    
Adjustment for share of profit / (loss) of joint ventures
    
Adjustment to income for elimination of inter-segment transactions
    
Expenses and collective promotion fund
    
Total Income Statements
  
Revenues
     3,083,678       (137,889 )     (11,528 )     594,290       3,528,551  
Costs
     (2,647,015 )     116,004       10,296       (599,780 )     (3,120,495 )
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     888,493       (1,749 )     -       -       886,744  
Changes in the net realizable value of agricultural produce after harvest
     11,756       -       -       -       11,756  
Gross Profit / (Loss)                                                      
     1,336,912       (23,634 )     (1,232 )     (5,490 )     1,306,556  
Gain from disposal of investment properties
     177,999       -       -       -       177,999  
Gain from disposal of farmlands
     149,584       -       -       -       149,584  
General and administrative expenses
     (352,448 )     4,291       1,774       -       (346,383 )
Selling expenses
     (291,206 )     11,631       112       -       (279,463 )
Other operating results, net
     95,770       2,952       (654 )     -       98,068  
Profit / (Loss) from Operations before share of Profit / (Loss) of Associates and Joint Ventures
     1,116,611       (4,760 )     -       (5,490 )     1,106,361  
Share of (loss) / profit of associates and joint ventures
     (11,673 )     1,855       -       -       (9,818 )
Profit / (Loss) from operations before Financing and Taxes
     1,104,938       (2,905 )     -       (5,490 )     1,096,543  

 

 
F-134
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



6.
Segment information (Continued)

Total segment assets are allocated based on the operations of the segment and the physical location of the asset. According to the analysis above, segment assets include the proportionate share of the assets of joint ventures. The statement of financial position under IFRS shows the net investment in these joint ventures as a single item.

The following tables present a reconciliation between total segment assets as per segment information and total assets as per the statement of financial position. Adjustments are mainly related to the filing of certain classes of assets in segment information and to the proportional consolidation of joint ventures mentioned previously.

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Total Operating Assets as per Segment Information
     9,686,553       10,972,702       8,388,732  
Less:
                        
Proportionate share in reportable assets per segment of certain joint ventures (*)
     (478,107 )     (442,360 )     (256,962 )
Plus:
                        
Investments in joint ventures (**)
     357,673       372,034       300,809  
Other non-reportable assets
     5,709,324       4,881,312       3,978,146  
Total Consolidated Assets as per Statement of financial position
     15,275,443       15,783,688       12,410,725  

 
(*) The following amounts related to the proportionate share of operating segment assets of certain of The Group´s  joint ventures are reported as part of the total operating segment assets by segment:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Investment properties
     95,888       137,253       160,900  
Property, plant and equipment
     358,193       272,982       65,700  
Trading properties
     3,130       5,908       20,160  
Goodwill
     5,223       5,235       5,238  
Biological assets
     7,970       10,899       1,902  
Inventories
     7,703       10,083       3,062  
Total proportionate share in assets per segment of joint ventures
     478,107       442,360       256,962  

(**)
Represents the equity-accounted amount of those joint ventures, which were proportionate-consolidated for segment information purposes

 

 
F-135
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



7.  
Information about subsidiaries

The Group conducts its business through several operating and holding subsidiaries. See breakdown of Group, their percentage of ownership interest, materiality criteria and other relevant information on the Group’s subsidiaries in Note 2.3.a).

Restrictions, commitments and other matters in respect of subsidiaries

According to the laws of certain of the countries in which the Group operates, 5% of the profit of the year is separated to constitute legal reserves until they reach legal capped amounts (20% of total capital). These legal reserves are not available for dividend distribution and can only be released to absorb losses. The Group’s subsidiaries under this law have not reached the legal limits of these reserves. Dividends distribution of Group’s subsidiaries is on the basis of their separate financial statement.

IRSA

IRSA’s dividends are paid when and if declared by its board of directors and approved by its shareholders’ meeting. In accordance with IRSA’s dividend policy, the amount of dividends that could be declared in each fiscal year shall not exceed the higher of (i) 20% of the aggregate gross revenue from leases and services of its Office and other Rental Properties segment for its most recent fiscal year; and (ii) 20% of the net income as per IRSA’s consolidated income statements for its most recent fiscal year.

However, the amount of dividends payable is subject to the payment restrictions imposed by IRSA’s borrowing agreements (i.e. IRSA NCN due 2017 and IRSA NCN due 2020).

IRSA CP

Distrito Arcos

Injunction order:

In December 2013, the Judicial Branch confirmed an injunction order that suspended the opening of the shopping center on the grounds that it did not have certain governmental permits in the context of two legal proceedings, where a final decision has been rendered for the company.

The plaintiff filed a petition for the continuation of the preliminary injunction by means of an extraordinary appeal of unconstitutionality which was by the lower and appellate courts; consequently, it filed an appeal with the Supreme Court of Justice of the Autonomous City of Buenos Aires, which so far has not rendered a decision.

 

 
F-136
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



7.
Information about subsidiaries (Continued)

Nowadays, the Shopping Center Distrito Arcos is open to the public and operating normally.

Concession Status:

The National State issued Executive Order 1723/2012 whereby several plots of land located in prior rail yards of Palermo, Liniers and Caballito rail stations ceased to be used for rail purposes, in order to be used for development of integral urbanization projects.

In this respect and as part of several measures related to other licensed persons and/or concessionaires, we have notified in the file of proceedings of the corresponding Resolution 170/2014 revoking the Contract for Reformulation of the Concession of Rights of use and Development N° AF000261 issued by the Agencia de Administración de Bienes del Estado (State Assets Administration Office, or AABE as per its Spanish acronym).

It should further be pointed out that such measure:

(i) has not been adopted due to non-compliance of our controlled company;

(ii) to date has not involved the interruption of the commercial development or operation of the shopping center, which continues to operate under normal conditions;

Notwithstanding the foregoing, Arcos del Gourmet S.A. has filed the relevant administrative remedies (appeal) and has also filed a judicial action requesting that the revocation of such concession be overruled.

Furthermore, it has started a so-called “juicio de consignación”, that is an action where the plaintiff deposits with the court sums of money that the defendant refuses to accept. Under this legal action, the company has deposited in due time and form all rental payments under the Contract for Reformulation of the Concession of Rights of Use and Development, which the Company considers to have been unduly revoked.



 

 
F-137
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



7.
Information about subsidiaries (Continued)

Rigby

Rigby has received a statement of proposed audit changes from New York State relating to New York State Real Property Transfer Tax concerning a transfer of shareholdings between shareholders in November 2012 in the amount of US$ 0.4 million including penalties and interes of US$ 0.1 millon. In addition, Rigby has been contacted by New York City regarding a potential adjustment for New York City Real Property Transfer Tax. However, Rigby has not received an assessment from the New York City Deparment of Finance, so it is not clear the nature of the New York City inquiry. IRSA International and Cam Communications II LP (members of Rigby) would be jointly liable under law. Under the agreements in place, however, Rigby might also be liable due to the indemnity granted to Rigby Madison. Rigby had sufficient grounds to believe that it would be resolved in its favor, therefore, no provision had been made in the financial statement for any liabilities that could have aroused. On September 8th, 2015 Rigby has been notified of a favorable resolution by New York State.

Sociedad Anónima Carnes Pampeanas S.A.

As of June 30, 2015, the working capital and shareholders’ equity of Carnes Pampeanas were negative, and they were included in the presumption established in section N° 94 (subsection 5) and section N° 206 of Act N° 19,550. Shareholders agreed to make the capital contributions necessary to meet the Company’s liabilities, clean up the balance sheet and absorb accumulated losses, as described in Note 45.

Information on subsidiaries with material non-controlling interests

As mentioned in Note 2.3.a), the following non-controlling interest are considered significant to the Group:

   
Equity attributable to non-controlling interest
(in millions)
  
Subsidiary
  
June 30, 2015
    
June 30, 2014
  
IRSA                                       
     1,061.5       1,254.3  
Brasilagro                                       
     1,256.8       1,225.0  

The non-controlling interest for the remaining subsidiaries aggregate Ps. 11.7 million and Ps. 9.6 million as of June 30, 2015 and 2014, respectively. None of these subsidiaries have non-controlling interests which are individually considered material to the Group.

 

 
F-138
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



7.
Information about subsidiaries (Continued)

Set out below is the summarized financial information for the subsidiaries that have non-controlling interests that are considered material to the Group:

Summarized statements of financial position

   
IRSA
    
Brasilagro
  
      06.30.15       06.30.14       06.30.15       06.30.14  
Assets
                                
Non-current assets                                            
     7,725,053       6,851,085       1,545,596       2,049,257  
Current assets                                            
     1,904,320       2,959,021       1,319,751       879,255  
Total assets                                            
     9,629,373       9,810,106       2,865,347       2,928,512  
Liabilities
                                
Non-current liabilities                                            
     4,683,493       4,834,086       183,160       239,790  
Current liabilities                                            
     2,687,522       2,419,424       595,441       655,174  
Total liabilities                                            
     7,371,015       7,253,510       778,601       894,964  
Net assets                                            
     2,258,358       2,556,596       2,086,746       2,033,548  

Summarized income statements and statements of comprehensive income

   
IRSA
    
Brasilagro
  
   
June 30,
 2015
    
June 30,
2014
    
June 30,
2013
    
June 30,
 2015
    
June 30,
2014
    
June 30,
2013
  
 
hjyyRevenues
     3,402,629       2,845,176       2,187,180       553,966       415,022       453,191  
Profit / (loss) before income tax
     558,335       (895,884 )     430,055       573,834       (103,791 )     56,506  
Income tax
     (488,266 )     64,267       (132,847 )     (31,737 )     54,518       9,044  
Profit / (loss) for the year
     70,069       (831,617 )     297,208       542,097       (49,273 )     65,550  
Other comprehensive (loss) / income
     (108,097 )     442,844       56,799       -       -       335,625  
Total comprehensive income
     (38,028)       (388,773 )     354,007       542,097       (49,273 )     401,175  
Profit / (loss) attributable to non-controlling interest
     127,429       49,559       66,081       -       -       -  
Dividends paid to non-controlling interest
     -       88,110       62,190       -       -       -  


 

 
F-139
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



7.
Information about subsidiaries (Continued)

Summarized cash flows

   
IRSA
    
Brasilagro
  
   
June 30,
 2015
    
June 30,
2014
    
June 30,
2013
    
June 30,
 2015
    
June 30,
2014
    
June 30,
2013
  
Cash flow from operating activities
                                    
Net cash generated from (used in) operating activities
     833,888       1,021,979       863,373       (48,890 )     67,243       (209,447 )
Cash flow from investing activities
                                                
Net cash used in (generated from) investing activities
     261,333       (917,120 )     (45,892 )     39,134       (34,078 )     243,280  
Cash flow from financing activities
                                                
Net cash (generated from) used in financing activities
     (1,389,685 )     (596,767 )     (306,268 )     (66,513 )     4,947       5,225  
Net (Decrease) Increase in cash and cash equivalents
     (294,464 )     (491,908 )     511,213       (76,269 )     38,112       39,058  
Cash and cash equivalents at beginning of year
     609,907       796,902       259,169       320,349       197,113       151,063  
Foreign exchange gain on cash and cash equivalents
     59,737       304,913       26,520       (22,513 )     85,124       6,992  
Cash and cash equivalents at end of year
     375,180       609,907       796,902       221,567       320,349       197,113  

The information above is the corresponding to balances and transactions before inter-company eliminations.

8.  
Interests in joint ventures

General information

The accounting policy used by the Group to value its interest in joint ventures, materiality criteria and other relevant information concerning these investments are described in Note 2.3 (e).


 

 
F-140
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


 
8.
Interests in joint ventures (Continued)

The table below lists the Group’s investments and the values of interests in joint ventures for the fiscal years ended June 30, 2015, 2014 and 2013:
 
                Value of Group's interest in equity     Group's interest in
 comprehensive income
     % of ownership interest                    
                June 30,     June 30,     June 30,     Last financial statement issued  
 
Name of the entity
 Place of business / Country of incorporation  
Main activity
  
Nature
of the
relationship
    
Common shares 1 vote
      
2015
      
2014
      
2015
      
2014
      
2013
      
2015
      
2014
      
2013
     Share capital (nominal value)     Income (loss) for the year       Shareholders’ Equity  
Quality Invest S.A. (1)
Argentina
Real Estate
(2)
     70,314,342       74,485       65,927       2,055       1,181       (3,056 )     50 %     50 %     50 %     140,629       4,129       146,932  
Nuevo Puerto Santa Fe S.A.
Argentina
Commercial real estate
(3)
     138,750       28,803       26,869       4,559       4,874       2,729       50 %     50 %     50 %     27,750       9,468       47,351  
Canteras Natal Crespo S.A.
Argentina
Real Estate
(4)
     -       -       -       -       -       (870 )     -       -       -       -       -       -  
Cyrsa S.A. (1)
Argentina
Real Estate
(5)
     119,608,531       17,655       154,982       4,522       22,602       15,898       50 %     50 %     50 %     239,217       14,306       35,064  
Puerto Retiro S.A. (1)
Argentina
Real Estate
(6)
     23,067,250       57,696       56,809       (881 )     (1,828 )     (1,434 )     50 %     50 %     50 %     46,135       (1,763 )     33,073  
Baicom Networks S.A.
Argentina
Real Estate
(7)
     4,701,455       2,850       3,566       (714 )     (475 )     (580 )     50 %     50 %     50 %     9,403       (1,431 )     5,148  
Cresca S.A. (1)
Paraguay
Agricultural
(10)
     138,154       176,184       63,881       25,212       1,997       (7,978 )     50 %     50 %     50 %     67,979       (2,051 )     185,095  
Entertainment Holdings S.A.
Argentina
Investment
(8)
     22,395,574       20,736       23,268       (2,632 )     (838 )     (2,516 )     50 %     50 %     50 %     44,791       1,187       41,348  
Entretenimiento Universal S.A.
Argentina
Event organization
and others
(9)
     300       10       (59 )     80       (47 )     -       50 %     50 %     -       12       2,457       764  
                    378,419       395,243       32,201       27,466       2,193                                                  

(1)  
It is deemed material to the Group.
(2)  
Quality Invest S.A. (“Quality”) is a joint venture between the Group and Efesul S.A. and is a company engaged in the operation of the San Martín premises (formerly owned by Nobleza Piccardo S.A.I.C. y F.).
(3)  
Nuevo Puerto Santa Fe S.A. (“NPSF”) is a joint venture of the Group and Grainco S.A, Argentina society. Investment in NPSF includes the right to use and operate a shopping center in the port of the city of Santa Fe, Province of Santa Fe (“La Ribera Shopping”). (Note 3).
(4)  
On June 28, 2013 IRSA sold, assigned and transferred to Euromayor S.A. de Inversiones the 100% of its interest in Canteras Natal Crespo S.A. This represents the 50% of Canteras Natal Crespo S.A.’s share capital (see Note 3).
(5)  
Cyrsa S.A. (“Cyrsa”) is a joint venture between the Group and Cyrela Brazil Realty S.A. Empreendimentos e Participaçoes, a Brazilian corporation, engaged in developing a residential apartment complex known as "Horizons" in the Northern part of Greater Buenos Aires.
(6)  
Puerto Retiro S.A. ("Puerto Retiro") is a joint venture of the Group and Havord Corporation N.V. Puerto Retiro owns a land reserve.
(7)  
Baicom Networks S.A. (“Baicom”) is a joint venture between the Group and Héctor Masoero, Octopus S.A. and Rafael Garfunkel. Baicom owns a land reserve.
(8)  
Entertainment Holdings S.A. is an investment company which principal assets is an indirect interest of 25% in La Rural S.A. (“LRSA”), engaged in the operation of the exhibition grounds in Buenos Aires. See Note 3.
(9)  
Entretenimiento Universal S.A. is a company engaged in event organization, shows and food services. See Note 3.
(10)  
Cresca S.A. is a joint venture between the Company and Carlos Casado S.A. with agriculture operations in Paraguay.


 

 
F-141
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


8.
Interests in joint ventures (Continued)

The shares in these joint ventures are not publicly traded, so they have no listed market price available.

Changes in the Group’s investments in joint ventures for the year ended June 30, 2015 and 2014 are as follows:

   
June 30,
2015
    
June 30,
2014
  
Beginning of the year
     395,243       324,194  
Capital contribution                                                                              
     95,449       43,583  
Capital reduction (iii)
     (110,860 )     -  
Cash dividends (i)
     (33,614 )     -  
Share of profit / (loss)
     5,356       15,742  
Exchange differences
     26,845       11,724  
End of the year (ii)
     378,419       395,243  

(i)  
During the year ended June 30, 2015, the Group cashed dividends from Cyrsa S.A. for an amount of Ps. 31.0 million and from Nuevo Puerto Santa Fe S.A. for an amount of Ps. 2.6 million.
(ii)  
Includes a balance of Ps. (59) reflecting investments in companies with negative equity as of June 30, 2014 which is included in “Provisions” (see Note 24).
(iii)  
During the year ended June 30, 2015, Cyrsa S.A. carried out a distribution to IRSA due to capital reduction in the amount of Ps. 110.9 million.

Restrictions, commitments and other matters in respect of joint ventures

According to the laws of certain of the countries in which the Group operates, 5% of the profit of the year is separated to constitute legal reserves until they reach legal capped amounts (20% of total capital). These legal reserves are not available for dividend distribution and can only be released to absorb losses. The Group’s joint ventures have not reached the legal capped amounts.

Quality Invest

In March 2011, Quality subscribed an agreement of purchase for the property of an industrial plant owned by Nobleza Piccardo S.A.I.C. y F. (hereinafter “Nobleza”) located in San Martin, Province of Buenos Aires. The facilities have the necessary features and scales for multiple uses. The purchase price was agreed on USD 33.0 million. At the same time, Quality subscribed a lease agreement with Nobleza, by means of which Nobleza will rent the property for a maximum term of 3 years. On March 2, 2015, an Agreement Letter has been signed for the completion of lease agreement and restitution of San Martín plant. On April 2011, Quality requested the National Antitrust Commission to issue an advisory opinion on the obligation to notify the operation or not. Later, the Court of Appeals confirmed the CNDC’s decision regarding the obligation to serve notice and consequently, therefore, on February 23, 2012 local Form F1 was filed, which as of the date of these consolidated financial statements is still in process.


 
F-142
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



8.
Interests in joint ventures (Continued)

As authorized by the relevant Ordinance, on January 20, 2015 Quality Invest S.A. entered into an Urbanization Agreement with the Municipality of San Martín which governs several regulatory aspects and sets forth a binding assignment of meters in exchange for cash contributions subject to formalization of certain administrative milestones included in the rezoning process. The Agreement contemplates a monetary compensation to the City Council totaling Ps. 40.0 million, payable in two installments of Ps. 20.0 million each. The first of such installments was actually paid on June 30, 2015, while the second, will be paid within 60 days after the registration of the plan of subdivision parcel in the Department of Geodesy of the Province of Buenos Aires.

Entertainment Holdings S.A.

As noted in Note 3, IRSA CP acquired shares of common stock, representing 50% of Entertainment Holdings S.A. (“EHSA”)’s capital stock and votes and as a consequence IRSA CP holds a jointly indirect interest in LRSA of 25% which operates the fairground Predio Ferial de Buenos Aires.

In connection with the Fairground, as publicly known, in December 2012 the Executive Branch issued Executive Order 2552/12 that annulled an executive order dated 1991 which approved the sale of the Fairground to the SRA; the effect of this new order was to revoke the sale transaction. Subsequent to December 21, 2012, the Executive Branch notified the SRA of said executive order and further ordered that the property be returned to the Federal Government within 30 subsequent days. Then, the SRA issued a press release publicly disclosing the initiation of legal actions. Furthermore, as it has become publicly known, on August 21, 2013, the Supreme Court of Justice rejected the appeal filed by the National State against the interim measure timely requested by the SRA.

Neither has IRSA CP been served notice formally nor is it a party involved in the legal actions brought by the SRA.

Given the potential dimension of the dispute, as it has been known to the public, we estimate that if Executive Order 2552/2012 was found to be unconstitutional, such order shall have no legal effects either in EHSA or in the acquisition by IRSA CP of an equity interest in EHSA. However, if the opposite happen, that is, a court order declaring the nullity of Executive Order 2699/91 could have a real impact on acquired assets. In this scenario, the judicial decision may  render the purchase of the Plot of Land by SRA null and void , and all acts executed by SRA in relation to the Plot of Land, including the right of use currently held by the entity where EHSA has an indirect equity interest, through vehicle entities, would also become null and void.

On June 1, 2015, a ruling was issued in case 4573/2012 Sociedad Rural Argentina vs. National State – Executive Power on Declaratory Action, whereby the injunction staying the effects of Executive Order 2552/12 was lifted.


 

 
F-143
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



8.
Interests in joint ventures (Continued)

On June 2, 2015 the Sociedad Rural Argentina filed a writ of appeals against the ruling indicated above and on that same date the appeal was admitted with staying effects. While a decision on the appeal filed with the Court of Appeals is pending, the motion to lift the injunction filed by the National State will have no effect.

The Court of Appeals may sustain the ruling that has been appealed and then lift the injunction requested by Sociedad Rural Argentina or else revoke the ruling that was appealed and sustain the injunction until a final decision has been rendered.

Notwithstanding the above, to the date we are not aware of any judicial measure petitioned by the owner of the Plot of Land and/or the National Government, or the corresponding appeals or rulings, may have affected the actual use of the Plot of Land.

There are no contingent liabilities relating to the Group’s interest in joint ventures, and there are no contingent liabilities of the joint ventures themselves, different to the mentioned above.

Puerto Retiro S.A.

On April 18, 2000, Puerto Retiro S.A. was notified of a filing made by the National Government, through the Ministry of Defense, to extend the petition in bankruptcy of Inversora Dársena Norte S.A. (Indarsa) to Puerto Retiro. At the request of plaintiff, the bankruptcy court for the Buenos Aires District issued an order restraining the ability of Puerto Retiro to sell or dispose in any manner the land.
 
Indarsa had acquired 90% of the capital stock of Tandanor to a formerly estate owned company in 1991. Tandanor is mainly engaged in ship repairs, which activity was carried out in premises with a surface of 19 hectares located near La Boca and where Syncrolift is currently installed.
 
Indarsa did not comply with the payment of the outstanding price for the acquisition of the stock of Tandanor, and therefore the Ministry of Defense requested the bankruptcy of Indarsa, pursuing to extend the bankruptcy to Puerto Retiro.

The evidence steps of the legal procedures have been completed. Puerto Retiro appealed the precautionary measure, being the same confirmed by the Court on December 14, 2000. The parties have submitted their claims in due time. The file was passed for the judge to issue a pronouncement, the judge issued a decree adjourning the summoning of decisions to pronouncement in the understanding that there exists pre-judgment in respect of the penal cause filed against ex-officers of the Ministry of Defense and ex-directors of the Company. Consequently, the matter will not be solved until there is final judgment in penal jurisdiction.


 

 
F-144
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



8.
Interests in joint ventures (Continued)

Notice has been served upon the commercial court that the criminal cause of action was declared extinguished by operation of the statutes of limitation and that the accused were acquitted. However, this ruling was revoked by the Criminal Cassation Court; an extraordinary remedy was filed, which was denied. Then a grievance remedy was filed with the Argentine Supreme Court, which has not yet decided on the dispute.

The Management and legal advisors of Puerto Retiro estimate that there are legal and technical arguments sufficient to consider that the request for bankruptcy will be denied by the court. However, given the current status of the case, we cannot predict its outcome.

In addition, Tandanor filed a civil action against Puerto Retiro and other accused parties in the criminal case for violation of section 174 subsection 5, under section 173 subsection 7 of Criminal Code. The claim expects that upon invalidation of executive order that approved the bid of Dársena Norte plot of land, Tandanor be reimbursed any other sum of money that it claims to have lost due to the alleged fraudulent purchase-sale transaction of the real property disputed in the case.

Puerto Retiro filed an answer to the complaint in due course in relation to the civil action, and filed some affirmative defenses.  Tandanor requested the intervention of the National State as third party in the proceedings, which was admitted by the Court. In March 2015 both the National State and the plaintiffs answered the motion for affirmative defenses filed by the defendant. To date, no decision has been made regarding such defenses. Until the court rules on the admissibility of such affirmative defenses, we cannot predict the outcome; yet, there are some technical legal arguments that support the company’s position.



 

 
F-145
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


8.
Interests in joint ventures (Continued)

Information about significant joint ventures

Set out below is the summarized financial information for each joint venture of the Group, which is considered material as of June 30, 2015 and 2014:

Summarized statements of financial position

   
June 30, 2015
  
   
Cresca
    
Cyrsa
    
Puerto
Retiro
    
Quality
Invest S.A.
    
Total
  
Assets
                              
Total non-current assets
     543,570       42,512       45,941       150,042       782,065  
Current
                                        
Cash and cash equivalents
     1,380       4,506       -       1       5,887  
Other current assets                                          
     69,204       12,941       597       4,476       87,218  
Total current assets                                          
     70,584       17,447       597       4,477       93,105  
Total assets                                          
     614,154       59,959       46,538       154,519       875,170  
Liabilities
                                        
Non-current
                                        
Financial liabilities (i)                                          
     187,675       1,104       9,133       1,195       199,107  
Other liabilities                                          
     17,281       -       126       368       17,775  
Total non-current liabilities
     204,956       1,104       9,259       1,563       216,882  
Current
                                        
Financial liabilities (i)                                          
     35,887       1,529       3,823       2,045       43,284  
Other liabilities                                          
     18,166       22,262       383       3,978       44,789  
Total current liabilities
     54,053       23,791       4,206       6,023       88,073  
Total liabilities                                          
     259,009       24,895       13,465       7,586       304,955  
Net assets                                          
     355,145       35,064       33,073       146,933       570,215  

   
June 30, 2014
  
   
Cresca
    
Cyrsa
    
Puerto
Retiro
    
Quality
Invest S.A.
    
Total
  
Assets
                              
Total non-current assets
     204,877       286,950       45,484       132,806       670,117  
Current
                                        
Cash and cash equivalents
     3,183       4,144       -       1,572       8,899  
Other current assets                                          
     151,295       44,814       215       902       197,226  
Total current assets                                          
     154,478       48,958       215       2,474       206,125  
Total assets                                          
     359,355       335,908       45,699       135,280       876,242  
Liabilities
                                        
Non-current
                                        
Financial liabilities (i)                                          
     188,771       -       9,006       1,378       199,155  
Other liabilities                                          
     20,799       -       78       299       21,176  
Total non-current liabilities
     209,570       -       9,084       1,677       220,331  
Current
                                        
Financial liabilities (i)                                          
     18,705       -       4,655       63       23,423  
Other liabilities                                          
     543       31,449       662       3,737       36,391  
Total current liabilities
     19,248       31,449       5,317       3,800       59,814  
Total liabilities                                          
     228,818       31,449       14,401       5,477       280,145  
Net assets                                          
     130,537       304,459       31,298       129,803       596,097  
(i)  
Excluding trade and other payables and provisions.

 

 
F-146
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


8.  
Interests in joint ventures (Continued)

Summarized statement of comprehensive income

   
Cresca
    
Cyrsa
    
Puerto Retiro
    
Quality Invest S.A.
    
Total
  
   
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
  
Revenues                              
     52,249       42,879       10,806       46,185       2,199       52       15,920       16,476       81,174       105,592  
Interest income                              
     6,806       -       25,052       66,290       63       134       283       178       32,204       66,602  
Income tax                              
     (4,108 )     (3,786 )     (9,829 )     (25,275 )     (34 )     (187 )     182       1,796       (13,789 )     (27,452 )
(Loss) / Profit for the year
     (3,244 )     (19,266 )     14,306       45,206       (1,763 )     (3,657 )     4,129       2,383       13,428       24,666  
Other comprehensive income / (loss)
     -       -       -       -       -       -       -       -               -  
Total comprehensive (loss) / income for the year
     (3,244 )     (19,266 )     14,306       45,206       (1,763 )     (3,657 )     4,129       2,383       13,428       24,666  
Dividends received
     -       -       30,990       -       -       -       -       -       30,990       -  

The information above reflects the amounts presented in the financial statements of the joint ventures (and not the Group’s share of those amounts) adjusted for differences in accounting policies and fair value adjustments made at the time of the acquisition.

Reconciliation of the summarized financial information presented with regard to the carrying amount of the Group’s interest in material joint ventures is as follows:

   
Cresca
    
Cyrsa
    
Puerto Retiro
    
Quality Invest S.A.
    
Total
  
   
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
    
June 30,
2015
    
June 30,
 2014
  
Net assets at beginning of the year
     130,559       43,288       304,459       259,253       31,298       31,393       129,803       126,420       596,119       460,354  
(Loss) / Profit for the year
     (1,622 )     (19,266 )     14,306       45,206       (1,763 )     (3,657 )     4,129       2,383       15,050       24,666  
Capital reduction                               
     -       -       (221,721 )     -       -       -       -       -       (221,721 )     -  
Release of reserves
     -       -       (15,335 )     -       -       -       -       -       (15,335 )     -  
Dividend distribution
     -       -       (46,645 )     -       -       -       -       -       (46,645 )     -  
Loss absorption                               
     -       -       -       -       3,538       -       -       -       3,538       -  
Exchange gain                               
     52,048       26,013       -       -       -       -       -       -       52,048       26,013  
Irrevocable contributions
     174,160       80,502       -       -       -       3,562       13,001       1,000       187,161       85,064  
Net assets at end of the year
     355,145       130,537       35,064       304,459       33,073       31,298       146,933       129,803       570,215       596,097  
Ownership interest
     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %     50.00 %
Investments in joint ventures
     177,573       65,270       17,532       152,229       16,537       15,649       73,467       64,902       285,109       298,050  
Fair value adjustment on acquisition of joint venture
     (1,389 )     (1,389 )     123       2,753       41,159       41,160       1,018       1,025       40,911       43,549  
Closing net book amount
     176,184       63,881       17,655       154,982       57,696       56,809       74,485       65,927       326,020       341,599  


 

 
F-147
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


9.  
Interests in associates

General information

The accounting policy used by the Group to value its interest in associates, materiality criteria and other relevant information concerning these investments are described in Note 2.3 (d).

 

 
F-148
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


9.
Interests in associates (Continued)

The table below lists the Group’s investments and the values of interests in associates for the fiscal years ended June 30, 2015 and 2014:

                 
Value of Group's interest in equity
    
Group's interest in comprehensive income
    
% of ownership interest
        
                 
June 30,
    
June 30,
    
June 30,
    
Last financial statement issued
  
Name of the entity
Place of business / Country of incorporation
Main
activity
  
Nature
of the
relationship
  
Common shares
1 vote
    
2015
    
2014
    
2015
    
2014
    
2013
    
2015
    
2014
    
2013
    
Share capital
(nominal value)
    
Income / (Loss) for the year
    
Shareholders’ Equity
  
Tarshop
Argentina
Consumer financing
     (1)     26,759,288       32,401       18,861       (8,476 )     (16,348 )     2,601       20 %     20 %     20 %     243,796       (46,377 )     181,271  
New Lipstick LLC
United States
Real State
     (2)     N/A       (344,627 )     (176,923 )     (169,226 )     (154,499 )     (88,706 )     49.73 %     49.80 %     49.87 %     -        (*) (33,111 )     (*) (105,449 )
Rigby
United States
Real State
     (3)     N/A       -       -       -       -       4,414       -       -       -       -       -       -  
Lipstick Management LLC
United States
Management company
     (4)     N/A       2,827       1,739       1,020       900       447       49 %     49 %     49 %     -       (*) (188 )      (*) (630 )
Manibil S.A.
Argentina
Real Estate
     (6)     30,397,880       46,556       38,289       918       6,369       2,329       49 %     49 %     49 %     77,037       1,871       94,992  
Banco de Crédito & Securitización S.A.
Argentina
Financing
     (7)     3,984,375       15,814       13,610       2,205       3,709       1,198       6.38 %     6.38 %     6.38 %     62,500       34,587       248,070  
Banco Hipotecario S.A.
Argentina
Financing
           446,515,208       1,356,242       1,210,168       144,750       187,865       58,744       29.99 %     29.77 %     29.77 %     1,500,000       465,157       4,397,569  
Bitania 26 S.A
Argentina
Real Estate
     (8)     -       -       22,129       1,254       789       84       -       49 %     49 %     -       -       -  
Agro-Uranga S.A.
Argentina
Agricultural
     (9)     893,069       30,550       34,418       846       11,036       8,117       35.72 %     35.72 %     35.72 %     8,512       2,425       54,226  
Agromanagers S.A.
Argentina
Investment
     (10)     981,029       2,793       2,808       -       443       476       46.84 %     46.84 %     46.84 %     2,094       -       4,262  
Condor Hospitality Trust
United States
Hotel
     (11)     1,261,723       (18,304 )     31,577       (49,881 )     15,517       -       26.91 %     26.91 %     -       -       -       4,262  
IDB Development Corporation Ltd.
Israel
Investment
     (12)     324,445,664       907,083       595,342       (918,365 )     (507,363 )     -       48.90 %     26.65 %     -       -       -       -  
Avenida Inc. S.A.
United States
Investment
     (13)     -       -       11,096       19,388       (1,944 )     -       -       24.79 %     -       -       -       -  
                        2,031,335       1,803,114       (975,567 )     (453,526 )     (10,296 )                                                

(1)  
Tarshop S.A. (“Tarshop”) is primarily engaged in credit card and loan origination activities.
(2)  
New Lipstick LLC (“New Lipstick”) net equity comprises a rental office building in New York City known as the “Lipstick Building” with related debt.
(3)  
Rigby 183 LLC (“Rigby”) owns a rental office building located at 183 Madison Avenue, New York, NY. Since December 31, 2012, Rigby began to be reported on a consolidated basis and ceased to be an associate. The building is classified as held for sale as of June 30, 2014. See Note 44.
(4)  
Lipstick Management LLC is engaged in managing the Lipstick Building, an office building for rent located in New York City.
(5)  
BHSA is a full-service commercial bank offering a wide variety of banking activities and related financial services to individuals, small- and medium-sized companies and large corporations.
(6)  
Manibil S.A. is engaged in the development and sale of real estate investment projects in the City of Buenos Aires and its surrounding areas.
  (7)
Banco de Crédito & Securitización S.A. (“BACS”) is a second-tier commercial bank established in 2000 in order to foster asset securitization. The bank also offers products, such as, export financing and pre-financing and purchase of mortgage-backed and personal assets. Its product and service offering is mainly distributed through a network of financial entities. BACS is controlled by BHSA. In addition, the Group directly holds an additional 6.38% interest.
  (8)
The main asset of Bitania 26 S.A. (“Bitania”) is a hotel located in the City of Rosario known as Esplendor Savoy Rosario.
  (9)
Agrouranga S.A. (“Agro-Uranga”) is engaged in agricultural activities.
 (10)
The main asset of Agromanagers S.A. (“Agromanagers”) consists of a shareholding in Brasilagro.
 (11)
Condor Hospitality Trust Inc. is an investment Company engaged in hotels in United States. (See Note 3).
 (12)
The Group acquired IDB on May 7, 2014. IDBD is one of the Israeli biggest and most diversified investment groups. The Group has valued its interest in IDBD at fair value through profit or loss according to an exemption under IAS 28. See Notes 2.3 (d) and 3 for further information. Since interest in IDBD is valued at fair value, participation in financial statements and other comprehensive income statements of IDBD is not shown in the table above.
 (13)
Avenida Inc. is principally engaged in investing activities. As of June 30, 2015, holds 100% of Avenida Compras S.A., a Company engaged in e-commerce activity. As of June 30, 2015, the Group no longer has significant influence in the company (see Note 3).
 
(*)
The amounts are presented in thousands of US dollars.

 

 
F-149
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

Group's interest in IDBD is carried at fair value. The remaining material associates are private companies and there is no quoted market price available for their shares.

Changes in the Group’s investment in associates for the years ended June 30, 2015 and 2014 are as follows:

   
June 30,
2015
    
June 30,
2014
  
Beginning of the year
     1,803,114       1,123,577  
Acquisition of associates
     1,254,306       1,131,806  
Capital contribution
     30,937       16,716  
Share in (losses) / profit
     (29,328 )     92,568  
Exchange differences
     54,761       (29,133 )
Disposal of associates
     (33,769 )     -  
Reclassification to financial instruments
     (30,089 )     -  
Cash dividends (i)
     (17,597 )     (15,459 )
Unrealized loss from investments at fair value
     (1,001,000 )     (516,961 )
End of the year (ii)
     2,031,335       1,803,114  

(i)  
As of June 30, 2015, the Group cashed dividends from Agro-Uranga S.A. and BHSA in the amount of Ps. 4.7 million and Ps. 12.9 million, respectively. During the fiscal year 2014, the Group cash dividends from Agro-Uranga S.A., Manibil S.A. and BHSA in the amount of Ps. 5.5 million, Ps. 9.2 million and Ps. 0.8 million, respectively.
(ii)  
Includes a balance of Ps. (362,931) and Ps. (39,091) reflecting interests in companies with negative equity as of June 30, 2015 and 2014, respectively, which is reclassified to “Provisions” (see Note 24).

Commitments and restrictions in respect of associates

According to the laws of certain of the countries in which the Group operates, 5% of the profit of the year is separated to constitute legal reserves until they reach legal capped amounts (20% of total capital). These legal reserves are not available for dividend distribution and can only be released to absorb losses. The Group’s associates under this law have not reached the legal limits of these reserves.

Tarshop S.A.

Over the past two fiscal years, the BCRA modified certain aspects of the regulatory framework carried out by Tarshop S.A. Based on these changes, our Associate is going through a business reformulation process.

In addition, during October 2014 Banco Hipotecario S.A and IRSA CP approved a gradual capitalization plan to be carried out by shareholders pro rata their holdings; the first tranche of such capitalization has already been made for a total amount of Ps. 110.0 million.

 

 
F-150
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

Non-competition agreement for the sale of the equity interest

Due to the sale assignment and transfer of the 80% of the equity interest in Tarshop to BHSA, made during the fiscal year ended June 30, 2011, the Group committed itself to not competing for 5 years in the credit card and/or consumer loan business in which Tarshop has a presence.

New Lipstick

New Lipstick has a pledge over the shares of its operating subsidiary Metropolitan 885 Third Avenue Leasehold LLC (“Metropolitan”). Metropolitan owns the building known as Lipstick Building in Manhattan.

IDBD
 
       Under the Agreement, Dolphin and ETH agreed to participate on a joint and several basis in the capital increases resolved by IDBD’s Board of Directors in order to carry out its business plan for 2014 and 2015, for at least NIS 300 million in 2014 and NIS 500 million in 2015. As of June 30, 2015, Dolphin has contributed NIS 668.6 million in aggregate and ETH has contributed NIS 203.5 million in IDBD. In this way, Dolphin has completed its committed contributions, while IDBD is claiming from ETH, and jointly and severally to Dolphin, to pay the balance committed by ETH for an aggregate of NIS 196.5 million (equivalent to approximately US$ 52.1 million at the exchange rate prevailing as of June 30, 2015).
 
 
Moreover, as part of the Arrangement, Dolphin and ETH committed jointly and severally to make Tender Offers for the purchase of IDBD’s shares for a total amount of NIS 512.09 million (equivalent to approximately US$ 135.7 million at the exchange rate prevailing as of June 30, 2015), as follows: (i) by December 31, 2015 at least NIS 249.8 million for a price per share of NIS7.798 (value as of June 30, 2015, subject to adjustment) and (ii) by December 31, 2016, for at least NIS 512.09 million, less the offer made in 2015, for a price per share of NIS 8.188 (value as of June 30, 2015, subject to adjustment). As security for the performance of the tender offers, a total of 34,130,119 shares in IDBD were pledged as of June 30, 2015. In addition, as of June 30, 2015, 49,695,135 shares, 23,950,072 Series 4 warrants, 22,752,569 Series 5 warrants and 20,357,561 Series 6 warrants of IDBD held by Dolphin were deposited in the same escrow account in which the pledged shares are deposited, and are expected to be transferred to an account which is not an escrow account. As of the date of issuance of these financial statements, the Tender Offer has not been consummated.
 
 

 
F-151
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)
 
 
On May 12, 2014, IDBD’s shares became listed on the TASE. Consequently, all the shares (including the pledged shares) were deposited in escrow with Bank Leumi Le-Israel as security in compliance with the lock-up provisions set forth in Chapter D of the TASE Regulations, which provide that initially listed shares may not be disposed of for a term of 18 months and allow the release of 2.5% per month beginning on the fourth month since the initial listing date. Consequently, pursuant to the TASE´s regulations as of June 30, 2015 39,237,461 shares and 243,394 Series 3 warrants remained deposited as set forth above (including part of the pledged shares).
 
On December 29, 2014, Dolphin agreed to inject funds in IDBD, directly or through another company controlled by Eduardo S. Elsztain, for at least NIS 256 million and up to NIS 400 million, as follows: (i) NIS 256 million through the exercise of the New Rights arising from the Rights Offering by Dolphin; (ii) an additional investment (the “Additional Investment”) for an amount equivalent to (a) the Maximum Immediate Consideration (as such term is defined in note 3 to these financial statements), less (b) the amount received by IDBD under the Rights Offering, excluding the exercise of the new warrants, but in no case for an amount higher than NIS 144 million. The Additional Investment will be made by Dolphin or a vehicle controlled by Eduardo Sergio Elsztain exercising additional rights to be acquired by them or, if such rights are not acquired, by participating in another rights offering to be made by IDBD. On February 10, 2015, Dolphin subscribed a total of NIS 391.5 million, with a remaining contribution commitment of NIS 8.5 million.
In addition, as set forth in Note 3 to these financial statements, Dolphin committed to (i) exercise the Series 4 warrants for a total amount of NIS 150 million if so requested by IDBD’s Board of Directors within 6 to 12 months of the Rights Offering date; and (ii) exercise the remaining Series 4, 5 and 6 warrants received under the Rights Offering, subject to the satisfaction of two conditions simultaneously: (a) that IDBD and its lenders reach an agreement to amend certain covenants; and (b) that a control permit over Clal is given by the Capital Markets, Insurance and Savings Commissioner of Israel.
 
 
 
F-152
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

 
    On May 6, 2015, Dolphin submitted to IDBD’s Board of Directors the following binding and irrevocable proposal. Following is a summary of the terms of the proposal:
    
        (i) Appointment of Eduardo Sergio Elsztain as single Chairmen of IDBD’s Board of Directors;
(ii)           Dolphin’s commitment (directly or through any vehicle controlled by Eduardo Sergio Elsztain) to accelerate its obligation to exercise the Series 4 warrants for NIS 150 million, and thus IDBD will have the possibility to require their exercise since May 20, 2015 instead of on July 19, 2015, provided that before May 20, 2015 (later it was clarified that this date would be no later than June 2, 2015) IDBD receives a written irrevocable commitment from the representatives of the bondholders to the effect that until July 20, 2015 they will not call a bondholders meeting (unless they are required to do so under the applicable laws) that includes in its agenda any of the following items:

(a) appointment of advisors (financial, legal or otherwise);
(b) appointment of a committee representing IDBD’s bondholders (as defined below);
(c) File legal actions against IDBD; and
(d) Request of an early or immediate payment of any indebtedness of IDBD.

 

 
F-153
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.           Interests in associates (Continued)
 

(iii) IDBD’s Board of Directors should set up a committee composed of two members of IDBD’s monitoring committee and two members of IDBD’s board appointed by Dolphin, which shall have the following duties, subject to the applicable law (later it was clarified that such committee shall not have the authority to make any decisions but rather only to make recommendations to the Board of Directors):

(a) Manage, discuss, negotiate and conclude negotiations with the representatives of IDBD’s bondholders regarding their requests;
(b) Negotiate with IDBD’s financial creditors a new set of covenants for IDBD’s financial indebtedness; and
(c) Devise a business and financial plan for IDBD.

(iv) Dolphin (directly or through any vehicle controlled by Eduardo Sergio Elsztain), promises to submit offers to purchase IDBD in the public phase of the public offering at an amount of up to NIS 100 million at a price per share which is no less than the opening price in the public phase of the public offering and, subject to the following conditions, inter alia:

(a) That IDBD makes a public offering of its shares under terms acceptable to the market and approved by IDBD’s Board of Directors, for an amount of at least NIS 100 million and not to exceed NIS 125 million, and that the offering is made between October 1, 2015 and November 15, 2015.

(b) The commitment assumed by Dolphin would automatically expire upon the occurrence of any of the following events before the day of the public auction under the public offering: (i) if any of IDBD’s creditors or any of the representatives of IDBD’s bondholders files legal actions against IDBD, including a request for early or immediate repayment or acceleration of any portion of IDBD’s debt; (ii) if a meeting of any of IDBD’s bondholders is called including in its agenda any of the matters set forth in paragraph (ii); (iii) if IDBD receives capital contributions for a total amount of NIS 100 million in any manner, whether through a rights offering, the exercise of warrants, a private or public placement, and if such contributions are made by Dolphin directly or through any vehicle controlled by Eduardo Sergio Elsztain (apart from the capital contributions creditable against the remaining NIS 8.5 million obligation under Dolphin’s irrevocable proposal dated December 29, 2014), or by any other individual or legal entity, or the investor public, and at any event when the aggregate amount of such capital contributions under paragraph 5 (d) (iii) of the proposal so submitted is lower than NIS 100 million, Dolphin’s commitment under Section 5 (iv. a) above would be reduced accordingly; or (iv) if a material adverse event or change occurs in IDBD or its control structure or in any of its material affiliates.
 
On May 7, IDBD’s Board of Directors approved the proposal and Eduardo Sergio Elsztain was appointed sole Chairman of IDBD’s Board of Directors.
 

 

 
F-154
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.           Interests in associates (Continued)
 
 
On June 3, 2015, pursuant to the original Dolphin proposal of December 29, 2014, as amended by paragraph (ii) of the proposal dated May 6, 2015, Dolphin exercised 44.2 million Series 4 warrants, while IFISA exercised the remaining Series 4 warrants required to complete the total NIS 150 million commitment. Therefore, the commitment was satisfied as of June 30, 2015.
 
On May 27, 2015, Dolphin submitted to the Arrangement Trustees an alternative proposal to the Tender Offers to be made (the “Tender Offer Alternative Proposal”) which mainly provided as follows:
 
     -       Replacement of the obligation to make Tender Offers in the market for a total of NIS 512 million pursuant to the Arrangement for Dolphin’s obligation to inject in IDBD NIS 512 million in two installments of NIS 256 million against the issuance of Bonds by the company.

  -       The NIS 512 million injected by Dolphin would be against IDBD Bonds for a principal amount of 512 million.

  -       Following the first injection of NIS 256 million, the shares currently pledged in favor of ETH would be assigned to Dolphin, plus 2.1 million additional shares in IDBD owned by ETH.

- After completion of the injection of NIS 512 million, all the shares to be acquired under the Tender Offer would be assigned to Dolphin. In addition, Dolphin would buy all shares and warrants of all remaining series of IDBD for a total amount of NIS 30 million and would inject NIS 20 million in IDBD against the issuance of Bonds for a principal amount of NIS 20 million in favor of the holders of the shares and warrants so purchased.

-       The bonds to be purchased by Dolphin would have the following features (the “Bonds”):

•       The principal amount would be repayable in six annual, equal installments, on December 15, 2022 through 2027.
•       They would have a dividend coupon attached, accruing interest at 4% per annum, payable on a yearly basis.
•       They would be indexed (principal amount and interest) according to the Israeli Price Index.
•       They would not be secured by any collateral and would not have any preference over IDBD’s existing bonds.

-       ETH would be able to participate on a joint and several basis in 50% of this Tender Offer Alternative Proposal.
 
The Tender Offer Alternative Proposal was rejected by the Arrangement Trustees and therefore, it is ineffective as of the date of these financial statements.
 


 

 
F-155
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


9.           Interests in associates (Continued)
 
 
On June 29, 2015, Dolphin submitted an irrevocable proposal to IDBD and DIC (the “Proposal to IDBD and DIC”) which offered that, subject to its approval by the Boards of Directors of both companies, DIC would start as soon as possible a rights offering for up to approximately NIS 500 million (“DIC’s Rights Offering”) (equivalent to US$ 132.5 million at the exchange rate prevailing as of June 30, 2015). Under DIC’s Rights Offering, each shareholder of DIC  would receive, for no consideration, DIC’s right units consisting of 4 series of warrants issued by DIC (which would be registered for trading in the TASE), each of which would be exercisable for one common share of DIC (“DIC’s Warrants”), with the following features:
 

-       DIC’s Warrants would be divided into 4 series, and the exercise price of each of such series would be approximately NIS 125 million, as follows:

•       The first series of warrants would be exercisable until December 21, 2015, for a price to be determined based on acceptable market conditions and after consultation with capital market experts, but in no case for a higher price than NIS 6.53 (“DIC’s 1 Warrants”).
•       The second series of warrants would be exercisable until December 21, 2016, for an exercise price equivalent to 110% of DIC’s 1 Warrants’ exercise price.
•       The third series of warrants would be exercisable until December 21, 2017, for an exercise price of: (i) 110% of DIC’s 1 Warrants’ exercise price, in the event they are exercised before December 21, 2016; or (ii) 120% of DIC’s 1 Warrants’ exercise price if they are exercised between December 21, 2016 and December 21, 2017.
•       The fourth series of warrants would be exercisable until December 21, 2018, for an exercise price of: (i) 110% of DIC’s 1 Warrants’ exercise price, in the event they are exercised before December 21, 2016; or (ii) 130% of DIC’s 1 Warrants’ exercise price if they are exercised between December 21, 2016 and December 21, 2018.

-       As part of DIC’s Rights Offering, IDBD would promise to exercise all DIC’s 1 Warrants issued in favor of IDBD, for a total amount of approximately NIS 92.5 million (“IDBD’s Investment Amount”) by December 21, 2015, provided that the following conditions have been satisfied as of such date:

•       IDBD should have the written consent of IDBD’s main lenders for IDBD to exercise DIC’s 1 Warrants issued in its favor under DIC’s Rights Offering.
•       IDBD should have conducted and completed a Rights Public Offering (as such term is defined below), under which it should have raised an amount of at least NIS 200 million.
•       IDBD should have received the written consent of its main lenders in order for any amount injected as capital in IDBD after the date of such proposal in excess of NIS 100 million and up to NIS 350 million, to be used at any time for injection from IDBD into DIC, through any capital injection method.
•       IDBD´s obligation expires upon the occurrence of any of the events which result in the expiration of Dolphin´s commitment pursuant to the proposal (as described below) or in case of a material adverse event or change occurs in IDBD or its control structure or in any of its material affiliates.


 

 
F-156
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


9.
Interests in associates (Continued)


      In turn, Dolphin proposes the following to IDBD:

 
-       IDBD’s public offering amount under Dolphin’s proposal dated May 6 would be increased by at least NIS 100 million and up to NIS 125 million (the “Rights Public Offering under the Proposal to IDBD and DIC”). In other words, the total amount would be increased from a minimum of NIS 100 million to a minimum of NIS 200 million, and the maximum amount would be increased from a maximum of NIS 125 million to a maximum of NIS 250 million (the “Total Increased Amount”).
-       Therefore, Dolphin’s obligation to participate in the Rights Public Offering under the Proposal to IDBD and DIC would be increased (compared to the proposal dated May 6, 2015) by an amount equal to the difference between the Total Increased Amount and the total amount of commitments received, always provided that such amount were not higher than NIS 200 million (the “Capital Contribution Amount”).
-       The approval of this proposal would constitute IDBD’s confirmation and approval that all of Dolphin’s commitments under this proposal would imply the full and complete settlement of its remaining obligations to inject NIS 8.5 million in IDBD, pursuant to Dolphin’s irrevocable proposal dated December 29, 2014 (provided however that Dolphin shall participate in an amount exceeding NIS 8.5 million).

-       The amount mention in section 5(d)(iii) of the May 6 proposal shall be NIS 200 million. Dolphin’s commitment would automatically expire upon the occurrence of any of the following events: (i) if any of DIC’s creditors or any of the trustees of DIC’s bonds filed any legal action against DIC, including a request for the early repayment or acceleration of any portion of DIC’s debt; and/or (ii) if any meeting of DIC’s bondholders included in its agenda any or many of the following matters: (a) appointment of advisers (financial, legal or otherwise); (b) appointment of a committee of representatives of DIC’s bondholders; (c) filing of any legal action against DIC; and/or (d) requests for early or immediate repayment of any portion of DIC’s debt, or any similar discussion.
 
The Proposal to IDBD and DIC was binding and irrevocable, and it was valid up to July 13, 2015 (later extended to July 16, 2015)and expired on such date if the Boards of Directors of IDBD and DIC did not accept it and approve it unconditionally (in this regard, see note on subsequent events). The Proposal to IDBD and DIC was approved by IDBD’s Board of Directors on July 16, 2015.
 
On July 9 and 16, 2015, Dolphin submitted clarifications on the Proposal to IDBD and DIC. For further information, see note on subsequent events in these financial statements.
 

 
F-157
 

9.
Interests in associates (Continued)

Class Action Claim

 
In June 2015, an application for the court to approve the commencement of a class action (the “Class Action”) was filed by four individuals who were among the creditors of IDBH that were entitled to participate in IDBH’s approved Arrangement and the Rights Offerings made in 2014 and 2015.
 
The Class action was filed before the applicable courts of Israel against IDBD, Dolphin, Eduardo Sergio Elsztain, ETH and Mordechay Ben Moshe (in their capacities as controlling shareholders of IDBD) and against the members of IDBD’s Board of Directors who were in office between 2014 and 2015. The amount of the claim is NIS 1,048 million (equivalent to US$ 277.6 million as of June 30, 2015).
 
As concerns the legal action, pursuant to the applicable laws the proceedings are divided into two stages: (i) the preliminary stage, in which the plaintiff pleads the court to allow the complaint as a class action; and (ii) the certification stage, in which the plaintiff shall prove by producing reasonable evidence that it satisfies the minimum requirements for the class action to qualify as such pursuant to the applicable laws. If such requirements are met and the case is admitted as a class action, the substantive proceedings will start.
 
At present, the Class Action is at the certification stage.
 
Pursuant to the applicable laws the defendants have a 90-day term to file its defense (such term does not include the period from July 21 to September 5, 2015, when the Israeli courts are on recess).
 
Based on the Israeli legal counsel, it is more likely than not that the Class Action will be dismissed against Dolphin.
 
In the application for Class Action, the plaintiffs argued that IDBD’s controlling shareholders and its Board of Directors acted in concert to frustrate the sale of Clal’s shares to JT Capital Fund (“JT”) and privileged their own interests, causing them material damages as under the terms of the Arrangement they would have been entitled to receive a larger payment had the above mentioned sale been consummated.
 
In addition, they sustain that the Rights Offerings made in 2014 and 2015 discriminated against the minority shareholders and were carried out without obtaining the required consents (given the personal interest of the controlling shareholders), resulting in the dilution of plaintiffs’ rights’ economic value.
 

 

 
F-158
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


9.
Interests in associates (Continued)

BHSA

In accordance with the regulations of the “BCRA”, there are certain restrictions on the distribution of profits by BHSA.

As of June 30, 2015, BHSA has a remainder of 36.6 million Class C shares Ps. 1 par value received in 2009 as a result of certain financial transactions. The General Shareholders’ Meeting decided to allocate 35.1 million of such shares, to an employee compensation plan pursuant to Section 67 of Law 26,831. The remaining 1.5 million shares belong to third party holders of Stock Appreciation Rights, who had failed to produce the documentation required for redemption purposes. As of June 30, 2015, excluding said treasury stock, the Group’s interest in BHSA amounts to 29.99% (or to 30.74%, including said treasury stock).

Information about significant associates

Set out below are the summarized financial information for each associate considered to be material to the Group as of June 30, 2015 and 2014:

Summarized statements of financial position
 
   
BHSA
  
   
June 30,
2015
    
June 30,
2014
  
Assets
            
Total Non-current assets                                                                                 
     10,233,808       8,794,304  
Current
                
Cash and cash equivalents                                                                                 
     3,312,594       3,111,615  
Other assets                                                                                 
     21,537,466       15,432,874  
Total current assets                                                                                 
     24,850,060       18,544,489  
Total Assets                                                                                 
     35,083,868       27,338,793  
Liabilities
                
Non-current
                
Financial liabilities (i)                                                                                 
     3,625,045       4,208,630  
Other liabilities                                                                                 
     100,132       (129,996 )
Total non-current liabilities                                                                                 
     3,725,177       4,078,634  
Current
                
Financial liabilities (i)                                                                                 
     25,775,030       18,140,073  
Other liabilities                                                                                 
     1,117,945       1,095,056  
Total current liabilities                                                                                 
     26,892,975       19,235,129  
Total Liabilities                                                                                 
     30,618,152       23,313,763  
Net assets                                                                                 
     4,465,716       4,025,030  
Non-controlling interest                                                                                 
     68,147       50,662  
Net assets attributable to equity holders of the parent
     4,397,569       3,974,368  
 
(i)  
Excluding trade and other payables and provisions.

 

 
F-159
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

Summarized statement of comprehensive income

   
BHSA
  
   
June 30,
2015
    
June 30,
2014
  
Revenues                                                            
     4,499,581       3,046,657  
Depreciation and amortization                                                            
     (140,747 )     (86,035 )
Interest income                                                            
     4,215,729       3,729,649  
Interest expense                                                            
     (2,785,449 )     (2,059,377 )
Allowances for doubtful accounts                                                            
     (343,471 )     (333,025 )
Administrative expenses                                                            
     (3,273,162 )     (2,297,449 )
Other expenses                                                            
     (1,211,684 )     (1,022,315 )
Other earnings, net                                                            
     (145,254 )     (94,463 )
Income tax expense                                                            
     (354,828 )     (301,273 )
Profit for the year                                                            
     460,715       582,369  
Other comprehensive income                                                            
     -       14,760  
Total other comprehensive income for the year
     460,715       597,129  
Profit attributable to non-controlling interest
     (4,303 )     (9,760 )
Dividends received                                                            
     12,873       9,144  

The information above reflects the amounts presented in the financial statements of the associates (and not the Group’s share of those amounts) adjusted for differences in the Group's accounting policies and fair value adjustments made at the time of the acquisition.

Reconciliation between the summarized financial information presented regarding the carrying amount of the Group’s interest in material associates is as follows:

   
BHSA
  
   
June 30,
2015
    
June 30,
2014
  
Net assets at beginning of the year
     3,974,368       3,397,479  
Profit for the year                                                            
     465,018       592,129  
Other comprehensive income                                                            
     -       14,760  
Dividend distribution                                                            
     (41,817 )     (30,000 )
Net assets at end of the year                                                            
     4,397,569       3,974,368  
Ownership interest                                                            
     30.74 %     30.51 %
Investment in associates                                                            
     1,351,718       1,212,781  
Goodwill                                                            
     4,904       30,177  
Fair value adjustment on acquisition of associate
     5       (1,457 )
Intergroup transactions                                                            
     (385 )     (31,333 )
Net book amount at year-end                                                            
     1,356,242       1,210,168  


 

 
F-160
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

The fair value of the Group’s investment in BHSA was estimated based on the present value of future business cash flows. The premises used to calculate the fair value as of June 30, 2015 were the following:

- The Group considered the period 2016-2023 as horizon for the projection of BHSA cash flows. Cash flows were projected based on the business plan filed with BCRA, as indicated by Argentine applicable regulations. Cash flows assume an annual growth based on historic performance of bank, market research and peer information, among others. On the other hand, perpetuity was computed at decreasing rates over the first years after 2023, and is later stabilized in the long term.

- Projected cash flows include interest income resulting from the main source of income of BHSA, including income resulting from mortgage loans, personal loans, credit cards and corporate loans. In addition, cash flows include interest expenses related to client deposits, which volumes were determined based on current demand, percentage of market share and competition as of June 30, 2015. To estimate such projections, a financial model was used where the business plan abovementioned was the starting point.

- The “Private BADLAR” interest rate was projected based on internal data and information gathered from external consultants. The “Private BADLAR” is the average of interest rates paid by financial entities on term deposits of more than 1 million pesos, with maturities of 30 to 35 days. This rate is calculated daily by the BCRA based on a survey that includes interest rate data provided by the main banks and financial institutions in the City of Buenos Aires and Gran Buenos Aires (C.A.B.A. and G.B.A. as per their Spanish acronyms). The “Private BADLAR” is the most representative interest rate in the Argentine financial system.

- The projected exchange rate was estimated in accordance with internal data and external information provided by independent consultants.

- Projected cash flows include the amortization of a revolving loan of BHSA.

- Projections consider capital requirements as per BCRA regulations.

 

 
F-161
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

- Projected cash flows are stated in Pesos in real terms, deflated pursuant to inflation projections estimated by BHSA.

-     The discount rate used to discount real dividend flows and calculate the fair value is 15.97%.

Based on the described premises, the Group estimated the fair value of its investment in BHSA as of June 30, 2015 to be Ps. 3,389.7 million.

IDBD
 
   
IDBD (in millions of pesos)
  
   
June 30,
 2015
    
June 30,
2014
  
Assets
            
Non-current assets
            
Investments in associates                                                                                  
     8,866       9,118  
Other investments and derivative financial instruments
     833       5,856  
Property, plant and equipment                                                                                  
     13,450       12,791  
Investment properties                                                                                  
     27,299       24,317  
Intangible assets                                                                                  
     11,419       12,580  
Other non-current assets                                                                                  
     3,068       3,375  
Total Non-current assets                                                                                  
     64,935       68,037  
Current assets
                
Other investments and derivative financial instruments
     5,251       8,354  
Trade receivables                                                                                  
     6,101       6,878  
Cash and cash equivalents                                                                                  
     8,375       10,829  
Other current assets                                                                                  
     10,617       5,762  
Total current assets                                                                                  
     30,344       31,823  
Total assets                                                                                  
     95,279       99,860  
Liabilities
                
Non-current liabilities
                
Obligations                                                                                  
     41,961       45,756  
Bank loans and other financial liabilities                                                                                  
     7,553       6,747  
Financial instruments                                                                                  
     7,274       8,072  
Other non-current liabilities                                                                                  
     4,896       4,767  
Total Non-current Liabilities                                                                                  
     61,684       65,342  
Current Liabilities
                
Obligations                                                                                  
     7,002       7,899  
Bank loans and other financial liabilities                                                                                  
     5,338       6,340  
Trade and other payables                                                                                  
     6,053       5,923  
Other current liabilities                                                                                  
     5,816       6,502  
Total current liabilities                                                                                  
     24,209       26,664  
Total liabilities                                                                                  
     85,893       92,006  
Net assets                                                                                  
     9,386       7,854  
Non-controlling interest                                                                                  
     8,526       8,643  
Net assets of the parent                                                                                  
     860       (789 )


 
F-162
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



9.
Interests in associates (Continued)

   
IDBD (in millions of pesos)
 
  
   
June 30,
2015
(period of
twelve months)
    
June 30,
2014
(period of
six months)
  
Net cash generated by operating activities                                                                                  
     2,909       3,346  
Net cash generated by investing activities                                                                                  
     1,389       4,228  
Net cash used in financing activities                                                                                  
     (4,505 )     (11,805 )
Net decrease in cash and cash equivalents                                                                                  
     (207 )     (4,231 )
                 
Net decrease in cash and cash equivalents from continuing operations
     (207 )     (6,935 )
Net increase in cash and cash equivalents from discontinued operations
     -       2,704  
Net decrease in cash and cash equivalents                                                                                  
     (207 )     (4,231 )
                 
Cash and cash equivalents at beginning of the year
     8,480       11,870  
Foreign exchange gain on cash and cash equivalents
     107       2,846  
Changes in cash included in assets held for sale
     (5 )     344  
Cash and cash equivalents at end of the year                                                                                  
     8,375       10,829  

   
IDBD (in millions of pesos)
 
  
   
June 30,
2015
(period of
twelve months)
    
June 30,
 2014
(period of
six months)
  
Gross profit                                                                                  
     7,316       9,564  
Profit before income tax                                                                                  
     945       1,013  
Income tax                                                                                  
     (232 )     (592 )
Profit from continuing operations                                                                                  
     713       421  
Profit from discontinued operations                                                                                  
     -       144  
Net income for the year                                                                                  
     713       565  
Other comprehensive (loss) / income                                                                                  
     (562 )     221  
Total comprehensive income for the year                                                                                  
     151       786  
Profit attributable to non-controlling interest                                                                                  
     140       833  


 

 
F-163
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



10.  
Investment properties

Changes in the Group’s investment properties for the year ended June 30, 2015 and 2014 are as follows:

   
Shopping Center
    
Office buildings and other rental properties
    
Undeveloped parcels of land
    
Leased out
farmland
    
Properties
 under development
    
Total
  
Year ended June 30, 2014
                                    
Opening net book amount
     1,890,531       1,630,509       421,240       42,998       186,123       4,171,401  
Additions                                      
     61,108       23,988       454       7,069       156,927       249,546  
Reclassification to available for sale
     -       (1,098,990 )     -       -       -       (1,098,990 )
Reclassification to property, plant and equipment
     -       (12,231 )     -       (3,657 )     -       (15,888 )
Reclassifications of trading properties
     -       251       1,550       -       (803 )     998  
Capitalized borrowing costs
     -       -       -       -       22,376       22,376  
Disposals                                      
     (35 )     (51,457 )     -       (1,080 )     (766 )     (53,338 )
Depreciation charge (i)
     (134,325 )     (68,529 )     -       (2,134 )     -       (204,988 )
Currency translation adjustment
     -       375,261       -       8,238       -       383,499  
Transfers                                      
     (25,332 )     27,056       (1,724 )     -       -       -  
Closing net book amount
     1,791,947       825,858       421,520       51,434       363,857       3,454,616  
As of June 30, 2014
                                                
Cost                                      
     3,166,103       1,077,824       421,520       51,434       363,857       5,080,738  
Accumulated depreciation
     (1,374,156 )     (251,966 )     -       -       -       (1,626,122 )
Net book amount                                      
     1,791,947       825,858       421,520       51,434       363,857       3,454,616  
Year ended June 30, 2015
                                                
Opening net book amount
     1,791,947       825,858       421,520       51,434       363,857       3,454,616  
Additions                                      
     60,361       5,893       1,569       8,354       173,500       249,677  
Transfers                                      
     491,047       23,080       25,331       -       (539,458 )     -  
Reclassifications to trading properties
     (3,107 )     -       -       -       -       (3,107 )
Reclassification to property, plant and equipment
     (140 )     (8,305 )     -       (11,732 )     (8,779 )     (28,956 )
Reclassification of property, plant and equipment
     -       20,224       -       40,521       -       60,745  
Capitalized borrowing costs
     -       -       -       -       12,957       12,957  
Disposals                                      
     (114 )     (102,599 )     (3,251 )     (192 )     (2,077 )     (108,233 )
Depreciation charge (i)
     (124,790 )     (26,769 )     -       (5,237 )     -       (156,796 )
Currency translation adjustment
     -       -       -       (5,944 )     -       (5,944 )
Closing net book amount
     2,215,204       737,382       445,169       77,204       -       3,474,959  
As of June 30, 2015
                                                
Cost                                      
     3,736,761       1,028,507       445,169       77,204       -       5,287,641  
Accumulated depreciation
     (1,521,557 )     (291,125 )     -       -       -       (1,812,682 )
Net book amount                                      
     2,215,204       737,382       445,169       77,204       -       3,474,959  

(i)  
Depreciation charge of investment property has been charged in “Costs” in the income statements (Note 33).

 

 
F-164
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



10.  
Investment properties (Continued)

The following amounts have been recognized in the income statements:

   
June 30,
2015
    
June 30,
2014
    
June 30, 2013
  
Rental and service income
     2,994,947       2,450,399       1,935,275  
Direct operating expenses
     1,234,538       1,142,405       915,117  
Development expenses
     4,106       1,671       1,884  
Gain from disposal of investment properties
     1,150,230       230,918       177,999  

Borrowing costs incurred during the fiscal years ended June 30, 2015, 2014 and 2013 were Ps. 12,957, Ps. 22,376 and Ps. 10,307 respectively, capitalized at the rate of the Group's general borrowings, which amounts to 15%. Those costs correspond to Distrito Arcos, Alto Comahue and Soleil Premium Outlet. Capitalization of financial costs has ceased since the completion of the shopping mall.

Certain of the Group’s investment properties have been mortgaged or otherwise restricted to secure some of the Group’s borrowings and other payables. The net book value of the Group´s investment properties as of June 30, 2015 and 2014 is as follows:

   
June 30,
2015
    
June 30,
2014
  
Soleil Premium Outlet (i)                                                                                   
     -       88,634  
Córdoba Shopping (ii)                                                                                   
     61,111       64,951  
Total                                                                                   
     61,111       153,585  

(i)  
On August 22, 2014, IRSA Propiedades Comerciales S.A. paid the remaining balance of the purchase price for the shopping center known as “Soleil Premium Outlet” in the amount of Ps. 105.8 million (US$ 12.6 million plus interest). As a result, the mortgage granted in favor of INC S.A. was fully discharged.
(ii)  
A portion of the Córdoba Shopping center property is encumbered with an antichresis right as collateral for a debt amounting to Ps. 11.3 and Ps. 13.2 million as of June 30, 2015 and 2014, respectively. The debt is included in "Trade and other payables" in the statement of financial position.



 
F-165
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)




10.  
Investment properties (Continued)

As of June 30, 2015 and 2014, the fair value of investment properties amounts to Ps. 22,445.8 million and Ps. 19,554.5 million, respectively. The fair values are based on comparable values of certain qualified external appraisers (Level 2 of fair value hierarchy) except in the case of shopping centers, where fair value is based on the market capitalization valuation (Level 3 of the fair value hierarchy). In the first case, sale prices of comparable properties are adjusted considering the specific aspects of each property, the most relevant premise being the price for m2 (square meter). In the second case, the capitalization rates used also take into account specific aspects of each property. See Note 5.(b).

 

 
F-166
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



 
10.
Investment properties (Continued)

         
Initial costs
    
Subsequent costs
    
Costs at year-end
                            
Name
  
Encumbrances
    
Plot of land
    
Buildings, facilities and improvements (i)
    
Improvements / Additions / Disposals / Transfers
    
Plot of land
    
Buildings, facilities and improvements
    
Total
    
Accumulated depreciation
    
Net book value
    
Date of construction
  
Date of acquisition
  
Useful life for calculating depreciation
  
Shopping Center Properties:
                                                                    
Abasto de Buenos Aires
     -       9,754       455,787       10,552       9,754       466,339       476,093       (204,233 )     271,860    
nov-98
  
jul-94
     17  
Alto Palermo Shopping
     -       8,695       583,834       13,608       8,695       597,442       606,137       (384,631 )     221,506    
oct-90
  
nov-97
     15  
Alto Avellaneda
     -       18,089       312,584       22,073       18,089       334,657       352,746       (220,896 )     131,850    
oct-95
  
dec-97
     12  
Paseo Alcorta
     -       8,006       193,528       12,128       8,006       205,656       213,662       (97,712 )     115,950    
jun-92
  
jun-97
     16  
Alto Noa
     -       227       72,044       2,706       227       74,750       74,977       (43,661 )     31,316    
sep-94
  
mar-95
     14  
Buenos Aires Design
     -       -       75,156       9,332       -       84,488       84,488       (71,558 )     12,930    
nov-93
  
nov-97
     3  
Patio Bullrich
     -       9,814       206,956       7,840       9,814       214,796       224,610       (118,362 )     106,248    
sep-88
  
oct-98
     17  
Alto Rosario
     -       25,686       139,262       3,237       25,686       142,499       168,185       (52,277 )     115,908    
nov-04
  
nov-04
     19  
Mendoza Plaza
     -       10,546       174,705       14,210       10,546       188,915       199,461       (96,680 )     102,781    
jun-94
  
dec-94
     16  
Dot Baires Shopping
     -       84,890       328,443       89,632       53,462       449,503       502,965       (120,341 )     382,624    
may-09
  
nov-06
     26  
Córdoba Shopping
  
Antichresis
       5,009       103,629       (352 )     5,009       103,277       108,286       (51,835 )     56,451    
mar-90
  
dec-06
     15  
Distrito Arcos
     -       -       -       236,656       -       236,656       236,656       (6,856 )     229,800       -  
nov-09
     31  
Alto Comahue
     -       1,143       11,139       302,639       1,143       313,778       314,921       (4,962 )     309,959       -  
may-06
     22  
Patio Olmos
     -       11,532       22,212       -       11,532       22,212       33,744       (6,425 )     27,319    
may-95
  
sep-07
     17  
Soleil Factory
     -       23,267       55,905       36,113       23,267       92,018       115,285       (30,984 )     84,301       -  
jul-10
     9  
Ocampo parking spaces
     -       3,201       21,137       207       3,201       21,344       24,545       (10,144 )     14,401          
sep-06
     23  
Total Shopping Center Properties
             219,859       2,756,321       760,581       188,431       3,548,330       3,736,761       (1,521,557 )     2,215,204                    

 

 
F-167
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)




 
10.
Investment properties (Continued)

         
Initial costs
    
Subsequent costs
    
Costs at year-end
                                
Name
  
Encumbrances
    
Plot of land
    
Buildings, facilities and improvements (i)
    
Improvements / Additions / Disposals / Transfers
    
Plot of land
    
Buildings, facilities and improvements
    
Total
    
Accumulated depreciation
    
Net book value
    
Date of construction
    
Date of acquisition
    
Useful life for calculating depreciation
  
Office buildings and Other Rental Properties portfolio:
                                                                        
Bouchard 551
     -       4,963       10,322       (4,389 )     4,963       5,933       10,896       (2,670 )     8,226       -    
mar-07
       29  
Bouchard 710
     -       40,167       50,290       129       40,167       50,419       90,586       (8,542 )     82,044       -    
jun-05
       26  
Dique IV
     -       3,660       68,921       1,941       3,660       70,862       74,522       (18,256 )     56,266    
apr-09
       -       32  
Intercontinental Plaza
     -       2,811       59,155       (4,159 )     2,811       54,996       57,807       (9,024 )     48,783    
jun-96
    
nov-97
       24  
Libertador 498
     -       1,088       5,419       874       1,088       6,293       7,381       (2,870 )     4,511       -    
dec-95
       23  
Madero 1020
     -       70       350       -       70       350       420       (300 )     120       -    
dec-95
       5  
Maipú 1300
     -       4,992       28,468       (1,189 )     4,992       27,279       32,271       (13,905 )     18,366       -    
sep-95
       22  
Rivadavia 2768
     -       88       751       1       88       752       840       (506 )     334    
jun-95
    
sep-91
       12  
Suipacha 652
     -       2,712       13,290       1,019       2,712       14,309       17,021       (3,310 )     13,711    
jun-94
    
nov-91
       10  
Torre BankBoston
     -       78,362       58,750       -       78,362       58,750       137,112       (2,188 )     134,924       -    
aug-07
       27  
República Building
     -       111,070       90,581       96       111,070       90,677       201,747       (6,208 )     195,539       -    
apr-08
       26  
Constitución 1111
     -       256       1,084       -       256       1,084       1,340       (656 )     684    
mar-95
    
jun-94
       21  
La Adela
     -       10,155       -       -       10,155       -       10,155       -       10,155       -    
jul-14
       -  
Edificio Dot
     -       13,346       75,482       54,466       44,775       98,519       143,294       (16,929 )     126,365       -    
nov-06
       30  
Anchorena 559
     -       3,018       14,851       -       3,018       14,851       17,869       (4,697 )     13,172       -    
agu-08
       -  
Zelaya 310, 3103 and 3105
     -       1,723       -       -       1,723       -       1,723       -       1,723       -    
jul-05
       -  
Abasto offices
     -       -       40       14,288       -       14,328       14,328       (3,216 )     11,112    
mar-13
    
nov-12
       17  
Santa María del Plata
     -       12,494       46       30       12,500       70       12,570       (28 )     12,542       -    
jun-97
       -  
Alto Palermo Shopping Annex
     -       -       38,201       -       -       38,201       38,201       (5,659 )     32,542       -    
jun-06
       9  
Office buildings and Other Rental Properties portfolio
             290,975       516,001       63,107       322,410       547,673       870,083       (98,964 )     771,119                          


 

 
F-168
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



 
10.
Investment properties (Continued)

         
Initial costs
    
Subsequent costs
    
Costs at year-end
                                
Name
  
Encumbrances
    
Plot of land
    
Buildings, facilities and improvements (i)
    
Improvements / Additions / Disposals / Transfers
    
Plot of land
    
Buildings, facilities and improvements
    
Total
    
Accumulated depreciation
    
Net book value
    
Date of construction
    
Date of acquisition
    
Useful life for calculating depreciation
  
Undeveloped parcels of lands:
                                                                        
DOT Annex
     -       25,336       -       -       25,336       -       25,336       -       25,336       -    
nov-06
       -  
Santa María del Plata
     -       158,523       63,836       428       158,951       63,836       222,787       -       222,787       -    
jun-97
       -  
Catalinas Norte
     -       100,862       1,803       6,831       100,862       8,634       109,496       -       109,496       -    
dec-09
       -  
Luján plot of land
     -       41,861       (17,681 )     111       41,972       (17,681 )     24,291       -       24,291       -    
may-12
       -  
Caballito - Ferro
     -       45,812       3,885       -       45,812       3,885       49,697       -       49,697       -    
nov-97
       -  
Intercontinental Tower B plot of land
     -       1,564       -       -       1,564       -       1,564       -       1,564       -    
feb-98
       -  
Pilar
     -       1,550       658       -       1,550       658       2,208       -       2,208       -    
jul-97
       -  
Others
     -       3,272       2,951       3,567       6,839       2,951       9,790       -       9,790       -       -       -  
Total Undeveloped parcels of land
             378,780       55,452       10,937       382,886       62,283       445,169       -       445,169                          
Total
             889,614       3,327,774       834,625       893,727       4,158,286       5,052,013       (1,620,521 )     3,431,492                          

(i)  
The breakdown of investment properties as of June 30, 2015 includes property, plant and equipment in the amount of 33,737 that reflects offices used by the Company.


 

 
F-169
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



11.  
Property, plant and equipment

Changes in the Group’s property, plant and equipment for the years ended June 30, 2015 and 2014 are as follows:
 
   
Owner occupied farmland
    
Hotel buildings and facilities
    
Other buildings and facilities
    
Furniture and fixtures
    
Machinery and equipment
    
Vehicles
    
Total
  
Year ended June 30, 2014
                                          
Opening net book amount
     1,538,708       180,348       57,239       7,178       52,961       5,020       1,841,454  
Currency translation adjustment
     518,869       -       3,363       1,238       13,751       240       537,461  
Additions                                      
     96,785       9,980       4,633       3,953       15,581       3,247       134,179  
Reclassifications of investment properties
     3,657       -       12,231       -       -       -       15,888  
Reclassifications to intangibles assets
     -       -       (30 )     -       -       -       (30 )
Disposals                                      
     (56,763 )     (24 )     (133 )     (7 )     (2,589 )     (497 )     (60,013 )
Depreciation charge (i)
     (44,062 )     (14,559 )     (10,559 )     (1,524 )     (14,519 )     (1,760 )     (86,983 )
Closing net book amount
     2,057,194       175,745       66,744       10,838       65,185       6,250       2,381,956  
At June 30, 2014
                                                        
Cost                                      
     2,261,176       402,647       141,704       25,144       191,561       12,578       3,034,810  
Accumulated depreciation
     (203,982 )     (226,902 )     (74,960 )     (14,306 )     (126,376 )     (6,328 )     (652,854 )
Net book amount                                      
     2,057,194       175,745       66,744       10,838       65,185       6,250       2,381,956  
Year ended June 30, 2015
                                                        
Opening net book amount
     2,057,194       175,745       66,744       10,838       65,185       6,250       2,381,956  
Currency translation adjustment
     (223,146 )     -       (6,364 )     (449 )     (7,082 )     80       (236,961 )
Additions                                      
     153,336       14,737       14,892       3,442       28,980       7,572       222,959  
Reclassifications of investment properties
     11,732       -       8,305       3,618       5,301       -       28,956  
Reclassifications to investment properties
     (50,341 )     -       (10,404 )     -       -       -       (60,745 )
Disposals                                      
     (255,345 )     (3,508 )     (2,125 )     (775 )     (2,779 )     (407 )     (264,939 )
Depreciation charge (i)
     (53,606 )     (15,097 )     (3,751 )     (2,220 )     (16,596 )     (2,761 )     (94,031 )
Closing net book amount
     1,639,824       171,877       67,297       14,454       73,009       10,734       1,977,195  
At June 30, 2015
                                                        
Cost                                      
     1,832,645       414,310       146,297       30,753       213,231       19,563       2,656,799  
Accumulated depreciation
     (192,821 )     (242,433 )     (79,000 )     (16,299 )     (140,222 )     (8,829 )     (679,604 )
Net book amount                                      
     1,639,824       171,877       67,297       14,454       73,009       10,734       1,977,195  

(i)  
As of June 30, 2015 and 2014 depreciation charges of property, plant and equipment were included in “Costs” for an amount of Ps. 87,139 and Ps. 80,150, "General and administrative expenses" for an amount of Ps. 5,663 and Ps. 5,025 and “Selling expenses” for an amount of Ps. 1,229 and Ps. 1,808, respectively in the income statements (Note 33).

 

 
F-170
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



11.
Property, plant and equipment (Continued)

Properties under development as of June 30, 2015 and 2014 amount to Ps. 15.6 million and Ps. 17.6 million, respectively, and mainly comprise improvements being made on property included in this item.

During the years ended June 30, 2015, 2014 and 2013, no borrowing costs were capitalized.

Certain properties included in property, plant and equipment have been mortgaged to secure certain Group’s borrowings. The net book value of these Group’s properties as of June 30, 2015 and 2014 is set out below:
 
   
June 30,
2015
    
June 30,
2014
  
Sheraton Libertador
     31,690       35,499  
Cremaq
     -       256,445  
Jatobá
     182,520       275,461  
Preferencia
     85,192       98,881  
Chaparral
     259,907       -  
Araucaria
     190,606       -  
La Fon Fon
     -       32,690  
Meet processing plant
     12,608       -  
Total
     762,523       698,976  

The Group leases machinery and computer equipment under non-cancellable finance lease agreements. The lease terms are between 2 and 5 years, and ownership of the assets lie within the Group (Note 29). The net book value of these assets, included in “Machinery and equipment” is as follows:

   
June 30,
2015
    
June 30,
2014
  
Cost – Finance leases                                                                                     
     8,683       6,615  
Accumulated depreciation                                                                                     
     (6,133 )     (4,608 )
Net book amount                                                                                     
     2,550       2,007  

The following is a detailed summary of property, plant and equipment of the Group by type at June 30, 2015:


 

 
F-171
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



11.
Property, plant and equipment (Continued)

         
Initial costs
    
Subsequent costs
    
Costs at year-end
                      
Name
  
Encumbrances
    
Plot of land
    
Buildings, facilities and improvements (i)
    
Improvements / Additions / Disposals / Transfers
    
Plot of land
    
Buildings, facilities and improvements
    
Total
    
Accumulated depreciation
    
Net book value
  
Date of acquisition
  
Useful life for calculating depreciation
  
Livestock and farmlands:
                                                              
El Recreo
     -       -       1,257       -       -       1,257       1,257       -       1,257  
may-95
     -  
Los Pozos
     -       5,281       89,669       70,046       5,281       159,715       164,996       (12,422 )     152,574  
may-95
     26  
Administración Cactus
     -       -       -       5,105       318       4,787       5,105       (3,627 )     1,478  
jun-14
     19  
Agro Riego San Luis
     -       9,318       18,360       31,079       9,318       49,439       58,757       (13,829 )     44,928  
nov-97
     12  
Las Vertientes
     -       -       1,167       590       -       1,757       1,757       (1,018 )     739  
mar-98
     11  
La Suiza
     -       22,361       6,578       17,580       22,361       24,158       46,519       (2,776 )     43,743  
jun-98
     22  
La Esmeralda
     -       7,210       4,324       6,750       7,210       11,074       18,284       (1,937 )     16,347  
jun-98
     36  
El Tigre
     -       28,225       6,155       3,094       28,225       9,249       37,474       (3,280 )     34,194  
apr-03
     14  
El Invierno
     -       9,030       320       -       9,030       320       9,350       (121 )     9,229  
jun-05
     25  
San Pedro
     -       40,889       6,994       2,484       40,889       9,478       50,367       (1,406 )     48,961  
sep-05
     44  
Jatoba
  
Mortgage
       130,886       67,034       90,720       110,923       177,717       288,640       (61,146 )     227,494  
oct-06
     33  
Araucaria
     -       211,589       1,948       (21,573 )     185,732       6,232       191,964       (1,358 )     190,606  
mar-07
     25  
8 de Julio
     -       10,040       439       703       10,040       1,142       11,182       (139 )     11,043  
may-07/may-08
     24  
Alto Tacuarí
     -       100,075       145       10,694       110,330       584       110,914       (198 )     110,716  
aug-07
     33  
Chaparral
  
Mortgage
       160,620       37,823       110,287       141,617       167,113       308,730       (48,823 )     259,907  
nov-07
     25  
Nova Buriti
     -       64,653       1,069       7,113       71,313       1,522       72,835       (160 )     72,675  
dec-07
     25  
La Esperanza
     -       4,307       -       -       4,307       -       4,307       -       4,307  
apr-08
     34  
Preferencia
  
Mortgage
       30,647       18,847       81,753       16,900       114,347       131,247       (24,695 )     106,552  
sep-08
     33  
Avarandado
     -       -       -       4,357       -       4,357       4,357       (302 )     4,055            

 

 
F-172
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


11.
Property, plant and equipment (Continued)

         
Initial costs
    
Subsequent costs
    
Costs at year-end
                          
Name
  
Encumbrances
    
Plot of land
    
Buildings, facilities and improvements (i)
    
Improvements / Additions / Disposals / Transfers
    
Plot of land
    
Buildings, facilities and improvements
    
Total
    
Accumulated depreciation
    
Net book value
    
Date of acquisition
    
Useful life for calculating depreciation
  
San Rafael
     -       26,303       824       48,414       72,797       2,744       75,541       (547 )     74,994    
nov-08
       35  
Las Londras
     -       38,846       706       57,972       89,739       7,785       97,524       (863 )     96,661    
jan-09
       36  
Establecimiento Mendoza
     -       6,810       -       -       6,810       -       6,810       -       6,810    
mar-11
       -  
ANTA
     -       -       44,425       55,668       -       100,093       100,093       (12,863 )     87,230       -       23  
San Bernardo
     -       -       79       114       -       193       193       (18 )     175       -       10  
Venado Tuerto
     -       -       -       25       -       25       25       (1 )     24               34  
El Pinar
     -       -       -       19       -       19       19       (1 )     18       -       23  
Finca Mendoza
     -       32       -       -       32       -       32       -       32       -       -  
Cuatro vientos
     -       36,301       146       28,565       58,586       6,426       65,012       (1,618 )     63,394    
jun-11
       38  
La primavera
     -       19,245       -       28,022       47,267       -       47,267       (382 )     46,885    
jun-11
       38  
Total
     -       962,668       308,309       639,581       1,049,025       861,533       1,910,558       (193,530 )     1,717,028                  
                                                                                         
Other buildings
                                                                                        
Edificio Intercontinental
     -       -       819       84       -       903       903       (750 )     153                  
Total Other buildings
     -       -       819       84       -       903       903       (750 )     153                  
                                                                                         
Hotels:
                                                                                        
Llao Llao
     -       24,666       92,011       7,196       24,666       99,207       123,873       (39,826 )     84,047    
jun-97
       10  
Hotel Intercontinental
     -       17,326       122,714       17,391       17,325       140,106       157,431       (101,291 )     56,140    
nov-97
       10  
Sheraton Libertador
  
Mortgage
       3,755       120,670       8,581       3,755       129,251       133,006       (101,316 )     31,690    
mar-98
       9  
Total Hotels
             45,747       335,395       33,168       45,746       368,564       414,310       (242,433 )     171,877                  

(i)  
The breakdown of property, plant and equipment as of June 30, 2015, includes investment properties in the amount of Ps. 77,204  that reflects leased farmlands.


 

 
F-173
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



12.
Trading properties

Changes in the Group’s trading properties for the years ended June 30, 2015 and 2014 are as follows:

   
Completed properties
    
Properties under development
    
Undeveloped sites
    
Total
  
At June 30, 2013                                                
     8,659       88,879       11,979       109,517  
Additions                                                
     1,400       2,694       -       4,094  
Currency translation adjustment
     -       27,630       -       27,630  
Reclassifications of investment properties and intangible assets
     7,897       -       (747 )     7,150  
Disposals                                                
     (11,225 )     (15 )     -       (11,240 )
At June 30, 2014                                                
     6,731       119,188       11,232       137,151  
Additions                                                
     -       1,066       -       1,066  
Currency translation adjustment
     -       (6,124 )     -       (6,124 )
Reclassifications of investment properties
     -       -       3,107       3,107  
Disposals                                                
     (2,246 )     -       -       (2,246 )
At June 30, 2015                                                
     4,485       114,130       14,339       132,954  

As of June 30, 2015 and 2014 properties under construction mainly comprise works in "Zetol” and "Vista al Muelle" for the amounts of Ps. 105.9 and Ps. 111.0 million, respectively.

The Group has contractual obligations not provisioned related to future works committed when certain properties were acquired or real estate projects were approved. As of June 30, 2015 and 2014, contractual obligations mainly correspond to constructions regarding “Zetol” and "Vista al Muelle" projects and amount to Ps. 69 million and Ps. 56 million, respectively. Both projects are expected to be completed in 2023.

Certain of the Group’s trading properties have been mortgaged or restricted to secure some of the Group’s borrowings and other payables. The net book value of the Group’s trading properties as of June 30, 2015 and 2014 is as follows:

   
June 30,
2015
    
June 30,
2014
  
Vista al Muelle                                                                                   
     43,362       45,368  
Zetol                                                                                   
     62,568       65,620  
Total                                                                                   
     105,930       110,988  


 

 
F-174
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



12.
Trading properties (Continued)

The following is a detailed summary of the Group’s trading properties by type as of June 30, 2015:

Description
  
Encumbrances
    
Book value
    
Date of construction
    
Date of acquisition
  
Undeveloped sites:
                        
Coto Air Space
     -       10,429       -    
sep-97
  
Neuquén Project
     -       803       -       -  
Córdoba plot of land
     -       3,107       -    
may-15
  
Total undeveloped sites
             14,339                  
Properties under development:
                                
Vista al Muelle plot of land
  
Mortgage
       43,362       -    
jun-09
  
Zetol plot of land
  
Mortgage
       62,568       -    
jun-09
  
Pereiraola
     -       8,200       -    
dec-96
  
Total Properties under development
             114,130                  
Completed properties:
                                
Abril
     -       2,357       -    
jan-95
  
San Martín de Tours
     -       181       -    
mar-03
  
Entre Rios 465/9 apartments
     -       1,400       -    
jan-00
  
Condominio I and II
     -       547       -    
apr-99
  
Total Completed properties
             4,485                  
Total
             132,954                  





 
F-175
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



13.
Intangible assets

Changes in the Group’s intangible assets for the years ended June 30, 2015 and 2014 are as follows:

   
Goodwill
    
Compute software
    
Rights of use
    
Units to be received under barters
    
Others
    
Total
  
Year ended June 30, 2014
                                    
Opening net book amount                                                
     77,052       8,189       39,939       93,225       132       218,537  
Currency translation adjustment
     29,352       2,955       -       -       -       32,307  
Additions                                                
     658       2,947       -       -       10,954       14,559  
Disposals                                                
     -       (245 )     -       -       -       (245 )
Reclassification to trading properties
     -       -       -       (8,148 )     -       (8,148 )
Reclassification to assets held for sale
     (77,085 )     -       -       -       -       (77,085 )
Reclassification of property, plant and equipment
     -       30       -       -       -       30  
Amortization charge (i)                                                
     -       (4,116 )     (752 )     -       (80 )     (4,948 )
Closing net book amount                                                
     29,977       9,760       39,187       85,077       11,006       175,007  
At June 30, 2014
                                                
Cost                                                
     29,977       36,680       40,691       85,077       11,861       204,286  
Accumulated amortization                                                
     -       (26,920 )     (1,504 )     -       (855 )     (29,279 )
Net book amount                                                
     29,977       9,760       39,187       85,077       11,006       175,007  
Year ended June 30, 2015
                                                
Opening net book amount                                                
     29,977       9,760       39,187       85,077       11,006       175,007  
Currency translation adjustment
     (2,022 )     (1,565 )     -       -       -       (3,587 )
Additions                                                
     -       6,391       -       5,409       -       11,800  
Disposals                                                
     (343 )     (119 )     -       -       -       (462 )
Amortization charge (i)                                                
     -       (4,625 )     (1,224 )     -       (1,146 )     (6,995 )
Closing net book amount                                                
     27,612       9,842       37,963       90,486       9,860       175,763  
At June 30, 2015
                                                
Cost                                                
     27,612       41,387       40,692       90,486       11,862       212,039  
Accumulated amortization                                                
     -       (31,545 )     (2,729 )     -       (2,002 )     (36,276 )
Net book amount                                                
     27,612       9,842       37,963       90,486       9,860       175,763  

(i)  
As of June 30, 2015 and 2014 depreciation charges has been charged in “General and administrative expenses” in the Income statements (Note 33).


 

 
F-176
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



14.
Biological assets


Changes in the Group’s biological assets for the years ended June 30, 2015 and 2014 are as follows:

   
Crops
    
Sugarcane
    
Beef cattle
    
Dairy
    
Other cattle
    
Others
    
Total
  
At June 30, 2013
     55,879       111,063       195,750       28,134       7,136       2,730       400,692  
Purchases
     -       -       37,651       -       172       -       37,823  
Initial recognition and changes in fair value of biological assets (i)
     837,037       82,778       143,096       11,445       (661 )     1,872       1,075,567  
Decrease due to harvest
     (815,080 )     (100,791 )     -       -       -       -       (915,871 )
Decrease due to sales
     -       -       (73,897 )     (2,316 )     (181 )     -       (76,394 )
Consume
     -       -       (501 )     -       (57 )     81       (477 )
Currency translation adjustment
     69,520       49,823       -       -       -       -       119,343  
At June 30, 2014
     147,356       142,873       302,099       37,263       6,409       4,683       640,683  
Purchases
     -       -       14,097       -       873       -       14,970  
Initial recognition and changes in fair value of biological assets (i)
     896,520       162,352       161,104       13,142       463       1,796       1,235,377  
Decrease due to harvest
     (959,572 )     (198,026 )     -       -       -       -       (1,157,598 )
Decrease due to sales
     -       -       (118,041 )     (9,850 )     (273 )     -       (128,164 )
Addition from lease agreement
     -       22,474       -       -       -       -       22,474  
Consume
     -       -       (705 )     -       (49 )     (1,084 )     (1,838 )
Currency translation adjustment
     (30,476 )     (16,551 )     -       -       -       -       (47,027 )
At June 30, 2015
     53,828       113,122       358,554       40,555       7,423       5,395       578,877  

(i)  
Biological assets with a production cycle of more than one year (that is, sugarcane and cattle) generated “Initial recognition and changes in fair value of biological assets” amounting to Ps. 337,061 and Ps. 236,658 for the years ended June 30, 2015 and 2014, respectively. For the years ended June 30, 2015 and 2014, amounts of Ps. 15,993 and Ps. 79,351, was attributable to price changes, and amounts of Ps. 143,643 and Ps. 58,315, was attributable to physical changes, respectively.

Biological assets as of June 30, 2015 and 2014 are as follows:

 
Classification
  
June 30,
2015
    
June 30,
2014
  
Non-current
              
Cattle for dairy production
Production
     40,478       37,217  
Breeding cattle
Production
     293,709       254,397  
Sugarcane fields
Production
     113,122       142,873  
Other cattle
Production
     6,175       5,683  
Others biological assets
Production
     5,395       4,683  
Non-current biological assets
       458,879       444,853  
Current
                  
Cattle for dairy production
Consumable
     77       46  
Cattle for sale
Consumable
     64,845       47,702  
Crops fields
Consumable
     53,828       147,356  
Other cattle
Consumable
     1,248       726  
Current biological assets
       119,998       195,830  
Total biological assets
       578,877       640,683  


 
F-177
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



14.
Biological assets (Continued)


The fair value less estimated point of sale costs of agricultural produce at the point of harvest amount to Ps. 1,218,242 and Ps. 789,284 for the years ended June 30, 2015 and 2014, respectively.

The following tables present the Group’s biological assets measured at fair value as of June 30, 2015 and 2014 and their allocation to the fair value hierarchy:

   
June 30, 2015
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Cattle for dairy production
     -       40,555       -       40,555  
Breeding cattle and cattle for sale
     -       358,554       -       358,554  
Sugarcane fields
     -       -       113,122       113,122  
Other cattle
     -       7,423       -       7,423  
Others biological assets
     5,395       -       -       5,395  
Crops fields
     13,477       -       40,351       53,828  
Total                                                            
     18,872       406,532       153,473       578,877  

 
June 30, 2014
 
Level 1
  
Level 2
  
Level 3
  
Total
Cattle for dairy production
-
  
37,263
  
-
  
37,263
Breeding cattle and cattle for sale
-
  
302,099
  
-
  
302,099
Sugarcane fields
-
  
-
  
142,873
  
142,873
Other cattle
-
  
6,409
  
-
  
6,409
Others biological assets
4,683
  
-
  
-
  
4,683
Crops fields
10,736
  
-
  
136,620
  
147,356
Total                                                             
15,419
  
345,771
  
279,493
  
640,683

The following table presents the changes in Level 3 financial instruments for the years ended June 30, 2015 and 2014:

   
Crops fields with significant biological growth
    
Sugarcane fields
  
At June 30, 2014                                                                                       
     136,620       142,873  
Initial recognition and changes in the fair value of biological assets (i)
     462,116       162,352  
Harvest                                                                                       
     (557,591 )     (198,026 )
Addition from lease agreement                                                                                       
     -       22,474  
Currency translation adjustment                                                                                       
     (794 )     (16,551 )
At June 30, 2015                                                                                       
     40,351       113,122  

 

 
F-178
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



14.  
Biological assets (Continued)

When no quoted prices in an active market are available, values are based on recognized valuation methods. The company uses a range of valuation models for the measurement of Level 2 and Level 3 biological assets. The following table presents models and main parameters:

Level 2

Description
Pricing model
Parameters
Cattle
Comparable market
Price per livestock head/kg and per category

Level 3
 

Description
Pricing model
  
Pricing method
  
Parameters
Range
Crops
Discounted cash flows
     -  
Yields – Operating cost –Selling expenses - Future of sale prices
Argentina:
           
Discount rate
Yields 1.65 - 11.72 tn/ha
             
Future of sale prices: 949 -1,233 Ps. /tn
             
Selling expenses: 170 - 680 Ps./tn
             
Operating cost: 756 -4,001 Ps. /ha
             
Brazil:
             
Yields 3.42 tn/ha
             
Future of sale prices: 366.67 Rs./tn
             
Selling expenses: 57.07 Rs./tn
             
Operating cost: 125 Rs./ha
Sugarcane
Discounted cash flows
     -  
Yields – Operating cost –Selling expenses - Future of sale prices
Brazil:
           
Discount rate
Yields 60 - 112.5 tn/ha
             
Future of sale prices: 66.9-82.7 Rs./tn
             
Operating cost: 4,536.23 Rs./ha
             
Bolivia:
             
Yields 58 - 113 tn/ha
             
Future of sale prices: 21.87 – 23.89 US$/tn
             
Selling expenses: 4.05 US$/tn
             
Operating cost: 275 – 520 US$/tn
             
Discount rate: 11.62%


 

 
F-179
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



14.  
Biological assets (Continued)

During years ended June 30, 2015 and 2014, there have been no transfers between the several tiers used in estimating the fair value of the Group’s biological assets, or reclassifications among their respective categories.

See information on valuation processes used by the entity and on the sensitivity of fair value valuation to changes in material non-observable input data in Note 5.c.

As of June 30, 2015 and 2014, the better and maximum use of biological assets shall not significantly differ from the current use.

15.  
Inventories

Breakdown of Group’s inventories as of June 30, 2015 and 2014 are as follows:

   
June 30,
2015
    
June 30,
2014
  
Current
            
Crops                                                                                   
     269,861       241,061  
Materials and inputs                                                                                   
     154,492       141,495  
Seeds and fodders                                                                                   
     60,839       28,329  
Hotel supplies                                                                                   
     6,926       6,011  
Beef                                                                                   
     19,232       22,875  
Current inventories                                                                                   
     511,350       439,771  
Total inventories                                                                                   
     511,350       439,771  

As of June 30, 2015 and 2014 the cost of inventories recognized as expense amounted to Ps. 950,354 and Ps. 1,314,146, respectively and they have been included in “Costs” in the income statements.

16.  
Financial instruments by category

The following tables show the carrying amount of financial assets and financial liabilities by category of financial instrument and a reconciliation to the corresponding line item in the Statements of Financial position, as appropriate. Since the line items “Trade and other receivables” and “Trade and other payables” contain both financial instruments and non-financial assets or liabilities (such as prepayments, tax receivables and payables in kind), the reconciliation is shown in the columns headed “Non-financial assets” and “Non-financial liabilities”.

 

 
F-180
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


16.
Financial instruments by category (Continued)

Financial assets and financial liabilities as of June 30, 2015 are as follows:

   
Financial assets at amortized cost
    
Financial assets at fair value through profit or loss
    
Subtotal financial assets
    
Non-financial assets
    
Total
  
June 30, 2015
                              
Assets as per statement of financial position
                              
Investments in associates and joint ventures (Note 9) (i)
     -       907,083       907,083       -       907,083  
Trade and other receivables (Note 18)
     684,104       56,181       1,740,285       458,865       2,199,150  
Investment in financial assets (Note 19)
     100,452       1,026,495       1,126,947       -       1,126,947  
Derivative financial instruments (Note 20)
     -       237,156       237,156       -       237,156  
Cash and cash equivalents (excluding bank overdrafts) (Note 21)
     521,353       112,340       633,693       -       633,693  
Total                                                
     2,305,909       2,339,255       4,645,164       458,865       5,104,029  

   
Financial liabilities at amortized cost
    
Financial liabilities at fair value through profit or loss
    
Subtotal financial liabilities
    
Non-financial liabilities
    
Total
  
Liabilities as per statement of financial position
                              
Trade and other payables (Note 22)
     761,390       -       761,390       809,499       1,570,889  
Borrowings (excluding finance lease liabilities) (Note 25)
     8,258,448       15,088       8,273,536       -       8,273,536  
Derivative financial instruments (Note 20)
     -       532,683       532,683       -       532,683  
Total
     9,019,838       547,771       9,567,609       809,499       10,377,108  

(i)  
The Group has valued its interest in its associate IDBD at fair value through profit or loss according to IAS 28. Therefore, the Group has included it in the chart in order to show the respective results.


Financial assets and financial liabilities as of June 30, 2014 are as follows:

   
Financial assets at amortized cost
    
Financial assets at fair value through profit or loss
    
Subtotal financial assets
    
Non-financial assets
    
Total
  
June 30, 2014
                              
Assets as per statement of financial position
                              
Trade and other receivables (Note 18)
     1,362,245       66,722       1,428,967       484,790       1,913,757  
Investments in associates and joint ventures (Note 9) (i)
     -       595,342       595,342       -       595,342  
Investment in financial assets (Note 19)
     -       770,645       770,645       -       770,645  
Derivative financial instruments (Note 20)
     -       33,130       33,130       -       33,130  
Cash and cash equivalents (excluding bank overdrafts) (Note 21)
     978,397       24,590       1,002,987       -       1,002,987  
Total                                                
     2,340,642       1,490,429       3,831,071       484,790       4,315,861  
 
 
 
F-181
 
 
(i)  
The Group has valued its interest in its associate IDBD at fair value through profit or loss according to IAS 28. Therefore, the Group has included it in the chart in order to show the respective results.

 

 
F-182
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)

   
Financial liabilities at amortized cost
    
Financial liabilities at fair value through profit or loss
    
Subtotal financial liabilities
    
Non-financial liabilities
    
Total
  
Liabilities as per statement of financial position
                              
Trade and other payables (Note 22)
     568,826       -       568,826       652,114       1,220,940  
Borrowings (excluding finance lease liabilities) (Note 25)
     7,900,094       51,443       7,951,537       -       7,951,537  
Derivative financial instruments (Note 20)
     -       374,266       374,266       -       374,266  
Total                                                
     8,468,920       425,709       8,894,629       652,114       9,546,743  

Liabilities carried at amortized cost also include liabilities under finance leases where the Group is the lessee and which therefore have to be measured in accordance with IAS 17 “Leases”. The categories disclosed are determined by reference to IFRS 9. Finance leases are excluded from the scope of IFRS 7 “Financial Instruments: Disclosures”. Therefore, finance leases have been shown separately.

Income, expense, gains and losses on financial instruments are included in “Financial results, net” in the income statements, except for those generated by commodities, which are disclosed in “Other operating results, net” can be assigned to the following categories:

   
Financial assets/ liabilities at amortized cost
    
Financial assets / liabilities at fair value through profit or loss
    
Subtotal Financial assets and liabilities
    
Non-Financial assets and liabilities
    
Total
  
June 30, 2015
                              
Interest income
     100,094       -       100,094       -       100,094  
Interest expense
     (886,710 )     -       (886,710 )     -       (886,710 )
Foreign exchange losses
     (562,042 )     -       (562,042 )     -       (562,042 )
Dividends income
     16,622       -       16,622       -       16,622  
Capitalized borrowing costs
     12,957       -       12,957       -       12,957  
Fair value gain on financial assets at fair value through profit or loss, net
     -       187,529       187,529       -       187,529  
Loss from repurchase of Non-convertible Notes
     (1,945 )     -       (1,945 )     -       (1,945 )
Loss from derivative financial instruments (except commodities)
     -       (83,510 )     (83,510 )     -       (83,510 )
Gain on the revaluation of receivables arising from the sale of farmland
     -       52,984       52,984       -       52,984  
Other financial results
     (124,140 )     -       (124,140 )     -       (124,140 )
Net result
     (1,445,164 )     157,003       (1,288,161 )     -       (1,288,161 )

 

 
F-183
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)

   
Financial assets / liabilities at amortized cost
    
Financial assets / liabilities at fair value through profit or loss
    
Subtotal Financial assets and liabilities
    
Non-Financial assets and liabilities
    
Total
  
June 30, 2014
                              
Interest Income
     119,291       -       119,291       -       119,291  
Interest expense
     (737,913 )     -       (737,913 )     -       (737,913 )
Foreign exchange losses, net
     (1,899,521 )     -       (1,899,521 )     -       (1,899,521 )
Dividends income
     15,041       -       15,041       -       15,041  
Capitalized borrowing costs
     22,376       -       22,376       -       22,376  
Fair value gain on financial assets at fair value through profit or loss, net
     -       379,091       379,091       -       379,091  
Loss from repurchase of Non-convertible Notes
     (44,688 )     -       (44,688 )     -       (44,688 )
Loss from derivative financial instruments (except commodities)
     -       (365,740 )     (365,740 )     -       (365,740 )
Gain on the revaluation of receivables arising from the sale of farmland
     -       20,751       20,751       -       20,751  
Other finance results
     (83,086 )     -       (83,086 )     -       (83,086 )
Net result
     (2,608,500 )     34,102       (2,574,398 )     -       (2,574,398 )

   
Financial assets / liabilities at amortized cost
    
Financial assets / liabilities at fair value through profit or loss
    
Subtotal Financial assets and liabilities
    
Non-Financial assets and liabilities
    
Total
  
June 30, 2013
                              
Interest income
     72,813       -       72,813       -       72,813  
Interest expense
     (483,772 )     -       (483,772 )     -       (483,772 )
Foreign exchange losses, net
     (481,696 )     -       (481,696 )     -       (481,696 )
Dividends income                                               
     23,249       -       23,249       -       23,249  
Capitalized borrowing costs
     10,307       -       10,307       -       10,307  
Fair value gain of financial assets at fair value through profit or loss, net
     -       23,739       23,739       -       23,739  
Loss from derivative financial instruments (except commodities)
     -       (7,567 )     (7,567 )     -       (7,567 )
Net loss on the revaluation of receivables arising from the sale of farmland
     -       (3,165 )     (3,165 )     -       (3,165 )
Gain from repurchase of Non-convertible Notes
     2,057       -       2,057       -       2,057  
Fair value gain on embedded derivatives
     -       64       64       -       64  
Other finance results
     (64,790 )     -       (64,790 )     -       (64,790 )
Net result
     (921,832 )     13,071       (908,761 )     -       (908,761 )

 

 
F-184
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)

Determining fair values

IFRS 9 defines the fair value of a financial instrument as the amount for which a financial asset could be exchanged, or a financial liability settled, between knowledgeable, willing parties in an arm’s length transaction. All financial instruments recognized at fair value are allocated to one of the valuation hierarchy levels of IFRS 7. This valuation hierarchy provides for three levels. The initial basis for the allocation is the “economic investment class”. Only if this does not result in an appropriate allocation the Company deviates from such an approach in individual cases. The allocation reflects which of the fair values derive from transactions in the market and where valuation is based on models because market transactions are lacking.

In the case of Level 1, valuation is based on non-adjusted quoted prices in active markets for identical financial assets or liabilities that the Group can refer to at the date of the statement of financial position. A market is deemed active if transactions take place with sufficient frequency and in sufficient quantity for price information to be available on an ongoing basis. Since a quoted price in an active market is the most reliable indicator of fair value, this should always be used if available. The financial instruments the Group has allocated to this level mainly comprise equity investments, mutual funds, government bonds and corporate bonds for which quoted prices in active markets are available. In the case of securities, the Group allocates them to this level when either a stock market price is available or prices are provided by a price quotation on the basis of actual market transactions.

In the case of Level 2, fair value is determined by using valuation methods based on inputs directly or indirectly observable in the market. If the financial instrument concerned has a fixed contract period, the inputs for valuation must be observable for the whole of this period. The financial instruments the Group has allocated to this level mainly comprise interest rate swaps and foreign currency future contracts.

In the case of Level 3, the Group uses valuation techniques not based on inputs observable in the market. This is only permissible insofar as no observable market data are available. The inputs used reflect the Group’s assumptions regarding the factors which market players would consider in their pricing. The Group uses the best available information for this, including internal company data. The financial instruments the Group has allocated to this level mainly comprise equity securities of Condor, shares, other borrowings and commitment to tender offer of shares in IDBD.

 

 
F-185
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)


The Group’s Finance Division has a team in place in charge of estimating valuation of financial assets required to be reported in the financial statements, including the fair value of Level 3 instruments. The team directly reports to the Chief Financial Officer (CFO).

The CFO and the valuation team discuss the valuation methods and results upon the acquisition of an asset and, if necessary, on a quarterly basis, in line with the Group’s quarterly reports.

According to the Group’s policy, transfers among the several categories of valuation tiers are recognized when occurred, or when there are changes in the prevailing circumstances requiring the transfer.
 
As described in Note 3 to the consolidated financial statements as of June 30, 2015 and for the fiscal year then ended, the Group has valued its investment in IDBD at fair value, applying the exception contemplated under IAS 28 (see Note 2 for further details). The investment in IDBD consists of 324 million common shares representing 49% of IDBD’s stock capital and 248 million warrants to purchase common shares.
 
Up to the third quarter ended March 31, 2015, the Group estimated that the quoted market price of IDBD’s shares in the Tel Aviv Stock Exchange represented the fair value of its investment and therefore, it valued its investment based on such quoted price, classifying this measurement as Level 1 in the fair value hierarchy.
 
As further described in Note 9 to the consolidated financial statements, as part of the Arrangement, Dolphin promised to make one or more Tender Offers for the purchase of IDBD’s outstanding shares at a fixed price for a total amount of NIS 512.09 million.
 
On October 20, 2015, a judge of the Tel Aviv-Jaffo court of first instance sustained a request filed by the trustees representing the Creditors under the Arrangement and ruled that the shares held by Dolphin or any other company controlled by Eduardo S. Elsztain would not be eligible to participate in the Tender Offers scheduled for December 2015 and December 2016. Dolphin decided to appeal against the ruling before the Supreme Court of Justice of Israel.
 
Although IDBD’s capital is composed of a single class of common shares, all entitled to the same rights, the judge’s ruling de facto created two classes of shares with different rights: one class that would be eligible to be tendered and another class, belonging to any company controlled by Eduardo S. Elsztain, that would not be eligible to be tendered. Since IDBD’s share carries a right to be tendered for a fixed price at a predetermined date, the quoted price contains an embedded feature representing the value of the future commitment for the Tender Offers. Upon the judge’s ruling, such value would only be representative for purposes of valuing the interest held in IDBD by parties other than Dolphin or any other company controlled by Eduardo S. Elsztain, i.e. Creditors under the Arrangement representing approximately 127 million shares of IDBD as of June 30, 2015.
 

 
F-186
 

16.  
Financial instruments by category (Continued)
 
Based on the circumstances described above, the Group considers that the quoted market price of IDBD share would no longer be representative of the fair value of Dolphin’s interest because under the judge’s ruling, Dolphin’s shares would not have the same rights as the ones currently trading in the Tel Aviv stock exchange. As such, the Group considered departing from its Level 1 measurement (quoted market price) and considering a Level 3 measurement by using a valuation model with significant unobservable inputs to estimate the fair value of its investment in IDBD. It is the Group’s policy to recognize transfers to and from different levels in the fair value hierarchy under IFRS 13 as of the date of the event or change in the circumstances that lead to such transfer.
 
    The Group developed an internal valuation model to determine the fair value of the IDBD shares under these circumstances. This model is principally based and is sensitive to the number of shares eligible to be tendered. In one end of the spectrum, all of the shares outstanding (Dolphin’s, any other company controlled by Eduardo S. Elsztain and the Creditors) may be tendered, and on the opposite end, only the Creditors’ shares are eligible for tendering as per the judge’s ruling. The objective of the methodology is to arrive at a fair value of the IDBD’s share by subtracting from the quoted market price the value of the right to participate in the tender offer embedded in such quoted price. The relative weight of the “right to participate in the tender offer” embedded in IDBD’s quoted market price is sensitive and varies depending on the number of shares deemed eligible for tendering. Each scenario reflects a different number of shares eligible for tendering. A probability of occurrence has been assigned to each scenario based on available evidence. This methodology results in a weighted-probability value representing the fair value of IDBD’s shares recognized in the financial statements. The Company considers this value as a reasonable proxy for the fair value of the IDBD share.

    Based on the opinion of its legal counsel, Dolphin considers that it has a reasonable probability that the Supreme Court of Justice overturns the judge’s ruling. In this regard, the model assigned equal probabilities to either succeeding in or losing the appeal. In the event that Dolphin is not successful in its appeal, the Group considers that the Supreme Court may sustain the first instance’s ruling or may allow a number of shares of IDBD held by Dolphin or any other company controlled by Eduardo S. Elsztain to be tendered.

This is translated into the model as the following scenarios:

Scenario 1: “Win Scenario”

The Group has a 50% chance of succeeding in its appeal before the Supreme Court of Justice and, therefore, all of the shares held by Dolphin and any other company controlled by Eduardo S. Elsztain would be eligible to be tendered. This scenario affirms that the quoted market price of the IDBD’s shares would still be representative of the fair value, because no distinction of classes of shares is made and all continue to have the same rights as before the judge’s ruling.

Scenario 2: “Loss Scenario”

    The Group has a 50% chance of not succeeding in its appeal before the Supreme Court of Justice. This scenario is further divided into various sub-scenarios depending on the number of shares – held by Dolphin or other companies controlled by Eduardo S. Elsztain- that a Supreme Court’s sentence might allow to participate in the Tender Offers. A sentence could determine different amounts of shares eligible for participating in the Tender Offers, and accordingly the Group weighed different probabilities of occurrence to the sub-scenarios based on such amounts.
    This methodology is based on the following assumptions:
·
Quoted market price of IDBD share as of June 30, 2015 as published in the TASE: NIS 1.96 per share
·
Number of shares eligible to participate in the tender offer under the various scenarios and assigned probability of occurrence; and
·
Discount rate to be applied to the fixed-price tender offer obligation of 0.07%

 
F-187
 

 
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)
 
 
The following tables present the Group’s financial assets and financial liabilities that are measured at fair value as of June 30, 2015 and 2014 and their allocation to the different levels of the fair value hierarchy:

 
   
June 30, 2015
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets
                        
Financial assets at fair value through profit or loss:
                        
 - Investment in equity securities in TGLT
     71,573       -       -       71,573  
 - Investment in equity securities in Avenida Inc. S.A.
     102,316       -       -       102,316  
 - Corporate bonds                                                            
     1,789       -       -       1,789  
 - Government bonds                                                            
     101,649               -       101,649  
 - Mutual funds                                                            
     383,572       -       -       383,572  
 - Other securities in public Companies
     16,742       -       -       16,742  
 - Preferred Shares of Condor Hospitality Trust Inc. (formerly Supertel Hospitality Inc. due to change of corporate name)
     -       -       348,854       348,854  
Derivative financial instruments:
                                
 -  Warrants of Condor Hospitality Trust Inc. (formerly Supertel Hospitality Inc. due to change of corporate name)
     -       -       7,151       7,151  
- Crops futures                                                            
     396       -       -       396  
- Commodities options                                                            
     1,195       -       -       1,195  
 - IDBD Warrants                                                            
     228,414       -       -       228,414  
- Investments in associates
                                
 -  IDBD                                                            
     -       -       907,083       907,083  
Cash and cash equivalents                                                            
     112,340       -       -       112,340  
Total Assets                                                            
     1,019,986       -       1,263,088       2,283,074  
Liabilities
                                
Derivative financial instruments:
                                
- Foreign-currency contracts                                                            
     -       10,065       -       10,065  
- Crops futures                                                            
     11,477       -       -       11,477  
- Commodities options                                                            
     8,500       -       -       8,500  
- Commitment to tender offer shares in IDBD
     -       -       502,641       502,641  
Borrowings
                                
 - Other borrowings                                                            
     -       -       15,089       15,089  
Total Liabilities                                                            
     19,977       10,065       517,730       547,772  


 

 
F-188
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


16.  
Financial instruments by category (Continued)

   
June 30, 2014
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets
                        
Financial assets at fair value through profit or loss:
                        
 - Investment in equity securities in TGLT
     63,546       -       -       63,546  
 - Investment in equity securities in Hersha
     53,901       -       -       53,901  
 - Corporate bonds                                                            
     1,438       -       -       1,438  
 - Government bonds                                                            
     203,216       -       -       203,216  
 - Mutual funds                                                            
     222,760       -       -       222,760  
 - Other securities in public Companies
     14,614       -       -       14,614  
 -  Preferred Shares of Condor Hospitality Trust Inc. (formerly Supertel Hospitality Inc. due to change of corporate name)
     -       -       211,170       211,170  
Derivative financial instruments:
                                
 - Crops futures                                                            
     4,750       -       -       4,750  
 - IDBD Rights (i)                                                            
     10,986       -       -       10,986  
 - Foreign-currency contracts                                                            
     -       16,305       -       16,305  
 - Interest-rate swaps                                                            
     -       1,089       -       1,089  
Cash and cash equivalents                                                            
     24,590       -       -       24,590  
Total Assets                                                            
     599,801       17,394       211,170       828,365  
Liabilities
                                
Derivative financial instruments:
                                
- Foreign-currency future contracts
     -       52,666       -       52,666  
- Commodities options                                                            
     753       -       -       753  
- Commitment to tender offer shares in IDBD
     -       -       320,847       320,847  
Total Liabilities                                                            
     753       52,666       320,847       374,266  

(i)  
On July 3 rights for the purchase of additional shares and warrants of IDBD were exercised.

The following table presents the changes in Level 3 financial instruments for the years ended June 30, 2015 and 2014:
 


   
Warrants of Condor Hospitality Trust Inc.
    
Investment in associate IDBD
    
Other borrowings
    
Preferred Shares
of Condor Hospitality
Trust Inc.
    
Commitment to tender offer shares in IDBD
    
Total
  
Balances as of July 1st, 2013
     16,949       -       -       139,120       -       156,069  
Currency translation adjustment
     -       -       -       -       (5,247 )     (5,247 )
Total gains or losses for the year 2013
     (16,949 )     -       -       72,050       (315,600 )     (260,499 )
Balance as of June 30, 2014
     -       -       -       211,170       (320,847 )     (109,677 )
Transfers to Level 3
     -       1,825,449       (86,210 )     -       -       1,739,239  
Currency translation adjustment
     -       82,634       18,580       -       (45,260 )     55,954  
Gain and losses recognized in profit or loss (i)
     7,151       (1,001,000 )     52,541       137,684       (136,534 )     (940,158 )
Balance as of June 30, 2015
     7,151       907,083       (15,089 )     348,854       (502,641 )     745,358  
 
(i)  
The gain / (loss) is not realized as of June 30, 2015 and is accounted for under “Other financial results” in the income statements (Note 36)

 

 
F-189
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



16.  
Financial instruments by category (Continued)

Upon initial recognition (January 2012), the consideration paid for the Shares and Warrants of Condor was assigned to both instruments based on the relative fair values of those instruments upon acquisition. The fair value of these instruments exceeded the transaction price and were determined using a valuation technique that uses inputs not observable in the market. As a result of the use of this technique, the Group has not recognized a gain at the time of initial recognition in the amount of US$ 7.9 million.

According to Group estimates, all factors being constant, a 10% decline in the price of the underlying assets of Level 3 Shares and Warrants of Condor (data observed in the market) as of June 30, 2015, would reduce pre-tax income by Ps. 39 million.

According to Group estimates, all factors being constant, a 10% decrease in the credit spread (data which is not observable in the market) of shares and warrants of Condor used in the valuation model applied to Level 3 financial instruments as of June 30, 2015, would increase pre-tax income by Ps. 0.15 million. The rate used as of June 30, 2015 was 14.25%.
 
        According to Group estimates, all things being constant, a 10% decline in the price of IDBD shares, will change the value of our financial assets and liabilities related to this investment, wich are classified as  Level 3 as of June 30, 2015, and would reduce pre-tax income by Ps. 127,9 million.According to Group estimates, all things being constant, assigning 100% probability to scenario 1 (succeeding in the appeal) would increase pre-tax income by Ps. 615.2 million. On the other hand, assigning 100% probability to scenario 2 (not succeeding in the appeal) would reduce pre-tax income by Ps. 615.2 million.

 
F-190
 

16.  
Financial instruments by category (Continued)
 
        When no quoted prices in an active market are available, fair values (particularly with derivatives) are based on recognized valuation methods. The Group uses a range of valuation models for the measurement of Level 2 and Level 3 instruments, details of which may be obtained from the following table:
 

Description
Pricing model
  
Pricing method
  
Parameters
  
Range
  
Foreign currency-contracts
Present value method
  
Theoretical price
  
Money market curve, interest-rate curve; Foreign exchange curve.
     -  
Commitment to tender offer IDBD
Black-Scholes
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve).
  
Underlying asset price 3.5 to 4.7
Share price volatility
30% to 40%
Money market interest rate 0.7% to 1%
  
Other Borrowings
Weighted probability of the difference between market price and the Commitment to tender offer of shares in IDBD
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve). IRSA 2017 interest-rate and scenario weights.
  
Underlying asset price 1.55 to 2.35
Share price volatility
60% to 80%
Money market interest rate 0.02% to 0.9%
  
IDBD Shares
Weighted probability of the difference between market price and the Commitment to tender offer of shares in IDBD
  
Theoretical price
  
Underlying asset price; share price volatility (historical) and interest-rate curve (NIS rate curve). IRSA 2017 interest-rate and scenario weights.
  
Underlying asset price 1.55 to 2.35
Share price volatility
60% to 80%
Money market interest rate 0.02% to 0.9%
  
Call option of Arcos
 
Discounted cash flow
     -  
Projected income and discounted interest rate.
     -  
Interest rate swaps
 
Cash flow
  
Theoretical price
  
Interest rate and cash flow forward contract.
     -  
Preferred shares of Condor
Binomial tree
  
Theoretical price
  
 Underlying asset price (market price), share price volatility (historical) and money market interest-rate curve (Libor rate).
  
Underlying asset price 1.96 to 2.65
Share price volatility 56% to 76%
Money market interest rate 0.67% to
0.83%
  
Warrants of Condor
Black-Scholes
  
Theoretical price
  
Underlying asset price (market price), share price volatility (historical) and money market interest-rate curve (Libor rate).
  
Underlying asset price 1.96 to 2.65
Share price volatility 56% to 76%
Money market interest rate 0.67% to
0.83%
  

 

 
F-191
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


17.  
Restricted assets

The table below shows presents the restricted assets as of June 30, 2015 and 2014:

   
June 30,
 2015
    
June 30,
2014
  
Non-current
            
Mutual funds                                                                                   
     4,301       50,897  
Total Non-Current                                                                                   
     4,301       50,897  
Current
                
Escrow deposits                                                                                   
     607,021       -  
Total Current                                                                                   
     607,021       -  
Total restricted assets                                                                                   
     611,322       50,897  


 

 
F-192
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



18.  
Trade and other receivables

The table below shows trade and other receivables as of June 30, 2015 and 2014:

   
June 30,
2015
    
June 30,
2014
  
Non-current
            
Leases and services receivable
     62,080       55,105  
Receivables from sale of agriculture products
     1,154       2,090  
Property sales receivable (i)
     104,064       154,582  
Less: allowance for doubtful accounts
     (2,208 )     (2,208 )
Non-current trade receivables
     165,090       209,569  
Trade receivables from disposal of joint ventures
     3,595       3,213  
Prepayments
     11,274       14,332  
VAT receivables
     26,745       22,342  
Other tax receivables
     73,131       110,238  
Guarantee deposits
     17,027       17,150  
Advances for shares purchases
     12,134       -  
Others
     2,060       1,093  
Non-current other receivables
     145,966       168,368  
Related parties (Note 38)
     115,721       97,412  
Non-current trade and other receivables
     426,777       475,349  
Current
                
Consumer financing receivables
     14,620       14,861  
Leases and services receivable
     356,217       256,123  
Receivables from sale of agriculture products and farmlands leases
     253,355       281,711  
Receivables from hotel operations
     21,144       33,861  
Deferred checks received
     247,030       211,278  
Debtors under legal proceedings
     71,343       61,573  
Property sales receivable (i)
     88,032       131,573  
Less: allowance for doubtful accounts
     (117,514 )     (88,088 )
Current trade receivables
     934,227       902,892  
Contributions to be paid in by non-controlling interests
     -       12,840  
Prepayments
     144,982       90,754  
VAT receivables
     51,593       61,030  
Gross sales tax credit
     6,594       4,957  
Other tax receivables
     36,316       33,457  
Loans
     22,977       12,751  
Expenses and services to recover
     3,125       3,024  
Suppliers advances
     105,105       144,656  
Guarantee deposits
     39,154       49,572  
Dividends receivable
     -       11,778  
Others
     37,505       24,892  
Less: allowance for doubtful accounts
     (185 )     (195 )
Current other receivables
     447,166       449,516  
Related parties (Note 38)
     390,980       86,000  
Current trade and other receivables
     1,772,373       1,438,408  
Total trade and other receivables
     2,199,150       1,913,757  

(i)  
Property sales receivables primarily comprise the sale of trading properties, investment properties and farmlands.

 

 
F-193
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



18.  
Trade and other receivables (Continued)

As of June 30, 2015, all non-current receivables are due within 4 years from the end of the reporting period.

The fair value of current trade and other receivables approximate their respective carrying amounts due to their short-term nature, as the impact of discounting is not considered significant. Fair values are based on discounted cash flows (Level 2 of fair value hierarchy).

The carrying amounts of the Group’s trade and other receivables denominated in foreign currencies are detailed in Note 41.

Trade receivables are generally presented in the statement of financial position net of allowances for doubtful receivables. Impairment policies and procedures by type of receivables are discussed in detail in Note 2.18.

The evolution of the Group’s provision for impairment of trade receivables are as follows:

   
June 30,
2015
    
June 30,
2014
  
Beginning of the year
     90,491       86,902  
Creation
     45,968       24,150  
Recovery
     (16,800 )     (13,689 )
Unused amounts reversed
     -       (23 )
Used during the year
     (1,924 )     (9,347 )
Currency translation adjustment
     2,172       2,498  
End of the year
     119,907       90,491  

The creation and release of provision for impairment receivables have been included in “Selling expenses” in the income statements (Note 33). Amounts charged to the provision account are generally written off when there is no expectation of recovering additional cash.

The Group’s trade receivables comprise several classes. The maximum exposure to credit risk at the reporting date is the carrying value of each class of credit.

The Company has also receivables with related parties. Neither of which are due nor impaired.

 

 
F-194
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



18.  
Trade and other receivables (Continued)

Due to the distinct characteristics of each type of receivables, an aging analysis of past due unimpaired and impaired receivables are shown by type and class as of June 30, 2015 and 2014 (includes receivables not past due to reconcile with the amounts in the statements of financial position):
 
    Expired                    
   
Up to 3 months
    
3 to 6 months
    
Over 6 months
    
Not past due
    
Allowance
    
Total
  
Leases and services
     39,737       10,437       13,986       562,113       69,846       696,119  
Office leases                                   
     3,761       3,645       1,801       11,888       9,540       30,635  
Hotel leases and services
     854       -       -       16,195       757       17,806  
Consumer financing:
                                                
Credit card                               
     -       -       -       4,635       14,620       19,255  
Disposal of properties
     64       63       277       184,388       9,170       193,962  
Agriculture products
     42,126       1,191       3,415       198,741       15,789       261,262  
Total as of June 30, 2015
     86,542       15,336       19,479       977,960       119,722       1,219,039  
Leases and services
     25,767       9,555       11,312       423,334       56,405       526,373  
Office leases                                   
     5,845       708       8,177       3,272       7,968       25,970  
Hotel leases and services
     16,890       -       -       16,583       388       33,861  
Consumer financing:
                                                
Credit card                               
     -       -       -       -       14,861       14,861  
Disposal of properties
     11,120       43       218       276,174       2,512       290,067  
Agriculture products
     22,673       121       3,621       277,048       8,162       311,625  
Total as of June 30, 2014
     82,295       10,427       23,328       996,411       90,296       1,202,757  
 
Leases and services receivables from investment properties:

Trade receivables related to leases and services provided from shopping centers and offices represent 40% and 31% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. The Group has a large customer base and is not dependent on any single customer. Leases and services receivables that are not due and for which no allowance has been recorded relate to a wide and varied number of customers for whom there is no external credit rating available. Most of these customers have reached a minimum period of six months and have no previous non-compliance records. New customers with less than six months are regularly monitored. At the end of the year, the Group has not experience credit issues with these new customers.

As of June 30, 2015 and 2014 the Group recognized losses from impairment of leases and services receivables for an amount of Ps. 15.4 million and Ps. 12.9 million, respectively.

 

 
F-195
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



18.  
Trade and other receivables (Continued)

Consumer financing receivables:

Trade receivables related to the residual consumer activities of the Group represent only 1% and 1% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively

As of June 30, 2015, the Group has recorded the recovery of consumer financing receivables in the amount of Ps. 0.2 million, whereas as of June 30, 2014 the Group provided for recorded net gains (losses) on impairment of consumer financing receivables for an amount of Ps. 0,9 million. The estimation of the credit risk is complex and requires the use of rating and scoring models which are essential to measure default risk. In measuring the consumption credit risks of credit purchases made through credit cards and cash advances, the Group considers two components: (i) the probability of default by client or counterparty, and (ii) the likeable recovery rate of obligations in arrears. The models are reviewed regularly to check their effectiveness with respect to actual performance and, where necessary, to enhance them.

Receivables from the disposal of properties:

Trade receivables related to the disposal of properties represent 17% and 26% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. Payments on these receivables are generally received when due and are generally secured by mortgages on the properties, thus credit risk on outstanding amounts is considered low.

As of June 30, 2015, the Group recorded losses under receivables from the disposal of property in the amount of Ps. 6.7 million, whereas as of June 30, 2014 the Group recorded the recovery of receivables from the disposal of property in the amount of Ps. 0.3 million.

Receivables from the sale of agriculture products:

Trade receivables related to the sale of agriculture products and farmlands leases represent 23% and 26% of the Group’s total trade receivables as of June 30, 2015 and 2014, respectively. The Group has a large customer base and is not dependent on any single customer.

As of June 30, 2015 and 2014, the Company has recognized losses with respect to receivables from the sale of agriculture products for an amount of Ps. 7.6 million and Ps. 8.2 million, respectively.

 

 
F-196
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



18.  
Trade and other receivables (Continued)

As of June 30, 2015 and 2014, approximately 73% and 75% of the outstanding unimpaired receivables from the sale of agricultural products (neither past due nor impaired), respectively, relate to sales to 10 and 12 well-known companies with good credit quality standing. These entities or their parents have an available external credit rating. The Group reviews theses external ratings in credit agencies. As of June 30, 2015 and 2014, the remaining percentage of the outstanding unimpaired receivables from the sale of agricultural products is related to sales to a large number of customers whose external rating is not available. However, the total number of clients without an external credit rating is relatively stable. Most customers for which an external credit rating is unavailable are customers with more than six months in the Company and have had no defaults in the past. New customers with less than six months are regularly monitored. To date, the Group has not experience credit issues with these new customers.

 

 
F-197
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



19.  
Investment in financial assets

The following table shows investments in financial assets as of June 30, 2015 and 2014:

   
June 30,
2015
    
June 30,
2014
  
Non-current
            
Financial assets at fair value
            
Investment in equity securities in TGLT (i)
     71,573       63,546  
Investment in equity securities in Avenida Inc. S.A.
     102,316       -  
Investments in equity securities of Condor Hospitality Trust Inc. (formerly Supertel Hospitality Inc. due to change of corporate name)
     348,854       211,170  
Non-convertible notes related parties (Note 38)
     100,000       -  
Other securities in public companies
     102       296  
Total Investment in financial assets non-current
     622,845       275,012  
Current
                
Financial assets at fair value
                
Mutual funds
     383,572       222,760  
Investment in equity securities in Hersha (ii)
     -       53,901  
Non-convertible notes related parties (Note 38)
     452       -  
Corporate bonds
     1,789       1,438  
Government bonds
     101,649       203,216  
Other securities in public companies
     16,640       14,318  
Total Investment in financial assets current
     504,102       495,633  
Total Investment in financial assets
     1,126,947       770,645  

(i)  
On November 4, 2010, the Group, acquired 5,214,662 shares of common stock of TGLT following TGLT initial public offering in the Buenos Aires Stock Exchange for Ps. 47.1 million in cash. TGLT is a residential housing developer with operations in Argentina and Uruguay. Following the initial acquisition, through successive purchases, the Group acquired 1,474,359 additional TGLT shares for an aggregate of Ps. 13.1 million. As of June 30, 2015, the Group’s interest in TGLT amounted to 6,689,021 shares, representing 9.51% of the capital stock.

(ii)  
As of June 30, 2014, the balances consist of the Group’s interest in Hersha of 0.498%. Hersha is a Real Estate Investment Trust (REIT) listed in the NYSE, with interests in hotels throughout the United States of America.
 
Book value of the Group's investments in financial instruments denominated in foreign currencies is detailed in Note 41.

The maximum exposure to credit risk at the reporting date is the carrying value of these assets.


 

 
F-198
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



20.  
Derivative financial instruments

Group’s derivative financial instruments as of June 30, 2015 and 2014 are as follows:

   
June 30,
2015
    
June 30,
2014
  
Assets
            
Non-current
            
Commodities options                                                                                   
     1,195       -  
Foreign-currency contracts                                                                                   
     -       233  
Warrant IDBD                                                                                   
     199,256       -  
Warrant Condor Hospitality Trust Inc. (i)                                                                                   
     7,151       -  
Total non-current                                                                                   
     207,602       233  
Current
                
Crops futures                                                                                   
     396       4,750  
Warrant IDBD (Note 3)                                                                                   
     29,158       10,986  
Foreign-currency contracts (Note 38)                                                                                   
     -       16,072  
Interest-rate swaps                                                                                   
     -       1,089  
Total Current                                                                                   
     29,554       32,897  
Total assets                                                                                   
     237,156       33,130  
                 
Liabilities
                
Non-current
                
Commodities options                                                                                   
     1,863       -  
Foreign-currency contracts                                                                                   
     3,030       -  
Commitment to tender offer shares in IDBD (Note 3)
     265,056       320,847  
Total non-current                                                                                   
     269,949       320,847  
Current
                
Commodities options                                                                                   
     6,637       753  
Crops futures                                                                                   
     11,477       -  
Commitment to tender offer shares in IDBD (Note 3)
     237,585       -  
Foreign-currency contracts                                                                                   
     7,035       52,666  
Total Current                                                                                   
     262,734       53,419  
Total liabilities                                                                                   
     532,683       374,266  

(i) The balance represents the fair value of Condor Hospitality Trus Inc.’s warrants, which were acquired in February 2012.

Book value of Group's derivative financial instruments denominated in foreign currencies is detailed in Note 41.

The maximum exposure to credit risk at the reporting date is the carrying value of derivative financial instruments.

 

 
F-199
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



21.  
Cash flow information

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Cash at bank and on hand
     437,337       724,900       769,485  
Short-term bank deposits
     84,016       251,822       148,221  
Financial trust
     -       1,675       -  
Mutual funds
     112,340       24,590       129,880  
Total cash and cash equivalents
     633,693       1,002,987       1,047,586  

Following is a detailed description of cash flows generated by the Group’s operations for the years ended as of June 30, 2015, 2014 and 2013:

     
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Profit (Loss) for the year                                                                                 
       176,211       (1,408,408 )     154,263  
Adjustments for:
                          
Income tax expense                                                                                 
28
     303,350       (389,415 )     33,519  
Depreciation and amortization                                                                                 
10,11,13
     257,822       296,919       279,738  
Gain from disposal of investment property                                                                                 
       (1,150,230 )     (230,918 )     (177,999 )
Gain from disposal of farmlands                                                                                 
       (550,462 )     (91,356 )     (149,584 )
Loss / (Gain) from disposal of property, plant and equipment
35
     893       366       (1,379 )
(Gain) / Loss on the revaluation of receivables arising from the sale of farmland
       (52,984 )     (20,751 )     3,165  
Disposal of unused intangible assets                                                                                 
       380       162       -  
Release of investment property and property, plant and equipment
       1,963       2,623       5,226  
Dividends income                                                                                 
       (16,622 )     (15,041 )     (23,249 )
Share-based payments                                                                                 
       30,823       68,614       10,549  
Unrealized loss / (gain) on derivative financial instruments
35, 36
     131,006       350,133       (49,468 )
Changes in fair value of investments in financial assets
36
     (187,529 )     (379,091 )     (23,739 )
Interest expense, net                                                                                 
36
     773,659       596,246       400,652  
Unrealized initial recognition and changes in fair value of biological assets and agricultural produce at the point of harvest.
       (105,094 )     (405,771 )     (176,471 )
Changes in the net realizable value of agricultural produce after harvest
       34,471       17,447       (11,756 )
Provisions                                                                                 
       90,244       112,653       98,723  
Share of profit of associates and joint ventures
8,9
     1,024,972       408,651       9,818  
Reversal of currency translation adjustment                                                                                 
       (188,323 )     -       -  
Unrealized foreign exchange, net                                                                                 
       645,098       1,946,071       517,755  
Loss from repurchase of Non-convertible Notes
       1,945       44,688       -  
Gain from purchase of subsidiaries                                                                                 
       -       -       (136,724 )
Gain from disposal of equity interest in subsidiaries, associates and joint ventures
       (22,075 )     -       (15,433 )
Changes in operating assets and liabilities:
               -          
Decrease in biological assets                                                                                 
       114,618       286,554       286,731  
Increase in inventories                                                                                 
       (131,678 )     (196,831 )     (56,929 )
Decrease in trading properties                                                                                 
       44       7,145       4,466  
(Decrease) Increase in trade and other receivables
       (479,919 )     268,270       (265,428 )
(Decrease) Increase  in derivative financial instruments
       4,225       (6,331 )     (32,019 )
(Decrease) Increase in trade and other payables
       144,786       (169,958 )     220,067  
Increase in payroll and social security liabilities
       84,939       71,633       19,734  
(Decrease) Increase in provisions                                                                                 
       (12,112 )     (1,230 )     7,090  
Net cash generated from operating activities before income tax paid
       924,421       1,163,074       931,318  

 

 
F-200
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



21.  
Cash flow information (Continued)

The following table shows a detail of significant non-cash transactions occurred in the years ended June 30, 2015, 2014 and 2013:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Increase in restricted funds from the sale of farmlands
     590,490       -       -  
Reimbursement of expired dividends                                                                                         
     811       2,771       -  
Dividends payable                                                                                         
     42,772       56,625       4,169  
Decrease of borrowings trough a decrease in investment in associates and joint ventures
     136,685       -       -  
Increase of financial assets through a decrease in investment in associates and joint ventures
     30,089       -       -  
Increase in investments in associates and joint ventures through a decrease in financial assets
     12,744       -       -  
Decrease of investment in associates and joint venture through an increase in trade and other receivables
     -       476       -  
Decrease in equity through an increase in trade and other payables
     -       -       1,164  
Decrease in equity through an increase in borrowings
     -       -       1,640  
Decrease of investment in subsidiaries through an increase in trade and other receivables
     -       -       20,869  
Increase of investment in joint ventures through a decrease in trade and other receivables
     -       -       13,175  
Increase in property, plant and equipment through an increase in trade and other payables and borrowings
     2,326       756       2,480  
Decrease in property, plant and equipment and investment properties through an increase in trade and other receivables
     -       23,581       174,847  
Decrease in intangible assets through an increase in assets held for sale
     -       77,085       -  
Increase in trading properties through a decrease in intangible assets
     -       7,150       -  
Decrease in trading properties through a decrease in trade and other payables
     1,135       -       -  
Decrease in investment properties through an increase in property, plant and equipment
     -       12,231       -  
Decrease in investment properties through an increase in trade and other receivables
     -       -       118,936  
Decrease in investment properties through an increase in intangible assets
     -       998       -  
Decrease in investment properties through an increase in assets held for sale
     -       1,098,990       -  
Decrease in trade and other receivables through an increase in assets held for sale
     -       17,990       -  
Decrease in trade and other receivables through a decrease in borrowings
     -       -       12,503  
Decrease in trade and other payables through an increase in liabilities directly associated with assets classified as held for sale
     -       170,245       -  
Decrease in borrowings through an increase in liabilities directly associated with assets classified as held for sale
     -       603,021       -  
Decrease in deferred income tax liabilities through an increase in liabilities directly associated with assets classified as held for sale
     -       33,346       -  
Increase in restricted assets through a decrease in trade and other payables
     -       146,394       -  
Stock plan granted                                                                                         
     (15,718 )     -       -  
Distribution of treasury stock                                                                                         
     (54,876 )     -       -  
Options expired                                                                                         
     106,134       -       -  
Distribution of dividends not yet paid                                                                                         
     4,594       -       -  
Decrease in derivative financial instruments through an increase in assets held for sale
     -       299       -  
Decrease in restricted assets through an increase in assets held for sale
     8,742       163,501       -  
Decrease in borrowings trough an increase of investment in associates, subsidiaries and joint ventures
     -       23,829       -  
Increase in investments in financial assets through an increase in borrowings
     -       -       18,767  

 

 
F-201
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



22.  
Trade and other payables

The table below shows trade and other payables as of June 30, 2015 and 2014:

   
June 30,
 2015
    
June 30,
 2014
  
Non-current
            
Admission rights                                                                                     
     146,036       113,617  
Sales, rent and services payments received in advance
     63,986       51,638  
Guarantee deposits                                                                                     
     6,236       6,759  
Total non-current trade payables                                                                                     
     216,258       172,014  
Other tax payables                                                                                     
     6,404       9,166  
Deferred income                                                                                     
     7,420       7,914  
Shareholders’ personal tax payable                                                                                     
     865       1,170  
Tax amnesty plan for payable taxes                                                                                     
     24,268       15,014  
Others                                                                                     
     8,793       11,287  
Total non-current other payables                                                                                     
     47,750       44,551  
Related parties (Note 38)                                                                                     
     46       195  
Total non-current trade and other payables                                                                                     
     264,054       216,760  
Current
                
Trade payables                                                                                     
     301,719       289,825  
Accrued invoices                                                                                     
     222,831       173,193  
Admission rights                                                                                     
     142,709       111,024  
Sales, rent and services payments received in advance
     226,237       244,700  
Guarantee deposits                                                                                     
     14,302       13,413  
Total current trade payables                                                                                     
     907,798       832,155  
Withholdings tax                                                                                     
     6,048       3,020  
VAT payables                                                                                     
     43,953       28,521  
Gross sales tax payable                                                                                     
     2,004       1,150  
Other tax payables                                                                                     
     110,257       59,303  
Deferred revenue                                                                                     
     24,366       495  
Dividends payable                                                                                     
     123,888       24,032  
Tax amnesty plan for payable taxes                                                                                     
     280       306  
Shareholders’ personal tax payable                                                                                     
     4,666       5,076  
Others                                                                                     
     30,174       11,117  
Total current other payables                                                                                     
     345,636       133,020  
Related parties (Note 38)                                                                                     
     53,401       39,005  
Total current trade and other payables                                                                                     
     1,306,835       1,004,180  
Total trade and other payables                                                                                     
     1,570,889       1,220,940  

The fair values of current trade and other payables approximate their respective carrying amounts due to their short-term nature, as the impact of discounting is considered as not significant. Fair values are based on discounted cash flows (Level 2 of fair value hierarchy).

Book value of Group's trade and other payables denominated in foreign currencies are detailed in Note 41.

 

 
F-202
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



23.  
Payroll and social security liabilities

The table below shows payroll and social security liabilities as of June 30, 2015 and 2014:

   
June 30,
2015
    
June 30,
2014
  
Non-current
            
Provision for vacations and bonuses                                                                                   
     1,594       -  
Social security liabilities                                                                                   
     2,323       4,598  
Others                                                                                   
     1,622       443  
Non-current payroll and social security liabilities
     5,539       5,041  
Current
                
Provision for vacations and bonuses                                                                                   
     184,316       166,276  
Social security liabilities                                                                                   
     38,619       28,600  
Salaries payable                                                                                   
     3,066       2,247  
Share-based payments                                                                                   
     852       -  
Others                                                                                   
     3,547       5,423  
Current payroll and social security liabilities                                                                                   
     230,400       202,546  
Total payroll and social security liabilities                                                                                   
     235,939       207,587  

24.  
Provisions

The Group is subject to several Argentine laws, regulations and business practices. In the ordinary course of business, the Group is subject to certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving tax, labor and social security, administrative and civil and other matters. The Group accrues liabilities when it is probable that future costs will be incurred and can reasonably estimate them. The Group bases its accruals on up-to-date developments, estimates of the outcomes of the matters and legal counsel experience in contesting, litigating and settling matters. As the scope of the liabilities becomes better defined or more information is available, the Group may be required to change its estimates of future costs, which could have a material effect on its results of operations and financial condition or liquidity.

The table below shows the movements in the Group's provisions for other liabilities categorized by type of provision:

   
Labor
and legal claims
    
Tax and social security claims
    
Investments in associates and joint ventures (i)
    
Total
  
At June 30, 2013                                     
     47,054       1,691       39,091       87,836  
Additions                                     
     31,710       478       115,359       147,547  
Used/ recovered during fiscal year
     (21,088 )     (577 )     -       (21,665 )
Contributions                                     
     -       -       (16,667 )     (16,667 )
Currency translation adjustment
     4,947       -       39,199       44,146  
At June 30, 2014                                     
     62,623       1,592       176,982       241,197  
Additions                                     
     47,479       285       159,022       206,786  
Used/ recovered during fiscal year
     (32,767 )     (399 )     (59 )     (33,225 )
Contributions                                     
     -       -       (1,522 )     (1,522 )
Currency translation adjustment
     175       -       28,508       28,683  
At June 30, 2015                                     
     77,510       1,478       362,931       441,919  

(i) Corresponds to equity interests in associates and joint ventures with negative equity.

 

 
F-203
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



24.  
Provisions (Continued)

The analysis of total provisions is as follows:

   
June 30,
2015
    
June 30,
2014
  
Non-current                                                                                     
     386,948       220,489  
Current                                                                                     
     54,971       20,708  
      441,919       241,197  

Included within provisions are certain amounts the Group provided for the following cases which are further detailed below:

Litigation with Exagrind S.A.

Cresud filed a lawsuit through Inversiones Ganaderas S.A. (IGSA) (a former subsidiary merged with the Company) on claims for damages and losses produced by a fire in one of the Company's farms, “San Rafael” farm, which is close to Exagrind’s property, Tali Sumaj, in the Province of Catamarca, Argentina. The fire took place on September 6, 2000. Exagrind claimed an amount of Ps. 2.9 million at that date. The extraordinary appeal to the High Court of Justice of the Province of Catamarca, questioning the resolution that ended the term to respond the case, arguing that at that moment, the period was not completed, was favorably received. Therefore, Cresud finally responded the case and showed proofs. As of the consolidated financial statements date, the parties have been notified that the term to submit allegations has started to run. In March 2007, the court ordered an inhibition of assets which was subsequently lifted. This decision was lifted in June 2007 and Tali Sumaj farm on attachment has been accepted in replacement. Exagrind S.A. requested that the measure be extended with an attachment of bank accounts; this ruling has been challenged and to date the accounts have not been attached. In June, 2010, the Company sold the farm to a third party. Since the litigation is still pending, the bond posted in favor of the buyer remains effective as security for the obligations undertaken The Group has recorded a provision amounting to Ps. 1.5 million, which is included within “Labor, legal and other claims”.

In addition, the Group is involved in several legal proceedings, including tax, labor, civil, administrative and other matters for which the Group has not established provisions based on the information assessed to date. In the opinion of management, the ultimate disposition of any threatened or pending matters, either individually or collectively, will not have a material adverse effect on the consolidated financial position, liquidity and results of operations of the Group. For ease of presentation, the Group has categorized these matters between those arising out of the Group’s agricultural and agro-industrial activities and those arising out of the Group’s investment and development properties business activities:

 

 
F-204
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



24.  
Provisions (Continued)

Real Estate Business

Acquisition of the building known as Ex- Escuela Gobernador Vicente de Olmos (City of Córdoba)

On November 20, 2006, the Group, through IRSA Propiedades Comerciales S.A., acquired through a public bidding the building known as Ex-Escuela Gobernador Vicente de Olmos located in the city of Córdoba for the amount of Ps. 32,522. As explained in Note 29, this property is affected to a concession contract.

After the title deed was made, the government of the province of Córdoba declared the property to be of public use and subject to partial expropriation in order to be used exclusively for the Libertador San Martin theatre.

IRSA Propiedades Comerciales S.A. has answered a complaint in an action and to challenge the law that declared such public interest on unconstitutional grounds. In the alternative, it has challenged the appraisal made by the plaintiff and, additionally, it has claimed damages not included in the appraisal and resulting immediately and directly from expropriation.

At June 30, 2015, the property is still operated by the Group and is recorded under Investment properties.

 

 
F-205
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings

Group’s borrowings at June 30, 2015 and 2014 are as follows:
 
                   Book Value  
 
Secured/ unsecured
Currency
Fixed/ Floating
Effective
 Interest rate %
  
Nominal value (in million)
    
June 30,
2015
    
June 30,
2014
  
Non-current
                          
CRESUD NCN Class XIV due 2018
Unsecured
US$
Fixed
1.50%
     32       290,205       259,192  
CRESUD NCN Class XV due 2015
Unsecured
Ps.
Floating
Badlar + 400 bps
     176       -       117,299  
CRESUD NCN Class XVI due 2018
Unsecured
US$
Fixed
1.50%
     109       998,594       896,032  
CRESUD NCN Class XVIII due 2019
Unsecured
US$
Fixed
4.00%
     34       308,022       -  
CRESUD NCN Class XIX due 2016
Unsecured
Ps.
Floating
Badlar + 350 bps
     187       185,684       -  
CRESUD NCN Class XX due 2017 (iii)
Unsecured
US$
Fixed
2.50%
     18.2       56,278       -  
IRSA NCN Class I due 2015
Unsecured
Ps.
Floating
Badlar + 395 bps
     -       -       209,297  
IRSA NCN Class II due 2017
Unsecured
Ps.
Floating
Badlar + 450 bps
     10.8       10,730       10,734  
IRSA NCN Class I due 2017
Unsecured
US$
Fixed
8.50%
     149       1,352,655       1,210,359  
IRSA NCN Class II due 2020
Unsecured
US$
Fixed
11.50%
     139.5       1,202,130       1,070,428  
IRSA Propiedades Comerciales NCN Class I due 2017
Unsecured
US$
Fixed
7.88%
     114.3       1,021,782       839,081  
Syndicated loan (iv)                                          
Unsecured
Ps.
Fixed
(iv)
     126.5       -       74,964  
Long term loans                                          
Unsecured
US$
Floating
Libor + 300 bps or 6% (the higher)
     15       117,574       111,363  
Long term loans                                          
Unsecured
Ps.
Floating
Rate Survey PF 30-59 days
     20       9,911       16,665  
Long term loans                                          
Unsecured
Ps.
Fixed
15.01%
     24       -       6,804  
Long term loans                                          
Secured
Rs.
Floating
4.00 to 7.23 and TJLP + 3.45 to 4.45 Selic
     -       155,727       204,012  
Seller financing (v)                                          
Secured
US$
Fixed
3.50%
     6.8       70,959       121,256  
Finance lease obligations
Secured
US$
Fixed
10.75% - 7.14%
to 13.28%
     0.5       1,389       1,187  
Finance lease obligations
Unsecured
Rs.
Fixed
6.92%
             12,308       -  
Long term loans (vi)                                          
Unsecured
Ps.
Fixed
(vi)
     14.3       8,158       13,359  
Long term loans                                          
Secured
Bol.
Floating
7% to 10.19%
     13.5       3,396       5,799  
Long term loans                                          
Secured
Rs.
Floating
TJLP + 3.00 to 3.10
     -       5,028       5,946  
Long term loans                                          
Secured
Rs.
Floating
5.50 to 8.70
     -       331       3,900  
 Related parties  Unsecured  Ps. Fixed/ Floating                22,112        137,658   
 Non-current borrowings                     5,832,973        5,315,335  
 



 

 
F-206
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


25.  
Borrowings (Continued)

                             
Book value
    
   
Secured/ unsecured
    
Currency
    
Fixed/ Floating
  
Effective
Interest rate %
  
Nominal value
(in million)
    
June 30,
2015
    
June 30,
2014
Current
                                    
CRESUD NCN Class VIII due 2014
  
Unsecured
    
US$
    
Fixed
  
7.5%
     60       -       499,113  
CRESUD NCN Class XI due 2015 (i)
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 375 bps
     80.5       -       39,647  
CRESUD NCN Class XII due 2014
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 410 bps
     102       -       69,971  
CRESUD NCN Class XIII due 2015
  
Unsecured
    
US$
    
Fixed
  
1.90%
     79       -       644,965  
CRESUD NCN Class XIV due 2018
  
Unsecured
    
US$
    
Fixed
  
1.50%
     32       102       150  
CRESUD NCN Class XV due 2015
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 400 bps
     176       120,760       63,883  
CRESUD NCN Class XVI due 2018
  
Unsecured
    
US$
    
Fixed
  
1.50%
     109       4,986       4,222  
CRESUD NCN Class XVII due 2016
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 250 bps
     176       172,602       -  
CRESUD NCN Class XVIII due 2019
  
Unsecured
    
US$
    
Fixed
  
4.00%
     34       1,141       -  
CRESUD NCN Class XIX due 2016
  
Unsecured
    
Ps.
    
Fixed
  
27.50%
     187       803       -  
CRESUD NCN Class XX due 2017 (ii)
  
Unsecured
    
US$
    
Fixed
  
2.50%
     18.2       812       -  
IRSA NCN Class I due 2017
  
Unsecured
    
US$
    
Fixed
  
8.50
     149       47,318       41,472  
IRSA NCN Class I due 2015
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 395 bps
     209.4       214,084       4,325  
IRSA NCN Class II due 2017
  
Unsecured
    
Ps.
    
Floating
  
Badlar + 450 bps
     10.8       258       255  
IRSA NCN Class II due 2020
  
Unsecured
    
US$
    
Fixed
  
11.50%
     139.5       62,798       55,494  
IRSA Propiedades Comerciales S.A. NCN Class I due 2017
  
Unsecured
    
US$
    
Fixed
  
7.88%
     114.3       10,677       8,732  
Bank overdrafts                                             
  
Unsecured
    
Ps.
    
Fixed
  
22.54%
     19,430       609,153       153,330  
Bank overdrafts (vii)
  
Unsecured
    
Ps.
    
Floating
  
-
     -       681,553       401,963  
Short term loans (vi)
  
Unsecured
    
Ps.
    
Fixed
  
15.25%
     14.43       106,469       2,873  
Short term loans                                             
     -    
Ps.
    
Fixed
  
-
     -       -       9,733  
Short term loans (viii)
  
Unsecured
    
Ps.
    
Fixed
  
(viii)
     106.4       5,854       12,886  
Short term loans                                             
  
Unsecured
    
US$
    
Floating
  
Libor + 300 bps or 6% (the higher)
     15       10,204       9,267  
Short term loans                                             
  
Unsecured
    
Ps.
    
Floating
  
Rate Survey PF 30-59 days
     20       7,576       4,285  
Short term loans                                             
  
Unsecured
    
Rs.
    
Floating
  
TJLP + 3.00 to 4.40
     -       4,750       11,024  
Short term loans                                             
  
Unsecured
    
Rs.
    
Floating
  
7.51 to 15.12%%
     -       74,990       165,121  
Short term loans                                             
  
Unsecured
    
Ps.
    
Fixed
  
15.01%
     24       6,875       6,880  
Short term loans                                             
  
Secured
    
Rs.
    
Floating
  
4.00 to 7.23 and TJLP + 3.45 to 4.45 Selic
     -       27,744       47,056  
Other short term loans 
  
Unsecured
       -       -  
-
     -       15,088       74,344  
Short term loans                                             
  
Secured
    
Rs.
    
Floating
  
5.5 to 8.70
     -       2,763       6,699  
Syndicated loans (iv)
  
Unsecured
    
Ps.
    
Fixed
  
(iv)
     75.6       75,485       101,339  
Seller financing                                             
  
Secured
    
US$
    
Fixed
  
3.5% and 5%
     16.4       -       28,670  
Seller financing                                             
  
Secured
    
Rs.
    
Floating
  
-
     -       85,037       165,521  
Seller financing                                             
  
Secured
    
Rs.
    
Floating
  
IGP-M
     -       58,064       -  
Short term loans                                             
  
Secured
    
Rs.
    
Floating
  
1.6905 + Exchange rate variation
     -       29,001       -  
Finance lease obligations
  
Secured
    
US$
    
Fixed
  
10.75% and 7.5%
     0.5       1,880       2,102  
Finance lease obligations
  
Unsecured
    
Rs.
    
Fixed
  
6.92%
     -       9,890       -  
Other short term loans
  
Secured
    
Bol.
    
Floating
  
7% and 10.19%
     13.5       3,115       2,603  
Related parties (Note 38)
                                       14,198       1,566  
Current borrowings  
                                       2,466,030       2,639,491  
Total borrowings  
                                       8,299,003       7,954,826  

(i)  
Includes an outstanding balance of Ps. 5,068 and Ps. 9,011 with ERSA and PAMSA, respectively, as of 06.30.14.
(ii)  
Includes an outstanding balance of Ps. 437 and Ps. 1,871 with ERSA and PAMSA, respectively, as of 06.30.15.
(iii)  
Includes an outstanding balance of Ps. 21,048 and Ps. 90,212 with ERSA and PAMSA, respectively, as of 06.30.15.
(iv)  
On November 16, 2012 the Company subscribed a syndicated loan for Ps. 118,000. Principal will be payable in 9 quarterly consecutive installments and shall accrue interest at rate of 15.01%. On June 12, 2013 the Company subscribed a new syndicated loan for Ps. 111,000. Principal will be payable in 9 quarterly consecutive installments and shall accrue interest at rate of 15.25%. Both loans have been entered into with various banking institutions, one of which is Banco Hipotecario (Note 37).
(v)  
Debt incurred to fund the purchase of Soleil Factory net assets (investment property): Mortgage financing of US$ 20.7 million with a fixed 5 % interest rate due in June 2017. As of the date of these financial statements, the mentioned capital is fully canceled. Debt incurred to the purchase of Zetol S.A.'s shares (trading properties): Mortgage financing of US$ 7 million with a fixed 3.5% interest rate. The balance is payable, by choice of the seller, in money or with the delivery of units in buildings to be built representative of 12% of the total marketable square meters built. Seller financing of plot of land - Vista al Muelle S.A. in Canelones, Uruguay (trading properties).
(vi)  
On December 23, 2013 the Company subscribed a new loan with Banco Citibank N.A. for an amount of Ps. 5.9 million and shall accrue interest at a rate of 15.25%. Principal will be repaid in 9 consecutive quarterly installments beginning in December 2014. Additionally, on December 30, 2014 the Company subscribed a new loan with Banco Citibank N.A. for an amount of Ps. 10 million and shall accrue interest at a rate of 26.50%. Principal will be repaid in 9 consecutive quarterly installments beginning in December 2015.
(vii)  
As of June 30, 2015 and 2014, bank overdrafts were drawn on several domestic financial institutions. The Company has bank overdrafts of less than three months bearing floating interest rates ranging from 15% to 55% per annum.
(viii)  
On December 12, 2012, a loan has been entered into with Banco Provincia de Buenos Aires in the amount of Ps. 29 million. Principal will be repaid in 9 consecutive quarterly installments beginning in December 2013.  Finally, on June 3, 2015, a loan has been entered into with Banco Provincia de Buenos Aires in the amount of Ps. 100 million. Principal will be repaid at due date December 2015. On February 3, 2014 a loan has been entered into for an amount of Ps. 20 million and on December 23, 2014, a loan has been entered into with Banco Provincia for an amount of Ps. 120 million. At the date of issuance of these financial statements are both fully canceled.

 

 
F-207
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.   Borrowings (Continued)

At June 30, 2015 and 2014, total borrowings include collateralized liabilities (seller financing and loans) of Ps. 444.4 million and Ps. 594.8 million, respectively. These borrowings are mainly collateralized by investment property and properties, plant and equipment of the Group (Notes 10 and 11).

Borrowings also include liabilities under finance leases where the Group is the lessee and which therefore have to be measured in accordance with IAS 17 “Leases”. Information related to liabilities under finance leases is disclosed in Note 29.

The maturity of the Group's borrowings (excluding obligations under finance leases) and the Group's exposure to fixed and variable interest rates is as follows:

   
June 30,
 2015
    
June 30,
2014
  
Fixed rate:
            
Less than one year                                                                                     
     923,763       1,740,894  
Between 1 and 2 years                                                                                     
     2,577,736       137,819  
Between 2 and 3 years                                                                                     
     691,857       871,361  
Between 3 and 4 years                                                                                     
     670,514       805,440  
Between 4 and 5 years                                                                                     
     171,309       1,722,431  
More than 5 years                                                                                     
     1,273,090       1,106,081  
      6,308,269       6,384,026  
Floating rate:
                
Less than one year                                                                                     
     1,329,516       753,708  
Between 1 and 2 years                                                                                     
     254,301       355,614  
Between 2 and 3 years                                                                                     
     43,137       175,371  
Between 3 and 4 years                                                                                     
     39,804       32,880  
Between 4 and 5 years                                                                                     
     46,731       29,546  
More than 5 years                                                                                     
     40,485       70,373  
      1,753,974       1,417,492  
Do not accrue interest:
                
Less than one year                                                                                     
     200,981       142,787  
Between 1 and 2 years                                                                                     
     5,360       426  
Between 2 and 3 years                                                                                     
     3,803       294  
Between 3 and 4 years                                                                                     
     1,124       2,520  
Between 4 and 5 years                                                                                     
     27       3,992  
      211,923       150,019  
      8,273,536       7,951,537  



 
F-208
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.   Borrowings (Continued)

The fair value of current borrowings at fixed-rate and current and non-current borrowings at floating-rate equals their carrying amount, as the impact of discounting is not significant. The fair value of all debts that are not quoted in the market are valued at their technical value, that is, nominal value plus accrued interest.

The fair values of non-current borrowings at fixed-rate (excluding finance leases) are as follows:

 
   
June 30,
 2015
    
June 30,
2014
  
Cresud Class XIII NCN due 2015                                                                                     
     -       647,198  
Cresud Class XIV NCN due 2018                                                                                     
     291,247       260,673  
Cresud Class XX NCN due 2017                                                                                     
     165,614       -  
Cresud Class XVI NCN due 2018                                                                                     
     993,220       888,920  
Cresud Class XVIII NCN due 2019                                                                                     
     306,890       -  
IRSA NCN due 2017                                                                                     
     1,430,459       1,244,281  
IRSA CP NCN Class I due 2017                                                                                     
     1,091,287       976,661  
IRSA NCN due 2020                                                                                     
     1,585,947       1,422,987  
Seller financing                                                                                     
     -       354,900  
Syndicated loan                                                                                     
     -       191,185  
Long term loans                                                                                     
     161,213       501,592  
Related parties loans (Banco Hipotecario)                                                                                     
     630       -  
Total                                                                                     
     6,026,507       6,488,397  

The following classes of NCN were outstanding as of each of June 30, 2015 and 2014:

(a)  
Class VIII NCN

On September 7, 2011, Cresud issued Class VIII NCN which are denominated in US$ for a nominal amount of US$ 60 million, due 36 months after the issue date and fully repayable at maturity. They bear interest at a fixed rate of 7.5% payable semiannually on September 7 and March 7 each year.

As of June 30, 2015 this class has been fully paid.

(b)  
Classes IX, X and XI NCN

On June 21, 2012 Cresud issued three new parts for an amount of Ps. 383.5 million.

Class IX NCN, for a nominal value of Ps. 161.0 million due 18 months after the issue date, accrued interest at a variable rate (Badlar plus 300 basis points). These were paid on a quarterly basis in arrears while amortization was made in three consecutive payments, the first two payments in an amount equal to 33.33% each of the face value, and the last one in an amount equal to 33.34% of the face value, all of which amount to 100% of the face value of Class IX Non-Convertible notes on the 12th, 15th and 18th month as from the issue date.
 
 
 
 
 
F-209
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.   Borrowings (Continued)

Class X NCN, for a nominal value of US$ 31.5 million (equivalent to Ps. 142 million at issue date), due 24 months after the issue date shall be payable in pesos at the exchange rate prevailing on the payment date. Interest accrued a fixed annual rate of 7.75% annually, and were paid quarterly in arrears, while amortization was made in three consecutive payments, the first two in an amount equal to 33.33% each of the face value, and the last payment in an amount equal to 33.34% of the face value, all of which amount to 100% of the face value of Class X Non-Convertible notes on the 18th, 21th and 24th months as from the issue date.

Class XI NCN, for a nominal value of Ps. 80.5 million due 36 months after the issue date, accrues interest at a variable rate (Badlar plus 375 basis points). These are paid on a quarterly basis in arrears while amortization is made in three consecutive payments, the first two payments in an amount equal to 33.33% each of the face value, and the last one in an amount equal to 33.34% of the face value, all of which amount to 100% of the face value of Class XI Non-Convertible notes on the 24th, 30th and 36th months as from the issue date.

As of June 30, 2015 these classes have been fully paid.

(c)  
Class X Tranche 2 NCN

On September 19, 2013, the Company issued Series Five of the Second Tranche of Class X Corporate Notes for a nominal value of US$ 30 million. As a consequence, the aggregate principal amount of Class X Corporate Notes was US$ 61.5 million, taking into consideration the US$ 31.5 million issued on June 21, 2012. The Second Tranche of Class X Corporate Notes is fully exchangeable for Class X Corporate Notes.

As of June 30, 2015 this class has been fully paid.

(d)  
Class XII and XIII NCN

On February 22, 2013, the Sixth Series of simple corporate notes was issued in the amount of Ps. 500 million and in two classes.

Class XII Non-Convertible Notes, for a face value of Ps. 102.1 million and falling due 21 months after the issuance date, accrue interest at a variable rate (Badlar plus 410 basis points). Interest are payable quarterly in arrears whereas the principal is amortized in three consecutive equal payments on the 15th, 18th and 21th months following the issue date.

Corporate Notes Class XIII, for a nominal value of US$ 79.4 million (equal to Ps. 397.9 million at issue date) due 27 months following the issue date, accrue interest at an annual fixed rate of 1.90% payable quarterly in arrears, while the amortization is paid in two consecutive installments on the 24th and 27th monthly anniversary of the issue date.

As of June 30, 2015 these classes have been fully paid.

 

 
F-210
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

Class XIV NCN

On May 22, 2013, the Company issued Series 7 of Non-Convertible Corporate Notes for a nominal value of US$ 32 million (equivalent to Ps. 167.5 million at issue date), in a single class.

Class XIV Corporate Notes are due 60 months after the date of issuance and accrue interest on a quarterly basis at a 1.5% fixed rate. Interest is payable quarterly in arrears whereas the principal is amortized in two consecutive payments on the 54 and 60 months following the issue date.

(e)  
Class XV and XVI NCN

On November 18, 2013, the eighth Series of simple corporate notes was issued in the amount equivalent to Ps. 828 million, in two classes.

Class XV Non-Convertible Notes, for a face value of 176.37 million and falling due 24 months after the issuance date, accrue interest at a variable rate (Badlar plus 399 basis points). Interest is payable quarterly in arrears whereas the principal will be amortized in three consecutive payments on the 18, 21 and 24 months following the issue date.

Class XVI Non-Convertible Notes, for a face value of US$ 109.11 million, with an issuance price of 102.3% (equivalent to Ps. 661.18 million at issue date) and falling due 60 months after the issuance date, accrue interest at fixed annual rate of 1.50%. Interest is payable quarterly in arrears whereas the principal will be amortized in two consecutive equal payments on the 54 and 60 months following the issue date.

(f)  
 Classes XVII and XVIII NCN

On September 12, 2014, the Ninth Series of simple corporate notes was issued in the equivalent amount of Ps. 455.3 million, in two classes.

Class XVII Non-Convertible Notes, for a face value of 171.8 million and falling due 18 months after the issuance date, will accrue interest at a variable rate (Badlar plus 250 basis points). Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 18 months following the issuance date. The issuance price was 100.0% of the nominal value.

Class XVIII Non-Convertible Notes, for a face value of US$ 33.7 million, with an issuance price of 102.179% of the nominal value resulting US$ 34.4 equivalent to Ps. 289.7 million at issue date and falling due 60 months after the issuance date, will accrue interest at fixed annual rate of 4%. Interest will be payable quarterly in arrears whereas the principal will be amortized in two consecutive payments on the 54 and 60 months following the issuance date.




 

 
F-211
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

(g)  
Classes XIX and XX NCN

On March 13, 2015, the tenth Series of simple corporate notes was issued in the amount equivalent to Ps. 352.8 million nominal value, in two classes.

Class XIX Non-Convertible Notes, for a face value of Ps. 187.0 million and falling due 18 months after the issuance date, will accrue interest at fixed rate of 27.5% during the first twelve months and will accrue interest at floating rate the remaining six months (Badlar plus 350 basis points). The issuance price was 100% of the nominal value.  Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 18 months following the issuance date.

Class XX Non-Convertible Notes, for a face value of US$ 18.2 million, with an issuance price of 104% of the nominal value resulting US$ 18.9 equivalent to Ps. 165.8 million and falling due 24 months after the issuance date, will accrue interest at fixed annual rate of 2.5%. Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment 24 months following the issuance date.

Classes VIII, IX, X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII, XIX and XX NCN contain certain customary covenants, events of default and restrictions, as well as limitations on transactions with affiliates, among other compliance requirements. The Company is also required to comply with a financial ratio in connection with incurrence of additional indebtedness: the ratio of short-term borrowings over total assets should be lower than 0.35. Currently, this financial covenant is measured on a quarterly basis as of the end of each period based on the unconsolidated accounts of Cresud. As of the date of issuance of these Financial Statements, there is no evidence of not compliance with ratios above-mentioned.

Repurchase of Non-convertible Notes Class XIII

On November 17, 2014, the Company repurchased 10,000,000 bond of NCN Class XIII, due on May 22, 2015 in the amount of Ps. 85.5 million.

On May 20, 2015, the Company purchased 44,905,380 Class XIII Notes in the amount of Ps. 201.9 million through certain stock transactions carried out in the local market.

As of June 30, 2015 this class has been fully paid.

Repurchase of Non-convertible Notes Class XII

On June 15, 2015, the Company repurchased 50,000,000 bond of NCN Class XIII, in the amount of Ps. 17.65 million.

As of June 30, 2015 this class has been fully paid.



 

 
F-212
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

Notes issued by subsidiary undertakings

(a)  
IRSA NCN due 2017 and 2020

On February 2, 2007, IRSA issued US$ 150 million at a nominal fixed rate 8.5% NCN. The notes are due February 2017 and principal is paid at maturity. Interest is payable on February and August of each year as from August 2007.

This issue was in the framework of the global issuance program of notes for a nominal value of up to US$ 200 million authorized by Resolution N° 15,529 and 15,537 of the CNV dated December 7 and December 21, 2007. On February 25, 2010, the Board of Directors of IRSA expanded the amount to up to US$ 400 million as mandated by the Ordinary and Extraordinary Meeting of Shareholders held on October 29, 2009.

As part of the expanded program, on July 20, 2010 IRSA issued NCN for an amount of US$ 150 million at a nominal fixed rate of 11.5%. The notes are due July 2020 and principal is paid at maturity. Interest is payable on January 20 and June 20 of each year as from January 20, 2011.

IRSA NCN due 2017 and 2020 contain certain customary covenants and restrictions, including among others, limitations for the incurrence of additional indebtedness, restricted payments, disposal of assets, and entering into certain transactions with related companies.

Under the NCN indentures, IRSA is permitted to incur additional indebtedness provided its coverage of consolidated interest ratio is higher than 1.75. The coverage of consolidated interest ratio is defined as consolidated EBITDA divided by consolidated interest expense, subject to certain adjustments. EBITDA is defined as operating income plus, depreciation and amortization and other consolidated non-cash charges.

Restricted payments include restrictions for payment of dividends and other outflows relating to prepayments of indebtedness or to acquisition of certain investments. These restricted payments could not be made in excess of the sum of:

(i)  
50% of IRSA’s cumulative consolidated net income; or 75% of IRSA’s cumulative consolidated net income if the coverage of consolidated interest ratio is at least 3.0 to 1; or 100% of IRSA’s cumulative consolidated net income if the coverage of consolidated interest ratio is at least 4.0 to 1;
(ii)  
net cash proceeds from new capital contributions;
(iii)  
reduction of the indebtedness of IRSA or its restricted subsidiaries;
(iv)  
reduction in investments in debt certificates (other than permitted investments);
(v)  
distributions received from unrestricted subsidiaries.


 

 
F-213
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

(b)  
IRSA CP NCN Class I due 2017

On May 11, 2007, IRSA CP issued two parts of notes for a total amount of US$ 170 million. One of the series (Series I) consists of US$ 120 million notes at a nominal fixed rate of 7.87% due May 2017 while the other (Series II) comprises Ps. 154.0 million (equivalent to US$ 50 million) notes at a nominal fixed rate of 11.0% due in June 2012. Interest on the Series I is payable on May 11 and November 11 of each year as from November 11, 2007; principal due in May 11, 2017. Interest on the Series II was paid on June 11 and December 11 of each year as from December 11, 2007; principal was due in seven equal and consecutive semi-annual installments as from June 11, 2009. As of June 30, 2012, Series II is completely canceled.

These issuances were part of a global issuance program of notes for a nominal value of up to US$ 200 million authorized by Resolution N° 15,614 of the CNV dated April 19, 2007. On October 29, 2009, the Ordinary and IRSA CP's Extraordinary Meeting of Shareholders expanded the amount to up to US$ 400 million.

NCN Series I due 2017 contain certain covenants, events of default and restrictions, as well as limitations on additional indebtedness, transactions with affiliates, mergers and disposal of substantially all assets of the Company. For additional indebtedness IRSA CP is required to comply with the financial ratio “coverage of consolidated interest”, which should be higher than 1.75. The coverage of consolidated interest ratio is defined as consolidated EBITDA divided by consolidated interest expense, subject to certain adjustments. EBITDA is defined as operating income plus, depreciation and amortization and certain other consolidated non-cash charges.

(c)  
IRSA NCN due 2013 and 2014

On February 10, 2012, IRSA placed, through public offer, NCN for a total amount of Ps. 300 million. These issuances were part of a global issuance program of notes approved by the Ordinary Meeting of Shareholders on October 31, 2011, and two Series due 2013 (Series III) and 2014 (Series IV) were issued, as described:

·  
Class III Corporate Notes at Badlar rate plus 249 basis points for a face value of Ps. 153.2 million, to be matured 18 months after the issuing date and to be amortized in 3 consecutive payments within 12, 15 and 18 months, and interests to be paid in 6 installments, on a quarterly basis, from May 14, 2012. Class III is fully canceled.
·  
Class IV Corporate Notes at a fixed rate of 7.45% for a face value of US$ 33.8 million (equal to Ps. 146.9 million), to be matured 24 months after the issuing date, to be subscribed and paid in Argentine Pesos at the applicable exchange rate, to be amortized in 4 equal and consecutive payments within 15, 18, 21 and 24 months, to be paid in 8 installments, on a quarterly basis, from May 14, 2012. Class IV is fully canceled.

 

 
F-214
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

(d)  
IRSA NCN due 2015 and 2017

On February 26, 2014, Class V and VI were issued for an amount of Ps. 220.2 million. Company's NCN due 2015 and Company's NCN due 2017 both contain certain customary covenants and restrictions, including among others, limitations for the incurrence of additional indebtedness, restricted payments, disposal of assets, and entering into certain transactions with related companies.

Class V Non-Convertible Notes ("Class V"), were issued for an amount of Ps. 209,397,900. The securities were issued at par value and priced at a floating interest rate equal to Badlar rate plus 395 basis points. The principal of Class V will be repaid through a single payment on the maturity date. Class V matures within 18 months from the date of issue. Interest will be paid quarterly. Class V is fully canceled.

Class VI Non-Convertible Notes ("Class VI"), were issued for an amount of Ps. 10,790,322. The securities were issued at par value and priced at a floating interest rate equal to Badlar rate plus 450 basis points. The principal of Class VI will be repaid through a single payment on the maturity date. Class VI matures within 36 months from the date of issue. Interest will be paid quarterly on May 26, 2014, August 26, 2014, November 26, 2014, February 26, 2015, May 26, 2015 and August 26, 2015, November 26, 2015, February 26, 2016, May 26, 2016, August 26, 2016, November 28, 2016 and February 27, 2017.


As of the date of issuance of these Financial Statements, there is no evidence of not compliance with all ratios above-mentioned.


 

 
F-215
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

Seller financing

The Group maintains seller financing borrowings relating to the acquisition of certain investment properties, property, plant and equipment, trading properties and subsidiaries. Seller financing of the Group are as follows:

     
Book value
  
Acquisition
Detail
  
June 30,
2015
    
June 30,
 2014
  
Soleil Factory (investment property)
Mortgage financing of US$ 20.7 million with a fixed 5% interest rate due in June 2017.
     -       85,254  
Zetol S.A. (trading property)
Mortgage financing of US$ 7 million with a fixed 3.5% interest rate.
     49,688       43,265  
Vista al Muelle S.A. (trading properties)
Mortgage financing with a fixed 3.5% interest rate.
     21,271       21,407  
Alto Tacuarí (property, plant and equipment)
Unsecured financing of Rs 34 million with variable interest rate at 100% of the Interbank Deposit Certificate rate (“CDI”), due in June 2012.
     85,037       96,240  
Nova Buriti (property, plant and equipment)
Unsecured financing of Rs 21.7 million adjusted based on the General Price Index (“IGP-M”), due in June 2012.
     58,064       69,281  
        214,060       315,447  

Loans and bank overdrafts

As of June 30, 2015 and 2014, short-term and long-term loans were granted by several domestic financial institutions. They are repayable at various dates between July 2013 and July 2020, and bear either fixed interest rates ranging from 1.5% to 15.01% per annum, or variable interest rates mainly based on Badlar plus spreads ranging from 249 to 410 basis points.

As of June 30, 2015 and 2014, bank overdrafts were drawn on several domestic financial institutions. The Group has bank overdrafts of less than three months bearing fixed interest rates ranging from 15% to 55% per annum.

IRSA CP

On November 14, 2012, IRSA CP’s Board of Directors approved the subscription of a syndicated loan contract entered into by different banking institutions for the amount of Ps. 118 million. Principal shall be payable in nine quarterly and consecutive installments and shall accrue interest at a fixed annual nominal rate of 15.01%. Interests shall be payable on a monthly basis.

 

 
F-216
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



25.  
Borrowings (Continued)

Brasilagro

Our subsidiary Brasilagro raised short and long term financing granted by Banco Itaú and Banco do Nordeste to fund sewing expenses, the development of the Cremaq project and the acquisition of Jaborandi. The Banco do Nordeste and Banco Itaú require that borrower hold deposits in investment mutual funds bearing interest at the interbank certificate of deposit rate (published by CETIP, who provides custodian and depository services) until October 2021 and February 2015, respectively.

26.  
Employee benefits

The Group has a defined contribution plan (the “Plan”) covering certain selected managers in Argentina. The Plan was effective as from January 1, 2006. Employees may begin participation voluntarily on monthly enrolment dates. Participants may make pre-tax contributions to the Plan of up to 2.5% of their monthly salary (“Base Contributions”) and of up to 15% of their annual bonus (“Extraordinary Contributions”). Under the Plan, the Group matches employee contributions to the plan at a rate of 200% for Base Contributions and 300% for Extraordinary Contributions.

All contributions are invested in funds administered outside of the Group. Participants or their assignees, as the case may be, will have access to the 100% of the Company contributions under the following circumstances:

(i)  
ordinary retirement in accordance with applicable labor regulations;
(ii)  
total or permanent incapacity or disability;
(iii)  
death.

In case of resignation or termination without good cause, the manager will receives the Group’s contribution only if he or she has participated in the Plan for at least 5 years.

Contribution expense was Ps. 2.9 million, Ps. 10.2 million and Ps. 6.4 million for the years ended June 30, 2015, 2014 and 2013, respectively and was recognized in the income statements.

 

 
F-217
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



27.  
Share-based payments

Established by the Company and subsidiaries

Equity Incentive Plan

The Group has an equity incentive plan, which aims at certain selected employees, directors and top management of the Company, IRSA and IRSA CP (the “Participants”). Participation in the plan is voluntary and employees are invited to participate by the Board.

This Plan was effectively established on September 30, 2011 and is administered by the Board of Directors of the Company, IRSA and IRSA CP, as the case may be, or a committee appointed by the Board of Directors of the respective companies.

Under the Incentive Plan, over the last three years, entitle the Participants to receive shares ("Contributions") of the Company and IRSA, based on a percentage of their annual bonus, providing they remain as employee of the Company for at least five years, among other conditions, required to qualify such Contributions.

Contributions shall be held by the Company and IRSA, and as the conditions established by the Plan are verified, such contributions shall be transferred to the Participants.

On the other hand, the Plan provides an extraordinary bonus in the medium term. Shares granted as part of the bonus shall be transferred to the participants, there being no restriction whatsoever established by the Plan. As of the date of these financial statements, the Group transferred 685,568 shares related to this special bonus.

As of June 30, 2015, 2014 and 2013, the Company set up a reserve for the incentive plan under Shareholder’s Equity in the amount of Ps. 35.5 million, Ps. 79.2 million and Ps. 10.6 million, respectively. The reserve was based on the fair value of the shares to be granted under the Company’s contribution, on a proportional basis to the employee’s permanence in the plan and adjusted for the probability that these beneficiaries may leave the Company before the required term has elapsed and/or the conditions to be entitled to the Plan benefits are met as of each period end.

As of June 30, 2015, 2014 and 2013, the Group recognized a charge in connection with the Incentive Plan and special bonus of Ps. 30.8 million, Ps. 92.2 million and Ps. 9.7 million, respectively. The total cost of the plan that has not yet been recognized because the term for the full granting of the benefit is still effective amounts to Ps. 56.4 million, Ps. 64.6 million and Ps. 22.3 million, respectively. This cost is expected to be recognized over an approximately two-year period.

 

 
F-218
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



27.  
Share-based payments (Continued)

As of June 30, 2015, the Company granted 1.2 million shares, whereas no shares were granted as of June 30, 2014.

Movements in the number of matching shares outstanding under the incentive plan corresponding to the Company´s contributions are as follows:

   
June 30,
2015
    
June 30,
2014
  
At the beginning
     10,033,785       3,232,474  
Additions
     308,426       6,922,479  
Granted
     (1,883,077 )     -  
Disposals
     (845,497 )     (121,168 )
At the end
     7,613,637       10,033,785  

Established only by subsidiary undertakings

Brasilagro Stock Option Plan

The Group’s subsidiary, Brasilagro, has a stock option plan (the “Brasilagro Stock Option Plan”), under which Brasilagro grants equity-settled options to certain directors and top management (the “Participants” or "Beneficiaries").

The Board of Directors approved the three tranches of Brasilagro’s Stock Option Plan on August 11, 2010, July 3, 2012 and September 4, 2012, respectively, and Brasilagro’s Board of Directors was authorized to grant stock options to selected employees. Brasilagro’s Stock Option Plan document defined who may participate in the plan, the number of shares that each participant may purchase in exercising the stock options granted, the exercise price per share to be paid in cash by each participant and other conditions under which the options were granted. Upon exercise of each option, its beneficiary becomes entitled to purchase one share of Brasilagro’s capital stock at the exercise price set forth under the Plan.

Brasilagro’s Stock Option Plan has five beneficiaries and grants 233,689, 206,425 and 206,425 stock options at an exercise price of Rs. 8.97, Rs. 8.25, and Rs. 8.52 per share, respectively. The options may be exercised in full as from August 12, 2012, July 3, 2014 and September 4, 2014, respectively, and are exercisable during three years as from the time they become exercisable. As of June 30, 2015, none of the stock options was exercised or cancelled and 177,213 expired. As of June 30, 2014, none of the stock options was exercised, 109,054 were canceled and 68,159 expired.

 

 
F-219
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



27.  
Share-based payments (Continued)

The Group did not recognize any charge for the fiscal year ended June 30, 2015 related to Brasilagro Stock Option Plan. During the fiscal years ended June 30, 2014 and 2013, the Group had recognized a charge of Ps. 2.5 million and Ps. 0.8 million, respectively.

The fair value of the Brasilagro’s awards was measured at the date of grant using the Black-Scholes valuation technique. This valuation model takes into account factors such as non-transferability, expected volatility, exercise restrictions and behavioral considerations.

Key grant-date fair value and other assumptions under the Brasilagro Stock Option Plan are detailed below.

Grant date
  
First tranche
  
Second tranche
  
Third tranche
Expected Volatility
  
67.48%
  
41.62%
  
40.50%
Expected life
  
5 years
  
5 years
  
5 years
Risk free rate
  
11.36%
  
9.37%
  
9.12%
Expected dividend yield
  
1.00%
  
0.50%
  
0.50%
Fair value per option
  
Rs 6.16
  
Rs 3.60
  
Rs 4.08
Exercise Price
  
Rs 8.97
  
Rs 8.25
  
Rs 8.52
Due date
  
08/12/2015
  
07/03/2017
  
09/04/2017

Movements in the number of equity-settled options outstanding and their related weighted average exercise prices under the Brasilagro Stock Option Plan are as follows:

   
June 30, 2015
  
   
First tranche
    
Second tranche
    
Third tranche
  
   
Exercise price
    
Options
    
Exercise price
    
Options
    
Exercise price
    
Options
  
At the beginning
  
Ps. 8.97
       301,848    
Ps. 8.25
       260,952    
Ps. 8.52
       260,952  
Granted                          
     -       -       -       -       -       -  
Canceled                          
     -       -       -       -       -       -  
Exercised                          
     -       -       -       -       -       -  
Expired                          
     -       (68,159 )     -       (54,527 )     -       (54,527 )
At the end                          
  
Ps. 8.97
       233,689    
Ps. 8.25
       206,425    
Ps. 8.52
       206,425  


 

 
F-220
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



27.  
Share-based payments (Continued)

   
June 30, 2014
  
   
First tranche
    
Second tranche
    
Third tranche
  
   
Exercise price
    
Options
    
Exercise price
    
Options
    
Exercise price
    
Options
  
At the beginning
  
Ps. 8.97
       370,007    
Ps. 8.25
       315,479    
Ps. 8.52
       315,479  
Granted                          
     -       -       -       -       -       -  
Cancelled                          
     -       -       -       (54,527 )     -       (54,527 )
Exercised                          
     -       -       -       -       -       -  
Expired                          
     -       (68,159 )     -       -       -       -  
At the end                          
  
Ps. 8.97
       301,848    
Ps. 8.25
       260,952    
Ps. 8.52
       260,952  

Brasilagro Warrants

On March 15, 2006, the Board of Directors of Brasilagro approved the issuance of 512,000 share warrants (the "Brasilagro Warrants"), 256,000 of which correspond to the first tranche, and 256,000 of which correspond to the second tranche.

The first tranche of Brasilagro Warrants were delivered to its founding shareholders in March, 2006 before Brasilagro’s IPO. As reported by Brasilagro in its IPO Prospectus, said warrants were granted to its founding shareholders in recognition of their founding efforts, their entrepreneurial spirit in preparing Brasilagro for its IPO, the work done in developing the business plan, and their commitment to the Company’s growth. The warrants were distributed among the founding shareholders for no consideration.

As Brasilagro received services from its founding shareholders in exchange for share-based payments, the first issuance of Brasilagro Warrants are within the scope of IFRS 2. However, due to the fact that these warrants could have been fully exercised since March 15, 2009, that is, before the transition date to the IFRS (July 1, 2009), and that the fair value of the warrants had not been published, the Group applied the exemption available under IFRS 1 for these equity instruments.

Each lot of 1,000 Warrants grants the right to subscribe 100 shares of Brasilagro. Brasilagro Warrants vest over a three-year period from the date of grant at 33% every year, and are exercisable by their holders over a fifteen-year period. The number of shares to be subscribed upon exercise of the warrants shall be adjusted in the event of split or reverse split of shares.

Out of the 256,000 outstanding Brasilagro Warrants under the first tranche, 256,000 Warrants were exercisable as of June 30, 2015 and 2014.

 

 
F-221
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



27.  
Share-based payments (Continued)

Brasilagro Warrants of the first issuance outstanding at each period end under have the following expiry date and exercise prices:

     
Shares (i)
  
Expiry:
Exercise price per share
  
June 30, 2015
    
June 30, 2014
  
April 27, 2021                                             
Rs 16.72
     256,000       256,000  

(i)  
From the Brasilagro Warrants under the first tranche 177,004 and 175,223 were owned by the Company as of June 30, 2015 and 2014, respectively.

Group’s management believes that Brasilagro Warrants under the second tranche (which are only exercisable if and when a transfer of control or acquisition of a significant interest occurs) has a fair value as of any of the periods presented because the exercise price will be equal to the price per share to be paid by the party that obtains control or that acquires a significant interest in Brasilagro. As a result, no liability has been recorded with respect to the Brasilagro Warrants of the second issuance.

Each lot of 1,000 warrants grants the right to subscribe 100 shares of Brasilagro. Brasilagro Warrants of the second issuance are exercisable by their holders during a fifteen-year period but only in the event of change in control and/or acquisition of a material interest in Brasilagro. The number of shares to be subscribed upon exercise of the warrants shall be adjusted in the event of split or reverse split of shares.

As Brasilagro Warrants under the second issuance were delivered to provide Brasilagro’s founding shareholders with a mechanism to leverage their interest in Brasilagro, and not in exchange for goods and/or services, they are not within the scope of IFRS 2. Rather, they are accounted for as a derivative financial liability in accordance with IAS 32 and IFRS 9.

Out of the warrants under the second issuance 168,902 were held by the Company as of June 30, 2015 and 2014.

28.  
Taxes

The Group’s income tax has been calculated on the estimated taxable profit for the years ended June 30, 2015, 2014 and 2013, at the rates prevailing in the respective tax jurisdictions. The subsidiaries of the Group in the jurisdictions where the Group operates are required to calculate their income taxes on a separate basis; thus, they are not permitted to compensate subsidiaries’ losses against subsidiaries income.

 

 
F-222
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



28.  
Taxes (Continued)

The detail of the provision for the Group’s income tax is as follows:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Current income tax                                                              
     (687,214 )     (267,805 )     (251,342 )
Deferred income tax                                                              
     390,921       676,136       218,440  
Minimum Presumed Income Tax                                                              
     (7,057 )     (18,916 )     (617 )
Income tax                                                              
     (303,350 )     389,415       (33,519 )

The statutory tax rate in the countries where the Group operates for all of the years presented are:

Tax jurisdiction
  
Income tax rate
  
Argentina                                                       
     35 %
Brazil                                                       
  
between 25% - 34
 %
Uruguay                                                       
  
between 0% - 25
 % 
Bolivia                                                       
     25 %
United States                                                       
  
between 0% - 45
 % 
Bermudas                                                       
     0 %

Deferred tax assets and liabilities of the Group as of June 30, 2015 and 2014 will be recovered as follows:

   
June 30,
 2015
    
June 30,
2014
  
Deferred income tax asset to be recovered after more than 12 months
     1,199,230       1,211,186  
Deferred income tax asset to be recovered within 12 months
     407,254       90,414  
Deferred income tax assets                                                                                     
     1,606,484       1,301,600  

   
June 30,
 2015
    
June 30,
2014
  
Deferred income tax liabilities to be recovered after more than 12 months
     (905,779 )     (903,373 )
Deferred income tax liabilities to be recovered within 12 months
     (199,210 )     (15,630 )
Deferred income tax liabilities                                                                                     
     (1,104,989 )     (919,003 )


 

 
F-223
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



28.  
Taxes (Continued)

The movement in the deferred income tax (opened by assets and liabilities) during the years ended June 30, 2015 and 2014, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

Deferred income tax assets
  
Tax loss carry-forwards
    
Advanced payments from customers
    
Investments
    
 Investment
properties and
property, plant and equipment
    
Trading properties
    
Others
    
Total
  
As of June 30, 2013
     334,469       96,520       68,994       -       17,890       77,933       595,806  
Charged / (Credited) to the income statements
     625,081       4,778       -       -       -       (2,732 )     627,127  
Currency translation adjustment
     60,145       1,990       -       -       -       16,532       78,667  
As of June 30, 2014
     1,019,695       103,288       68,994       -       17,890       91,733       1,301,600  
Charged to the income statements
     162,266       222,353       71,555       68,790       6,932       27,236       559,132  
Reserve for changes in investment in subsidiaries
     (50,359 )     -       -       -       -       -       (50,359 )
Use of tax loss carryforwards
     (157,367 )     -       -       -       -       -       (157,367 )
Currency translation adjustment
     (41,331 )     401       -       -       -       (5,592 )     (46,522 )
As of June 30, 2015
     932,904       326,042       140,549       68,790       24,822       113,377       1,606,484  


Deferred income tax liabilities
  
Investment properties
    
Property, plant and equipment
    
Biological assets
    
Investments
    
Trade and other receivables
    
Others
    
Total
  
As of June 30, 2013
     (577,883 )     (163,143 )     (68,146 )     (50,803 )     (65,166 )     (19,953 )     (945,094 )
Charged / (Credited) to the income statements
     49,362       7,420       (41,260 )     (2,608 )     (5,358 )     32,567       40,123  
Additions for business combination
     33,346       -       -       -       -       -       33,346  
Currency translation adjustment
     (17,948 )     (23,717 )     (1,870 )     -       (3,439 )     (404 )     (47,378 )
As of June 30, 2014
     (513,123 )     (179,440 )     (111,276 )     (53,411 )     (73,963 )     12,210       (919,003 )
Charged / (Credited) to the income statements
     495,031       33,722       26,227       (19,197 )     (680,162 )     (23,832 )     (168,211 )
Reclassifications from trading properties
     (33,346 )     -       -       -       -       -       (33,346 )
Currency translation adjustment
     (1,233 )     11,879       1,859       -       2,280       786       15,571  
As of June 30, 2015
     (52,671 )     (133,839 )     (83,190 )     (72,608 )     (751,845 )     (10,836 )     (1,104,989 )

Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefits through future taxable profits is probable. Tax loss carry-forwards may have expiration dates or may be permanently available for use by the Group depending on the tax jurisdiction where the tax loss carry-forward is generated. Tax loss carry forwards in Argentina and Uruguay generally expire within 5 years. Tax loss carry-forward in Bolivia expire within 3 years. Tax loss carry-forwards in Brazil do not expire. However, in Brazil, the taxable profit for each year can only be reduced by tax losses up to a maximum of 30%.

 

 
F-224
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



28.  
Taxes (Continued)

In order to fully realize the deferred tax asset, the Group will need to generate future taxable income. To this aim the Group made a projection for future years when deferred assets will be deductible. Such projection is based on aspects such as the expected performance of the main macroeconomic variables affecting the business, production issues, pricing, yields and costs that make up the operational flows derived from the regular exploitation of fields and other assets of the group, the flows derived from the performance of financial assets and liabilities and the income generated by the Group’s strategy of crop rotation. Such strategy implies the purchase and/or development of fields in marginal areas or areas with a high upside potential and periodical sale of such properties that are deemed to have reached their maximum appreciation potential.

Based on the estimated and aggregate effect of all these aspects on the Group’s performance, Management estimates that as at June 30, 2015, it is probable that the Company will realize all of the deferred tax assets.

As of June 30, 2015, the tax loss carry-forwards of the Group and the jurisdictions which generated them are as follows:

Jurisdiction
  
Tax loss carry-forward
    
Date of generation
    
Due date
  
Argentina                                                        
     32,694       2011       2016  
Argentina                                                        
     123,003       2012       2017  
Argentina                                                        
     254,814       2013       2018  
Argentina                                                        
     1,774,300       2014       2019  
Argentina                                                        
     162,902       2015       2020  
Uruguay                                                        
     903       2011       2016  
Uruguay                                                        
     9,777       2012       2017  
Uruguay                                                        
     1,093       2013       2018  
Uruguay                                                        
     16,057       2014       2019  
Uruguay                                                        
     4,336       2015       2020  
Bolivia                                                        
     149       2012       2015  
Bolivia                                                        
     9,064       2014       2017  
Bolivia                                                        
     6,803       2015       2018  
      2,395,895                  

The Group did not recognize deferred income tax assets of Ps. 43.3 million and Ps. 57.1 million as of June 30, 2015 and 2014, respectively, related to certain businesses which are still in development stage or that have a history of recurring losses. Although management estimates that the business will generate sufficient income, pursuant to IAS 12, management has determined that, as a result of the recent loss history and the lack of verifiable and objective evidence due to the subsidiary’s results of operations, there is sufficient uncertainty as to the generation of sufficient income to be able to offset the losses within a reasonable timeframe, therefore, no deferred tax asset is recognized in relation to these losses.

 

 
F-225
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



28.  
Taxes (Continued)

The Group did not recognize deferred income tax liabilities of Ps. 71.83 million and Ps. 46.4 million as of June 30, 2015 and 2014, respectively, related to the potential dividends distribution of its investments in foreign subsidiaries, associates and joint ventures. In addition, the withholdings and/or similar taxes paid at source may be creditable against the Group’s potential final tax liability. The Group has the intention and ability to indefinitely reinvest these results.

Below is a reconciliation between the income tax recognized and that which would result from applying the prevailing tax rate on the Income/loss before income tax for the years ended June 30, 2015, 2014 and 2013:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Tax calculated at the tax rates applicable to profits in the respective countries
     858,031       (550,285 )     61,284  
Permanent differences:
                        
Share of (loss) / profit of associates and joint ventures
     (543,178 )     153,919       (24,715 )
Capital indexation of foreign companies
     (3,971 )     (1,591 )     -  
Loss from disposal of associates and joint ventures
     -       (8,668 )     -  
Unrecognized tax losses                                                                   
     21,591       43,398       16,008  
Non-taxable income                                                                   
     (57,050 )     (31,454 )     (9,603 )
Non-deductible expenses                                                                   
     7,882       3,700       8,937  
Others                                                                   
     20,045       1,566       (18,392 )
Income tax expense                                                                   
     303,350       (389,415 )     33,519  

29.  
Leases

The Group as lessee

Operating leases:

In the ordinary course of business, the Group enters into several operating lease agreements. The Group conducts a portion of its agricultural activities on land rented from third parties under operating lease contracts averaging a harvest year. The Group uses rented land for cultivation or cattle rising. Lease contracts are generally renewable for additional harvest periods. Rent is generally payable at intervals during the harvest year. Lease contracts vary but generally payments are based on the market price of a particular crop multiplied by a fixed amount of tons per hectare leased. Other contracts are based on a fixed amount of US dollars per hectare. Rent expense for the years ended as of June 30, 2015, 2014 and 2013 amounted to Ps. 98.8 million, Ps. 78.6 million and Ps. 56.4 million, respectively and is included in the line item "Cost" in the income statements.

 

 
F-226
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



29.  
Leases (Continued)

As discussed in Note 2.9, the Group is also using land in the Province of Salta under rights of use agreement (the "Anta Agreement") for which the Group is currently paying a rent fee of 10% of the production. Rent expense for the years ended June 30, 2015, 2014 and 2013 amounted to Ps. 4.7 million, Ps. 2.6 million and Ps. 1.4 million, respectively, and is included in the line item "Costs" in the income statements.

The Group leases two properties which uses as shopping centers. These contracts provide for fixed monthly payments, adjusted pursuant to a rent escalation clause. Rent expense for the years ended June 30, 2015, 2014 and 2013 amounted to Ps. 3.0 million, Ps. 2.9 million and Ps. 2.9 million, respectively, and is included in the line item "Costs" in the income statements.

The Group also rents office spaces under an operating lease with companies related to the Chairman and Director of the Group. (See Note 38).

The future aggregate minimum lease payments the Group will have to cancel under non-cancellable operating leases are as follows:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
No later than 1 year
     37,662       44,181       22,852  
Later than one year and not later than five years
     47,858       83,598       16,908  
More than 5 years
     83,995       102,315       39,884  
      169,515       230,094       79,644  

Finance leases:

The Group rents certain computer equipment under various finance leases for an average term of three years. Book value of these assets under finance leases is disclosed in Note 11.

At the commencement of the lease term, the Group recognizes a lease liability equal to the carrying amount of the leased asset. In subsequent periods, the liability decreases by the amount of lease payments made to the lessors using the effective interest method. The interest component of the lease payments is recognized in the income statements. Book value of liabilities under finance leases is disclosed in Note 25.
 
Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default.

 

 
F-227
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



29.  
Leases (Continued)

The future aggregate minimum lease payments under cancellable operating leases are as follows:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
No later than 1 year                                                            
     12,172       2,291       1,612  
Later than 1 year and not later than 5 years
     15,650       1,348       1,790  
      27,822       3,639       3,402  
Future finance charges                                                            
     (2,356 )     (350 )     (354 )
Present value of finance lease liabilities
     25,466       3,289       3,048  

The fair value of finance lease liabilities is as follows:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
No later than 1 year                                                            
     11,768       2,102       1,460  
Later than 1 year and not later than 5 years
     13,698       1,187       1,588  
Present value of finance lease liabilities
     25,466       3,289       3,048  

Under the terms of these agreements, no contingent rents are payable. The interest rate inherent is fixed at the contract date for all of the lease term. The average interest rate on finance lease payables at June 30, 2015, 2014 and 2013 were 9.2%, 11.20% and 10.75%, respectively.

The Group as lessor

Operating leases (Shopping centers, offices and other buildings):
 
The Group enters into cancellable operating leases agreements relating to shopping centers. The agreements have an average term raging from three to five years. Some leases relating to anchor stores having terms of ten years, which are usually extendable. Tenants are charged a rent which is the higher between (i) the base rent; and (ii) the percentage rent (which is generally established as a percentage over sales that ranges between 4% and 10%). Furthermore, pursuant to the rent escalation clause established in most lease arrangements, the tenants’ base rent generally increases between 18% and 24% each year during the agreement term. Regarding the percentage rent, since the rent is not known until the end of the period, such percentage rent meets the definition of contingent rent under IAS 17 "Leases". Accordingly, rental income will be recognized once the contingent rent is known.

 

 
F-228
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



29.  
Leases (Continued)

For the fiscal years ended June 30, 2015, 2014 and 2013, the average (basic rental) and contingent (supplementary rental) rental income of the Group’s shopping centers amounted to Ps. 929,063, Ps. 746,666 and Ps. 588,121, and to Ps. 461,394, Ps. 329,258 and Ps. 254,429, respectively, and are included under “Revenue” in the income statements.
 
Additionally, the Group owns a shopping center property known as "Patio Olmos" in the Province of Córdoba, Argentina. The Group rents this property to a third party shopping center operator under an operating lease agreement expiring in 2032. The lease provides for fixed monthly payments, adjusted pursuant to a rent escalation clause. Rental income for the years ended June 30, 2015, 2014 and 2013 amounted to Ps. 181, Ps. 151 and Ps. 343 and is included in the line item "Revenue" in the income statements.

The Group enters into cancellable operating leasing agreements relating to offices and other buildings. The agreements have an average term raging from three to five years. The tenants are charged a base rent payable on a monthly basis.

Rental income of the Group’s offices and other buildings amounted to Ps. 305,882, Ps. 255,788 and Ps. 204,329 for the fiscal years ended June 30, 2015, 2014 and 2013, respectively and is included into “Revenue” in the income statements.

The future minimum proceeds under non-cancellable operating leases from Group’s offices and other buildings are as follows:

   
June 30,
2015
    
June 30,
2014
  
2015                                                              
     -       731,570  
2016                                                              
     982,335       522,764  
2017                                                              
     690,358       220,605  
2018                                                              
     322,625       58,600  
2019                                                              
     83,321       18,291  
Later than 2019                                                              
     23,989       14,420  
      2,102,628       1,566,250  

Farmland leases

 From time to time, the Group leases certain farmlands. The leases have an average term of one crop year. Rental income is generally based on the market price of a particular crop multiplied by a fixed amount of tons per hectare leased.


 
F-229
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



29.  
Leases (Continued)
 
Rental income was Ps. 15.1 million, Ps. 13.8 million and Ps. 23.8 million for the years ended June 30, 2015, 2014 and 2013 and is included within “Revenue” in the income statements.

Even though all leases described above are cancellable by law, the Group considered them to be non-cancellable (see Note 2.28 for further details).

The future aggregate minimum lease proceeds under non-cancellable operating leases from the Group are as follows:

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
No later than 1 year                                                              
     5,092       8,501       6,898  
Later than one year and not later than five years
     614       643       6,916  
More than 5 years                                                              
     -       1,928       1,379  
      5,706       11,072       15,193  

Finance leases:

The Group does not act as a lessor in connection with finance leases.

 

 
F-230
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



30.  
Shareholders’ Equity

Share capital and premium

The share capital of the Group is represented by common shares with a nominal value of Ps. 1 per share and one vote each. The movements in the capital accounts as of June 30, 2015 and 2014 are as follows:

   
Number of shares
    
Capital
    
Share premium
    
Share premium of treasury stock
  
As of June 30, 2013                                            
     496,561,976       496,562       773,079       -  
Purchase of treasury stock
     (5,565,479 )     (5,565 )     -       -  
As of June 30, 2014                                            
     490,996,497       490,997       773,079       -  
Shares distribution resolved by Shareholders' meeting held on November 14, 2014
     5,565,479       5,565       -       -  
Share premium resolved by Shareholders' meeting held on November 14, 2014
     -       -       (220,881 )     -  
Purchase of treasury stock
     (3,067,837 )     (3,068 )     -       -  
Exercise of warrants                                            
     80,074       80       1,132       -  
Awards granted under equity incentive plan
     1,203,030       1,203       -       12,678  
Maturity share warrants                                            
     -       -       106,134       -  
As of June 30, 2015                                            
     494,777,243       494,777       659,464       12,678  

Special reserve

Pursuant to CNV General Ruling N° 609/12, the Company set up a special reserve, to reflect the positive difference between the balance at the beginning of retained earnings disclosed in the first financial statements prepared according to IFRS and the balance at closing of retained earnings disclosed in the last financial statements prepared in accordance with previously effective accounting standards. This reserve cannot be used to make distributions in kind or in cash, and can only be reversed to be capitalized, or otherwise to absorb potential negative balances in Retained Earnings. The mentioned Reserve was reversed under the appropriation of Retained Earnings resolved by Shareholders’ meeting held on November 14, 2014.

 

 
F-231
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



30.  
Shareholders’ Equity (Continued)

Treasury stock

During 2009, the Company acquired 30 million shares of own stock for Ps. 1.7 million in cash following a Board of Directors' resolution dated October of 2008. As per Argentine Corporations Law, an entity has a period of one year from acquisition to sell or otherwise dispose of treasury stock unless an extension is provided for in a shareholders meeting. In November 2009, the Board of Directors assigned 25 million shares of treasury stock to the shareholders on a pro rata basis. After this assignment, the Group held 5 million shares of treasury stock. In October 2011, the General Ordinary and Extraordinary Shareholders’ Meeting approved the allocation of treasury stock to the “Equity Incentive Plan”.

On April 11, 2014, the Company reported a potential repurchase of shares intended to curb the drop in prices and reduce fluctuations on the Company’s shares and ADS and strengthen its position in the market, thus minimizing potential temporary imbalances that may arise between supply and demand. On that same date, the Shareholders’ Meeting approved a partial release of the account “Reserve for new projects” in an amount of up to Ps. 200 million, in order to appropriate such amount of money to set up a reserve entitled “Reserve for the repurchase of securities”. In view of this measure, the Shareholders’ Meeting approved the repurchase of securities issued by the Company in an amount of Ps. 200 million, to be carried out before December 31, 2014, which period may be extended for an identical term. Cresud’s Board of Directors set forth the terms and conditions governing the purchase of the Company's own stock pursuant to Section 64 of Law N° 26,831 and the CNV’s regulations, for up to an aggregate amount of Ps. 200 million and up to 5% of the capital stock, in the form of common shares or American Depositary Shares (ADS) representing 10 shares each, and up to a daily limit of 25% of the average daily transaction volume experienced by the Company’s shares, along with the markets where they are listed, during the prior 90 business days, and at a price ranging from a minimum of Ps. 1 up to Ps. 13.5 per share and ranging from a minimum of US$ 1 per ADS up to US$ 14 per ADS.

During the year ended June 30, 2014, the Company purchased 128,749 common shares (N.V. Ps. 1 per share) for a total amount of Ps. 0.2 million and 543,673 ADRs (representing 5,436,730 common shares) for a total amount of US$ 6.6 million, completing the terms and conditions of the share repurchase plan.

During the fiscal year ended June 30, 2015 Cresud repurchased 37,657 common, registered shares of own stock of Ps. 1 nominal value and 1 vote per share, in exchange for Ps. 0.5 million and 303,018 American Depositary Shares or ADRs representing 10 shares each for a total amount of US$ 3.9 million, thus completing the terms and conditions of the share repurchase plan.

 

 
F-232
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



30.  
Shareholders’ Equity (Continued)

On November 14, 2014, the Shareholders’ Meeting decided to conclude the shares and ADRs repurchase plan.

On December 12, 2014, as per the powers delegated by the Regular General Shareholders’ meeting on October 31, 2014, the Board decided to distribute pro rata among shareholders 5,565,479 treasury shares, which represent 0.0114% per share or 1.1406% on the outstanding capital of 487,928,660.

Share warrants

In May 2015, certain option holders exercised their right to purchase additional shares, with the resulting addition of 80,074 common shares with a nominal value of Ps. 1 each. The exercise of such options resulted in an inflow of Ps. 1.2 million. All of Cresud’s existing options expired on May 22, 2015, after the end of the exercise period.

Restrictions on distribution of dividends

-  
Legal reserve

According to Argentine law, 5% of the profit of the year is separated to constitute a legal reserve until they reach legal capped amounts (20% of total capital). This legal reserve is not available for dividend distribution and can only be released to absorb losses. Shareholders’ Meeting held on November 14, 2014 resolved the use of the statutory reserve in the amount of Ps. 81,616 to absorb accumulated losses. The Company shall have to fully replenish such reserve before any distribution of accumulated earnings.

-  
Treasury stock

Given that the repurchase of shares for subsequent sale is to be funded out of net cash income or free reserves, pursuant to section 220.2. of Act 19,550, insofar as the Company maintains Treasury shares there is a restriction on the distribution of retained earnings or free reserves, equal to the acquisition cost.

Dividends

 
The dividends paid in the years ended June 30, 2014 and 2013 were Ps.120 million (Ps. 0.244 per share) and Ps. 120 million (Ps. 0.242 per share), respectively. No dividends were distributed as of June 30, 2015.

 

 
F-233
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



30.  
Shareholders’ Equity (Continued)

Expired dividends

During the years ended 2015, 2014 and 2013, Ps. 811, Ps. 1,690 and Ps. 629, respectively, expired, corresponding to dividends no yet paid from prior years.

31.  
Revenues

   
June 30, 2015
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Trading properties
     9,860       -       -       9,860  
Crops
     -       950,251       -       950,251  
Cattle
     -       56,650       -       56,650  
Dairy
     -       71,940       -       71,940  
Sugarcane
     -       197,828       -       197,828  
Beef
     -       -       806,018       806,018  
Supplies
     -       55,034       -       55,034  
Sales revenues
     9,860       1,331,703       806,018       2,147,581  
Base rent
     1,251,812       -       -       1,251,812  
Contingent rent
     461,583       -       -       461,583  
Admission rights
     156,438       -       -       156,438  
Parking fees
     112,120       -       -       112,120  
Commissions
     51,333       1,774       -       53,107  
Consignment revenues
     -       32,356       -       32,356  
Property management fee
     33,784       -       -       33,784  
Expenses and Collective Promotion Funds (“CPF”)
     884,684       -       -       884,684  
Flattening of tiered lease payments
     31,293       -       -       31,293  
Leases and agricultural services
     -       37,048       -       37,048  
Advertising and brokerage fees
     -       35,877       -       35,877  
Others
     11,900       5,778       -       17,678  
Service income
     2,994,947       112,833       -       3,107,780  
Consumer financing
     147       -       -       147  
Hotel operations
     396,297       -       -       396,297  
Other revenues:
     396,444       -       -       396,444  
Total Group revenue
     3,401,251       1,444,536       806,018       5,651,805  



 

 
F-234
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


31.  
Revenues (Continued)

   
June 30, 2014
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Trading properties
     62,641       -       -       62,641  
Crops
     -       817,702       -       817,702  
Cattle
     -       61,691       -       61,691  
Dairy
     -       53,935       -       53,935  
Sugarcane
     -       123,851       -       123,851  
Beef
     -               548,740       548,740  
Supplies
     -       70,388       -       70,388  
Sales revenues
     62,641       1,127,567       548,740       1,738,948  
Base rent
     1,079,779       -       -       1,079,779  
Contingent rent
     329,889       -       -       329,889  
Admission rights
     126,495       -       -       126,495  
Parking fees
     81,382       -       -       81,382  
Commissions
     42,458       2,042       -       44,500  
Property management fee
     27,121       -       -       27,121  
Expenses and Collective Promotion Funds (“CPF”)
     736,302       -       -       736,302  
Flattening of tiered lease payments
     14,771       -       -       14,771  
Leases and agricultural services
     -       29,044       -       29,044  
Brokerage fees
     -       44,834       -       44,834  
Others
     12,202       6,608       -       18,810  
Service income
     2,450,399       82,528       -       2,532,927  
Consumer financing
     574       -       -       574  
Hotel operations
     331,562       -       -       331,562  
Other revenues
     332,136       -       -       332,136  
Total Group revenue
     2,845,176       1,210,095       548,740       4,604,011  

   
June 30, 2013
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Trading properties                                                        
     24,867       -       -       24,867  
Crops                                                        
     -       745,932       -       745,932  
Cattle                                                        
     -       74,534       -       74,534  
Dairy                                                        
     -       38,818       -       38,818  
Sugarcane                                                        
     -       160,259       -       160,259  
Beef                                                        
     -       -       206,121       206,121  
Supplies                                                        
     -       47,990       -       47,990  
Sales revenues                                                        
     24,867       1,067,533       206,121       1,298,521  
Base rent                                                        
     828,923       -       -       828,923  
Contingent rent                                                        
     254,854       -       -       254,854  
Admission rights                                                        
     107,608       -       -       107,608  
Parking fees                                                        
     62,484       -       -       62,484  
Commissions                                                        
     33,620       1,347       -       34,967  
Property management fee                                                        
     21,803       -       -       21,803  
Expenses and Collective Promotion Funds (“CPF”)
     594,290       -       -       594,290  
Flattening of tiered lease payments
     22,641       -       -       22,641  
Leases and agricultural services
     -       30,815       1,634       32,449  
Brokerage fees                                                        
     -       29,883       -       29,883  
Others                                                        
     9,052       4,038       -       13,090  
Service income                                                        
     1,935,275       66,083       1,634       2,002,992  
Consumer financing                                                        
     1,203       -       -       1,203  
Hotel operations                                                        
     225,835       -       -       225,835  
Other revenues                                                        
     227,038       -       -       227,038  
Total Group revenue                                                        
     2,187,180       1,133,616       207,755       3,528,551  

 

 
F-235
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



32.  
Costs

   
June 30, 2015
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Cost of leases and services                                                     
     -       11,983       -       11,983  
Other operative costs                                                     
     -       9,002       -       9,002  
Cost of property operations                                                     
     -       20,985       -       20,985  
Crops                                                     
     -       1,752,577       -       1,752,577  
Cattle                                                     
     -       219,713       -       219,713  
Dairy                                                     
     -       133,259       -       133,259  
Sugarcane                                                     
     -       368,172       -       368,172  
Beef                                                     
     -       -       654,813       654,813  
Supplies                                                     
     -       42,814       -       42,814  
Leases and agricultural services
     -       7,217       -       7,217  
Brokerage fees                                                     
     -       32,372       -       32,372  
Commissions                                                     
     -       11,969       -       11,969  
Consignment costs                                                     
     -       3,069       -       3,069  
Others                                                     
     -       6,617       -       6,617  
Cost of agricultural sales and services
     -       2,577,779       654,813       3,232,592  
Cost of sale of trading properties
     13,934       -       -       13,934  
Cost from hotel operations                                                     
     277,884       -       -       277,884  
Cost of leases and services                                                     
     1,224,264       -       -       1,224,264  
Other costs                                                     
     56       -       -       56  
Total Group costs                                                     
     1,516,138       2,598,764       654,813       4,769,715  

   
June 30, 2014
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Cost of leases and services                                                     
     -       17,374       -       17,374  
Other operative costs                                                     
     -       8,228       -       8,228  
Cost of property operations                                                     
     -       25,602       -       25,602  
Crops                                                     
     -       1,509,500       -       1,509,500  
Cattle                                                     
     -       150,810       -       150,810  
Dairy                                                     
     -       104,334       -       104,334  
Sugarcane                                                     
     -       206,751       -       206,751  
Beef                                                     
     -       -       446,094       446,094  
Supplies                                                     
     -       55,362       -       55,362  
Leases and agricultural services
     -       -       7,213       7,213  
Commissions                                                     
     -       7,663       -       7,663  
Brokerage fees                                                     
     -       29,044               29,044  
Others                                                     
     -       8,101       -       8,101  
Cost of agricultural sales and services
     -       2,071,565       453,307       2,524,872  
Cost of sale of trading properties
     18,971       -       -       18,971  
Cost from hotel operations                                                     
     215,980       -       -       215,980  
Cost of leases and services                                                     
     1,128,794       -       -       1,128,794  
Other costs                                                     
     373       -       -       373  
Total Group costs                                                     
     1,364,118       2,097,167       453,307       3,914,592  

 

 
F-236
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



32.  
Costs (Continued)

   
June 30, 2013
  
   
Urban properties and investments
    
Agricultural
    
Agroindustrial
    
Total
  
Cost of leases and services
     -       12,052       -       12,052  
Other operative costs
     -       5,675       -       5,675  
Cost of property operations
     -       17,727       -       17,727  
Crops
     -       1,216,190       -       1,216,190  
Cattle
     -       142,621       -       142,621  
Dairy
     -       74,826       -       74,826  
Sugarcane
     -       302,206       -       302,206  
Beef
     -       -       194,270       194,270  
Supplies
     -       42,162       -       42,162  
Leases and agricultural services
     -       -       4,132       4,132  
Commissions
     -       3,224       -       3,224  
Brokerage fees
     -       20,601       -       20,601  
Others
     -       5,299       -       5,299  
Cost of agricultural sales and services
     -       1,807,129       198,402       2,005,531  
Cost of sale of trading properties
     12,347       -       -       12,347  
Cost from hotel operations
     168,282       -       -       168,282  
Cost of leases and services
     915,701       -       -       915,701  
Other costs
     907       -       -       907  
Total Group costs
     1,097,237       1,824,856       198,402       3,120,495  



 

 
F-237
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


33.  
Expenses by nature

The Group discloses expenses in the income statements by function of as part of the line items “Costs”, “General and administrative expenses” and “Selling expenses”. The following tables provide the additional required disclosure of expenses by nature and their relationship to the function within the Group.

For the year ended June 30, 2015:

   
Group costs
                    
   
Costs of property operations
    
Cost of agricultural sales and services
    
Cost of agriculture production
    
Cost of sale of trading properties
    
Cost from Consumer Financing
    
Cost from hotel operations
    
Other operative costs
    
General and administrative expenses
    
Selling expenses
    
Total
  
Leases, services charges and vacant property costs
     17,364       14,380       -       1,167       -       284       86       9,693       2,216       45,190  
Depreciation and amortization
     162,175       56,055       11,120       -       -       11,578       3,007       12,658       1,229       257,822  
Doubtful accounts                                         
     -       -       -       -       -       -       -       -       29,168       29,168  
Advertising, publicity and other selling expenses
     173,274       -       -       -       -       6,556       -       -       58,290       238,120  
Taxes, rates and contributions
     108,332       2,865       11,306       3,272       -       335       59       15,640       161,849       303,658  
Maintenance and repairs
     325,651       12,816       21,007       6,560       9       33,984       1,285       31,556       2,751       435,619  
Fees and payments for services
     8,573       150,738       5,686       512       47       1,334       795       109,930       8,073       285,688  
Director´s fees                                         
     -       -       -       -       -       -       -       133,967       -       133,967  
Payroll and social security liabilities
     404,076       119,100       65,384       154       -       162,423       2,887       239,270       46,976       1,040,270  
Cost of sale of properties
     -       -       -       2,246       -       -       -       -       -       2,246  
Food, beverage and other lodging expenses
     -       -       -       -       -       60,852       -       8,264       4,361       73,477  
Changes in biological assets and agricultural produce
     -       1,608,966       -       -       -       -       -       -       -       1,608,966  
Supplies and labor                                         
     -       13,649       1,094,456       -       -       -       9       12       4,392       1,112,518  
Freights                                         
     373       1,897       11,811       -       -       -       19       44       123,872       138,016  
Bank commissions and expenses
     -       8,959       358       -       -       -       -       14,628       3,735       27,680  
Conditioning and clearance
     -       -       -       -       -       -       -       -       20,141       20,141  
Travel and library expenses
     11,887       14,936       10,883       23       -       530       856       14,736       2,626       56,477  
Management fee                                         
     -       -       -       -       -       -       -       11,401       -       11,401  
Others                                         
     12,559       8,202       -       -       -       8       -       16,021       4,479       41,269  
Total expenses by nature
     1,224,264       2,012,563       1,232,011       13,934       56       277,884       9,003       617,820       474,158       5,861,693  

 

 
F-238
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



33.  
Expenses by nature (Continued)

For the year ended June 30, 2014:

   
Group costs
                    
   
Costs of property operations
    
Cost of agricultural sales and services
    
Cost of agriculture production
    
Cost of sale of trading properties
    
Cost from Consumer Financing
    
Cost from hotel operations
    
Other operative costs
    
General and administrative expenses
    
Selling expenses
    
Total
  
Leases, services charges and vacant property costs
     16,700       15,282       1,080       1,404       -       280       172       14,601       4,939       54,458  
Depreciation and amortization
     217,462       45,925       7,559       707       -       10,819       2,666       9,973       1,808       296,919  
Doubtful accounts                                         
     -       -       -       -       -       -       -       -       10,461       10,461  
Advertising, publicity and other selling expenses
     145,331       -       -       1       -       4,701       -       -       34,478       184,511  
Taxes, rates and contributions
     86,996       2,110       9,033       2,299       -       -       179       14,289       128,536       243,442  
Maintenance and repairs
     255,053       10,641       14,841       3,551       3       26,321       490       23,861       1,071       335,832  
Fees and payments for services
     28,762       120,369       4,551       66       368       2,347       103       83,373       11,103       251,042  
Director´s fees                                         
     -       -       -       -       -       -       -       124,207       -       124,207  
Payroll and social security expenses
     362,055       94,032       56,326       168       -       121,332       4,085       213,139       38,365       889,502  
Cost of sale of properties
     -       -       -       10,740       -       -       -       -       -       10,740  
Food, beverage and other lodging expenses
     -       -       -       -       -       49,792       -       6,726       3,753       60,271  
Changes in biological assets and agricultural produce
     -       1,239,869       -       -       -       -       -       -       755       1,240,624  
Supplies and labor                                         
     -       24,485       859,688       -       -       -       -       -       1,761       885,934  
Freights                                         
     -       1,267       7,240       -       -       -       6       12       81,003       89,528  
Bank commissions and expenses
     -       5,788       199       -       -       -       -       6,413       6,167       18,567  
Conditioning and clearance
     -       -       12       -       -       -       -       -       15,002       15,014  
Travel and library expenses
     -       12,525       7,007       -       -       -       527       3,719       974       24,752  
Others                                         
     16,435       2,332       85       35       2       388       -       33,626       12,550       65,453  
Total expenses by nature
     1,128,794       1,574,625       967,621       18,971       373       215,980       8,228       533,939       352,726       4,801,257  


 

 
F-239
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



33.  
Expenses by nature (Continued)

For the year ended June 30, 2013:

   
Group costs
                    
   
Costs of property operations
    
Cost of agricultural sales and services
    
Cost of agriculture production
    
Cost of sale of trading properties
    
Cost from Consumer Financing
    
Cost from hotel operations
    
Other operative costs
    
General and administrative expenses
    
Selling expenses
    
Total
  
Leases, services charges and vacant property costs
     11,505       1,300       964       1,774       -       136       119       5,442       926       22,166  
Depreciation and amortization
     209,164       37,513       5,600       529       -       13,591       2,373       10,689       279       279,738  
Doubtful accounts                                         
     -       -       -       -       -       -       -       -       16,114       16,114  
Advertising, publicity and other selling expenses
     115,013       -       1       -       -       -       13       12       16,542       131,581  
Taxes, rates and contributions
     68,982       1,670       6,494       1,500       -       263       21       12,936       83,204       175,070  
Maintenance and repairs
     226,164       5,925       13,072       2,741       38       21,603       55       19,236       978       289,812  
Fees and payments for services
     29,390       123,222       2,639       237       858       1,301       19       51,206       4,401       213,273  
Director´s fees                                         
     -       -       -       -       -       -       -       82,060       -       82,060  
Payroll and social security expenses
     244,311       67,784       35,467       155       3       96,096       2,610       141,550       25,561       613,537  
Cost of sale of properties
     -       -       -       5,373       -       -       -       -       -       5,373  
Food, beverage and other lodging expenses
     -       -       -       -       -       29,643       -       2,900       680       33,223  
Changes in biological assets and agricultural produce
     -       877,118       -       -       -       -       -       -       -       877,118  
Supplies and labor                                         
     -       3,575       767,384       -       -       -       -       -       -       770,959  
Freights                                         
     44       462       10,360       6       -       151       23       327       84,987       96,360  
Bank commissions and expenses
     1       2,621       229       -       -       4,869       -       5,278       16,446       29,444  
Conditioning and clearance
     -       -       18       -       -       -       -       -       17,766       17,784  
Travel and library expenses
     374       1,092       4,212       29       -       575       445       7,785       1,558       16,070  
Others                                         
     10,753       48,763       95       3       8       54       -       6,962       10,021       76,659  
Total expenses by nature
     915,701       1,171,045       846,535       12,347       907       168,282       5,678       346,383       279,463       3,746,341  

 

 
F-240
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



34.  
Employee costs

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Salaries, bonuses and social security costs
     998,906       784,655       596,678  
Share-based payments                                                              
     30,823       94,682       10,497  
Pension costs – defined contribution plan
     10,541       10,165       6,362  
      1,040,270       889,502       613,537  

35.  
Other operating results, net

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Gain from purchase of subsidiaries                                                                
     -       -       136,724  
Gain from disposal of equity interest in subsidiaries, associates and joint ventures
     22,075       -       15,433  
Gain (loss) from commodity derivative financial instruments
     8,128       (14,859 )     5,104  
(Loss) gain from disposal of other property items
     (893 )     (366 )     1,379  
Expenses related to transfers of real properties (1)
     (119,429 )     -       -  
Reversal of currency translation adjustment (2)
     188,323       -       -  
Recovery of allowances                                                                
     -       239       2,698  
Tax on personal assets                                                                
     (14,929 )     (13,705 )     (17,649 )
Administration fee                                                                
     418       -       4,681  
Management fee                                                                
     3,666       46       1,108  
Contingencies (3)                                                                
     (28,806 )     (18,473 )     (28,645 )
Donations                                                                
     (40,558 )     (33,283 )     (31,053 )
Project Analysis and Assessment                                                                
             (3,124 )     (1,182 )
Unrecoverable VAT                                                                
     (576 )     (446 )     (146 )
Others                                                                
     (5,210 )     8,963       9,616  
Total other operating results, net                                                                
     12,209       (75,008 )     98,068  

(1) On July 31, 2014 Cresud transferred to IRSA an area of 1,058 hectares located in Luján, in Buenos Aires Province. On December 22, 2014, IRSA conveyed title on the properties located in Bouchard 710, Suipacha 652, Torre BankBoston, Edificio República, Edificios Intercontinental Plaza and the plot of land next to the latter, onto its subsidiary IRSA CP, which as from such date continues to operate such properties.  These transfers have had no effects whatsoever in the consolidated financial statements of the Group other than the expenses and taxes associated to the transfer.
(2) Pertains to the reversal of the translation reserve generated in Rigby following the partial repayment of principal of the company (see Note 3).
(3) Including costs and legal expenses.


 
F-241
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


36.  
Financial results, net

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Financial income:
                  
- Interest income                                                              
     100,094       119,291       72,813  
- Foreign exchange gains                                                              
     124,393       153,856       104,686  
- Dividends income                                                              
     16,622       15,041       23,249  
- Other financial income                                                              
     -       -       109  
Financial income                                                              
     241,109       288,188       200,857  
                         
Financial costs:
                        
- Interest expense                                                              
     (886,710 )     (737,913 )     (483,772 )
- Foreign exchange losses                                                              
     (686,435 )     (2,053,377 )     (586,382 )
- Other financial costs                                                              
     (124,140 )     (83,086 )     (64,899 )
Financial costs                                                              
     (1,697,285 )     (2,874,376 )     (1,135,053 )
Less financial costs capitalized                                                              
     12,957       22,376       10,307  
Total financial costs                                                              
     (1,684,328 )     (2,852,000 )     (1,124,746 )
Other financial results:
                        
- Fair value gains of financial assets at fair value through profit or loss
     187,529       379,091       23,739  
- Gain / (Loss) on the revaluation of receivables arising from the sale of farmland
     52,984       20,751       (3,165 )
- (Loss) / Gain from repurchase of Non-convertible Notes
     (1,945 )     (44,688 )     2,057  
- Fair value gain on embedded derivatives
     -       -       64  
- Loss derivative financial instruments (except commodities)
     (83,510 )     (365,740 )     (7,567 )
Total other financial results                                                              
     155,058       (10,586 )     15,128  
Total financial results, net                                                                
     (1,288,161 )     (2,574,398 )     (908,761 )

37.  
Earnings per share

(a)  
Basic

Basic earnings per share amounts are calculated in accordance with IAS 33 by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the year, excluding ordinary shares purchased by the Group and held as treasury shares.

   
June 30,
2015
    
June 30,
2014
    
June 30,
2013
  
Loss attributable to equity holders of the parent
     (249,619)       (1,067,880 )     (26,907 )
Weighted average number of ordinary shares in issue (thousands)
     492,020       496,132       496,562  
Basic loss per share                                                            
     0.51       (2.15 )     (0.05 )

 

 
F-242
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



37.
Earnings per share (Continued)

(b)  
Diluted

Diluted earnings per share amounts are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential shares. Ordinary shares purchased by the Group and held as treasury shares are excluded from the calculation of diluted earnings per share. As of June 30, 2015, the Group does not have dilutive securities.
 
        Since the Company posted a loss for the years ended June 30, 2015, 2014, and 2013, there is no diluted effect whatsoever.

38.  
Related party transactions

During the normal course of business, the Group conducts transactions with different entities or parties related to it. An individual or legal entity is considered a related party where:

·  
An entity, individual or close relative of such individual or legal entity exercises control, or joint control, or significant influence over the reporting entity, or is a member of the Board of Directors or the Senior Management of the entity or its controlling company.

·  
An entity is a subsidiary, associate or joint venture of the entity or its controlling or controlled company.

The following section provides a brief description of the main transactions conducted with related parties which are not described in other notes of these consolidated financial statements:

1.  
Remunerations of the Board of Directors

The Business Company Act provides that the remuneration of the Board of Directors, where it is not set forth in the Company’s by-laws, shall be fixed by the Shareholders' Meetings. The maximum amount of remuneration that the members of the Board are allowed to receive, including salary and other performance-based remuneration of permanent technical-administrative functions, may not exceed 25% of the profits.

 

 
F-243
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

Such maximum amount will be limited to 5% where no dividends are distributed to the Shareholders, and will be increased proportionately to the distribution, until reaching such cap where the total of profits is distributed.

Some of our Directors are hired under the Employment Contract Act N° 20,744. This Act rules on certain conditions of the work relationship, including remuneration, salary protection, working hours, vacations, paid leaves, minimum age requirements, workmen protection and forms of suspension and contract termination.

The remuneration of directors for each fiscal year is based on the provisions established by the Business Company Act, taking into consideration whether such directors perform technical-administrative functions and depending upon the results recorded by the Company during the fiscal year. Once such amounts are determined, they should be approved by the Shareholders’ Meeting.

2.  
Senior Management remuneration

The members of the Senior or Top Management are appointed and removed by the Board of Directors, and perform functions in accordance with the instructions delivered by the Board itself.

The Society’s Senior Management is composed of as follows:
 
Name
Date of birth
Position
In the position since
Alejandro G. Elsztain
03/31/1966
General Manager
1994
Matias Iván Gaivironsky
02/23/1976
Financial Manager
2011
David A. Perednik
11/15/1957
Administrative Manager
1997
Carlos Blousson
09/21/1963
General Manager of operations in Argentina, Bolivia and Paraguay
2008

The remuneration earned by Senior Management for their functions consists of an amount that is fixed taking into account the manager's backgrounds, capacity and experience, plus an annual bonus based on their individual performance and the Group's results. Members of the senior management participate in defined contribution and share-based incentive plans that are described in Notes 26 and 27, respectively.


 
F-244
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

3.  
Corporate Service Agreement:

In due course, the Board considered it was convenient to implement alternatives that should allow to reduce certain fixed costs, in view that the operating areas of IRSA and Cresud share certain characteristics of affinity, with the aim of reducing their incidence on the operating results, building on and enhancing the individual efficiencies of each of the companies in the different areas that form part of operating management.

To such end, on June 30, 2004, a Master Agreement for the Exchange of Corporate Services (“Frame Agreement") was entered into between our Company, IRSA and IRSA CP.

The agreement had a term of 24 months, is renewable automatically for equal periods, unless it is terminated by any of the parties upon prior notice.

It is also worth noting that the parties have hired an external consulting firm to review and evaluate half-yearly the criteria used in the process of determining the amount of corporate services, as well as the basis for distribution and documentation. Notably, the parties retain absolute freedom and confidentiality regarding their strategic and business decisions.

In the future and in order to continue with the policy in place which primarily seeks to allocate corporate resources among the several areas as efficiently as possible and continue cutting certain fixed costs related to the parties’ activities. The Master Agreement may be extended and/or amended in connection with other areas shared by the parties. The last amendment was made on February 18, 2015.

4.  
Donations granted to Fundación IRSA:

Fundación IRSA is a non-profit institution that seeks to support and generate initiatives concerning education, the promotion of corporate social responsibility and the entrepreneurial spirit of the youth. It carries out corporate volunteering programs and fosters donations by the Group’s employees. The main members of Fundación IRSA's Board of Directors are: Eduardo S. Elsztain (Chairman); Saul Zang (Vice Chairman I), Alejandro Elsztain (Vice Chairman II) and Mariana C. de Elsztain (secretary). It funds its activities with the donations made by IRSA CP, IRSA and Cresud.

 

 
F-245
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

5.  
Rentals and/or rights of use:

In the course of its normal operations, the Group enters into different kinds of agreements for the rental of real property and spaces in shopping centers related to its activities, namely:

(a)  
Lease agreements, gratuitous bailment agreements or agreements for the use of space in shopping centers:

The Group normally leases diverse spaces in its Shopping Centers (stores, stands, storage rooms or advertising spaces) to related parties, such as Tarshop S.A. (Group’s associate) and Banco Hipotecario S.A. (IRSA’s associate).

Store lease agreements are usually for three years and provide for monthly rental payments, proportional payment of common expenses and contributions to the Fondo de Promociones Colectivas (FPC) (Collective Promotion Fund), as well as payment of all direct expenses and taxes resulting from the execution of the agreements. The monthly rental is increased annually by a certain percentage as from the second contract year, on an annual and cumulative basis. The agreements further provide the payment of a right of admission and a special installment corresponding to the FPC, payable at the start of the agreement (called FPC Lanzamiento).

The right to use the stands located in the shopping centers is usually granted by way of use permit agreements or, in specific cases, under gratuitous bailment agreements. In the former case, the agreements have a term of one or two years, provide for the payment of a monthly rental and a single percent contribution for the payment of common expenses and the FPC, as well as the payment of all the direct expenses and taxes associated to the execution of agreements. Where the term is in excess of one year, the agreement provides for a percentage increase after the first year. Under the gratuitous bailment agreement, the lessee does not make the monthly payment or the contribution to the above cited fund, but pays for the stand’s specific direct expenses.

As for the rental of storage space, these agreements are accessory to the rental of a store or the right to use a stand, so in general their term coincides with that of the primary agreement. These agreements provide only for the payment of a monthly rental, which is increased annually by a given percentage as from the second year, and while they do not include payments of any common fund or direct expenses, they do provide for the payment of taxes associated with the execution of the agreement.

Furthermore, the Group offers different spaces located in the shopping centers for the advertising of different companies, brands and/or products (non-traditional advertising or NTA). These are generally short-term agreements and provide for the placement of advertising in a specific number of locations at the shopping centers in exchange for a global consideration. The taxes that levy the execution of these agreements are usually paid by the counterparties.


 
F-246
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

(b)  
Rights of use granted to Fundación Museo de los Niños:

In October 1997, IRSA CP entered into an agreement with Fundación IRSA whereby a store at the Abasto shopping mall was granted under a gratuitous bailment agreement for a term of 30 years. Subsequently, in September 1999, Fundación IRSA assigned free of cost all of the rights of use over such store and its respective obligations to Fundación Museo de los Niños.

Fundación Museo de los Niños is a charitable non-profit organization created by the same founders of Fundación IRSA and has the same members of the administration committee.

In November 2005, IRSA CP signed another agreement with Fundación Museo de los Niños granting under gratuitous bailment a store at Alto Rosario shopping mall for a term of 30 years.

Fundación Museo de los Niños has used these spaces to set up "Museo de los Niños, Abasto” and “Museo de los Niños, Rosario", two interactive learning centers intended for children and adults. Both agreements provide that the payment of common expenses and direct expenses related to the services performed by these stores should be borne by Fundación Museo de los Niños.

(c)  
Office leases:

Cresud, together with IRSA and IRSA CP rent the offices of our president located at 108 Bolivar, in the City of Buenos Aires, property of Isaac Elsztain e Hijos S.C.A. (a company controlled by certain relatives of Eduardo S. Elsztain, our president) and Hamonet S.A. (a company controlled by Fernando A. Elsztain, one of our directors, and some of its family members). Both contracts were renewed for 36 month period and are effective from March 1, 2014 through February 28, 2017 and April 1, 2014 through March 31, 2017, respectively; they establish a monthly rental payment of US$ 15 per month, which is spread and assumed in equal shares by the three companies.

On the other hand, Cresud leases certain floors and parking space at the Intercontinental Plaza tower, located in Moreno 877, in the Autonomous City of Buenos Aires. These properties were leased from IRSA’s main office and are owned by IRSA CP, under agreements which expire in 2017. The monthly rental payment agreed amounts to US$ 24 plus the obligation to pay common expenses and taxes levied on the real property, proportionately to the total area rented.


 

 
F-247
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

Additionally, Tarshop S.A. rents three floors and parking space, of our building in Suipacha 652, under agreements which expire in 2017. The monthly rental payment agreed amounts to US$ 52 plus the obligation to pay common expenses and taxes levied on the real property, proportionately to the total area rented.

6.  
Service provider or recipient:

In the normal course of business operations conducted by the Group, the Group renders and receives different types of services, the most significant being:

(a)  
Management fee:

The Group usually enters into certain administration and/or management agreements involving the group’s companies and other related parties based upon such parties’ backgrounds, knowledge, experience and expertise in managing this type of business, as well as the existence of qualified staff and a proper structure to render the relevant type of services. These agreements usually designate one of the Group’s companies as exclusively responsible for the management of the complexes and/or companies in exchange of a money consideration, calculated on a base that may be fixed or variable.

In addition, there is a management agreement in place with CAMSA, a consulting company retained by the Group to provide advisory services. The shareholders of CAMSA are Eduardo S. Elsztain, Group’s shareholder and Chairman of the Board, and Saúl Zang, Vice-Chairman of the Board.  Under the agreement dated November 1994, CAMSA provides the Group with services such as (i) advisory with respect to capital investments in all aspects of agricultural operations, including, among others, sales, marketing, distribution, financing, investments, technology and business proposals; (ii) acts on the Group’s behalf in such transactions, negotiating the prices, conditions, and other terms of each operation; and (iii) advisory regarding securities investments with respect to such operations. The agreement expressly provides that CAMSA may not provide advisory services with respect to transactions that are entirely related to real estate. The Group pays CAMSA an annual fee equal to 10% of the Group’s annual net income after taxes. Under the agreement, the Group is required to reimburse CAMSA normal expenses incurred in performing the services. The agreement is subject to termination by either party upon not less than 60 days prior written notice. If the Group terminates the agreement without cause, the Group must pay CAMSA twice the average of the amounts of the management fee paid for the two preceding fiscal years.

 

 
F-248
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

Furthermore, Brasilagro provides agricultural advisory services to Cresca S.A. ("Cresca"), joint venture between Brasilagro and Carlos Casado S.A. ("Casado"), with agricultural activities in Paraguay, under a 10-year agreement, automatically renewal for two additional 10-year periods, and receives management fees as follows by way of consideration, Cresca must paid to the Group: (a) (i) an amount equal to 12% per annum on the total amount to be paid annually by Cresca for preparing the lands (from natural to productive state) in purpose of agricultural and cattle farming development for the first 41,930 has. and (ii) an amount equal to 10% on the concepts mentioned above from the ha. 41,931 on; and (b) an amount equal to 10% per annum on the gross margin from sales revenue less (i) direct selling expenses (including but not limited to commissions, withholding taxes, freight and any other expense arising for or from sales), (ii) direct production costs, (iii) structure costs and (iv) tax costs.

(b)  
Special reimbursement programs with several means of payment

The Group carries out diverse business actions and promotions intended to promote larger number of visitors and consumption inside its shopping centers.

Some promotions offer different types of discounts to clients and/or interest-free financing plans on specific dates or periods. To this end, the Group enters into agreements with various third party financial entities and/or related parties, such as Banco Hipotecario S.A. and Tarshop S.A..

Overall, these agreements establish different refund percentages, on specific dates or periods, for clients making purchases at all the participating stores using the means of payment specific of each financial entity and, on occasions, additional financing plans with interest-free installments. The cost of the refunds granted to the clients is generally distributed as a percentage among the lessors of the shopping centers and the financial entities, while the cost of interest-free financing is borne, in general, by the latter. The Group acts as an intermediary and is in charge of the lessors’ engagement and the advertising of these promotions. This activity results in no money flows or transfer of revenues or costs between the Group and its related parties.

  (c)  
Legal services

The Group hires legal services from Estudio Zang, Bergel & Viñes. Our Vice-president, Saúl Zang, and our alternate directors, Juan M. Quintana, Salvador D. Bergel, and D. Pablo Vergara del Carril are members of that law firm.


 
F-249
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

7.  
Sale of goods and/or services

In the normal course of its business and with the aim of building on and enhancing the individual efficiencies of each of the Group’s companies in the different areas comprising the operating management, and with a view to obtaining the best prices and rates, supplies and materials are purchased, and/or services are hired on behalf of a company which later sells and/or recovers for companies of the Group or other related parties, based upon their actual utilization.

The category manly comprises:

(a)  
Sale of radio or TV advertising seconds and/or spaces in newspapers and magazines

The Group usually enters into agreements with third parties whereby it acquires, for future use, rights to use different means (pages in newspapers and magazines, radio or TV seconds, etc.), which it subsequently uses in its advertising campaigns. Such means may be used by the acquiring company or by other related parties, in which case the former sells such spaces to the latter.

(b)  
Sale of materials and supplies

Usually, each of the Group companies buys from third parties different types of supplies and materials required to carry out its activities, which it then uses directly or sells to one or more Group companies or related parties, based upon utilization needs.

(c)  
Reimbursement of expenses

These operations do not entail additional profits to the company recovering expenses, for the same are carried out as per the cost value of the goods or services acquired.


 
F-250
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

8.  
Financial operations

(a)  
Borrowings

In the normal course of its activities, the Group enters into diverse loan agreements or credit facilities between the group’s companies and/or other related parties. These loans generally accrue interest at market rates from the date of each disbursement until the date of effective repayment, and may be paid off wholly or partially prior to the due date, either in cash and/or through capitalization (conversion into shares), and/or by way of offsetting arrangements involving debit and credit balances existing between the companies.

(b)  
Master agreement for US dollar-denominated forward transactions with Banco Hipotecario S.A.

IRSA CP and Banco Hipotecario S.A. entered into a master agreement for the performance of dollar-denominated forward transactions. This master agreement provides that the parties may carry out this type of transactions by fixing a certain forward price (“the Agreed Price”). Such transactions are settled in cash by paying the difference between the Agreed Price and the quoted price of the US dollar on the settlement date.

(c)  
Securities loan agreement with IFISA

The Company entered into a securities loan agreement with IFISA, a company incorporated under the laws of República Oriental del Uruguay, which granted 4,053,942 Global Depositary Shares, representing 10 ordinary shares with a face value of Ps. 1 per share of IRSA. This loan does not imply the transfer of any politic nor economic right corresponding to the values, which are held by Cresud. Regarding voting rights, the parties agreed that the Company will grant a power of attorney to IFISA with the respective voting instructions. In respect to dividends, IFISA will transfer the funds to Cresud. The loan accrues interest at an annual rate equivalent to 3 month LIBOR, plus 50 basis points, and is due on June 25, 2016.



 

 
F-251
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

The following is a summary of the balances with related parties as of June 30, 2015:
 
Related party
Description of transaction
  
Investment in financial assets
Non-current
    
Investment in financial assets
Current
    
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Associates
                                                        
Tarshop S.A.
Reimbursement of expenses
     -       -       -       1,792       -       -       -       -       -  
 
Leases and/or rights of use
     -       -       -       -       (25 )     (722 )     -       -       -  
New Lipstick LLC
Reimbursement of expenses
     -       -       -       2,567       -       -       -       -       -  
Condor
Financial operations
     -       -       -       29,492       -       -       -       -       -  
Lipstick Management LLC
Reimbursement of expenses
                             854                                          
Metropolitan
Reimbursement of expenses
     -       -       -       -       -       (10 )     -       -       -  
Agro-Uranga S.A
Receivables on futures and options
     -       -       -       184       -       -       -       -       -  
 
Purchase of goods and/or services
     -       -       -       -       -       (807 )     -       -       -  
 
Commissions receivable
     -       -       -       12       -       -       -       -       -  
 
Brokerage
     -       -       -       -       -       (40 )     -       -       -  
 
Sale of inputs
     -       -       -       595       -       -       -       -       -  
Agro Managers S.A.
Reimbursement of expenses
     -       -       -       297       -       -       -       -       -  
Banco Hipotecario S.A.
Reimbursement of expenses
     -       -       -       -       -       (117 )     -       -       -  
 
Advances
     -       -       -       -       -       (1,428 )     -       -       -  
 
Commissions per supermarket aisle
     -       -       -       68       -       -       -       -       -  
 
Borrowings
     -       -       -       -       -       -       (7,674 )     (22,155 )     -  
 
Leases and/or rights of use
     -       -       -       762       -       -       -       -       -  
Banco de Crédito y
Reimbursement of expenses
     -       -       -       1,766       -       -       -       -       -  
Securitización
Leases and/or rights of use
     -       -       -       42       -       -       -       -       -  
 
Non-convertible notes
     100       452       -       -       -       -       -       -       -  
Total Associates
       100       452       -       38,431       (25 )     (3,124 )     (7,674 )     (22,155 )     -  



 
F-252
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

 
Related party
  
Description of transaction
  
Investment in financial assets
Non-current
     Investment in financial
assets Current
    
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Joint Ventures
                                                          
Cresca S.A.
  
Management fees
     -       -       -       29       -       -       -       -       -  
   
Loans granted
     -       -       114,446       -       -       -       -       -       -  
Puerto Retiro S.A.
  
Borrowings
     -       -       -       2,148       -       -       -       -       -  
   
Reimbursement of expenses
     -       -       -       257       -       -       -       -       -  
Nuevo Puerto Santa Fe S.A.
  
Reimbursement of expenses
     -       -       -       543       -       (5 )     -       -       -  
   
Borrowings
     -       -       -       -       -       -       -       (7,826 )     -  
   
Share-based payments
     -       -       -       467       -       -       -       -       -  
   
Leases’ collections
     -       -       -       -       -       (4 )     -       -       -  
   
Leases and/or rights of use
     -       -       -       -       -       (594 )     -       -       -  
   
Management fees
     -       -       -       2,644       -       -       -       -       -  
Quality Invest S.A.
  
Management fee
     -       -       -       22       -       -       -       -       -  
   
Reimbursement of expenses
     -       -       -       233       -       -       -       -       -  
Baicom Networks S.A.
  
Management fee
     -       -       -       16       -       -       -       -       -  
   
Borrowings
     -       -       1,275       222       -       -       -       -       -  
   
Contributions to be paid in
     -       -       -       10       -       -       -       -       -  
   
Reimbursement of expenses
     -       -       -       924       -       -       -       -       -  
Cyrsa S.A
  
Credit due to capital reduction
     -       -       -       8,847       -       -       -       -       -  
  .  
Borrowings
     -       -       -       -       -       -       (14,438 )     -       -  
     
Reimbursement of expenses
     -       -       -       11       -       (23 )     -       -       -  
Entretenimiento
  
Reimbursement of expenses
     -       -       -       115       -       -       -       -       -  
Universal S.A.
  
Borrowings
     -       -       -       80       -       -       -       -       -  
Entertainment Holding S.A.
  
Reimbursement of expenses
     -       -       -       211       -       -       -       -       -  
     
Borrowings
     -       -       -       72       -       -       -       -       -  
Total Joint Ventures
         -       -       115,721       16,851       -       (626 )     (14,438 )     (7,826 )     -  


 

 
F-253
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

Related party
Description of transaction
  
Investment in financial assets Non-current
    
Investment in financial assets Current
    
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Other related parties
                                                        
CAMSA
Management fees
     -       -       -       -       -       (6,743 )     -       -       -  
 
Reimbursement of expenses
     -       -       -       7,292       -       -       -       -       -  
Estudio Zang, Bergel & Viñes
Advances
     -       -       -       33       -       -       -       -       -  
 
Legal services
     -       -       -       377       -       (1,185 )     -       -       -  
Estudio Managing Partners
Management fees
     -       -       -       -       -       (34 )     -       -       -  
Fundación IRSA
Reimbursement of expenses
     -       -       -       102       -       -       -       -       -  
Inversiones Financieras del Sur S.A.
Financial operations
     -       -       -       323,018       -       -       -       -       -  
 
Dividends receivable
     -       -       -       359       -       -       -       -       -  
Museo de los Niños
Reimbursement of expenses
     -       -       -       94       -       -       -       -       -  
 
Leases and/or rights of use
     -       -       -       750       -       -       -       -       -  
Austral Gold
Reimbursement of expenses
     -       -       -       331       -       (1 )     -       -       -  
 
Borrowings
     -       -       -       5       -       -       -       -       -  
Boulevard Norte S.A.
Reimbursement of expenses
     -       -       -       881       -       -       -       -       -  
Ogden Argentina S.A.
Reimbursement of expenses
     -       -       -       250       -       -       -       -       -  
 
Borrowings
     -       -       -       724       -       -       -       -       -  
La Rural S.A.
Reimbursement of expenses
     -       -       -       -       -       (39 )     -       -       -  
Consultores Venture Capital Uruguay
Management fees
     -       -       -       1,125       -       -       -       -       -  
Total Other related parties
       -       -       -       335,341       -       (8,002 )     -       -       -  
Directors and Senior Management
                                                                          
Directors and Senior Management
Fees
                                     -       (41,634 )     -       -       -  
 
Advances
     -       -       -       317       -       -       -       -       -  
 
Guarantee deposits
                                     (21 )     -       -       -       -  
 
Reimbursement of expenses
     -       -       -       40       -       (15 )     -       -       -  
Total Directors and Senior Management
       -       -       -       357       (21 )     (41,649 )     -       -       -  
Total
       100       452       115,721       390,980       (46 )     (53,401 )     (22,112 )     (29,981 )     -  


 

 
F-254
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

The following is a summary of the balances with related parties as of June 30, 2014:
 
Related party
Description of transaction
  
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Associates
                                            
Tarshop S.A.
Reimbursement of expenses
     -       689       -       -       -       -       -  
 
Commissions per supermarket aisle
     -       19       -       -       -       -       -  
 
Leases and/or rights of use
     -       -       (175 )     (677 )     -       -       -  
New Lipstick LLC
Reimbursement of expenses
     -       2,297       -       -       -       -       -  
Lipstick Management LLC
Reimbursement of expenses
     -       765       -       -       -       -       -  
Agro-Uranga S.A
Dividends receivable
     -       39       -       -       -       -       -  
 
Purchase of goods and/or services
     -       -       -       (112 )     -       -       -  
 
Brokerage
     -       29       -       (70 )     -       -       -  
 
Sale of inputs
     -       425       -       -       -       -       -  
Agro Managers S.A.
Reimbursement of expenses
     -       303       -       -       -       -       -  
Banco Hipotecario S.A.
Reimbursement of expenses
     -       12       -       (1,547 )     -       -       -  
 
Commissions per supermarket aisle
     -       59       -       -       -       -       -  
 
Borrowings
     -       -       -       -       (18,376 )     (23,530 )     -  
 
Derivatives
     -       -       -       -       -       -       (5,225 )
 
Leases and/or rights of use
     -       200       -       -       -       -       -  
Banco de Crédito y Securitización
Leases and/or rights of use
     -       19       -       (80 )     -       -       -  
Total Associates
       -       4,856       (175 )     (2,486 )     (18,376 )     (23,530 )     (5,225 )

 


 

 
F-255
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)
 
Related party
Description of transaction
  
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Joint Ventures
                                            
Cresca S.A.
Management fees
     -       38       -       -       -       -       -  
 
Loans granted
     96,269       -       -       -       -       -       -  
Puerto Retiro S.A.
Contributions to be paid in
     -       160       -       -       -       -       -  
 
Reimbursement of expenses
     -       213       -       -       -       -       -  
 
Financial operations
     -       3,23       -       -       -       -       -  
Nuevo Puerto Santa Fe S.A.
Reimbursement of expenses
     -       223       -       (72 )     -       -       -  
 
Borrowings
     -       -       -       -       -       (71 )     -  
 
Share-based payments
     -       304       -       -       -       -       -  
 
Leases’ collections
     -       -       -       (18 )     -       -       -  
 
Leases and/or rights of use
     -       -       -       (630 )     -       -       -  
 
Management fees
     -       1,338       -       -       -       -       -  
Quality Invest S.A.
Management fees
     -       22       -       (45 )     -       -       -  
 
Reimbursement of expenses
     -       64       -       -       -       -       -  
Baicom Networks S.A.
Management fees
     -       2       -       -       -       -       -  
 
Borrowings
     1,143       -       -       -       -       -       -  
 
Contributions to be paid in
     -       10       -       -       -       -       -  
 
Reimbursement of expenses
     -       193       -       -       -       -       -  
Cyrsa S.A.
Borrowings
     -       -       -       -       (133,314 )     -       -  
 
Reimbursement of expenses
     -       140       -       (9 )     -       -       -  
Boulevard Norte S.A.
Reimbursement of expenses
     -       864       -       -       -       -       -  
 
Borrowings
     -       4       -       -       -       -       -  
Entertainment Holding S.A.
Reimbursement of expenses
     -       165       -       -       -       -       -  
 
Borrowings
     -       20       -       -       -       -       -  
Total Joint Ventures
       97,412       6,990       -       (774 )     (133,314 )      (71 )     -  


 

 
F-256
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)
 
Related party
Description of transaction
  
Trade and other receivables Non-current
    
Trade and other receivables Current
    
Trade and other payables Non-current
    
Trade and other payables Current
    
Borrowings Non-current
    
Borrowings Current
    
Derivative financial instruments
  
Other related parties
                                            
CAMSA
Advances to be recovered
     -       1,468       -       -       -       -       -  
 
Management fees
     -       11,595       -       (11,098 )     -       -       -  
 
Reimbursement of expenses
     -       4,713       -       (1 )     -       -       -  
Estudio Zang, Bergel & Viñes
Advances
     -       4       -       -       -       -       -  
 
Legal services
     -       -       -       (739 )     -       -       -  
Fundación IRSA
Reimbursement of expenses
     -       75       -       -       -       -       -  
Inversiones Financieras del Sur S.A.
Financial operations
     -       54,724               (5 )                        
Museo de los Niños
Reimbursement of expenses
     -       767               (9 )                        
Austral Gold
Reimbursement of expenses
     -       8       -       (1 )     -       -       -  
Entretenimiento Universal S.A.
Reimbursement of expenses
     -       103       -       -       -       -       -  
 
Borrowings
     -       68       -       -       -       -       -  
Ogden Argentina S.A.
Reimbursement of expenses
     -       228       -       -       -       -       -  
 
Borrowings
     -       4       -       -       -       -       -  
IRSA Real Estate Strategies LP
Capital contribution
     -       -       -       (8 )     -       -       -  
IRSA Developments LP
Capital contribution
     -       -       -       (13 )     -       -       -  
EMP
Management fees
     -       -       -       (31 )     -       -       -  
Total Other related parties
       -       73,757       -       (11,905 )     -       -       -  
Directors and Senior Management
                                                          
Directors and Senior Management
Fees
     -       301       -       (23,830 )     -       -       -  
 
Guarantee deposits
     -       -       (20 )     -       -       -       -  
 
Reimbursement of expenses
     -       96       -       (10 )     -       -       -  
Total Directors and Senior Management
       -       397       (20 )     (23,84 )     -       -       -  
Total
       97,412       86,000       (195 )     (39,005 )     (151,690 )     (23,601 )     (5,225 )

 

 

 
F-257
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

The following is a summary of the transactions with related parties for the year ended as of June 30, 2015:

Related party
  
Leases and/or rights to use
    
Administration and management fees
    
Sale of goods and/or services
    
Compensation of Directors and senior management
    
Legal services
    
Financial operations
    
Commissions
    
Donations
  
Associates
                                                
Agro-Uranga S.A.
     -       -       7,950       -       -       -       -       -  
Tarshop S.A.
     9,120       -       -       -       -       -       72       -  
Banco Crédito y Securitización S.A.
     4,459       -       -       -       -       -       -       -  
Banco Hipotecario S.A.
     2,105       -       (2 )     -       -       (15,212 )     5       -  
Total Associates
     15,684       -       7,948       -       -       (15,212 )     77       -  
Joint Ventures
                                                                
Cyrsa S.A.
     -       -       -       -       -       (9,176 )     -       -  
Cresca S.A.
     -       -       20       -       -               -       -  
Baicom Networks S.A.
     -       12       -       -       -       150       -       -  
Nuevo Puerto Santa Fe S.A.
     (712 )     2,164       -       -       -       (1,400 )     -       -  
Puerto Retiro S.A.
     -       -       -       -       -       563       -       -  
Quality Invest S.A.
     -       216       -       -       -       -       -       -  
Entretenimiento Universal S.A.
     -       -       -       -       -       13       -       -  
Entertainment Holding S.A.
     -       -       -       -       -       12       -       -  
Total Joint Ventures
     (712 )     2,392       20       -       -       (9,838 )     -       -  
Other related parties
                                                                
CAMSA
     342       (11,401 )     -       -       -       -       -          
Fundación IRSA
     -       -       -       -       -       -       -       (4,731 )
Estudio Zang, Bergel & Viñes
     -       -       -       -       (4,663 )     -       -       -  
Hamonet S.A.
     (425 )     -       -       -       -       -       -       -  
Austral Gold Argentina S.A.
     -       418       -       -       -       -       -       -  
Fibesa S.A.
     -       -       -       -       -       -       -       -  
Isaac Elsztain e Hijos S.C.A.
     (813 )     -       -       -       -       -       -       -  
Boulevard Norte S.A.
     -       -       -       -       -       1       -       -  
Ogden Argentina S.A.
     -       -       -       -       -       20       -       -  
Condor Hospitality Trust Inc. (formerly Supertel Hospitality Inc. due to change of corporate name)
     -       -       -       -       -       161,002       -       -  
Inversiones Financieras del Sur S.A.
     -       -       -       -       -       227,467       -       -  
Total Other related parties
     (896 )     (10,983 )     -       -       (4,663 )     388,490       -       (4,731 )
Directors and Senior Management
                                                                
Directors
     -       -       -       (133,967 )     -       -       -       -  
Senior Management
     -       -       -       (11,389 )     -       -       -       -  
Total Directors and Senior Management
     -       -       -       (145,356 )     -       -       -       -  
Total
     14,076       (8,591 )     7,968       (145,356 )     (4,663 )     363,440       77       (4,731 )

 

 
F-258
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

The following is a summary of the transactions with related parties for the year ended as of June 30, 2014:

Related party
  
Leases and/or rights to use
    
Administration and management fees
    
Sale of goods and/or services
    
Compensation of Directors and senior management
    
Legal services
    
Financial operations
    
Donations
  
Associates
                                          
Agro-Uranga S.A.
     -       -       8,365       -       -       -       -  
Tarshop S.A.
     8,172       (239 )     -       -       -       -       -  
Banco Crédito y Securitización S.A.
     1,544       -       -       -       -       -       -  
Banco Hipotecario S.A.
     560       -       -       -       -       25,966       -  
Total Associates
     10,276       (239 )     8,365       -       -       25,966       -  
Joint Ventures
                                                        
Cyrsa S.A.
     -       -       -       -       -       (20,897 )     -  
Cresca S.A.
     -       46       77       -       -       2,216       -  
Baicom Networks S.A.
     -       12       -       -       -       136       -  
Nuevo Puerto Santa Fe S.A.
     (632 )     1,124       -       -       -       -       -  
Puerto Retiro S.A.
     -       -       -       -       -       917       -  
Quality Invest S.A.
     -       216       -       -       -       -       -  
Canteras Natal Crespo S.A.
     -       -       -       -       -       -       -  
Total Joint Ventures
     (632 )     1,398       77       -       -       (17,628 )     -  
Other related parties
                                                        
CAMSA
     -       230       2       -       -       -       -  
Fundación IRSA
     -       -       1       -       -       -       (3,325 )
Estudio Zang, Bergel & Viñes
     -       -       -       -       (4,193 )     -       -  
Hamonet S.A.
     (400 )     -       -       -       -       -       -  
Austral Gold Argentina S.A.
     -       -       1       -       -       -       -  
Fibesa S.A.
     -       -       2       -       -       -       -  
Isaac Elsztain e Hijos S.C.A.
     (769 )     -       -       -       -       -       -  
Consorcio de Propietarios Edificios Avda.. del Libertador 498
     -       -       1       -       -       -       -  
Inversiones Financieras del Sur S.A.
     -       -       -       -       -       21,911       -  
Total Other related parties
     (1,169 )     230       7       -       (4,193 )     21,911       (3,325 )
Directors and Senior Management
                                                        
Directors
     -       -       -       (124,207 )     -       -       -  
Senior Management
     -       -       -       (30,143 )     -       -       -  
Total Directors and Senior Management
     -       -       -       (154,350 )     -       -       -  
Total
     8,475       1,389       8,449       (154,350 )     (4,193 )     30,249       (3,325 )

 

 
F-259
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



38.           Related party transactions (Continued)

The following is a summary of the transactions with related parties for the year ended as of June 30, 2013:

Related party
  
Leases and/or rights to use
    
Administration and management fees
    
Sale of goods and/or services
    
Corporate services
    
Compensation of Directors and senior management
    
Legal services
    
Financial operations
    
Donations
  
Associates
                                                
Agro-Uranga S.A.
     -       -       6,154       -       -       -       -       -  
Tarshop S.A.
     5,991       -       -       301       -       -       -       -  
Banco Hipotecario S.A.
     453       -       -       -       -       -       (1,378 )     -  
Total Associates
     6,444       -       6,154       301       -       -       (1,378 )     -  
Joint Ventures
                                                                
Cyrsa S.A.
     -       4,681       -       -       -       -       (8,724 )     -  
Cresca S.A.
     -       1,108       -       -       -       -       510       -  
Baicom Networks S.A.
     -       -       -       -       -       -       96       -  
Nuevo Puerto Santa Fe S.A.
     (111 )     888       -       -       -       -       -       -  
Puerto Retiro S.A.
     -       -       -       -       -       -       481       -  
Quality Invest S.A.
     -       216       -       -       -       -       28       -  
Canteras Natal Crespo S.A.
     -       96       -       -       -       -       11       -  
Total Joint Ventures
     (111 )     6,989       -       -       -       -       (7,598 )     -  
Other related parties
                                                                
Inversiones Financieras del Sur S.A.
     -       -       -       -       -       -       8,758       -  
Fundación IRSA
     -       -       -       -       -       -       -       (1,420 )
Estudio Zang, Bergel & Viñes
     -       -       -       -       -       (3,285 )     -       -  
CAMSA
     -       (5,736 )     -       -       -       -       -       -  
Dolphin Fund PLC (i)
     -       -       -       -       -       -       (117,576 )     -  
Hamonet S.A.
     (365 )     -       -       -       -       -       -       -  
Isaac Elsztain e Hijos S.C.A.
     (468 )     -       -       -       -       -       -       -  
Total Other related parties
     (833 )     (5,736 )     -       -       -       (3,285 )     (108,818 )     (1,420 )
Directors and Senior Management
                                                                
Directors
     -       -       -       -       (82,060 )     -       -       -  
Senior Management
     -       -       -       -       (12,288 )     -       -       -  
Total Directors and Senior Management
     -       -       -       -       (94,348 )     -       -       -  
Total
     5,500       1,253       6,154       301       (94,348 )     (3,285 )     (117,794 )     (1,420 )

 

 
F-260
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



39.           CNV General Resolution N° 622

As required by Section 1°, Chapter III, Title IV of CNV General Resolution N° 622, below there is a detail of the notes to the Separate Financial Statements that disclosure the information required by the Resolution in Exhibits.
 
Exhibit A - Property, plant and equipment
  
Note 10 - Investment properties
   
Note 11 - Property, plant and equipment
Exhibit B - Intangible assets
  
Note 13 - Intangible assets
Exhibit C - Equity investments
  
Note 8 and 9 - Investments in associates and joint ventures
Exhibit D - Other investments
  
Note 16 - Financial instruments by category
   
Note 17 - Restricted assets
Exhibit E - Provisions
  
Note 18 - Trade and other receivables
   
Note 24 – Provisions
Exhibit F - Cost of sale and services
  
Note 40 - Cost of sales and services provided
Exhibit G - Foreign currency assets and liabilities
  
Note 41 - Foreign currency assets and liabilities
     

 

 
F-261
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)


40.  
Cost of sales and services provided

   
Agricultural business
    
Urban properties and investments business
                    
Description
  
Biological assets
    
Inventories
    
Agricultural services
    
Subtotal Agricultural business
    
Services and other operating costs
    
Trading properties
    
Hotels
    
Others
    
Subtotal Urban properties and investments business
    
Total as of 06.30.15
    
Total as of 06.30.14
    
Total as of 06.30.13
  
Inventories as of 06.30.14
     345,771       420,387       -       766,158       -       137,151       6,011       -       143,162    
(i) 909,320
    
(ii) 582,555
    
(iii) 555,022
  
                                                                                           
Initial recognition and changes in the fair value of biological assets and agricultural produce at the point of harvest
     174,787       7,388       -       182,175       -       -       -       -       -       182,175       140,014       62,992  
                                                                                                 
Changes in the net realizable value of agricultural produce after harvest
     -       (34,471 )     -       (34,471 )     -       -       -       -       -       (34,471 )     (17,447 )     11,756  
                                                                                                 
Decrease due to harvest
     -       1,227,881       -       1,227,881       -       -       -       -       -       1,227,881       1,028,868       752,820  
Acquisitions and classifications
     14,203       1,240,496       -       1,254,699       -       -       -       -       -       1,254,699       1,144,268       658,392  
Consume
     (753 )     (604,107 )     -       (604,860 )     -       -       -       -       -       (604,860 )     (517,144 )     (387,332 )
Additions
     -       -       -       -       -       1,067       -       -       1,067       1,067       13,252       3,091  
Disposals
     -       -       -       -       -       (1,898 )     1,328       -       (570 )     (570 )     (12,146 )     (5,948 )
Transfers
     -       -       -       -       -       3,107       -       -       3,107       3,107       -       -  
Expenses incurred
     -       91,208       59,235       150,443       1,224,264       13,587       277,471       56       1,515,378       1,665,821       1,494,730       1,166,340  
Exchange difference
     -       (39,698 )     -       (39,698 )     -       (6,126 )     -       -       (6,126 )     (45,824 )     (11,245 )     33,704  
Inventories as of 06.30.15
     (405,842 )     (483,922 )     -       (889,764 )     -       (132,954 )     (6,926 )     -       (139,880 )  
(iv) (1,029,644)
       (906,962 )     (582,555 )
Costs as of 06.30.15
     128,166       1,825,162       59,235       2,012,563       1,224,264       13,934       277,884       56       1,516,138       3,528,701       -       -  
Costs as of 06.30.14
     75,900       1,444,441       54,284       1,574,625       1,128,794       18,971       215,980       373       1,364,118       -       2,938,743       -  
Costs as of 06.30.13
     73,387       1,062,644       35,014       1,171,045       915,701       12,347       168,282       907       1,097,237       -               2,268,282  

(i)     Includes Ps. (13,373) corresponding to materials of IRSA and FYO and Ps. (2,358) of meet due for slaughtering of Cactus as of June 30, 2014.
(ii)    Includes Ps. (10,358) corresponding to materials and inputs of IRSA as of June 30, 2013.
(iii)   Includes Ps. (10,867) corresponding to materials and inputs of IRSA as of June 30, 2012.
(iv)   Includes Ps. (18,056) corresponding to materials and inputs of IRSA and FYO and Ps. (2,446) of meet due for slaughtering of SACPSA as of June 30, 2015. Does not include Ps. 690 corresponding to fattening.


 

 
F-262
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



41.  
Foreign currency assets and liabilities

Book amounts of foreign currency assets and liabilities are as follows:

Items (3)
  
Amount of foreign currency (2)
    
Prevailing exchange rate (1)
    
Total as of 06.30.15
    
Amount of foreign currency (2)
    
Prevailing exchange rate (1)
    
Total as of 06.30.14
  
Assets
                                    
Restricted assets
                                    
US Dollar
     -       -       -       6,372       8.033       51,189  
Total restricted assets
                     -                       51,189  
Trade and other receivables
                                                
Uruguayan Peso
     1,193       0.335       400       1,162       0.356       414  
US Dollar
     29,288       8.988       263,241       29,646       8.033       238,144  
Euros
     0.2998       10.005       3       2       10.991       26  
Swiss francs
     -       -       -       27       9.051       242  
Trade and other receivables related parties
                                                
US Dollar
     10,284       9.088       93,463       -       -       -  
Total trade and other receivables
                     357,107                       238,826  
Investment in financial assets
                                                
US Dollar
     26,618       8.988       239,246       67,062       8.033       538,710  
New Israel Shekel
     2,642       2.407       6,361       5       2.377       13  
Uruguayan Peso
     721       14.134       10,196       39,905       0.356       14,206  
Total Investment in financial assets
                     255,803                       552,929  
Derivative financial instruments
                                                
US Dollar
     1,145       8.988       10,294       3,839       8.033       30,841  
New Israel Shekel
     94,880       2.407       228,415                          
Financial instruments related parties
                                                
US Dollar
     3,169       9.088       28,798                          
Total Derivative financial instruments
                     267,507                       30,841  
Cash and cash equivalents
                                                
Uruguayan Peso
     54       0.335       18       101       0.356       36  
US Dollar
     38,775       8.988       348,509       19,605       8.033       157,484  
Euros
     114       10.005       1,140       121       10.991       1,329  
Swiss francs
     -       9.728       1       1       9.051       1  
New Israel Shekel
     957       2.407       2,304       116,210       2.377       276,235  
Pounds
     2       14.134       32       2       13.913       32  
Yenes
     41       -       3       2       2.377       4  
Brazilian Reais
     12       3.000       35       3       3.550       9  
Total Cash and cash equivalents
                     352,042                       435,130  


 

 
F-263
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



41.  
Foreign currency assets and liabilities (Continued)

Items (3)
  
Amount of foreign currency (2)
    
Prevailing exchange rate (1)
    
Total as of 06.30.15
    
Amount of foreign currency (2)
    
Prevailing exchange rate (1)
    
Total as of 06.30.14
  
Liabilities
                                    
Trade and other payables
                                    
Uruguayan Peso
     99       0.334       33       1,520       0.382       580  
US Dollar
     13,007       9.088       118,212       18,030       8.133       146,635  
Euros
     0.39       10.140       4       1       11.148       3  
Trade and other payables related parties
                                                
US Dollar
     4       9.088       34                          
Total trade and other payables
                     118,283                       147,218  
Borrowings
                                                
US Dollar
     616,036       9.088       5,598,537       712,773       8.133       5,796,986  
Total borrowings
                     5,598,537                       5,796,986  
Derivative financial instruments
                                                
US Dollar
     944       9.088       8,580       -       -       -  
Brazilian Reais
     -       -       -       204       3.69       753  
New Israel Shekel
     208,825       2.407       502,641       134,984       2.377       320,847  
Total Derivative financial instruments
                     511,221                       321,600  
Provisions
                                                
US Dollar
     10       9.088       91       200       8.133       1,627  
Total provisions
                     91                       1,627  

(1)  
Exchange rate as of June 30, 2015 and 2014 according to Banco Nación Argentina records.
(2)  
Considering foreign currencies those that differ from each Company’s functional currency at each year-end.
(3)  
The Company uses derivative instruments as complement in order to reduce its exposure to exchange rate movements. See Note 20.


 

 
F-264
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



42.
Barter transactions

The Group generally enters into barter transactions with third party developers in the ordinary course of business. By virtue of these transactions, the Group generally exchanges undeveloped plots of land for properties to be developed and received in the future. Following is a description of pending transactions that have not yet been perfected by the third parties as of June 30, 2015:

Caballito plot of land

On June 29, 2011, the Group and TGLT, entered into an agreement to barter a plot of land located in Méndez de Andes street in the neighborhood of Caballito in the city of Buenos Aires for cash and future residential apartments to be constructed by TGLT on the mentioned land. The transaction was agreed upon at US$ 12.8 million. TGLT plans to construct an apartment building with residential offices and parking space. In consideration, TGLT paid US$ 0.2 million in cash and will transfer to IRSA: (i) a number of apartments to be determined representing 23.10% of total square meters of residential space; (ii) a number to be determined of parking space representing 21.10% of total square meters of parking space; and (iii) in case TGLT builds complementary storage rooms, a number to be determined, representing 21.10% of square meters of storage space. TGLT is committed to build, finish and obtain authorization for the three buildings making up the project within 36 to 48 months from that date and TGLT mortgaged the land in favor of IRSA as guarantee. A neighborhood association named Asociación Civil y Vecinal SOS Caballito Por Una Mejor Calidad de Vida secured a preliminary injunction which suspended the works to be carried out by TGLT in the abovementioned property. Once said preliminary injunction was deemed final, the Government of the City of Buenos Aires and TGLT were served notice of the complaint. IRSA is not involved in these proceedings and has not been sued or summoned as a third party by any of the parties involved in the legal action.

Beruti plot of land

On October 13, 2010, the Group and TGLT entered into an agreement to barter a plot of land located at Beruti Street 3351/59 in the Autonomous City of Buenos Aires for cash and future residential apartments to be constructed by TGLT on the mentioned land. The transaction, which was subject to certain precedent conditions including the completion by TGLT of its initial public offering, was agreed at US$ 18.8 million. TGLT plans to construct an apartment building with residential and commercial parking space. In consideration, TLGT will transfer IRSA CP (i) a number of apartments to be determined representing 17.33% of total square meters of residential space; (ii) a number of parking spaces to be determined representing 15.82% of total square meters of parking space; (iii) all spaces reserved for commercial parking in the future building and (iv) the amount of US$ 10.7 million payable upon delivering the deeds of title on the land. TGLT perfected its initial public offering on the Stock Exchange of Buenos Aires on October 29, 2010 and therefore, the precedent condition to the transaction was completed on that date. TGLT paid US$ 10.7 million on November 5, 2010. On December 16, 2010, the title deed to the Beruti plot of land was executed.

 

 
F-265
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



42.
Barter transactions (Continued)

To secure performance of obligations assumed by TGLT under the deed of sale, a mortgage was granted in favor of IRSA CP.

An association named Asociación Amigos Alto Palermo presented an injunction requesting that the construction is prohibited and obtained a suspension interim measure for this purpose. Later, the Court of Appeals from the Autonomous City of Buenos Aires ordered the lifting of such interim measure. Currently, the “amparo” (judicial action for the protection of constitutional rights) is going through the trial stage, and no decision has been made on the merits of the case.

Rosario plot of land

The Group, through IRSA CP, subscribed with Condominios del Alto S.A. a barter contract in connection with an own plot of land (plot 2 H), located in the City of Rosario, Province of Santa Fe for a total amount of US$ 2.3 million. On November 27, 2008, the title deed was recorded.

As partial consideration for the above mentioned  barter, Condominios del Alto S.A. agreed to transfer the full property, possession and ownership in favor of IRSA CP of the following future real estate: (i) 42 functional housing units (apartments), which represent and will further represent jointly 22% of the own covered square meters of housing (apartments) of the building that Condominios del Alto S.A. will construct in the plot; and (ii) 47 parking spaces, which represent and will further represent jointly 22% of the own covered square meters of parking space units in the same building.

On April 14, 2011 IRSA CP and Condominios del Alto S.A. subscribed a supplementary deed which specifies the Functional Housing Units (apartments) in the barter transaction agreement that should be transferred to the Company and the ownership title of the 45 parking spaces and 5 storage rooms.

As a consequence of the co-bartering parties having fulfilled with obligations assumed with ADIF, the Argentine National State has determined, through Resolution No, 31-ADIF-P-2013, the compliance with the charge regarding the lot 2 H, has been verified upon reaching the minimum investment fixed for the cited lot, in conformity with ONABE Provision No, 07/2009 and Resolution N° 65-ADIF-P-2010, and has proceeded to release IRSA Propiedades Comerciales S.A. and Condominios del Alto SA from any obligation as to ADIF with respect the lot 2 H.


 

 
F-266
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



42.
Barter transactions (Continued)

Furthermore, on May 17, 2013, the property was reported as condominium property, and on November 14, 2013, the title deed was executed in favor of IRSA CP.

As of June 30, 2015 works have been concluded, and all of the units involved in the swap have been received.

Conil

On November 5, 2014, the Group executed a conveyance deed evidencing a barter and mortgage transaction in favor of Darío Palombo (acting as Trustee of “Fideicomiso Esquina Guemes”) to convey title on four plots of land located in Avellaneda district. The agreement provides for the development by the Trust of two building construction undertakings. In consideration for such work, the compensation agreed included the amount of US$ 0.01 million and delivery, within 24 months as from such agreement execution, of two functional units for commercial purposes and one functional unit for office purposes (the non-monetary compensation was valued at US$ 0.7 million).


43.  
CNV General Ruling N° 629/14 – Storage of documentation

On August 14, 2014, the CNV issued General Resolution N° 629 whereby it introduced amendments to rules related to storage and conservation of corporate books, accounting books and commercial documentation. In this sense, it should be noted that the Group has entrusted the storage of certain non-sensitive and old information to the following providers:

Documentation storage provider
Location
Bank S.A.
Gral. Rivas 401, Avellaneda, Province of Buenos Aires
 
Ruta Panamericana Km 37.5, Garín, Province of Buenos Aires
 
Av. Fleming 2190, Munro, Province of Buenos Aires
   
Iron Mountain Argentina S.A.
Av. Amancio Alcorta 2482, Autonomous City of Buenos Aires
Pedro de Mendoza 2143, Autonomous City of Buenos Aires
Saraza 6135, Autonomous City of Buenos Aires
Azara 1245, Autonomous City of Buenos Aires
Polígono industrial Spegazzini, Autopista Ezeiza Km 45, Cañuelas, Province of Buenos Aires

It is further noted that a detailed list of all documentation held in custody by providers, as well as documentation required in section 5 a.3) of section I, Chapter V, Title II of the RULES (2013 as amended) are available at the registered office.


 

 
F-267
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



43.           CNV General Resolution N° 629/14 – Storage of documentation (Continued)

On February 5, 2014 there was a widely known fire in Iron Mountain’s warehouse. To the date of these financial statements, the Group is waiting for the company that experienced the fire to report whether the documentation submitted has been actually affected by the fire and its condition after the accident. Nevertheless, based on the internal review carried out by the Group, duly reported to the CNV on February 12, 2014, the information kept at the Iron Mountain premises that were on fire do not appear to be sensitive or capable of affecting normal operations.


44.  
Groups of assets and liabilities held for sale

Assets and liabilities related to the operation of the building located in 183 Madison Av., NY, United States, owned by the subsidiary of the Group, Rigby 183 LLC, and that form part of the international business segment, have been reported in the consolidated financial statements as of June 30, 2014 as available for sale as per the contract for the sale of the building entered into with Tishman Speyer Development Corporation on May 16, 2014. The transaction is subject to compliance with certain conditions which are expected to be complied with in September 2014.

Pursuant to IFRS 5, assets and liabilities available for sale have been valued at the lower of their book value or fair value less selling cost. Since fair value is higher than book value of the pool of assets available for sale including some goodwill related to the acquisition, no impairment has been recorded.

The following table shows the main assets and liabilities held for sale:

Group’s assets held for sale

Investment properties                                                         
     1,098,990  
Intangible assets - Goodwill                                                         
     77,086  
Restricted assets                                                         
     163,501  
Trade and other receivables                                                         
     17,990  
Derivative financial instruments                                                         
     299  
Total                                                         
     1,357,866  

Group’s liabilities directly associated to assets classified as held for sale

Trade and other payables                                                         
     170,245  
Deferred income tax liabilities                                                         
     33,346  
Borrowings                                                         
     603,021  
Total                                                         
     806,612  

 

 
F-268
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.  
Subsequent events

· On July 13, 2015, Cresud took a loan granted by Banco Provincia in the amount of Ps. 83 million. Principal shall accrue interest at a fixed rate of 23%. The interests will be paid monthly. Principal will be settled within 6 months.

· On August 12, 2015, Cresud issued Class XI Non-Convertible Notes for an aggregate principal amount of up to Ps. 150 million, which may be extended for up to Ps. 700 million in two classes:
 
- Class XXI Non-Convertible Notes, for a face value of Ps. 192.2 million and falling due 18 months after the issuance date, will accrue interest at mixed rate. Fixed rate of 27.5% during the first 9 months and floating rate (Badlar plus 375 basis points). Interest will be payable quarterly in arrears whereas the principal will be amortized in one payment at due date. The issuance price was 100.0% of the nominal value.

- Class XXII Non-Convertible Notes, for a face value of US$ 22.7 million, with an issuance price of 97.65% of the nominal value resulting US$ 22.2 equivalent to Ps. 204.3 million and falling due 48 months after the issuance date, will accrue interest at fixed annual rate of 4%. Interest will be payable quarterly in arrears whereas the principal will be amortized in two payments.

· Regarding the allocation of the Hilton quota for fiscal year 2015 - 2016 Carnes Pampeanas S.A. has made the presentation of all documentation required by the Assessment and Coordination Unit of subsidies for domestic consumption (UCESI, as per its spanich acronym), under the Ministry of Economy and Public Finance. Although we do not have information about the allocation of that quota for the period before mentioned as of the date of these financial statements. 

· As described in Note 7, on August 28, 2015, Carnes Pampeanas S.A.’s shareholders decided to increase the Company’s capital stock by swapping a receivable from Cresud in the amount of Ps. 36,308,250 for equity in order to offset its negative shareholder’s equity as of June 30, 2015.

· On July 10, 2015, the Group through IRSA signed the transfer deed for the sale of the 16th floor of the building Maipú 1300. The transaction Price was set at Ps. 13.9 million, which will result in an approximately Ps. 12.0 million gain before tax.
 
· On July 24, 2015, the Group through IRSA signed the transfer deed for the sale of the 4th floor of the building Maipú 1300. The transaction Price was set at Ps. 21.7 million, which will result in an approximately Ps. 19.7 million gain before tax.
 
 

 

 
F-269
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.
Subsequent events (Continued)

· On July 30, 2015, our associate Tarshop S.A. issued non-convertible notes Class XXII for a nominal value of Ps. 126,666. On July 21, 2015, this issuance was authorized by the Issue Activity Department of the CNV, for a total nominal value of Ps. 20,000 that can be extended up to the total authorized amount of Ps. 300,000. CN Class XXII will accrue interest from the date of issue at a nominal fixed annual rate of 29%, until the end of the sixth month, and at a nominal floating annual rate equal to BADLAR Private rate plus 500 basis points, beginning on the seventh month until its maturity date. Payment dates of mentioned interests will be: October 30, 2015, January 30, 2016, April 30, 2016, July 30, 2016, October 30, 2016 and January 30, 2017. The payment date of the principal will be: January 30, 2017.

· On July 31, 2015, the Group through IRSA signed the transfer deed for the sale of the 18th floor of the building Maipú 1300. The price of the transaction was Ps. 14.9 million. Such transaction will generate a gain before tax of approximately Ps. 12.6 million.

· On July 31, 2015, the Group through Dolphin, granted a loan to IFISA in the amount of US$7.2 million, with maturity one year after beginning date. The loan accrues interest at 1-month Libor plus a 3% margin.

· On August 24, 2015, the Group through IRSA signed the transfer deed for the sale of the 3rd floor of the building Maipú 1300. The price of the transaction was Ps. 13.4 million. Such transaction will generate a gain before tax of approximately Ps. 11.6 million.

· On August 25, 2015, the Group, through IRSA, acquired Class V Non-convertible Notes nominal value 113,762,000 for an amount of Ps. 120.5 million.

· On September 3, 2015, the Group through IRSA signed the transfer deed for the sale of the "Isla Sirgadero" plot of land. The price of the transaction was Ps. 10.7 million. Such transaction will generate a gain before tax of approximately Ps. 6.0 million.

· On September 10, 2015 the Group signed the transfer deed for the sale of 5,963 square meters corresponding to seven offices floors, 53 parking units and 3 storage rooms of Intercontinental Plaza building, remaining 7,159 sqm of the building under the society ownership. The amount of the transaction was Ps. 324.5 million, which has already been paid in full by the purchaser. Such transaction will generate a gain before tax of approximately Ps. 297.7 million to be recognized in our financial statements during the first quarter of 2016.

· On September 18, 2015, the Group through IRSA CP issued Series I Notes under our Global Note Program for up to the sum of USD 500,000 for an amount of Ps.407,260 (equivalent to USD 43,441). Series I Notes have a maturity of 18 months from its issue date, and will bear a mixed interest rate of 26,5% per year during the first three months, and Private Badlar Rate (Tasa Badlar Privada) plus 400 bps per year during the remaining period, playable on a quarterly basis.


 
F-270
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.  
Subsequent events (Continued)

        · On October 9, 2015, the Group through IRSA, granted a loan to IFISA in the amount of US$ 40 million, with maturity one year after beginning date. The loan accrues interest at 1-month Libor plus a 3% margin. As a guaranty of the loan, 73.169.991 common shares of IDBD owned by IFISA were pledged.

· During October 2015, the escrow deposit related to the sale of the Madison Building was released and delivered to the parties: the Group, though Rigby, received US$ 0.91 millon, the buyer received US$ 0.06 million, and the remaining balance was used for some costs related to the transaction.

· On October 30, 2015, the Company’s Annual Shareholders’ Meeting corresponding to fiscal year ended June 30, 2015, appointed the new members of the Supervisory Committee and Boards of Directors; approved the Board´s compensation, decided not to pay compensation to the Supervisory Committee; approved the amount to pay related to the Shareholder´s property tax, delegated to the Board of Directors the implementation of a new Shared Service Agreement, approved the Board of Directors capacity related to the Global Program for issuing Non Convertible Notes, with ot without guaranty or guaranted by third parties; and for a maximum amount of up to US$ 300 million. It was decided to put on hold until November 26th 2015 to consider the following: (i) consideration of the year’s results, (ii) consideration of the Especial Financial Statements of merger / merger-demerger.
 
· On October 30, 2015, our subsidiary IRSA CP in the Annual Shareholder´s Meeting corresponding to the fiscal year ended June 30, 2015, decided, among others, the following issues: (i) destinate Ps 283.580 to pay cash dividends; (ii) approved the advance dividend approved by the June 13, 2015 Shareholders´ Meeting in the amount of Ps 298.500; (iii) approved the Board of Directors compensation in the amount of Ps 76.440 and (iv) approved the increase of the amount of the Global Program for issuing Non Convertible Notes for a maximum amount of up to US$ 500 million, for an additional amount of up to US$ 100 million.

· On November 5, 2015, the Group through IRSA signed the transfer deed for the sale of the 7th and 8th floor of the building Maipú 1300. The price of the transaction was US$ 3.0 million. Such transaction will generate a gain before tax of approximately Ps. 25.9 million.

        · As of the date of issuance of these financial statements, Cresud have sold, through various market transactions, 410,181 ADR´s of IRSA, representing 10 common shares of IRSA (N.V. Ps. 1 per share) for the amount of US$ 7.1 million. Thus, the Group’s investment in IRSA would decrease by 1.1%.
 

 

 
F-271
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.
Subsequent events (Continued)

IDBD

On July 9 and 16, 2015, as mentioned in Note 9 to these Financial Statements, Dolphin submitted clarifications on the Proposal to IDBD and DIC dated June 29, 2015.
 
On July 9, 2015, the main clarifications were as follows:
 
- The termination or expiration of the Proposal to IDBD and DIC would not repeal the commitments undertaken by Dolphin under the proposal submitted by Dolphin to IDBD on May 6, 2015 (described in Note 9 to these Financial Statements) always provided that such commitments continued in full force and effect subject to the proposed terms, or Dolphin’s remaining commitment to inject NIS 8.5 million in IDBD pursuant to its irrevocable proposal dated December 29, 2014.
 
- A further condition would be added to the Proposal to IDBD and DIC whereby if Dolphin’s interest in the rights public offering were lower than NIS 8.5 million, Dolphin would remain obliged vis-à-vis IDBD to inject the remaining amount arising from subtracting NIS 8.5 million and the amount effectively injected at this instance by Dolphin.
 
- IDBD would replace its commitment to exercise DIC’s Series 1 warrants for NIS 92.5 million with the commitment to exercise the Series 1 warrants for at least the amount that results from subtracting (a) the Capital Contribution Amount (as defined in Note 9 to these Financial Statements); minus (b) NIS 100 million, always provided that such amount does not exceed NIS 92.5 million.
 
On July 13, 2015, Dolphin extended the maturity of the Proposal to IDBD and DIC until July 16, 2015.
 
In addition, on July 16, 2015, Dolphin submitted additional clarifications on the Proposal to IDBD and DIC dated June 29, 2015 and July 9, 2015, which provided as follows:
 
-  
Dolphin agrees that the new shares to be acquired by Dolphin or any entity controlled by Eduardo Sergio Elsztain under the public offering of shares to be made by IDBD during October 2015 (as disclosed in note 3 to these Financial Statements) would not grant to it the right to participate in the Tender Offer (as such term is defined in note 3 to these Financial Statements) always provided that such new shares are still held by Dolphin or an entity controlled by Eduardo Sergio Elsztain. Notwithstanding, nothing will prevent Dolphin and/or the entity controlled by Eduardo Sergio Elsztain that holds such new shares to be acquired under the public offering to be made in October 2015 by IDBD from freely disposing of them.

 
F-272
 

45.
Subsequent events (Continued)

On July 16, 2015, IDBD’s Board of Directors approved a capital increase by means of a public offering pursuant to the terms proposed by Dolphin in the Proposal to IDBD and DIC, and to exercise DIC’s warrants, all based on Dolphin’s irrevocable commitment to participate in the referred capital increase. IDBD plans to carry out the public offering between October 1 and November 15 2015, subject to the company’s corporate approvals, other statutory consents required and the fact that the exercise of DIC’s warrants can be made pursuant to the terms and conditions set forth in Dolphin’s proposal.

On July 16, 2015, DIC’s Board of Directors accepted the Proposal to IDBD and DIC and instructed its management to take such steps as necessary in order to make a rights offering pursuant to Dolphin’s proposal. On August 27, 2015, DIC published a shelf offering report for the issuance of rights to its shareholders. On September 6, 2015, DIC completed the rights offering process, issuing four series of warrants to its shareholders, which are exercisable into DIC shares. As of the date of these financial statements, IDBD has not completed the capital injection in DIC.

On August 16, 2015, the Arrangement Trustees submitted a petition to the  Tel Aviv Jaffo Court for it to determine that: (a) IFISA would be subject to the commitments in the Arrangement jointly and severally with  Dolphin; (b) the shares held by any other company controlled by Eduardo Sergio Elsztain (including Dolphin) would not be eligible to take part in the Tender Offer; and (c) the shares held by any company controlled by any of the controlling shareholders of IDBD, including any corporations controlled by Eduardo Sergio Elsztain (including Dolphin) and transferred to other entities would not be eligible to take part in the Tender Offer.

On August 31, 2015, the competent court asked the Arrangement Trustees to make a supplementary filing to the one dated August 16, 2015, identifying the parties to whom such request was addressed, which filing was made on the above mentioned date. On September 7, 2015 the court dismissed the Arrangement Trustees' filing for failure to submit the supplementary filing requested by the competent court on August 31, 2015.

On August 17, 2015, the Arrangement Trustees submitted to IDBD, its Board of Directors, Dolphin and ETH (among others) and alternative scheme to the one proposed by Dolphin  on May 27,2015 as part of Dolphin’s and ETH’s obligations under the Tender Offer (the “Trustees' Proposal”) which was filed with the competent court. The Trustees’ Proposal provided as follows:

-       Replacement of the obligation to carry out Tender Offers for a total of NIS 512 million with the obligation by Dolphin and ETH (and/or their related parties) to inject NIS 512 million in IDBD against the issuance of bonds. The NIS 512 million would be injected in two tranches of NIS 256 million each (the “First Tranche” and the “Second Tranche”, respectively).

 

 
F-273
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.
Subsequent events (Continued)

 
•
The First Tranche would be completed by December 31, 2015, and against its injection IDBD would issue in favor of such investors other than Dolphin, ETH and/or any of their related parties (the “Minority Investors”) bonds for a principal amount of NIS 256 million, by reopening Series 9 (“Series 9”), or by issuing a new series of bonds under terms and conditions replicating those of Series 9 (“IDBD’s New Bonds”).
 
•
The Second Tranche would be completed by January 31, 2016 and against its injection the Minority Investors would receive IDBD’s New Bonds for a principal amount of NIS 256 million.
 
•
Following the exercise of the First Tranche and Second Tranche, Minority Investors would deliver 64 million shares to the obligors under the Tender Offer.
 
•
In addition, on January 31, 2016, Dolphin and ETH (or any of their related parties) would purchase the remaining shares held by the Minority Investors for a total of NIS 90 million, payable on that same date.

-  
If the sale of Clal is consummated, IDBD will carry out a partial bond repurchase offering at par value among all series of bonds.
 
-  
The Trustees’ Proposal would be carried out before IDBD launches a new issuance of shares or rights or, alternatively, each new share or right issued would not be part of the proposal as submitted.
 
-  
The Trustees’ Proposal hasn´t been already approved by the Minority Investors; and such approval would be sought after the proposal is accepted by IDBD, Dolphin and ETH.
 

On August 30, 2015, IDBD sent a request on Dolphin and ETH for them to express their position on the Trustees’ Proposal, without setting a specific date for their response.
 
On September 3, 2015 Dolphin rejected the Trustees' Proposal and, therefore, it is not valid as of the date of issuance of these Financial Statements.
 
On August 19, 2015, the Arrangement Trustees filed with the competent court an application for it to order an attachment or lien on any funds receivable by ETH from Dolphin by operation of the BMBY clause, and for it to order the transfer of such funds to the Arrangement Trustees as security for the performance of ETH’s joint and several obligations under the Tender Offers.

On August 26, 2015, the Arrangement Trustees and ETH executed an agreement in connection with the item mentioned in the previous paragraph whereby it was agreed that the Arrangement Trustees would suspend the above mentioned application until the arbitration decision concerning the BMBY; to such end, ETH promised to give notice to the Arrangement Trustees as soon as the arbitrator rules on the subject. Notice has been given to the competent court of the referred agreement between ETH and the Arrangement Trustees.
 
 
F-274
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)



45.
Subsequent events (Continued)

       On September 9, 2015, The Arrangement Trustees filed to the Tel Aviv District Court an amended application for instructions (the “Application of the Arrangement Trustees”), to which Dolphin, IFISA, ETH and others were added as parties, requesting the Court to instruct that: (i) IFISA is obligated to all the Investors' obligations under the Arrangement; (ii) the IDBD shares held by any entity controlled by Mr. Elsztain (including Dolphin) are not entitled to participate in the Tender Offers; and (iii) IDBD shares held by Mr. Elsztain and Mr Ben Moshe and/or by any other entity controlled by them, and were transferred or will be transferred to others, are also not entitled to participate in the Tender Offers.
 
On September 24, 2015, the arbitrator rendered an arbitration award concerning the BMBY process according to which Dolphin and IFISA are the buyers in the BMBY process, and ETH is the seller. ETH is committed to sell all the shares of the Company that it holds at the price proposed in the BMBY proposal (NIS 1.64 per share). Dolphin will pledge in favor of the Arrangement Trustees all the shares used as collateral for the performance of the Tender Offers, and Dolphin has to perform ETH’s obligations included in the Arrangement, including the commitment to carry out Tender Offers and the obligation to participate in rights offerings.
 
On October 11, 2015, the BMBY process concluded and IFISA purchased all ETH’s shares in IDBD (92,665,925 shares), at a price per share of NIS 1.64, for a total consideration of approximately NIS 152 million (equivalent to US$ 39.7 million as of the date of the transaction). Upon the closing of the transaction, all ETH’s directors in IDBD presented their irrevocable resignation to IDBD’s Board of Directors and the Shareholders Agreement automatically terminated in accordance with its terms. Furthermore, on the same date, Dolphin pledged additional shares as security of the performance of the Tender Offers, rising the number to 64,067,710 pledged shares.
 
On October 19, 2015, Dolphin and IFISA submitted their response to Court regarding the Application of the Arrangement Trustees in which, among other things, Dolphin clarified that as the offeror in the Tender Offers, it does not intent and will not participate as an offeree in the Tender Offers. Notwithstanding, according to  Dolphin’s position, it has the right to offer to any other shareholder of IDBD, including entities controlled by Eduardo S. Elsztain, to purchase shares within the Tender Offers and also to sell shares to third parties (including those controlled by Eduardo S. Elsztain), and the shares being sold are able to participate as offerees in the Tender Offers, without derogating from Dolphin’s undertakings according to which 106.6 million shares held by it will not participate in the Tender Offers, as long as they are held by entities controlled by Eduardo S. Elsztain).
 
 
 
F-275
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)
 
45.
Subsequent events (Continued)


   On October 20, 2015, the Court decided to grant declaratory remedies requested in the Application of the Arrangement Trustees, according to which:
 
-  
The shares held by Dolphin and any other company controlled by Eduardo S. Elsztain are not entitled to participate as offerees in the Tender Offers
 
-  
the shares held or that were held by Dolphin and/or by companies controlled by Mr. Elsztain and which were transferred or will be transferred by them to other parties, will not be entitled to participate in the Tender Offers
 
-  
These remedies will not apply to shares which were acquired from the minority shareholders within the framework of the trade in the stock exchange and which came into the possession of IFISA.
 
On October 26, 2015, and following the court decision dated on October 20.1015 and the declaratory remedies submitted Dolphin and IFISA have sent a letter that, according to their position, and as detailed in the letter: (a) The reservation prescribed by the court vis-à-vis the shares which were acquired from the minority shareholders in trading on the stock exchange and which came into the possession of IFISA, applies to the 127,441,396 shares of the Company held by IFISA and 131,600 shares of the Company held by Dolphin, which should be entitled to participate as offerees in the Tender Offers; and (b) with respect of the 51,760,322 additional shares of IDBD presently held by Dolphin, originating in acquisitions from minority shareholders in IDBD, DN and IFISA believe that, according to that state in the Court decision, these shares cannot participate as an offeree in the tender offers, so long as they are held by Dolphin, however Dolphin is not estopped from selling these shares to any third parties, and that in such a case, that third party shall have the right to participate in the Tender Offers for these shares.
 
On October 29, 2015, the Arrangement Trustees filed an urgent application for a contempt of court order against Dolphin and IFISA and to enforce them to follow the court's instructions of October 20, 2015, alleging that the letter of Dolphin and IFISA, published by IDBD on October 27, 2015, which informed of the quantity of shares purchased from the minority shareholders within the framework of the trade in the stock exchange is contrary to the court's decision and thus Dolphin and IFISA are acting in contempt of court. The Arrangement Trustees further argued that since Dolphin and IFISA are ignoring the court's decision and since the damage to the public, including to the Arrangement creditors, accumulating daily, the court is requested to impose a fine, in a material amount set by the court, for each day that they ignore the court decision and as long as they do not take action that the Company will amend its reports so that they reflect the court decision. According the court's decision dated October 30, 2015, Dolphin and IFISA are requested to submit their response within three days.
 
On October 29, 2015, Dolphin and IFISA filed an appeal to the Supreme Court, with respect to the court decision of October 20, 2015, also requesting to hold an urgent hearing on the appeal. The hearing on the appeal was scheduled for December 16, 2015.
 
On November 2, 2015, Dolphin and IFISA submitted their response to the Application for Contempt, requesting court to dismiss the application as the Contempt of Court Ordinance does not apply to declaratory remedies and as Dolphin and IFISA did not violate any court order.
 
On November 4, 2015, the Arrangement Trustees filed a rejoinder to Dolphin´s and IFISA's response to the Application for Contempt, requesting the Court to clarify that the Reservation (as defined below) determined in the Court's decision dated October 20, 2015 shall apply exclusively in the case the following
 

 

 
F-276
 
Cresud Sociedad Anónima,
Comercial, Inmobiliaria, Financiera y Agropecuaria

Notes to Consolidated Financial Statements (Continued)
(All amounts in thousands of Argentine Pesos, except shares and per share data and as otherwise indicated)

 
45.
Subsequent events (Continued)
 
conditions apply: (1) that the shares were acquired in the market from the public; (2) the acquisition was made within the framework of trading on the TASE; and (3): that the shares are currently held by IFISA; accordingly, the Court was requested to clarify that the Dolphin´s and IFISA's position as filed in the letter dated October 26, 2015 is not and cannot be the correct interpretation of the Judgment.
 
On November 4, 2015, Dolphin and IFISA filed their response to the rejoinder of the Arrangement Trustees, requesting the Court to dismiss the Arrangement Trustees' request to clarify the judgment.
 
        On November 5, 2015, the Court decided to deny the Application for Contempt filed by Arrangement Trustees. However, the Court stated that Dolphin and IFISA's interpretation of the Reservation in the Decision dated October 20, 2015, within Dolphin and IFISA's letter, stand in contradiction insofar as with regard to the scope of the Reservation.
 
On November 5, 2015, the Arrangement Trustees sent a letter to Dolphin and IFISA, demanding them, in light of the Court's decision of the same day, to amend Dolphin and IFISA's letter and to inform the Securities Authority and IDBD that all the tender offers will be addressed to the minority shareholders of IDBD and that Dolphin and/or IFISA and any corporation under the control of Mr. Elsztain, will not be offerees in the tender offers and that every share which will be transferred by them to third party, if transferred, will also not be entitled to be an offeree in the tender offer.
 
On November 5, 2015, the Arrangement Trustees sent a letter to IDBD, demanding it, in light of the Court's decision of the same day, to amend Dolphin and IFISA's letter and to inform the public and the Securities Authority immediately that Dolphin and IFISA's Letter as published by  IDBD, is inconsistent with the court's decision and that all the shares held by Dolphin and IFISA or any corporation within the Elsztain Group or which shall be purchased from those corporations, shall not carry a right to participate in the tender offers as an offeree.
 
On November 10, 2015, following the request of the ISA to IDBD, IDBD approached Dolphin and IFISA in order to obtain their position with regard to the amount of shares held by corporations controlled by Mr. Eduardo Sergio Elsztain and which are entitled to participate in the Tender Offers according to the Reservation in the Court's decision dated October 20, 2015 (the "First Decision"; the "Reservation") and following the Court's decision dated November 5, 2015 (the "Second Decision"). In response to this request, Dolphin and IFISA notified IDBD that their position, as expressed in Dolphin and IFISA's letter, remains unchanged.
 
On November 10, 2015, Dolphin and IFISA filed an application to the Supreme Court to schedule the hearing on the appeal, which was scheduled for December 16, 2015, to an earlier date, due to the fact that Dolphin has to publish a Tender Offer by December 31, 2015, in order to have a high level of certainty regarding the legal situation as soon as possible.
 
        On November 12, 2015, IDBD reported that, at its request, Dolphin extended the validity of its commitment with regard to the public offering so that it will be performed no later than November 17, 2015
 

 
F-277
 
 
45.
Subsequent events (Continued)

(instead of the original date of November 15, 2015), which was further extended until December 1, 2015. There is no certainty at this time for the execution of the offering or to its terms. In addition, IDBD was notified by Dolphin, that discussions are being held between Dolphin and the Arrangement Trustees for a potential amendment to the Arrangement with regard to the Tender Offers. IDBD further reported that the Arrangement Trustees sent a letter stating that the amendments to the Arrangement regarding the Tender Offers are not acceptable for the bondholders, and that the bondholders may convoke a bondholders´ meeting to discuss such issues if IDBD´s Board of Directors do not disapprove such proposal.
 
      The Company is assessing its defense strategy, as well as the impact of the closing of the BMBY process with IFISA as the purchaser of the shares of IDBD by Extra.
    
              On November 11, the lock-up under the TASE regulations expired, and therefore there are no shares restricted under this item as of the date of issuance of these financial statements.
 
       Condor

On July 23, 2015, RES, IRSA and Condor entered into an agreement in relation to a potential exchange of preferred shares Series A, Series B and Series C for ordinary shares.

RES has accepted that, if Condor gets acceptance of at least 80% of the preferred shares Series A and B, then RES will convert pro rata its convertible preferred shares Series C.

The agreement specifies that the conversion price for preferred shares A and B into ordinary shares is US$ 2.3254 per share, while the price for Series C is US$ 1.60 per share. Furthermore, in consideration for cumulative unpaid dividends, holders of such shares will receive an amount of additional ordinary shares at a share price of US$ 2.3254.
 
 
 
F-278
 
45.
Subsequent events (Continued)

The agreement further provides that, if the exchange is carried out, Condor’s bylaws will be amended upon prior approval of shareholders in order to:

•       eliminate the limitation that bans RES from holding more than 34% of issued and outstanding ordinary shares;
•       eliminate the obligation to exchange preferred shares Series B if a person or group holds more than 35% of voting shares of Condor; and
•       Authorize the issuance of non-voting ordinary shares.

As regards warrants previously issued to RES, 50% would be extended till January 31, 2018, and the other 50% until January 31, 2019.
 
RES would receive a combination of voting and non-voting shares so that its voting power in no event exceeds 49%.
 
On August 31, the exchange process was extended until October 12, 2015.

On September 2015, Condor terminated its offer to exchange preferred shares to common and cancelled its special meeting of shareholders scheduled for October 8, 2015 to obtain shareholder approvals to the conditions of the exchange offer.

· On July 20, 2015 Brazil Federal Revenue Office approved and refunded Brasilagro for the amount included in the petition in relation to CSLL accumulated receivables with negative balance for calendar year 2012 and the income tax negative balance for fiscal year 2013 in the amount of Rs. 239 (Ps. 700) and Rs. 1,600 (Ps. 4,688), respectively, and the value of Rs. 165 (Ps. 483) regarding the request made by its controlled company Jaborandi Agrícola. In addition, on July 20, 2015 Brazil Federal Revenue Office approved and refunded the value included in the petition related to cumulative receivables related to PIS and COFINS (Social Integration Program and Social Security Financing Lev in November 2014. Total sum of money refunded by the Federal Revenue Office amounted to Rs. 39 (Ps. 114) and is available in the current account of Brasilagro.

· Pursuant to share repurchase program, Brasilagro may repurchase up to 698,310 shares or 2% of the ordinary shares issued and outstanding. In July 2015, total shares repurchased by Brasilagro was 209,200 shares for a total amount of Rs. 2,334 (Ps. 6,839).

 
F-279
 
 
45.
Subsequent events (Continued)

· Brasilagro and Jaborandi Ltda. will pay the rural harvest financing agreements entered into with Banco do Nordeste – BNB, after the balance sheet date (June 30, 2015). On July 31 2015, principal was repaid in the amount of Rs. 23,733 (Ps. 69,538) and on August 1, 2015 interest was paid in an amount of Rs. 2,022 (Ps. 5,924).

· On August 7, 2015, the directors of Brasilagro exercised their call options for 233,689 shares at an exercise price of Rs. 2,006 (Ps. 5,878) referring to the First Share Option Program.


 
F-280
 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
BancoHipotecario S.A.

We have audited the accompanying consolidated balance sheets of BancoHipotecario S.A. and its subsidiaries (collectively referred to as the “Bank”) as of June 30, 2015 and 2014 and the related consolidated statements of income, of changes in shareholders' equity and of cash flows for each of the three twelve-month periods in the period ended June 30, 2015. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BancoHipotecario S.A. and its subsidiaries at June 30, 2015 and 2014, and the results of their operations and their cash flows for each of the three twelve-month periods in the period ended June 30, 2015 in conformity with accounting rules prescribed by the Banco Central de la República Argentina (the “BCRA”).

The Bank’s consolidated financial statements have been prepared in accordance with Argentine Banking GAAP, which differs in certain significant respects from U.S. GAAP. Such differences involve methods of measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by U.S. GAAP and regulations of the SEC. These consolidated financial statements include solely a reconciliation of net income and shareholders’ equity to U.S. GAAP. Pursuant to Item 17 of Form 20-F, this reconciliation does not include disclosure of all information that would be required by U.S. GAAP and regulations of the SEC. Information relating to the nature and effect of the differences between accounting rules prescribed by the BCRA and U.S. GAAP is presented in Note 34 to the consolidated financial statements.
 
Buenos Aires, Argentina
August 7, 2015, except for notes 34 and 36 as to which the date is November 17, 2015
 
 
  Price Waterhouse & Co. S.R.L.  
       
 
By:
/s/ Marcelo Trama  
    Name Marcelo Trama  
    Title Partner  
       
 
 

 
 
F-281
 


BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of June 30, 2015 and 2014
(Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

 
June 30,
  
 
2015
  
2014
  
ASSETS
          
             
Cash and due from banks
   Ps. 492,233     Ps. 610,106  
Banks and correspondents
     2,709,342       2,398,062  
      3,201,575       3,008,168  
                 
Government and corporate securities (Note 4)
     5,271,583       3,395,192  
                 
Loans (Note 5)
                
Mortgage loans
     2,413,401       2,197,336  
Credit card loans
     8,500,601       5,950,266  
Other loans
     8,334,879       7,277,967  
      19,248,881       15,425,569  
Plus: Accrued interest receivable
     218,089       150,676  
Less: Allowance for loan losses (Note 6)
     (433,825 )     (356,267 )
      19,033,145       15,219,978  
                 
Other receivables from financial transactions (Note 7)
                
Collateral receivable under repurchase agreements
     35,621       60,196  
Amounts receivable under derivative financial instruments
     4,785       45,817  
Loans in trust pending securitization
    10,301       10,776  
Amounts receivable under reverse repurchase agreements of government and corporate securities
    94,597       498,000  
Other (Note 7)
     3,247,013       1,961,678  
      3,392,317       2,576,467  
Plus:  Accrued interest receivable
     8,440       8,165  
Less: Allowance for Other receivables from financial transactions
     (22,611 )     (11,189 )
      3,378,146       2,573,443  
                 
Assets under financial leases
     125,461       71,907  
                 
Investments in other companies
     70,806       19,241  
                 
Miscellaneous receivables (Note 8)
     1,559,217       1,117,890  
                 
Bank premises and equipment (Note 9)
     186,320       150,489  
                 
Miscellaneous assets (Note 10)
     60,413       50,483  
                 
Intangible assets (Note 11)
     426,148       244,540  
                 
Items pending allocation
     8,542       4,254  
                 
Total Assets
   Ps. 33,321,356     Ps. 25,855,585  

The accompanying notes are an integral part of these consolidated financial statements.


 
F-282
 

BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET – (Continued)
As of June 30, 2015 and 2014
(Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

   
June 30
  
   
2015
    
2014
  
             
LIABILITIES AND SHAREHOLDERS' EQUITY
            
LIABILITIES
            
Deposits
            
Checking accounts
  
Ps. 3,151,296
    
Ps. 2,800,899
  
Saving accounts
     2,953,065       1,662,444  
Time deposits
     11,898,186       9,049,574  
Other deposit accounts
     188,604       178,426  
      18,191,151       13,691,343  
Plus:  Accrued interest payable
     237,680       215,811  
      18,428,831       13,907,154  
Other liabilities from financial transactions
                
Other banks and international entities (Note 14)
     297,357       558,449  
Bonds (Note 15)
     4,926,694       3,501,712  
Argentine Central Bank
     115       81  
Amounts payable under derivative financial instruments
     334,874       300,099  
Borrowings under repurchase agreements collateralized by government securities
     93,660       384,117  
Obligation to return securities acquired under reverse repurchase agreements of government and corporate securities (Note 13)
     34,481       140,804  
Other
     1,867,191       1,083,892  
      7,554,372       5,969,154  
Plus:  Accrued interest payable
     135,471       97,156  
      7,689,843       6,066,310  
                 
Miscellaneous liabilities
                
Taxes
     326,154       352,988  
Sundry creditors (Note 20)
     1,468,191       724,210  
Other (Note 20)
     272,415       178,649  
      2,066,760       1,255,847  
                 
Reserve for contingencies (Note 12)
     221,950       152,789  
                 
Subordinated bonds (Note 16)
     100,452       -  
                 
Items pending allocation
     44,847       208,293  
                 
Non-controlling interest
    67,957       59,849  
                 
Total Liabilities
     28,620,640       21,650,242  
                 
SHAREHOLDERS' EQUITY
                
                 
Common stock
     1,463,365       1,463,365  
Treasury stock
     54,149       54,149  
Paid in capital
     834       834  
Inflation adjustment on common stock
     699,601       699,601  
Reserves
     1,842,198       1,292,226  
Retained earnings
     640,569       695,168  
Total Shareholders' Equity
     4,700,716       4,205,343  
Total Liabilities and Shareholders' Equity
  
Ps. 33,321,356
    
Ps. 25,855,585
  

The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-283
 

BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
For the twelve-month periods ended June 30, 2015, 2014 and 2013
(Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

   
June 30,
  
   
2015
    
2014
    
2013
  
Financial income
                  
Interest on loans and other receivables from financial transactions
   Ps. 4,326,324     Ps. 3,779,073     Ps. 1,961,272  
Income from government and corporate securities.
     1,191,396       904,985       456,004  
Other
     6,250       12,186       6,906  
      5,523,970       4,696,244       2,424,182  
Financial expenses
                        
Interest on deposits and other liabilities from financial transactions
     2,801,201       2,063,512       1,120,480  
Contributions and taxes on financial income
     442,814       339,676       163,794  
      3,244,015       2,403,188       1,284,274  
                         
Gross brokerage margin
   Ps. 2,279,955     Ps. 2,293,056     Ps. 1,139,908  
                         
Provision for loan losses (Note 6)
     375,270       303,348       233,376  
Income from services
                        
Insurance premiums
     1,255,436       895,129       417,368  
Commissions (Note 21)
     1,295,325       866,616       670,213  
Other (Note 21)
     733,262       356,153       307,398  
      3,284,023       2,117,898       1,394,979  
Expenses for services
                        
Insurance claims
     149,871       174,715       57,583  
Commissions (Note 21)
     540,542       446,257       194,064  
Contributions and taxes on income from services
     78,457       61,666       39,261  
      768,870       682,638       290,908  
Administrative expenses
                        
Salaries and social security contributions
     1,775,548       1,284,840       844,965  
Advertising expenses
     179,542       118,277       88,538  
Value added tax and other taxes
     167,249       113,917       115,353  
Directors’ and Syndics’ fees
     65,788       71,027       31,774  
Fees for administrative services
     406,690       258,668       189,428  
Maintenance and repairs
     96,821       53,981       37,186  
Electricity and communications
     116,907       71,942       56,515  
Depreciation of bank premises and equipment
     35,267       20,992       15,830  
Rent
     97,482       69,774       49,895  
Other
     425,595       277,361       182,718  
      3,366,889       2,340,779       1,612,202  
                         
Net income from financial transactions
   Ps. 1,052,949     Ps. 1,084,189     Ps. 398,401  

The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-284
 

BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME – (Continued)
For the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


   
June 30,
  
   
2015
    
2014
    
2013
  
                   
Miscellaneous income
                  
Penalty interest
     86,874       59,281       54,833  
Loans recoveries
     171,781       82,104       100,834  
Other (Note 22)
     58,875       47,543       37,755  
      317,530       188,928       193,422  
Miscellaneous expenses
                        
Provision for other contingencies and miscellaneous receivables
     132,614       67,564       31,058  
Other (Note 22)
     336,720       220,430       130,966  
      469,334       287,994       162,024  
                         
Income before income taxes and Non-controlling interest
   Ps. 901,145     Ps. 985,123     Ps. 429,799  
                         
Income taxes (Note 24)
     377,613       369,127       76,529  
Non-controlling interest
     13,658       11,031       (14,148 )
Net income for the period
   Ps. 537,190     Ps. 627,027     Ps. 339,122  

The accompanying notes are an integral part of these consolidated financial statements.




 
F-285
 

BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

 
                     Reserves            
     Common stock (Note 26)   Paid in capital (Note 26)    Treasury stock (Note 26)    Inflation adjustment of common stock (Note 26)   
Legal
(Note 26) 
  
Voluntary
(Note 26) 
   Retained earnings       Total shareholders' equity  
Balance as of June 30, 2012
   Ps. 1,463,365   Ps. 834   Ps. 54,149   Ps. 699,601   Ps. 526,828   Ps. 367,601   Ps. 256,816     Ps. 3,369,194  
                                                     
Distribution of retained earnings approved by the General Shareholders’ Meeting held on 04/13/11. Approval of BCRA on 09/20/12
     -     -     -     -     -     -     (100,000 )     (100,000 )
                                                     
Net income for the period
     -     -     -     -     -     -     339,122       339,122  
                                                     
Balance as of June 30, 2013
   Ps. 1,463,365   Ps. 834   Ps. 54,149   Ps. 699,601   Ps. 526,828   Ps. 367,601   Ps. 495,938     Ps. 3,608,316  
                                                     
Distribution of retained earnings approved by the General Shareholders’ Meeting held on 08/23/13
     -     -     -     -     68,721     244,886     (343,607 )     (30,000 )
                                                     
Distribution of retained earnings approved by the General Shareholders’ Meeting held on 04/24/14
     -     -     -     -     84,190     -     (84,190 )     -  
                                                     
Net income for the period
     -     -     -     -     -     -     627,027       627,027  
                                                     
Balance as of June 30, 2014
   Ps. 1,463,365   Ps. 834   Ps. 54,149   Ps. 699,601   Ps. 679,739   Ps. 612,487   Ps. 695,168     Ps. 4,205,343  
                                                     
Distribution of retained earnings approved by the General Shareholders’ Meeting held on 04/24/14. Approval of BCRA on 12/23/14
     -     -     -     -     -     -     (41,817 )     (41,817 )
                                                     
Distribution of retained earnings approved by the General Shareholders’ Meeting held on 03/21/15.
     -     -     -     -     109,994     439,978     (549,972 )     -  
                                                     
Net income for the period
     -     -     -     -     -     -     537,190       537,190  
                                                     
Balance as of June 30, 2015
   Ps. 1,463,365   Ps. 834   Ps. 54,149   Ps. 699,601   Ps. 789,733   Ps. 1,052,465   Ps. 640,569     Ps. 4,700,716  

The accompanying notes are an integral part of these consolidated financial statements

 

 
F-286
 

BANCO HIPOTECARIO SA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the twelve-month periods ended June 30, 2015, 2014 and 2013
(Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

   
2015
    
2014
    
2013
  
Cash flows from operating activities:
                  
Net income
   Ps. 537,190     Ps. 627,027     Ps. 339,122  
Adjustments to reconcile net income to net cash provided by Cash Flows from operating activities:
                        
Provision for loan losses and for contingencies and miscellaneous receivables, net of reversals
     258,567       273,423       163,600  
Net gain on investment government securities
     (179,430 )     (89,484 )     (8,802 )
Gain / (loss) on derivative financial instruments
     (63 )     -       (46 )
Depreciation and amortization
     114,799       66,103       39,152  
Net gain on sale of premises and equipment and miscellaneous assets
     (578 )     (2,944 )     (1,160 )
Net Indexing (CER and CVS) and interest of loans and deposits incurred but not paid
     (177,558 )     (19,112 )     (127,277 )
Non-controlling interest
     (13,658 )     (11,031 )     14,148  
Net change in trading securities
     1,269,136       (858,189 )     907,867  
Net change in other assets
     (2,850,499 )     (661,376 )     (136,396 )
Net change in other liabilities
     1,179,439       1,391,036       (482,324 )
Net cash (used in) operating activities
     137,345       715,453       707,884  
                         
Cash flows from investing activities:
                        
(Increase)/Decrease in loans, net
     (4,502,150 )     (5,780,425 )     (2,692,773 )
Proceeds from securitization of consumer loans
     401,331       749,589       380,415  
Proceeds from maturities of available for sale securities
     808,876       81,100       345,961  
Purchases of investments in other companies
     (45,000 )     (10,013 )     (5,012 )
Proceeds from sales, net of payments for purchases, of available for sale securities
     (2,082,693 )     (1,166,729 )     25,697  
Proceeds from sale of premises and equipment
     8,491       1,874       1,029  
Purchases of premises and equipment, miscellaneous and intangible assets
     (350,659 )     (212,026 )     (117,240 )
Net cash provided by investing activities
     (5,761,804 )     (6,336,630 )     (2,061,923 )
                         
Cash flows from financing activities:
                        
Increase in deposits, net
     4,499,808       4,792,123       2,093,107  
Principal payments on bonds, notes, and other debts
     (626,754 )     (853,108 )     (584,601 )
Proceeds from issuance of bonds, notes and other debts
     1,934,019       1,435,183       653,781  
Payments of debt issuance cost
     (19,406 )     (12,855 )     (8,425 )
Distribution of dividends
     (41,817 )     (29,968 )     (99,895 )
(Decrease)/Increase in borrowings, net
     (23,518 )     806,185       89,175  
Net cash provided by financing activities
     5,722,332       6,137,560       2,143,142  
                         
Net increase/(decrease) in cash and cash equivalents
     97,873       516,383       789,103  
Cash and cash equivalents at the beginning of the period
     3,008,168       2,217,327       1,352,474  
Effect of foreign exchange changes on cash and cash equivalents
     95,534       274,458       75,750  
Cash and cash equivalents at the end of the period
   Ps. 3,201,575     Ps. 3,008,168     Ps. 2,217,327  
                         
Supplemental disclosure of cash flow information:
                        
    Cash paid for interest
   Ps. 2,525,829     Ps. 1,555,976     Ps. 939,573  
    Cash paid for presumptive minimum income tax and income tax.
     343,504       113,576       71,481  
    Non-cash transactions involving securitizations
     151,576       165,249       87,925  


The accompanying notes are an integral part of these consolidated financial statements.

 

 
F-287
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



1.  
General

a. Description of business

Banco Hipotecario SA (herein after referred to as the “Bank” or “BHSA”), is a commercial bank, organized under the laws of Argentina.

The Bank historically has provided general banking services, focused on individual residential mortgage loans and construction-project loans directly to customers as well as indirectly through selected banks and other financial intermediaries throughout Argentina. In 2004, as part of its business diversification strategy, the Bank resumed the mortgage lending and expanded its product offerings, beginning to offer personal loans, credit card loans and also engaging in mortgage loan securitizations, mortgage loan servicing, other corporate loans and mortgage-related insurance in connection with its lending activities.

b. Basis of presentation

The consolidated financial statements of the Bank have been prepared in accordance with the rules of Banco Central de la República Argentina (“Argentine Central Bank” or “BCRA”) which prescribe the accounting reporting and disclosure requirements for banks and financial institutions in Argentina (“Argentine Banking GAAP”). Argentine Banking GAAP differ in certain significant respects from generally accepted accounting principles in the United States of America (“U.S. GAAP”). Such differences involve methods of measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by U.S. GAAP and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements include solely a reconciliation of net income and shareholders’ equity to U.S. GAAP. Pursuant to Item 17 of Form 20-F, this reconciliation does not include disclosure of all information that would be required by U.S. GAAP and Regulation S-X of the SEC. See note 34 for details.

Certain disclosures required by the Argentine Banking GAAP have not been presented herein since they are not required under U.S. GAAP or the SEC and are not considered to be relevant to the accompanying consolidated financial statements taken as a whole.

Certain reclassifications of prior year’s information have been made to conform to current year presentation. Such reclassifications do not have a significant impact on the Bank financial statements.

c. Principles of consolidation

The consolidated financial statements include the accounts of the Bank and its subsidiaries over which the Bank has effective control. The percentages directly or indirectly held in those companies’ capital stock as of June 30, 2015 and 2014 are as follows:

   
June 30,
  
Issuing Company
  
2015
    
2014
  
BHN Sociedad de Inversión Sociedad Anónima
     99.99 %     99.99 %
BHN Seguros Generales Sociedad Anónima
     99.99 %     99.99 %
BHN Vida Sociedad Anónima
     99.99 %     99.99 %
BACS Banco de Crédito y Securitización Sociedad Anónima
     87.50 %     87.50 %
BACS Administradora de activos S.A. S.G.F.C.I.
     85.00 %     85.00 %
Tarshop S.A. (*)
     80.00 %     80.00 %
BH Valores SA
     100.00 %     100.00 %


 

 
F-288
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


(*) On October 22, 2014, the Board of Directors of Banco Hipotecario S.A. unanimously approved an irrevocable capital contribution to Tarshop S.A. in the amount of Ps. 110,000 to be made by shareholders Banco Hipotecario S.A. and IRSA Propiedades Comerciales S.A. pro rata of their shareholdings so that Tarshop S.A. should have sufficient resources for its operational activities and to be able to execute its 2015 Business Plan. On December 15, 2014, the General and Extraordinary Shareholder's Meeting unanimously approved such capitalization

All significant intercompany accounts and transactions have been eliminated in consolidation.

d. Presentation of financial statements in constant argentine pesos

The financial statements have been adjusted for inflation in conformity with the guidelines set in Communication “A” 551 of the Argentine Central Bank up to the financial year ended December 31, 1994, and prepared in accordance with the standards laid down by CONAU 1 Circular. As from January 1, 1995, and according to the authorization accorded by Resolution N° 388 of the Argentine Central Bank's Superintendency of Financial and Exchange Institutions, the Bank discontinued the adjustment for inflation of its financial statements until December 31, 2001. As from January 1, 2002, as a result of the application of Communication “A” 3702 which established the repeal of any legal and regulatory rule that did not allow companies to restate their accounting balances at period-end currency values, the Bank resumed the application of the adjustment for inflation in accordance with the rules issued in due time by the Argentine Central Bank using the adjustment coefficient derived from the domestic wholesale price index published by the National Statistics and Census Institute (INDEC). Furthermore, it has been considered that the accounting measurements derived from the changes in the purchasing power of the currency between December 31, 1994 and 2001 are stated in the currency value as of the latter date.

On March 25, 2003, the Executive Branch issued Decree 664 establishing that the financial statements for years ending as from that date are to be stated in nominal currency. Consequently, in accordance with Communication “A” 3921 of the BCRA, the restatement of the financial statements was discontinued as from March 1, 2003.

2. Significant Accounting Policies
 
The following is a summary of significant accounting policies used in the preparation of the consolidated financial statements.

2.1. Foreign Currency Assets and Liabilities

US dollar assets and liabilities have been valued at the rate of exchange between the peso and the US dollar published by the Argentine Central Bank. Assets and liabilities valued in foreign currencies other than the US dollar were converted into the latter currency using the swap rates communicated by the Argentine Central Bank’s operations desk, in force at the close of operations on the last business day of the fiscal period end.

Foreign currency transactions net gains or losses are recorded within “Financial income” or “Financial expenses” in the accompanying unaudited consolidated statements of income.

2.2. Interest accruals and adjustments of principal amounts (CER and CVS)

Interest accruals were determined using the exponential method for all lending and certain borrowing transactions in local and foreign currency, and interest accruals for loans overdue more than ninety days were discontinued.

 

 
F-289
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Adjustments of principal amounts from application of the CER (Reference Stabilization Index), and CVS were accrued as established by Argentine Central Bank regulations, and interest accruals on loans overdue more than ninety days were discontinued.

2.3. Government and Corporate Securities

Securities classified as "Holdings booked at fair market value", "Investment in listed corporate securities" and "Securities issued by the BCRA" with volatility published by the BCRA, have been valued at period-end or year-end market quotation.

As of June 30, 2015, the Bank maintains in its portfolio overdue income coupons from the DICY and PARY bonds to be collected.

Securities classified as “Holdings booked at cost plus return” and “Securities issued by the BCRA” with no volatility published by the BCRA or with volatility but which the Entity decides to book under the first category, have been valued at their acquisition cost subject to an exponential increase based on the internal rate of return, net of contra accounts, if applicable.

2.4. Loans

The portfolio of performing loans and loans due ninety days or less has been valued in terms of the principal amounts actually lent, plus capitalized interest, net of principal amortization collected and debt balance refinancing, plus adjustments (from the application of the CER, and CVS where applicable) and accrued interest receivable and less the estimated reserve for loan losses.

Other loans to the public sector:

i) those loans were valued at cost plus return, taking as cost their book value as of December 31, 2010.

ii) those originally granted in foreign currency have been converted into Ps. at the exchange rate of $1.40 per US dollar, as established by Law 25561, Decree 214 and complementary rules and amendments. Since February 3, 2002, the CER has been applied to the amount of those loans and maximum rates have been established, in accordance with Decree 1579/02, if those assets were subjected to the Exchange of Provincial Public Debt.

Loans to the non-financial private sector originally granted in foreign currency have been converted into pesos at the exchange rate of $1.00 per US dollar, as established by Law 25561, Decree 214 and complementary rules and amendments. Since February 3, 2002, the CER and CVS have been applied to the amount of those loans and maximum rates have been established, depending on the borrower.

2.5. Other receivables for financial transactions

The individual mortgage loans the trustee ownership of which was transferred by the Bank and recorded in this caption have been valued and converted into pesos following the criterion described in points 2.2. and 2.4.

The rights arising from currency swap transactions have been valued at the quotation of that currency following the criterion described in point 2.1.

The financial trust participation certificates have been valued according to the equity method of accounting. Financial trust debt securities have been stated at cost plus return, index-adjusted by applying the CER to the appropriate instruments.

 

 
F-290
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

The interest rate swap transactions carried out for the purposes of hedging assets and liabilities with fixed and floating rates have been valued in accordance with the unsettled balances of agreed upon lending and borrowing interests rates.

Interest rate swaps for agreed-upon fixed rate have been valued in accordance with the balances pending settlement. Futures transactions agreed upon that are mainly closed as hedging for the position in foreign currency have been valued in accordance with the balances pending settlement. Changes in these values, for all derivative instruments, are recognized as a gain or loss under the caption “Financial Income – Interest on loans and other receivables from financial transactions” or “Financial Expenses – Interest on deposits and other liabilities from financial transactions”, respectively.

Unlisted negotiable obligations have been valued at acquisition cost exponentially increased according to the internal rate of return.

Securities issued by the BCRA and government securities held as collateral for OTC transactions are valued as explained in item 2.3 of this note.

Repo transactions are carried at the value originally agreed upon, plus accrued premiums.

2.6. Receivables for financial leases

Receivables for financial leases are carried at the current value of the periodic installments and the residual value previously agreed upon, calculated as per the conditions set forth in the respective lease agreements, applying the internal rate of return and net of allowances for loan losses.

2.7. Investments in Other Companies

Permanent equity investments in companies where corporate decision are not influenced, are accounted for the lower of cost and the equity method. As of June 30, 2015 and December 31, 2014 these investments were recorded at cost.

This caption mainly includes the equity investments held in: Mercado Abierto Electrónico Sociedad Anónima, ACH Sociedad Anónima, Mercado de Valores de Buenos Aires Sociedad Anónima, and SUPER–CARD S.A..

Additionally the Bank has participations as protecting partner in mutual guarantee companies and has made contributions to the companies’ risk fund. These companies are: Confederar NEA S.G.R., Don Mario S.G.R., Los Grobos S.G.R. and Intergarantías S.G.R.

2.8. Miscellaneous receivables

Miscellaneous receivables have been valued at the amounts actually transacted, plus interest accrued and net of allowances for loan losses or impairment, if applicable.

2.9. Bank Premises and Equipment and Miscellaneous Assets

Bank premises and equipment are recorded at cost, adjusted for inflation (as described in note 1.d), less accumulated depreciation.

Depreciation is computed under the straight-line method over the estimated useful lives of the related assets. The estimated useful lives for bank premises and equipment are as follows:
 
 
F-291
 
 
Buildings
50 years
Furniture and fixtures
10 years
Machinery and equipment
  5 years
Other
  5 years

The cost of maintenance and repairs of these properties is charged to expense as incurred. The cost of significant renewals and improvements is added to the carrying amount of the respective assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of income.

The Bank has recorded under “Miscellaneous assets” - properties received in lieu of payment of loans. These assets are initially recognized at the lower of market value or the value of the loan, net of allowances and subsequently, adjusted for inflation (as described in note 1.d), and depreciation. Depreciation of Miscellaneous assets is also computed under the straight-line method over the estimated useful of the related assets.

2.10. Intangible Assets, Net

Software expenses as well as start-up costs are carried at cost, adjusted for inflation (as described in note 1.d), less accumulated amortization. These intangible assets are amortized under the straight-line method over their estimated useful life.

Goodwill is recorded by the difference between the purchase price and the book value of the net assets acquired in accordance with Argentine Central Bank rules, and subsequently amortized in a straight line basis over the estimated useful life of 60 months.

Given BHSA’s role as Trustee of the PROCREAR Administrative and Financial Trust, the Bank has capitalized increased direct expenses incurred in the mortgage loan origination process, which disbursements would not have been incurred by it had it not been for the grant of the related loans in accordance with the provisions of Communication “A” 5392. Such origination expenses are amortized in 60 monthly installments.

2.11 Housing, life and unemployment insurance premiums in lending transactions and other transactions originated in its capacity of insurer, in accordance with the franchise granted by the privatization law

The Bank's policy is to recognize the premium income when the corresponding loan installment accrues, except for those loans that are more than ninety days in arrears, and allocate the expenditures for claims to the net income/(loss) for the year in which they occur.

The Bank has set up an insurance claim reserve for Ps.1,181 as of June 30, 2015 and 2014, which is shown in the "Provisions" caption under Liabilities.

2.12. Deposits

Deposits have been valued at their placement value, plus adjustments from application of the CER and accrued interest, where applicable. The fixed return on each transaction is accrued on an exponential basis, while the variable return on time deposits adjusted by applying the CER and included in "Investment Accounts" is accrued at the pro rata agreed upon rate of return based on the improvement in the price of the financial asset or financial asset indicator, between the time the transaction is arranged and the end of the month.

2.13. Other liabilities from financial transactions

 

 
F-292
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Unsubordinated negotiable obligations have been valued at their residual value plus accrued interest.

Foreign currency-denominated obligations under swap transactions carried out as a hedge have been converted into Argentine pesos according to the criterion described in note 2.1.

The interest rate swap transactions carried out for the purposes of hedging assets and liabilities with fixed and floating rates have been valued in accordance with the unsettled balances of agreed upon lending and borrowing interests rates. In addition, following a prudent criterion, the Bank creates provisions for these transactions when the value stated above exceeds its fair value.

Interest rate swaps for agreed-upon fixed rate have been valued in accordance with the balances pending settlement of the agreed-upon lending and borrowing interest rates.

2.14. Miscellaneous liabilities

They are valued at the amounts actually transacted, plus accrued interest as of fiscal period or year end.

2.15. Provisions

The Bank estimates contingencies and records them in Provisions, under Liabilities, if applicable according to the estimated likelihood of occurrence. These provisions cover various items, such as insurance risk, provisions for lawsuits, provisions for taxes, other contingencies, etc..

In addition, the Bank has created the allowance required under Communication “A” 5689 issued by the Argentine Central Bank in order to provide for the total amount of administrative and/or disciplinary sanctions and criminal penalties supported by first instance rulings, applied or pursued by the Argentine Central Bank, the Financial Information Unit, the Argentine Securities Commission and the Argentine Superintendence of Insurance.

2.16. Dismissal indemnities

The Bank does not set up any provisions to cover the risk of dismissal indemnities involving the staff. The disbursements in respect thereof are charged to the results for the period or year in which they occur.

2.17. Personnel benefits

The Bank has set up provisions for its employees' retirement plans.

2.18. Subordinated Bonds

Subordinated negotiable obligations have been recorded at their residual value plus interests accrued.

2.19. Non-controlling interest

The breakdown of supplementary equity interests recorded in “Non-controlling interest” in the accompanying consolidated balance sheets is as follows:
 
 
F-293
 

 
June 30,
  
 
2015
  
2014
  
             
BACS Banco de Crédito y Securitización S.A.
   Ps. 32,536     Ps. 28,383  
BHN Sociedad de Inversión S.A.
     74       63  
Tarshop S.A.
     35,347       31,403  
      Total
   Ps. 67,957     Ps. 59,849  

2.20. Income Tax

Pursuant to Article 28 of Law 24855, Banco Hipotecario Sociedad Anónima is subject to income tax, except for all the housing loan transactions carried out prior to October 23, 1997, date of registration of its by-laws with the Superintendence of Corporations.

The Bank charges to income and sets up a provision under Liabilities for the income tax determined on its taxable transactions in the fiscal year in which those transactions are carried out.

The Bank recognizes income tax charges and liabilities on the basis of the tax returns corresponding to each fiscal year at the statutory tax rates. For all the periods contemplated in these financial statements, the corporate tax rate was 35%. Under Argentine Banking GAAP the Bank does not recognize deferred income taxes.

2.21. Minimum notional income tax

In view of the option granted by the BCRA by means of Communication "A" 4295, as of June 30, 2015 the Bank capitalized as a minimum notional income tax credit the tax amount paid in fiscal year 2012, on the basis of projections prepared and the possibility of recovering it and raising allowances when appropriate.

2.22. Shareholders' Equity

a.  
Capital stock, treasury shares, non-capitalized contributions, reserves, and capital adjustment:

The Shareholders' Equity account activity and balances prior to December 31, 1994 have been stated in the currency values prevailing at that date, following the method mentioned in this Note. The transactions carried out subsequent to that date have been recorded in currency values of the period or year to which they correspond. The balances of the Shareholders’ Equity accounts as of June 30, 2015 have been restated up to February 28, 2003 as explained in the third paragraph. The adjustment derived from the restatement of the balance of "Capital Stock" was allocated to "Equity Adjustments". The issued treasury shares added due to the termination of Total Return Swap transaction are carried at nominal value.

b.  
Results:

Income and expenses have been recognized against the results for the fiscal year, regardless of whether they have been collected or paid.

The preparation of the financial statements requires that the Bank’s Board of Directors perform estimates affecting assets and liabilities, the net income/ (loss) for the fiscal period or year and the determination of contingent assets and liabilities at the date thereof, such as allowances for loan losses and impairment, the recoverable value of assets and provisions. Since these estimates involve value judgments regarding the probability of occurrence of future events, the actual net income/ (loss) may differ from the estimated amount and thus generate losses or profits affecting subsequent periods or years. All legal and regulatory rules in force at the date of presentation of these financial statements have been considered.

 

 
F-294
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The financial statement figures for the previous fiscal period or year, presented for comparative purposes, include certain reclassifications and adjustments that contemplate specific disclosure criteria so as to present them on a consistent basis with those of the current fiscal period or year.

2.23. Statements of Cash Flows

The consolidated statements of cash flows were prepared using the measurement methods prescribed by the BCRA, but in accordance with the presentation requirements of ASC 230.

For purposes of reporting cash flows, “Cash and cash equivalents” include “Cash and due from banks”.

2.24. Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include those required in the accounting of allowances for loan losses and the reserve for contingencies. Since management’s judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which would have a positive or negative effect on future period results.

3. Restricted Assets

Certain of the Bank's assets are pledged or restricted from use under various agreements. The following assets were restricted at each balance sheet date:

 

 
F-295
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

 
 
June 30,
  
 
2015
  
2014
  
Banco Hipotecario S.A.
            
Securities issued by the BCRA as collateral for OCT transactions
   Ps. 70,464     Ps. -  
Government securities as collateral for OCT transactions
     40,200       275,370  
Deposits in pesos as collateral for visa credit card transactions
     117,723       59,610  
Securities issued by the BCRA as collateral for the custody of securities
     162,759       -  
Government securities as collateral for the custody of securities.
     -       173,600  
Deposits in pesos and in U$S as collateral for leases
     754       1,028  
    Ps. 391,900     Ps. 509,608  
                 
Tarshop S.A.
                
Deposits in pesos and in U$S as collateral for leases
   Ps. 505     Ps. 497  
Certificates of participation in Financial Trusts granted as commercial pledge for a loan received
     32,203       32,202  
Time deposits pledged for tax obligations arising from Financial Trusts
     4,891       3,736  
Deposits in pesos related to Financial Trusts transactions
     16,182       24,542  
Receivable in trust to secure a syndicated loan received
     -       83,229  
Deposits in pesos as collateral for visa credit card transactions
     512       -  
Government securities as collateral for visa credit card transactions
     1,038       -  
    Ps. 55,331     Ps. 144,206  
                 
BACS Banco de Crédito y Securitización S.A.
                
Deposits in pesos as collateral for repurchase agreements
   Ps. -     Ps. 4,170  
    Ps. -     Ps. 4,170  
                 
BH Valores S.A.
                
Mercado de Valores de Buenos Aires SA’s share pledged on behalf of Chubb Argentina de Seguros SA.
   Ps. 4,000     Ps. 4,000  
                 
                 
      Total
   Ps. 451,231     Ps. 661,984  

4. Government and Corporate securities

Government and Corporate Securities held by the Bank consist of the following balances:

 
June 30,
  
 
2015
  
2014
  
Holding booked at fair value
            
Government securities in pesos
   Ps. 1,581,383     Ps. 439,798  
Government securities in US$
     340,053       844,014  
Bills issued by Provincial Governments in US$
     297,137       -  
Bills issued by Provincial Governments in pesos
     7,133       -  
    Ps. 2,225,706     Ps. 1,283,812  
                 

 

 
F-296
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



Holding booked at cost plus return
            
Government securities in pesos
   Ps. -     Ps. 29,275  
Bills issued by Provincial Governments in pesos
     66,916       -  
Bills issued by Provincial Governments in US$
     125,862       39,573  
    Ps. 192,778     Ps. 68,848  
                 
Investment in listed corporate securities
                
Corporate securities denominated in pesos
   Ps. 430,855     Ps. 345,565  
    Ps. 430,855     Ps. 345,565  
                 
Securities issued by the BCRA
                
Quoted bills and notes issued by the BCRA
   Ps. 672,239     Ps. 354,542  
Unquoted bills and notes issued by the BCRA
     1,750,005       1,342,425  
    Ps. 2,422,244     Ps. 1,696,967  
                 
Total
   Ps. 5,271,583     Ps. 3,395,192  

As of June 30, 2015, several bonds sold under repurchase agreements amounted to Ps. 9,624 and were recorded under the caption “Other Receivables from Financial Transactions”.

The bank recorded in their financial statements income from government and corporate securities for an amount of Ps. 1,191,396 and Ps. 904,985 as of June 30, 2015 and 2014, respectively.

5. Loans

Descriptions of the categories of loans in the accompanying balance sheets include:

·  
Mortgage loans:

·  
Construction project loans - loans made to various entities for the construction of housing units

·  
Individual residential mortgage loans - mortgage loans made to individuals to finance the acquisition, construction, completion, enlargement, and/or remodeling of their homes

·  
Other loans:

·  
Certain financial and non-financial sector loans including loans to credit card holders and to individuals

·  
Public Loans – loans to National Government and Provinces

Under Argentine Central Bank regulations, the Bank must disclose the composition of its loan portfolio by non-financial public, financial and non-financial private sector. Additionally, the Bank must disclose the type of collateral pledged on non-financial private sector loans. The breakdown of the Bank’s loan portfolio in this regard is as follows:

 

 
F-297
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
June,
  
 
2015
  
2014
  
             
Non-financial public sector
   Ps. 89,132     Ps. 129,023  
Financial sector
     348,549       373,078  
Non-financial private sector
                
With preferred guarantees (a)
     2,413,401       2,197,328  
Without preferred guarantees
               
Personal loans
     2,650,127       2,040,282  
Credit Card Loans
    8,500,601       5,950,266  
Overdraft facilities
     685,978       1,139,629  
Other loans (b)
     4,561,093       3,595,963  
Accrued interest receivable
     218,089       150,676  
Reserve for loan losses (see note 6)
     (433,825 )     (356,267 )
Total
   Ps. 19,033,145     Ps. 15,219,978  
______________
(a)  
Preferred guarantees include first priority mortgages or pledges, cash, gold or public sector bond collateral, certain collateral held in trust, or certain guarantees by the Argentine government.
(b)  
Comprised of:
 
 
 
June 30,
  
 
2015
  
2014
  
             
Short term loans in pesos
  Ps. 2,729,892     Ps. 2,256,595  
Short term loans in US dollars
     692,190       693,809  
Loans for the financing of manufacturers
     61,234       24,805  
Export prefinancing
    406,621       278,720  
Other loans
     671,156       342,034  
Total
   Ps. 4,561,093     Ps. 3,595,963  


6. Allowance for loan losses

The activity in the allowance for loan losses for the periods presented is as follows:

 
June 30,
  
 
2015
  
2014
  
             
Balance at beginning of period
   Ps. 356,267     Ps. 296,633  
Provision charged to income
    375,270       303,348  
Loans charged off
     (297,712 )     (243,714 )
Balance at end of period
   Ps. 433,825     Ps. 356,267  

7. Other receivables from financial transactions

The breakdown of other receivables from financial transactions, by type of guarantee for the periods indicated, is as follows:

 

 
F-298
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
June 30,
  
 
2015
  
2014
  
Preferred guarantees, including deposits with the
            
Argentine Central Bank
   Ps. 434,689     Ps. 507,836  
Unsecured guarantees (a)
     2,966,068       2,076,796  
Subtotal
     3,400,757       2,584,632  
Less: Allowance for losses
     (22,611 )     (11,189 )
Total
   Ps. 3,378,146     Ps. 2,573,443  

(a) Includes Ps. 4,785 and Ps. 45,817 of Amounts receivable under derivative financial instruments, as of June 30, 2015 and 2014, respectively, and Ps. 35,621 and Ps. 60,196 of Amounts receivable under repurchase agreements, as of June 30, 2015 and 2014, respectively.

The breakdown of the caption “Other” included in the balance sheet is as follows:

 
June 30,
  
 
2015
  
2014
  
             
Subordinated bonds (a)
   Ps. 1,452,436     Ps. 424,548  
Certificates of participation (see note 19)
     388,250       330,855  
Bonds held in the Bank’s portfolio (b)
     -       46,036  
Bonds unquoted
     192,621       333,330  
Collateral for OTC transactions
     114,034       275,370  
Amounts receivable from spot and forward sales pending settlement
     524,785       202,617  
Other
     574,887       348,922  
      Total
   Ps. 3,247,013     Ps. 1,961,678  

(a)  Includes Ps. 269,243 and Ps. 268,111 of debt securities related to securitizations made by the bank and described in note 19, as of June 30, 2015 and 2014, respectively.
(b) The Bank carries some of its negotiable obligations as of June 30, 2014.

8. Miscellaneous receivables

Miscellaneous receivables are comprised of the following for the periods indicated:
 
 
June 30,
  
 
2015
  
2014
  
             
Withholdings, credits and prepaid income tax
   Ps. 33,812     Ps. 21,569  
Recoverable expenses, taxes, and advances to third parties
     60,935       58,414  
Attachments for non-restructured ON
     7,526       8,703  
Guarantee deposit (*)
     171,891       179,296  
Guarantee deposit for credit card transactions
     117,723       59,610  
Presumptive minimum income – Credit tax (see note 25)
     61,561       183,668  
Receivables from master servicing activities
     787       899  
Other Directors fees
     13,749       11,323  
Loans to Bank staff
     179,588       178,260  
Other
     925,623       430,126  
Subtotal
     1,573,195       1,131,868  
Less: Allowance for collection risks
     (13,978 )     (13,978 )
Total
   Ps. 1,559,217     Ps. 1,117,890  


 

 
F-299
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


(*) As of June 30, 2015 and 2014 includes Ps. 162,759 and Ps. 173,600 as collateral for the custody of securities.

9. Bank Premises and Equipment

The book values of major categories of bank premises and equipment and total accumulated depreciation as of the periods indicated are as follows:

 
June 30,
  
 
2015
  
2014
  
             
Land and buildings
   Ps. 117,090     Ps. 117,090  
Furniture and fixtures
     63,915       49,421  
Machinery and equipment
     185,369       145,416  
Other
     40,106       25,007  
Accumulated depreciation
     (220,160 )     (186,445 )
Total
   Ps. 186,320     Ps. 150,489  

10. Miscellaneous assets

Miscellaneous assets consist of the following as of the end of each period:

 
June 30,
  
 
2015
  
2014
  
             
Properties held for sale
   Ps. 33,587     Ps. 30,297  
Assets leased to others
     22,656       19,947  
Stationery and supplies
     23,349       18,244  
Other
     1,688       2,164  
Accumulated depreciation
     (20,867 )     (20,169 )
Total
   Ps. 60,413     Ps. 50,483  

11. Intangible Assets

Intangible assets, net of accumulated amortization, as of the end of periods indicated are as follows:

 
June 30,
  
 
2015
  
2014
  
             
Third parties fees, re-engineering, restructuring and capitalized software costs
   Ps. 131,714     Ps. 79,064  
Goodwill (*)
     18,508       21,938  
Mortgage loan origination expenses related to Pro.Cre.Ar (see note 31)
     275,926       143,538  
Total
   Ps. 426,148     Ps. 244,540  

(*) Goodwill is mainly related to the acquisition of Tarshop, which has been allocated to the Credit card segment - Tarshop.

 

 
F-300
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



12.
Reserve for contingencies

The reserve for contingencies as of the end of each period is as follows:

 
June 30,
  
 
2015
  
2014
  
             
Legal Contingencies (a)
   Ps. 78,863     Ps. 79,559  
Incurred but not reported and pending insurance claims (b)
     1,181       1,181  
Contingency risks
    112,043       47,292  
Tax Provision
     11,401       11,912  
Bonds subject to lawsuits (c)
     14,290       12,845  
Allowance for administrative-disciplinary-criminal penalties (d).
     4,172       -  
       Total
   Ps. 221,950     Ps. 152,789  

 
(a) Includes legal contingencies and expected legal fees.
 
(b) As of June 30, 2015 and 2014, it is composed of: Debts to insured for Ps. 1,181 (outstanding claims for Ps. 559 and IBNR for Ps. 622).
 
 (c) Includes negotiable obligations past due whose holders did not enter to the comprehensive financial debt restructuring which ended on January, 2004.
 
(d) Includes a charge relating to a sanction for Ps. 4,040 imposed on BHSA by the Superintendent of Financial and Foreign Exchange Institutions through Resolution No. 685 in connection with the Financial Summary Proceedings No. 1320 (Note 30). At the close of these Financial Statements, this amount was deposited as resolved by the Executive Committee and the Bank’s Board of Directors.

13. Other Liabilities from Financial Transactions - Obligation to return securities acquired under reverse repurchase agreements of government and corporate securities

The amounts outstanding corresponding to the Obligation to return securities acquired under reverse repurchase agreements of government and corporate securities, as of the end of the twelve-month periods are as follows:

 
June 30,
  
 
2015
  
2014
  
             
Reverse repurchase agreements collateralized by securities issued by the BCRA (*)
   Ps. 11,114     Ps. 13,078  
Reverse repurchase agreements collateralized by other government securities (*)
     23,367       127,726  
Total
   Ps. 34,481     Ps. 140,804  

(*) The transactions’ maturity date is July, 2015.

14.
 Other Liabilities from Financial Transactions - Other Banks and International Entities

The breakdown of the bank debt is as follows:

 
Description
  
Average Annual
interest rate
  
Average Maturity date
  
2015
    
2014
  
                     
Interbank loans in pesos
     23.02 %
August, 2015
   Ps. 297,357     Ps. 558,449  
Total
             Ps. 297,357     Ps. 558,449  


 

 
F-301
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


15. Other Liabilities from Financial Transactions – Negotiable obligations

The balance of the negotiable obligations has been included in the “Other liabilities for financial transactions” caption. The residual face values of the different negotiable obligation series issued are as follows:

           
June 30,
  
 
Issue date
Maturity date
  
2015
  
Annual
interest rate
  
2014
  
Banco Hipotecario S.A.
                        
Series 5 (US$ 250,000 thousand)
04/27/06
04/27/16
     a  
9.750%
     1,914,484       1,709,848  
Series IX (Ps. 258,997)
04/25/13
01/25/15
     b/c  
Badlar +280bp
     -       202,413  
Series X (Ps. 34,523)
08/14/13
08/09/14
     a  
22.0%
     -       32,465  
Series XI (Ps. 146,137)
08/14/13
05/14/15
     b/c  
Badlar +375bp
     -       130,998  
Series XII (US$. 44,508 thousand)
08/14/13
08/14/17
     a  
3.95%
     358,989       361,970  
Series XIII (Ps. 55,510)
11/11/13
11/06/14
     a  
23.50%
     -       55,510  
Series XIV (Ps. 115,400)
11/11/13
11/11/15
     b/c  
Badlar +375bp
     115,400       115,400  
Series XV (Ps. 12,340)
01/31/14
01/26/15
     a  
27.00%
     -       12,340  
Series XVI (Ps. 89,683)
01/31/14
01/31/16
     b/c  
Badlar +425bp
     89,683       89,683  
Series XVIII (Ps. 20,046)
05/16/14
02/16/15
     a  
27.0%
     -       20,046  
Series XIX (Ps. 275,830)
05/16/14
11/16/15
     b/c  
Badlar +375bp
     275,830       270,001  
Series XXI (Ps. 222,345)
07/30/14
01/30/16
     b/c  
Badlar +275bp
     222,345       -  
Series XXII (Ps. 253,152)
11/05/14
08/05/15
     b/d  
LEBACx0.95
     253,152       -  
Series XXIII (Ps. 119,386)
11/05/14
05/08/16
     b/c  
Badlar +325bp
     119,386       -  
Series XXIV (Ps. 27,505)
02/05/15
01/31/16
     b  
LEBACx0.95
     27,505       -  
Series XXV (Ps. 308,300)
02/05/15
08/05/16
     a/b  
Mixed (e)
     298,496       -  
Series XXVII (Ps. 281,740)
05/22/15
11/22/16
     a/b  
Mixed (e)
     260,096       -  
                               
Tarshop S.A.
                              
Series VIII (Ps. 79,589)
01/28/13
07/30/14
     b/c  
Badlar+445bp
     -       74,007  
Series X (Ps. 72,592)
05/23/13
11/23/14
     b/c  
Badlar+475bp
     -       70,532  
Series XI (Ps. 10,837)
05/23/13
05/23/16
     b/c  
Badlar+580bp
     10,775       9,729  
Series XII (Ps. 83,588)
08/09/13
08/09/15
     a  
15.0%
     83,112       74,822  
Series XIV (Ps. 30,245)
04/21/14
01/21/15
     a  
30.0%
     -       28,442  
Series XV (Ps. 119,755)
04/21/14
10/21/15
     b/c  
Badlar+490bp
     113,967       117,203  
Series XVII (Ps. 41,066)
11/26/14
08/26/15
     b/d  
LEBACx0.95
     40,832       -  
Series XVIII (Ps. 69,291)
11/26/14
05/26/16
     b/c  
Badlar+425bp
     68,896       -  
Series XIX (Ps. 6,314)
11/26/14
11/26/17
     b/c  
Badlar+525bp
     6,280       -  
Series XX (Ps. 69,100)
04/24/15
01/24/16
     a  
27.5%
     68,707       -  
Series XXI (Ps. 80,500)v
04/24/14
10/24/16
     a  
28.5%
     80,043       -  
                               
BACS Banco de Crédito y Securitización S.A.
                            
Series I (Ps. 130,435)
02/19/14
08/19/15
     b/c  
Badlar+450bp
     130,435       126,303  
Series III (Ps. 132,726)
08/19/14
05/19/16
     b/c  
Badlar +275bp
     132,726       -  
Series IV (Ps. 105,555)
11/21/14
08/21/16
     b/c  
Badlar +350bp
     105,555       -  
Series V (Ps. 150,000)
04/17/15
01/17/17
     a/b  
Mixed (d)
     150,000       -  
                               
                    4,926,694       3,501,712  

(a) Fixed interest rate
(b) Variable interest rate.
(c) As of June 30, 2015 Badlar rate was 20.81%
(d) As of June 30, 2015 LEBAC rate was 26.04%
(e) Fixed rate on the first nine months (between 27.48% and 28.0%) and variable interest rate of Badlar+450bps from that moment on.

 
 
F-302
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



The contractual maturities of the negotiable obligations are as follows as of June 30, 2015:

June 30, 2016
   Ps. 3,667,236  
June 30, 2017
     900,469  
 June 30, 2018
     358,989  
 Thereafter
     -  
Total
   Ps. 4,926,694  

The General Shareholders' Meeting held on May 23, 2008, approved the creation of a new Global Program for issuing Negotiable Obligations, not convertible into shares, with or without collateral, for an amount of up to two billion US dollars (US$ 2,000,000,000) or the equivalent thereof in pesos.

On March 27, 2012, the General Ordinary Shareholders’ Meeting approved the extension of the Global Program for the issuance of notes referred above. In addition, the meeting resolved to delegate on the Board of Directors the broadest powers to determine the time, amount, as well as the other terms and conditions of each Series to be issued. Additionally, on April 24, 2014, the General Ordinary Shareholders’ Meeting renewed such delegation of powers.

On February 11, 2015 the Bank’s Board of Directors approved the increase in the Program amount for up to US Dollars seven hundred million (US$ 700,000,000) or its equivalent in pesos.

On May 6, 2015, the Bank’s Board of Directors approved the increase in the Program amount for up to US dollars eight hundred million (US$ 800,000,000) or its equivalent in pesos.

16. Subordinated Negotiable obligations

At the Extraordinary General Shareholders’ Meeting of BACS Banco de Crédito y Securitización  S.A., dated December 12, 2013, the issuance of Convertible Subordinated Negotiable Obligations through private offering was approved for an amount of up to Ps.100,000.

On June 22, 2015, BACS issued negotiable obligations that are convertible into the Company’s ordinary and book-entry shares for a principal amount of Ps.100,000.

The private offering of the convertible negotiable obligations was solely addressed to the Company’s shareholders. As of June 30, 2015, IRSA Inversiones y Representaciones Sociedad Anónima subscribed all the convertible negotiable obligations.

17. Level I American Depositary Receipts Program

On March 27, 2006 the US Securities and Exchange Commission (SEC) has made effective the Level I American Depositary Receipts, “ADR” program.

This program allows foreign investors to buy the Bank’s stock through the secondary market where ADRs are traded freely within the United States. The Bank of New York has been appointed as depositary institution.

18. Derivative Financial Instruments

The Bank has carried out its financial risk management through the subscription of several derivative financial instruments. Derivative instruments are recorded under the captions “Other receivable from financial transactions – Amounts receivable under derivative financial instruments” or Liabilities: “Other liabilities from financial transactions – Amounts payable under derivative financial instruments” in the Consolidated Balance Sheet, and the related gain or loss

 

 
F-303
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


under the captions “Financial Income – Interest on loans and other receivables from financial transactions” or: “Financial Expenses – Interest on deposits and other liabilities from financial transactions”, respectively, in the Consolidated Statement of Income.

The following are the derivative financial instruments outstanding as of June 30, 2015 and 2014:

 
Type of Contract
  
Notional amount
    
Net Book Value Asset/(Liabilities)
    
Fair Value
  
   
2015
    
2014
    
2015
    
2014
    
2015
    
2014
  
                                     
Forwards (1)(a)
     -       427,849       -       34,670       -       33,794  
Futures (2)
                                                
Purchases (a)
     2,405,951       3,540,782       (505 )     (1,145 )     (505 )     (1,145 )
Sales (a)
     (1,519,307 )     2,456,907  
Interest rate swaps (3)(b)
     30,000       -       63       -       63       -  
                      (442 )     33,525       (442 )     32,649  
 
 (a)
Underlying: Foreign currency.
 (b)
Underlying: Interest rate.

1.
Forwards: US dollar forward transactions have been carried out, the settlement of which, in general, is made without delivery of the underlying asset but by means of the payment in Pesos of currency differences. These transactions were performed mainly as hedge for foreign currency positions. Transactions with settlement in Pesos were made upon maturity.

For these transactions, as of June 30, 2015 and 2014 the Bank has recognized losses for Ps. 34,646 and Ps. 12,593, respectively.

2.
Futures: Future currency transactions have been carried out through which the forward purchase and sale of foreign currencies (US dollar) was agreed upon. These transactions were performed as hedge for foreign currency position. Settlement is carried on a daily basis for the difference.

For these transactions, as of June 30, 2015 and 2014, the Bank has recognized losses for Ps.51,899 and gains for Ps. 657,996, respectively.

3.  
On February 18, 2015, OTC Transactions – Badlar rate swaps for agreed upon fixed interest rate were conducted. These are settled by paying the difference in Pesos. Income has been accounted for in the amount of Ps. 391 as of June 30, 2015.

19. Securitization of mortgage loans, consumer loans and credit card loans

The Bank created separate trusts under its US securitization program and “Cédulas Hipotecarias Argentina – program”; and a consumer trust under BACS’s Global Trust Securities Program. For each mortgage or consumer trust, the Bank transfers a portfolio of mortgages or consumer loans originated by banks and other financial institutions in trust to the relevant trustee. The trustee then issues Class A senior Bonds, Class B subordinated bonds and certificates of participation. The trust’s payment obligations in respect of these instruments are collateralized by, and recourse is limited to, the trust’s assets consisting of the portfolio of mortgage or consumer loans and any reserve fund established by the Bank for such purpose. The securitizations were recorded as sales, and accordingly, the mortgage and consumer loans conveyed to the trusts are no longer recorded as assets of the Bank.

At the date of these financial statements the following trust funds are outstanding:


 

 
F-304
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
Debt Securities
Class A1/AV
    
Debt Securities
Class A2/AF
    
Debt Securities
Class B
    
Certificates of
Participation
    
 
Total
  
                               
BHN II – Issued on 05.09.97 (*)
                              
Face value in Ps.
     44,554       51,363       3,730       6,927       106,574  
Declared Maturity Date
     03.25.2001       07.25.2009       03.25.2012       05.25.2013          
                                         
BHN III – Issued on 10.29.97 (*)
                                        
Face value in Ps.
     14,896       82,090       5,060       3,374       105,420  
Declared Maturity Date
     05.31.2017       05.31.2017       05.31.2018       05.31.2018          
                                         
BHN IV – Issued on 03.15.00 (*)
                                        
Face value in Ps.
     36,500       119,500       24,375       14,625       195,000  
Declared Maturity Date
     03.31.2011       03.31.2011       01.31.2020       01.31.2020          
                                         
BACS I – Issued on 02.15.2001 (*)
                                        
Face value in Ps.
     30,000       65,000       12,164       8,690       115,854  
Declared Maturity Date
     05.31.2010       05.31.2010       06.30.2020       06.30.2020          
                                         
BACS III – Issued on 12.23.2005
                                        
Face value in Ps.
     77,600               1,200       1,200       80,000  
Declared Maturity Date
     03.20.2013               09.20.2013       08.20.2015          
                                         
BACS Funding I Issued on 11.15.2001 (*)
                                        
Face value in Ps.
     -       -       -       29,907       29,907  
Declared Maturity Date
                             11.15.2031          
                                         
BACS Funding II Issued on 11.23.2001 (*)
                                        
Face value in Ps.
     -       -       -       12,104       12,104  
Declared Maturity Date
                             11.23.2031          
                                         
BHSA I Issued on 02.01.2002
                                        
Face value in Ps.
     -       -       -       43,412       43,412  
Declared Maturity Date
                             02.01.2021          
                                         
CHA VI Issued on 04.07.2006
                                        
Face value in Ps.
     56,702       -       -       12,447       69,149  
Declared Maturity Date
     12.31.2016                       12.31.2026          
                                         
CHA VII Issued on 09.27.2006
                                        
Face value in Ps.
     58,527       -       -       12,848       71,375  
Declared Maturity Date
     08.31.2017                       02.28.2028          
                                         
CHA VIII Issued on 03.26.2007
                                        
Face value in Ps.
     61.088       -       -       13,409       74.497  
Declared Maturity Date
     08.31.2024                       08.31.2028          
                                         
CHA IX Issued on 08.28.2009
                                        
Face value in Ps.
     192,509       -       -       10,132       202,641  
Declared Maturity Date
     02.07.2027                       07.07.2027          
                                         
CHA X Issued on 08.28.2009
                                        
Face value in Ps.
     -       -       -       17,224       17,224  
Face value en US$
     85,001       -       -       -       85,001  
Declared Maturity Date
     01.07.2027                       06.07.2028          
                                         
CHA XI Issued on 12.21.2009
                                        
Face value in Ps.
     204,250       -       -       10,750       215,000  
Declared Maturity Date
     03.10.2024                       10.10.2024          
                                         
CHA XII Issued on 07.21.2010
                                        
Face value in Ps.
     259,932       -       -       13,680       273,612  
Declared Maturity Date
     11.10.2028                       02.10.2029          
                                         
CHA XIII Issued on 12.02.2010
                                        
Face value in Ps.
     110,299       -       -       5,805       116,104  
Declared Maturity Date
     12.10.2029                       04.10.2030          
                                         
CHA XIV Issued on 03.18.2011
                                        
Face value in Ps.
     119,876       -       -       6,309       126,185  
Declared Maturity Date
     05.10.2030                       08.10.2030          
                                         


 

 
F-305
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


 (*)
Trusts subject to the pesification of foreign currency assets and liabilities at the $1.00=US$1 rate established by Law 25561 and Decree 214, as they were created under Argentine legislation. Certain holders of Class A debt securities have started declarative actions against the trustee pursuant to the application of the pesification measures set forth in Law 25561 and Decree 214, in order to maintain the currency of origin of said securities. In these declarative actions, the Bank acted together with BACS as third party. The trustee has duly answered to this claim, being the final resolution to this situation is still pending.

Tarshop SA has created several financial trusts under its securitization program (“Valores Fiduciarios Tarjeta Shopping – Global program”) destined to assure its long-term financing accessing directly to the capital market. The assets included in the trusts relate to credit card coupons and advances in cash. The table below presents the trusts issued and outstanding as of June 30, 2015:
 
   
Debt Securities
    
Certificates of
Participation
    
Total
  
                   
Series LXXVIII– Issued on 01.22.14
                  
Face value in Ps.
     153,087       49,100       202,187  
Estimated Maturity Date
     06.05.2015       06.05.2015          
                         
Series LXXIX– Issued on 03.18.14
                        
Face value in Ps.
     151,750       49,659       201,409  
Estimated Maturity Date
     08.05.2015       08.05.2015          
                         
Series LXXXI– Issued on 10.17.14
                        
Face value in Ps.
     81,450       28,231       109,681  
Estimated Maturity Date
     09.10.2015       09.10.2015          
                         
Series LXXXII– Issued on 01.19.15
                        
Face value in Ps.
     87,450       33,489       120,939  
Estimated Maturity Date
     03.07.2016       03.07.2016          
                         
Series LXXXIII– Issued on 05.27.15
       I                
Face value in Ps.
     111,222       42,591       153,813  
Estimated Maturity Date
     08.05.2016       08.05.2016          
                         
Series LXXXIV– Privately issued on 03.15.15
                        
Face value in Ps.
     61,273       23,829       85,102  
Estimated Maturity Date
     09.15.2016       09.15.2016          
                         
Series LXXXV– Privately issued on 06.15.15
                        
Face value in Ps.
     60,265       23,436       83,701  
Estimated Maturity Date
     12.15.2016       12.15.2016          
                         
                         

BACS Banco de Crédito y Securitización S.A. (BACS) has created separate trusts which have personal loans, primary originated by cooperatives and later acquired by BACS, as assets. The mentioned trusts have been issued under the “Fideicomisos Financieros BACS – Global program" for the securitization for a face value up to Ps. 300,000. As of June 30, 2015 and 2014 there are no trusts outstanding.
 
As of June 30, 2015 and 2014, the Bank held in its portfolio the following securities corresponding to the abovementioned trusts:

 

 
F-306
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)




 
June 30,
  
 
2015
  
2014
  
             
Class B debt securities – BHN II
   Ps. 7,000     Ps. -  
Class B debt securities – BHN III
     7,203       7,203  
Class B debt securities – BHN IV
     79,351       79,351  
Class A debt securities – BHN IV
     44       45  
Class A debt securities – CHA VI to CHA XIV
     75,417       53,549  
Class A debt securities – BACS I
     20,234       20,234  
Class B debt securities – BACS I
     1,081       1,081  
Debt securities – BACS III
     15,768       18,107  
Debt securities – Tarshop Series LXXV
     -       88,541  
Debt securities – Tarshop Series LXXIX
     2,042       -  
Debt securities – Tarshop Series LXXXII
     7,198       -  
Debt securities – Tarshop Series LXXXIII
     13,530       -  
Debt securities – Tarshop Series LXXXIV
     20,927       -  
Debt securities – Tarshop Series LXXXV
     19,448       -  
Subtotal
   Ps. 269,243     Ps. 268,111  

 
June 30,
  
 
2015
  
2014
  
             
Certificates of participation – BHN II
   Ps. 41,722     Ps. 41,722  
Certificates of participation – BHN III
     14,970       14,970  
Certificates of participation – CHA VI
     13,592       13,708  
Certificates of participation – CHA VII
     953       4,427  
Certificates of participation – CHA VIII
     -       2,769  
Certificates of participation – CHA IX
     10,677       11,493  
Certificates of participation – CHA X
     26,085       24,908  
Certificates of participation – CHA XI
     14,488       14,613  
Certificates of participation – CHA XII
     18,298       19,198  
Certificates of participation – CHA XIII
     5,330       5,985  
Certificates of participation – CHA XIV
     5,401       6,404  
Certificates of participation – BHSA I
     9,192       7,013  
Certificates of participation – BACS III
     1,003       1,003  
Certificates of Participation – Tarshop Series LXXIV
     -       15,844  
Certificates of Participation – Tarshop Series LXXV
     -       25,282  
Certificates of Participation – Tarshop Series LXXVI
     -       21,779  
Certificates of Participation – Tarshop Series LXXVII
     -       30,996  
Certificates of Participation – Tarshop Series LXXVIII
     -       39,885  
Certificates of Participation – Tarshop Series LXXIX
     48,523       12,065  
Certificates of Participation – Tarshop Series LXXX
     47,053       16,791  
Certificates of Participation – Tarshop Series LXXXI
     23,782       -  
Certificates of Participation – Tarshop Series LXXXII
     24,551       -  
Certificates of Participation – Tarshop Series LXXXIII
     34,032       -  
Certificates of Participation – Tarshop Series LXXXIV
     23,486       -  
Certificates of Participation – Tarshop Series LXXXV
     25,112       -  
Subtotal
   Ps. 388,250     Ps. 330,855  
Total
   Ps. 657,493     Ps. 598,966  


 

 
F-307
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



20. Miscellaneous Liabilities

Sundry creditors and other miscellaneous liabilities consist of the following as of the end of each period:

 
June 30,
  
 
2015
  
2014
  
Sundry creditors:
            
Accrued fees and expenses payable
  Ps. 1,291,772     Ps. 655,475  
Summary proceedings in financial matters N° 1320 (*)
     53,632       -  
Unallocated collections
     9,464       14,845  
Withholdings and taxes payable
     96,350       39,347  
Other
     16,973       14,543  
Total
   Ps. 1,468,191     Ps. 724,210  

(*) At the close of these Financial Statements, the Bank’s Board of Directors granted its approval to the actions undertaken by the Executive Committee concerning the deposit of the penalties imposed on directors, former directors, managers, former managers and statutory auditors and the fact that such amounts were charged against the statement of income in the framework of Financial Summary Proceedings No. 1320 (Note 30).

 
June 30,
  
 
2015
  
2014
  
Other:
            
Directors and Syndics accrued fees payable
   Ps. 47,829     Ps. 38,145  
Payroll withholdings and contributions
     91,217       51,898  
Gratifications
     68,810       39,166  
Salaries and social securities
     64,559       49,440  
Total
   Ps. 272,415     Ps. 178,649  

21. Income from Services and Expenses on Services

Income from Services

Commissions earned consist of the following for each period:

 
June 30,
  
 
2015
  
2014
  
2013
  
                   
Loan servicing fees from third parties
   Ps. 37,240     Ps. 30,854     Ps. 26,548  
Commissions from FONAVI
     -       -       11,361  
Commissions for credit cards
     1,048,855       705,143       555,128  
Other
    209,230       130,619       77,176  
Total
   Ps. 1,295,325     Ps. 866,616     Ps. 670,213  


 

 
F-308
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Other income from services is comprised of the following for each period:

 
June 30,
  
 
2015
  
2014
  
2013
  
                   
Reimbursement of loan expenses paid by third parties
    Ps. 19,547     Ps. 37,289     Ps. 68,731  
Income from services from PROCREAR (note 31)
     106,619       30,947       9,863  
Other (*)
     607,096       287,917       228,804  
Total
   Ps. 733,262     Ps. 356,153     Ps. 307,398  

(*)For the twelve-month periods ended June 30, 2015, 2014 and 2013, includes Ps. 525,516, Ps. 235,379 and Ps. 191,680, respectively, related to other income services granted by Tarshop.

Expenses on Services

Commissions expensed consist of the following for each period:
 
 
      June 30,   
      2015        2014        2013  
Structuring and underwriting fees
   Ps. 16,466     Ps. 14,254     Ps. 8,200  
Retail bank originations
     7,690       6,327       1,958  
Collections
     181       159       158  
Aerolíneas Argentinas co-branding
     27,329       11,398       469  
Services on loans
     452,188       373,412       154,930  
Commissions paid to real estate agents
     36,688       40,707       28,349  
Total
   Ps. 540,542     Ps. 446,257     Ps. 194,064  

 
22. Other Miscellaneous Income and Miscellaneous Expenses

Other miscellaneous income is comprised of the following for each period:

 
June 30,
  
 
2015
  
2014
  
2013
  
                   
Income on operations with premises and equipment and miscellaneous assets
   Ps. 578     Ps. 2,944     Ps. 1,158  
Rental income
     2,267       2,290       1,603  
Interest on loans to bank staff
     31,447       26,601       20,668  
Income from equity investments
     6,641       -       -  
Other
     17,942       15,708       14,326  
Total
   Ps. 58,875     Ps. 47,543     Ps. 37,755  


 

 
F-309
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Other miscellaneous expenses are comprised of the following for each period:

 
June 30,
  
 
2015
  
2014
  
2013
  
                   
Depreciation of miscellaneous assets
   Ps. 340     Ps. 388     Ps. 350  
Gross revenue tax
     7,126       4,395       2,445  
Other taxes
     117,464       78,784       23,835  
Debit card discounts
     20,624       14,285       12,052  
Credit card and others discounts
     40,577       43,422       55,130  
Benefits prepayments
     9,268       6,008       4,166  
Donations
     39,842       24,325       18,048  
Amortization of goodwill
     3,430       3,430       3,429  
Payment Summary proceedings in financial matters N° 1320 (*)
     53,632       -       -  
Other
    44,417       45,393       11,511  
Total
   Ps. 336,720     Ps. 220,430     Ps. 130,966  

 (*)At the close of these Financial Statements, the Bank’s Board of Directors granted its approval to the actions undertaken by the Executive Committee concerning the deposit of the penalties imposed on directors, former directors, managers, former managers and statutory auditors and the fact that such amounts were charged against the statement of income in the framework of the Financial Summary Proceedings No. 1320 (Note 30).

23. Balances in Foreign Currency

The balances of assets and liabilities denominated in foreign currency (principally in US dollars and Euros) are as follows:


   
US$
    
Euro
    
Yen
    
Total
  
   
(in Pesos)
  
Assets:
                        
Cash and due from banks
     732,799       18,561       5       751,365  
Government and corporate securities
     797,684       -       -       797,684  
Loans
     1,223,758       -       -       1,223,758  
Other receivables from financial transactions
     471,249       -       -       471,249  
Miscellaneous receivables
     28,059       30       -       28,089  
Total as of June 30, 2015
     3,253,549       18,591       5       3,272,145  
Total as of June 30, 2014
     3,888,459       19,472       5       3,907,936  
                                 
Liabilities:
                                
Deposits
     609,328       -       -       609,328  
Other liabilities from financial transactions
     2,470,533       101,460       -       2,571,993  
Miscellaneous liabilities
     2,286       12       -       2,298  
    Items pending allocation
     177       18       -       195  
Total as of June 30, 2015
     3,082,324       101,490       -       3,183,814  
Total as of June 30, 2014
     3,448,283       55,890       -       3,504,173  

24. Income Tax

In accordance with Section 28 of Law 24,855, Banco Hipotecario Sociedad Anónima is subject to income tax, except with respect to housing loan transactions made before October 23, 1997, the date of registration of its bylaws with the Superintendency of Corporations.

 

 
F-310
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The Bank records the charges to income, when applicable, and a provision in its liabilities for the tax applicable to its taxable transactions in the fiscal year to which they refer.

As of December 31, 2014 and 2013, the Bank estimated income tax by applying the 35% tax rate to its taxable income. The amount determined as income tax was charged against income for the fiscal period under “Income Tax”. The provision for income tax is recorded under “Miscellaneous Liabilities – Other”.

The Bank has a tax net operating loss carry forward of Ps. 56,690 and Ps. 87,692 at June 30, 2015 and 2014, respectively.

25. Presumptive Minimum Income Tax

The Bank is subject to presumptive minimum income tax. Pursuant to this tax regime, the Bank is required to pay the greater of the income tax or the presumptive minimum income tax. Any excess of the presumptive minimum income tax over the income tax may be carried forward and recognized as a tax credit against future income taxes payable over a 10-year period. The presumptive minimum income tax provision is calculated on an individual entity basis at the statutory asset tax rate of 1% and is based upon the taxable assets of each company as of the end of the year, as defined by Argentine law. For financial entities, the taxable basis is 20% of their computable assets.

 
As of June 30, 2015 the Bank recorded the Ps. 61,561 tax credit.

26. Shareholders' Equity

The following information relates to the statements of changes in the Bank’s shareholders' equity.

(a)       Common Stock

Prior to June 30, 1997, the Bank's capital stock consisted of assigned capital with no par value owned 100% by the Argentine government. In accordance with the by-laws approved as a result of the conversion of the Bank to a sociedad anónima, the Bank's capital stock was established at Ps.1,500,000 and divided into four classes of ordinary common shares.

As of June 30, 2015, the Bank's capital stock consists of:

 
Shareholder
  
Class of
Shares
    
Number of
Shares
    
Total %
Ownership
  
Voting Rights
Argentine government (through FFFRI) (b)
     A       668,711,843       44.6 %
1 vote
Banco Nación, as trustee for the Bank's Programa de Propiedad Participada (a)
     B       57,009,279       3.8 %
1 vote
Argentine government (through FFFRI)
     C       75,000,000       5.0 %
1 vote
Public investors (c) (d)
     D       699,278,878       46.6 %
3 votes
              1,500,000,000       100.0 %  
_______________
(a)  
The Bank's Programa de Propiedad Participada (“PPP”) is the Bank's employee stock ownership plan. Under Decree 2127/2012 and Resolution 264/2013 issued by the Ministry of Economy and Public Finance, the PPP was implemented. Under this plan, in a first stage, out of a total of 75,000,000, 17,990,721 Class B shares were converted into Class A shares, to be allocated among the employees that have withdrawn from the Bank in accordance with the implementation guidelines. Upon delivery to the former employees, the 17,990,721 shares will

 

 
F-311
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


(b)  
become Class D shares. The shares allocated to the Bank’s current employees are designated as Class B shares, representing the PPP.

(c)  
Under the Bylaws, the affirmative vote of the holders of Class A Shares is required in order to effectuate: (i) mergers or spin-offs; (ii) an acquisition of shares (constituting a Control Acquisition or resulting in the Bank being subject to a control situation); (iii) the transfer to third parties of a substantial part of the loan portfolio of the Bank, (iv) a change in the Bank’s corporate purpose; (v) the transfer of the Bank’s corporate domicile outside of Argentina, and (vi) the voluntary dissolution of the Bank.

(d)  
For so long as Class A Shares represent more than 42% of the Bank’s capital, the Class D Shares shall be entitled to three votes per share, except that holders of Class D Shares will be entitled to one vote per share in the case of a vote on: (i) a fundamental change in the Bank’s corporate purpose; (ii) a change of the Bank’s domicile to be outside of Argentina; (iii) dissolution prior to the expiration of the Bank’s corporate existence; (iv) a merger or spin-off in which the Bank is not the surviving corporation; and (v) a total or partial recapitalization following a mandatory reduction of capital.

(e)  
By reason of the expiration on January 29, 2009 of the Total Return Swap that had been executed and delivered on January 29, 2004, Deutsche Bank AG transferred to the Bank 71,100,000 ordinary Class “D” shares in Banco Hipotecario Sociedad Anónima with face value $ 1 each, which are available for the term and in the conditions prescribed by the Argentine Companies Law, in its Section 221. The General Ordinary Shareholders’ Meeting held on April 30, 2010 resolved to extend for a year, counted as from January 31, 2010, the term for realizing the treasury shares held by the Bank.

On April 30, 2010, the General Extraordinary Shareholders’ Meeting resolved to delegate upon the Board of Directors the decision to pay with the treasury shares in portfolio the Stock Appreciation Rights (StAR) coupons resulting from the debt restructuring as advisable based on the contractually agreed valuation methods and their actual market value after allowing the shareholders to exercise their preemptive rights on an equal footing.

On June 16, 2010, the Board of Directors resolved to launch a preemptive offer to sell a portion of the Bank’s treasury shares, for a total of 36.0 million class D shares. The remaining shares would be delivered in payment to the holders of Stock Appreciation Rights (StAR) coupons arising from the debt restructuring, which fell due on August 3, 2010. On July 26, 2010, within the framework of the referred offer, the Bank sold approximately 26.9 million of the shares mentioned above.

On August 3, 2010 the proceeds of the offer and the balance of the shares referred in the preceding paragraph were made available to the holders of the Stock Appreciation Rights (StAR) coupons. With the above-mentioned offering, 999,312 Class D shares were sold in excess of those required to pay off the obligation previously mentioned. In connection with such excess sale, Ps. 554 thousand were recorded as retained earnings to reflect the addition of the shares to the entity’s equity, which took place on January 29, 2009 as detailed in this note, and a further Ps. 834 thousand were booked as Additional paid-in capital for the difference between the value as added to the entity’s equity and the sales value.

The General Ordinary Shareholders’ Meeting held on April 24, 2013 resolved to allocate 35,100,000 Class D shares held by the Bank to a compensation program for the personnel under the terms of Section 67 of Law 26831. This decision is pending approval of CNV.

On April 24, 2014 the General Ordinary Shareholders’ Meeting acknowledged the incentive or compensation program described in the preceding paragraph and its extension to the personnel

 

 
F-312
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


employed by the subsidiaries BACS Banco de Crédito y Securitización S.A., BH Valores S.A., BHN Sociedad de Inversión S.A., BHN Vida S.A. and BHN Seguros Generales S.A.

The Class B shares have been set aside for sale to the Bank's employees in the future pursuant to the PPP on terms and conditions to be established by the Argentine government. Any Class B shares not acquired by the Bank's employees at the time the Bank implements the PPP will automatically convert into Class A shares. The Class C shares are eligible for sale only to companies engaging in housing construction or real estate activities. Any Class B shares transferred by an employee outside the PPP will automatically convert to Class D shares or Class C shares transferred to persons not engaged in construction or real estate activities will automatically convert into Class D shares.

(b)       Distribution of profits

No profits may be distributed when any financial year does not produce profits.

Argentine Central Bank Communication “A” 4152 dated June 2, 2004 left without effect the suspension of the distribution of profits established by Communication “A” 3574. However, those banks that proceed to such distribution must be previously authorized by the Financial and Exchange Institutions Superintendency.

Through Communiqué “A” 4526 dated April 24, 2006, the BCRA established that when the Legal Reserve is used to absorb losses, earnings shall not be distributed until the reimbursement thereof. Should the balance prior to the absorption exceed 20% of the Capital Stock plus the Capital Adjustment, profits may be distributed once the latest value is reached.

For purposes of determining distributable balances, the net difference arising from the book value and the market quotation shall be deducted from retained earnings, in the event the Entity records government debt securities and/or debt securities issued by the BCRA not recorded at market prices, with volatility published by such entity.

Pursuant to its Communication “A” 5072, BCRA established that no dividend distribution shall be admitted in so far as: a) the amounts deposited as minimum cash requirements on average – in Pesos, foreign currency or in Government securities – were less than the requirements pertaining to the most recently closed position or the position as projected taking into account the effect of the distribution of dividends, and/or b) the amounts deposited as minimum capital requirements were less than the requirements recalculated as previously mentioned plus a 30% increase, and/or c) the Entity has received financial aid from the BCRA on grounds of illiquidity as set forth in Section 17 of BCRA’s Charter.

On January 27, 2012, the BCRA issued Communication “A” 5272 whereby it established that for the calculation of the minimum capital requirement, the minimum capital for operational risk shall be included. On the same date, Communication “A” 5273 was also issued, whereby the BCRA resolved to increase the percentage referred to in the preceding paragraph, subsection b), from 30% to 75%.

Communication “A” 5369 provided that as from January 1, 2013, for the purposes of calculating the position of minimum capitals, the capital requirement for credit risk due to securitizations must be computed over all the transactions outstanding as of the computation date.

On September 23, 2013 the Argentine Congress enacted Law N° 26,983 which amends the Income Tax Law and sets forth that dividends or earnings in money or in kind shall be levied with Income Tax at a 10% tax rate payable in a final and lump sum.

 

 
F-313
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The Ordinary General Shareholders’ Meeting, held on April 13, 2011, resolved to distribute the income for the year ended on December 31, 2010 as follows: Ps. 39,063 (20%), to be applied to the legal reserve Ps. 100,000 (61.59%), to be paid out as cash dividends on ordinary shares, and the balance, after the Board’s remuneration, to be maintained as retained earnings. On September 20, 2012, the BCRA reported that there were no objections against the Bank’s distribution of cash dividends for Ps. 100,000 thousand, as requested. For such reason, on October 10, 2012 such cash funds were made available to the shareholders.

The Ordinary General Shareholders’ Meeting, held on August 23, 2013, resolved to distribute the income for the year ended on December 31, 2012 as follows: Ps. 68,721, to be applied to the legal reserve; Ps. 30,000, to be paid out as cash dividends on ordinary shares; and Ps. 244,886 to be maintained as retained earnings. This decision has been approved by BCRA.

On April 24, 2014, the Ordinary General Shareholders’ Meeting resolved to distribute the income for the year ended on December 31, 2013 as follows: Ps. 84,190, to be applied to the legal reserve; Ps. 42,000, to be paid out as cash dividends on ordinary shares; and Ps. 294,760 to be maintained as retained earnings. Through Note 314/43/14 dated December 23, 2014, the Argentine Central Bank authorized the Bank to distribute cash dividends for Ps. 42,000. At its meeting dated January 7, 2015, the Board of Directors of Banco Hipotecario S.A. resolved that these dividends should be made available to the shareholders as of January 16, 2015.

27. Employee Benefit Plan

The Bank is obligated to make employer contributions to the National Pension Plan System determined on the basis of the total monthly payroll. These expenses are recorded in “Salaries and social security contributions” under the “Administrative expenses” caption in the accompanying consolidated statements of income.

28. Financial Instruments with Off-Balance Sheet Risk

In the normal course of its business the Bank is party to financial instruments with off-balance sheet risk in order to meet the financing needs of its customers. These instruments expose the Bank to credit risk in addition to amounts recognized in the balance sheets. These financial instruments include commitments to extend credit.

 
June 30,
  
 
2015
  
2014
  
Commitments to extend credit
            
Mortgage loans and other loans (a)
   Ps. 291,342     Ps. 132,180  
Credit card loans (b)
     14,049,429       11,913,152  
Clearing items in process (c)
     137,944       163,304  
Other guarantees (d)
     57,739       46,646  

(a)  
Commitments to extend credit are agreements to lend to a customer at a future date, subject to such customers meeting of pre-defined contractual milestones. Typically, the Bank will commit to extend financing for construction project lending on the basis of the certified progress of the work under construction. Most arrangements require the borrower to pledge the land or buildings under construction as collateral. In the opinion of management, the Bank’s outstanding commitments do not represent unusual credit risk. The Bank’s exposure to credit loss in the event of nonperformance by the other party is represented by the contractual notional amount of those commitments.

(b)  
The Bank has a unilateral and irrevocable right to reduce or change the credit card limit, thus it considered there is no off-balance sheet risk. In the opinion of management, the

 

 
F-314
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


  
Bank’s outstanding commitments do not represent unusual credit risk. The Bank’s exposure to credit loss in the event of nonperformance by the other party is represented by the contractual notional amount of those commitments.

(c)  
The Bank accounts for items drawn on other banks in memorandum accounts until such time as the related item clears or is accepted. In the opinion of management, the Bank’s risk of loss on these clearing transactions is not significant as the transactions primarily relate to collections on behalf of third parties.

(d)  
           Mainly includes the amounts given as collateral for transactions held by customers.

29. Adoption of International Financial Reporting Standards

By virtue of its General Resolution No. 562, the Argentine Securities Commission (CNV) has decided to enforce the provisions under the Technical Pronouncement No. 26 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE) that adopts the International Financial Reporting Standards (IFRS) for all the companies overseen by CNV as from the fiscal years beginning on January 1, 2012.

The Bank is not obligated to apply these standards insofar as the CNV has excluded all the entities for which CNV is empowered to accept the accounting criteria laid down by other regulatory and/or oversight authorities (financial institutions, insurance companies, etc.) from using the IFRS.

On February 12, 2014, BCRA issued its Communication “A” 5541 whereby it provides a roadmap to convergence between the informational and accounting regime and IFRS. Pursuant to this Communication, the entities and institutions must start to account for their financial transactions and changes in accordance with the rules issued by BCRA following the above-mentioned convergence regime as from the fiscal years beginning on January 1, 2018. This roadmap includes the following steps:

· First half of 2015
Financial institutions must prepare and file their own convergence plan and provide the name of the compliance officer appointed to such end.

Disclosure of guidelines to be observed by institutions regarding reconciliations are to be filed with the BCRA.

· Second half of 2015
The institutions shall file with the BCRA, together with the financial statements as of the fiscal year’s closing date, a reconciliation of the main asset, liability and shareholders’ equity captions with the amounts that would result from applying the rules issued by the BCRA under the scope of the IFRS convergence process. This information shall include a special report by the independent auditor and will be used exclusively by the BCRA for supervision and regulation purposes, and will qualify as non-public. Institutions shall report on the degree of progress made in the IFRS Convergence Plan.

· Year 2016
According to the method and frequency established in due course, institutions shall continue to report to the BCRA the degree of progress made by them in the IFRS convergence process. In addition, they shall continue to disclose in their published financial statements that they are progressing in the IFRS Convergence Plan. There will be an issuance of a CONAU Circular to communicate the new Minimum Accounts Plan and Form of Financial Statements (New Informational and Accounting Regime for Quarterly / Annual Publication).


 
F-315
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


· Year 2017
As of January 1, 2017, institutions shall prepare the opening financial statements that will serve as basis for preparing their comparative financial statements. In each quarterly statement, they shall include a reconciliation of the main asset, liability and shareholders’ equity captions and results with the amounts that would result from applying the rules issued by the BCRA under the scope of the IFRS convergence process. Such reconciliations shall be supported by a special report by the independent auditor. The quantitative information and the degree of progress of the IFRS Convergence Plan will be disclosed in a note to the published financial statements.

· Year 2018
As from the financial statements starting on January 1, 2018, financial institutions shall be required to record their transactions and equity changes in accordance with the rules issued by the BCRA under the IFRS convergence process. Therefore, as from the closing of the first quarter, they shall prepare and submit their published financial statements according to the above mentioned rules; the independent auditor shall issue an opinion thereon and such financial statements will be the ones used by the institutions for all legal and corporate purposes.

On March 31, 2015 the Bank’s Board of Directors has approved (i) the Implementation Plan for Convergence towards the International Financial Reporting Standards dictated by the Communication “A” 5541 for Financial Entities subject to supervision of the BCRA; and (ii) the designation of the coordinators which will have the obligation to inform the Board of Directors the status and degree of progress of the project.

The plan contains the creation of a work team; coordination with the management of the related companies in which permanent investments are held, controlled companies or companies in which significant influence is exercised; design and communication of a training plan; identifying impacts on operations and the information to be submitted that requires the implementation of specific actions (adapting information systems, internal control, etc.).

Half-yearly reports must be made to the BCRA, showing the progress made in the Implementation Plan. The first due date of this presentation operated on September 30, 2015. Each half-yearly report shall include a report issued by the Internal Audit Department.

 
30. Commencement of summary proceedings

I – Pending Summary Proceedings:                                                               

1.  
       On September 13, 2013, the Bank was notified of Resolution No. 611 handed down by the Superintendent of Financial and Foreign Exchange Institutions, whereby it ordered to commence summary proceedings against the Bank and the manager Christian Giummarra and the former manager Aixa Manelli (Summary Proceedings No. 5469 on Foreign Exchange Matters) charging them with alleged violation of the foreign exchange laws in selling foreign currency to persons prohibited from trading foreign currency by the Argentine Central Bank. The cumulative amount derived from the alleged violation in the sale of foreign currency is around US$ 39.9 thousand and Euro 1.1 thousand. The relevant defenses and arguments have been filed and evidence has been offered in support of all the defendants subject to the summary proceedings. Due to its related subject matter, the record of this case was joined with Summary Proceedings No. 5529 on Foreign Exchange Matters (File 101,327/10). Therefore, its procedural status is described together with the latter.

2.  
       On October 8, 2013, the Bank was notified of Resolution No. 720 handed down by the Superintendent of Financial and Foreign Exchange Institutions, ordering to commence summary proceedings against the Bank and its Organization and Procedures Manager, Mr. Christian Giummarra, and the former Systems Manager, Ms. Aixa Manelli (Summary

 

 
F-316
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


  
Proceedings No. 5529 on Foreign Exchange Matters) in accordance with Section 8 of the Criminal Foreign Exchange Regime Law (Ley de Régimen Penal Cambiario) –as amended by Decree 480/95- charging them with alleged violation of the foreign exchange laws in selling foreign currency to persons prohibited from trading foreign currency by the Argentine Central Bank. The cumulative amount derived from the alleged violation in the sale of foreign currency is around US$ 86.4 thousand. The relevant defenses and arguments were filed and evidence was offered in support of all the defendants subject to the summary proceedings. The BCRA opened the discovery stage, and evidence was produced in due time. Once the discovery stage came to a conclusion, the attorneys submitted their closing arguments. The Argentine Central Bank now is expected to send the case file to the competent courts.

In the legal counsel’s opinion, at the current status of the proceedings, there are legal and factual arguments that generate reasonable expectations that the physical persons named defendants and Banco Hipotecario S.A. will be acquitted and that therefore, there are low chances that the Bank will be subject to the economic sanctions set forth by the Criminal Foreign Exchange Regime Law (Ley de Régimen Penal Cambiario). For such reason, no allowances have been created in this regard.

3.  
On February 19, 2014, the Bank was notified of Resolution No. 209/13 handed down by the Chairman of the Financial Information Unit (UIF), whereby it ordered to commence summary proceedings against the Bank, its directors (Messrs. Eduardo S. Elsztain; Mario Blejer; Ernesto M. Viñes; Jacobo J. Dreizzen; Edgardo L. Fornero; Carlos B. Písula; Gabriel G. Reznik; Pablo D. Vergara del Carril; Mauricio E. Wior; Saul Zang); the Risk and Controlling Manager, Mr. Gustavo D. Efkhanian and the Manager of the Money Laundering Prevention and Control Unit Manager, Mr. Jorge Gimeno. In these proceedings, an investigation is made into the defendants’ liability for alleged violation of the provisions of Section 21 of Law 25,246, as amended, and Resolution UIF No. 228/2007 due to certain defaults detected by the BCRA in the inspection of the organization and in internal controls implemented for the prevention of money-laundering derived from illegal activities. On March 25, 2014, the relevant defenses and arguments were filed in support of the Bank and the individuals subject to the summary proceedings.

In the legal counsel’s opinion, at the current stage of the proceedings and based on the precedents existing at the UIF in connection with similar cases, it is estimated that there are chances of imposing an administrative penalty. For such reason, the bank has estimated allowances of Ps. 20.

4.  
       On August 26, 2014, the Bank was notified of the Resolution passed by the Superintendent of Financial and Foreign Exchange Institutions No. 416 dated August 7, 2014 ordering the start of Summary Proceedings No. 5843 in the terms of Section 8 of the Foreign Exchange Criminal Regime Law No. 19,359 (as signed into law pursuant to Decree No. 480/95). In the above-mentioned summary proceedings, Banco Hipotecario, its directors (Messrs. Eduardo S. Elsztain; Jacobo J. Dreizzen; Edgardo L. Fornero; Carlos B. Písula; Gabriel G. Reznik; Pablo D. Vergara del Carril; Ernesto M. Viñes; Saul Zang; and Mauricio E. Wior)  and former directors (Ms. Clarisa D. Lifsic de Estol and Mr. Federico L. Bensadón), and two former managers (Messrs. Gabriel G. Saidón and Enrique L. Benitez), are charged with failure to comply with the rules disclosed by Communication “A” 3471 (paragraphs 2 and 3) and by Communication “A” 4805 (Paragraph 2.2.) due to certain transfers of currency made abroad between August and October 2008 to guarantee the “CER Swap Linked to PG08 and External Debt” swap transaction for a total of US$ 45,968 thousand, without the authorization of the Argentine Central Bank. BHSA has been allowed to review the proceedings (case file No. 100.308/10) which are being handled by the Argentine Central Bank’s Department of Foreign Exchange Contentious Matters. The relevant defenses and

 

 
F-317
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


 
arguments were filed in support of the subjects to the summary proceedings. The BCRA opened the discovery stage on March 16, 2015.

In the legal counsel’s opinion, at the current stage of the proceedings there are legal and factual arguments that generate reasonable expectations that the physical persons named defendants and Banco Hipotecario S.A. will be acquitted and that therefore, there are low chances that the Bank will be subject to the economic sanctions set forth by the Criminal Foreign Exchange Regime Law (Ley de Régimen Penal Cambiario). For such reason, no allowances have been created in this regard.

5.  
On December 29, 2014, the Bank was notified of the Resolution passed by the Superintendent of Financial and Foreign Exchange Institutions No. 824 dated December 1, 2014 ordering the start of Summary Proceedings No. 6086 on Foreign Exchange Matters (File 101.534/11) against Banco Hipotecario S.A. and a former Manager (Mr. Gabriel Cambiasso) and five assistants (Claudio H. Martin; Daniel J. Sagray; Rubén E. Perón; Marcelo D. Buzetti and Pablo E. Pizarro) at the Cordoba Branch, in the terms of Section 8 of the Foreign Exchange Criminal Regime Law (as signed into law pursuant to Decree No. 480/95). In the above-mentioned summary proceedings, an investigation is made in connection with excesses in the limits for selling foreign currency to two entities in the City of Cordoba (for a combined amount of US$ 701,270), which allegedly violate the provisions of Communication “A” 5085, paragraph 4.2.1.

In the legal counsel’s opinion, at the current stage of the proceedings there are legal and factual arguments that generate reasonable expectations that the physical persons named defendants will be acquitted. For such reason, no allowances have been created in this regard.

  6.  
Banco de Crédito y Securitización S.A. has been notified of Resolution No. 738 dated October 22, 2013 (Summary Proceedings No. 1406/201 on Financial Matters, File 100,553/12) handed down by the BCRA’s Superintendent of Financial and Exchange Institutions, ordering to start summary proceedings against this Bank, its Chairman, Mr. Eduardo S. Elsztain, and the Vice-Chairman, Mr. Ernesto M. Viñes, due to the late filing of documentation related to the appointment of the Bank’s authorities. On November 8, 2013, the defenses in support of the Bank’s rights were filed, and the proceedings are pending an administrative decision by the BCRA.

In connection with these proceedings, the Company has deemed that there are low chances that the Bank be imposed any of the monetary sanctions contemplated by the Financial Institutions Law and applicable regulations issued by the BCRA. For such reason, no allowances have been recorded in the financial statements in this regard.

  7.  
On November 25, 2014, Tarshop S.A. was notified by the Financial Information Unit that summary proceedings had been filed, identified under Resolution No. 234/14, for potential formal violations derived from the alleged non-compliance with Section 21, paragraph a) of Law 25,246 and UIF Resolutions No. 27/11 and 2/12. Summonses were sent to the Company (Tarshop S.A.), its Compliance Officer (Mauricio Elías Wior) and the Directors then in office (Messrs. Eduardo Sergio Elsztain, Saúl Zang, Marcelo Gustavo Cufré and Fernando Sergio Rubín) for them to file their defenses. In the legal counsel’s opinion, at the current stage of the proceedings and based on the precedents existing at the UIF in similar cases, it is likely that a penalty be imposed under the scope of the administrative proceedings. For such reason, allowances have been recorded in this regard. In the framework of the summary proceedings described above, the evidence offered by the defendants in the summary proceedings was produced and the next stage is the submission of closing arguments.

 

 
F-318
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


II –Summary Proceedings pending Court Decision

1.  
On May 4, 2012 the Bank was notified of Resolution No. 186, dated April 25, 2012 issued by the Superintendent of Financial and Foreign Exchange Institutions whereby Summary Proceedings No. 4976 on Foreign Exchange Matters were commenced against the Bank, its directors  (Messrs. Eduardo S. Elsztain; Gabriel G. Reznik; Pablo D. Vergara del Carril; Ernesto M. Viñes; Saul Zang; Carlos B. Písula; Edgardo L. Fornero; Jacobo J. Dreizzen); former directors (Ms. Clarisa D. Lifsic de Estol; Messrs. Julio A. Macchi; Federico L. Bensadón; and Jorge M. Grouman) and the former Finance Manager Gabriel G. Saidón, under section 8 of the Foreign Exchange Criminal Regime Law (as signed into law by Decree No. 480/95).

In such proceedings, charges were pressed for alleged violations of the provisions of Communications “A” 3640, 3645, 4347 and supplementary rules, due to the acquisition of good delivery silver bars during the 2003-2006 period with funds arising from its General Exchange Position.

The defenses to which the Bank is entitled were raised in due time. Within the period granted to such end, the Bank and the other defendants produced the evidence previously offered. As soon as that stage in the procedure came to a conclusion, the counsel for the defense presented their closing arguments and in August 2014, the Argentine Central Bank sent the case file to the competent court (therefore, at present the case is being heard by the Court with Jurisdiction over Criminal Economic Matters No. 7 presided by Judge Juan Galvan Greenway).

In the legal counsel’s opinion, at the current status of the proceedings, there are legal and factual arguments that generate reasonable expectations that the physical persons named defendants and Banco Hipotecario S.A. will be acquitted and that therefore, there are low chances that the Bank will be subject to the economic sanctions set forth by the Foreign Exchange Criminal Regime Law (Ley de Régimen Penal Cambiario). For such reason, no allowances have been created in this regard.

2.  
On October 7, 2014, BHSA was notified of Resolution No. 513 dated August 16, 2014 handed down by the Superintendent of Financial and Foreign Exchange Institutions in the summary proceedings in financial matters No. 1365 (on grounds of alleged failure to comply with the minimum requirements in terms of internal controls under Communication “A” 2525) whereby Banco Hipotecario S.A. was imposed a fine for Ps. 112 and its directors (Messrs. Pablo D. Vergara del Carril; Carlos B. Písula, Eduardo S. Elsztain, Jacobo J. Dreizzen, Gabriel G. Reznik; Edgardo L. Fornero; Ernesto M. Viñes; and Saul Zang) and former directors (Ms. Clarisa D. Lifsic de Estol and Messrs. Jorge L. March; and Federico L. Bensadón) were fined for different amounts.

As required by Section 42 of the Law of Financial Institutions, the fines were paid and the relevant appeal was lodged with the National Appellate Court with Federal Jurisdiction over Contentious and Administrative Matters against the above-mentioned resolution. The fine for Ps. 112 paid by the Bank was booked in an allowance.

3.  
On October 31, 2014, BHSA was notified of Resolution No. 685 dated October 29, 2014 handed down by the Superintendent of Financial and Foreign Exchange Institutions in the summary proceedings in financial matters No. 1320 whereby the Bank and its authorities had been charged, on one hand, with the violation of the rules governing financial aid to the Non-Financial Public Sector, with excess over the limits of fractioned exposure to credit risk from the non-financial public sector, with excess in the allocation of assets to guarantee, with failure to satisfy minimum capital requirements and with objections against the accounting

 

 
F-319
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


 
treatment afforded to the “Cer Swap Linked to PG08 and External Debt” transaction and on the other hand, with delays in communicating the appointment of new directors and tardiness in the provision of documentation associated to the directors recently elected by the shareholders’ meetings.

Resolution No. 685 then fined Banco Hipotecario S.A. with Ps. 4,040 and also fined BHSA’s directors (Eduardo S. Elsztain; Jacobo J. Dreizzen; Carlos B. Písula; Edgardo L. Fornero; Gabriel G. Reznik; Pablo D. Vergara del Carril;  Ernesto M. Viñes; Saul Zang; Mauricio E. Wior), former directors (Clarisa D. Lifsic de Estol; Federico L. Bensadón; Jorge L. March and Jaime A. Grinberg), statutory auditors (Messrs. Ricardo Flammini; José D. Abelovich; Marcelo H. Fuxman; Alfredo H. Groppo; and Martín E. Scotto), the Area Manager Gustavo D. Efkhanian and former managers (Gabriel G. Saidón and Enrique L. Benitez) for an aggregate amount of Ps.51,581.8. Under this decision, former Statutory Auditor Ms. Silvana M. Gentile was acquitted.

On November 25, 2014, Banco Hipotecario and the other individuals affected by the adverse decision lodged an appeal under Section 42 of the Financial Institutions Law, that was sent by the BCRA to the National Appellate Court with Federal Jurisdiction over Contentious and Administrative Matters. Therefore, at present the case is being heard by Panel I of such Appellate Court. Moreover, on December 30, 2014, the Bank and the individuals against whom sanctions were imposed requested the levying of separate injunctions by such court against the enforcements pursued by the BCRA for collection of the fines.

Upon being notified of the resolution handed down on June 30 by the Appellate Court that denied the motion for injunction filed by the Bank and by the directors, managers and some of the statutory auditors and in order to prevent further conflicts and financial damage that could result from the actions to compel payment of fines, the Bank’s Executive Committee decided to apply the indemnity rules regarding directors, high ranking officers and statutory auditors, as an alternative for the amounts not covered by the D&O insurance policy approved by the Bank’s Board of Directors at its meetings held on August 2, 2002 and May 8, 2013, and resolved to deposit the amounts of the fines.

Such deposit, including the amount corresponding to the fine imposed on the Bank and the respective legal costs, totaled Ps. 57,671.9. Out this amount, Ps. 53,631.9 thousand were computed as losses for this period in the manner described in the Minutes of the Meeting held by Banco Hipotecario S.A.’s Executive Committee on July 2, 2015 and in the Minutes of the Board Meeting held on July 15, 2015, and Ps. 4,040 were covered by a provision made in the previous fiscal year.

This notwithstanding, in the brief filed with the court that is hearing the proceedings to compel payment it was sustained that the amounts deposited in the judicial accounts opened to such end were subject to attachment, and a petition was filed for the respective amounts to be invested in automatically renewable term deposits for 180 days in order to ensure the integrity of the funds until the Appellate Court with Federal Jurisdiction over Contentious and Administrative Matters hands down a decision on the appeal lodged against Resolution No. 685/14 of the Argentine Central Bank.

III – Summary Proceedings in which a Court Decision has been Rendered

Under Resolution No. 286 dated July 2, 2010, issued by the Superintendent of Financial and Foreign Exchange Institutions, summary proceedings were commenced against the Bank and its directors (Summary Proceedings No. 4364 on Foreign Exchange Matters) under section 8 of the Foreign Exchange Criminal Regime Law (as signed into law by Decree No. 480/95).

 

 
F-320
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Under the above-mentioned proceedings, charges were pressed for violation of certain provisions under Communications “A” 4087 and 4177 concerning early repayments of restructured external debt for US$ 91,420,135 and Euros 2,803,965 in the period February 2004 through June 2005. The relevant defenses and arguments in support of the Bank’s position were filed in due course. Within the period granted for the production of evidence, the Bank and the other defendants produced the evidence previously offered. As soon as that stage in the procedure came to a conclusion, the counsel for the defense presented their closing arguments and in August 2014, the Argentine Central Bank sent the case file to the competent court (Court with Jurisdiction over Criminal Economic Matters No. 5 presided by Judge Jorge Brugo).

Through his judgment dated December 12, 2014, the above mentioned Judge decided that Banco Hipotecario S.A. was exempt from liability and acquitted directors: Messrs. Eduardo S. Elsztain; Gabriel G. Reznik; Pablo Vergara del Carril; Ernesto M. Viñes; Carlos B. Písula;  Edgardo L. Fornero; Saúl Zang;  Jacobo J. Dreizzen; former directors: Ms. Clarisa D. Lifsic de Estol; and Messrs. Miguel A. Kiguel; Julio A. Macchi; Federico L. Bensadón; Guillermo H. Sorondo and Jorge Miguel Grouman; and the Area Manager Gustavo D. Efkhanian; Manager Daniel H. Fittipaldi; former general sub-manager Gustavo D. Chiera; former managers Gabriel G. Saidón; Carlos Gonzalez Pagano and Marcelo C. Icikson; and Mr. Miguel J. Diaz, named defendants to those proceedings.

In response to the appeal filed by the State Attorney against the judgment, Panel “A” of the Appellate Court with Jurisdiction over Criminal Economic Matters handed down a decision on July 17, 2015 confirming the appealed resolution to the extent that it acquits Banco Hipotecario S.A.,  Clarisa Lifsic de Estol, Eduardo S. Elsztain; Gabriel G. Reznik; Pablo Vergara del Carril; Ernesto M. Viñes; Carlos B. Písula;  Edgardo L. Fornero; Saúl Zang;  Jacobo J. Dreizzen; Miguel A. Kiguel; Julio A. Macchi; Federico L. Bensadón; Guillermo H. Sorondo and Jorge Miguel Grouman; Gustavo D. Efkhanian;  Daniel H. Fittipaldi; Gustavo D. Chiera;  Gabriel G. Saidón; Carlos Gonzalez Pagano; Marcelo C. Icikson; and Miguel J. Diaz without any award of costs.

31. Programa Crédito Argentino del Bicentenario para la Vivienda Única y Familiar (PROCREAR)

On June 12, 2012, the Argentine Executive Branch issued Decree No. 902 whereby it ordered the creation of a Public Fiduciary Fund referred to as Programa Crédito Argentino del Bicentenario para la Vivienda Única Familiar (Argentine Single Family Housing Program for the Bicentennial) (PROCREAR).

On that same date, the Bank’s Board of Directors approved the Bank’s role as trustee of the referred fund.

On July 18, 2012, the Argentine State, as Trustor, and Banco Hipotecario S.A. as Trustee, created the PROCREAR Administrative and Financial Trust, and its underlying assets were transferred to it as trust property.

The Trust’s sole and irrevocable purpose is as follows: (i) to manage the trust assets with the aim of facilitating the population’s access to housing and the generation of job opportunities as economic and social development policies, in compliance with the principles and objectives set forth in Decree No. 902; (ii) the use by the Trustee of the net proceeds of the placement of the Trust Bonds (Valores Representativos de Deuda or VRDs) and cash contributions by the Argentine State to originate loans for the construction of houses in accordance with the provisions of Decree No. 902 and the credit lines; and (iii) the repayment of the VRDs in accordance with the terms of the agreement that creates the Trust and the provisions of the Trust Law.

 

 
F-321
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The Trust shall be in effect for a term of thirty (30) years as from the date of execution of the agreement (July 18, 2012).

In addition to the obligations imposed on it under the Trust Law and the Commercial Code, the Trustee is required to:
• perform the obligations set forth in the Trust Agreement and follow the instructions imparted on it by the Executive Committee;
• carry out its duties as Trustee with the loyalty, diligence and prudence of a good businessman acting on the basis of the trust placed on him;
• exercise the powers granted to it under the Agreement, and preserve the Trust Assets;
• use the Trust Assets for lawful purposes, in accordance with the provisions of the Agreement and following the Executive Committee’s instructions;
• identify the Trust Property and record it in a separate accounting system, segregated from its own assets or the assets of other trusts held by it at present or in the future in the course of its business;
• prepare the Trust’s financial statements, hire the relevant audit firms and comply with the applicable disclosure regulations;
• insure the Trust Assets against risks that could affect their integrity;
• invest or reinvest the Trust’s funds in accordance with the provisions of the Agreement and following the instructions imparted by the Executive Committee.

In compliance with Communication “A” 5392, the Bank has capitalized mortgage loan origination expenses under this program (see note 2.13.).

32. Capital Market Law

On December 27, 2012, the Capital Market Law No. 26,831 was promulgated, considering a comprehensive amendment to the public offering regime set forth by Law No. 17,811.

Insofar as concerns the matters related to the Company’s business, this law broadens the regulatory powers of the Argentine Government in connection with the public offering of securities, through the Argentine Securities Commission (CNV), and concentrates in this agency the powers of authorization, supervision and oversight, disciplinary authority and regulation of all capital market players; further, it establishes that intermediary agents willing to deal in a securities market are no longer required to be members thereof, thus allowing the entry of other participants, and delegates to the CNV the power to authorize, register and regulate the various categories of agents.

On August 1, 2013, Decree 1023/2013, partially regulating the Capital Markets Law, was published in the Official Gazette, and on September 9, 2013, General Resolution No. 622 of the CNV, approving the related regulations, was published in the Official Gazette.

These regulations implement a register of agents that participate in the capital market. To take part in each of the activities regulated by this resolution, agents had to be entered in that register in such capacity by March 1, 2014.

For those agents who have applied for registration with the final registry before March 1, 2014 to comply with all the requirements, on February 7, 2014, the Argentine Securities Commission (CNV) extended the term until December 31, 2014. On June 23, 2014 we were notified by Mercado Abierto Electrónico S.A. that CNV mandated that the Agents registered with MAE S.A. who have proceedings underway before CNV for registration as Agent in any of the categories authorized by currently applicable rules and regulations may continue to do business normally up and until they start operating in the new Agent category as per the CNV rules (N.T.2013)

 

 
F-322
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


In turn, pursuant to CNV Resolution No. 17,392 dated June 26, 2014, the Bank was registered with the Registry of Financial Trustees prescribed by Sections 6 and 7 of Chapter IV, Title V of the Rules, under No. 57. And, on September 19, 2014, pursuant to CNV Resolution No. 2122, the Bank has been registered as Settlement and Clearing Agent and Comprehensive Trading Agent No. 40.

Pursuant to the provisions of Section 45 of Law 26,831 and paragraph a), Section 20, Article VI, Chapter II, Title VII, and subsection j) of Section 7, Article IV, Chapter IV, Title V of Resolution No.622 of the CNV, it is made known that Banco Hipotecario’s minimum capital composed as required by the rules issued by the Argentine Central Bank exceeds the minimum amount required under such resolution. On the other hand, the Bank’s capital was duly paid in as of the closing of the period and the liquid balancing account is identified as BONAR 17 (Government security carried at fair market value).

 
On October 22, 2014, the Board of Directors of Mercado de Valores de Buenos Aires S.A. approved the registration of Banco Hipotecario S.A. in Mercado de Valores de Buenos Aires S.A.’s Registry of Agents as  Settlement and Clearing Agent and Trading Agent – Comprehensive (ALyC and AN as per the Spanish acronyms).

On December 23, 2014, BHSA was authorized to operate under the provisions of Merval Communication No. 15594.

Pursuant to CNV’s Resolution No. 17.338 dated April 24, 2014, BACS Banco de Crédito y Securitización S.A., was registered with the Registry of Financial Trustees prescribed by Sections 6 and 7 of Chapter IV, Title V of the Rules, under No. 55. And, on September 19, 2014, CNV communicated to BACS that in its capacity as Settlement and Clearing Agent - Comprehensive and Trading Agent the Bank has been assigned License No. 25. It must be noted that the composition of BACS’ equity as of the end of the period was correct and that the liquidity requirement takes the form of Peso-denominated Lebacs.

As of the date of these financial statements, BH Valores SA has been approved by CNV as a Settlement and Clearing Agent in its own name under Registration Number 189 in the terms of CNV’s General Resolution No. 622.

According to the minimum requirements laid down, BH Valores S.A.’s minimum shareholders’ equity exceeds the amount prescribed by CNV’s General Resolution No. 622 and its composition is correct. As to the liquidity requirements, they have been satisfied in the form of a deposit of the Government security called Bono de la Nación Argentina $ Badlar Privada + 200 bps. Vto. 2017, as discussed in Exhibit II to the Company’s financial statements.

In view of the latest tax, regulatory and operational developments that have modified BH Valores S.A.’s commercial strategy and decreased the competitive advantages of running such a business, the Board of Directors of BH Valores S.A. has, as of the date of these financial statements, decided to substantially diminish the volume of operations with an eye towards suspending the operations of BH Valores S.A. in the future to prevent two structures that are presently highly similar in terms of their functions and have been rendered redundant within the same conglomerate from overlapping.

33. Resolutions issued by the Argentine Central Bank

Credit Line for Productive Investments

Under Communication “A” 5319 dated July 5, 2012, the BCRA approved the implementation of a new credit line to be extended by financial institutions, intended to promote productive investments

 

 
F-323
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


consisting of the purchase of capital goods and the construction of the facilities necessary for producing goods and services. Generally, financial institutions accounting for more than 1% of the total deposits in the financial system and institutions operating as financial agents of the provinces are required to allocate to this new credit line 5% of the total amount of deposits from the private sector held as of June 2012. In all cases, 50% of the loan amounts must be granted to companies qualifying as SMEs.

Under successive BCRA communications, the quotas allocable by financial institutions under this line were expanded and supplemented semi-annually under similar conditions as those set forth in the previous paragraph, i.e., a minimum allocation of 5%/5.5% of the amount of deposits from the non-financial private sector, terms and conditions including interest rates ranging from 15/19% per annum and maturities of up to 36 months.

Under Communication “A” 5771, the BCRA resolved to extend the Credit Line for Productive Investments over the second half of 2015. Therefore, the financial institutions subject to the provisions of this circular must allocate to this credit line an amount of at least 7.50% of the non-financial private sector deposits in pesos, calculated taking into account the monthly average daily balances of May 2015. 100% of the quota must be granted to SMEs, excluding those engaged in financial intermediation and insurance services, or services related to gambling and betting activities. The loans must be fully agreed as of September 30, 2015, and may be disbursed in a single drawing until that date or on a staggered basis until June 30, 2016, in the latter case only when warranted due to the features of the project subject to financing. Moreover, as of September 30, 2015, the loans agreed should amount to at least 30% of the total amount of the second tranche of the 2015 Quota. The highest interest rate applicable in this tranche is a fixed nominal annual rate of 18% per annum for the first 36 months.

At the closing of these financial statements BHSA had recorded Ps. 870,718 as principal and interest under BHSA’s assets in connection with this credit line.

Compliance with rules on term deposits and investments. Conditions governing interest rates on term deposits


Pursuant to its Communication “A” 5781, the Argentine Central Bank raised the floor of the interest rates payable on term deposits and the maximum amount of the placements that may obtain such benefit. The rest of the transactions shall be agreed upon freely, that is, without the involvement of the Argentine Central Bank.

It has been determined that starting on July 27, 2015 the minimum rates on deposits shall be as follows:

 -  from 30 to 44 days: 23.58%
-  from 45 to 59 days: 24.10%
-  from 60 to 89 days: 25.13%
-  from 90 to 119 days: 25.61%
-  from 120 to 179 days: 25.87%
 
These minimum rates apply to all Peso-denominated term deposits of up to Ps.1,000.

Finally, the Argentine Central Bank provides that failure to comply with the minimum rate level shall result in an increase in minimum cash requirements in Pesos for an amount equivalent to all relevant term deposits for the month following that when the failure to comply takes place. No offsets among term deposits are allowed. In addition to the foregoing, summary proceedings shall

 

 
F-324
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


be commenced in accordance with the guidelines laid down by the Superintendent of Financial and Foreign Exchange Institutions.

Conditions applicable to benchmark interest rates for personal and pledge loans

Under Communication “A” 5590 dated June 10, 2014, the BCRA adopted a system of benchmark interest rates for personal and pledge loans to individuals not qualifying as SMEs and established a ceiling for these kinds of loans that may not exceed the product arising from multiplying the 90-day LEBACs’ cut-off interest rate by a multiplier ranging from 1.25 to 2.0, depending on the kind of loan and Bank Group. To this end, banks are divided into:

- Group I: financial institutions operating as financial agents of the national, provincial and/or municipal governments and/or other institutions accounting for at least 1% of the total deposits from the non-financial private sector; and
- Group II; the remaining institutions.

The BCRA publishes the “benchmark interest rate” to be applied by the financial institutions in each of these groups to each type of loans (personal loans, pledge loans and portfolio purchases). The rates applied by each institution to each loan within the lines mentioned above may not exceed the “benchmark interest rate” reported by the BCRA.

Protection granted to users of financial services

Under Communication “A” 5685 dated December 23, 2014, the BCRA ordered that any new commissions (commissions for new products and/or services intended to be marketed) and increases in commissions must obtain the BCRA’s previous authorization. Changes in charges shall be reported as well. In the case of basic financial products and/or services, the financial institutions and non-financial companies issuers of credit cards shall meet several requirements and procedures and submit various explanations upon applying for such authorization.

In addition,  Communication “A” 5715 dated February 13, 2015 imposes a new monthly reporting duty that requires disclosing the amounts of commissions and/or charges collected for each product or service offered to individuals in their capacities as final users and the number of transactions, movements or services rendered during the month.

Lastly, the Argentine Central Bank approved a new methodology to find a solution for the requests of increases in the commissions for financial services and products by the entities that provide them. This methodology includes both basic and non-basic services, except for high-end products, whose increases shall be vetoed if considered abusive. Increases in commissions shall be subject to a maximum 20 per cent limit for all types of services and products.

34. Summary of Significant Differences between Argentine Banking GAAP and U.S. GAAP

The Bank’s consolidated financial statements have been prepared in accordance with Argentine Banking GAAP, which differs in certain significant respects from U.S. GAAP. Such differences involve methods of measuring the amounts shown in the consolidated financial statements, as well as additional disclosures required by U.S. GAAP and regulations of the SEC. These consolidated financial statements include solely a reconciliation of net income and shareholders’ equity to U.S. GAAP. Pursuant to Item 17 of Form 20-F, this reconciliation does not include disclosure of all information that would be required by U.S. GAAP and regulations of the SEC.

 

 
F-325
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



I.  
 Differences in measurement methods

As from March 1, 2003, inflation accounting was discontinued. The following reconciliation does not include the reversal of the adjustments to the consolidated financial statements for the effects of inflation, because, as permitted by the Securities and Exchange Commission (“SEC”), it represents a comprehensive measure of the effects of price-level changes in the Argentine economy, and as such, is considered a more meaningful presentation than historical cost-based financial reporting for both Argentine GAAP and U.S. GAAP.

The main differences between Argentine GAAP and U.S. GAAP as they relate to the Bank are described below, together with an explanation, where appropriate, of the method used in the determination of the necessary adjustments. References below to “ASC” are to Accounting Standard Codification issued by the Financial Accounting Standards Board in the United States of America.

The following tables summarize the main reconciling items between Argentine GAAP and U.S. GAAP:

Reconciliation of net income:
 
     
June 30,
  
     
2015
    
2014
    
2013
  
Net income as reported under Argentine Banking GAAP
 
   Ps. 537,190       627,027       339,122  
U.S. GAAP adjustments:
                          
- Loan origination fees and costs
(a)
     (19,325 )     27,525       (29,863 )
- Loan loss reserve
(b)
     (30,703 )     (29,677 )     (25,253 )
- Derivative financial instruments
(c)
     876       (941 )     (1,223 )
- Government securities
(d)
     18,230       (17,669 )     12,727  
- Provincial public debt
(e)
     -       -       331  
- Financial liabilities
(f)
     2,709       4,136       3,154  
- Securitizations
(g)
     16,434       (10,725 )     (17,512 )
- Intangible assets
                          
Software costs
(h)
     (26,525 )     (18,396 )     (8,639 )
Other intangible assets
(h)
     (3,156 )     (4,793 )     (3,157 )
Business combinations
(h)
     991       989       991  
- Impairment of fixed and foreclosed assets
(i)
     944       983       932  
- Vacation provision
(k)
     (17,302 )     (18,955 )     (7,714 )
- Insurance technical reserve
(l)
     2,780       1,398       1,003  
- Capitalization of interest cost
(m)
     775       301       553  
- Deferred income tax
(n)
     44,673       55,122       (20,057 )
- Non-Controlling interest
(j)
     (13,658 )     (11,031 )     14,148  
Net income in accordance with U.S. GAAP
 
   Ps. 514,933       605,294       259,543  
- Less Net (Gain) / Loss attributable to the Non-Controlling interest
(j)
     4,369       10,284       (8,834 )
Net income attributable to Controlling interest in accordance with U.S. GAAP
 
   Ps. 519,302       615,578       250,709  
Basic and diluted net income per share in accordance with U.S. GAAP
       3.519       4.136       1.774  
Average number of shares outstanding (in thousands)
       1,463,365       1,463,365       1,463,365  


 

 
F-326
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Reconciliation of shareholders’ equity

     
June 30,
  
 
    
2015
    
2014
  
Total shareholders' equity under Argentine Banking GAAP
 
   Ps. 4,700,716       4,205,343  
U.S. GAAP adjustments:
                  
- Loan origination fees and costs
(a)
     (90,893 )     (71,568 )
- Loan loss reserve
(b)
     (220,541 )     (189,838 )
- Derivative financial Instruments
(c)
     -       (876 )
- Government securities
(d)
     37,759       3,871  
- Financial liabilities
(f)
     10,282       7,573  
- Securitizations
(g)
     (15,442 )     (31,876 )
- Intangible assets
                  
Software costs
(h)
     (63,888 )     (37,363 )
Other intangible assets
(h)
     (59 )     3,097  
Business combinations
(h)
     (1,176 )     (2,167 )
- Impairment of fixed and foreclosed assets
(i)
     (37,379 )     (38,323 )
- Vacation provision
(k)
     (57,634 )     (40,332 )
- Insurance technical reserve
(l)
     (339 )     (3,119 )
- Capitalization of interest cost
(m)
     4,001       3,226  
- Deferred income Tax
(n)
     258,903       214,230  
- Non-Controlling interest
(j)
     67,957       59,849  
Total Shareholders’ Equity under U.S. GAAP
 
   Ps. 4,592,267       4,081,727  
- Non-Controlling Interest under U.S. GAAP
(j)
     (68,126 )     (50,662 )
Consolidated Parent Company Shareholders’ Equity under U.S. GAAP
 
   Ps. 4,524,141       4,031,065  


Description of changes in shareholders’ equity under U.S. GAAP:

 
Total Shareholders’ Equity
  
Balance as of June 30, 2013
   Ps. 3,423,204  
Cash dividends
     (30,000 )
Other Comprehensive Income
     22,283  
Net income for the twelve-month period in accordance with U.S. GAAP
     615,578  
Balance as of June 30, 2014
   Ps. 4,031,065  
Cash dividends
     (41,817 )
Other Comprehensive Income
     15,591  
Net income for the twelve-month period in accordance with U.S. GAAP
     519,302  
Balance as of June 30, 2015
   Ps. 4,524,141  

a. Loan origination fees and costs

Under Argentine Banking GAAP, the Bank does not defer loan origination fees and costs on mortgage, personal and credit card loans, different from those originated under the Pro.Cre.Ar program.

Given the bank’s role as Trustee of the PROCREAR Administrative and Financial Trust, (see note 30), it has capitalized direct expenses incurred in the mortgage loan origination process, which

 

 
F-327
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


disbursements would not have been incurred by it had it not been for the grant of the related loans, in accordance with the provisions of Communication “A” 5392. Such origination expenses are amortized in 60 monthly installments.

In accordance with U.S. GAAP, under ASC 310 loan origination fees and certain direct loan origination costs should be recognized over the life of the related loan as an adjustment of yield.

Therefore the shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP for Banco Hipotecario S.A. as of June 30, 2015 and 2014 amounted to Ps. (90,893) and (71,568), respectively.

b. Loan loss reserve

The Bank’s accounting for its allowance for loan losses differs in some significant respects with practices of U.S.-based banks.

Under Argentine Banking GAAP, the allowance for loan losses is calculated according to specific criteria. This criterion is different for commercial loans (those in excess of Ps. 2,500) and consumer loans. Loan loss reserves for commercial loans are principally based on the debtors’ payment capacity and cash-flows analysis. Loan loss reserves for consumer loans are based on the client’s aging. Argentine banks may maintain other reserves to cover potential loan losses which management believes to be inherent in the loan portfolio, and other Argentine Central Bank required reserves.

Under U.S. GAAP, the allowance for loan losses should be in amounts adequate to cover inherent losses in the loan portfolio, incurred at the respective balance sheet dates. Specifically:

a)  
Loans considered impaired, in accordance with ASC 310-10 “Accounting for Creditors for Impairment of a Loan”, are recorded at the present value of the expected future cash flows discounted at the loan’s effective contractual interest rate or at the fair value of the collateral if the loan is collateral dependent. Under ASC 310-10, a loan is considered impaired when, based on current information, it is probable that the borrower will be unable to pay contractual interest or principal payments as scheduled in the loan agreement. ASC 310-10 applies to all loans except smaller-balance homogeneous consumer loans, loans carried at the lower of cost or fair value, debt securities, and leases.

The Bank applies ASC 310-10 to all commercial loans classified as “With problems”, “Insolvency Risks” and “Uncollectible” or commercial loans more than 90 days past due. The Bank specifically calculates the present value of estimated cash flows for commercial loans in excess of Ps.2,500 and more than 90 days past due. For commercial and other loans in legal proceedings, loans in excess of Ps.2,500 are specifically reviewed either on a cash-flow or collateral-value basis, both considering the estimated time to settle the proceedings.

As of June 30, 2015 and 2014, the result of applying ASC 310-10, shows that the Bank recorded an adjustment to shareholders’ equity for U.S. GAAP purposes of Ps. 39,753 and Ps. 54,052, respectively.

b)  
In addition, the Bank has performed a migration analysis for mortgage, credit cards and consumer loans following the ASC 450-20 and historical loss ratios were determined by analyzing historical losses, in order to calculate the allowance required for smaller-balance impaired loans and unimpaired loans for U.S. GAAP purposes. Loss estimates are analyzed by loan type and thus for homogeneous groups of clients. Such historical ratios were updated to incorporate the most recent data reflecting current economic conditions, industry performance

 

 
F-328
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


 
trends, geographic or obligor concentrations within each portfolio segment, and any other pertinent information that may affect the estimation of the allowance for loan losses.

As a result of the analysis mentioned before, the Bank recorded an adjustment to shareholders’ equity for U.S. GAAP purposes of Ps. (129,868) and Ps. (162,828), for 2015 and 2014, respectively.

c)  
Under Argentine Banking GAAP, loans that were previously charged-off, which are subsequently restructured and become performing loans, are included again in the Bank’s assets, according to the policies adopted by the bank. Under U.S. GAAP recoveries of loans previously charged off should be recorded when received. As of June 2015 and 2014, the Bank recorded an adjustment to shareholders’ equity related to reinstated loans of Ps. (62,502) and Ps. (79,889), respectively.

d)  
     Effective July 1, 2010, the Bank implemented new accounting guidance provided by SFAS 166 and 167 (ASU 2009-16 and ASU 2009-17, respectively, under the new codification), which amend the accounting for transfers of financial assets and consolidation of variable interest entities (VIEs). As a result of applying such guidance, the Bank, or its subsidiaries, were deemed to be the primary beneficiary of the securitization trusts because the Bank, or its subsidiaries, have the power to direct the activities of these VIEs through its servicing responsibilities and duties. Additionally, the Bank, or its subsidiaries, through its retained interests held in these securitizations have the obligation to absorb losses or the right to receive benefits from the VIEs. As a result of the analysis performed, the Bank should consolidate assets and liabilities of those securitization trusts, elimininating the investment in the retained interests and recording and adjustment in the allowance for loan losses of such securitization trusts.

As a result of the analysis mentioned before, the Bank recorded an adjustment to shareholders’ equity for U.S. GAAP purposes of Ps. (67,924) and Ps. (1,173), for 2015 and 2014, respectively.

As a result of analysis performed the breakdown of the shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP between the Bank’s adjustment and the reconsolidated securitization trusts as of June 30, 2015 and 2014 is as follows:
 
      2015         2014   
     
Allowances under Arg. Banking GAAP
      
Allowances under U.S. GAAP
      
Adjustment to shareholders’ equity
      
Allowances under Arg. Banking GAAP
      
Allowances under U.S. GAAP
      
Adjustment to shareholders’ equity
  
Migration analysis (*)
     346,797       476,665       (129,868 )     292,526       455,354       (162,828 )
ASC 310-10
     91,365       51,612       39,753       68,788       14,736       54,052  
Reinstated loans
     -       62,502       (62,502 )     -       79,889       (79,889 )
Subtotal
     438,162       590,779       (152,617 )     361,314       549,979       (188,665 )

(*) Migration analysis of Banco Hipotecario and its subsidiaries.

 

 
F-329
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
2015
    
2014
  
   
Allowances under Arg. Banking GAAP
    
Allowances under U.S. GAAP
    
Adjustment to shareholders’ equity
    
Allowances under Arg. Banking GAAP
    
Allowances under U.S. GAAP
    
Adjustment to shareholders’ equity
  
                                     
Reconsolidated trusts
     76,232       144,156       (67,924 )     45,504       46,677       (1,173 )
Subtotal
     76,232       144,156       (67,924 )     45,504       46,677       (1,173 )
                                                 
Total      514,394        734,935       (220,541 )       406,818       596,656       (189,838 )
 

c. Derivative Financial Instruments

As mentioned in notes 18 and 2.9. the Bank entered in several derivative transactions, mainly, to hedge: i) the exchange rate risk attached to liabilities denominated in foreign currency, and ii) interest rate swaps to manage its interest rate risk.

Gains and losses are recorded in earnings in each period.

Under U.S. GAAP, the Bank accounts for derivative financial instruments in accordance with ASC 815 which establishes the standards of accounting and reporting derivative instruments, including certain derivative instruments embedded within contracts (collectively referred to as derivatives) and hedging activities. This statement requires institutions to recognize all derivatives in the balance sheet, whether as assets or liabilities, and to measure those instruments at their fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge for the exposure to changes in the fair value of a recorded asset or liability or unrecorded firm commitment, (b) a hedge for the exposure of future cash flows and (c) a hedge for the exposure of foreign currency. If such a hedge designation is achieved then special hedge accounting can be applied for the hedged transactions that will reduce the volatility in the income statement to the extent that the hedge is effective. In order for hedge accounting to be applied the derivative and the hedged item must meet strict designation and effectiveness tests.

The Bank’s derivatives do not qualify for hedge accounting treatment under U.S. GAAP. Therefore gains and losses are recorded in earnings in each period.

Under U.S. GAAP, the Bank’s estimates the fair value of the receivable and payable on the derivative instrument using valuation techniques with observable market parameters. As of June 30, 2014 the shareholder’s equity adjustment amounts to Ps. (876).

d. Government securities

The following table summarizes the U.S. GAAP shareholders’ equity adjustment related to other government securities, as of June 30, 2015 and 2014:

 
June 30,
  
 
2015
  
2014
  
             
Discount Bonds
   Ps. (534 )   Ps. (4,126 )
Unquoted Securities issued by the BCRA
     1,352       7,387  
Bills issued by Provincial Governments
     8,472       4,234  
Other National Government Bonds
     28,469       (3,624 )
Total
   Ps. 37,759     Ps. 3,871  


 

 
F-330
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)

 

·  
Discount Bonds

As of June 30, 2004 the Bank held certain defaulted Argentine government bonds. Such bonds were not quoted in the public market. On January 2005, the Bank accepted the offer to exchange its defaulted government securities for “Discount Bonds in pesos” issued under the Argentine debt restructuring. On April 1, 2005 the government securities were exchange.

For U.S. GAAP purposes and in accordance with ASC 310 satisfaction of one monetary asset (in this case a defaulted government securities) by the receipt of another monetary asset (in this case Discount Bonds) from the creditor is generally based on the market value of the asset received in satisfaction of the debt. In this particular case, the Bonds being received are significantly different in structure and in interest rates than the securities swapped. Therefore, the fair value of the Bonds was determined on the balance sheet date based on their market value and will constitute the cost basis of the asset. Any difference between the old asset and the fair value of the new asset is recognized as a gain or loss. The bonds arisen from the exchange have been sold.

During the twelve-month periods ended June 30, 2014 and 2015, there have been purchases of Discount Bonds.

As of June 30, 2015 and 2014 the Discount Bonds were considered available for sale securities for U.S. GAAP purposes according with ASC 320-10 and recorded at fair value with the unrealized gains and losses recognized as a charge or credit to equity through other comprehensive income.
 
As of June 30, 2015 and 2014 the following table shows the amortized cost, book value and fair value of the mentioned bond.

   
2015
    
2014
  
   
Amortized Cost U.S. GAAP
    
Book Value Argentine Banking GAAP
    
Fair Value – Book value under U.S. GAAP
    
Unrealized (Loss)/Gain
    
Shareholders’ equity Adjustment
    
Amortized Cost U.S. GAAP
    
Book Value Argentine Banking GAAP
    
Fair Value – Book value under U.S. GAAP
    
Unrealized (Loss)/Gain
    
Shareholders’ equity Adjustment
  
   
(In thousands of $)
  
                                                             
Discount Bonds
     9,624       9,624       9,090       (11,013 )     (534 )     77,177       91,782       87,656       10,479       (4,126 )

The Bank has evaluated whether there was a decline in the value of the security that is other-than temporary as defined by ASC 320.

A number of factors are considered in performing an impairment analysis of securities. Those factors include, among others:

a.  
Intent and ability of the Bank to retain its investment for a period of time that allows for any anticipated recovery in market value;
b.  
Expectation to recover the entire amortized cost of the security;
c.  
Recoveries in fair value after the balance sheet date;
d.  
The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer (such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of a business that may affect the future earnings potential).
e.  
Likelihood that it will be required to sell debt investments before recovery of amortized cost.

 

 
F-331
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The Bank also takes into account the length of time and the extent to which the market value of the security has been less than cost and changes in global and regional economic conditions and changes related to specific issuers or industries that could adversely affect these values.

As of June 30, 2014 the fair value of the investment is greater than its amortized cost. The Bank as a result of its analysis has determined that, as of June 30, 2015, unrealized losses on Discount Bonds, are temporary in nature based on its ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery, the financial condition of the issuer and the recoveries in fair values after the balance sheet date.

·  
Other Bonds

Under Argentine Banking GAAP, as of June 30, 2015 and 2014, some National Government Bonds, unquoted securities issued by the BCRA and bills issued by Provincial Governments have been recorded at cost. This value increases monthly on the basis of the internal rate of return resulting from the interest rate which, used as discount, matches the cash flow’s present value with the initial value.

Under U.S. GAAP these securities were considered available for sale securities according with ASC 320 and recorded at fair value with the unrealized gains and losses recognized as a charge or credit to equity through other comprehensive income.
 
As of June 30, 2015 and 2014 the following table shows the amortized cost, book value and fair value of the mentioned bonds:

   
2015
    
2014
  
   
Amortized Cost U.S. GAAP
    
Book Value Argentine Banking GAAP
    
Fair Value – Book value under U.S. GAAP
    
Unrealized (Loss)/Gain
    
Shareholders’ equity Adjustment
    
Amortized Cost U.S. GAAP
    
Book Value Argentine Banking GAAP
    
Fair Value – Book value under U.S. GAAP
    
Unrealized (Loss)/Gain
    
Shareholders’ equity Adjustment
  
   
(In thousands of $)
  
                                                             
Unquoted securities issued by the BCRA
     1,719,856       1,719,856       1,721,208       1,352       1,352       1,342,425       1,342,425       1,349,812       7,387       7,387  
Bills issued by Provincial Governments
     539,172       539,172       547,644       8,472       8,472       423,275       423,275       427,509       4,234       4,234  
                                                                                 
Other National Government Bonds
     648,921       648,921       677,390       28,469       28,465       33,136       32,796       29,172       -       (3,624 )

The Bank has evaluated whether there was a decline in the value of the security that is other-than temporary as defined by ASC 320-10.

As of June 30, 2014, the Bank as a result of its analysis has determined that unrealized losses on PRO XIII Bonds are not temporary, consequently the Bank has recorded an other-than temporary impairment for U.S. GAAP purposes. Therefore the fair value of the security was determined on the balance sheet date based on their market value and will constitute the new cost basis for the asset. In addition, the bank has performed an impairment analysis for the rest of their portfolio and no other than temporary impairment were detected. As of June 30, 2015 the fair value of the investment is greater than its amortized cost.

 

 
F-332
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



e. Provincial Public Debt

As of June 2002, the Bank offered to exchange certain loans to Argentine provincial governments for loans or securities of the Argentine National Government; however the exchange had not been finalized until 2003. As these loans were performing no provision was recorded under U.S. GAAP in accordance with ASC 310-10.

In 2003, the Bank tendered in the exchange under Decree N°1579/02 almost all its portfolio of loans to provincial governments and received securities of the Argentine National Government (“BOGAR”).

For U.S. GAAP purposes and in accordance with ASC 310-20 satisfaction of one monetary asset (in this case a loan) by the receipt of another monetary asset (in this case BOGAR) from the creditor is generally based on the market value of the asset received in satisfaction of the debt. In this particular case, the BOGAR being received is significantly different in structure and in interest rates than the loans swapped. Therefore, such amounts should initially be recognized at their market value. The estimated fair value of the securities received will constitute the cost basis of the asset. Any difference between the old asset and the fair value of the new asset is recognized as a gain or loss. The difference between the cost basis and the amount expected to be collected will be amortized on an effective yield basis over the life of the bond.

For U.S. GAAP purposes, these BOGAR Bonds were classified by the Bank, as available for sale securities and recorded at fair value with the unrealized gains or losses recognized as a charge or credit to equity through other comprehensive income.

During the period ended June 30, 2013, all BOGAR Bonds were sold. Therefore, the 2013 U.S. GAAP net income reconciliation includes the reversal of the 2012 shareholders’ equity adjustment of Ps. 363 plus Ps. 694 of gains previously recorded through other comprehensive income, which that are being realized and reversed through the income statement during the period ended June 30, 2013.

f. Financial liabilities

As described in note 15, the bank has issued several series of negotiable obligations in different terms and conditions. Under Argentine Banking GAAP, the costs of originating such instruments have been charged to the Income Statement at the issuance date.

Under U.S.GAAP, and according to ASC 835-30-45-3, issuance costs should be reported in the balance sheet as deferred charges. In addition, ASC 470-10-35-2 states that debt issuance costs should be amortized over the same period used in the interest cost determination.

As of June 30, 2015 and 2014 the shareholder’s equity adjustment amounts to Ps. 10,282 and Ps. 7,573, respectively.

g. Securitizations

For Argentine Banking GAAP purposes, the debt securities and certificates retained by the Bank are accounted for at cost plus accrued interest for the debt securities, and the equity method is used to account for the residual interest in the trust.

Under U.S. GAAP the primary beneficiary of a variable interest entity (VIE) is required to consolidate its assets and liabilities. An entity is considered a VIE if it possesses one of the following characteristics:

 

 
F-333
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



·  
  Insufficient Equity Investment at Risk
·  
  Equity lacks decision-making rights
·  
  Equity with non-substantive voting rights
·  
  Lacking the obligation to Absorb an Entity´s Expected Losses
·  
  Lacking the right to receive an Entity´s expected residual returns

The primary beneficiary is the party that has both (1) the power to direct the activities of an entity that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Bank has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Bank considers all facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities.

As a consequence of this assessment, the Bank was deemed to be the primary beneficiary of certain securitization trusts because the Bank has the power to direct the activities of these VIEs through its servicing responsibilities and duties. Additionally, the Bank through its retained interests held in these securitizations has the obligation to absorb losses or the right to receive benefits from the VIEs.

For U.S. GAAP purposes, as of June 30, 2015, 2014 and 2013, the Bank consolidated certain VIE’s in which the Bank had a controlling financial interest and for which it is the primary beneficiary. Therefore, the Bank reconsolidated their net assets, eliminated the gain or loss recognized on the sale of receivables when the carrying value of transferred credit card receivables differs from the amount of cash and certificates of participation received, eliminated the servicing liabilities and re-established its loan loss reserves under ASC 450-20. See note 33.b. for allowance for loan losses.

No servicing assets or liabilities have been recognized.

The total shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. (15,442) and Ps. (31,876), respectively.

Additional information required by U.S. GAAP

The Bank adopted ASC 860-10 and ASC 810-10 which require additional disclosures about its involvement with consolidated VIE’s and expanded the population of VIE’s to be disclosed. The table below presents the assets and liabilities of the financial trusts which have been consolidated for U.S. GAAP purposes:

 

 
F-334
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
June 30,
  
 
2015
  
2014
  
             
Cash and due from banks
   Ps. 88,236     Ps. 103,693  
Loans (net of allowances)
     2,235,655       1,771,175  
Other assets
     1,149,023       826,795  
Total Assets
   Ps. 3,472,914     Ps. 2,701,663  
                 
Debt Securities
   Ps. 2,868,064     Ps. 2,214,488  
Certificates of Participation
     451,365       427,246  
Other liabilities
     153,485       59,929  
Total Liabilities
   Ps. 3,472,914     Ps. 2,701,663  

As of June 30, 2015, the Bank’s maximum loss exposure, which amounted to Ps. 3,472,914, is based on the unlikely event that all of the assets in the VIE’s become worthless and incorporates potential losses associated with assets recorded on the Bank’s Balance Sheet. Nevertheless, under Argentine Law the Debt securities will be paid exclusively with the securitized assets.

h. Intangible Assets

Software costs

Under Argentine Banking GAAP fees paid for a re-engineering project and for restructuring expenses incurred in relation to certain equity transactions are recognized as an intangible asset and amortized in a maximum of five years. Such cost should be expensed as incurred under U.S. GAAP.

Under Argentine Banking GAAP, the Bank capitalizes costs relating to all three of the stages of software development. Under ASC 350-40 defines three stages for the costs of computer software developed or obtained for internal use: the preliminary project stage, the application development stage and the post-implementation operation stage. Only the second stage costs should be capitalized.

Shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. (63,888) and Ps. (37,363), respectively.

Other intangible assets

On January 13, 2011, Tarshop S.A. acquired from APSA Media S.A., previously Metroshop S.A., a portfolio of credit cards delinquent by less than 60 days; a contractual position in contracts for the issuance of credit cards; the accounts of customers, the lease agreements and movable property at certain branches and the contracts of employment with personnel under a labor relationship.

Under Argentine Banking GAAP, no intangible assets should be recognized in accordance with these transactions.

Under U.S. GAAP, ASC 350-30 defines that an intangible asset which is acquired either individually or with a group of other assets shall be recognized. Assets are recognized based on their cost to the acquiring entity, which generally includes the transaction costs of the assets acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs the assets’ carrying amount on the acquiring entity’s books. The cost of a

 

 
F-335
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


group of assets acquired shall be allocated to the individual assets acquired or liabilities assumed based on their relative fair values and shall not give rise to goodwill.

Shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. (59) and Ps. 3,097, respectively, related to the contractual position in contracts for the issuance of credit cards and the accounts of customers recorded as intangibles assets for U.S. GAAP purposes.

Business combination

i) Acquisition of Tarshop S.A.

On August 30, 2010, the Financial and Exchange Institutions Superintendency of the Argentine Central Bank gave its consent to the purchase of 80% of the share capital of Tarshop SA. Such shareholding consists of 107,037,152 non-endorsable, registered ordinary shares, par value 1 Peso per share, and entitled to one vote per share, in turn equivalent to 107,037,152 votes.

The sales price amounted to US$ 26.8 million, of which 20% (US$ 5.4 million) was paid on December 29, 2009 and the remaining balance of the price was cancelled on September 13, 2010.

Pursuant to Argentine Central Bank rules, and due to the difference between the acquisition cost and the estimated fair value of assets and liabilities acquired, a goodwill amounting to Ps. 29,568 was recorded under Intangible Assets – Goodwill. This goodwill is subsequently charged to Income on a straight-line basis during 60 months. As of June 30, 2015 and 2014 the Bank has a balance of Ps. 15,277 and Ps. 18,234, respectively, related to the goodwill.

Under U.S. GAAP, ASC 805 requires the acquisition of controlling interest of Tarshop S.A. to be accounted for as a business combination applying the purchase method, recognizing all net assets acquired at their fair value.

 
The intangible assets identified as part of the acquisition where customer relationships, trademark and workforce amounted to Ps. 24,394 as of August 31, 2010 subject to amortization.

ii) Acquisition of BACS Administradora de activos S.A. S.G.F.C.I.

On April 26, 2012 BACS Banco de Crédito y Securitización S.A. acquired 85% of the shares belonging to BACS Administradora de activos S.A. S.G.F.C.I. (former FCMI Argentina Financial Corporation S.A. S.G.F.C.I.). The purchase price was Ps. 6 million.

Pursuant to Argentine Central Bank rules, and due to the difference between the acquisition cost and the estimated fair value of assets and liabilities acquired as of April 30, 2012, a goodwill amounting to Ps. 4,728 was recorded under Intangible Assets – Goodwill. This goodwill is subsequently charged to income on a straight-line basis during 120 months. As of June 30, 2015 and 2014 the Bank recorded such balance which amounted to Ps. 3,231 and Ps. 3,704, respectively.

Under U.S. GAAP, ASC 805 requires the acquisition of controlling interest of BACS Administradora de activos S.A. S.G.F.C.I. (former FCMI Argentina Financial Corporation S.A. S.G.F.C.I.) to be accounted for as a business combination applying the purchase method, recognizing all net assets acquired at their fair value.

Goodwill amortization, under Argentine Banking GAAP has been reversed for U.S. GAAP purposes.

 

 
F-336
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


i. Impairment of fixed assets and foreclosed assets
 
Under Argentine Banking GAAP, fixed assets and foreclosed assets are restated for inflation using the WPI index at February 28, 2003. As such, the balances of fixed assets and foreclosed assets were increased approximately 120%.

In accordance with ASC 360-10 such assets are subject to impairment tests in certain circumstances. Because projected cash flows associated with fixed assets and foreclosed assets are insufficient to recover the restated carrying amounts of the assets, those assets should be tested for impairment. During 2002, in the absence of credible market values for our fixed and foreclosed assets, the Bank under U.S. GAAP reversed the restatement of fixed and foreclosed assets.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

As of June 2015 and 2014, no additional impairment was recorded in fixed and foreclosed assets.

Shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. (37,379) and Ps. (38,323), respectively. The differences between periods are due to depreciation recorded under Argentine Banking GAAP.

j. Non-controlling interest

Argentine Banking GAAP rules require recording non-controlling interests as a component of the liabilities. ASC 810 requires recording such interests as shareholders’ equity. In addition, the U.S. GAAP adjustment represents the allocation to the non-controlling interest of non-wholly owned subsidiaries of certain U.S. GAAP adjustments related to such subsidiaries.

k. Vacation Provision

The Bank’s policy for vacation benefits is to expense such benefits as taken. For U.S. GAAP purposes, the vacation accrual is based on an accrual basis, where earned but untaken vacation is recognized as a liability.

Shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. (57,634) and Ps. (40,332), respectively.

l. Insurance Technical reserve

Until September 2003, the calculation of the local technical reserves performed by the Bank was the same as that used under U.S. GAAP.

On September 2003, the National Insurance Superintendency issued certain regulations on the calculation of reserves introducing changes to the local regulations. For U.S. GAAP purposes the Bank has accounted these insurance technical reserves under ASC 944.

Therefore, the technical reserves for the twelve-month periods ended June 30, 2015 and 2014 were adjusted for U.S. GAAP purposes. Shareholders’ equity adjustment as of June 30, 2015 and 2014 amounted to Ps. (339) and Ps. (3,119), respectively.

m. Capitalization of interest cost

Under Argentine Banking GAAP, during the process of construction of an asset the capitalization of interest is not recognized.

 

 
F-337
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


For U.S. GAAP purposes, as stated in ASC 835-20 the amount of interest cost to be capitalized for qualifying assets is intended to be that portion of the interest cost incurred during the assets’ acquisition periods that theoretically could have been avoided (for example, by avoiding additional borrowings or by using the funds expended for the assets to repay existing borrowings) if expenditures for the assets had not been made.

The amount capitalized in an accounting period shall be determined by applying an interest rate to the average amount of accumulated expenditures for the asset during the period. The capitalization rates used in an accounting period shall be based on the rates applicable to borrowings outstanding during the period.
 
The total amount of interest cost capitalized in an accounting period shall not exceed the total amount of interest cost incurred by the enterprise in that period.
 
Shareholders’ Equity adjustment between Argentine Banking GAAP and U.S. GAAP as of June 30, 2015 and 2014 amounted to Ps. 4,001 and Ps. 3,226, respectively.

n. Deferred Income Tax

Argentine Banking GAAP requires income taxes to be recognized on the basis of amounts due in accordance with Argentine tax regulations. Temporary differences between the financial reporting and income tax bases of accounting are therefore not considered in recognizing income taxes.
 
In accordance with ASC 740-10 under U.S. GAAP income taxes are recognized on the liability method whereby deferred tax assets and liabilities are established for temporary differences between the financial reporting and tax bases of our assets and liabilities. Deferred tax assets are also recognized for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recorded or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized for that component of net deferred tax assets which is “more likely than not” that it will not be recoverable.

As of June 30, 2015 and 2014, and based on the tax projections performed, the Bank believes that is more likely than not that it will recover the net operating tax loss carry forward and all the temporary differences, with future taxable income.

In a consolidated basis, the Bank has recognized a shareholders’ equity adjustment between Argentine Banking GAAP and U.S. GAAP that amounted to Ps. 258,903 and Ps. 214,230, as of June 30, 2015 and 2014, respectively.

ASC 740 prescribes a comprehensive model for the recognition, measurement, financial statement presentation and disclosure of uncertain tax positions taken or expected to be taken in a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of June 30, 2015, there were no uncertain tax positions.

The Bank classifies income tax-related interest and penalties as income taxes in the financial statements. The adoption of this pronouncement had no effect on the Bank’s overall financial position or results of operations.

The following table shows the tax years open for examination as of June 30, 2015, by major tax jurisdictions in which the Bank operates:
 
 
F-338
 
 

Jurisdiction
  
Tax year
  
Argentina
     2010 – 2014  

o. Items in process of collection
The Bank does not give accounting recognition to checks drawn on the Bank or other banks, or other items to be collected until such time as the related item clears or is accepted. Such items are recorded by the Bank in memorandum accounts. U.S. banks, however, account for such items through balance sheet clearing accounts at the time the items are presented to the Bank.

The Bank’s assets and liabilities would be increased by approximately Ps. 137,944 and Ps. 163,304, had U.S. GAAP been applied at June 30, 2015 and 2014, respectively.

II.  
 Additional disclosure requirements:

p. Fair Value Measurements Disclosures

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Effective January 2010, the Bank adopted new accounting guidance under ASC 820 that requires additional disclosures including, among other things, (i) the amounts and reasons for certain significant transfers among the three hierarchy levels of inputs, (ii) the gross, rather than net, basis for certain level 3 roll forward information, (iii) use of a “class” rather than a “major category” basis for assets and liabilities, and (iv) valuation techniques and inputs used to estimate level 2 and level 3 fair value measurements.
 
In addition, ASC 820-10 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.

·  
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·  
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·  
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Determination of fair value

Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, option volatilities and currency rates. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, the Bank’s creditworthiness, liquidity and unobservable parameters that are applied consistently over time.

 

 
F-339
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


The Bank believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The following section describes the valuation methodologies used by the Bank to measure various financial instruments at fair value, including an indication of the level in the fair-value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models as well as any significant assumptions.

Assets (by Class of asset)

a)  
Securities

As of June 30, 2015 and 2014 the Bank’s securities are classified within level 1of the valuation hierarchy using quoted prices available in the active market. Level 1 securities includes government bonds and instruments issued by BCRA and corporate securities. Furthermore the Bank´s instruments issued by BCRA with no volatility published by the BCRA and bills issued by Provincial Governments are classified within Level 2 using quoted prices available of similar assets.

b)  
Securities receivable under repurchase agreements

The Bank’s securities receivable under repurchase agreements which do not qualify for sale accounting for U.S. GAAP purposes, are classified within level 1 of the valuation hierarchy. To estimate the fair value of these securities, quoted prices are available in an active market.

c)  
Derivatives

The fair value of level 1 derivative positions are determined using quoted market prices. The fair value of level 2 derivative positions are determined using internally developed models that utilize market observable parameters.

Liabilities (by Class of liability)

d)  
Derivatives

The fair value of level 1 derivative positions are determined using quoted market prices.

The following table presents the financial instruments, by class of asset and liabilities, carried at fair value as of June 30, 2015 and 2014, by ASC 820-10 valuation hierarchy (as described above).


 

 
F-340
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
Balances as of June 30, 2015
  
   
Total carrying value
    
Quoted market prices in active markets
(Level 1)
    
Internal models with significant observable market parameters
 (Level 2)
    
Internal models with significant unobservable market parameters
 (Level 3)
  
ASSETS
                        
                         
Government and corporate securities
                        
Trading securities
     1,244,278       1,244,278       -       -  
Available for sale securities
     1,210,421       729,986       480,435       -  
Instruments issued by the BCRA
     2,422,813       672,239       1,750,574       -  
Corporate securities
     430,855       430,855       -       -  
                                 
Other receivables from financial transactions
                                
Trading securities
     231,366       231,366       -       -  
Available for sale securities
     231,400       231,117       283       -  
Futures
     182       182       -       -  
Interest rate swaps
     575       575       -       -  
                                 
Miscellaneous assets
                                
Trading securities
     162,759       162,759       -       -  
                                 
TOTAL ASSETS AT FAIR VALUE
     5,934,649       3,703,357       2,231,292       -  
                                 
LIABILITIES
                                
                                 
                                 
Other obligations from financial transactions
                                
Trading securities
     (105,684 )     (105,684 )     -       -  
Available for sale securities
     (247,143 )     (247,143 )     -       -  
Futures
     (687 )     (687 )     -       -  
Interest rate swaps
     (512 )     (512 )     -       -  
                                 
Deposits
                                
Trading securities
     (99,515 )     (99,515 )     -       -  
Available for sale securities
     (16,288 )     (16,288 )     -       -  
                                 
TOTAL LIABILITIES AT FAIR VALUE
     (469,829 )     (469,829 )     -       -  

 

 
F-341
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
Balances as of June 30, 2014
  
   
Total carrying value
    
Quoted market prices in active markets
(Level 1)
    
Internal models with significant observable market parameters
 (Level 2)
    
Internal models with significant unobservable market parameters
 (Level 3)
  
ASSETS
                        
                         
Government and corporate securities
                        
Trading securities
     1,316,864       1,316,864       -       -  
Available for sale securities
     486,322       437,566       48,756       -  
Instruments issued by the BCRA
     1,704,354       354,542       1,349,812       -  
Corporate securities
     345,565       345,565       -       -  
                                 
Other receivables from financial transactions
                                
Trading securities
     1,279       1,279       -       -  
Available for sale securities
     58,015       58,015       -       -  
Forwards
     33,794       -       33,794       -  
Futures
     6,766       6,766       -       -  
                                 
TOTAL ASSETS AT FAIR VALUE
     3,952,959       2,520,597       1,432,362       -  
                                 
LIABILITIES
                                
                                 
Other obligations from financial transactions
                                
Futures
     (7,911 )     (7,911 )     -       -  
                                 
TOTAL LIABILITIES AT FAIR VALUE
     (7,911 )     (7,911 )     -       -  


q. Credit Risk disclosures

Allowance for credit losses and recorded investments in financial receivables

The following table presents the allowance for account receivables losses and the related carrying amount of Financing Receivables for the periods ended June 30, 2015 and 2014 respectively:

 
As of June 30, 2015
  
 
Consumer Loan Portfolio
  
Commercial Loan Portfolio
  
Total
  
Allowance for credit losses:
                  
Ending balance: individually evaluated for impairment
   Ps. -     Ps. 26,410     Ps. 26,410  
Ending balance: collectively evaluated for impairment
     683,323       25,202       708,525  
Ending Balance
   Ps. 683,323     Ps. 51,612     Ps. 734,935  
Financing receivables:
                        
Ending balance: individually evaluated for impairment
     -     Ps. 44,496     Ps. 44,496  
Ending balance: collectively evaluated for impairment
     15,266,470       6,853,897       22,120,367  
Ending Balance
   Ps. 15,266,470     Ps. 6,898,393     Ps. 22,164,863  


 

 
F-342
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
As of June 30, 2014
  
 
Consumer Loan Portfolio
  
Commercial Loan Portfolio
  
Total
  
Allowance for credit losses:
                  
Ending balance: individually evaluated for impairment
   Ps. -     Ps. 11,296     Ps. 11,296  
Ending balance: collectively evaluated for impairment
     581,920       3,440       585,360  
Ending Balance
   Ps. 581,920     Ps. 14,736     Ps. 596,656  
Financing receivables:
                        
Ending balance: individually evaluated for impairment
   Ps. -     Ps. 24,323     Ps. 24,323  
Ending balance: collectively evaluated for impairment
     11,592,745       6,182,266       17,775,011  
Ending Balance
   Ps. 11,592,745     Ps. 6,206,589     Ps. 17,799,334  

The activity in the allowance for loan losses for period is as follows:

 
As of June 30,
  
 
2015
  
2014
  
Allowance for credit losses:
            
Beginning Balance
   Ps. 596,656     Ps. 508,654  
Charge-offs
     (267,694 )     (245,023 )
Provision for loan losses
     405,973       333,025  
Ending Balance
   Ps. 734,935     Ps. 596,656  


Account receivable charge-off and recoveries

Under Argentine GAAP, recoveries on previously charge-off account receivable are recorded directly to income and the amount of charge-off account receivable in excess of amounts specifically allocated is recorded as a direct charge to the income statement. The Bank does not partially charge off troubled account receivable until final disposition of the credit, rather, the allowance is maintained on a credit-by –credit basis for its estimated settlement value. Under U.S. GAAP, all charge off and recovery activity is recorded through the allowance for account receivable losses account. Further, account receivables are generally charged to the allowance account when all or part of the credit is considered uncollectible.

Impaired loans

ASC 310, requires a creditor to measure impairment of a loan based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. This Statement is applicable to all loans (including those restructured in a troubled debt restructuring involving amendment of terms), except large groups of smaller-balance homogenous loans that are collectively evaluated for impairment. Loans are considered impaired when, based on Management’s evaluation, a borrower will not be able to fulfill its obligation under the original loan terms.

The following table discloses the amounts of loans considered impaired in accordance with ASC 310 updated by ASU 2010 - 20, as of June 30, 2015 and 2014:


 
F-343
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
As of June 30, 2015
  
 
Recorded Investment
  
Unpaid Principal Balance
  
Related Allowance
  
With no related allowance recorded:
                  
Commercial
                  
Impaired Loans
   Ps. -     Ps. -     Ps. -  
                         
With an allowance recorded:
                        
Commercial
                        
Impaired Loans
   Ps. 44,496     Ps. 37,658     Ps. 26,410  
Total
   Ps. 44,496     Ps. 37,658     Ps. 26,410  


 
As of June 30, 2014
  
 
Recorded Investment
  
Unpaid Principal Balance
  
Related Allowance
  
With no related allowance recorded:
                  
Commercial
                  
Impaired Loans
   Ps. -     Ps. -     Ps. -  
                         
With an allowance recorded:
                        
Commercial
                        
Impaired Loans
   Ps. 24,323     Ps. 21,441     Ps. 11,296  
Total
   Ps. 24,323     Ps. 21,441     Ps. 11,296  


The average recorded investment in impaired loans amounted Ps. 42,349 and Ps. 23,971, as of June 30, 2015 and 2014, respectively. There is no amount of interest income recognized during the time within the period that the loans were impaired.

Non-accrual accounts receivables and Past due

Non-Accrual loans are defined as those loans in the categories of: (a) Consumer portfolio: “Medium Risk”, “High Risk” and “Uncollectible”, and (b) Commercial portfolio: “With problems”, “High Risk of Insolvency” and “Uncollectible”.

The following table represents the amounts of nonaccruals, as of June 30, 2015 and 2014, respectively:

 

 
F-344
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
As of June 30,
  
 
2015
  
2014
  
Consumer
            
Advances
   Ps. 187     Ps. 566  
Mortgage Loans
     30,739       37,955  
Personal Loans – BHSA
     88,514       74,950  
Personal Loans – Financial trusts
     52,827       -  
Credit Card Loans – BHSA
     115,792       104,200  
Credit card Loans – Tarshop
     109,319       117,809  
 Total Consumer
   Ps. 397,378     Ps. 335,480  
Commercial
                
Performing Loans
   Ps.       Ps. -  
Impaired Loans
     44,496       24,323  
 Total Commercial
   Ps. 44,496     Ps. 24,323  
                 
 Total Non accrual loans
   Ps. 441,874     Ps. 359,803  

An aging analysis of past due account receivables, segregated by class of account receivables, as of June 30, 2015 and 2014 was as follows:

   
As of June 30, 2015
  
   
30-90 Days
    
91-180 Days
    
 181-360 Days
    
Greater
    
Total
    
Current
    
Total
  
   
Past Due
    
Past Due
    
Past Due
    
than 360
    
Past Due
          
Financing
  
Consumer
                                                
Advances
     904       119       62       6       1,091       17,846       18,937  
Mortgage Loans
     24,196       6,707       4,350       19,682       54,935       2,662,466       2,717,401  
Personal Loans – BHSA
     74,437       40,349       47,916       249       162,951       2,449,316       2,612,267  
Personal Loans – Financial trusts
     94,144       31,334       21,030       463       146,971       727,455       874,426  
Credit Card Loans – BHSA
     58,835       53,133       62,318       341       174,627       7,349,464       7,524,091  
Credit card Loans – Tarshop
     112,302       49,500       53,187       6,632       221,621       1,297,727       1,519,348  
Total Consumer Loans
     364,818       181,142       188,863       27,373       762,196       14,504,274       15,266,470  
                                                         
Commercial:
                                                        
Performing Loans
     1,568       -       -       -       1,568       6,852,329       6,853,897  
Impaired loans
     -       173       11,402       32,921       44,496       -       44,496  
Total Commercial Loans
     1,568       173       11,402       32,921       46,064       6,852,329       6,898,393  
Total
     366,386       181,315       200,265       60,294       808,260       21,356,603       22,164,863  


 

 
F-345
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
As of June 30, 2014
  
   
30-90 Days
    
91-180 Days
    
181-360 Days
    
Greater
    
Total
    
Current
    
Total
  
   
Past Due
    
Past Due
    
Past Due
    
than 360
    
Past Due
          
Financing
  
Consumer
                                                
Advances
     837       111       131       324       1,403       24,648       26,051  
Mortgage Loans
     27,812       7,235       5,403       25,317       65,767       2,801,484       2,867,251  
Personal Loans
     78,819       36,785       37,735       430       153,769       1,937,243       2,091,012  
Credit Card Loans – BHSA
     71,613       54,950       49,225       25       175,813       5,009,921       5,185,734  
Credit card Loans – Tarshop
     156,447       57,833       55,617       4,359       274,256       1,148,441       1,422,697  
Total Consumer Loans
     335,528       156,914       148,111       30,455       671,008       10,921,737       11,592,745  
                                                         
Commercial:
                                                        
Performing Loans
     164       -       -       -       164       6,182,102       6,182,266  
Impaired loans
     -       1,777       5,550       16,996       24,323       -       24,323  
Total Commercial Loans
     164       1,777       5,550       16,996       24,487       6,182,102       6,206,589  
Total
     335,692       158,691       153,661       47,451       695,495       17,103,839       17,799,334  


Financial receivables that are past due 90 days or more do not accrue interests.

Credit Quality

The following tables contain the loan portfolio classification by credit quality indicator set forth by the Argentine Central Bank.

Commercial Portfolio:

 
Loan Classification
Description
 
1.  Normal Situation
  
The debtor is widely able to meet its financial obligations, demonstrating significant cash flows, a liquid financial situation, an adequate financial structure, a timely payment record, competent management, available information in a timely, accurate manner and satisfactory internal controls. The debtor is in a sector of activity that is operating properly and has good prospects.
 
2.  With Special Follow-up
  
Cash flow analysis reflects that the debt may be repaid even though it is possible that the customer’s future payment ability may deteriorate without a proper follow-up.
This category is divided into two subcategories:
(2.a). Under Observation;
(2.b). Under Negotiation or Refinancing Agreements.
 
3.  With Problems
  
Cash flow analysis evidences problems to repay the debt, and therefore, if these problems are not solved, there may be some losses.
 
4.  High Risk of Insolvency
  
Cash flow analysis evidences that repayment of the full debt is highly unlikely.
 
5.  Uncollectible
  
The amounts in this category are deemed total

 

 
F-346
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


 
losses. Even though these assets may be recovered under certain future circumstances, inability to make payments is evident at the date of the analysis. It includes loans to insolvent or bankrupt borrowers.

Credit quality indicators for the commercial portfolio are reviewed, at a minimum, on an annual basis.

 
Consumer Portfolio:

 
Loan Classification
Description
 
1.  Normal Situation
  
Loans with timely repayment or arrears not exceeding 31 days, both of principal and interest.
 
2.  Low Risk
  
Occasional late payments, with a payment in arrears of more than 32 days and up to 90 days. A customer classified as “Medium Risk” having been refinanced may be recategorized within this category, as long as he amortizes one principal installment (whether monthly or bimonthly) or repays 5% of principal.
 
3.  Medium Risk
  
Some inability to make payments, with arrears of more than 91 days and up to 180 days. A customer classified as “High Risk” having been refinanced may be recategorized within this category, as long as he amortizes two principal installments (whether monthly or bimonthly) or repays 5% of principal.
 
4.  High Risk
  
Judicial proceedings demanding payment have been initiated or arrears of more than 180 days and up to one year. A customer classified as “Uncollectible” having been refinanced may be recategorized within this category, as long as he amortizes three principal installments (whether monthly or bimonthly) or repays 10% of principal.
 
5.  Uncollectible
  
Loans to insolvent or bankrupt borrowers, or subject to judicial proceedings, with little or no possibility of collection, or with arrears in excess of one year.

Credit quality indicators for the consumer portfolio are reviewed on a monthly basis.

The following table shows the account receivable balances categorized by credit quality indicators for the periods ended June 30, 2015 and 2014:

 

 
F-347
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
As of June 30, 2015
  
   
"1"
    
"2"
    
"3"
    
"4"
    
"5"
        
   
Normal Situation
    
With special follow-up or Low Risk
    
With problems or Medium Risk
    
High risk of insolvency or High risk
    
Uncollectible
    
Total
  
Consumer
                                    
Advances
     17,846       904       119       62       6       18,937  
Mortgage Loans
     2,662,466       24,196       6,707       4,350       19,682       2,717,401  
Personal Loans – BHSA
     2,449,316       74,437       40,349       47,916       249       2,612,267  
Personal Loans – Financial trusts
     796,527       24,931       31,418       21,550       -       874,426  
Credit Card Loans – BHSA
     7,349,464       58,835       53,133       62,318       341       7,524,091  
Credit card Loans – Tarshop
     1,297,727       112,302       49,500       53,187       6,632       1,519,348  
Total Consumer Loans
     14,573,346       295,605       181,226       189,383       26,910       15,266,470  
                                                 
Commercial:
                                                
Performing loans
     6,852,329       1,568       -       -       -       6,853,897  
Impaired loans
     -       -       173       11,402       32,921       44,496  
Total Commercial Loans
     6,852,329       1,568       173       11,402       32,921       6,898,393  
Total Financing Receivables
     21,425,675       297,173       181,399       200,785       59,831       22,164,863  
 
   
As of June 30, 2014
  
   
"1"
    
"2"
    
"3"
    
"4"
    
"5"
          
   
Normal Situation
    
With special follow-up or Low Risk
    
With problems or Medium Risk
    
High risk of insolvency or High risk
    
Uncollectible
    
Total
  
Consumer
                                                
Advances
     24,648       837       111       131       324       26,051  
Mortgage Loans
     2,801,484       27,812       7,235       5,403       25,317       2,867,251  
Personal Loans
     1,937,243       78,819       36,785       37,735       430       2,091,012  
Credit Card Loans – BHSA
     5,009,921       71,613       54,950       49,225       25       5,185,734  
Credit card Loans – Tarshop
     1,148,441       156,447       57,833       55,617       4,359       1,422,697  
Total Consumer Loans
     10,921,737       335,528       156,914       148,111       30,455       11,592,745  
                                                 
Commercial:
                                                
Performing loans
     6,182,102       164       -       -       -       6,182,266  
Impaired loans
     -       -       1,777       5,550       16,996       24,323  
Total Commercial Loans
     6,182,102       164       1,777       5,550       16,996       6,206,589  
Total Financing Receivables
     17,103,839       335,692       158,691       153,661       47,451       17,799,334  


Troubled debt restructuring

According to BCRA regulations, a refinancing is considered to exist whenever any of the original contractually agreed conditions for a financing transaction (term, capital, interest or rate) are modified.

We concluded that all our refinanced loans comply with the conditions for considering them as troubled debt restructuring (“TDR”) as defined under U.S. GAAP. In accordance with ASC 310-40 a restructured loan is considered a TDR if the debtor is experiencing financial difficulties and the

 

 
F-348
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


Bank grants a concession to the debtor that would not otherwise be considered. Concessions granted could include: reduction in interest rate to rates that are considered below market, extension of repayment schedules and maturity dates beyond original contractual terms.

The following table presents for the financing receivables modified as troubled debt restructurings within during the last two periods:

   
As of June 30, 2015
  
   
Number of contracts
  
Post-modification Outstanding recorded investment
  
Consumer
            
Advances
     63     Ps. 1,463  
Mortgage Loans
     174       4,490  
Personal Loans
     6,921       160,312  
Credit Card Loans – BHSA
     21,472       245,522  
Credit card Loans – Tarshop
     15,512       92,758  
 Total Consumer
     44,142     Ps. 504,545  
                 
Commercial
                
Performing Loans
     -     Ps. -  
Impaired Loans
     -       -  
 Total Commercial
     -     Ps. -  
                 
 Total TDRs
     44,142     Ps. 504,545  

       
       
   
As of June 30, 2014
  
   
Number of contracts
  
Post-modification Outstanding recorded investment
  
Consumer
            
Advances
     52     Ps. 987  
Mortgage Loans
     110       3,602  
Personal Loans
     4,140       79,250  
Credit Card Loans – BHSA
     1,209       14,749  
Credit card Loans – Tarshop
     18,553       89,655  
 Total Consumer
     24,064     Ps. 188,243  
                 
Commercial
                
Performing Loans
     -     Ps. -  
Impaired Loans
     -       -  
 Total Commercial
     -     Ps. -  
                 
 Total TDRs
     24,064     Ps. 188,243  

The following table presents for, the financing receivables modified as troubled debt restructurings within the previous 12 months and for which there was a payment default during that period. We consider a TDR that have subsequently defaulted if the borrower has failed to make payments of either principal, interest or both for a period of 90 days or more from contractual due date.

 

 
F-349
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



   
As of June 30,
  
   
2015
    
2014
  
   
Number of contracts
  
Recorded investment
    
Number of contracts
  
Recorded investment
  
Consumer
                        
Advances
     10     Ps. 197       6     Ps. 85  
Mortgage Loans
     25       783       22       490  
Personal Loans
     1,116       21,602       469       6,816  
Credit Card Loans – BHSA
     672       7,923       590       6,262  
Credit card Loans – Tarshop
     5,146       26,253       8,571       41,835  
 Total Consumer
     6,969     Ps. 56,758       9,658     Ps. 55,488  
                                 
Commercial
                                
Performing Loans
     -     Ps. -       -     Ps. -  
Impaired Loans
     -       -       -       -  
 Total Commercial
     -     Ps. -       -     Ps. -  
                                 
Total TDRs that subsequently defaulted
     6,969     Ps. 56,758       9,658     Ps. 55,488  

Allowance for Credit Losses

Accounts receivable balances are classified as uncollectible and written off from the Consolidated Balance Sheet when 365 days past due and subsequently recorded in memorandum accounts.

The activity in the allowance for accounts receivables losses under U.S. GAAP for the fiscal periods ended June 30, 2015 and 2014 was as follows:

     
 
Argentine Banking GAAP
  
U.S. GAAP
  
Adjustment
  
June 30, 2014
   Ps. 406,818     Ps. 596,656     Ps. (189,838 )
                         
Variances
     107,576       138,279       (30,703 )
                         
June 30, 2015
   Ps. 514,394     Ps. 734,935     Ps. (220,541 )

r. Comprehensive income

ASC 220 establishes standards for reporting and disclosure of comprehensive income and its components (revenues, expenses, gains and losses) in the financial statements. Comprehensive income is the total of net income and other charges or credits to equity that are not the result of transactions with owners.

The following disclosure presented for the twelve-month periods ended June 30, 2015, 2014 and 2013, shows all periods in Argentine Banking GAAP format reflecting U.S. GAAP income and comprehensive statement adjustments.

 

 
F-350
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



 
June 30,
  
 
2015
  
2014
  
2013
  
Income Statement
                  
                   
Financial income
   Ps. 5,559,510     Ps. 4,666,910     Ps. 2,418,505  
Financial expenses
     (3,241,306 )     (2,399,052 )     (1,281,120 )
Net financial income
   Ps. 2,318,204     Ps. 2,267,858     Ps. 1,137,385  
Provision for loan losses
     (405,973 )     (333,025 )     (258,629 )
Income from services
     3,264,698       2,145,423       1,365,116  
Expenses for services
     (768,870 )     (682,638 )     (290,908 )
Administrative expenses
     (3,411,162 )     (2,380,651 )     (1,621,522 )
Net income from financial transactions
   Ps. 996,897     Ps. 1,016,967     Ps. 331,442  
Miscellaneous income
     317,530       188,928       193,422  
Miscellaneous expenses
     (466,554 )     (286,596 )     (168,735 )
Income before income taxes and Non-controlling interest
   Ps. 847,873     Ps. 919,299     Ps. 356,129  
Income taxes
     (332,940 )     (314,005 )     (96,586 )
Net income under U.S. GAAP
   Ps. 514,933     Ps. 605,294     Ps. 259,543  
Less Net (Loss) attributable to the Non-controlling interest
     4,369       10,284       (8,834 )
Net income attributable Controlling interest in accordance with U.S. GAAP
   Ps. 519,302     Ps. 615,578     Ps. 250,709  
                         
Other comprehensive income (loss):
                        
                         
Unrealized gains (loss) on securities
     15,591       22,283       (7,377 )
Other comprehensive income (loss)
   Ps. 15,591     Ps. 22,283     Ps. (7,377 )
Comprehensive income
  Ps. 534,893     Ps. 637,861     Ps. 243,332  

s. Risks and Uncertainties

All transactions involving the purchase of foreign currency must be settled through the single free exchange market (Mercado Único Libre de Cambios, or “MULC”) where the Central Bank supervises the purchase and sale of foreign currency. Under Executive Branch Decree No. 260/2002, the Argentine government set up an exchange market through which all foreign currency exchange transactions are made. Such transactions are subject to the regulations and requirements imposed by the Central Bank. Under Communication “A” 3471, as amended, the Central Bank established certain restrictions and requirements applicable to foreign currency exchange transactions. If such restrictions and requirements are not met, criminal penalties shall be applied.

On October 28, 2011, the Federal Administration of Public Revenues (Administración Federal de Ingresos Públicos, “AFIP”) established an Exchange Transactions Inquiry Program (“Inquiry Program”) through which the entities authorized by the Central Bank to deal in foreign exchange must inquire and register through an IT system the total peso amount of each exchange transaction at the moment it is closed. All foreign exchange sale transactions, whether involving foreign currency or banknotes, irrespective of their purpose or allocation, are subject to this inquiry and registration system, which determines whether Transactions are “Validated” or “Inconsistent”.

Pursuant to Communication “A” 5239, afterward replaced by Communication “A” 5245, in the case of sales of foreign exchange (foreign currency or banknotes) for the formation of off-shore

 

 
F-351
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


assets by residents without the obligation of subsequently allocating it to specific purpose, entities authorized to deal in foreign exchange may only allow transactions through the MULC by those clients who have obtained the validation and who comply with the rest of the requirements set forth in the applicable foreign exchange regulations. Sales of foreign exchange other than for the formation of off-shore assets by residents without a specific purpose are also exempted from the Inquiry Program, although, the financial entities must verify that the other requirements established by the MULC are accomplished.

According to Communication “A” 5264, as amended, in general terms the access to the foreign exchange market for resident in order to pay services, debts and profits to non-residents has no limits or restrictions. The access to the MULC requires the filing of certain documentation by residents evidencing the validity of transactions for which the funds are purchase for its remittance abroad. Communication “A” 5236, item 4.2. which regulated the outflow of fund allowing residents to access to the MULC for the formation of off-shore assets without a specific allocation by residents has been suspended and, up to now, the Central Bank has not issued any other measure or provisions in this regard.

On August 6, 2012, Resolution  #3210 was replaced by Resolution #3356 enacted by AFIP. This resolution sets forth more restrictions for the access to the foreign exchange market, in particular for the outflow of funds made by residents. Both resolutions (3210 and 3356) are related with Communications “A” 5239 (currently abrogated) and 5245.

The Argentine government may, in the future, impose additional controls on the foreign exchange market and on capital flows from and into Argentina, in response to capital flight or depreciation of the Peso. These restrictions may have a negative effect on the economy and on our business if imposed in an economic environment where access to local capital is constrained.

t. U.S. GAAP estimates

Valuation reserves, impairment charges and estimates of market values on assets and step up bonds discounting, as established by the Bank for U.S. GAAP purposes are subject to significant assumptions of future cash flows and interest rates for discounting such cash flows. Losses on the exchange of government and provincial bonds were significantly affected by higher discount rates. Should the discount rates change in future years, the carrying amounts and charges to income and shareholders’ equity deficit will also change. In addition, as estimates of future cash flows change, so too will the carrying amounts which are dependent on such cash flows. It is possible that changes to the carrying amounts of loans, investments and other assets will be adjusted in the near term in amounts that are material to the Bank’s financial position and results of income.

u. Allowance for loan losses

Management believes that the current level of allowance for loan losses recorded for U.S. GAAP purposes are sufficient to cover incurred losses of the Bank’s loan portfolio as of June 30, 2015 and 2014. Many factors can affect the Bank’s estimates of allowance for loan losses, including expected cash flows, volatility of default probability, migrations and estimated loss severity. The process of determining the level of the allowance for credit losses requires a high degree of judgment. It is possible that others, given the same information, may at any point in time reach different reasonable conclusions. If market conditions and economic uncertainties exist, it might result in higher credit losses and provision for credit losses in future periods.


 
F-352
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)


35. New authoritative pronouncements

During the twelve-months ended June 30, 2015, the FASB has issued Accounting Standards Updates. Those updates applicable for the Bank are mentioned below:

ASU No. 2014-13
In August 2014, the FASB issued de Accounting Standards Update No. 2014-13 “Consolidation” (ASC 810). After transition, the amendments in this Update apply to a reporting entity that is required to consolidate a collateralized financing entity under the Variable Interest Entities Subsections of Subtopic 810-10 when (1) the reporting entity measures all of the financial assets and the financial liabilities of that consolidated collateralized financing entity at fair value in the consolidated financial statements based on other Topics and (2) the changes in the fair values of those financial assets and financial liabilities are reflected in earnings.

The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. For entities other than public business entities, the amendments in this Update are effective for annual periods ending after December 15, 2016, and interim periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an annual period.

The Bank considers this ASU has not any significant effect in the US GAAP disclosures and financial information.

ASU No. 2014-14
The Accounting Standards Update No. 2014-14 “Receivables – Troubled Debt Restructuring by Creditors (ASC 310-40)” was issued by the FASB in August 2014. The amendments in this Update affect creditors that hold government-guaranteed mortgage loans and require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if some conditions are met. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor.

The objective of this Update is to reduce diversity in practice by addressing the classification of foreclosed mortgage loans that are fully or partially guaranteed under government programs. Currently, some creditors reclassify those loans to real estate as with other foreclosed loans that do not have guarantees; others reclassify the loans to other receivables. periods, beginning after December 15, 2014.

In conclusion, the impact of adoption this ASU has not any significant effect in the present US GAAP financial information and disclosures. However, the Bank is in the process of evaluating the impact deriving from the current update for future periods.

ASU No. 2014-16
In November 2014, the FASB issued ASU No. 2014-16 “Derivatives and Hedging (Topic 815)”. The amendments in this Update apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share.

The amendments in this Update do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. That is, an entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should
 
 
F-353
 
 
consider all relevant terms and features’ including the embedded derivative feature being evaluated for bifurcations in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.

The impact of this ASU has not any significant effect in the US GAAP disclosures and financial information for the Bank. The amendments in this Update do not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required.

ASU No. 2014-17
The FASB issued in November 2014 the Accounting Standard Update No. 2014-17 “Business Combinations (Topic 805)”. The objective of this Update is to provide guidance for determining whether and at what threshold an acquiree (acquired entity) that is a business or nonprofit activity can reflect the acquirer’s accounting and reporting basis (pushdown accounting) in its separate financial statements.

This Update provides an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If an acquired entity elects the option to apply pushdown accounting in its separate financial statements, it should disclose information in the current reporting period that enables users of financial statements to evaluate the effect of pushdown accounting.

Current GAAP offers limited guidance for determining whether and at what threshold pushdown accounting should be established in an acquired entity’s separate financial statements.
The Bank considers this ASU has not any significant effect in the US GAAP disclosures and financial information.

ASU No. 2014-18
During December 2014, the FASB issued the Accounting Standards Update No. 2014-18 “Business Combinations (Topic 805)”. The objective of the amendments in this Update is to address the concerns of private company stakeholders that the benefits of the current accounting for identifiable intangible assets acquired in a business combination do not justify the related costs. The amendments provide guidance about an accounting alternative for recognizing or otherwise considering the fair value of identifiable intangible assets acquired as a result of certain specified transactions, including business combinations.

The impact of this Update has not any significant effect in the present US GAAP financial statements.

36. Subsequent events

Negotiable obligations

The following table shows the amount, interest rate and maturity date of each series issued after June 30, 2015:

 

 
F-354
 
BANCO HIPOTECARIO SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As of and for the twelve-month periods ended June 30, 2015, 2014 and 2013
 (Expressed in thousands of Argentine pesos, except share data and as otherwise indicated)



         
 
Issue date
Maturity date
  
Annual interest rate
Banco Hipotecario S.A.
        
Series XXX (Ps. 314,611)
09/04/15
03/04/17
a/b
Mixed (c)
Series XXXI (US$. 14,730 thousand)
09/04/15
09/04/18
a
2.0%
       
BACS Banco de Crédito y Securitización S.A.
      
Series VI (Ps. 141,666)
07/23/15
04/24/17
a/b
Mixed (d)
         
Tarshop S.A.
      
Series XXII (Ps. 126,667)v
07/30/15
01/30/17
a
29.0%
         

(a) Fixed interest rate
(b) Variable interest rate
(c) Fixed rate of 28.25% on the first nine months and variable interest rate of Badlar+450bps from that moment on.
(d) Fixed rate of 27.5% on the first nine months and variable interest rate of Badlar+450bps from that moment on.

Tarshop’s irrevocable capital contribution

On September 11, 2015, the Board of Directors of Banco Hipotecario S.A. approved an irrevocable capital contribution to Tarshop S.A. in the amount of Ps. 52,500 to be made by shareholders Banco Hipotecario S.A. and IRSA Propiedades Comerciales S.A. pro rata of their shareholdings.


 


 
F-355
 

 
NEW LIPSTICK LLC AND SUBSIDIARY
(A Limited Liability Company)
 




Table of Contents
 
Page
   
Consolidated Financial Statements:
  
   
Independent Auditors Report
F-357
   
Consolidated Balance Sheet
As of June 30, 2015 and 2014
 
F-358
   
Consolidated Statements of Operations
For the Years Ended June 30, 2015, 2014, and 2013
 
F-359
   
Consolidated Statements of Changes in Members’ Deficit
For the Years Ended June 30, 2015, 2014, and 2013
 
F-360
   
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2015, 2014, and 2013
 
F-361
   
Consolidated Notes to Financial Statements
June 30, 2015, 2014, and 2013
 
F-362
   
 
 


 
F-356
 

 
INDEPENDENT AUDITORS REPORT
 

 
New Lipstick LLC and Subsidiary

We have audited the accompanying consolidated financial statements of New Lipstick LLC and Subsidiary, which comprise the balance sheets as of June 30, 2015 and 2014 the related statements of operations, changes in members’ deficit and cash flows for the years ended June 30, 2015, 2014 and 2013, and the related notes to the consolidated financial statements.
 
Management’s Responsibility for the Consolidated Financial Statements
 
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
 
Auditors’ Responsibility
 
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
Opinion
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Lipstick LLC and Subsidiary, as of June 30, 2015 and 2014, and the results of its operations and its cash flows for the years ended June 30, 2015, 2014, and 2013, in accordance with accounting principles generally accepted in the United States of America.
 
 
By: /s/Marks Paneth LLP              
New York, NY
November 13, 2015
 


 
F-357
 
 
NEW LIPSTICK LLC AND SUBSIDIARY
(A LIMITED LIABILITY COMPANY)
 
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30,
(Amounts in US dollars)
 
 
 
ASSETS
 
   
2015
    
2014
  
             
Real estate, net
   $ 140,469,010     $ 142,358,747  
Cash and cash equivalents
     1,075,395       851,726  
Tenant receivables, net of allowance for doubtful accounts of
                
$132,141 and $7,264 respectively
     344,104       422,944  
Prepaid expenses and other assets
     5,809,307       5,476,492  
Due from related party
     125,029       120,274  
Restricted cash
     3,477,967       6,155,597  
Deferred rent receivable
     8,856,399       6,938,578  
Lease intangibles, net
     26,533,839       30,012,973  
Goodwill
     5,422,615       5,422,615  
                 
          Total
   $ 192,113,665     $ 197,759,946  
                 
                 
 
LIABILITIES AND MEMBERS' DEFICIT
 
 
Liabilities:
            
     Note payable
   $ 113,201,357     $ 113,201,357  
     Accrued interest payable
     316,216       313,950  
     Accounts payable and accrued expenses
     3,031,831       1,584,699  
     Due to related parties
     319,133       553,616  
     Deferred revenue
     918,800       619,885  
     Tenants’ security deposits
     682,727       657,978  
     Deferred ground rent payable
     136,727,666       108,312,912  
     Lease intangibles, net
     42,365,499       45,279,291  
                 
          Total liabilities
     297,563,229       270,523,688  
                 
Members' deficit
     (105,449,564 )     (72,763,742 )
                 
          Total
   $ 192,113,665     $ 197,759,946  
                 
 
See Notes to Consolidated Financial Statements
 
 

 
 
F-358
 

 
NEW LIPSTICK LLC AND SUBSIDIARY
(A LIMITED LIABILITY COMPANY)
 
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30,
(Amounts in US dollars)
 
                   
   
2015
    
2014
    
2013
  
Revenues
                  
     Base rents
   $ 40,597,526     $ 38,375,303     $ 38,146,887  
     Tenant reimbursements and escalations
     6,903,479       5,427,358       5,354,160  
     Other rental revenue
     40,779       45,292       73,833  
     Other revenue
     1,622       -       -  
     Interest income
     -       -       625  
                         
          Total
     47,543,406       43,847,953       43,575,505  
                         
Expenses
                        
     Real estate taxes
     10,716,257       9,919,196       9,442,029  
     Utilities
     2,927,214       2,598,340       2,511,198  
     Janitorial
     2,056,750       2,157,449       2,054,086  
     Insurance
     318,027       315,545       296,897  
     Repairs and maintenance
     2,262,799       1,445,342       1,332,208  
     Bad debt expense
     124,877       -       433,551  
     Security
     1,047,372       912,362       846,602  
     General and administrative
     835,373       829,010       875,597  
     Management fees
     988,189       948,084       877,898  
     Elevator
     311,875       286,013       174,475  
     HVAC
     62,442       107,515       48,947  
     Tenant reimbursable costs
     154,557       122,139       159,564  
     Ground rent
     45,457,736       45,457,735       45,457,737  
     Interest expense
     4,786,205       4,789,913       4,843,275  
     Amortization
     3,005,570       3,087,330       2,947,812  
     Depreciation
     5,599,278       4,886,008       4,428,733  
                         
          Total
     80,654,521       77,861,981       76,730,609  
                         
Net loss
   $ (33,111,115 )   $ (34,014,028 )   $ (33,155,104 )
 
See Notes to Consolidated Financial Statements

 
F-359
 


NEW LIPSTICK LLC AND SUBSIDIARY
(A LIMITED LIABILITY COMPANY)
     
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' DEFICIT
FOR THE YEARS ENDED JUNE 30,
(Amounts in US dollars)
 
   
2015
    
2014
    
2013
  
                   
Balance, beginning of years
   $ (72,763,742 )   $ (43,679,661 )   $ (20,096,088 )
                         
Contributions from members
     425,293       4,952,500       9,571,531  
                         
Distribution to member
     -       (22,553 )     -  
                         
Net loss
     (33,111,115 )     (34,014,028 )     (33,155,104 )
                         
Balance, end of years
   $ (105,449,564 )   $ (72,763,742 )   $ (43,679,661 )
                         
                         

See Notes to Consolidated Financial Statements
 
 
 
F-360
 
 
NEW LIPSTICK LLC AND SUBSIDIARY
(A LIMITED LIABILITY COMPANY)
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,
(Amounts in US dollars)
 
 
 
 
   
2015
    
2014
    
2013
  
                   
Operating activities
                  
     Net loss
   $ (33,111,115 )   $ (34,014,028 )   $ (33,155,104 )
     Adjustments to reconcile net loss to net cash
                        
       used in operating activities:
                        
          Amortization
     3,005,570       3,087,330       2,947,812  
          Depreciation
     5,599,278       4,886,008       4,428,733  
          Bad debt (recovery) expense
     124,877       (3,827 )     433,551  
          Deferred rent
     (1,917,821 )     (1,929,668 )     (1,972,066 )
          Below market lease amortization
     (2,475,983 )     (2,821,032 )     (3,287,160 )
          Above market lease amortization
     1,442,682       1,544,576       1,548,129  
          Above market ground lease amortization
     (437,809 )     (437,809 )     (437,808 )
          Deferred ground rent
     28,414,754       28,822,593       29,220,501  
          Changes in operating assets and liabilities:
                        
               Restricted cash
     2,702,379       525,764       (2,616,256 )
               Due from related party
     (4,755 )     -       4,000  
               Tenant receivables
     (46,037 )     (86,094 )     (78,989 )
               Prepaid expenses and other assets
     (332,815 )     (340,620 )     (233,930 )
               Accrued interest payable
     2,273       (3,019 )     (3,332 )
               Accounts payable and accrued expenses
     349,380       33,811       (569,720 )
               Due to related parties
     (234,483 )     208,304       34,445  
               Deferred leasing costs
     (994,677 )     (1,526,938 )     (795,940 )
               Unearned revenue
     298,915       310,488       51,876  
                    Net cash (used in) provided by operating activities
     2,384,613       (1,744,161 )     (4,481,258 )
                         
Investing activities
                        
     Additions to real estate
     (2,586,237 )     (3,700,979 )     (4,934,785 )
               Net cash used in investing activities
     (2,586,237 )     (3,700,979 )     (4,934,785 )
                         
Financing activities
                        
     Note principal payments
     -       (1,912 )     (110,817 )
     Contributions from members
     425,293       4,952,500       9,571,531  
               Net cash provided by financing activities
     425,293       4,950,588       9,460,714  
                         
Net (decrease) increase in cash and cash equivalents
     223,669       (494,552 )     44,671  
                         
Cash and cash equivalents, beginning of years
     851,726       1,346,278       1,301,607  
                         
Cash and cash equivalents, end of years
   $ 1,075,395     $ 851,726     $ 1,346,278  
                         
Supplemental disclosure of cash flow information:
                        
Interest paid
   $ 4,783,939     $ 4,792,932     $ 4,846,607  
                         
Schedule of Noncash Investing Activities
                        
Real estate additions were financed through accounts payable
   $ 1,691,693     $ 568,390     $ 507,133  
                         
Deferred leasing costs additions were financed through accounts payable
   $ 90,308     $ 115,867     $ -  
                         
Schedule of Noncash Financing Activities
                        
Lobby exhibit acquired in the year ended June 30, 2013, included in real
                        
estate, and transferred to a 49% member of the Company as a distribution.
   $ -     $ 22,553     $ -  
 
See Notes to Consolidated Financial Statements

 
F-361
 

 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)
Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


NOTE 1: BUSINESS
 
Formation and Property Description
 
New Lipstick LLC (the "Company"), was organized as a Delaware limited liability company and commenced operations on November 3, 2010. The Company was formed among IRSA International, LLC ("IRSA"), Marciano Investment Group, LLC ("Marciano"), Avi Chicouri ("AVI"), Par Holdings, LLC ("PAR"), and Armenonville S.A. ("Armenonville"), collectively (the "Members"). On December 15, 2010, Armenonville assigned 100 percent of itsmembership interest to Lomas Urbanas S.A. IRSA is a wholly-owned subsidiary of TYRUS S.A. ("TYRUS"), a wholly-owned subsidiary of IRSA Inversiones y Representaciones Sociedad Anonima, a company whose shares are listed on the Buenos Aires and New York Stock Exchanges. The Company was formed in order to acquire 100% interest in Metropolitan 885 Third Avenue Leasehold LLC ("Metropolitan"), its wholly-owned subsidiary, and to provide management services to Metropolitan.
 
Metropolitan was organized for the purpose of acquiring and operating a 34 story Class A office tower commonly known as the Lipstick Building located at 885 Third Avenue in New York (the "Property"). Metropolitan leased the land which contains approximately 26,135 square feet. The Property was acquired on July 9, 2007 and contains approximately 635,800 square feet of rentable space, consisting of retail and office spaces.
 
On November 16, 2010 (the "Petition Date"), Metropolitan filed a voluntary pre-packaged plan of reorganization under Chapter 11 of Title 11 of the United States Bankruptcy Code (the "Chapter 11") in the Southern District of New York (the "Bankruptcy Court") including a disclosure statement and plan of reorganization (the "Plan"). The Plan provided for, among other things, the extinguishment of 100% of the shares of Metropolitan and the issuance of the membership interest to the Company. The Plan was approved by Metropolitan's members and the Bankruptcy Court approved the Plan on December 22, 2010 with an effective date of December 30, 2010 (the "Effective Date").
 
    Metropolitan accounted for the reorganization using "fresh start accounting" effective December 30, 2010. Accordingly, the forgiveness of debt was reflected in the predecessor entity's final statement of operations and all assets and liabilities were restated to reflect their reorganization value.
 
    The Company operates under the guidelines of an Operating Agreement (the "Agreement") entered into by the Members on November 15, 2010. The manager of the Company is Lipstick Management, LLC (“LM”), a company affiliated to IRSA.
 
    The Agreement calls for Class A and Class B Members. Class A Members are IRSA, Marciano, and Armenonville and Class B Members are AVI and PAR.
 
    Class B Membership interests of any Class B Member shall be automatically converted, in whole and not in part, into an equal number of Class A Membership interests on the earlier to occur of the date on which LM certifies that all unreturned additional Class A capital contributions and all unreturned Class A capital contributions have been reduced to zero.




 
F-362
 



New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 1: BUSINESS (CONTINUED)

    Formation and Property Description (continued)
 
    Any Class A Member, as defined in the Agreement, may transfer, directly or indirectly, any or all of its percentage interest as a Member in the Company to an unaffiliated third party, but the offering Member must first offer the Right of First Offer ("ROFO") to each of the Class A Members by written notice specifying the cash price and the other terms and conditions of the offer. Upon receipt of the ROFO notice, each of the offeree members has the right, exercisable in ten (10) days, to accept or decline the offer.
 
    The Company shall continue perpetually until dissolution, liquidation or termination.
 
    The liability of the members of the Company is limited to the members´ total contribution, plus any amounts guaranteed by the members.
 
    The Company has adopted a fiscal year end of June 30.
 
    The terms of the Agreement provide for initial capital contributions and percentage interests as follows:

   
Percentage of
Ownership
    
Initial Capital
Contributions
  
IRSA International, LLC
     49.00     $ 15,417,925  
Marciano Investment Group, LLC
     42.00       13,215,365  
Lomas Urbanas S.A.
     2.27       714,259  
Avi Chicouri
     3.07       -  
Par Holdings, LLC
     3.66       -  
Total
     100.00     $ 29,347,549  

    In accordance with the Agreement, the Members may be required to make additional capital contributions which are reasonably related to the operations and/or leasing of the Property and its activities. The Members contributed $ 425,293, $4,952,500, and $9,571,531 for the years ended June 30, 2015, 2014, and 2013, respectively.
 
    Distributions
 
    Distribution of capital will be made to the Member at the times, and in aggregate amounts determined by the Board of Directors of the Company. Distributions amounted to $22,553 for the year ended June 30, 2014. There were no distributions for the years ended June 30, 2015 and 2013.
 
    Allocation of Profit and Losses
 
    The Company´s profits and losses are allocated to the Members.


 
F-363
 

New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
    Principles of Consolidation
 
    The accompanying consolidated financial statements of the Company include the accounts of New Lipstick LLC and its wholly-owned subsidiary Metropolitan.
 
    All significant intercompany accounts and transactions have been eliminated.
 
    Basis of Accounting
 
    The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
 
    Use of Estimates
 
    Management is required to use estimates and assumptions in preparing financial statements in conformity with GAAP.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses.  Accordingly, actual results could differ from those estimates.
 
    Real Estate
 
    Real estate consists of building, building improvements and tenant improvements and is stated at cost. Building and improvements are depreciated over 39 years. Tenant improvements are depreciated over the shorter of the estimated useful life of the asset or the terms of the respective leases.
 
    Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments are capitalized to building improvements and depreciated over their estimated useful lives.
 
    The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is determined by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the assets. If the carrying value of the assets exceeds such cash flows, the assets are considered impaired. The impairment charge to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair value. No impairment was recorded for the years ended June 30, 2015 and 2014.
 
    Cash and Cash Equivalents
 
    The Company considers all highly liquid investments with maturities of three months or less upon acquisition to be cash equivalents.
 
    Concentration of Credit Risk
 
    Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalent accounts in financial institutions. The Company maintains its cash balances at two financial institutions.  At times, such balances may be in excess of the Federal Deposit Insurance Company (FDIC) insurance limit.  According to the FDIC insurance limit, deposits held in noninterest-bearing transaction accounts are aggregated with any interest-bearing deposits the Company may hold in the same ownership category, and the combined total insured is up to at least $250,000. As of June 30, 2015 and 2014, these balances at one of the institutions, including tenant security and escrow amounts, were in excess of federally insurable limits by approximately $3,985,000 and $6,521,000, respectively.

 
F-364
 
 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
    Restricted Cash
 
    Restricted cash represents amounts held in escrow, as required by the lender, to be used for real estate taxes, insurance and other qualified expenditures, as well as tenant security deposits.
 
    Tenant Receivables
 
    The Company carries its tenant receivables at the amount due pursuant to lease agreements but uncollected at period end, less an allowance for doubtful accounts. The Company evaluates its receivables and establishes an allowance for doubtful accounts, based on a history of past write-offs, collections and current conditions.
 
    Revenue Recognition
 
    The Company recognizes base rent on a straight-line basis over the terms of the respective leases. Deferred rent receivable represents the amount by which straight-line rental revenue exceeded rents currently billed in accordance with the lease agreements.
 
    Capitalized below market lease values are amortized as an increase to base rents (see Note 4).
 
    Capitalized above market lease values are amortized as a decrease to base rents (see Note 4).
 
    The Company also receives reimbursements from tenants for certain costs as provided for in the lease agreements. These costs include real estate taxes, utilities, insurance, common area maintenance and other recoverable costs in excess of a base year amount. The reimbursements are recognized when the tenants are billed.
 
    Deferred income represents rent collected in advance of being due.
 
    Deferred Ground Rents
 
    Ground rent expense is accounted for on a straight-line basis over the non-cancelable terms of the ground leases. All future minimum increases in the non-cancelable ground rents consist of either 2.5% or 3% annual increases through May 1, 2068. This has resulted in deferred ground rent payable in the amount of $136,727,666 and $108,312,912 as of June 30, 2015 and 2014, respectively (see Note 6).
 
    Lease Intangibles
 
    Leasing costs and commissions incurred in connection with leasing activities are capitalized and amortized on a straight-line basis over the lives of the respective leases. Unamortized deferred leasing costs are charged to amortization expense upon early termination of the lease.
 
    Above and below market leases and above market ground lease values were recorded on the Property's reorganization date based on the present value (using an interest rate which reflected the risk associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and ground lease, and (ii) management's estimate of fair market lease rates for the corresponding in-place leases and ground lease, measured over a period equal to the remaining non-cancelable term of the leases.
 

 
 
F-365
 

 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)   
 
    Lease Intangibles (continued)
 
    Above market lease values are capitalized as an asset and amortized as a decrease to rental income over the remaining terms of the respective leases. The above market ground lease value is capitalized as a liability and amortized to ground rent expense over the remaining term of the ground lease. Below market lease values are capitalized as a liability and amortized as an increase to rental income over the remaining terms of the respective leases.
 
    The aggregate value of in-place leases were measured based on the difference between (i) the Property valued with existing in-place leases adjusted to market rental rates, and (ii) the Property valued as if vacant, based upon management's estimates. Factors considered by management in their analysis included an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, management included real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, which primarily were a year. Management also estimated costs to execute similar leases including leasing commissions, legal and other related expenses.
 
    The value of in-place leases are amortized to expense over the initial term of the respective leases. As of June 30, 2015, the remaining terms were ranging from three months to ten years.
 
    Income Taxes
 
    No provision for income taxes is necessary in the accompanying consolidated financial statements because the Company is a disregarded entity for federal and state income tax purposes. Income or loss of the Company is includible in the separate income tax returns of the Members. Prior to the effective date of reorganization on December 30, 2010, the Company was treated as a partnership for federal and state income tax purposes. The Company performed a review for uncertainty in income tax positions in accordance with authoritative guidance. As of June 30, 2015, the Company does not believe it has any uncertain tax positions that would qualify for either recognition or disclosure in the consolidated financial statements. The Company is no longer subject to federal or state and local income tax examinations by tax authorities for tax years ending before December 31, 2011. Management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax laws and new authoritative rulings.
 
    The Company´s income tax returns for its tax years commencing January 1, 2009, through December 30, 2010, have been selected by the New York State Department of Taxation and Finance for audit. Such audit is in its preliminary stage. At this time, the Company has not been advised of any proposed changes to its New York State income tax returns filed for the tax years January 1, 2009 through December 30, 2010.


 
F-366
 

 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
    Goodwill
 
    Goodwill represents the excess of the cost of the December 30, 2010 acquisition of Metropolitan over the net of the amounts assigned to assets acquired, including identifiable intangible assets, and liabilities assumed. In accordance with GAAP goodwill is not amortized but is subject to annual impairment tests. Annual impairment tests are performed by either comparing a “reporting units” (in the Company’s case, the Company as a whole) estimated fair value to its carrying amount or by doing a qualitative assessment of a reporting units fair value from the last quantitative assessment to determine if there is a potential impairment.
 
    A qualitative assessment may be done when the results of the previous quantitative test indicated the reporting unit’s estimated fair value was significantly in excess of the carrying value of its net assets and we do not believe there have been significant changes in the reporting unit’s operations that would significantly decrease its estimated fair value or significantly increase its net assets.  Management has selected the end of the Company’s fiscal year as the date on which to either perform its annual impairment tests for goodwill or make the determination as to whether qualitative factors render it unnecessary.  As of June 30, 2015 and 2014, the date of the impairment tests, no impairment of goodwill was identified.
 
    Reclassifications
 
 
Certain prior year balances have been reclassified to conform to the current year consolidated financial statement presentation.
 
    Subsequent Events
 
    The Company has evaluated for potential recognition and disclosure, events subsequent to the date of the balance sheet through October 26, 2015, the date the consolidated financial statements were available to be issued.


    NOTE 3: REAL ESTATE
 
    At June 30, real estate consists of the following:


   
2015
    
2014
  
Building and improvements
   $ 144,892,369     $ 144,879,174  
Tenant improvements
     16,334,789       12,638,444  
      161,227,158       157,517,618  
Less: accumulated depreciation
     (20,758,148 )     (15,158,871 )
  Total
   $ 140,469,010     $ 142,358,747  

 
Depreciation expense amounted to $5,599,278 and $4,886,008, and $4,428,733 for the years ended June 30, 2015, 2014, and 2013, respectively.




.

 
F-367
 


New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 4: LEASE INTANGIBLES
 
    Lease intangibles and the value of assumed lease obligations at June 30, 2015, were as follows:
 
   
 
Leases
In-place
    
Leasing
Costs
    
Above
Market
Leases
    
Total
    
Below
Market
Leases
    
Above Market
Ground Leases
    
Total
  
Cost
   $ 27,149,892     $ 4,111,694     $ 15,316,749     $ 46,578,335     $ 30,470,806     $ 29,041,332     $ 59,512,138  
  Less: accumulated
  Amortization
     (12,088,790 )     (1,083,075 )     (6,872,631 )     (20,044,496 )     (15,176,499 )     (1,970,140 )     (17,146,639 )
Totals
   $ 15,061,102     $ 3,028,619     $ 8,444,118     $ 26,533,839     $ 15,294,307     $ 27,071,192     $ 42,365,499  
 
    Lease intangibles and the value of assumed lease obligations at June 30, 2014 were as follows:

   
 
Leases
In-place
    
Leasing
Costs
    
Above
Market
Leases
    
Total
    
Below
Market
Leases
    
Above Market
Ground Leases
    
Total
  
Cost
   $ 27,149,892     $ 3,142,576     $ 15,316,749     $ 45,609,217     $ 30,470,806     $ 29,041,332     $ 59,512,138  
  Less: accumulated
  Amortization
     (9,520,879 )     (645,416 )     (5,429,949 )     (15,596,244 )     (12,700,516 )     (1,532,331 )     (14,232,847 )
Totals
   $ 17,629,013     $ 2,497,160     $ 9,886,800     $ 30,012,973     $ 17,770,290     $ 27,509,001     $ 45,279,291  

    The aggregate amortization of leases in-place and leasing costs included in amortization expense for the years ended June 30, 2015, 2014, and 2013 were $3,005,570, $3,087,330, and $2,947,812, respectively.
 
    The aggregate amortization of above market ground leases included as a reduction of ground rent expense for the years ended June 30, 2015, 2014, and 2013 were $437,809, $437,809, and $437,808, respectively.
 
    The aggregate amortization of above market leases included as a reduction of base rental income for the years ended June 30, 2015, 2014, and 2013 were $1,442,682, $1,544,576, and $1,548,129, respectively.
 
    The aggregate amortization of below market leases included in base rental income for the years ended June 30, 2015, 2014, and 2013 were $2,475,983, $2,821,032, and $3,287,160, respectively.
 
    The estimated amortization of lease intangibles for each of the five years subsequent to June 30, 2015 and thereafter is as follows:


 
F-368
 
 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 4: LEASE INTANGIBLES (CONTINUED)

   
Leases
In-place
    
Leasing
Costs
    
Above Market Leases
    
 
Total
    
Below Market Leases
    
Above Market Ground Leases
    
 
Total
  
                                           
2016
   $ 2,541,147     $ 448,938     $ 1,407,364     $ 4,397,449     $ 2,463,176     $ 437,809     $ 2,900,985  
2017
     2,540,843       380,183       1,407,364       4,328,390       2,459,981       437,809       2,897,790  
2018
     2,483,557       278,611       1,407,364       4,169,532       2,387,551       437,809       2,825,360  
2019
     2,464,461       260,308       1,407,364       4,132,133       2,363,408       437,809       2,801,217  
2020
     2,462,742       213,759       1,407,364       4,083,865       2,356,387       437,809       2,794,196  
Thereafter
     2,568,352       1,446,820       1,407,298       5,422,470       3,263,804       24,882,147       28,145,951  
Totals
   $ 15,061,102     $ 3,028,619     $ 8,444,118     $ 26,533,839     $ 15,294,307     $ 27,071,192     $ 42,365,499  


    NOTE 5: NOTE PAYABLE
 
    On December 30, 2010, Metropolitan’s existing note agreements with Royal Bank of Canada (the “Lender”) were amended and restated. The outstanding balance of the Amended Note was $115,000,000. The Amended Note bears interest at (i) the London InterBank Offered Rate ("LIBOR") plus 400 basis points, or (ii) Prime Rate plus Prime Rate Margin, if converted into a Prime Rate Loan. The Amended Note provides for a maximum interest rate of 5.25% through February 29, 2012 and 6.25% from March 1, 2012 through August 31, 2015 and matures on August 1, 2017. The interest rate was 4.18% at June 30, 2015.  Interest expense amounted to $4,786,205, $4,789,913, and $4,843,275 for the years ended June 30, 2015, 2014, and 2013, respectively.
 
    Pursuant to a cash management agreement with the Lender, all rents collected are required to be deposited in a clearing account and all funds are disbursed in accordance with the Loan agreement, including the funding of all reserve accounts. In addition, after payment of debt service, operating expenses and other expenses, as defined, forty percent (40%) of all the remaining cash flow in the cash management account is applied to the outstanding principal balance of the loan on a monthly basis. As of June 30, 2015 and 2014, the outstanding principal balance of the Amended Note is $113,201,357 and $113,201,357, respectively.
 
    The Amended Note is collateralized by the Property including all related facilities, amenities, fixtures and personal property owned by the borrower.
 
    The Company pledged a first priority security interest in the Company’s membership interest in Metropolitan to the Lender as collateral security for the Amended Note.

    NOTE 6: GROUND LEASES
 
    The Property was erected on a 26,135 square foot parcel of land (the "Site Area") of which 20,635 square feet is subject to a ground lease (the "Ground Lease") and an adjacent lot containing approximately 5,500 square feet ("Lot A") subject to a ground sub-sublease (the "Ground Sub-sublease").

 
F-369
 
 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 6: GROUND LEASE (CONTINUED)
 
    The Ground Lease matures on the earlier of (i) April 30, 2077, (ii) the date of termination of the Ground Sub-sublease term or (iii) a date if sooner terminated. The Ground Lease provides for monthly ground rent of approximately $925,000 through April 30, 2012, $1,321,000 through April 30, 2013, and provides for annual increases of 2.5% beginning on May 1, 2013 through April 30, 2020.
 
    On May 1, 2020, May 1, 2038 and every ten years thereafter through May 1, 2068, (“Adjustment Years”) ground rent shall be adjusted to be the greater of (a) 1.03 times the base rent payable during the lease year immediately preceding the said Adjustment Year or (b) 7% of the fair market value of the land.
 
    Monthly ground rent shall increase 3% annually for each lease year subsequent to the Adjustment Year. The Ground Sub-sublease is subject to a ground sublease and a prime lease. The ground sublease expires on April 29, 2080 (the "Ground Sublease"), and the prime lease matures on April 30, 2080 (the "Prime Lease"). The Ground Sub-sublease matures on the earlier of (i) April 30, 2077, (ii) the expiration or earlier termination of the Prime Lease or (iii) the expiration or earlier termination date of the Ground Sublease, except for reason of default by the sublandlord as subtenant under the Ground Sublease or the sublandlord as subtenant under the Prime Lease provided that the lessees are not in default under the Ground Sub-sublease or the Ground Sublease.
 
    The Ground Sub-sublease provides for monthly ground rent of $58,000 through April 30, 2010, and approximately $63,000 beginning on May 1, 2010 through April 30, 2020. On May 1, 2020, May 1, 2040 and May 1, 2060, ground rent shall be adjusted to 8% of the fair market value of Lot A, as defined.
 
    For the year ended June 30, 2015, Ground Lease and Ground Sub-sublease expense amounted to $45,136,545 and $759,000, respectively, after giving effect to straight-line rent adjustments of $28,414,754 and $0, respectively. For the year ended June 30, 2014, Ground Lease and Ground Sub-sublease expense amounted to $45,136,544 and $759,000, respectively, after giving effect to straight-line rent adjustments of $28,822,593 and $0, respectively. For the year ended June 30, 2013, Ground Lease and Ground Sub-sublease expenses amounted to $45,136,545 and $759,000, respectively, after giving effect to straight-line rent adjustments of $29,220,501 and $0, respectively.
 
    The Ground Lease also provides the Company with an option to purchase the land (the "Purchase Option"). The Purchase Option is exercisable on April 30, 2020, April 30, 2037 and on the last day of every tenth year thereafter (the "Purchase Date"). The Purchase Price, as defined in the Ground Lease, shall be the amount which together with all ground rent paid by the Company on or before the applicable Purchase Date yields an internal rate of return ("IRR") that equals the Target IRR in respect to the applicable Purchase Date as follows:
 
 
 
F-370
 


 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 6: GROUND LEASE (CONTINUED)


Purchase Date
  
Target IRR
  
       
April 30, 2020
     7.47 %
April 30, 2037
     7.67 %
April 30, 2047
     7.92 %
April 30, 2057
     8.17 %
April 30, 2067
     8.42 %
April 30, 2077
     8.67 %

    In the event the Purchase Option is exercised on April 30, 2020, the Company shall pay a purchase price of approximately $521 million which is based upon an agreed land value of $317 million in July 2007, according to a Target IRR of 7.47%. The Ground Lease also provides for an option to demolish the Property ("Demolition Option") during the period beginning on May 1, 2055, and ending on April 30, 2072 (the "Demolition Period"). The Ground Lease lessor has the option to cause the Company to purchase the Property ("Put Option") at a then Put Price, as defined. The Put Option is exercisable during the period subsequent to the Demolition Option and prior to April 30, 2072.
 
    Future minimum annual ground rents due before giving effect to the fair market value adjustments which are not determinable at the present time are as follows for the five years subsequent to June 30, 2015, and thereafter:

   
Ground Lease
    
Ground Sub-Sublease
    
Total
  
                   
2016
   $ 17,139,836     $ 759,000     $ 17,898,836  
2017
     17,568,332       759,000       18,327,332  
2018
     18,007,540       759,000       18,766,540  
2019
     18,457,729       759,000       19,216,729  
2020
     18,934,872       632,500       19,567,372  
Thereafter
     2,837,562,375       -       2,837,562,375  
Total
   $ 2,927,670,684     $ 3,668,500     $ 2,931,339,184  


 

 
F-371
 

 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 7: TENANT LEASES
 
    The Company leases space in the Property to tenants under long-term noncancelable operating leases.
 
    Future minimum annual base rents due from noncancelable operating leases in each of the five years subsequent to June 30, 2015 and thereafter are as follows:

2016
   $ 39,207,929  
2017
     40,626,201  
2018
     38,220,542  
2019
     37,075,235  
2020
     36,531,739  
Thereafter
     59,314,354  
Total
   $ 250,976,000  

 
    For the year ended June 30, 2015, 2014, and 2013, approximately 71%, 75%, and 77%, respectively, of the Company's base rent before amortization of above and below market bases was from one law firm tenant. For the year ended June 30, 2015, the approximate rental revenue from the one law firm tenant amounted to $27,675,000 of which $0 amounts remain outstanding. For the year ended June 30, 2014, the approximate rental revenue from the one law firm tenant amounted to $27,200,000 of which $0 amounts remain outstanding. For the year ended June 30, 2013, the approximate rental revenue from the one law firm tenant amounted to $26,900,000 of which $0 amounts remained outstanding. Law firms accounted for approximately 79%, 83%, and 82% of the Property’s total base rent for the years ended June 30, 2015, 2014, and 2013, respectively.
 
    At June 30, 2015, 2014, and 2013, the Property was approximately 92%, 89%, and 86% leased, respectively.


    NOTE 8: RELATED PARTY TRANSACTIONS
 
    On April 20, 2011, Lipstick Management LLC (“LM”), an affiliate of the Company, entered into an agreement with the Company’s lender which provides that the Company would be directly responsible for certain fees that are payable to Herald Square Properties LLC (“HSP”). HSP is a 49% owner in LM. LM and the Company are affiliated by common ownership. These fees are based on a consulting agreement between LM and HSP which provides a monthly fee of $12,000. As of January 1, 2013, the Company renewed the contract with HSP which provides a monthly fee of $22,000. As of January 1, 2014, the parties agreed to extend the agreement for one year. The parties have the right to terminate this agreement at any time upon thirty (30) days written notice served to the other party. The total management consulting fee for the year ended June 30, 2015, 2014, and 2013, included in management fees in the accompanying statement of operations, amounted to $264,000, $264,000, and $204,000, respectively.



 
F-372
 
 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)


    NOTE 8: RELATED PARTY TRANSACTIONS (CONTINUED)
 
    On May 3, 2011, the Company entered into an asset management agreement with LM. The Company is charged an asset management fee of 1% of its consolidated gross revenues. Asset management fees incurred to LM amounted to $449,189 for the year ended June 30, 2015, $409,084 for the year ended June 30, 2014, and $398,898 for the year ended June 30, 2013, of which $38,280, $272,763, and $63,826 were unpaid at June 30, 2015, 2014, and 2013, respectively, and is included in due to related party in the accompanying balance sheet. Asset management fees are included in management fees in the accompanying statement of operations.
 
    Effective August 1, 2011, LM leased office space from the Company. The term of the agreement is for five years expiring July 31, 2016. The total amount of rental income earned for the years ended June 30, 2015, 2014, and 2013 amounted to $203,916 for all three years.
 
    Balances with related companies are as follows:

   
2015
    
2014
  
Due from related party:
            
  Lipstick Management LLC
   $ 123,959     $ 120,274  
  Rigby 183 LLC
     405       -   
  I Madison LLC
     310       -   
  IRSA International LLC
     355       -   
    $ 125,029     $ 120,274  
 
    The above amount represents expenses paid by the Company on behalf of related companies, which will be reimbursed by related companies.

   
2015
    
2014
  
Due to related party:
            
   IRSA International, LLC
   $ (39,979 )   $ (39,979 )
   Lipstick Management LLC
     (38,280 )     (272,763 )
   IRSA Inversiones y Representaciones
                
       Sociedad Anonima
     (240,874 )     (240,874 )
    $ (319,133 )   $ (553,616 )

 

 
F-373
 
 
New Lipstick LLC and Subsidiary
(A Limited Liability Company)

Notes to Consolidated Financial Statements
June 30, 2015, 2014 and 2013
(Amounts in US dollars)

    NOTE 9: PROPERTY MANAGEMENT
 
    On December 30, 2010, a property management agreement was entered into with a third party. The term of the property management agreement will continue on a month-to-month basis. The Company is charged a monthly property management fee of approximately $22,917. The total property management fee for the years ended June 30, 2015, 2014, and 2013, included in management fees in the accompanying statement of operations, amounted to $275,000 of which $0 is unpaid as of June 30, 2014 and 2013, and $22,917 was unpaid as of June 30, 2015.


 
F-374
 



 

 EX-1.4 2 exhibit141.htm EXHIBIT 1.4 CRESUD 2015 exhibit141.htm
EXHIBIT 1.4
 
“RESTATED BY-LAWS OF CRESUD SOCIEDAD ANÓNIMA, COMERCIAL, INMOBILIARIA, FINANCIERA Y AGROPECUARIA. TITLE I: NAME, TERM OF DURATION AND PLACE OF BUSINESS. SECTION ONE: NAME: The Company does business under the name of CRESUD SOCIEDAD ANÓNIMA, COMERCIAL, INMOBILIARIA, FINANCIERA Y AGROPECUARIA.  SECTION TWO: TERM OF DURATION: The term of duration of the Company shall expire on June 6, 2082, which term may be extended by a resolution of the Shareholders´ Meeting. SECTION THREE: PLACE OF BUSINESS: The Company’s corporate domicile shall be in the City of Buenos Aires, Argentina. The Company may also establish branches, agencies or any other form of representation whatsoever both within Argentina and abroad. TITLE II. PURPOSE. SECTION FOUR: The purpose of the Company shall be to engage in the following activities either in Argentina or abroad, in its own name, acting on behalf of third parties or in association with third parties: COMMERCIAL: engage in the purchase, sale, import, export, and act as dealer, representative, commission and/or consignment agent of livestock and all types of agricultural and cattle-farming products. REAL ESTATE: engage in the purchase, sale, exchange, operation, lease, management and construction of urban and rural property, division into lots and subdivision of property, including all transactions stipulated in the legal provisions and regulations governing condominium property, civil, industrial and hydraulic constructions, either private or public. FINANCING: Grant short-term or long-term loans, with or without collateral, futures or option transactions and capital contributions to finance transactions made or to be made in the future, purchase, sale and trading of securities, corporate stocks and commodities, debentures and all kinds of marketable securities and credit instruments, irrespective of the systems or methodologies created or to be created in the future. The Company shall not carry out the transactions provided for by Law No. 21,526 or any other transactions for which a public tender may be required. AGRICULTURAL AND CATTLE-FARMING: engage in all forms of exploitation and/or administration of facilities owned by the Company or third parties, for agricultural and cattle-farming, fruit-growing, rice-growing, seed production, forestry and farming activities, set up cattle ranches for cattle wintering and/or breeding, dairy farms and livestock shelters. Plant and replant tress on any plot of land, be it owned by the Company or by third parties. REPRESENTATIONS AND SERVICES: Carry out all kinds of activities as agent, dealer, commission agent, consignment agent, attorney-in-fact and render advisory services in connection with the administration of business and companies, expressly excluding the performance of advisory services in connection with such issues, transactions and/or activities that, pursuant to the legal provisions in force, should be rendered by professionals duly qualified and licensed to do so. SECTION FIVE: MEANS FOR FULFILLMENT OF CORPORATE PURPOSE: A) For a better fulfillment of its corporate purpose, the Company shall have full legal capacity to acquire rights, undertake obligations and carry out any kind of legal acts related to its corporate purpose and not expressly prohibited by the laws or these Bylaws. B) In particular, the Company may: 1) Acquire by purchase or otherwise, real or personal property and any kind of rights, titles, shares or securities and sell, assign, exchange or otherwise dispose of them in any manner whatsoever, or give them as collateral and encumber them, including by way of mortgage, pledge or any other in rem right, and set up easements thereon; 2) Associate with third parties, be them natural or artificial persons, by organizing companies or acquiring interests in companies, entering into joint venture or business cooperation agreements; 3) Enter into any kind of contracts; 4) Undertake any kind of obligations, including loans, and execute any kind of transactions with official or private banks, whether national or foreign, international credit agencies and/or any other kind of institutions; 5) Grant commercial loans related to its business; 6) Take and grant powers of attorney; 7) Accept and make donations; 8) Issue negotiable obligations and other debt securities, in Argentina or abroad, denominated in any currency, either secured or unsecured and convertible into Company shares or not. C) In furtherance of the development of the activities included in its corporate purpose, the Company shall be entitled to organize companies or hold interests in public or private artificial persons, domiciled in Argentina or abroad. TITLE III. CAPITAL AND SHARES – SECTION SIX. CAPITAL: A) The changes in the corporate capital shall be shown in the Company’s financial statements, indicating the authorized amount, class and category of shares, par value and number of votes per share. SECTION SEVEN: SHARES. The Company’s shares are designated as common, book-entry shares of one peso ($1) par value each, entitled to one (1) vote per share. B) The Company may issue preferred shares, either with or without voting rights, which shall be issued in book-entry form. Preferred shares shall be entitled to a preferred dividend, either cumulative or not, pursuant to their terms of issue. Preferred shares may also be entitled to an additional share in net profits or other equity preference admitted by the applicable laws. SECTION EIGHT: ISSUE OF SHARES: A) The capital may be increased by resolution of the general ordinary shareholders’ meeting. B) Each issue of shares shall be implemented in compliance with the rules of the Argentine Securities Commission, the stock exchanges or markets where the Company’s shares are listed, and the Superintendency of Corporations. Any resolution to increase the capital stock shall be recorded  in a notarized deed, unless otherwise resolved by the Shareholders’ Meeting on each occasion, and filed with the Public Registry of Commerce. C) The Shareholders’ Meeting that resolves upon the issue shall determine the features of the shares to be issued, and may delegate to the Board of Directors the power to determine the time of issue, method and conditions of payment, and delegate any other powers permitted by law. D) The holders of common shares have a preemptive right to subscribe for new shares pro rata to their respective shareholdings, in which case they shall exercise such right in the manner and within the term set by the Shareholders’ Meeting and the applicable regulations. In addition, the shareholders who exercise their preemptive rights shall have a residual preemptive right in the event that, upon expiration of the term for exercising preemptive rights, there is a remaining balance of unsubscribed shares; residual preemptive rights shall be exercised concurrently with the preemptive rights. The Board of Directors shall be authorized to order the sale of shares in case of default on the payment thereof, or the forfeiture of rights attached to such shares, or it may choose to demand compliance with the stock subscription agreement, pursuant to the applicable laws. E) Should any capital increase be levied by any tax in the future, the latter shall be paid upon execution of the pertinent registration documents. SECTION NINE: TRANSFER OF SHARES: There are no limitations on the transfer of Company shares. SECTION TEN: PUBLIC OFFERING: The Company may publicly offer its shares in any Argentine or foreign Stock Exchange or Securities Market, by fulfilling all the necessary requirements and procedures. TITLE IV. CORPORATE BONDS AND OTHER SECURITIES. SECTION ELEVEN: CORPORATE BONDS: (A) The Company may issue, in Argentina or abroad, corporate bonds or other securities, in accordance with the applicable legal provisions. (B) The issue shall be decided by a general ordinary or extraordinary Shareholders’ Meeting, as applicable, according to the legislation expressly governing the issue of shares. The Shareholders’ Meeting may delegate to the Board of Directors the powers to decide upon any or all the conditions of issue, pursuant to the applicable legislation. (C) The Company may issue other securities permitted by applicable laws, which may be convertible into shares or not. In the case of convertible securities, shareholders shall have preemptive rights to the extent permitted by the applicable legislation. TITLE V. CONDUCT AND MANAGEMENT. SECTION TWELVE: BOARD OF DIRECTORS: (A) The conduct and management of the Company´s business is vested in the Board of Directors consisting of no more than fifteen (15) and no less than three (3) regular members, and an equal or lesser number of Alternate Directors, as resolved by the ordinary Shareholders’ Meeting. (B) One third out of the total number of Directors shall be replaced every year. For such purpose, once the amendment to the corporate By-laws is approved, the first General Ordinary Shareholders´ Meeting shall resolve upon the term of office of the Directors to be elected for the purpose of complying with the above-mentioned stipulations. Without detriment to the foregoing, each annual Shareholders´ Meeting shall resolve in each particular case an increase or reduction in the number of Directors, their election as well as their term of office, provided that, in the hypothetical case that the Board of Directors should consist of less than nine members, such Directors shall not be replaced in a partial or staggered fashion if this situation could prevent the exercise of cumulative voting rights. (C) Notwithstanding the rules requiring election by cumulative vote, the election of Directors shall occur by voting for a slate of Directors, so long as no shareholder objects. In the event a shareholder objects, voting shall be for each individual nominee. The slate of Directors or individual nominees, as the case may be, shall be elected upon receiving an absolute majority of votes. If no slate of Directors were to obtain a majority, there shall be a new vote between the two slates or individual nominees receiving the highest number of votes. The slate or individual nominees with the highest number of votes shall be deemed elected. SECTION THIRTEEN: DIRECTORS’ PERFORMANCE BONDS: Regular directors shall deposit as guarantee for the performance of their duties at least Pesos ten thousand ($ 10,000) or its equivalent in government securities, or where appropriate, through any of the options permitted by the applicable law. SECTION FOURTEEN: VACANCIES: If any position on the Board of Directors becomes vacant due to death, disability, disqualification, resignation, removal or temporary absence of one or more regular directors, and there are no Alternate Directors available to fill the vacancies, thus preventing the Board from validly holding meetings, the Supervisory Committee shall designate Directors to fill such vacancies on an interim basis until the next general ordinary Shareholders’ Meeting is held. SECTION FIFTEEN: DISTRIBUTION OF POSITIONS: At the first Board of Directors’ meeting, after each general ordinary Shareholders’ Meeting, the Board of Directors shall appoint, from amongst its members, the Regular Directors who shall hold the offices of Chairman, First Vice-Chairman and Second Vice-Chairman. SECTION SIXTEEN: MEETINGS: (A) The Board of Directors shall hold at least one (1) meeting every month; however, the Chairman or the person substituting for the Chairman may call a meeting when it is deemed advisable or upon request by any member. (B) Notices of meetings shall be given by reliable means by the Chairman, or the person substituting for him, at least five days prior to such meeting, indicating the Agenda. Items not included in the agenda may be considered if they originated after notice of such meeting was served and were considered an urgent matter. (C) The Board of Directors shall register all decisions adopted in a minute book officially signed and sealed for such purpose. D) The Company’s Board of Directors may act with the members in attendance, or communicated with one other by other means of simultaneous transmission of sound or images and sound, either existing at present or to be created in the future and in accordance with the laws in force. The supervisory committee shall put on record the legality of the resolutions adopted. In any event, the board minutes shall state the kind of participation in the case of members participating from a remote location. SECTION SEVENTEEN: QUORUM AND MAJORITIES: (A) A quorum for a meeting of the Board of Directors is an absolute majority of its regular members. (B) Resolutions of the Board of Directors shall be passed upon the affirmative vote of a majority of the Directors in attendance, the calculation of which shall include directors present through any means of simultaneous transmission of sound or images and sound, whether existing at present or to be created in the future and in accordance with the laws in force. In case of a tie, the Chairman or the person substituting for the Chairman shall be entitled to a casting vote. SECTION EIGHTEEN: POWERS OF THE BOARD OF DIRECTORS: The Board of Directors has broad powers to organize, manage and direct the Company, including matters requiring special powers, according to section 1881 of the Civil Code and section 9 of Decree-Law No. 5965/63. Accordingly, the Board of Directors may perform any legal act necessary to fulfill the corporate purpose on behalf of the Company, such as, among others, purchase, sell, exchange, lease personal or real property of any kind, being entitled to create any security interest of any nature; grant and receive any pledge, mortgage, personal security or any other guarantee; enter into any kind of private contracts necessary to fulfill the purpose of the Company; give or receive money or property loans, operate with any kind of bank, financial company or credit entity whether in the public or private sector, national or foreign; issue, discount or endorse promissory notes, bills of exchange and checks or other credit instruments on funds of their own or overdrafts; grant and revoke general and special powers of attorney, for court matters, management or others, with broad powers, with or without substitution authority; appoint managers, fixing their salaries and powers; revoke such appointments; commence, pursue, respond or abandon complaints or criminal actions; and perform all legal acts required for the operation and/or administration, in any manner whatsoever, of facilities owned by the Company or third parties, intended for agricultural and cattle-farming, fruit-growing, rice-growing, seed production, forestry and farming activities, cattle ranches for cattle wintering and/or breeding, dairy farms and livestock shelters, planting or replanting trees on any plot of land, owned by the Company or by third parties and take any legal step necessary to fulfill the purpose of the Company. The Board of Directors shall be further empowered to call Shareholders’ Meetings, either general or special, ordinary or extraordinary, as the case may be, establishing the agenda and shall annually submit to the consideration of the general ordinary Shareholders’ Meeting the annual report and financial statements for the fiscal year within the legal term and in compliance with formal requirements. The foregoing enumeration is merely illustrative and not restrictive. Therefore, the Board of Directors may, in general, enter into and perform any transaction, act or contract related to the corporate purpose in compliance with the legal provisions. SECTION NINETEEN: LEGAL REPRESENTATION OF THE COMPANY: The representation of the Company is exercised: (A) by the Chairman of the Board of Directors or his (her) substitute in accordance with these By-laws, or (B) by any two (2) of the remaining Regular Directors acting jointly. In both cases, the officers vested with legal representation powers shall require authorization pursuant to a Board of Directors´ Meeting’s minutes authorizing the relevant act. SECTION TWENTY: CHAIRMAN: In addition to the powers and duties vested in any Regular Director, the Chairman shall represent the Company in accordance with the provisions set forth in the previous section, and, in the event of a tie at a meeting of the Board of Directors, he has a casting vote. The Chairman shall have the duty to comply with and cause the Company to comply with applicable laws, executive orders and other legal provisions applicable to the Company, these By-laws as well as the Shareholders’ Meetings´ and Board of Directors’ Meetings´ resolutions. SECTION TWENTY-ONE: VICE-CHAIRMAN: (A) The First Vice Chairman shall replace the Chairman in the event of death, disability, disqualification, resignation, removal, or absence, whether permanent or temporary. (B) Should the First Vice Chairman be unable to take office as Chairman for any of the foregoing reasons, the Second Vice Chairman shall replace the Chairman. (C) In any event, with the exception of a temporary absence, the Board of Directors shall elect a new Chairman within thirty (30) days after a vacancy occurred. SECTION TWENTY-TWO: EXECUTIVE COMMITTEE: (A) The day-to-day business of the Company shall be managed by an Executive Committee consisting of between four (4) and seven (7) members. Members of the Executive Committee may be elected from among the Board of Directors at the first meeting held after the general ordinary Shareholders’ Meeting. One (1) alternate member- who shall be another regular director- shall also be appointed and he shall take office in the event of a temporary vacancy of any of the regular members. (B) The Executive Committee shall meet with the absolute majority of regular members and resolutions shall be adopted by the vote of the majority of members present; in the event of a tie, the Chairman shall have a casting vote. (C) The Executive Committee, at its first meeting, shall establish the frequency of its meetings, irrespective of the meetings to be held at the request of any of its members. (D) No Agenda shall be required for the meetings to be held by the Executive Committee. (E) Decisions adopted by the Executive Committee shall be recorded in a minute book officially signed and sealed for such purpose. (F) Notwithstanding the powers granted to the Board of Directors either pursuant to the law or these By-laws, the Executive Committee shall manage the day-to-day businesses which are not directly managed by the Board of Directors. Accordingly, the Executive Committee may: (1) appoint managers, determine their authority and fix their compensation; (2) grant powers of attorney, be they general or special, for management, disposition and court matters and revoke same; (3) hire personnel, impose penalties on Company´s employees, dismiss them and fix their compensation; (4) enter into such contracts as may be necessary for the fulfillment of the corporate purpose; (5) manage and dispose of the Company´s property; (6) borrow sums of money to carry on the Company´s business; (7) furnish guarantees to secure obligations undertaken by the Company. This enumeration is merely illustrative, the Executive Committee being empowered to carry out all such acts as may be necessary for the day-to-day business of the Company. TITLE VI. SUPERVISION. SECTION TWENTY-THREE: SUPERVISORY COMMITTEE: (A) Supervision of the Company is the responsibility of a Supervisory Committee composed of three (3) regular and three (3) alternate members elected at a general ordinary Shareholders’ Meeting. At the first meeting following the general ordinary Shareholders´ Meeting, the Supervisory Committee shall appoint a Chairman from among its members. (B) Members shall be elected for a term of one (1) fiscal year. (C) The Supervisory Committee shall meet as frequently as may be necessary to fulfill its responsibilities. (D) The Supervisory Committee shall meet with the attendance of the absolute majority of its members and resolutions shall be adopted by the majority vote of members present at the meeting. (E) The resolutions adopted at such meetings shall be registered in a minute book officially signed and sealed for such purposes. (F) In the event of death, disability, disqualification, resignation, removal or absence, whether permanent or temporary of the regular members, the alternate members shall substitute for them in the order of their appointment. (G) The members of the Supervisory Committee shall have the powers and duties set forth under the Argentine Companies Law. (H) The general ordinary Shareholders’ Meeting shall fix the compensation of the Supervisory Committee’s members pursuant to the provisions of the applicable laws. TITLE VII. SHAREHOLDERS’ MEETINGS. SECTION TWENTY-FOUR: NOTICE OF MEETINGS: (A) Shareholders’ meetings shall be called by the Board of Directors or, if applicable, by the Supervisory Committee as required by law or as requested by the holders of five (5%) of the capital stock of the Company. Shareholders´ Meetings requested by the shareholders must be held within 30 days after receipt of such request. (B) Ordinary Shareholders’ Meetings may be summoned simultaneously, at first and second call, pursuant to section 237 of Law No. 19,550, notwithstanding the legal provision for unanimous Shareholders´ Meetings. If simultaneous notice was not given, Shareholders´ Meetings at second call shall be held within a term of thirty (30) days after failure to meet quorum requirements at the first Shareholders´ Meeting. Notices must be published in compliance with applicable regulations. C) Shareholders’ meetings of any kind may be held remotely and transact business with the shareholders present in person or communicated with one another by means of simultaneous transmission of sounds, images and words, such as videoconference or other similar means, always provided that the rules of registration, quorum and representation are complied with, and the virtual convergence and simultaneous attendance of participants as well as the immediate verbal communication and issuance of votes are ensured. The supervisory committee shall put on record that the decisions adopted meet the relevant requirements. The Board of Directors shall set forth the regulations and other technical issues relating to the remote participation at such meetings and their proper registration, in accordance with the regulations in force and as provided by the controlling body. In all cases, such Shareholders Meetings shall have the same jurisdiction as the Company. The calculation of the quorum present at a meeting held remotely shall include the shareholders present by means of simultaneous transmission of sounds or images and sounds, whether existing at present or to be created in the future and in accordance with the regulations in force. SECTION TWENTY-FIVE: SHAREHOLDERS’ REPRESENTATION: (A) Shareholders may have third parties represent them at any Shareholders’ Meeting by granting a proxy by private instrument with their signatures duly certified by a notary public, judicial or bank officer. (B) Joint holders of shares must arrange for unified representation at Shareholders´ Meetings. SECTION TWENTY-SIX: CHAIR: Shareholders’ meetings shall be presided over by the Chairman of the Board of Directors, or the Director then acting as Chairman of the Board of Directors. SECTION TWENTY-SEVEN: QUORUM AND MAJORITIES: Quorum and majorities are governed by sections 243 and 244 of Law No. 19,550, according to the meeting, except for the quorum at an extraordinary meeting held on second call which shall be held regardless of the number of shareholders with a right to vote present at the meeting. TITLE VIII. FINANCIAL STATEMENTS AND ACCOUNTS. SECTION TWENTY-EIGHT: FISCAL YEAR: Fiscal years shall begin on July 1 of each year and end on June 30 of the following year. The financial statements must be drawn up as of such date in accordance with the legal, regulatory and technical rules in force. SECTION TWENTY-NINE: ALLOCATION OF PROFITS: (A) Net and realized profits shall be allocated in the following order: (1) 5% (five per cent) to a legal reserve until the amount of such reserve equals 20% (twenty per cent) of the Company’s subscribed capital; (2) to fees payable to the members of the Board of Directors and the Supervisory Committee, as established by a Shareholders’ Meeting; (3) to dividends on shares, additional share for preferred stock, if any, and dividends on common stock, or to a voluntary reserve, contingency reserve or to be carried forward, or for any other purpose, as determined by the Shareholders’ Meeting. (B) Dividends shall be paid pro rata the respective equity interests within thirty (30) days after their approval or such shorter term as may be fixed by the applicable provisions and the right to receive payment on dividends shall be forfeited once three (3) years have elapsed after they were made available to the shareholders. Quarterly dividend payments may be authorized by the Shareholders´ Meetings in accordance with applicable laws. TITLE IX. DISSOLUTION AND WINDING-UP. SECTION THIRTY: DISSOLUTION AND WINDING-UP: (A) Should the Company resolve upon its dissolution, liquidation proceedings shall be the responsibility of the Board of Directors and the Supervisory Committee, unless liquidators are appointed by the Shareholders’ Meeting, in which case, the Shareholders’ Meeting shall establish the liquidators’ powers. (B) Once corporate liabilities have been paid and the capital stock reimbursed, the surplus amount shall be distributed ratably among the shareholders according to the respective amounts paid up by them with the preferences herein stated and in compliance with the applicable legal provisions.”

 
 
 

EX-4.10 3 exhibit41.htm EXHIBIT 4.10 CRESUD 2015 exhibit41.htm

TRADUCCIÓN PÚBLICA 
SWORN TRANSLATION 


SEVENTH AGREEMENT FOR THE IMPLEMENTATION OF AMENDMENTS
----TO THE CORPORATE SERVICES MASTER AGREEMENT----

Agreement made in the Autonomous City of Buenos Aires on the 18th day of February of 2015 by and between:

(i) CRESUD S.A.C.I.F. y A., domiciled at Moreno 877, Piso 23 in the Autonomous City of Buenos Aires, represented hereat by the undersigned attorneys-in-fact (hereinafter “CRESUD”) as party of the one part;

(ii) IRSA Propiedades Comerciales S.A., continuing company due to the change of name of Alto Palermo S.A. (APSA), domiciled at Moreno 877, Piso 22 in the Autonomous City of Buenos Aires, represented hereat by the undersigned attorneys-in-fact (hereinafter “IRSAPC”), as party of the second part, and

(iii) IRSA Inversiones y Representaciones Sociedad Anónima, domiciled at Bolívar 108, Piso 1º in the Autonomous City of Buenos Aires and having established domicile for purposes hereof at Moreno 877, Piso 22 in the Autonomous City of Buenos Aires, represented hereat by the undersigned attorneys-in-fact, as party of the third part (hereinafter “IRSA” and collectively with CRESUD and IRSAPC designated as “THE PARTIES”).

WHEREAS:

(i) On June 30, 2004 THE PARTIES executed a Master Agreement for the Exchange of Corporate Services (hereinafter “the Master Agreement”);

(ii) On August 23, 2007 THE PARTIES executed the first Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the “First Agreement”), whereby certain amendments were introduced to the Areas of Exchange of Corporate Services and the Cost Distribution Bases, and new Individually Responsible Persons were appointed;

(iii) On August 14, 2008 and November 27, 2009, THE PARTIES executed the Second Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the "Second Agreement”) and the Third Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the “Third Agreement”), respectively, whereby new amendments were introduced to the Areas of Exchange of Corporate Services and the Cost Distribution Bases;

(iv) On March 12, 2010, THE PARTIES executed an Addendum to the Master Agreement for the Exchange of Corporate Services (hereinafter the “Addendum”) whereby THE PARTIES agree to unify in CRESUD the services of the Areas of Exchange of Corporate Services, to the effect of which the employment agreements of most of the employees of such areas were transferred and the procedure to allocate the costs of potential labor expenses arising from retirement of employees was established;

(v) On July 11, 2011, THE PARTIES executed the Fourth Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the "Fourth Agreement”), and on October 15, 2012, THE PARTIES executed the Fifth Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the "Fifth Agreement") and on November 12, 2013, THE PARTIES executed the Sixth Agreement for the Implementation of Amendments to the Corporate Services Master Agreement (hereinafter the “Sixth Agreement” and together with the First Agreement, the Second Agreement, the Third Agreement, the Fourth Agreement and the Fifth Agreement, the “Agreements”), whereby new amendments were introduced to the Areas of Exchange of Corporate Services and the Cost Distribution Bases;

(vi) Pursuant to the structuring process of a new organizational model of division of areas by business, an agreement was reached to transfer to IRSA and/or IRSAPC the employment agreements of those employees who render services related to the Technical, Infrastructure and Services, Purchases, Architecture and Design and Development and Works Area, Real Estate Business Management, Real Estate Business Human Resources, Safety and Real Estate Areas, all of them related to the real estate business. On February 24, 2014 THE PARTIES executed a Second Addendum to the Master Agreement for the Exchange of Corporate Services (hereinafter the “Second Addendum”) whereby the mechanisms to be used for the allocation of the costs of potential labor expenses that such process would involve were established.

(vii) THE PARTIES have implemented the Master Agreement based on an Implementation Manual updated by Deloitte & Co. S.R.L., (hereinafter “Deloitte”) on February 11, 2008;

(viii) In accordance with the recommendations made by Deloitte on its semi-annual reports, new operational changes have been implemented in the Areas of Exchange of Corporate Services and the Cost Distribution Bases starting in July 2013, which THE PARTIES wish to acknowledge in writing;

(ix) THE PARTIES have disclosed the content of the SEVENTH AGREEMENT FOR THE IMPLEMENTATION OF AMENDMENTS TO THE CORPORATE SERVICES MASTER AGREEMENT (hereinafter the “Seventh Agreement”) to their respective Audit Committees; and

(x) The Board of Directors of IRSAPC, CRESUD and IRSA approved the Seventh Agreement at the meeting held on February 13, 2015;

NOW IN CONSIDERATION OF THE FOREGOING, THE PARTIES hereby agree to execute this Seventh Agreement subject to the following terms and conditions:

ONE: THE PARTIES ratify that the Areas (as defined in the Master Agreement) and the calculation method applicable to the Exchange of Operational Services (also as defined in the Master Agreement) have been changed as from the dates listed below, amending therefore Exhibits I and II, as amended by the Agreements, to the Master Agreement as per the following detail:

(i) Starting in July 2013, in relation to the Shared Services Center Department corresponding to the Administration and Control Area, a decision was made (a) to exclude the Administrative Operations Sector; (b) to exclude the Systems and Technology Sector; (c) to excludes the Shared Services Center Budget and Management Control Sector; (d) to exclude the Special Projects and Control Sector; (e) to include the Expenses Administration Sector; (f) to include the Revenues Administration Sector; (g) to include the Customer Administration Sector; (h) to include the Collection Administration Sector, (i) to include the Treasury Administration Sector, (j) to include the Own Account Administration Sector; (k) to include the Maintenance Systems Sector; (l) to include the Project Systems Sector; (m) to include the Master Data Sector; (n) to include the Technology Sector; (o) to include the IT Services Sector; and (p) to include the IT Security Sector.

In January 2014, a decision was made (a) to change the distribution method of the Shared Services Center Department (formerly based on weighting the sectors reporting to the department); (b) to change the distribution method of the Project Systems Sector (formerly based on weighting salaries and tasks allocated); (c) to change the distribution method of the Systems and Maintenance Sector (formerly based on weighting salaries and tasks allocated); and (d) to exclude the SOX Regulation Sector from the Shared Services Center Department including it as a Department reporting to the Administration and Control Area.

As a result of the decision adopted in this clause, it was further decided to modify Exhibit II such that as from January 2014 it shall be made up as detailed in the new Exhibit II, except for the distribution method mentioned in (a), (b) and (c) above which during the period from July 2013 to December 2013 will be that detailed in the second paragraph of this clause and starting in January 2014, it shall be that included in the new Exhibit II.

(ii) Starting in July 2013, a decision was made to exclude the Farming Investment Management Department from the Areas of Exchange detailed in Exhibit I. Therefore, Exhibit I and Exhibit II were amended accordingly so that as from such date, it shall be made up as detailed in the new Exhibit I and Exhibit II.

(iii) Starting in July 2013, a decision was made to change the distribution method of the Environment and Quality Department (the distribution of the corporate costs of the Environment and Quality area will be made by the hours applied to each global topic per person or company during the period) and as from January 2014, a decision was made to exclude the Environment and Quality Department from the Technical, Infrastructure and Services, Purchases, Architecture and Design, and Development and Works Area, and to include it among the Areas of Exchange and to change its distribution method. Therefore, Exhibit I and Exhibit II were amended accordingly so that as from January 2014, it shall be made up as detailed in the new Exhibit I and Exhibit II, except for the distribution method mentioned above which during the period from July 2013 to December 2013, it will be that detailed in this clause and as from January 2014, it will be that included in the new Exhibit II.

(iv) Starting in January 2014, a decision was made to exclude the Purchases and Hirings Department from the Technical, Infrastructure and Services, Purchases, Architecture and Design, and Development and Works Area and to include it among the Areas of Exchange. Therefore, Exhibit I and Exhibit II were amended accordingly so that as from such date it will be made up as detailed in the new Exhibit I and Exhibit II.

In consideration of the foregoing, the PARTIES hereby put on record that, subject to the clarifications detailed in the preceding clauses and for purposes of updating Exhibits I and II, they shall read as hereto attached for the periods and as from the dates indicated.

TWO: THE PARTIES agree that the costs related to the employees acting in the new Areas included pursuant to this Seventh Agreement, shall be governed in accordance with the terms and conditions set forth in the Master Agreement, the Addendum and the Second Addendum.

THREE: THE PARTIES represent that all the sections of the Master Agreement, the Agreements, the Addendum and the Second Addendum that have not been amended pursuant to this Seventh Agreement continue to be fully in force.

In witness whereof, this Agreement is executed in three (3) copies of the same tenor and to a single effect in the place and on the date first written.


CRESUD S.A.C.I.F.y A.

[illegible signature] / [illegible signature]
Attorneys-in-fact

IRSA Inversiones y Representaciones Sociedad Anónima

[illegible signature] /[illegible signature]
Attorneys-in-fact
[Seal:] Agricultural Engineer Alejandro G. Casaretto, Attorney-in-fact.

IRSA Propiedades Comerciales S.A.
Continuing company due to the change of name of Alto Palermo S.A. (APSA)

[illegible signature] /[illegible signature]
Attorneys-in-fact
[Seal:] Mariano Mitelman, Attorney-in-fact.



 
 
 

------------------------------------------------Exhibit I 

----------------------Description of Corporate Services Exchange Areas 

Human Resources

The Human Resources sector renders to the Parties the service consisting in Human Resources Administration; Human Resources Management, and Organizational Culture Management. Within the main activities of the sector we may mention labor relationships, selection of managerial positions, leadership training and interpersonal skills, remunerations and benefits, internal communication, etc.

Finance

The Finance sector renders to THE PARTIES the service consisting in Investor Relations, Capital Markets, Financial Risk, Planning, Management of Financial Transactions, Financial Analysis.

Institutional Relations

The Institutional Relations sector renders to THE PARTIES the service consisting in the development and control of advertising, broadcasting and marketing actions, relations with the media, preparation of articles, brochures and related activities.

Administration and Control

The Administration and Control sector controls all the accounting transactions of THE PARTIES. It is responsible for the companies’ management control and budget of structure expenses, and its main activities consist in the preparation of the financial statements, tax management, and supervision of the Shared Services Center.

Insurance

The Insurance sector is in charge of managing THE PARTIES’ assets’ coverage by negotiating, acquiring and monitoring insurance policies, dealing with claims in terms of coverage, collection, etc.

Safety

The Safety sector renders to THE PARTIES the surveillance service.

Contracts

The Contracts sector renders to THE PARTIES the service consisting in aid to the preparation, analysis and response to legal briefs, agreements, official letters, etc.

Technical, Infrastructure and Services, Architecture and Design, and Development and Works

The Technical, Infrastructure and Services, Architecture and Design, and Development and Works sector renders to THE PARTIES the services consisting in operational coordination of the following sectors: Architecture and Design; Works Development;and Technical, Infrastructure and Services.

Purchases and Hirings

The Purchases and Hirings sector bears the responsibility of obtaining the most appropriate goods and/or services for the purpose for which they will be used. Quality, costs and terms of delivery are essential when taking the decision to hire. In addition, this sector deals with the necessary means to obtain appropriate funding of the purchases from suppliers.

Environment and Quality

The Environment and Quality sector renders to the PARTIES the services consisting in management of national and municipal permits and licenses before the controlling entities. In addition, it assesses the environmental impact of projects and activities in order to define preventive and corrective actions for minimizing such impacts, following the working methodology set forth in an Environmental Management System.

Real Estate

The Real Estate sector renders to THE PARTIES the services consisting in sales and acquisitions of real estate, except for real estate assigned to the agricultural business.
It monitors the properties considered to be “land reserves” and takes part in the businesses arising from governmental grants (exploitation concessions and private initiatives).

Hotels

The Hotels sector renders to THE PARTIES the services consisting in the integration of the different areas of hotels along with their business relations. It carries out activities to optimize and control hotels’ management and organization.

Board of Directors to be Distributed

The Board of Directors to be Distributed sector includes the employees performing activities of support and assistance to the Parties’ Board of Directors.

Real Estate Business Board of Directors to be Distributed

The Real Estate Business Board of Directors to be Distributed sector includes the employees performing activities of support and assistance to the Board of Directors of IRSA and IRSAPC.

General Management Department to be Distributed

The General Management Department to be Distributed sector includes employees performing activities of support and assistance to the Parties’ General Management Departments.

Board of Directors’ Safety

The Board of Directors’ Safety sector renders to the Parties the service consisting in comprehensive safety for the main officers acting in their Board of Directors.

Audit Committee

The Audit Committee sector includes the employees performing tasks of support and assistance to THE PARTIES' Audit Committee.

Real Estate Business Management

The Real Estate Business Management sector renders the following services to IRSA and IRSAPC: budget and control management, analysis of new businesses, analysis of the business clients’ credit risk, IT support to shopping centers, marketing and leadership agreements for the business legal aspects.

Real Estate Business HHRR

The Real Estate Business HHRR sector renders to IRSA and IRSAPC the service consisting in Human Resource Administration; Human Resource Management; Workplace Safety, Hygiene and Environment; Organizational Culture Management and Project Management. The main sector activities include, among others: personnel management, recruitment and training, compensation and benefits, internal communication, third party control, etc.

Fraud Prevention

The Fraud Prevention sector renders to THE PARTIES corporate Fraud Prevention services.

Internal Audit

The Internal Audit sector renders to THE PARTIES internal audit services.


 
 
 

------------------------------------------------------Exhibit II 
--------------------------------------Cost Distribution Bases 

Corporate Departments
Department
Division / Subdivision
Distribution Method
Human Resources
Human Resources
  
By headcount (non-corporate personnel) and weighting the percentages of other areas (corporate personnel).
 
 
 
 
Project Management
  
 
Project Quality
  
 
Safety and Hygiene
  
Finance
 
Capital Markets
  
Weighting is as follows:
Capital Markets 20%
Relations with Investors 20%
Financial Risk 10%
Financial Administration 20%
Planning 20%
Financial Analysis 10%
Investors Relations: Number of business highlights during the semester, number of result announcements, number of meetings with investors (current or potential) to discuss the companies’ business and strategy, number of active coverages, number of result conferences, the complexity of the website of each company, number of relevant facts published in the Argentine Securities and Exchange Commission and the US Securities and Exchange Commission, and number of Roadshows (Deal o Non-Deal). All items involved are weighted in equal parts.
Capital Markets: Amount of financial transactions conducted in the period weighted at 70% and the remaining 30% corresponds to updates of offering memoranda and “horizontal” works (20F, annual reports, Press Release, etc.)
Financial Risk: Time invested in the duties performed.
Financial Administration: Total assets weighted at 40% and total liabilities weighted at 60%. The resulting percentage shall be weighted at 80% over the total. The remaining 20% will correspond to the percentage that each company consummates over the total inquiries for special transactions.
- Planning: Proportional among the three companies.
Financial Analysis: Time devoted to the tasks performed.
Relations with Investors
  
Financial Risk
  
Financial Administration
  
Planning
  
Financial Analysis
Institutional Relations
Institutional Relations
  
Tasks performed and the time spent in each.
Administration and Control
Each one of the sectors comprising the Department is weighted.
Accounting and Reporting
  
The records of accounting and revenues per company are weighted.
Taxes
  
Salaries are weighted according to the position and tasks performed (per company and in equal shares)
Budget and Global Management Control
  
Same percentage as Administration and Control Department
SOX Regulation
  
Distribution of key control % per front / company (scope matrixes on 2012 base + parking space process to be included in 2013)
Shared Services Center (CSC)
(The percentages of all the sectors reporting to the CSC are weighted according to projected salaries of the sector in question over CSC total salaries).
Expenses Administration
Number of Expense Transactions performed by each Company + Direct Allocation of Resources
Revenues Administration
Number of Revenue Transactions performed by each Company + Direct Allocation of Resources
Customer Administration
Direct Allocation of Resources
Collections Administration
Direct Allocation of Resources
Treasury Administration
 
Number of Treasury Transactions performed by each Company.
Own Account Administration
Number of Transactions performed by each Company.
Technology
Weighting of time spent in each task (related to the services).
IT Services
Number of CASTI incidents processed for each Company.
Master Data
According to the time devoted to each company during the previous semester.
   
Maintenance Systems
Hours devoted to each task.
   
Project Systems
Hours devoted to each task.
   
Commercial Transactions
Hours devoted to each task.
   
IT Security
Weighting of time spent in each task.
   
Process Quality
Weighting of time spent in each task.
   
CSC Human Resources
50% weighting of % of CSC sectors; 50% weighting of Corporate sectors.
   
Errand Running Service
Number of errands run.
Real Estate Business Management
(each of the Departments comprising the Area are weighted. It does not render services to Cresud)
 
Real Estate IT Services
  
70% IRSAPC, 30% to be distributed IRSAPC and IRSA based on supervised projects.
Real Estate Business Analysis
  
Hours devoted to reviewed projects as applicable to IRSA PC or IRSA.
Real Estate Credit Risk
  
Hours worked for each company.
Real Estate Legal Affairs
  
Weighting of hours and salaries.
Real Estate Budget and Management Control
 
  
Actual revenues per company.
Real Estate Business Board of Directors to be Distributed
Real Estate Business Board of Directors to be Distributed
  
Proportional between IRSA and IRSAPC. Excludes Cresud.
Real Estate Business HHRR
Real Estate Business HHRR
  
Based on payroll.
Insurance
Insurance
  
Based on the amount of premiums under the annual insurance program.
Safety
Safety
  
Per hour
Contracts
Contracts
  
Number of contracts executed.
Technical, Infrastructure and Services, Architecture and Design, and Development and Works Department
An average is obtained from the Departments reporting to it
Technical, Infrastructure and Services
(IRSAPC – IRSA: Weighted average from the Departments reporting to it less the percentage allocated to CRESUD. CRESUD: a percentage is calculated based on the hours spent in the tasks performed/planned)
Planning and Control
Weighted average of the areas under the supervision of the TIS Department of IRSA and IRSAPC, excluding CRESUD.
Logistics
Weighted between directly assigned personnel and centralized personnel distributed per square meter of the real property (IRSA and IRSAPC) and time spent in tasks (CRESUD).
Distributed Operations
Square meters of real property held, operated and to which maintenance services are provided (IRSA and IRSAPC) and time spent in tasks (CRESUD).
Architecture
IRSA/IRSAPC: Personnel distributed per surface area and number of stores.
Third parties' services
Distribution of resource allocation.
Traveling Personnel
Maintenance hours (IRSA and IRSAPC) and time spent in tasks (CRESUD).
Engineering and Maintenance
Square meters of real property held, to which maintenance, engineering and other services are provided (IRSA and IRSAPC) and time spent in tasks (CRESUD).
Development and Works
  
Tasks performed and time spent in each.
Architecture and Design
  
Completed projects.
Purchases and Hirings
Purchases and Hirings
  
Weighted volume and amounts of purchase orders.
Environment and Quality
Environment and Quality
  
The distribution of corporate costs of the Environment, Farming Quality and Standardization area will be made according to the hours devoted to each global topic by person and company during the period.
Real Estate
Real Estate
  
Salaries are weighted according to the position and tasks performed (per companies and in equal shares).
Governmental Affairs
  
Weighting of allocated projects.
Hotels
Hotels
  
100% IRSA.
Internal Audit
Internal Audit
  
Times estimated/forecast in the annual plan.
 
Fraud Prevention
Fraud Prevention
  
Proportional among the three companies
Board of Directors to be Distributed
Board of Directors to be Distributed
  
Proportional among the three companies
Audit Committee
Audit Committee
  
Weighting of tasks performed.
General Management Department to be Distributed
General Management Department to be Distributed
  
Proportional among the three companies
Board of Directors’ Safety
Board of Directors’ Safety
  
Proportional among the three companies

THIS DOCUMENT IS A TRUE AND ACCURATE TRANSLATION into English of the document in Spanish I have had before me in Buenos Aires, on this 20th day of October, 2015.

[For authentication purposes only:]                                                                                                                             
ES TRADUCCIÓN FIEL al inglés del documento adjunto redactado en idioma castellano que he tenido ante mí y al cual me remito en Buenos Aires, a los 20 días de octubre de 2015.


 
 
 

EX-8.1 4 exhibit81.htm EXHIBIT 8.1 CRESUD 2015 exhibit81.htm
EXHIBIT 8.1
 
LIST OF SUBSIDIARIES
 
The following table lists our subsidiaries and their jurisdiction of incorporation as of June 30, 2015:
 
Subsidiaries
Country of Incorporation
Direct equity interest of Cresud:
  
Brasilagro-Companhía Brasileira de Propiedades Agrícolas (1)
Brazil
IRSA
Argentina
Doneldon S.A.
Uruguay
Interest indirectly held through IRSA:
  
APSA
Argentina
Emprendimiento Recoleta S.A.
Argentina
Fibesa S.A.
Argentina
Hoteles Argentinos S.A.
Argentina
Dolphin Fund Ltd. (3)
Bermudas
I Madison LLC
United States
Inversora Bolívar S.A.
Argentina
IRSA Development LP
United States
IRSA International LLC
United States
Jiwin S.A.
Uruguay
Liveck S.A.
Uruguay
Llao Llao Resorts S.A. (2)
Argentina
Nuevas Fronteras S.A.
Argentina
Palermo Invest S.A.
Argentina
Real Estate Investment Group LP
Bermudas
Real Estate Investment Group II LP
Bermudas
Real Estate Investment Group III LP
Bermudas
Real Estate Investment Group IV LP
Bermudas
Real Estate Investment Group V LP
Bermudas
Real Estate Strategies LP
Bermudas
Real Estate Strategies LLC
United States
Arcos del Gourmet S.A.
Argentina
Panamerican Mall S.A.
Argentina
E-Commerce Latina S.A.
Argentina
Efanur S.A.
Uruguay
Ritelco S.A.
Uruguay
Shopping Neuquén S.A.
Argentina
Solares de Santa María S.A
Argentina
Torodur S.A.
Uruguay
Tyrus S.A.
Uruguay
Unicity S.A.
Argentina
Interest indirectly held through Brasilagro:
  
Araucária Ltda.
Brazil
Cajueiro Ltda.
Brazil
Ceibo Ltda.
Brazil
Cremaq Ltda.
Brazil
Engenho de Maracajú Ltda.
Brazil
Flamboyant Ltda.                                
Brazil
Jaborandi Agrícola Ltda.
Brazil
Jaborandi Propriedades Agrícolas S.A.
Brazil
Mogno Ltda.
Brazil
Interest indirectly held through Futuros y Opciones.Com. S.A.:
  
FyO Trading S.A.
Argentina
Granos Olavarría S.A.
Argentina
Interest indirectly held through Helmir. S.A.:
  
Agropecuaria Acres del Sud S.A.
Bolivia
Yatay Agropecuaria S.A.
Bolivia
Interest indirectly held through Doneldon. S.A.:
  
Agropecuaria Acres del Sud S.A.
Bolivia
Ombú Agropecuaria S.A.
Bolivia
Yatay Agropecuaria S.A.
Bolivia
Yuchán Agropecuaria S.A.
Bolivia
Sedelor S.A.
Uruguay
Codalis S.A.
Uruguay
Alafox S.A.
Uruguay
 
(1)  We have consolidated the investment in Brasilagro-Companhía Brasileira de Propiedades Agrícolas (“Brasilagro”) considering that the Company exercises “de facto control” over it.
(2)  We have consolidated the investment in Llao Llao Resorts S.A. considering their ownership interest held together with the Company's participation in the making decisions.
(3)  We have consolidated its indirect interest in Dolphin Fund Ltd. (DFL) considering its exposure to variable returns coming from its investment in DFL and the nature of the relationship between the Group and the shareholders with right to vote of DFL. The Group has no voting rights on DFL.

 

 EX-12.1 5 exhibit121.htm EXHIBIT 12.1 CRESUD 2015 exhibit121.htm
EXHIBIT 12.1
 
SECTION 302 CERTIFICATION
 
I, Alejandro G. Elsztain, certify that:
 

1.
I have reviewed this annual report on Form 20-F of Cresud S.A.C.I.F. y A. (the “Company”) for the fiscal year ended June 30, 2015;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period converted by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial position at June 30, 2015 and 2014 and the results of operations and cash flows of the Company for the periods ended June 30, 2015, 2014 and 2013;

4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 
d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
 
Cresud S.A.C.I.F y A.
  
       
November 17, 2015
By:
/s/ Alejandro G. Elsztain
  
   
Alejandro G. Elsztain
  
   
Chief Executive Officer
  

 

 
 
 

EX-12.2 6 exhibit122.htm EXHIBIT 12.2 CRESUD 2015 exhibit122.htm
EXHIBIT 12.2
 
SECTION 302 CERTIFICATION
 
I, Matias Gaivironsky, certify that:
 

1.
I have reviewed this annual report on Form 20-F of Cresud S.A.C.I.F. y A. (the “Company”) for the fiscal year ended June 30, 2015;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period converted by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial position at June 30, 2015 and 2014, and the results of operations and cash flows of the Company for, the periods ended June 30, 2015, 2014 and 2013;

4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervisions, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 
d)
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
 
Cresud S.A.C.I.F y A
  
       
Novermber 17, 2015
By:
/s/ Matias Gaivironsky
  
   
Matias Gaivironsky
  
   
Chief Financial Officer
  
       

 

 
 
 

EX-13.1 7 exhibit131.htm EXHIBIT 13.1 CRESUD 2015 exhibit131.htm
EXHIBIT 13.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
In connection with the Annual Report on Form 20-F of Cresud S.A.C.I.F. y A (the “Company”) for the fiscal year ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Alejandro G. Elsztain, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, except as disclosed in “Item 15. Controls and Procedures  ̶  A. Disclosure Controls and Procedures” of the Report; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
Cresud S.A.C.I.F y A.
  
       
November 17, 2015
By:
/s/ Alejandro G. Elsztain
  
   
Alejandro G. Elsztain
  
   
Chief Executive Officer
  
       
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except as to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.



 
 
 

EX-13.2 8 exhibit132.htm EXHIBIT 13.2 CRESUD 2015 exhibit132.htm
EXHIBIT 13.2
 
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C.
SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 
In connection with the Annual Report on Form 20-F of Cresud S.A.C.I.F. y A. (the “Company”) for the fiscal year ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Matias Gaivironsky, as Chief Financial Officer of the company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 

 
 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, except as disclosed in “Item 15. Controls and Procedures  ̶  A. Disclosure Controls and Procedures” of the Report; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


 
 
 
Cresud S.A.C.I.F y A.
  
       
November 17, 2015
By:
/s/ Matias Gaivironsky
  
   
Matias Gaivironsky
  
   
Chief Financial Officer
  
       
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except as to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.
 

 

 
 
 

EX-15.1 9 exhibit151.htm EXHIBIT 15.1 CRESUD 2015 IDBD exhibit151.htm
Exhibit 15.1
 




 

IDB Development Corporation Ltd.

Financial Statements

December 31, 2014
(Unaudited)






*  *
The following is a convenience translation to English.

TRANSLATION FROM HEBREW – IN THE EVENT OF ANY DISCREPANCY THE HEBREW SHALL PREVAIL
 

 
1
 
 
IDB Development Corporation Ltd.
Periodic Report for 2014

Table of Contents:Page

Consolidated Statements of Financial Position
4-5
Consolidated Statements of Income
6
Consolidated Statements of Comprehensive Income
7
Statements of Changes in Equity
8-10
Consolidated Statements of Cash Flows
11-12
Notes to the Financial Statements
  
Note 1-General
13-23
Note 2- Significant Accounting Policies
24-52
Note 3- Investments
53-92
Note 4- Other investments, including derivatives
92-93
Note 5- Loans, deposits, charged and restricted deposits and debit balances
93
Note 6- Fixed Assets
94-96
Note 7- Investment Property
97-101
Note 8- Trade Receivables
102
Note 9- Inventory
102
Note 10- Intangible Assets
103-106
Note 11- Accounts Receivable and Debit Balances
107
Note 12- Inventory of buildings for sale
107
Note 13- Assets and liabilities of realization groups and other assets and liabilities classified as held-for-sale
108
Note 14- Cash and Cash Equivalents
108
Note 15- Equity and Reserves
109-116
Note 16- Bank Loans and other Financial Liabilities at Amortized Cost
117-170
Note 17- Provisions
170-171
Note 18- Employee benefits
172
Note 19- Accounts Payable and Credit Balances
173
Note 20- Trade Payables
173
Note 21-  Financial Instruments
173-197
Note 22-  Liens and Guarantees
198-200
Note 23-  Contingent Liabilities, Commitments and Lawsuits
201-241
Note 24-  Sales and services
242
Note 25- The Group's share of the profits (losses) of investee companies that are treated  under the equity method of accounting, net
242
Note 26- Profit (loss) on disposal and the writing down of investments and assets, and dividends
243
Note 27-  Changes in the fair value of investment property
244
 
 
2
 
 
Note 28-  Financing income and expenses
245
Note 29-  Cost of sales and services
246
Note 30-  Selling and marketing expenses
247
Note 31-  Administrative and general expenses
247
Note 32-  Taxes on income
248-253
Note 33-  Related and Interested Parties
254-279
Note 34-  Segments
280-292
Note 35-  Events after the date of the statement of financial position
292-294
Appendix to the Financial Statements
295-297

Attached documents:
1.  
Included by way of reference to attached papers to the financial statements of Discount Investment Corporation Ltd. as at December 31, 2014, which were submitted by it to the Israel Securities Authority and which were published on March 25, 2015 (reference no. 2015-01-061831).
˗  
Economic papers in connection with an impairment test regarding the goodwill attributed toCellcom Israel Ltd. as at December 31, 2014.
˗ Economic analysis in connection with an impairment test regarding the goodwill attributed toShufersal Ltd. as at December 31, 2014.
˗ An economic analysis regarding the value of a hybrid financial instrument in respect of a non-recourse loan as at December 31, 2014, which was received by Koor Industries Ltd. (“Koor”)within the framework of the merger between  Adama Agricultural Solutions Ltd. andChemChina.
2.  
A valuation as at September 30, 2014 of a commerce and offices project, Great Wash Park, LLC in Las Vegas, which is partly held by the Company and Property & Building Corporation, Ltd. ("Property & Building"), is included in these financial statements by way of reference to the said valuation which is attached with the financial statements of Property & Building as at 30 September, 2014, which was filed by it to the Israel Securities Authority and published on November 16, 2014 (ref. no: 2014-01-195366)
 
3.  
Data regarding the Company’s liabilities are attached to these financial statements, pursuant to Regulation 38E of the Securities Regulations (Periodic and Immediate Reports), 5730 - 1970, by way of reference to the aforementioned data which are included in the report regarding the corporation's liabilities, which was submitted by the company to the Israel Securities Authority and published on March 31, 2015 (reference number 2015-01-125458).
 

IDB Development Corporation Ltd. Convenience translation 
 
 
3
 
Consolidated Statements of Financial Position

     
December 31
  
 
Note
  
2014(2)
    
2013(2)
  
     
NIS millions
  
Non-current assets
 
            
Investments in investee companies accounted by the equity method
3
     3,753       3,749 (1)
Other investments, including derivatives
4
     2,122       355  
Loans, pledged and restricted deposits and debit balances
5
     151       93  
Fixed assets
6
     5,559       5,488  
Investment property
7
     11,175       9,827 (3)
Assets designated for the payment of employee benefits
       1       1  
Long-term trade receivables
8
     476       512  
Real estate and other inventory
       375       374  
Deferred expenses
       284       276  
Deferred tax assets
32
     53       157  
Intangible assets
10
     4,782       5,394 (1)
                   
        28,731       26,226  
                   
Current assets
                  
Other investments, including derivatives
4
     3,317       2,982  
Loans, deposits and pledged and restricted deposits
5
     514       667  
Receivables and debit balances
11
     384       455  
Current tax assets
       46       29  
Trade receivables
8
     2,712       3,059  
Inventory
9
     851       809  
Inventory of buildings for sale
12
     691       849  
Assets of disposal groups and other assets classified as held for sale
13
     5       4,779 (1)
Cash and cash equivalents
14
     3,578       6,313  
        12,098       19,942  
                   
                   
Total assets
       40,829       46,168  
                   
 
(1)
Reclassified - see Note 1.F(1). below.
 
(2)
For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b(1) below.
 
(3)           Retrospective adoption of IFRIC 21, Levies see notes 1.E.(6).a. and 1.F.(1) below.


The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd.                           Convenience translation
 
4
 

Consolidated Statements of Financial Position (Cont.)

     
December 31
  
 
Note
  
2013(2)
    
2012(2)
  
     
NIS millions
  
Capital
 15
            
Share capital
       -       61  
Premium on shares
       2,698       2,146  
Capital reserves
       (87 )     (401 )
Treasury shares
       -       (656 )
Accumulated losses
       (2,834 )     (1,822 )
Capital deficit attributed to shareholders of the Company
       (223 )     (672 )
Non-controlling interests
       3,534       4,687  
        3,311       4,015  
                   
Non-current liabilities
                  
Debentures
16
     18,721       20,672  
Loans from banks and other financial liabilities
16
     3,664       4,196  
Hybrid financial instrument in respect of non-recourse loan
16
     3,090       3,057  
Financial liabilities presented at fair value
       13       11  
Other non-financial liabilities
       108       121 (1) (3)
Provisions
17
     235       132 (1)
Deferred tax liabilities
32
     1,508       1,456  
Employee benefits
18
     174       144  
        27,513       29,789  
                   
Current liabilities
                  
Debentures and current maturities of debentures
       3,303       4,527  
Credit from banking corporations and current maturities of loans from banks and others
16
     1,863       2,482  
Financial liabilities presented at fair value
       50       101  
Payables and credit balances
19
     1,912       2,358 (1)
Trade payables
20
     2,504       2,291  
Current tax liabilities
       133       155  
Overdraft
       80       78  
Provisions
17
     160       207 (1)
Liabilities of disposal groups and other liabilities classified as held for sale
       -       165  
        10,005       12,364  
                   
Total capital and liabilities
       40,829       46,168  

Date of approval of the financial statements: March 30, 2015

IDB Development Corporation Ltd. Convenience translation
 
5
 
Consolidated Statements of Income

     
For the year ended December 31
  
 
Note
  
2014(2)
    
2013(1)
    
2012 (1)
  
     
NIS millions
  
                     
Revenues
    
 
              
Sales and services
24
     18,546       19,985       20,462  
The Group's share in the profit of investee companies accounted for by the equity method, net
25
     -       61       -  
Gain from realization and increase in value of investments assets and dividends
26A.
     958       179 (1)     241  
Increase in fair value of investment property
27A.
     439       417       540  
Other revenues
       1       24       30  
Financing income
28A.
     1,200       665       824  
        21,144       21,331       22,097  
Expenses
                          
Cost of sales and services
29
     13,215       13,835 (3)     14,208 (3)
Research and development expenses
       27       108       36  
Selling and marketing expenses
30
     3,503       3,501 (3)     3,427 (3)
General and administrative expenses
31
     1,034       1,139       1,191  
The Group's share in the loss of investee companies accounted for by the equity method, net
25
     500 (5)     -       932  
Loss from realization, impairment, and write-down of investments and assets
 
26B.
     844        138        450  
Decrease in fair value of investment property
27B.
     26       97       -  
Other expenses
       11       13       60  
Financing expenses
28B.
     2,475       2,446       2,297  
        21,635       21,277       22,601  
Profit (loss) before taxes on income
       (491 )     54       (504 )
Taxes on income
32
     (359 )     (304 )     (452 )
                           
Loss for the year from continuing operations
       (850 )     (250 )     (956 )
Profit from discontinued operations, after tax
       64       763 (1)     463  
Net profit (loss) for the year
       (786 )     513       (493 )
                           
Net profit (loss) for the year attributed to:
                          
The Company’s owners
       (999 )     (153 )     (733 )
Non-controlling interests
       213       666       240  
        (786 )     513       (493 )
                           
Earnings (loss) per share to the Company’s owners(4)
15
  
NIS
    
NIS
    
NIS
  
Basic and diluted loss per share from continuing operations
       (4.10 )     (2.52 )(1)     (5.79 )
Basic and diluted earnings per share from discontinued operations
       0.13       1.82 (1)     2.43  
Basic and diluted earnings (loss) per share
       (3.97 )     (0.7 )     (3.36 )

(1)
           For details regarding the deconsolidation of  Clal Holdings Insurance Enterprises, dated August 21, 2013, see notes 3.H.5.b and 3.I.1. below .
(2)
For details regarding the deconsolidation of Given Imaging in February 2014, and regarding the profit generated by the realization of the investment therein, see note 3.H.6.a. below.
(3)
Reclassified - see note 1.F.(2). below.
(4)
The presented data has been  retroactively adjusted, in accordance with the changes in the company's issued share capital, including the benefit component in the rights issuance  subsequent to the date of the statement of financial position. See note 1.F.(3). below.

The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation
 
6
 

Consolidated Statements of Comprehensive Income

   
For the year ended December 31
  
   
2014(1)
    
2013(1)
    
2012(1)
  
   
NIS millions
  
                   
Net profit (loss) for the year
     (786 )     513       (493 )
                         
Other comprehensive income items after initial recognition under comprehensive income which have been transferred or will be transferred to profit and loss, net of tax
                        
Foreign currency translation differences for foreign operations
     348       (263 )     (23 )
Foreign currency translation differences for foreign operations, charged to profit or loss
     25       3       10  
Effective part in changes in the fair value of cash flow hedging
     10       (12 )     (5 )
Net change in the fair value of cash flow hedging, charged to profit and loss
     -       11       (15 )
Profit from hedging of net investment in foreign operations
     -       -       35  
Profit from hedging of net investment in foreign operations, charged to profit and loss
     -       -       (35 )
Impairment of net assets, charged against revaluation reserve
     -       -       (5 )
The Group's share in other comprehensive income (loss) in respect of investee companies accounted for by the equity method
     572       (315 )     (106 )
                         
Total other comprehensive income (loss) after initial recognition under comprehensive income which has been transferred or will be transferred to profit and loss
     955       (576 )     (144 )
                         
Other comprehensive income items which will not be transferred to profit and loss, net of tax
                        
Revaluation of fixed assets transferred to investment property
     5       7       80  
Actuarial gain (loss) from defined benefit plan
     (14 )     6       (23 )
Change, net, in the fair value of financial assets at fair value through comprehensive income
     (2 )     (8 )     (5 )
The Group's share in other comprehensive income (loss) in respect of investee companies accounted by the equity method
     3       -       (5 )
                         
Total other comprehensive income (loss) which will not be transferred to profit and loss
     (8 )     5       47  
                         
Total comprehensive income (loss) for the year, net of tax
     947       (571 )     (97 )
                         
Total comprehensive income (loss) for the year
     161       (58 )     (590 )
                         
Attributed to:
                        
The Company’s owners
     (385 )     (487 )     (804 )
Non-controlling interests
     546       429       214  
                         
Comprehensive loss for the year
     161       (58 )     (590 )
 
 (1)
For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b. below.

The notes attached to the consolidated financial statements constitute an integral part hereof.


IDB Development Corporation Ltd. Convenience translation
 
7
 

Consolidated Statements of Changes in Equity
 
     Attributed to the Company's owners                
    Share capital     Premium on shares     Other reserves     Reserves in respect of transactions with non-controlling interests     Reserves from translation differences     Hedging reserves     Reserves in respect of available-for-sale financial assets through other comprehensive income     Revaluation reserves     Treasury shares     Accumulated losses     Total capital (capital deficit) atributed to shareholders of the Company     Non-controlling interests     Total Capital  
     NIS millions  
For the year ended December 31, 2014                                                                              
Balance as at January 1, 2014
     61       2,146       251       45       (692 )     (71 )     (14 )     80       (656 )     (1,822 )     (672 )     4,687       4,015  
Profit (loss) for the year
     -       -       -       -       -       -       -       -       -       (999 )     (999 )     213       (786 )
Other comprehensive income (loss) for the year (see Note  15.E.  below)
     -       -       -       -       502       114       (1 )     1       -       (2 )     614       334       948  
Transactions with owners charged directly to equity, investments of owners and distributions to owners
                                                                                                        
Changes in the Company’s capital (see note 15.A. below)
     (61 )     (595 )     -       -       -       -       -       -       656       -       -       -       -  
Conversion to capital of loans and issues (see note 15.B. below)
     -       1,147       -       -       -       -       -       -       -       -       1,147       -       1,147  
Dividends to non-controlling interests
     -       -       -       -       -       -       -       -       -       -       -       (349 )     (349 )
Acquisition of interests in subsidiaries from non-controlling interests (1) (see also note 3.H.4.B below)
     -       -       -       (185 )     (123 )     -       -       -       -       -       (308 )     (859 )     (1,167 )
Sale of interests in subsidiaries to non-controlling interests(2)
     -       -       -       (5 )     -       -       -       -       -       -       (5 )     38       33  
Change in non-controlling interests following discontinuance of consolidation of  a subsidiary
 (see note 3.H.6.a. below)
     -       -       -       -       -       -       -       -       -       -       -       (538 )     (538 )
Share-based payments granted by consolidated companies
     -       -       -       -       -       -       -       -       -       -       -       9       9  
Realization of financial assets measured at fair value through other comprehensive income
     -       -       -       -       -       -       11       -       -       (11 )     -       -       -  
Balance as at December 31, 2014
     -       2,698       251       (145 )     (313 )     43       (4 )     81       -       (2,834 )     (223 )     3,535       3,312  
 
 
(1)
Includes effects in respect of expirations of share-based payment instruments in consolidated companies.
(2)
Includes effects in respect of realizations of share-based payment instruments in consolidated companies.
 
The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation 
 
8
 


Consolidated Statements of Changes in Equity (cont'd)

 
    Attributed to the Company's owners              
    Share Capital     Premium on shares     Other reserves     Reserves in respect of transactions with non-controlling interests     Reserves from translation differences     Hedging reserves     Reserves in respect of available-for-sale financial assets through other comprehensive income     Revaluation reserves     Treasury shares     Accumulated losses     Total capital (capital deficit) attributed to shareholders of the Company     Non-controlling interests     Total capital  
     NIS millions
For the year ended December 31, 2013                                                                              
Balance as at January 1, 2013
     61       2,146       251       53       (419 )     (68 )     (14 )     78       (656 )     (1,671 )     (239 )     4,807       4,568  
Profit (loss) for the year
     -       -       -       -       -       -       -       -       -       (153 )     (153 )     666       513  
Other comprehensive income (loss) for the year (see Note  15.E.  below)
     -       -       -       -       (328 )     (10 )     (3 )     3       -       4       (334 )     (237 )     (571 )
Transactions with owners charged directly to equity, investments of owners and distributions to owners
                                                                                                        
Dividends to non-controlling interests
     -       -       -       -       -       -       -       -       -       -       -       (319 )     (319 )
Acquisition of interests in subsidiaries from holders of non-controlling interests(1)
     -       -       -       14       -       -       -       -       -       -       14       (25 )     (11 )
Sale of interests in subsidiaries to non-controlling interests(2)
     -       -       -       (32 )     64       7       -       -       -       -       39       580       619  
Non-controlling interests in respect of business combination
     -       -       -       -       -       -       -       -       -       -       -       543       543  
Change in non-controlling interests following discontinuance of consolidation of subsidiary (primarily Clal Holdings Insurance Enterprises)
     -       -       -       -       -       -       -       -       -       -       -       (1,673 )     (1,673 )
Sale of interests in subsidiaries to non-controlling interests through profit sharing policies, net (3)
     -       -       -       10       (9 )     -       -       -       -       -       1       306       307  
Transaction with controlling shareholder in subsidiary
     -       -       -       -       -       -       -       -       -       -       -       1       1  
Share-based payments granted by consolidated companies
     -       -       -       -       -       -       -       -       -       -       -       38       38  
Realization of financial assets measured at fair value through other comprehensive income
     -       -       -       -       -       -       3       -       -       (3 )     -       -       -  
Amortization of revaluation reserve, following rise to control, to surplus
     -       -       -       -       -       -       -       (1 )     -       1       -       -       -  
Balance as at December 31, 2013
     61       2,146       251       45       (692 )(4)     (71 )     (14 )     80       (656 )     (1,822 )     (672 )     4,687       4,015  
 
(1)
Includes effects in respect of expiration of share-based payment instruments in consolidated companies.
(2)
Includes effects in respect of realization of share-based payment instruments in consolidated companies.
(3)
Including effects with respect to the discontinuance of the consolidation of Clal Holdings Insurance Enterprises
(4)
Includes NIS 14 million with respect to the assets and liabilities of Given Imaging Ltd., which are classified as held for sale.
 
The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation 
 
9
 

Consolidated Statements of Changes in Equity (Contd.)

 
    Attributed to the Company's owners              
    Share capital     Premium on shares     Other reserves     Reserves in respect of transactions with non-controlling interests     Reserves from translation differences     Hedging reserves     Reserves in respect of available-for-sale financial assets through other comprehensive income     Revaluation reserves     Treasury shares     Accumulated losses     Total capital (capital deficit) attributed to shareholders of the Company     Non-controlling interests     Total capital  
    NIS millions
For the year ended December 31, 2012                                                                              
Balance as at January 1, 2012
     61       2,146       251       140       (381 )     (19 )     (12 )     60       (656 )     (938 )     652       7,310       7,962  
Profit (loss) for the year
     -       -       -       -       -       -       -       -       -          (733)     (733 )     240       (493 )
Other comprehensive income (loss) for the year (see Note  15.E.  below)
     -       -       -       -       (38 )     (49 )     (2 )     31       -       (13 )     (71 )     (26 )     (97 )
Transactions with owners charged directly to equity, investments of owners and distributions to owners
                                                                                                        
Dividends to non-controlling interests
     -       -       -       -       -       -       -       -       -       -       -       (687 )     (687 )
Acquisition of interests in subsidiaries from holders of non-controlling interests(1)
     -       -       -       (8 )     -       -       -       -       -       -       (8 )     (20 )     (28 )
Sale of interests in subsidiaries to non-controlling interests(2)
     -       -       -       -       -       -       -       -       -       -       -       23       23  
Change in non-controlling interests following discontinuance of consolidation of a subsidiary
     -       -       -       -       -       -       -       -       -       -       -       (2,088 )     (2,088 )
Acquisition of interests in subsidiaries to non-controlling interests through profit sharing policies, net
     -       -       -       (30 )     -       -       -       -       -       -       (30 )     (16 )     (46 )
Share-based payments granted by consolidated companies
     -       -       -       -       -       -       -       -       -       -       -       22       22  
Provision of beneficiary loans to a subsidiary
     -       -       -       (6 )     -       -       -       -       -       -       (6 )     6       -  
Charging the share of non-controlling interests in the capital deficit of a subsidiary to the owners of the Company
     -       -       -       (43 )     -       -       -       -       -       -       (43 )     43       -  
Amortization of revaluation reserve, following rise to control, to surplus
     -       -       -       -       -       -       -       (13 )     -       13       -       -       -  
Balance as at December 31, 2012
     61       2,146       251       53       (419 )     (68 )     (14 )     78       (656 )     (1,671 )     (239 )     4,807       4,568  
 
 
 (1)
Includes effects in respect of expirations of share-based payment instruments in consolidated companies.
(2)
Includes effects in respect of realizations of share-based payment instruments in consolidated companies.
 
 
The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation 
 
10
 
 
Consolidated Statements of Cash Flows

 
   
For the year ended December 31
   
2014(1)
    
2013(1)
    
2012(1)
  
   
NIS millions
  
Cash flows from operating activities                  
Profit (loss) for the year
     (786 )     513       (493 )
Profit (loss) from discontinued operations, after tax
     (64 )(3)     (763 ) (2)(3)     (463 )(3)
                         
Adjustments:
                        
The Group's share in the loss (net profit) of investee companies accounted for by the equity method, net
     500       (61 )     932  
Dividends received
     27       40       77  
Realization losses (profits), decrease (increase) and write-downs, net, of investments, assets and dividends
     (114 )     41 (2)     209  
Increase in fair value of real estate investments, net
     (413 )     (320 )     (540 )
Amortization of fixed assets and deferred expenses
     776 (4)     754       819  
Amortization of intangible assets and others
     355 (5)     374       423  
Financing costs, net
     1,274       1,766       1,444  
Expenses of tax on income, net
     359       304       452  
Income tax paid, net
     (197 )     (208 )     (223 )
Share-based payment transactions
     9       27       13  
Receipts (payments) in respect of the settlement of derivatives, net
     (6 )     (17 )     20  
      1,720       2,368       2,670  
Changes in other balance sheet items
                        
Change in other receivables and debit balances (including long term amounts)
     (37 )     (53 )     (87 )
Change in trade receivables (including long term amounts)
     495       559       287  
Change in inventory
     49       196       15  
Change in non-current inventory
     (13 )     (43 )     (15 )
Change in provisions and in employee benefits
     2       9       27  
Change in trade payables
     (20 )     (160 )     (140 )
Change in other payables, credit balances and liabilities in respect of government grants and others (including long term amounts)
     113 (6)     11       (114 )
      589       519       (27 )
                         
Net cash provided from continuing operating activities
     2,309       2,887       2,643  
Net cash provided from discontinued operating activities
     -       1,362       680  
Net cash provided from operating activities
     2,309       4,249       3,323  
 
(1)
For the principal details regarding subsidiaries whose consolidation was discontinued or applied in the Company’s financial statements, see Note 3.I.3.b. below.
(2)
For the details regarding the deconsolidation of Clal Holdings Insurance Enterprises and restatement with respect to discontinued operation, see notes 3.I.1, 3.H.5.a. and . 3.I.3.a. below.
(3)
Including effects with respect to the realization of an investment in Credit Suisse, see note 3.H.4.c. and 3.I.1. below.
(4)
Includes impairment loss in respect of fixed assets in the amount of NIS 54 million with respect to the current business plan of Shufersal, see note 3.H.3.B. below and amortization for impairment loss of excess cost attributecd to Shufersal in the amount of NIS 12 million.
(5)
Includes amortization for impairment loss of excess cost attributed to Shufersal in the amount of NIS 60 million.
(6)
Includes a provision for an onerous contract in the amount of NIS 101 million, and liabilities in respect of dismissal in the amount of NIS 29 million in respect of the current business plan of Shufersal, see note 3.H.3.B  below.

The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation 
 
11
 

Consolidated Statements of Cash Flows (Cont.)

   
For the year ended December 31
  
   
2014(1)
    
2013(1)
    
2012(1)
  
   
NIS millions
  
Cash flows from investing activities
                  
Deposits, loans and long term investments provided
     (197 )     (2 )     (12 )
Repayment of long term deposits and loans provided
     95       18       10  
Decrease (increase) in pledged and restricted deposits, net
     478       (196 )     550  
Current investments, loans and short-term deposits, net
     (438 )     (915 )     (383 )
Investments and loans in investee companies accounted by the equity method
     (50 )     (35 )     (231 )
Non-current investments
     (3 )     (126 )     (74 )
Investments in fixed assets and intangible assets
     (840 )     (734 )     (905 )
Investments in investment property
     (463 )     (508 )     (322 )
Receipts (payments) in respect of the settlement of derivatives, net
     4       (12 )     14  
Acquisitions of subsidiaries, net of acquired cash, as part of their initial consolidation
     (6 )     127       (7 )
Receipts in respect of the realization of consolidated companies, net of cash spent as part of the discontinuance of their consolidation
     1,315 (2)     (2 )     1,663  
Receipts from realization of non-current investments, including dividend from the realization
     93       366       176  
Receipts from realization of investment property, fixed assets and other assets
     229       622       539  
Taxes paid in respect of investment property, fixed assets and other assets
     (88 )     (12 )     (83 )
Interest received
     116       136       190  
                         
Net cash provided from (used for) continuing investing activities
     245       (1,273 )     1,125  
Net cash provided from (used for) discontinued investing activities
     1,202 (3)     (1,915 )     (575 )
Net cash provided from (used for) investing activities
     1,447       (3,188 )     550  
                         
Cash flows from financing activities
                        
Repayment of non-current financial liabilities
     (5,958 ) (5)     (5,552 )     (6,357 )
Interest paid
     (1,724 )     (1,668 )     (1,978 )
Purchase of shares in consolidated companies from non-controlling interests and acquisition of options for the acquisition of non-controlling interests
     (1,167 ) (4)     (11 )     (27 )
Dividends to non-controlling interests in consolidated companies
     (349 )     (272 )     (449 )
Receipts from non-controlling interests in consolidated companies, net
     2       92       18  
Company capital issues
     1,147       -       -  
Non-current financial liabilities received
     1,332       3,248       4,133  
Current financial liabilities, net
     120       (134 )     186  
Sales of shares in consolidated companies to non-controlling interests
     -       528       -  
Receipts Payments in respect of the settlement of derivatives, net
     (101 )     (27 )     (12 )
Net cash used for continuing financing activities
     (6,698 )     (3,796 )     (4,486 )
Net cash used for discontinued financing activities
     -       (659 )     (954 )
Net cash used for financing activities
     (6,698 )     (4,455 )     (5,440 )
                         
Change in cash and cash equivalents from continuing operations
     (4,144 )     (2,182 )     (718 )
Change in cash and cash equivalents from discontinued operations
     1,202       (1,212 )     (849 )
Change in cash and cash equivalents from continuing operations and discontinued operations
     (2,942 )     (3,394 )     (1,567 )
Balance of cash and cash equivalents at beginning of year
     6,313       9,943       11,575  
Effects of fluctuations in exchange rates on balances of cash and cash equivalents
     54       (106 )     (42 )
Change in cash presented under held for sale assets
     153       23       -  
Balance of cash presented under held for sale assets
     -       (153 )     (23 ) (3)
                         
Balance of cash and cash equivalents at end of year
     3,578       6,313       9,943  
 

(1)
For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b. below.
(2)
For details regarding the realization of the investment in Given Imaging and its deconsolidation in February 2014, see note 3.H.6.a.  below.
(3)
Including effects with respect to the realization of an investment in Credit Suisse, see notes 3.H.4.c. and 3.I.1. below.
(4)
For details regarding the merger transaction between Koor and Discount Investment. see note 3.H.4.C. below. For details regarding the acquisition of Shufersal shares, see note 3.H.3.C. below.  
(5)
For details regarding the early redemption of debentures and regarding the repayment of Koor’s loans, see notes 3.H.4.B. below .
(6)
Includes consideration from the exercise of options into shares received from non-controlling interests.
(7)
See note 3.E.  below.

The notes attached to the consolidated financial statements constitute an integral part hereof.

IDB Development Corporation Ltd. Convenience translation 
 
12
 

Notes to the financial statements as of December 31, 2014

Note 1 – General
 
 
A.
IDB Development Corporation Ltd. (“the Company”) is an Israeli resident Company incorporated in Israel. The Company’s registered address of record is 3 Azrieli Center, Triangular Tower, 44th floor, Tel Aviv. The Company is a holding company, investing on its own behalf and through investee companies in companies mainly operating in various sectors of the Israeli and global economy. Some of the investee companies operate by way of global diversification of their investments. In recent years, the Company put a special emphasis on examining possibilities for disposing of such investments, considering, inter alia, the Company’s financing needs and regulatory developments. For this matter, see the sale of its controlling holding stake in Given which closed in February 2014 (note 3.H.6.a below) and the completion of the merger transaction as part of which Koor became a wholly owned subsidiary of Discount Investments in March 2014 (note 3.H.4.b below), which included realization of all Credit Suisse shares (note 3.H.4.b below). See also note 3.H.5.c below with regard to a letter received on December 30, 2014, from the Commissioner of the Capital Market, Insurance and Savings at the Ministry of Finance (“the Commissioner”), which includes, inter alia, a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises.
 
 
As of the supplementary judgment, as part of which the debt arrangement at IDB Holdings Corporation Ltd. (“IDB Holdings”) was approved in January 2014 and until the date of completion of the first stage of the debt arrangement, in May 2014, all of the issued share capital (apart from shares held by the Company itself, which were dormant shares) and all of the voting rights at the Company were held by IDB Holdings through the trustees appointed by the Tel-Aviv-Jaffa District Court to carry out the debt arrangement at IDB Holdings. At the date of completion of the first stage of the debt arrangement, the (indirect) control in the Company was transferred to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, in equal shares (through corporations under their control – Dolphin Netherlands B.V. (“Dolphin Netherlands”), a company incorporated in The Netherlands and which is under the control of Mr. Eduardo Elsztain and CAA Extra Holdings Ltd. (“CAA”), a company fully owned by Mr. Mordechai Ben-Moshe), and IDB Holdings no longer holds shares of the Company.
 
 
Following a rights issue to the shareholders of the Company, which took place in January-February 2015, the amount of the holding of corporations controlled by Mr. Eduardo Elsztain (“Dolphin companies,” and together with CAA, “the controlling shareholders”) increased to approximately 61.5% of the Company’s issued capital, whereas the amount of the holding of Mr. Mordechai Ben-Moshe, through CAA, decreased to approximately 16.2% of the Company’s issued capital (as compared with a holding before the rights issue of approximately 31.3% of the Company’s issued capital by each of the parties). Taking into account the provisions included in the shareholders’ agreement between the Company’s controlling shareholders, as the Company was informed by the controlling shareholders (and particularly the provision that insofar as either of the parties will hold more than 5% of the issued and paid-up capital of the Company more than the other party, then a decision made by that party will bind the other party and the parties will vote by virtue of their shares at the Company’s general meeting according to the decision by the party with the greater holding as well as an instruction regarding the composition of the Company’s Board of Directors), the specified changes in the rates of holding at the Company may lead to changes in the Company’s control structure and the composition of its Board of Directors. The decrease in the rate of holding of Mr. Mordechai Ben-Moshe in the Company’s issued capital to below a rate of 26.65% as stated above, may constitute cause for the lending corporations of the Company and Discount Investments to demand immediate repayment of the loans, as stated in notes 16.E.n and 16.F.1.b below. For details regarding a dispute between the controlling shareholders of the Company regarding the implementation of the aforesaid rights issue and the aforesaid changes in the amounts of the holdings in the Company resulting therefrom, and regarding offers to hold an arbitration between the parties, see note 15.B.5 below.
 
As at December 31, 2014, and as at the date of publication of this report, the Company’s bonds are listed on the Tel Aviv Stock Exchange (“TASE”). In addition, on May 12, 2014, after the completion of the first stage of the debt arrangement in    IDB Holdings and after the transfer of the Company’s shares to Dolphin Netherlands and CAA and to the beneficiaries of the debt arrangement in accordance with the provisions of the arrangement, the Company’s shares began to be traded on TASE. For additional details regarding the debt arrangement in IDB Holdings and the legal proceedings relating thereto, see note 16.G.2 below.
 
 
13
 


Note 1 – General (cont.)
 
 
B.
Regarding the Company’s financial position, its cash flows and its ability to service its liabilities, it should be noted that following the completion of the debt arrangement in IDB Holdings and until the date of the report, since May 2014, a sum of NIS 1,448 million has been invested in the Company’s equity by the controlling owners of the Company (as part of the framework of investments in the company upon completion of the debt arrangement, participation in rights issues made by the Company in June 2014 and January 2015, and the exercise of options) and a sum of NIS 115 million was invested by the public as part of participation in the aforesaid rights issues.
 
 
As part of the Company’s rights issue of January 2015, the Company received consideration in a total amount of NIS 417 million, where the participation of Dolphin Netherlands and Dolphin Fund amounted to NIS 391.5 million, whereas CAA did not participate in the rights issue. For additional details with regard to the rights issue, including with regard to the Company’s position regarding the liability of CAA to participate in the rights issue, see note 15.B.6 and note 16.G.2.j below.
 
 
The Company’s financing agreements include grounds for demanding immediate repayment, including ones that relate to legal proceedings or events involving a change in control. As stated in note 16.E.n below, as at the date of publication of the report, the Company is acting to reach agreements with a lending corporation with regard to changes in the amounts of the holdings in it following the rights issue made in January-February 2015, as stated in note 1.A above.
 
 
With regard to the uncertainties relating to the Company’s financial position and its ability to serve its liabilities, it should be noted that: (a)The payments of dividends from direct investees have decreased in recent years, and there are restrictions upon the distribution of dividends by those companies; (b) There is a need to arrange the control covenant and the financial covenants of the Company to lending institutions, so that alternative financial covenants are formulated that will apply initially to the results of the second quarter of 2015; see note 16.E.l below. In addition, pursuant to agreements with financing providers with regard to restrictions and financial covenants, any realization of material holdings would be subject to consent of these providers (for details of limits on borrowing, pledging, investing and realizing and additional restrictions pursuant to agreements with financing providers, see note 16.E below); in the Company’s estimate, failure to arrange the financial covenants with the financing factors as specified is a block on its ability to raise new credit or refinance its debts (on this matter see also note 16.D below regarding the rating of the Company’s bonds) and the covenants that are to be determined will have a significant effect on the Company’s options on this matter; (c) Legal proceedings are taking place against the Company, including a motion for a derivative action on behalf of Discount Investments with regard to dividends that it distributed. For details, see notes 16.G.1 and 23.C.1.h below;
 
(d) Pursuant to a demand of the Commissioner of Insurance, a trustee was appointed for the Company with regard to the controlling shares in Clal Holdings Insurance Enterprises and a timeframe was agreed for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises – for details, see note 3.H.5.c below; (e) The provisions of the debt arrangement in IDB Holdings and agreements relating thereto (including the agreement of the Company’s shareholders) and the manner of implementing them has a major effect on IDB Development, its cash flow position, its business and its relations with lending corporations. For details regarding uncertainties relating to the implementation of the provisions of the debt arrangement in IDB Holdings and the control structure of the Company, including with regard to claims of the controlling shareholders of the Company with regard to the provisions of the shareholders’ agreement and the possibility that changes will be made to the control structure of the Company and the composition of its Board of Directors, see note 15.B.6 below;
 
(f) Shortly before the date of publication of the financial statements, the stock exchange value of the Company’s holdings in its directly held investees was lower than the balance of its liabilities, even after taking into account liquid balances and non-marketable assets; in addition to the aforesaid, the Group will need to deal with the consequences of the Centralization Law. For details regarding this matter, see note 3.G.3 below.
 
Further to the aforesaid, and taking into account the implementation of the debt arrangement at IDB Holdings, the Company is acting and will continue to act to deal with the uncertainties that arise from the aforesaid.

IDB Development Corporation Ltd. Convenience translation 
 
14
 



Note 1 – General (cont.)
 
B. (cont.)
As stated in note 16.E.l below, the Company is continuing to act in order to reach agreements with its lending corporations in order to settle the financial covenants as well as additional contractual issues existing in the loan agreements. However, should the parties fail to reach agreements regarding the financial covenants, the financial covenants preceding the agreements dated June 29, 2012 (and in particular, the “economic equity” mechanism, including remedial periods included therein, and the financial covenant whereby the balance of cash and negotiable collateral shall not be lower than expected current maturities in the two quarters following the reported quarter (“the liquidity covenant”)) shall apply to the results of the second quarter of 2015 onwards. The Company estimates that it will not be able to meet the thresholds which had been set in the past with regard to the economic equity and it will not be able to meet the liquidity covenant, insofar as these stipulations will be reapplied to the results of the second quarter of 2015.
As of December 31, 2014, loans of the Company amounting to NIS 573 million, which are subject to the financial covenants specified above, are classified under current liabilities, this in accordance with International Accounting Standards and with note that the Company has reached agreements with those financing factors as part of which the existing financial covenant arrangements in the loan agreements have been extended for a period of less than twelve months. For additional details, see note 16.E.1 below.
The Report of the Board of Directors attached to these financial statements includes a cash flow forecast for a period of two years ending on December 31, 2016.
As of the date of the report, there is significant doubt with regard to the Company continuing as a going concern, this in light of the cash flow needs required to repay the Company’s liabilities, and considering the uncertainties specified above. There is therefore an uncertainty with regard to the Company’s capacity to execute its business plans in good order and/or in timely manner and with regard to the Company’s continued capacity to regularly repay its obligations on time. However, the Company Board of Directors has determined that the Company is solvent and can and does intend to serve its obligations in a timely manner.
The financial statements include no reclassification nor adjustments to values of the Company’s assets and liabilities, which may be required if the Company will be unable to continue operating as a going concern.
 
C.
These financial statements have also been prepared pursuant to the Securities (Annual Financial Statements) Regulations, 2010 (“the Financial Statements Regulations,”).
 
The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”)
 
These financial statements were approved by the Board of Directors of the Company on March 30, 2015.
 
D.
Definitions
 
 
1.
Subsidiaries – entities controlled by the Company. Control is achieved when the Group is exposed to, or has an interest in, variable returns on its involvement with the investee and may influence these returns through its influence over the investee. When testing for existence of control, real voting rights, held by the Group and by others, are taken into account. See also note 2.A below.
 
 
2.
Associates – companies (including gas and oil partnerships and participation units in venture capital funds) in which the Company or its subsidiaries have a direct or indirect holding and where significant influence exists over their financial and operating policies and which are not subsidiaries. The investments in these companies are presented on the equity basis.
 
 
3.
Joint arrangement – an arrangement in which the Group has joint control with other(s), achieved through an agreement requiring unanimous agreement by all parties to said agreement with regard to operations which materially influence the returns from said arrangement.
 
 
4.
Joint venture – a joint arrangement in which the parties there to have an interest in net assets attributable to the arrangement.
 
 
5.
Joint operations – a joint venture in which the Group has an interest in assets and commitments to liabilities attributable to the arrangement.
 
 
6.
Investees – subsidiaries, associates and joint ventures.

IDB Development Corporation Ltd. Convenience translation 
 
15
 
 
Note 1 – General (cont.)
 
 
D. (cont.)
 
7.
Significant influence – 20% or more of the voting rights or the right to appoint 20% or more of the board of directors, unless it is apparent that significant influence does not actually exist. A holding of less than 20% of such rights may also be considered as granting significant influence in cases where such influence is clearly apparent.
 
8.
Functional currency and presentation currency
 
These financial statements are presented in NIS, which is the Company’s functional currency, and the financial data in them have been rounded to the nearest million, except when otherwise indicated. The NIS is the currency that represents the principal economic environment in which the Company operates.
 
9.
Financial statements regulations – the Israeli Securities Regulations (Annual Financial Statements), 2010.
 
10. 
The Israeli Companies Law – the Companies Law, 5759-1999.
 
11. 
IFRS – International financial reporting standards.
 
12. 
In these financial statements –
 
The Company
-IDB Development Corporation Ltd.
The Group
-The Company and its investees.
IDB Holdings
-IDB Holding Corporation Ltd. – the parent company until May 7, 2014.
Discount Investments
-Discount Investment Corporation Ltd.
Clal Holdings Insurance Enterprises
-Clal Holdings Insurance Enterprises Ltd.
IDB Tourism
-IDB Tourism (2009) Ltd.
Elron
-Elron Electronic Industries Ltd.
Cellcom
-Cellcom Israel Ltd.
Given
-Given Imaging Ltd.
Shufersal
-Shufersal Ltd.
Property & Building
-Property & Building Corporation Ltd.
Koor
-Koor Industries Ltd.
Adama
-Adama Agricultural Solutions Ltd. (formerly: Makhteshim-Agan Industries Ltd.)
Credit Suisse
-Credit Suisse Group AG
 
E.
Basis for preparing the financial statements
 
1.
Basis of measurement
 
  
These financial statements were prepared on the basis of the historical cost of assets and liabilities except for the following assets and liabilities: financial instruments, derivatives and other assets and liabilities measured at fair value through profit or loss; financial instruments measured at fair value through other comprehensive income; liability for cash-settled share-based payment; investment property; inventory; biological assets; non-current assets and disposal groups held-for-sale; insurance liability; assets and liabilities for employee benefits; deferred tax assets and liabilities; biological assets measured at fair value less selling costs; liabilities in respect of options to investors the exercise price of which is linked to the CPI; provisions and investments in equity accounted investees.
 
For
information regarding the measurement of these assets and liabilities see Note 2 regarding significant accounting policies.
 
 
The value of non-monetary assets and equity items that were measured on the historical cost basis was adjusted to changes in the Consumer Price Index (CPI) until December 31, 2003, since until that date the economy of Israel was considered  hyperinflationary economy.

IDB Development Corporation Ltd. Convenience translation 
 
16
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
1. Basis of measurement (cont.)
 
The following are details of the CPI and the rates of exchange of the dollar and the Swiss franc and of the percentage changes that occurred in them:
 

   
Index
    
Exchange rate
  
   
Known
    
Month
    
USD
    
Swiss Franc
  
   
Points
     NIS  
as of:
                        
December 31, 2014
     119.77       119.77       3.889       3.925  
December 31, 2013
     119.89       120.01       3.471       38.973  
December 31, 2012
     117.64       117.87       3.733       4.077  
Change in the period:
                                
For the year ending
                                
December 31, 2014
     (0.1 %)     (0.2 %)     12.0 %     0.7 %
December 31, 2013
     1.9 %     1.8 %     (7.0 %)     (4.4 %)
December 31, 2012
     1.4 %     1.6 %     (2.3 %)     0.4 %

 
2. Operating cycle and classification of expenses recognized in the income statement
 
The Group has two operating cycles. With regard to Property and Building operations for construction of buildings for sale, the operating cycle may be as long as three years. With regard to other Group operations, the operating cycle is one year long. As a result, current assets and current liabilities include items the realization of which is intended and anticipated to take place over the normal operating cycle as noted above. The format of analysis of the expenses recognized in the income statement is a classification method based on the activity characteristic of the expense. Additional information pertaining to the nature of the expense is included, insofar as relevant, in the notes to the financial statements.
 
3. 
a.Use of estimates and judgment
 
 
The preparation of financial statements in conformity with IFRS, requires managements of the Company and investee companies to make judgments, estimates and assumptions, including actuarial estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income,  expenses and also components of capital. Actual results, which manifest at a later time, may differ from these estimates.
 
 
The preparation of accounting estimates used in the preparation of the Company’s financial statements requires managements of the Company and investee companies to make assumptions regarding circumstances and events that involve considerable uncertainty. These managements prepare the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
 
 
Estimates and underlying assumptions used in the preparation of these financial statements are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
 
 
Below is a description of the critical accounting estimates that were used in preparing these financial statements, which required managements of the Company and investee companies to make assumptions regarding significantly uncertain circumstances and events.
 
 
Themain estimates with regard to insurance business included in comparative figures on the financial statements are primarily based on actuarial assessments. Assessment of class action lawsuits (see Note 23) is based on the assessment by Legal Counsel, while other estimates are based,inter alia, on external valuations and assessments by other experts.

IDB Development Corporation Ltd. Convenience translation 
 
17
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
3.       (cont.)
 
a. Use of estimates and judgment (cont.)

Estimate
Main assumptions
Potential implications
Main references
Fair value measurement of investment property.
Expected rate of return on investment property.
Gain or loss due to change in fair value of investment property and investment property under construction.
Notes 2.f below and Note 7.b below.
Recoverable amount of cash-generating units (including those including goodwill), of associates and assets.
Pre-tax discount rate and expected growth rate - with regard to cash-generating units.
After -tax discount rate and expected growth rate - with regard to associates.
Cash flows are determined based on past experience with the asset or with similar assets and on the Group’s best assumption with regard to economic conditions expected to prevail.
Assessments by external assessors and valuators with regard to fair value, net of realization cost, of assets (including real estate properties).
Change in impairment loss.
Note 10.D.1 below with regard to impairment review of goodwill attributable to Cellcom and determination of the recoverable amount of operations thereof.
Notes 3.H.3.b and 10.D.2 below with regard to impairment review of goodwill attributable to Shufersal and determination of the recoverable amount of operations thereof.
Note 3.H.4.d below with regard to the examination of an impairment of the investment in Adama.
Note 3.G.3 below with regard to the Company’s estimate regarding the likelihood of completing one of the alternatives of either turning the Company or Discount Investments into a private company, or a merger between the Company and Discount Investments, which would enable the continued control of Cellcom and Shufersal by the Company after December 2019.
Existence of control, effective control or significant influence
Judgment with regard to determination of the Group’s holding stake in shares of investees (considering the existence and influence of significant potential voting rights), its right to appoint members of the executive body of these companies (typically, the Board of Directors) based on bylaws of these investees, the composition and rights of other shareholders of these investees and its capacity to set operating and financial policy for the investees or to participate in setting such policy.
Accounting treatment of investee as a subsidiary or as an equity accounted entity.
Note 2.a.1 below with regard to accounting treatment of subsidiaries and equity-accounted investees.
Valuation and estimated useful life of intangible assets
Estimated useful life of intangible assets and expected economic developments.
Expected cash flows from customer relations and other intangible assets and replacement cost of brands.
Misallocation of acquisition cost of investments in investees.
Recognition of accelerated or decelerated depreciation compared to eventual actual results.
Note 10 – Intangible assets.


IDB Development Corporation Ltd. Convenience translation 
 
18
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
3.       (cont.)
 
a. Use of estimates and judgment (cont.)

Estimate
Main assumptions
Potential implications
Main references
Uncertain tax positions.
The degree of uncertainty associated with acceptance of the Group’s tax positions and the risk of incurring additional tax and interest expenses. This is based on analysis of multiple factors, including interpretations of tax statutes and the Group’s past experience, including with regard to classification of tax losses carried forward.
Estimate of the amount of losses carried forward that can be utilized, the expected taxable income, its timing and the amount of deferred taxes to be recognized.
Recognition of additional expenses for taxes on income.
Changes in amounts of tax assets for tax losses carried forward.
Note 32 – Taxes on income.
Hybrid financial instrument with respect to Koor’s non-recourse loan.
The value of Adama’s shares.
Unobserved data underlying the binomial model applied to determine the value of embedded derivatives.
Change in gain or loss with respect to change in fair value of embedded derivative and to change in carrying amount of the host contract recognized under financing income or expenses.
Note 21.G.2 below with respect to sensitivity analysis of financial instruments measured at fair value at level 3.
Note 16.F.1.d below with respect to key estimates used to determine the fair value of embedded derivative and the book value of the host contract in the hybrid financial instrument.
Note 2.C.2 below with respect to accounting policies used to determine the carrying amount of the host contract and the fair value of the embedded derivative.
Estimation of likelihood of contingent liabilities.
Whether it is more likely than not to expend economic resources with respect to lawsuits filed against the Company and its investees, based on the opinion of legal counsel.
Creating or reversing a provision with respect to a claim.
Note 23 with respect to contingent claims and contingent liabilities.
Un-asserted legal claim.
Reliance on internal estimates by handling parties and the management of Clal Holdings Insurance Enterprises. Weighing the estimated likelihood of a claim being filed and the likelihood of any claim filed to prevail.
In view of the preliminary stage of the clarification of the legal claims, the actual results may differ from the assessment made prior to the filing of the suit.
Note 23.C.2 with respect to claims against Clal Insurance Group.
Classification of operations as held for sale
Estimate whereby the sale is expected within one year
The expected sale would not occur within one year, hence it would not be thus classified and would not be measured at the lower of market value net of selling costs and carrying amount.
  



IDB Development Corporation Ltd. Convenience translation 
 
19
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
3.       (cont.)
 
 
b.
Fair value determination
 
For the purpose of preparing these financial statements, the Group is required to determine the fair value of certain assets and liabilities. Additional information about assumptions used in determining the fair value is presented in the following notes:
 
 
1.
Note 4 – Other Investments;
 
2.
Note 6 – Fixed assets acquired in a business combination;
 
3.
Note 7 – Investment property;
 
4.
Note 10 – Intangible assets;
 
5.
Note 21 – Financial instruments;
 
6.
Note 16.F.1.d regarding the embedded derivative in the non-recourse loan;
 
7.
Annex B – Share-based payment arrangements
 
In determining the fair value of assets or liabilities, the Group uses observed market data, in as much as possible; fair value measurements are classified into three levels of the fair value hierarchy, based on data used for the estimate, as follows:
 
 
Level 1 - Quoted (un-adjusted) prices on active markets for identical assets or liabilities.
 
Level 2 - Observed market data, directly or indirectly, not included in Level 1.
 
Level 3 - Data not based on observed market data.
 
 
4.
Examination of the materiality of asset valuations for purposes of disclosure or attachment
 
The Company examines the materiality of asset and liability valuations, for the purpose of their disclosure or attachment to the annual and interim financial statements, in accordance with Regulation 8B of the Regulations (Periodic and Immediate Reports) Securities, 5730-1970, and Legal Position 105-23: Parameters for Examining Materiality of Valuations, which was issued by the Securities Authority in July 2014. Generally, a valuation will be deemed very material if the object of the valuation constitutes 10% or more of the Company’s total assets in the consolidated Statement of Financial Position at the last day of the reporting period, or if the effect of the change in value on the net profit or comprehensive income attributable to the Company’s owners, as applicable, exceeds 10% of the net profit or comprehensive income attributable to the Company’s owners, respectively, for the reporting period (“the Results Test”) provided that for the results test, the effect of change in value due to valuation of net or comprehensive income attributable to equity holders of the Company, as the case may be, amounts to 5% or more of equity attributable to equity holders of the Company. A valuation which is not highly material would be deemed material if it fulfils a quantitative threshold which is half of the quantitative threshold which is parallel for the classification of a very material valuation as specified above (meaning 5% rather than 10% and 2.5% rather than 5%). Application of the Results Test for materiality of a valuation in an interim period shall be done with respect to the net profit or the comprehensive income attributable to the Company’s owners, as applicable, projected for the current year as a whole.
If it is not possible to reasonably estimate the projected net profit or comprehensive income for the current year as a whole, the Results Test will be applied with respect to net profit or comprehensive income, as applicable, for the four quarterly periods prior to the last date of the interim period. When the valuation meets the Results Test for being defined as “very material” (“a very material valuation according to the Results Test”), the Company evaluates whether on the basis of qualitative considerations, it is appropriate to determine that it is not very material and therefore will not be attached to the financial statements.

IDB Development Corporation Ltd. Convenience translation 
 
20
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
4. Examination of the materiality of asset valuations for purposes of disclosure or attachment (cont.)
In accordance with the aforesaid legal position, the Company’s evaluation also includes an additional test, the “Representative Income” test, which constitutes an accepted parameter for evaluating the results of holding companies like the Company. The Representative Income parameter is used by the Company to examine materiality and insignificance also in other contexts. According to the aforesaid additional test, in the absence of other special qualitative considerations, a very material valuation according to the Results Test will not be deemed a very material valuation and will not be attached to the financial statements if the effect of the change in the value of the valuation object (attributable to owners of the Company) is less than 10% of the “Annual Representative Income” attributable to the Company’s owners (which is the profit for four quarters), calculated on the basis of the average in absolute values of the quarterly profit/loss attributable to the Company’s owners in each one of the last 12 quarters.
Moreover, in the absence of special qualitative considerations, a very material valuation according to the Results Test will not be deemed very material and will not be attached to the financial statements if the effect of the object of the valuation on net profit or comprehensive income (attributable to the owners of the Company), as applicable, as included in the financial statements of the current reporting period (annual or interim), is less than 10% of net profit or comprehensive income (attributable to the owners of the Company) for the prior reporting year, and it is not probable to exceed 10% of the projected net profit or comprehensive income (attributable to the owners of the Company) of the coming reporting year. In instances in which as a result of applying these tests, a very material valuation according to the Results Test is not attached, disclosure of such is provided in the Directors’ Report, as required by the aforesaid legal position.
Qualitative considerations could lead to the attachment of the valuation even if from a quantitative viewpoint, it does not meet the tests for definition as “very material.”
 
 
5.
Attachment of material associates
Regarding the application of regulations 44 and 44A of the Securities (Periodic and Immediate Reports) Regulations and regulations 23 and 24 of the Securities (Annual Financial Statements) Regulations, 5770-2010, with respect to associates whose financial statements are required to be attached because the reporting quarter the amount included in the income statement in respect of the Company’s investment in the associate reflects, twenty percent or more of the Company’s profit or loss for the reporting quarter, or that condensed information regarding the associate is required to be attached because the amount included in profit or loss in respect of the Company’s investment in the associate constitutes, in its absolute value, 10 percent or more of the Company’s profit or loss in the reporting quarter, in its absolute value, the position of the Company is that in the absence of any special qualitative consideration, the financial statements of associates that meet all three following ratios will be considered immaterial in relation to the financial statements of the Company and will therefore not be attached, and condensed information will not be disclosed in respect thereto:
 
 
a.
The result of multiplying the associate’s assets by the rate held in it, is less than 0.5% of total assets in the Company’s Statement of Financial Position;
 
b.
The result of multiplying the associates’ income by the rate held in it, is less than 0.5% of total income in the consolidated income statement of the Company for the reporting quarter;
 
c.
The Company’s share of the results of the associate (in absolute value) is less than 5% of the Group’s share of profits of associates, net, in the reporting quarter (in absolute value).


IDB Development Corporation Ltd. Convenience translation 
 
21
 
 
Note 1 – General (cont.)
 
E.
Basis for preparing the financial statements (cont.)
 
 
6.
Initial application of new standards and changes in estimates
 
 
a.
Interpretation of the Committee for Interpretations of International Financial Reporting IFRIC 21, Levies (hereunder – “the interpretation”)
 
The interpretation provides guidelines for the accounting treatment of liabilities for the payment of governmental levies which are covered by IAS 37, Provisions, Contingent Liabilities and Contingent Assets, as well as governmental levies which are not covered by IAS 37, due to the fact that the timing and amounts of their repayment are certain. A “levy” is defined as a negative flow of resources which is imposed on an entity by the government through legislation and/or regulation.
The interpretation provides that a liability for payment of a levy will be recognized only upon the occurrence of an event which creates the obligation for payment, also in cases where the entity has no practical possibility of avoiding the event.
 
The interpretation affects the accounting treatment of betterment levies in the Group’s financial statements, in a manner whereby the liability for payment of betterment levies is recognized on the exercise date of the rights. Accordingly, the measurement of the fair value of the investment property prior to the recognition of the liability to pay betterment fees, includes the negative cash flows attributed to the levy. The interpretation was adopted retrospectively beginning on January 1, 2014. The effect of the retrospective adoption of the interpretation is that sums in the amount of NIS 92 million were written off from the item for other non-financial liabilities, which is included under non-current liabilities in the Statement of Financial Position as at December 31, 2013, and which were taken into account in the calculation of the fair value of the investment property on that date (as a decrease in value).
 
 
b.
Amended IAS 32, “Financial Instruments: Presentation” (“IAS 32”)
IAS 32 clarifies that an existing entity has the immediate legally enforceable right to offset financial assets and financial liabilities that were recognized, if this right is not conditional on any future event, and is enforceable both in the ordinary course of business and in case of insolvency or bankruptcy of the entity and of all parties against the financial asset. IAS 32 was adopted retrospectively beginning on January 1, 2014. The application of IAS 32 did not materially affect the financial statements.


IDB Development Corporation Ltd. Convenience translation 
 
22
 
Note 1 – General (cont.)
 
F.
Reclassification
 
Comparative figures were re-classified for consistency. This reclassification had no impact on equity or results in the indicated periods.
 
 
1.
The following are the reclassifications made in the Statement of Financial Position
 
 
   
As of December 31
  
   
2013
  
   
NIS millions
  
Non-current assets
      
Investments in equity accounted investees
     61  
Investment property
     (92 )
Intangible assets
     (67 )
Total non-current assets
     (98 )
         
Current assets
        
Assets of realization groups and other assets held for sale
     6  
Total current assets
     6  
Total Assets
     (92 )
         
Non-current liabilities
        
Provisions
     6  
Other non-financial liabilities
     (94 )
Total non-current liabilities
     (88 )
         
Current liabilities
        
Other accounts payable
     (11 )
Provisions
     7  
Total current liabilities
     (4 )
         
Total liabilities
     (92 )
 
 
 
 
2.
The following are reclassifications made in the Statement of Income:
 
   
For the year ended
December 31
  
   
2013
    
2013
  
   
NIS millions
  
Income
            
Profit from realization and increase in value of investments
     83 *     -  
Total income
     83       -  
                 
Expenses
                
Cost of sales and services
     137       124  
Selling and  marketing expenses
     (137 )     (124 )
Total expenses
     -       -  
                 
Profit after tax for the year from discontinued operations
     (83 )*     -  
*     See footnote 2 in note 3.I.1.

 
3.
Reclassifications made on the profit per share data
The profit per share figures were adjusted retrospectively for all of the reported periods in accordance with the changes in the Company’s issued share capital, including for the beneficial component in the rights issue after subsequent to the date of the Statement of Financial Position, as stated in notes 15.A and 15.B.5 below.

IDB Development Corporation Ltd. Convenience translation 
 
23
 
 
Note 2 – Principles of the Accounting Policy
 
The principles of the accounting policy stated below have been applied consistently for all periods presented in these consolidated financial statements, except if stated otherwise. The accounting policies set out below, in connection with the consolidated financial statements, relate to both the Group companies and the associates of the Group. In this note, matters regarding which the Group has chosen accounting alternatives that are permitted in accounting standards and/or matters for which there is no explicit instruction in accounting standards, or of early adopting new accounting standards are presented in bold type. The bold type serves only to identify the aforesaid matters and does not assign to it any higher importance compared to writing not in bold type.
 
A.
Consolidated financial statements
 
The consolidated financial statements include the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Group is exposed to, or has an interest in, variable returns on its involvement with the acquired entity and may influence these returns through its influence over the acquired entity. When testing for existence of control, real voting rights, held by the Group and by others, are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Material intra-group balances and transactions, as well as any income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Material balances and transactions between the Group and the associates and jointly controlled companies as well as any income and expenses arising from such transactions are eliminated against the asset involved in the transaction, according to the rate of holding in such companies. Losses not yet realized were eliminated in the same manner in which gains not yet realized were eliminated, as long as there was no evidence of a decline in value.
Business combinations and transactions with non-controlling shareholders
 
1. Business combinations
A business combination is a transaction or other event in which the acquirer obtains control over one or more businesses.
A business is a combined system of operations and assets that can be operated and managed with the objective of providing a return in the form of dividends, reduced costs or other economic benefits to the investors directly or to other owners, members or participants.
A business is comprised of inputs and processes implemented with respect to these inputs, which have the ability to produce outputs.
The Group implements the acquisition method to all business combinations.
The acquisition date is the date on which the acquiring entity achieves control over the acquired entity. The Company exercises discretion in determining whether the acquired entity is a business, in determining the acquisition date and in determining whether control has been obtained.
 
Subsidiaries
The financial statements of subsidiaries are included in the consolidated financial statements of the Company from the date that control commences until the date that control ceases. Accounting policy of subsidiaries was modified as needed, to align it with the accounting policy adopted by the Group.
The Group recognizes goodwill at acquisition according to the fair value of the consideration transferred including any amounts recognized in respect of rights that do not confer control in the acquired entity as well as the fair value at the acquisition date of any pre-existing equity right of the Group in the acquired entity, less the net amount of the identifiable assets acquired and the liabilities assumed. The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquired entity, the liabilities incurred by the acquirer to the previous owners of the acquired entity and equity instruments that were issued by the Group. If the Group makes an acquisition at a low price (acquisition includes negative goodwill), it recognizes the gain arising from it on the income statement upon acquisition. Furthermore, goodwill is not adjusted in respect of the utilization of carry-forward tax losses that existed on the date of the business combination. The adjustment for such losses is recognized in profit or loss.
On the acquisition date the acquirer recognizes a contingent liability assumed in a business combination if there is a present obligation resulting from past events and its fair value can be reliably measured.

IDB Development Corporation Ltd. Convenience translation 
 
24
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
A.
Consolidated financial statements (cont.)
 
1. Business combinations (cont'd)
 
 
In a business combinations achieved in stapes, the difference between the acquisition date fair value of the Group’s pre-existing equity rights in the acquired entity and the carrying amount at that date is recognized in profit or loss under gain on sale and increase in value of investments and assets, dividends and gain from rise to control. For this purpose, the fair value of a marketable asset is its market value, except when circumstances clearly indicate that the fair value of the aforesaid asset is different from its market value.
 
 
The consideration paid includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration classified as a financial liability in the Statement of Income, whereas contingent consideration classified as an equity instrument is not remeasured. Changes in liabilities for contingent consideration in business combinations that occurred before January 1, 2010, continue to be applied to goodwill and are not recognized in the Statement of Income.
 
 
Costs associated with the acquisition that were incurred by the acquirer in the business combination such as: broker’s fees, consulting fees, legal fees, valuations and other fees with respect to professional or consulting services, other than those related to debt or capital issuance with respect to the business combination, are expensed in the period in which the services are rendered.
 
Structured entities
A Group associate does business with structured entities for securitization of its customer debt. The aforementioned associate has no direct nor indirect holding in shares of said entities. A structured entity is included on the consolidated financial statements of the aforementioned associate when control of said entity is achieved, as defined above.
 
 
2.
Non-controlling shareholders
 
Non-controlling shareholders comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent Company and they include additional components such as: share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries.
Measuring non-controlling shareholders rights on the date of the business combination
Non-controlling shareholders rights that are instruments that give rise to a present ownership interest and entitle the holder to a share of net assets in the event of liquidation (for example: ordinary shares), are measured at the date of the business combination at either fair value, or at their proportionate interest in the identifiable assets and liabilities of the acquired entity, on a transaction-by-transaction basis. This accounting policy choice does not apply to other instruments that meet the definition of non-controlling shareholders rights (for example: options to ordinary shares). Such instruments will be measured at fair value or in accordance with other relevant IFRSs.
Allocation of profit or loss and other comprehensive income to shareholders
Income or loss and any other comprehensive income items are attributed to equity holders of the Company and to non-controlling shareholder. Total profit or loss and other comprehensive income is attributed to equity holders of the Company and to non-controlling shareholders, even if this results in a negative balance of non-controlling shareholders. If there is an arrangement between the shareholders by which the parent Company bears all the losses, such an arrangement is accounted for as a transaction between shareholders on the equity level.
Transactions with non-controlling shareholders, while retaining control
Transactions with non-controlling shareholders while retaining control, are accounted for as equity transactions. Any difference between the consideration paid or received and the change in the non-controlling shareholders is recognized in a reserve from transactions with non-controlling shareholders under the equity attributable to the Company’s owners. The capital reserve from transactions with non-controlling shareholders is not applied to the Statement of Income or the Statement of Comprehensive Income (not even upon the sale of the subsidiary for which the reserve was created).

IDB Development Corporation Ltd. Convenience translation 
 
25
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
A.
Consolidated financial statements (cont.)
 
 
2.
Non-controlling shareholders (cont'd)
 
When changes occur in the holding rate of a subsidiary, while retaining control, the Company reallocates the cumulative amounts that were recognized in other comprehensive income between the Company’s owners and the non-controlling shareholders. The amount of the adjustment to non-controlling shareholders is calculated as follows:
For an increase in the amount of the holding, according to the proportionate share acquired from the balance of non-controlling shareholders in the consolidated financial statements prior to the transaction and allocated original differences.
 
For a decrease in the amount of the holding, according to the proportionate share realized by the owners of the subsidiary in the net assets of the subsidiary, including any goodwill and attributable original differences, without any change in their values. The cash flows deriving from transactions with non-controlling shareholders while retaining control are classified under financing activities in the statement of cash flows.
Inter-Company transactions for the transfer of shares of subsidiaries (whether the transactions are executed in cash or by an exchange of shares), in which there has been a change in the rate of the non-controlling shareholders, were accounted for as transactions with non-controlling shareholders.
 
 
3.
Transactions resulting in discontinuance of consolidation of financial statements
 
Loss of control
 
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling shareholders and amounts recognized in capital reserves through other comprehensive income related to the subsidiary. If the Group maintains any investment in the former subsidiary, this outstanding investment is measured at fair value upon loss of control. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in the Statement of Income, under the item for “profit from realization and increase in value of investments and assets, dividends” or under the item for “loss from realization, impairments and amortization of investments and assets”, according to the matter. Subsequently the retained interest is accounted for as an equity-accounted investee or as a financial asset depending on the level of influence retained by the Group in the relevant Company.
The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities.
 
4. Joint operations
 
When the Group has interest in assets and liabilities attributed to joint arrangements, the Group recognizes the assets, liabilities, income and expenses of the joint operations pro-rata to its interest in these items, including its share of items jointly held or created. Gain or loss from transactions with joint ventures are only recognized up to the shares of the other parties to the joint venture. When these transactions provide indication of impairment of said assets, the Group recognizes the loss in full.
 
 
5.
Reversal of mutual transactions
 
Intra-group balances and any material unrealized income and expenses arising from intra-group transactions, are reversed in preparing these financial statements. Unrealized gain from transactions with associates and joint ventures have been reversed against the asset subject to the transaction, in conformity with Group interest in these investments. Losses not yet realized were eliminated in the same manner in which gains not yet realized were eliminated, as long as there was no evidence of a decline in value.
 
6.  Investment in associates and joint ventures
 
In assessing significant influence over an associate, potential voting rights that are currently exercisable or convertible into shares thereof. Investment in associates and joint ventures is accounted for using the equity method and is initially recognized at cost. The investment cost includes transaction costs.

IDB Development Corporation Ltd. Convenience translation 
 
26
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
A.
Consolidated financial statements (cont.)
 
6. Investment in associates and joint ventures (cont'd)
 
These financial statements include the Group’s share of profit or loss of investees  and joint ventures (including recognition of profit or loss with respect to the Company’s share of a capital reserve recorded by investees and joint ventures with respect to transactions with non-controlling shareholder) and in their other comprehensive income (loss), after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to nil. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, according to its economic interest in the long-term interests at that time. The recognition of further losses of the investee is discontinued unless the Group has an obligation to support the investee or has made payments on behalf of the investee, or has granted loans to it.
Excess cost of associates and joint ventures is presented as part of the investment. The excess cost of an investment in an associate or joint venture over the Group’s interest in the fair value of the associate’s identifiable assets (including intangible assets) net of the fair value of its identifiable liabilities (after the allocation of taxes) on the date of acquisition is attributable to goodwill.
Excess cost allocated in an associate or joint venture to identifiable assets and identifiable liabilities having a finite useful life is amortized according to the aforesaid useful life. Goodwill and intangible assets having an indefinite useful life are not systematically amortized. For review of impairment of goodwill and intangible assets, see Note 2.m below.
For attribution of deferred taxed with respect to investment in associates and joint ventures - see note 2.M.3 below.
For adjustments from translation of financial statements of associates and joint ventures, see section b.2 below.
 
 
7.
Change in the amounts of holdings in equity-accounted associates and joint ventures on a balance sheet basis value, while maintaining significant influence or joint control
 
When the Group increases its interest in an associate or joint venture accounted for by the equity method while retaining significant influence, it implements the acquisition method only with respect to the additional interest obtained whereas the previous interest is not remeasured and remains the same.
When there is a decrease in the interest in an associate or joint venture accounted for by the equity method while retaining significant influence or joint control, the Group derecognizes a proportionate part of its investment and recognizes a gain or loss from the sale under the item for “profit from realization and increase in value of investments and assets, and dividends” or under the item for “loss from realization, impairment and amortization of investments and assets”, according to the matter. The cost of the rights sold is determined according to a weighted average for purposes of calculating the gain or loss from the sale.
Furthermore, a proportionate part of the amounts recognized in capital reserves through other comprehensive income with respect to said equity-accounted associate or joint venture are reclassified to profit or loss or to retained earnings. The aforementioned accounting treatment also applies in cases where an investment in an associate turns into an investment in a joint venture or vice versa.
 
 
8.
Loss of significant influence or joint control
 
The Group discontinues application of equity-based accounting upon losing significant influence over the investee or joint control of the joint venture, and accounts for its remaining investment as a financial asset or – in the case of achieving control – as a subsidiary, as the case may be.
Upon losing significant influence or joint control, the Group measures at fair value any remaining investment in the former associate or joint venture.

IDB Development Corporation Ltd. Convenience translation 
 
27
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
A.
Consolidated financial statements (cont.)
 
 
8.
Loss of significant influence or joint control (cont'd)
 
The Company recognizes on the income statement under the item for “profit from realization and increase in value of investments and assets, and dividends” or under the item for “loss from realization, impairment and amortization of investments and assets,” respectively, any difference between the fair value of any remaining investment and any proceeds from realization of any part of the investment in the associate or joint venture and the carrying amount of said investment upon said date. The amounts recognized in equity through other comprehensive income with regard to that associate or joint venture are reclassified to profit or loss or retained earnings, in the same manner that would have been required had the associate or joint venture realize the related assets or liabilities itself.
 
9. Acquisition of an asset company
 
Upon acquisition of an asset company, the Group exercise judgment in determining whether this is an acquisition of a business or of an asset, in order to determine the accounting treatment of such transaction. When reviewing whether an asset company constitutes a business, the Group evaluates, inter alia, the nature of existing processes at the asset company, including the scope and nature of any management, security, cleaning and maintenance services provided to tenants.
Transactions where the acquired company constitutes a business are treated as a business combination, as described above. However, transactions where the acquired company does not constitute a business are treated as the acquisition of a group of assets and liabilities. In such transactions, the acquisition cost including any transaction costs is attributed pro-rata to the identified assets and liabilities acquired based on their pro-rata fair value upon acquisition. In the latter case, no goodwill is recognized and no deferred taxes are recognized for temporary differences upon the acquisition date.
 
B.
Foreign currency
 
The functional currency is determined separately for each investee Company, including an associate that is presented by the equity method, and this currency is the basis for measuring its financial position and results of operations. When the functional currency of an investee Company is different from that of the Company, the investee Company constitutes a foreign operation and its financial statements are translated for purposes of their inclusion in the financial statements of the Company.
 
 
1.
Foreign currency transactions
Transactions in foreign currencies are translated to the relevant functional currencies of the Group companies at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items denominated in foreign currency and measured at historical cost, are translated using the exchange rate as of the transaction date. Foreign currency differences arising on translation to the functional currency are generally recognized in profit or loss, although such foreign currency differences are recognized in other comprehensive income (loss) when they arise from the translation of derivatives used in cash flow hedges, to the extent the hedge is effective.
 
 
2.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to euro at exchange rates at the reporting date. The income and expenses of foreign operations are translated to NIS at exchange rates at the dates of the transactions.
Foreign currency translation differences are recognized as part of other comprehensive income (loss) since the transition date to IFRS (January 1, 2007), and are presented in equity as part of the translation reserve for foreign operations (“translation reserve”).
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the non-controlling shareholders.

IDB Development Corporation Ltd. Convenience translation 
 
28
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
B.
Foreign currency (cont.)
 
 
2.
Foreign operations (cont.)
The financial statements of a foreign operation not directly held are translated into NIS according to the step-by-step consolidation method, by which the financial statements of the foreign operation are first translated into the functional currency of the direct parent company and are after that translated into the functional currency of the ultimate parent company.
Therefore, when a foreign operation not directly held is disposed of, the Group reclassifies to profit or loss the cumulative amount in the translation reserve that was created in the direct parent company of the foreign operation. If the indirectly held foreign operation and the direct parent company have the same functional currency, the Group’s policy is to not classify to profit or loss foreign currency differences that were accumulated in the translation reserve of the ultimate parent company upon the disposal of a foreign operation not directly held as aforesaid.
When a directly held foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income (loss) is reattributed to non-controlling shareholders.
When the Group realizes part of an investment which is an associate or a joint venture which includes foreign operations, while maintaining significant influence or joint control, the pro-rata share of the accumulated exchange rate difference amount is reclassified to profit and loss.
In general, exchange rate differentials with respect to loans obtained by or extended to foreign operations, including foreign operations which are subsidiaries, are recognized on the consolidated financial statements under profit & loss.
When the settlement of loans that the Group received from a foreign operation or provided to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses deriving from these financial items are included as part of a net investment in a foreign operation, are recognized as part of other comprehensive income (loss) and are presented within equity as part of the translation reserve. The settlement of these loans is not considered disposal of a net investment in a foreign operation and therefore upon settlement of the loans as aforesaid, the foreign currency differences that were recognized in their respect in other comprehensive income will not be included in profit or loss.
 
C.
Financial instruments
 
 
1.
Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, loans and credit granted, trade and receivables, cash and cash equivalents.
Initial recognition of financial assets
The Group initially recognizes loans and receivables and deposits on the date that they are created according to their fair value on the trade date. All other financial assets acquired in a regular way purchase, including assets designated at fair value through profit or loss, are recognized initially on the trade date. Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value, then the initial measurement includes transaction costs that are directly attributable to the asset acquisition or creation. The Group subsequently measures financial assets at either fair value or amortized cost as described below.
Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers to others the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.


IDB Development Corporation Ltd. Convenience translation 
 
29
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
C.
Financial instruments (cont.)
 
 
1.
Non-derivative financial instruments (cont.)
 
Derecognition of financial assets (cont'd)
Regular way sales of financial assets are recognized on the trade date, meaning on the date the Company undertook to sell the asset.
Regarding the offset of financial assets and financial liabilities, see section 5 below.
 
Classification of financial assets into categories and the accounting treatment of each category
Since January 1, 2012 the Group has applied IFRS 9 (2009) Financial Instruments (“IFRS 9”) on an early basis with regard to the classification and measurement of financial assets, with a date of initial application of January 1, 2012, without early adoption of the remainder of the rules which were determined in the final version of IFRS 9 (2014), Financial Assets which is mentioned in section 1 of note 2.X below.
IFRS 9 requires that an entity classify its debt instruments as being measured at amortized cost or fair value according to the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. IFRS 9 permits in certain cases to recognize the changes in fair value of the equity instruments in other comprehensive income (loss).
In accordance with the transitional provisions of IFRS 9, the classification of the financial assets held by the Group on the date of initial application of IFRS 9 (those not yet derecognized as of January 1, 2012) was based on the facts and circumstances of the business model by which the assets were held at that date.
 
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if:
The asset is held within a business model with the objective of holding the assets to collect the contractual cash flows.
According to the contractual terms of the financial asset, the asset gives rise on specified dates cash flows that are solely payments of principle and interest, and
The Group has not elected to designate it at fair value through profit or loss in order to reduce or eliminate an accounting mismatch.
The fair value of financial assets measured at amortized cost, including trade and other receivables, excluding construction work in progress is estimated as the present value of future cash flows, discounted at the market rate of interest at the measurement date. Short-term trade and other receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. The fair value of loans and other receivables is determined at initial recognition. In periods subsequent to initial recognition, the fair value is determined for disclosure purposes only.
The Group’s policy on impairment of financial assets measured at amortized cost is described in note 2.M.1 below.
Cash and cash equivalents – Cash comprises cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
 
Financial assets measured at fair value
Financial assets other than those classified as measured at amortized cost are subsequently measured at fair value with all changes in fair value recognized in profit or loss, other than as described below. Regarding certain financial assets which are capital in nature that are not held for trade, the Group has chosen the initial date of recognition of the asset, or the date of initial implementation of IFRS 9, to recognize the changes in fair value to other comprehensive income. For instruments which are measured according to fair value through other comprehensive income, profits and losses are never transferred to profit or loss and impairments are not recognized in the income statement.

IDB Development Corporation Ltd. Convenience translation 
 
30
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
C.
Financial instruments (cont.)
 
 
1.
Non-derivative financial instruments (cont.)
Financial assets measured at fair value (cont'd)
Upon the disposal of the asset, the Group transfers the balance of the reserve in respect of it to retained earnings. The income from dividends in respect of these instruments are recognized in the income statement, unless they distinctively represent a recovery of some of the investment costs.
It should be noted that in April 2012 the Company and Koor decided not to apply the investment of Koor in shares of Credit Suisse to other comprehensive income (loss) on the date of the initial implementation of IFRS 9, but to recognize changes in fair value of the investment in the Statement of Income.
 
 
2.
Derivative financial instruments, including hedge accounting
The Group holds derivative financial instruments to hedge its foreign currency, linkage risk exposures and derivatives that do not serve hedging purposes, including separable embedded derivatives.
Derivatives are initially recognized at fair value. Attributable transaction costs are recognized on the income statement when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as follows.
 
Hedge accounting
A hedge is classified by the Group as an accounting hedge if at the beginning of the hedge the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
The Group makes an assessment, both at the inception of the hedge relationship as well as in subsequent periods, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are expected to be within a range of 80%-125%.
For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss.
 
Cash flow hedging
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income (loss) directly in a hedging reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. The amount recognized in the hedging reserve is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the income statement as the hedged item.
If the hedging instrument no longer meets the criteria for hedge accounting as described above, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. If the forecasted transaction has either taken place or is no longer expected to occur, then the cumulative gain or loss previously recognized in the hedging reserve is recognized immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognized in the hedging reserve is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in the hedging reserve is transferred to income statement in the same period that the hedged item affects profit or loss.
 
Economic hedging
Hedge accounting is not applied to derivative instruments that economically hedge certain monetary assets and liabilities denominated in foreign currencies or linked to the CPI. Changes in the fair value of such derivatives are recognized on the income statement as financing income or expenses.
Derivatives that do not serve as a hedge and a hedge that does not meet the criteria of an accounting hedge
The changes in fair value of these derivatives are recognized in the income statement as financing income or expenses.

IDB Development Corporation Ltd. Convenience translation 
 
31
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
C.
Financial instruments (cont.)
 
 
2.
Derivative financial instruments, including hedge accounting (cont.)
 
Separable embedded derivatives that do not serve hedging purposes
Embedded derivatives are separated from the host contract and accounted for separately if: (a) the economic characteristics and risks of the host contract and the embedded derivative are not closely related, (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and (c) the combined instrument is not measured at fair value through profit or loss.
Changes in the fair value of separable embedded derivatives are recognized in the income statement as financing income or expenses. See also note 16.F.1.d below regarding an embedded derivative included in the non-recourse loan that was received by Koor.
Since January 1, 2012, within the framework of adopting IFRS 9, the Group has not separated embedded derivatives in a financial asset host contract. Instead, the entire financial instrument is assessed and classified as described above in section 1 above.
 
Business combination contracts
Since January 1, 2010 forward contracts between an acquirer and a seller with respect to the sale or acquisition of a controlled entity, in a business combination at a future acquisition date, are not accounted for as a derivative, when the term of the forward contract does not exceed the period normally necessary for obtaining the approvals required for the transaction. The aforesaid accounting treatment does not apply to acquisitions and sales of equity accounted investees not within the framework of business combinations, which are treated in accordance with the balance sheet value method.
 
 
3.
Hybrid financial instruments
 
The non-recourse loan Koor received as part of the sale of control in Adama in 2011, which is secured solely by a pledge on shares of Adama, is economically equivalent to a combination of Koor’s obligation to transfer shares of Adama, against consideration received, with a call option of Koor to purchase shares of Adama.  Accordingly, the non-recourse loan was separated into these two components, on the basis of an opinion of an independent appraiser.
The commitment to transfer shares of Adama (including the inflow that will derive from them), is the host contract, which is measured at initial recognition at fair value (at the amount in cash that was received as a loan which reflects that value of the cash flow deriving from holding shares of Adama at the date of the transaction, and is consistent with the value of the shares reflected in the price of the transaction). In subsequent periods the aforesaid liability is measured at amortized cost according to the present value of the expected fair value of the Adama shares on the expected date of repayment of the loan, discounted at the effective interest rate determined on the initial date of separating the host contract and the embedded derivative (based on the yield rate on equity that was used in the valuation of Adama shares). The value of the shares of Adama was estimated as specified in note 16.F.1.d below. The embedded derivative represents a call option of Koor to purchase shares of Adama and is calculated taking into consideration the future interest payments on the loan. Changes in the value of the host contract and the embedded derivative are recognized in profit or loss.
The aforesaid host contract and embedded derivative (“hybrid financial instrument for a non-recourse loan”) is presented net in a separate item in the Statement of Financial Position, and disclosure of its components and the main estimates used in the calculation thereof is given in note 16.F.1.d below.
 
 
4.
Assets and liabilities linked to the CPI which are not measured at fair value
 
The value of CPI-linked financial assets and liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual increase/decrease in the CPI.
 
 
5.
Financial liabilities
 
The Group has non-derivative financial liabilities, such as: bank overdrafts, bonds issued by the Group, loans and credit from banking institutions and other credit providers, finance lease liabilities, and trade and other payables.

IDB Development Corporation Ltd. Convenience translation 
 
32
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
C.
Financial instruments (cont.)
 
 
5.
Financial liabilities (cont'd)
 
Initial recognition of financial liabilities
The Group initially recognizes debt instruments issued, at their date of creation according to their fair value on the trade date.
Financial liabilities are initially recognized at fair value plus all attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortized cost, in accordance with the effective interest method.
Transaction costs directly attributable to an expected issuance of an instrument that will be classified as a financial liability are recognized as an asset in the Statement of Financial Position. These transaction costs are deducted from the financial liability upon its initial recognition, or are amortized as financing expenses in the income statement when the issuance is no longer expected to occur. Upon the expansion of bond series in consideration for cash, the bonds are initially recognized according to their fair value which is the consideration received for the issuance (as this is the best market to which the issuer has immediate access), without any recognition of profit or loss in respect of the difference between the consideration for the issue and the stock exchange value of the marketable bonds near the time of their issue.
 
Derecognition of financial liabilities
Financial liabilities are derecognized when the obligations of the Group, as set out in the agreement, expire, are settled or are cancelled.
 
Change in terms of debt instruments
An exchange of financial liabilities having substantially different terms, between an existing borrower and lender are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value, with the difference being recognized in profit or loss under financing income or expenses. Moreover, significant changes in terms and conditions of an existing financial liability or part thereof is treated as discharge of the original financial liability and recognition of a new financial liability.
The terms are substantially different also if the discounted present value of the cash flows according to the new terms, including any commissions paid, less any commissions received and discounted using the original effective interest rate, is different by at least ten percent from the discounted present value of the remaining cash flows of the original financial liability.
In addition to the aforesaid quantitative examination, the Group also examines qualitative criteria in order to determine whether there has been an exchange of debt instruments having substantially different terms, including the overall features of the exchanged debt instruments and the economic parameters inherent in them, which when substantially different may create a different economic risk for the holder of the debt instruments at the time of the exchange. These economic parameters comprise, inter alia, the average duration of the exchanged debt instruments and to what extent the terms of the debt instruments (such as linkage to the CPI, linkage to foreign currency, variable interest) have an effect on the cash flows from the instruments. In this respect, in the absence of any unusual circumstances indicating otherwise, a new debt instrument that removes or adds linkage to the CPI or the exchange of a debt instrument bearing variable interest with a debt instrument bearing fixed interest and vice versa, is considered a debt instrument with substantially different terms.
 
Offset of financial instruments
A financial asset and financial liability are offset and presented in a net amount in the Statement of Financial Position when the Group has an immediately enforceable right to offset the amounts recognized and it has the intention to settle the asset and the liability on a net basis or to realize the asset and settle the liability simultaneously.
 
6.  Issuance of block of securities
The consideration received from the issuance of a block of securities is attributed at first to financial liabilities that are measured each period at fair value through profit or loss, and then to financial liabilities that are measured only upon initial recognition at fair value.
The remaining amount is the value of the equity component. Direct issuance costs are attributed to the specific securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities on a proportionate basis according to the allocation of the consideration from the issuance of the block, as indicated above.

IDB Development Corporation Ltd. Convenience translation 
 
33
 
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
D.
Fixed assets
 
 
1.
Recognition and measurement
Fixed asset items are measured at cost less accumulated depreciation and any accumulated impairment losses.
The cost includes costs that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, and any other costs directly attributable to bringing the asset to the location and condition necessary for it to begin operating in the manner intended by management, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located (when the Group has an obligation to dismantle and remove the asset or to restore the site), as well as capitalized credit costs. Purchased software that is integral to the related equipment is recognized as part of that equipment. Spare parts, servicing equipment and stand-by equipment are classified as fixed assets if compliant with the definition of fixed assets pursuant to IAS 16 – otherwise they are classified as inventory.
When major parts of a fixed asset item (including costs of major periodic inspections), such as communication networks, have different useful lives, they are accounted for as separate items (major components) of fixed assets, and each component is depreciated over its useful life.
Changes in the obligation to dismantle and remove the items and to restore the site on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the asset in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is attributed in the income statement. The costs of constructing facilities for the prevention of environmental pollution, which increase the useful life or efficiency of the facility, or reduce or prevent pollution of the environment, are included in the cost of the fixed assets and depreciated according to the Group’s regular depreciation policy.
 
 
2.
Subsequent costs
The cost of replacing part of a fixed asset item and other subsequent costs are recognized in the carrying amount of the fixed asset if it is probable that the future economic benefits associated with them will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part of a fixed asset item is derecognized. The costs of the day-to-day maintenance of fixed asset items are recognized on the income statement when incurred.
 
 
3.
Depreciation
Depreciation is the systematic allocation of the recoverable value of an asset over its useful life span. Depreciable amount, or another amount in lieu of cost, is the asset cost less its residual value.
An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.
Depreciation is recognized in income statement (unless it is included in the carrying amount of another asset) on a straight-line basis over the estimated useful lives of each part of a fixed asset item, since this method reflects the forecasted consummation pattern of the future economic benefits inherent in the asset in the best manner. Leased assets, including land under financing lease and leasehold improvements, are depreciated over the lease period or the useful life of the assets, whichever is shorter, unless it is reasonably expected that the Group would take ownership of the asset upon termination of the lease period. Owned land is not depreciated. Costs of significant overhauls are depreciated over the earlier of the remaining useful life of the relevant asset or the date of the next overhaul.

IDB Development Corporation Ltd. Convenience translation 
 
34
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
D.
Fixed assets (cont.)
 
 
3.
Depreciation (cont'd)
 
The estimated useful lives for the current and comparative periods are as follows:
 
   
Years
    
Buildings
     25-50    
Machinery, plant & equipment
     3-22  
(mainly 10-14 years)
Office furniture and equipment
     3-17  
 
Computers
     3-7    
Vehicles
     3-10    
Fixtures in leased buildings
     3-24    
Communications network
     4-20    
Communications network control and examination equipment
     4-7    
Airplanes
     20-25    
Land under finance lease*
  
Up to 98 years (including future lease option)
 
 
*
See also section G below in this note.
 
The estimates used for the depreciation methods, useful lives and residual values are reviewed at least at the end of each financial year, and adjusted if appropriate.
 
E.
Intangible assets
 
 
1.
Goodwill
Goodwill that arises on the acquisition of subsidiaries, acquisition of an operation in business combinations and goodwill that arises when recognizing and recording a contingent consideration liability relating to a put option granted by the Group to non-controlling shareholders, is presented as part of intangible assets. For information on measurement of goodwill at initial recognition – see section a.1 above in this note.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses, if any. Goodwill, in respect of investees which are handled according to the equity basis method, is included in the investment’s book value.
 
 
2.
R&D
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in income statement when incurred.
Development activities are activities that are connected to a plan or design for the production of new or substantially improved products and processes. Development costs are recognized as an intangible asset only if: development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset.
The expenditure recognized as an intangible asset from research activities includes the cost of materials, direct labor, overhead costs that are directly attributable to preparing the asset for its intended use and capitalized borrowing costs. Other development expenditure is recognized in income statement as incurred.
Direct and certain indirect development costs deriving from the development of an information system for self-use, and salaries of employees working on the development of software during the development period, are recognized as an intangible asset. These assets are amortized on a straight-line basis from the date the asset is ready for use. These assets are tested for impairment once a year until such date as they are available for use.
In subsequent periods, development expenditure recognized as an intangible asset is measured at cost less accumulated amortization and accumulated impairment losses.

IDB Development Corporation Ltd. Convenience translation 
 
35
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
E.
Intangible assets (cont.)
 
 
3.
Other intangible assets
 
 
a.
Intangible assets that are acquired in a business combination are recognized at their acquisition date fair value. Subsequent to initial recognition, intangible assets acquired by the Group are measured at cost (including direct costs required in order to bring the assets to operation), less accumulated amortization (other than intangible assets having an indefinite useful life) and impairment losses.
 
b.
Subsequent expenditure is recognized as intangible asset only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in income statement as incurred.
 
c.
Customer relations – The excess cost that was attributed in subsidiaries to customer relations. These customer relations have a finite useful life.
 
d.
Brand – The excess cost that was attributed in subsidiaries to a brand. Some of the brands have a finite useful life and some have an indefinite useful life.
 
e.
Lease agreements – Excess cost attributed in a subsidiary to lease agreements. The lease agreements have a limited period of time. The useful life of this asset takes into consideration also options to extend the lease period.
 
f.
Other than goodwill, for part of the brands and the agreement with Rafael, which have indefinite useful lives, amortization is calculated in accordance with the expected economic benefit from the assets in each period, on the basis of the estimated useful life of each group of assets, from the date that they are available for use (meaning are brought to the working condition for their intended use). If the intangible assets consist of several components with different estimated useful lives, the individual significant components are amortized over their individual useful lives. Intangible assets created in Group companies are not systematically amortized until they are available for use. Therefore, intangible assets not available for use, such as development costs, are tested for impairment at least once a year, until such date as they are available for use.
The estimated useful lives for the current and comparative periods of the principal intangible assets are as follows:
 
 
Years
Client relations
5-10 years (2012 & 2013: 5-20 years, mainly 6-8 years)
Brands and trademarks
20 years (2012 & 2013: 8-20 years, mainly 20 years)
Licenses
17-20 (mainly 17 years)
Licensing in associate
8
IT
4
Software
3-7
Concessions
8-33 (mainly 4-10 years)
Use rights of patents and technology
2012 & 2013: 8-20 years (mainly 8 years)
Development costs recognized as  intangible asset
2012 & 2013: 3 years
Intangible assets from acquisition of products in associate
20
Non-competition and confidentiality agreement
2-5
Marketing rights in associate
5-10
Lease agreements
3-20
Orders backlog
1-3
Right to use trademarks of an associate
mainly 4 years

The systematic amortization of development in progress that was acquired in a business combination begins upon the beginning of sales deriving from the developed technology. The amortization period reflects the future useful life, based on an assessment of the period in which there will be sales deriving from the developed technology.
The estimates regarding amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

IDB Development Corporation Ltd. Convenience translation 
 
36
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
E.
Intangible assets (cont.)
 
 
3.
Other intangible assets (cont.)
 
Goodwill and a brand having an indefinite useful life are not systematically amortized but are tested for impairment at least once a year.
The Group examines at least once a year the useful life of intangible assets that are not periodically amortized in order to determine whether the events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.
 
F.
Investment property (real estate)
 
Investment property is property (land or building – or part of a building – or both) held by the Group (as the owner or by the lessee under a finance lease) either to earn rental income or for capital appreciation or for both, but not for:
 
 
1.
Use in the production or supply of goods or services or for administrative purposes; or
 
2.
Sale in the ordinary course of business.
 
Investment property is initially measured at cost including capitalized borrowing costs. Cost includes expenditure that is directly attributable to acquisition of the investment property. The cost of self-constructed investment property includes direct labor and material cost and other costs directly attributable to bringing the asset to the condition required for its intended use by management. In subsequent periods the investment property is measured at fair value with any changes therein recognized in income statement.
The Group measures its investment property under construction as follows:
 
 
1.
According to fair value (without the capitalization of borrowing costs) when the fair value of the investment property under construction is reliably determinable; and
 
2.
When the fair value is not reliably determinable, at fair value of the land plus cost during the construction period until the earlier of the date on which construction is completed or when its fair value becomes reliably determinable.
 
When property is transferred from owner-occupied property to investment property, measured at fair value, the asset is re-measured according to fair value and is classified as investment property. Any gain from the re-measurement is recognized in other comprehensive income (loss) and presented in equity in a revaluation reserve, unless the gain reverses a previous impairment loss on the property, in which case the gain is first recognized in profit or loss (up to the amount of the previous impairment loss). Any loss is included directly as an expense. When an investment property that was previously classified as a fixed asset is sold, any related amount included in the revaluation reserve is transferred directly to retained earnings. When the investment property measured according to fair value becomes a fixed asset (owner-occupied property) or inventory, its fair value at the date of the change becomes the cost for subsequent accounting treatment. When inventory becomes investment property measured at fair value, any difference between the fair value of the property on that date and its previous value on the books is included directly in profit or loss.
The Group estimates the value of investment property at least once a year and when there are indications of changes in its value (whichever earlier).
Gains and losses on disposal of an investment property are measured by comparing the proceeds from disposal with the fair value of the investment property before its sale, and are recognized in profit or loss under the item for “increase in the fair value of investment property”, or “decrease in the fair value of investment property”, as relevant.
 
G.
Leased Assets and Lease Payments
 
Leases, including land leases from the Israel Land Administration (“ILA”) or from third parties, where the Group essentially bears all risk and reward associated with the property, are classified as financing leases. Upon initial recognition the leased assets are measured and a liability is recognized at an amount equal to the lower of its fair value and the present value of the minimum lease payments. When measuring the liability for non-capitalized leases of land from the Administration, the Group discounts the future minimum lease payments at a real interest rate of 5% on the basis of the capitalization rate used by the Administration at the date of the lease agreement.

IDB Development Corporation Ltd. Convenience translation 
 
37
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
G.
Leased Assets and Lease Payments (cont'd)
Future payments for exercising an option to extend the lease from the Administration are not recognized as part of an asset and corresponding liability since they constitute contingent lease payments that are derived from the fair value of the land on the future dates of renewing the lease agreement. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that type of asset.
Other leases are operating leases and the leased assets are not recognized on the Group’s Statement of Financial Position. Property under an operating lease classified by the Group as investment property is recognized in the Group’s Statement of Financial Position at fair value, and the lease is accounted for as a finance lease at initial recognition, meaning the asset is recognized at the fair value of the property or the present value of the minimum lease payments, whichever lower.
Prepaid lease fees to the Administration in respect of land leases classified as operating leases are presented on the Statement of Financial Position and recognized in profit or loss over the lease period. The lease period takes into consideration an option to extend the lease period if at the beginning of the lease it was probable that the option will be exercised.
When a lease includes both a land component and a buildings component, each component is considered separately for the purpose of classifying the lease, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
Lease payments in respect of operating leases of land related to projects under construction, which is not inventory, are recorded as a prepaid expense. Payments for an operating lease, other than contingent lease fees, are charged to the statement of profit and loss using the straight line method over the lease term.
Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
 
H.
Transactions for the acquisition of an irrevocable right to use the capacity of underwater communication lines
Transactions for the acquisition of an irrevocable right to use the capacity of underwater communication lines are accounted for as arrangements for the receipt of service. The amount paid in respect of the rights to use communication lines is recognized as a prepaid expense and is amortized on a straight line basis over the period specified in the agreement, including the period of the option, which constitute the estimated useful life of such capacities. See also section t. below.
 
I.
Inventory
Inventory is measured at the lower of cost and net realizable value. The cost of inventory includes expenditure incurred in acquiring the inventory and bringing it to its existing location and condition. In the case of inventories of work in progress and finished goods, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Net realizable value is determined on an ongoing basis, and takes into consideration the type of the product and its age, on the basis of past experience accumulated with respect to the life of the product.
Cost of inventory is determined as follows: inventory of goods in stores and warehouses – at the last purchase price (reflecting average moving price); inventory of raw and packing materials – on a moving average basis or a “first in-first out” basis according to the type of material; inventory of finished goods and work in progress – at a standard cost that reflects the average manufacturing cost for the period, or on the basis of production expenses, with the component of raw and auxiliary materials being determined on a “first in – first out basis and the labor component and indirect expenses being determined on a weighted average basis or on a moving average basis,
all in accordance with the nature of the finished product; purchased goods and spare parts – on a “first in – first out” basis or on a moving average basis.

IDB Development Corporation Ltd. Convenience translation 
 
38
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
J. Inventory of cellular telephones and inventory for landline communications
Inventory of cellular telephones, related accessories and spare parts are presented at the lower of cost or net realizable value. Cost is calculated on a moving average basis.
The cost of inventory which serves line communications is measured on a “first-in, first-out” basis.
The Group periodically reviews inventory and its age and records a provision for impairment of inventory as needed.
 
K.
Inventory of real estate and residential apartments
Inventory of real estate and residential apartments is measured at the lower of cost and net realizable value. Inventory cost includes the cost of inventory acquisition (including pre-paid leasing fee) and of bringing it to the current location and state. In the case of inventory under construction and inventory of completed buildings, cost includes an appropriate share of construction overheads. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Inventory of real estate acquired in transactions in which the seller of the real estate receives building services is recognized at fair value on the date of handing over the real estate concurrently with the recognition of a liability for building services.
Inventory of real estate acquired in transactions in which the Group undertakes to hand over cash in an amount that depends on the price the apartments built on the land are sold, is measured according to the fair value of the financial liability created in respect of the anticipated future payments. In subsequent periods, the financial liability is remeasured according to the anticipated cash flows discounted at the original effective interest rate of the liability every period. Changes deriving from changes in the estimated cash flows constitute a part of the financing costs in respect of the financial liabilities in the proceeds transaction and are capitalized to the cost of the asset, to the extent they constitute qualifying borrowing costs.
 
L.
Capitalization of borrowing costs
 
Specific borrowing costs and non-specific borrowing costs were capitalized to qualified assets over the period required for completion and construction, through the date on which they are ready for their designated use. Non-specific credit costs are capitalized to the investment in qualifying assets, or portion thereof, which was not financed with specific credit by means of a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Exchange rate differentials due to borrowing in foreign currency are capitalized to the extent considered as adjustment to interest costs. Other borrowing costs are recognized on the income statement when incurred. In the event of suspension of active development of a qualifying asset, the capitalization of the credit costs is suspended during that period.
 
M. Impairment
1. Financial assets
A financial asset not carried at fair value through profit or loss, or at fair value through other comprehensive income (loss) is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor will enter bankruptcy, adverse changes in the payment status of borrowers, changes in the economic environment that correlate with insolvency of issuers, or the disappearance of an active market for a security and observable information pointing to a measurable decrease in the expected cash flow from a group of financial assets.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Loss is applied to the Statement of Income and presented as provision for loss against the balance of the financial asset measured at amortized cost. Interest income with respect to assets whose value is impaired, is recognized using the interest rate used to discount future cash flows for measurement of impairment loss.

IDB Development Corporation Ltd. Convenience translation 
 
39
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
M. Impairment (cont'd)
 
1. Financial assets (cont'd)
Individually significant financial assets measured by amortized cost are tested for impairment on an individual basis. Other financial assets presented at amortized cost are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are applied to the Statement of Income.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized (such as repayment by the debtor). For financial assets measured at amortized cost, the reversal is recognized in the Statement of Income.
 
 
2.
Non-financial assets
 
Timing of impairment testing
The carrying amounts of the Group’s non-financial assets, investment property, inventory and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. Indications that are examined by the Group with respect to the value of its investments include a decline in prices on the stock exchange, continuing losses on its investments, the industry in which its investees operate, excess cost included in the investments and other parameters.
If any such indication exists, then the asset’s recoverable amount is estimated. Once a year and on the same date for each cash generating unit, or more frequently if there are indications of impairment, the Group estimates the recoverable amount of the goodwill and intangible assets that have indefinite useful lives or are unavailable for use.
 
Determining cash-generating units
For the purpose of an impairment test, the assets which cannot be individually tested are grouped together to the smallest group of assets which generates cash from ongoing use, which are essentially independent of other assets and other groups of assets (“cash generating units”).
With regard to cash generating units of a retail chain at an investee company (“the chain”), the procedure of impairment test for the group is performed in three stages:
In the first stage, the group examines for each of the chain’s branches whether there are signs pointing to an impairment of the branch.
At the second stage, branches with a discounted cash flow, which does not exceed the amortized cost of the branch assets as recorded in the Group’s books (including identifiable intangible assets attributable to the branch) are examined as part of a cash generating unit which constitutes an operating complex, whilst the positive cash flows of one branch are dependent upon the cash flows of a different branch in the same geographical area. This, in light of the strategy of the investee company, according to which the closure of one loss-making branch at an area where additional branches are located, may cause a decrease in the profitability of a branch located in the same geographical area.
At the third stage, the Group estimates the recoverable amount of the cash generating unit which was identified, as specified above, which contains the branch that has a discounted cash flow which does not exceed the amortized cost of the branch’s assets, net, as specified above.
 
Measurement of recoverable amount
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In determining value in use, the Group discounts the estimated future cash flows that reflect the current position of the asset and represent the best estimate regarding the economic conditions that will exist during the remaining useful life of the asset. The cash flows in respect of a cash-generating unit are discounted using a pre-tax interest rate that reflects current market participants’ assessments of the time value of money and the risks specific to the asset or the cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit were not adjusted. In assessing the impairment of associates and joint ventures, the cash flows are discounted using an appropriate after-tax interest rate.
 
Corporate assets
The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one cash-generating unit. Certain corporate assets are allocated to cash-generating units on a reasonable and consistent basis and tested for impairment as part of testing of the cash-generating units to which the corporate assets are allocated.

IDB Development Corporation Ltd. Convenience translation 
 
40
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
M. Impairment (cont.)
 
 
2.
Non-financial assets (cont.)
 
Corporate assets (cont'd)
Other corporate assets that cannot be reasonably and consistently allocated to cash-generating units are allocated to groups of cash-generating units if there are indications that a corporate asset may be impaired or indications of impairment in a group of cash-generating units, in which case the recoverable amount is determined for the group of cash-generating units that uses the corporate asset. In such case, the recoverable amount is determined for the group of cash-generating units served by the headquarters.
 
Recognition of impairment loss
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in income statement. Impairment losses on an asset that was revalued in the past and the revaluation was included in a capital reserve, are recognized in other comprehensive income until the reserve is reduced to zero and the balance is recognized in the income statement. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, including those existing in the Group before the business combination, that are expected to benefit from the synergies of the combination.
Each unit or group of units to which goodwill was allocated as aforementioned represents the lowest level in the Group for which goodwill is monitored for internal management reporting purposes and is not larger than an operating segment (before the aggregation of similar segments).
When goodwill is not monitored for internal reporting purposes, it is allocated to operating segments (before the aggregation of similar segments) and not to a cash-generating unit (or group of cash-generating units) lower in level than an operating segment.
For purposes of testing impairment of goodwill attributed to cash generating units held also by non-controlling shareholders, which were initially measured according to their relative interest in the net assets of the acquired entity, the carrying amounts of the goodwill and the other excess costs allocated to the cash generating unit are adjusted to include also the goodwill and the other excess costs attributed to the non-controlling shareholders. Subsequently, a comparison is made between this adjusted carrying amount and the recoverable amount of that unit in order to determine whether it has been impaired. The adjustments of the goodwill and the other excess costs are made according to the holding rate in the entity to which they are attributed on January 1, 2010 or the original date on which they were recognized, whichever later, and disregarding any control premiums included in goodwill balances.
 
Allocation of impairment loss to non-controlling shareholder
If there is indication of impairment of a cash generating unit, an impairment loss is allocated between the owners of the Company and the non-controlling shareholders according to their pro rata share in the goodwill and other excess costs to which the impairment relates, prior to their adjustment as specified above. Nonetheless, if the impairment loss attributed to the non-controlling shareholders relates to goodwill or other excess costs that were not recognized in the consolidated financial statements of the parent Company, this impairment is not recognized as an impairment loss. In these cases, only an impairment loss attributed to goodwill and other excess costs recognized in the financial statements of the Company is recognized as an impairment loss.
 
Reversal of impairment loss
An impairment loss in respect of goodwill is not reversed. In respect of other assets, for which impairment losses were recognized in prior periods, an assessment is performed at each reporting date for any indications that these losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized

IDB Development Corporation Ltd. Convenience translation 
 
41
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
M. Impairment (cont.)
 
 
3.
Investments in associates and in joint ventures
 
An investment in an associate or in a joint venture is tested for impairment when there are objective evidence indicating an impairment. Such objective evidence include general market information, a decline in stock exchange prices, continued losses at its investments, the sector in which its investments operate, failure to meet research & development milestones of investee companies, significant deviation from the business plan of the investee companies, capital raising efforts at a price lower than the value of the investment in the financial statements and additional parameters. Goodwill which constitutes part of the investment account in respect of the associate or joint venture is not recognized as a separate asset, and therefore an impairment is not examined in respect of it.
If there are objective evidence indicating that the value of the investment may have been impaired, the Group estimates the recoverable amount of the investment, which is the greater of its value in use and its net selling price.
In assessing value in use of an investment, the Group estimates its share of the present value of estimated future cash flows that are expected to be generated by the associate or joint venture, including cash flows from its operations and the consideration from the final disposal of the investment, or estimates the present value of the estimated future cash flows that are expected to be derived from dividends that will be received and from the final disposal.
An impairment loss is recognized when the carrying amount of the investment, after applying the equity method, exceeds its recoverable amount, and it is recognized in profit or loss under the Group’s share of loss of equity accounted investees, net.
An impairment loss is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment in the associate or joint venture.
An impairment loss is only reversed if change occurs to estimates used to determine the recoverable amount of the investment after the date on which impairment lost was most recently recognized. The carrying amount of the investment, after reversal of impairment loss, shall not exceed the carrying amount of the investment which would have been determined using the equity method if no impairment loss had been recognized.
If excess costs are attributed to assets in an associate or to assets in a jointly controlled entity, and the aforesaid Company recognizes impairment on such assets, then the Company amortizes the aforesaid attributed excess cost and recognizes the amortization in profit or loss.
 
N.
Non-current assets and disposal groups held for sale
 
Non-current assets (or groups of assets and liabilities for disposal) are classified as held for sale if it is highly probable that they will be recovered primarily through a sale transaction or a distribution to the owners and not through continuing use. When a company is obligated to a sale plan that involves losing control over a subsidiary, all the assets and liabilities attributed to the subsidiary are to be classified as held for sale whether or not the Company will retain any non-controlling shareholders in the subsidiary after the sale.
Immediately before classification as held for sale, the assets (or components of a disposal group) are re-measured in accordance with the Group’s accounting policy. After that, the assets, the components of the disposal (or the group held for sale or distribution) are measured at the lower of their carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities, except that no loss is allocated to assets outside the scope of measurement provisions of IFRS 5, such as: inventories, financial assets, deferred tax assets, plan assets for employee benefits, investment property measured at fair value. Impairment losses recognized on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.
In subsequent periods, depreciable assets classified as held for sale are not periodically amortized, and investments in associates classified as held for sale are not accounted for on equity basis.


IDB Development Corporation Ltd. Convenience translation 
 
42
 



Note 2 – Principles of the Accounting Policy (cont.)
 
O.
Share capital
 
Ordinary shares
Costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity.
 
Treasury shares
The Company’s shares held by the Company and/or by subsidiaries were stated at cost as a deduction from the Company’s equity as a separate column in the statement of changes in equity. The profit or loss from acquisition, sale, issue or cancellation of treasury shares is recognized directly in equity.
 
P.
Employee benefits
 
 
1.
Post-employment benefits
 
The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies or with pension funds, and they are classified as defined contribution plans and as defined benefit plans.
 
a.  Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. The Group’s obligations for contributions to defined contribution pension plans are recognized as an expense when the obligation to make a contribution occurs.
 
 
b.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Group’s net obligation in respect of post-employment defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. This benefit is presented at its present value, net of the fair value of plan assets.
The Group determines the net interest for the liability (asset), net with respect to defined benefit by multiplying the liability (asset), net with respect to said defined benefit by the capitalization rate used to measure the liability with respect to said defined benefit, as determined at the start of the annual reporting period.
The capitalization rate for December 31, 2012 and December 31, 2013 was determined according to the yield on Government bonds denominated in the same currency that have maturity dates approximating the terms of the Group’s obligations at those dates. The capitalization rate as of December 31, 2014 is determined according to the yield, at the reporting date, on high quality linked corporate bonds denominated in NIS, the date of repayment of which is similar to the terms of the Group’s liabilities at that date (see also note 18.B.and C below). The calculations are performed annually by a qualified actuary, according to the projected unit credit method.
When the calculation results in a net asset for the Group, an asset is recognized up to the net present value of economic benefits available in the form of a refund from the plan or a reduction in future contributions to the plan. An economic benefit in the form of refunds from the plan or by way of reduction of future contributions would be deemed available to the Group when it may be exercised during the plan term or after disposition of the obligation.
Remeasurement of the liability (asset), net with respect to defined benefit includes actuarial gain and loss, return on plan assets (other than interest) as well as any change to the effect on maximum assets (if applicable, other than interest). Remeasurements are immediately charged through Other Comprehensive Income, directly to Retained Earnings.
Interest cost with respect to commitment for defined benefit, interest income with respect to plan assets and interest with respect to the effect of maximum assets charged to the income statement, are presented under financing income and financing expenses, respectively.
When the benefits provided by the Group to employees are increased or reduced, the portion of the increased benefit relating to past service by employees, or the gain / loss from such reduction, is immediately recognized on the income statement when the plan increase or reduction occurs.
Upon settlement of a defined benefit plan, the Group recognizes gain or loss from such settlement. Such gain or loss is the difference between the settled portion of the present value of the defined benefit liability upon the settlement date and the settlement price, including any transferred plan assets.
 
 
43
 

Note 2 – Principles of the Accounting Policy (cont.)
 
P.
Employee benefits (cont.)
 
 
1.
Post-employment benefits (cont.)
 
 
b.
Defined benefit plans (cont.)
The Group has retirement insurance policies issued prior to 2004; according to terms of these policies, the real excess gain accumulated for the severance pay component is payable to the employee upon retirement. For such policies, plan assets include both the severance pay component and the accumulated real excess gain (if any) on contributions towards severance pay through the date of the Statement of Financial Position and these are presented at fair value. These plan assets are used for a defined benefit plan which consists of two obligation components: the defined benefit plan component with respect to severance pay, calculated on an actuarial basis as noted above, and the other component - an obligation to pay the accumulated real excess gain (if any) upon retirement of the employee. This component is measured at the amount of real excess gain accumulated through the report date.
 
 
2.
Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits other than post-employment plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The amount of these benefits is discounted to its present value. The capitalization rate of this obligation as at December 31, 2012, and December 31, 2013, was determined according to the yield on Government bonds denominated in the same currency that have maturity dates approximating the terms of the Group’s obligations at those dates.
The capitalization rate as of December 31, 2014, is determined according to the yield, at the reporting date, on high quality linked corporate bonds denominated in NIS, the date of repayment of which is similar to the terms of the Group’s liabilities at that date (see also note 18.B and C below). The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in income statement in the period in which they arise.
 
 
3.
Benefits with respect to termination of employment
Benefits with respect to termination of employment are recognized as an expense when the Group has distinctively obligated, with no real possibility to withdraw its commitment, to terminate the employment of employees, prior to those employees reaching the date of retirement as accepted according to a formal detailed plan, or to provide benefits with respect to termination of employment as a result of an offer made to encourage voluntary retirement.
Benefits provided to employees at voluntary retirement are recognized as an expense when the Group has offered its employees a plan which encourages voluntary retirement, and when it is expected that the offer will be accepted and the number of employees who will accept the offer can be estimated reliably.
 
 
4.
Short-term benefits to employees
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated (such as maternity leave).
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits, based on when the Group expects the benefits to be fully settled.
 
 
5.
Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards.

IDB Development Corporation Ltd. Convenience translation 
 
44
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
P.
Employee benefits (cont.)
 
Q.
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable (more likely than not) that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability without adjustment for the debtor’s credit risk. The carrying amount of the provision is adjusted in each period to reflect the passage of time. The adjustment is recognized as Financing Expenses.
The Group recognizes a reimbursement asset if, and only if, it is virtually certain that the reimbursement will be received if the Company settles the obligation. The amount recognized with respect to indemnification does not exceed the amount of the provision.
 
1.  Warranty
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
 
2. Onerous contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Prior to recognizing the provision, the Group recognizes impairment of assets related to the aforesaid contract.
 
3. Contingent liabilities and legal claims
Legal claims, which have unique characteristics, are not grouped together and the necessity of recognizing provisions for them is assessed on an individual basis.
A provision for lawsuits is recognized when the Group has a current legal obligation or an implied obligation due to an event which has occurred in the past, when use of financial resources in order to discharge the obligation is more likely than not, and the obligation may be reliably estimated. When the influence of the value of time is material, the provision is measured at its present value. The amounts provisioned are based on the estimated risk inherent in each claim, with events occurring during litigation potentially requiring this risk to be re-evaluated. When assessing the chances of legal claims that were filed against the Company and its investee companies, the companies based themselves on the opinion of their legal counsel. These opinions by legal counsel are to the best of their professional judgment, considering the stage of these proceedings as well as accumulated legal experience on the different issues. The outcome of such claims will be determined by the Court.
There are legal proceedings in the Group that have been recently initiated the outcome of which cannot be assessed at this stage. See also note 23.C below.
The provision for unasserted claims is recognized according to the overall chance of success of the claim, should one be filed, against the Group companies (on the basis of the probability of the claim being filed and of its chance of success).
 
R.
Income
 
 
1.
Sale of goods
Income from the sale of goods in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns and discounts. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted. When the credit period is longer than the accepted credit period in the industry, the Group recognizes the future consideration discounted to its present value using the risk rate of the customer or the rate used in the relevant market. The difference between the fair value and the nominal amount of the future consideration is recognized as financing income over the excess credit period.
If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of income as the sales are recognized. Discounts granted to customers at a fixed amount or rate that are unrelated to the amount of the customer’s purchases, are recognized at the time of sale as a reduction of sales.

IDB Development Corporation Ltd. Convenience translation 
 
45
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
R.
Income (cont'd)
 
 
1.
Sale of goods (cont'd)
Discounts depending on the amount of the customer’s purchases are recognized as a reduction of sales and are included in the financial statements proportionately on the basis of the volume of purchases made by customers that the relevant Group companies assess it is highly probable will become entitled to the discount, providing that these customers can be estimated reliably.
For sales of products, the Group usually recognizes income when goods are delivered to the customer or reach the customer’s warehouse. For some international shipments, income is recognized upon loading the goods onto the carrier transport. When two or more of the Group’s income-generating activities or products are sold as part of a single arrangement, the Group separately handles each component that can be identified as a separate accounting unit.
The allocation of consideration from an income arrangement to its separate units of account is based on the relative fair values of each unit. If the fair value of the delivered item is not reliably measurable, then income is allocated based on the difference between the total arrangement consideration and the fair value of the undelivered item.
 
 
2.
Customer loyalty programs
For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the discounted products for which they could be redeemed, since there are no direct market quotes for similar award credits. The fair value of the right to purchase discounted products is estimated taking into account the expected redemption rate and the timing of such expected redemptions. Such amount is deferred and income is recognized only when the award credits are redeemed and the Group has fulfilled its obligations to supply the discounted products, or they have expired. The amount of income recognized in those circumstances is based on the number of award credits that have been redeemed in exchange for discounted products, relative to the total number of award credits that is expected to be redeemed. Deferred income is also released to income when it is no longer considered probable that the award credits will be redeemed.
 
 
3.
Sale of inventory of land and residential apartments
Income from sale of inventory of land and residential apartments is measured at fair value of the consideration received or to be received.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of residential apartments, including those built for the land owners in building services for land transactions, transfer of risk and yield usually occurs when the apartment is handed over to the buyer.
 
 
4.
Services
Income from services rendered is recognized in the Statement of Income pro rata to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
 
 
5.
Income from communication services and sale of communication equipment
Income deriving from use of communication networks of the Group, including cellular services, internet services, international calls, fixed local calls, interconnection fees and roaming services, is recognized upon the performance of the service, in proportion to the stage of completion of the transaction and when all the other criteria for recognizing income have been met.
Proceeds from the sale of cellular call cards are recognized initially as deferred income and recognized as income according to use or when they expire.
A transaction for the sale of end-user equipment usually involves a transaction for the sale of services. Usually, the sale of the cellular phone equipment to the customer is executed with no contractual obligation of the customer to consume services in a minimal amount for a predefined period. As a result, the Group accounts for the sale of the cellular phone equipment as a separate transaction and recognizes income from sale of cellular phone equipment according to the value of the transaction upon delivery of the equipment to the customer. Income from services is recognized and recorded

IDB Development Corporation Ltd. Convenience translation 
 
46
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
R.
Income (cont'd)
 
 
5.
Income from communication services and sale of communication equipment (cont'd)
When the customer is obligated towards the Group to consume services in a minimal amount for a predefined period, the contract is characterized as a multiple element arrangement and thus, income from sale of cellular phone equipment is recorded in an amount not higher than the fair value of the aforesaid equipment that is not contingent upon delivery of additional components (such as services) and is recognized upon delivery to the customer and when the criteria for income recognition are met. The Group determines the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering discounts where appropriate.
The Group offers other optional services, such as extended warranty on equipment, which are provided for a monthly fee and are either sold separately or bundled and included in packaged rate plans. Income from these services is recognized when the service is provided.
When the Group acts as an agent or an intermediary without bearing the risks and rewards resulting from the transaction, the income is presented on a net basis (as a profit or a commission). However, when the Group acts as a principal supplier and bears the risks and rewards resulting from the transaction the income is presented on a gross basis, while distinguishing the income from the related expenses.
Income from long-term credit arrangements are recognized on the basis of the present value of future cash flows, discounted according to market interest rates at the time of the transaction. The difference between the original credit and its present value, as aforementioned, is spread and recorded as interest income over the credit period.
 
 
6.
Income from provision of tourism services
Income from rendering tourism services is recognized when the service is rendered.
Income from a transaction to render services is recognized on the basis of the stage of completion of the transaction and when all of the following conditions are fulfilled:
 
The amount of income can be reliably measured;
 
The economic benefits related to the transaction are expected to flow to the Group;
The stage of completion of the transaction on the date of the report of financial position can be reliably measured; and
The costs incurred as part of the transaction and the costs needed to complete the transaction can be reliably measured.
 
 
7.
Income from commissions on a gross and net basis
In respect of transactions in which the Group bears the primary obligations of the agreement and bears the major risks and benefits from the transaction, income is recognized on the gross basis. In respect of transactions in which the Group acts as an agent or broker without bearing the major risks and benefits from the transaction, the income is recognized on the net basis.
 
8. Commissions, credit margins and membership fees
When the Group acts in the capacity of an agent rather than as the primary supplier in a transaction, the income recognized is the net amount of commission made by the Group. Income deriving from commissions are recognized on the basis of the transactions executed with the credit cards of an investee company at the rate and on the date the businesses were credited. Income deriving from credit margins of credit cards are recognized on the date the customer is charged and income from subscription fees are recognized on a monthly basis.
 
9. Income from rent and management fees
Rental income from investment property and management fees for regular operation of properties are recognized in income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.

IDB Development Corporation Ltd. Convenience translation 
 
47
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
R.
Income (cont'd)
 
 
10.Fair value of consideration that is contingent upon the occurrence of certain events
The value of a contingent consideration, which derives from the sale of a business and will be received upon the occurrence of certain future events, is initially determined at fair value. The fair value is determined based on assumptions regarding the occurrence of the future events and the date on which the Group will have a cash inflow as a result of such events, which are sometimes not under the control of the Group. In circumstances that the fair value of that contingent consideration cannot be reliably determined because of a wide range of possible future scenarios that will affect the fair value, and because the probabilities of the different alternatives in this range cannot be reliably estimated, the Group does not recognize any gain from the contingent consideration until sufficient information is obtained, if at all.
 
S.
Cost of sales
 
 
1.
The cost of sales, from retail operations, includes the cost of purchasing retail inventory less supplier discounts, as aforementioned, and includes also expenses regarding loss, depreciation of goods, independent shelf stocking, storage and handling of inventory until the end selling point. It also includes operation and management costs of commercial centers held by the Group as part of investment property.
Cost of sales in the Group as regards the supply of communication services includes mainly equipment purchase costs, salaries and related expenses, costs of added value services, royalties, ongoing license fees, interconnection and roaming expenses, cell site leasing costs, depreciation and amortization expenses and maintenance expenses, directly related to services rendered.
 
 
2.
Supplier discounts – the Group recognizes discounts received from suppliers as a deduction from the purchase cost. Therefore, the part of the discounts that relates to the purchases added to the closing inventory is attributed to inventory, and the rest of the discounts reduce the cost of sales.
Some of these discounts are at a fixed rate that does not depend on the volume of purchases (this discount is calculated as a fixed percentage of the purchases made from the supplier or as a fixed amount that does not depend on the volume of purchases) and they are recognized upon the execution of the proportionate purchases that entitle the Group to the aforesaid discounts.
 
T.
Leases
 
Lease payments
Payments made under operating leases, other than conditional lease payments, are recognized in income statement on a straight-line basis over the term of the lease, including the optional period when on the date of the transaction it was reasonably certain that the option will be exercised. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Minimum lease fees payable under an operating lease are charged to the income statement when incurred.
Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the balance of the liability.
Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
 
Determination whether an arrangement contains a lease
At inception or upon reassessment of an arrangement, the Group determines whether such an arrangement is or contains a lease.
An arrangement is a lease or contains a lease if the following two criteria are met:
 
 
●
The fulfilment of the arrangement is dependent on the use of a specific asset; and
 
●
The arrangement contains a rights to use the asset.
 
Other payments and consideration required according to the arrangement are separated at the outset of the arrangement or upon the re-examination of payments in respect of the lease and other components according to their proportionate fair value.

IDB Development Corporation Ltd. Convenience translation 
 
48
 

 
Note 2 – Principles of the Accounting Policy (cont.)
 
T.
Leases (cont.)
If the Group concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognized at an amount equal to the fair value of the underlying asset. In subsequent periods, the liability is reduced as payments are made and an imputed finance charge on the liability is recognized using the buyer’s incremental borrowing rate.
 
U.
Financing income and expenses
Financing income comprises interest income and linkage differences on financial assets, dividend and interest income from marketable securities (other than from associates and joint ventures, from financial assets presented at fair value through profit or loss that do not constitute a part of the Group’s liquid resources, except for dividends that constitute a clear return on an investment), an increase in the fair value of financial assets presented at fair value through profit or loss (including also dividend and interest income) that constitute a part of the Group’s liquid resources, a positive change in the value of the embedded derivative in a non-recourse loan that was received by Koor, foreign currency gains and gains on hedging instruments that are recognized in profit or loss, gains from the early redemption of bonds, a decrease in the fair value of financial liabilities at fair value through profit or loss and interest income from sales on credit. Interest income is recognized as it accrues, using the effective interest method. Dividend income is recognized on the date when the Group’s right to receive payment is established. If dividend is received for negotiable shares, the Group recognizes dividend income on the ex-dividend date.
Financing expenses comprise interest expense and linkage differences on borrowings, changes in time value of provisions and deferred consideration, a decrease in the fair value of financial assets at fair value through profit or loss that constitute a part of the Group’s liquid resources, impairment losses recognized on financial assets (other than losses on trade receivables that are presented under general and administrative expenses),  losses on hedging instruments that are recognized in profit or loss, an increase in the fair value of financial liabilities at fair value through profit or loss, changes in the time value of liabilities for government grants, foreign currency losses and changes in the time value of a liability in respect of a put option to the non-controlling shareholders. Borrowing costs, which are not capitalized to qualifying assets, are recognized in profit or loss using the effective interest method.
Foreign currency gains and losses on financial assets and financial liabilities and on hedging instruments are reported on a net basis, as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.
In the statements of cash flows, interest received is presented as part of cash flows from investing activities and dividends received which do not constitute return of investment, are presented as part of cash flows from operating activities. Dividends received which constitute return of investment are presented under cash flows provided by investment operations. Interest and dividends paid are presented under “Cash flows from financing operations”. Accordingly, borrowing costs which have been capitalized to qualifying assets are presented together with the interest paid under “Cash flows from financing operations”.


IDB Development Corporation Ltd. Convenience translation 
 
49
 

 
Note 2 – Principles of the Accounting Policy (cont.)
 
V.
Taxes on income
Taxes on income include current and deferred taxes. Current tax and deferred tax are recognized in income statement except to the extent that they relate to a business combination, or are recognized directly in equity or in other comprehensive income (loss) to the extent they relate to items recognized directly in equity or in other comprehensive income (loss).
Current tax is the expected tax payable (or receivable) on the taxable income for the reporting period, using tax rates enacted or substantively enacted at the date of the Statement of Financial Position. Current taxes include back taxes and additional taxes with respect to dividend distribution by investees.
The Group offsets current tax assets and liabilities when there is an enforceable legal right to offset current tax assets and liabilities, and there is an intention to dispose of current tax assets and liabilities on a net basis or that the tax assets and liabilities are settled at the same time.
A provision for uncertain tax positions, including additional tax and interest expenses, is recognized when it is more probable than not that the Group will have to use its economic resources to pay the obligation.
Deferred taxes are recognized for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized by the Group for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint ventures and associates, to the extent that the Group is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future, either by way of selling the investment or by way of distributing dividends in respect of the investment. Measurement of deferred taxes reflects the tax implications arising from the manner in which the Group anticipates recovering or settling the carrying amount of assets and liabilities at the end of the reported period. For investment property measured using the fair value model, there is a refutable assumption that the carrying amount of investment property would be discharged through a sale. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
A deferred tax asset is recognized in respect of loss carry forwards, tax benefits and temporary differences that are deductible, to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized, considering current tax losses expected in the tax year in which the temporary differences would be utilized and against which they may be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax assets which were not recognized are evaluated at each reporting date and are recognized in cases where the expectation has changed so that taxable income is expected to arise in the future, against which those assets can be utilized.
Deferred tax assets and liabilities are offset by the Group if there is a legally enforceable right to offset deferred tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their deferred tax assets and liabilities will be realized simultaneously.
The Group may incur additional taxes in case of dividend distribution by Group companies. This additional tax was not included in the deferred taxes, since the policy of the Group companies is to not distribute a dividend which creates an additional tax liability for the recipient in the foreseeable future. In cases where an investee is expected to distribute dividends from earnings such that these dividends would involve additional tax liability for the Company, the Company creates a tax reserve with respect to the additional tax which may be incurred with respect to said dividend.
Additional income taxes that arise from the distribution of dividends by the Group companies are recognized in income statement at the same time as the liability to pay the related dividend is recognized.
Deferred tax in respect of intra-Company transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying Company.

IDB Development Corporation Ltd. Convenience translation 
 
50
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
 
W. Discontinued operations
Discontinued operations are a component of the Group’s business that constitute operations that were sold or are classified as held for sale as aforesaid, and they represent a separate major line of business or a geographical area of operations that is significant and separate.
The operating results that relate to discontinued operations are presented separately in the Statement of Income net of the tax effect, also in respect of the comparative amounts that were restated for this purpose, as if the operations were discontinued at the beginning of the earliest comparative period. Furthermore, the Company presents the cash flows that relate to discontinued operations separately in the Statements of Cash Flows, including reclassification of comparative amounts. In this regard, see note 3.I.1 below.
 
X.
New standards and interpretations not yet adopted
1. IFRS 9 (2014), Financial Instruments (“Final Version of IFRS 9”)
The final version of IFRS 9 includes revised instructions for the classification and measurement of financial instruments, as well as a new model for the measurement of impairment of financial assets. These instructions are added to the chapter on Hedge Accounting – General, which was published in 2013.
 
Classification and measurement of financial assets
According to the final version of IFRS 9, there are three main categories for the measurement of financial assets: amortized cost, fair value through profit or loss and fair value through other comprehensive income. The classification basis of debt instruments is based on the entity’s business model for financial asset management and the characteristics of the financial asset’s contractual cash flows. Investment in capital instruments will be measured by fair value through profit or loss (unless the company chose, upon initial recognition, to present the changes in fair value within other comprehensive income). As stated in section C.1 of this note above, the Group adopted the specified classification and measurement rules with regard to financial assets on an early basis since 2012, without adopting on an early basis the remainder of the rules stated in the final version of IFRS 9, which are stated below:
Classification and measurement of financial liabilities
The changes in the fair value of financial liabilities designated at fair value through profit or loss, which are attributable to changes in the entity’s credit risk will, in the majority of cases, be recognized through other comprehensive income.
 
Hedge accounting - general
According to the final version of IFRS 9, other hedging strategies applies for risk management may qualify for hedge accounting. The current 80%-125% test for determining the hedge effectiveness was replaced by a required economic link between the hedged item and the hedging instrument - without specifying any quantitative threshold. In addition, new models are presented as alternatives for hedge accounting, with regard to credit exposures and certain contracts which are not in the scope of the final version of IFRS 9 and new principles for treatment of hedging instruments were determined. In addition, new disclosure requirements were set.
 
Impairment of financial assets
The final version of IFRS 9 presents a new model for the recognition of expected credit losses (“Expected credit loss model”). For most financial debt assets, the new model presents a dual method for the measurement of impairment: if the credit risk attributed to the financial asset did not significantly increase since the initial recognition, a provision for loss will be recognized at the amount of credit losses expected due to default events, the occurrence of which is possible during the twelve months subsequent to the reporting date. If the credit risk had increased significantly, in the majority of cases the provision for impairment will increase and be recorded at the amount of credit losses expected across the full life of the financial asset.
The final version of IFRS 9 will be implanted for annual periods commencing on January 1, 2018, with possibility for early adoption. The final version of IFRS 9 will be implemented retrospectively, excluding a number of reliefs.
The Group has not yet begun the examination of the implications of adopting the final version of IFRS 9 over the financial statements.

IDB Development Corporation Ltd. Convenience translation 
 
51
 
 
Note 2 – Principles of the Accounting Policy (cont.)
 
X.
New standards and interpretations not yet adopted (cont.)
 
 
2.
IFRS 15, Income from Contracts with Customers (“IFRS 15”)
IFRS 15 replaces the current existing assumptions regarding income recognition and presents a new model for recognition of income from contracts with customers. IFRS 15 sets forth two approaches for income recognition: at one point in time or over time. The model includes five stages for transaction analysis in order to determine the timing of the recognition of income and its amount. In addition, IFRS 15 sets new, more extensive disclosure requirements than those that currently exist.
IFRS 15 will be applied to annual reporting periods commencing on January 1, 2017, with the possibility of early adoption. IFRS 15 includes various alternatives for the implementation of the transition instructions, so that companies can choose one of the following alternatives upon initial implementation: full retrospective implementation, full retrospective implementation that includes practical reliefs; or implementation through adjustment of the retained earnings balance to the date of initial implementation in respect of transactions which have not yet concluded.
The Group has not yet begun the examination of the ramifications of adopting IFRS 15 on the financial statements.

Note 3 – Investments
 
For a list of the Group’s main companies – see Annex A of the financial statements.
 
A.
Composition of investments in equity accounted investees
 
 
   
as at December 31
  
   
2014
    
2013
  
   
NIS Million
  
Value in Statement of Financial Position of the investment in shares
     3,801       3,181 *
Loans and a capital note
     540       642  
Less: provision for impairment
     (588 )     (74 )
      3,753 (1)     3,749 (1)
 
 
*
Reclassification; see note 1.F.1 above.

(1)  
The aforesaid value includes:
 
Balance of attributed excess cost – for amortization
     106       130  
Balance of goodwill
     468       855  
      574       985  
 
 
 (2)
Loans and a capital note
 
   
Interest rates
as at
December 31,
    
as at December 31
  
   
2014
    
2014
    
2013
  
   
%
    
NIS Millions
  
Dollars or linked thereto
     6-15.0       369       314  
NIS (CPI-linked and unlinked)
     2.3-9.1       143       142  
Other currencies or linked thereto
     3.6        28        186  
               540        642  
 
 
Most of the loans have no repayment dates.
 

IDB Development Corporation Ltd. Convenience translation 
 
52
 
 
Note 3 – Investments (cont.)
 
B.
Movement in investments in investee companies treated according to the equity method (hereunder in this section – “associates”)
 
 
     For the year ended December 31  
   
2014
    
2013
  
   
NIS millions
  
             
Balance at beginning of the year
     3,749 (1)     4,791 (1)
                 
Investments in shares and participation units
     49       41  
Changes in loans and capital notes, net
     29       22  
Dividends recorded
     (24 )     (74 )
The Group’s share in profits of associates, net
     (10 )     62  
Provision for impairment, net
     (490 )     -  
Capital reserves from translation differences in respect of associates
     349       (299 )
Decrease in investments due to the reclassification of an investment in an associate to a financial asset measured by fair value through profit or loss (see also section H.2.a of this note below)
     (70 )     -  
Changes in investments in associates due to companies the consolidation of which was discontinued
     (4 )     (150 )
The Group’s share in hedge funds of associates
     120       3  
The Group’s share in the recording of hedge funds of associates to profit or loss
     53       (17 )
The Group’s share in actuarial differences of associates
     2       -  
Changes in investments in associates, due to their first time consolidation (2)
     -       (582 )
Changes in an investment as a result of sales and issues to a third party
     -       (48 )
Balance at end of year
     3,753       3,749  

 (1)
Reclassified; see note 1.F.1 above.
(2)
Including associates which were consolidated for the first time.

IDB Development Corporation Ltd. Convenience translation 
 
53
 
Note 3 – Investments (cont.)
 
C.
Details regarding associates and joint transactions
 
 
1.
Summary information on an associate which is material
 
This section gives details of associates that meet one or more of the following criteria:
·  
The Company’s share in the sum of the investment in the associate (in linkage) exceeds 10% of the total assets in the relevant consolidated Statement of Financial Position;
·  
The Company’s share in the associate’s results (in linkage) exceeds 10% (in absolute value) of the net profit attributed to the Company’s owners in the relevant year.
In 2012, the associates did not meet the aforementioned criteria.
 
The figures below* relate to Koor’s holding in Adama at a rate of 40%. Adama is a global company, which was incorporated in Israel.
 
   
2014
    
2013
  
   
Adama
  
   
NIS millions
  
Current assets
     11,861       9,513  
Non-current assets
     6,590       5,957  
Total assets
     18,451       15,470  
Current liabilities
     (7,201 )     (5,633 )
Non-current liabilities
     (5,034 )     (4,963 )
Total liabilities
     (12,235 )     (10,596 )
Total assets, net
     6,216       4,874  
                 
The Group’s share of the assets, net
     2,487       1,950  
Goodwill
     983         (1) 884 
Reconciliations for fair value made on the acquisition date
     88       115  
Impairment of investment (see section H.4.d in this Note below)
     (541 )     -  
Other reconciliations
     (14 )     (1 )
                 
Value of the associate in the Group’s books
     3,003       2,948  
                 
Income
     11,474       11,669  
                 
Profit for the period
     498       471  
Other comprehensive income (loss)
     148       (171 )
Total comprehensive income of the associate
     646       300  
Less other comprehensive loss attributable to non-controlling shareholders of the associate
     2       -  
Total comprehensive income attributable to the owners of the associate
     648       300  
                 
The Group’s share in the associate’s total comprehensive income
     259       120  
Amortization of reconciliations for fair value made on the acquisition date
     (38 )     (49 )
Impairment of investment (see section H.4.d in this Note below)
     (516 )     -  
Foreign currency translation differentials for the associate
     356       (223 )
Other reconciliations
     (5 )     (5 )
Total comprehensive income (loss) of the associate as presented in the books
     56       (157 )
 
 
*
Assets and liabilities were translated according to the representative exchange rates as at December 31 of each year and income and profit or loss were translated according to the average exchange rates in each year.
 
 
(1)
Restated; see note 1.F.1.

IDB Development Corporation Ltd. Convenience translation 
 
54
 
 
Note 3 – Investments (cont.)
 
C.
Details regarding associates and joint transactions (cont.)
 
 
2.
Summary information on associates and joint transactions that are not material
 
Aggregate sums with adjustment for percentages of ownerships held by the Group:
 
      For December 31   
      2014        2013        2012   
      NIS millions   
A.Summary of data on investee companies (1)                        
Book value of investee companies
     426        447        4,367  
The Group’s share in profit for the period
     (122 )     (99 )     (959 )
The Group’s share in other comprehensive income (loss)
     163       (21 )     (110 )
The Group’s share in total comprehensive income (loss)
     41       (120 )     1,069  
B.Summary of Data on Joint Transactions
                        
Book value of investments in joint transactions
     324        354        363  
The Group’s share in profit (loss) for the period
     (23 )     21       27  
The Group’s share in other comprehensive income (loss)
     2       (3 )     (1 )
The Group’s share in other comprehensive income (loss)
     (21 )      18        26  

 
(1)
The data includes sums for investment in Credit Suisse Emerging Markets Credit Opportunity Fund LP (hereunder “EMCO Fund”), 12.2% of which is held by Koor. It should be noted that although the amount of the Group’s holding in the EMCO Fund is less than 20%, it will be subject to the equity accounting method. Koor has a material influence over the EMCO Fund since it has the power to participate in certain material decisions of the Fund, such as decisions pertaining to investment, through a joint representative of Koor and Clal Insurance group representative. Noted that the EMCO Fund statements were prepared for November 30, 2013 and November 30, 2012, and Koor made the necessary adjustments in its financial statements for the time gap between the aforesaid statements of the EMCO Fund and the financial statements of Koor as of December 31, 2012-2014, respectively.
 
(2)
According to the materiality tests as stated in section (1) above in this note, the investment in Adama for 2012 was not classified as material, and therefore the above figures include the amounts that relate to Adama.


IDB Development Corporation Ltd. Convenience translation 
 
55
 
 
Note 3 – Investments (cont.)
 
D.
Additional details regarding the main consolidated investees that are directly held by the Company*
 
   
Company rights in the share capital and voting
    
Scope of investment in investee
    
Loans and capital notes
    
Total
  
Country of incorporation
   
%
(rounded)
    
NIS Millions
    
As of December 31, 2014
                          
Discount Investments
     74       894       -       894  
Israel
IDB Group USA Investment Inc. )1)
     50       (650 )     1,196       546  
USA
IDB Tourism (2)
     100       180       59       239  
Israel
              424       1,255       1,679    
                                   
As of December 31, 2013
                                  
Discount Investments
     74       1,069       -       1,069  
Israel
Koor (3)
     1       124       -       124  
Israel
IDB Group USA Investment Inc. )1)
     50       (418 )     926       508  
USA
IDB Tourism (2)
     100       (127 )     219       92  
Israel
Noya Oil & Gas Explorations (4)
     47.5       3       1       4  
Israel
IDB - DT (2010) Energy (4)
     50       (11 )     12       1  
Israel
              640       1,158       1,798    
 
*
The above investments do not include investments in headquarter companies that are fully owned by the Company.
 
(1)
The holding of capital is by way of a wholly owned subsidiary. An additional 50% is held by a company that is fully owned by PBC. The loans were granted directly to IDB Group USA.
(2)
For details regarding liens and guarantees, see Note 22 below.
(3)
As of December 31, 2013 it was held at a rate of 67% by Discount Investments and as of December 31 2014 is held at a rate of 100%.
(4)
The financial statements for Noya and IDB-DT (2010) Energy were consolidated in the Company’s financial statements until December 31, 2013, in accordance with the shareholders agreement in which the Company has equal representation on the companies’ Boards of Directors and in the event of a disagreement, as long as Mr. Nochi Dankner is controlling shareholder in the Company, the matter will be brought before the Company for a decision. In January 2014, in light of the fact that Mr. Nochi Dankner ceased to be controlling shareholder in the Company, the Company has ceased to consolidate the statements and they are treated according to the equity method.
 
For details regarding Cellcom’s employee share options plan that exists as of December 31, 2014, see Annex B of the financial statements.


IDB Development Corporation Ltd. Convenience translation 
 
56
 

Note 3 – Investments (cont.)
 
E.
Subsidiaries
 
Details of investees whose non-controlling shareholders are material (1)
 
   
As of December 31, 2014
    
For the year ending December 31, 2014
  
   
Holding percentage of share capital and voting rights of non-controlling shareholders
    
Current assets
    
Non-current assets
    
Current liabilities
    
Non-current liabilities
    
Total assets, net
    
Book value of non-controlling shareholders
    
Income (8)
    
Net profit
    
Other comprehensive income (loss)
    
Total comprehensive income (loss)
    
Profit (loss) attributed to non-controlling shareholders
    
Other comprehensive income (loss) attributed to non-controlling shareholders
    
Cash flows from current activity
    
Cash flows from investing activity
    
Cash flows from financing activity
    
Increase (decrease) net of cash and cash equivalents
    
Dividends distributed to non-controlling shareholders
  
   
%
    
NIS Millions
  
Subsidiaries that are directly held by the company
                                                                                                            
Discount Investments (2)
     26.1       11,486       25,657       7,982       24,809       4,352       3,541       20,081       (109 )     870       761       225       336       2,279       1,254       (6,023 )     (2,490 )     345  
IDBG (3)
     - (3)     69       624       15       169       509       (37 )     57       (38 )     57       19       (16 )     (3 )     36       (34 )     (14 )     (12 )     -  
IDB Tourism (4)
     -       241       645       589       29       268       30       1,004       (14 )     18       4       4       -       29       (16 )     (167 )     (154 )     4  
Total in the Company’s consolidated financial statements
                                                     3,534                                       213       333                                       349  
Subsidiaries that are indirectly held by the Company(5):
                                                                                                                                                
Elron
     49.7       624       145       19       -       750       525       630       354       96       450       236       66       (38 )     555       (408 )     109       199  
Property & Building Corporation
     23.5       2,964       11,611       1,968       9,881       2,726       1,785       1,634       245       329       574       166       141       484       (359 )     (638 )     (513 )     54  
Cellcom (6)(7)
     58.2       3,250       5,469       2,406       3,777       2,536       1,164       4,670       188       9       197       219       6       1,557       (350 )     (1,106 )     101       -  
Shufersal (7)
     50.4       2,938       5,127       2,879       3,425       1,761       916       11,673       (418 )     (12 )     (430 )     (205 )     (8 )     331       (247 )     (426 )     (342 )     37  
Discount Investments (Company headquarters and other investments)
                                                     (849 )                                     (191 )     131                                       55  
                                                      3,541                                       225       336                                       345  
Main location of all companies – Israel.

 
(1)
The data is after the necessary reconciliation to the consolidated statements of the aforementioned companies, for presentation in the consolidated statements of the Company including goodwill and excess cost attributed to the presented companies.
(2)
Including figures for Koor, which was directly held by the Company at a rate of approximately 1.6% and indirectly by Discount Investments, until its merger with Discount Investments.
(3)
IDB Group USA Investment Inc. – the data relate to the 50% directly held by the Company. An additional 50% is held by Property & Building Corporation, the data relating to which are presented within the data of Discount Investments.
(4)
The Company holds 100% of the share capital of IDB Tourism. The balance of non-controlling shareholders relates to investee companies of IDB Tourism.
(5)
The holding percentages of subsidiaries indirectly held are the holding percentages that are not held by Discount Investments. The data relating to non-controlling shareholders include the share of non-controlling shareholders in Discount Investments.
(6)
The holding percentage of non-controlling shareholders in Cellcom - 54.8%.
(7)
Although Discount Investments holds less than half of the voting rights in Cellcom and Shufersal, it estimates that it has effective control of them (inter alia, due to the high holding percentage that the Group holds of voting rights, the dispersal of the other voting rights, and in light of the voting patterns in the General meeting of shareholders), and as such, their financial statements were consolidated in the Company’s financial statements.
(8)
           Subsidiary income is included in the group of income in the Company’s consolidated income statement.

IDB Development Corporation Ltd. Convenience translation                                                                                                                                           
 
57
 
 
Note 3 – Investments (cont.)
 
E.
Subsidiaries (cont.)
 
Details of investees whose non-controlling shareholders are material (1)
 
   
as at December 31, 2013
    
For the year ended December 31, 2013
  
   
Holding percentage of share capital and voting rights of non-controlling shareholders
    
Current assets
    
Non-current assets
    
Current liabilities
    
Non-current liabilities
    
Total assets, net
    
Book value of non-controlling shareholders
    
Income (9)
    
Net profit
    
Other comprehensive income (loss)
    
Total comprehensive income (loss)
    
Profit (loss) attributed to non-controlling shareholders
    
Other comprehensive income (loss) attributed to non-controlling shareholders
    
Cash flows from current activity
    
Cash flows from investing activity
    
Cash flows from financing activity
    
Increase (decrease) net of cash and cash equivalents
    
Dividends distributed to non-controlling shareholders
  
   
%
    
NIS Millions
  
Subsidiaries that are directly held by the company
                                                                                                            
Discount Investments (2)
     26.1       16,754       25,134       9,982       25,987       5,919       4,679       19,936       795       (525 )     270       557       (241 )     2,811       969       (3,043 )     737       271  
Clal Holdings Insurance Enterprises (3)
             -       -       -       -       -       -       -       199       8       207       124       4       1,350       (4,097 )     (659 )     (3,406 )     47  
IDBG (4)
       (4)     117       525       118       33       491       (17 )     127       (61 )     (39 )     (100 )     (16 )     1       100       (27 )     (75 )     (2 )     1  
IDB Tourism (5)
     -       250       603       711       20       122       30       1,090       -       (12 )     (12 )     5       (1 )     36       1       (29 )     8       -  
Other subsidiaries with non-controlling shareholders
                                                     (5 )                                     (4 )     -                                       1  
Total in the Company’s consolidated financial statements
                                                     4,687                                       666       (237 )                                     319  
Subsidiaries that are indirectly held by the Company (6)
                                                                                                                                                
Elron
     49.7       539       265       27       19       758       476       40       42       (55 )     (13 )     24       (37 )     (37 )     (19 )     -       (56 )     -  
PCB
     23.5       3,719       10,326       2,352       9,491       2,202       1,528       1,695       155       (128 )     27       121       (53 )     600       (297 )     (354 )     (51 )     86  
Koor Industries
     31.4       3,994       3,360       1,631       3,074       2,649       1,246       429       648       (225 )     423       228       (89 )     2       2,423       (1,512 )     (913 )     4  
Cellcom (7)(8)
     58.1       3,448       5,757       2,359       4,525       2,321       916       5,086       342       (2 )     340       233       (1 )     1,557       (345 )     (1,569 )     (357 )     49  
Shufersal (8)
     52.9       3,391       5,359       2,397       4,092       2,261       1,197       11,971       8       (4 )     4       38       (3 )     630       (802 )     405       233       132  
Discount Investments (Company headquarters and other investments)
                                                     (684 )                                     (87 )     (58 )                                     -  
                                                      4,679                                       557       (241 )                                     271  
 
Main location of all companies - Israel.
(1)
The data is after the necessary reconciliation to the consolidated statements of the aforementioned companies, for presentation in the consolidated statements of the Company including goodwill and surplus cost attributed to the presented companies.
(2)
Including figures for Koor, which was held directly by the Company and indirectly by Discount Investments.
(3)
The results of Clal Insurance’s activity until the date of cessation of consolidation on August 21, 2013, and include the effect of Clal Insurance’s holdings in the Group’s companies through profit sharing policies. For details on liability assets of Clal Holdings Insurance Enterprises prior the exit from consolidation and its income until the date of cessation of consolidation, see note 3.I below.
(4)
IDB Group USA Investment Inc. – the data relate to the 50% directly held by the Company. An additional 50% is held by Property & Building Corporation, the data relating to which are presented within the data of Discount Investments.
(5)
The Company holds 100% of the share capital of IDB Tourism. The balance of non-controlling shareholders relates to investee companies of IDB Tourism.
(6)
The holding percentages of subsidiaries indirectly held are the holding percentages that are not held by Discount Investments and/or the Company.
(7)
The holding percentage of non-controlling shareholders in Cellcom - 54.7%.
(8)
Although Discount Investments holds less than half of the voting rights in Cellcom and Shufersal, it estimates that it has effective control of them (inter alia, due to the high holding percentage that the Group holds of voting rights, the dispersal of the other voting rights, and in light of the voting patterns in the General meeting of shareholders), and as such, their financial statements were consolidated in the Company’s financial statements.
(9)
Subsidiary income is included in the group of income in the Company’s consolidated statement of income.

IDB Development Corporation Ltd. Convenience translation                                                                                                                                           
 
58
 
 
Note 3 – Investments (cont.)
 
E.
Subsidiaries (cont.)
 
Details of investees whose non-controlling shareholders are material (1) (cont.)
 
   
As of December 31, 2014
    
For the year ending December 31, 2014
  
   
Holding percentage of share capital and voting rights of non-controlling shareholders %
    
Current assets
    
Non-current assets
    
Current liabilities
    
Non-current liabilities
    
Total assets, net
    
Book value of non-controlling shareholders
    
Income (8)
    
Net profit
    
Other comprehensive income (loss)
    
Total comprehensive income (loss)
    
Profit (loss) attributed to non-controlling shareholders
    
Other comprehensive income (loss) attributed to non-controlling shareholders
    
Cash flows from current activity
    
Cash flows from investing activity
    
Cash flows from financing activity
    
Increase (decrease) net of cash and cash equivalents
    
Dividends distributed to non-controlling shareholders
  
   
 
    
NIS Millions
  
Subsidiaries that are directly held by the company
                                                                                                            
Discount Investments (2)
     26.1       11,486       25,657       7,982       24,809       4,352       3,541       20,081       (109 )     870       761       225       336       2,279       1,254       (6,023 )     (2,490 )     345  
IDBG (3)
     (3 )     69       624       15       169       509       (37 )     57       (38 )     57       19       (16 )     (3 )     36       (34 )     (14 )     (12 )     -  
IDB Tourism (4)
     -       241       645       589       29       268       30       1,004       (14 )     18       4       4       -       29       (16 )     (167 )     (154 )     4  
Total in the Company’s consolidated financial statements
                                                     3,534                                       213       333                                       349  
Subsidiaries that are indirectly held by the Company(5):
                                                                                                                                                
Elron
     49.7       624       145       19       -       750       525       630       354       96       450       236       66       -38       555       (408 )     109       199  
Property & Building Corporation
     23.5       2,964       11,611       1,968       9,881       2,726       1,785       1,634       245       329       574       166       141       484       (359 )     (638 )     (513 )     54  
Cellcom (6)(7)
     58.2       3,25       5,469       2,406       3,777       2,536       1,164       4,67       188       9       197       219       6       1,557       (350 )     (1,106 )     101       -  
Shufersal (7)
     50.4       2,938       5,127       2,879       3,425       1,761       916       11,673       (418 )     (12 )     (430 )     (205 )     (8 )     331       (247 )     (426 )     (342 )     37  
Discount Investments (Company headquarters and other investments)
                                                     (849 )                                     (191 )     131                                       55  
                                                      3,541                                       225       336                                       345  
Main location of all companies - Israel.

(1)
The data is after the necessary reconciliation to the consolidated statements of the aforementioned companies, for presentation in the consolidated statements of the Company including goodwill and surplus cost attributed to the presented companies.
(2)
Including figures for Koor, which was held directly by the Company and indirectly by Discount Investments.
(3)
Clal Insurance’s operating results include an effect in respect of Clal Insurance’s holdings in the Group’s companies through profit sharing policies.
(4)
Mostly IDB Tourism and IDB Group.
(5)
The holding percentages of the indirectly held subsidiaries are the holding rates that are not held by either Discount Investments and/or the Company.
(6)
The holding percentage of non-controlling shareholders in Cellcom - 53%.
(7)
Although Discount Investments holds less than half of the voting rights in Cellcom and Shufersal, it estimates that it has effective control of them (inter alia, due to the high holding percentage that the Group holds of voting rights, the dispersal of the other voting rights, and in light of the voting patterns in the General meeting of shareholders), and as such, their financial statements were consolidated in the Company’s financial statements.
(8)
The holding percentage of non-controlling shareholders in Shufersal – 50.5%. The rate of holding in the equity was calculated as an effective rate, neutralizing shares held by a wholly owned subsidiary of Shufersal.
(9)
The subsidiary’s income as included in the Income group in the Company’s consolidated income statement.

IDB Development Corporation Ltd.                                                                                  Convenience translation                                                                                                                                           
 
59
 
Note 3 – Investments (cont.)
 
F.
Information on marketable investments, held by the Company and Discount Investment:
 
 
      Balance sheet value in the holder's books        Market Value   
      31.12.2014        31.12.2014        26.31.2015  (2)
      NIS millions   
Name of the Company                        
Held by the Company
                        
   Discount Investments (1) (consolidated)
     894       476       486  
Equity accounted partnerships
                        
   Modiin Energy
     1       1       1  
Consolidated  by Discount Investments
                        
   Elron Electronic Industries Ltd.
     305       239       288  
   Cellcom
     1,843       1,427       857  
   Properties and Building Company
     1,218       946       1,193  
   Shufersal
     1,140       876       947  
 
 
(1)
Including goodwill in an amount of NIS 65 million attributed to companies directly held by Discount Investments: Property and Building – NIS 54 million; Adama– NIS 9 million; Shufersal – NIS 2 million.
 
(2)
On the basis of the shares held by the Group companies as at December 31, 2014 (without reconciliation for any dividends that were proposed but not yet distributed during the period).
 

Each of the Group’s companies assesses, on its own level, the value of the assets that it holds and the allocated and unallocated excess cost included in its financial statements. The investments of the Group in associates are assessed in each holding company, at its overall investment level.

G.
Additional information on investments of the Company and its investee companies
 
 
1.
The Company and some of its investee companies are subject, in certain cases, to contractual restrictions and restrictions provided in the law with respect to realizing existing investments or lien holdings in investee companies such as Batucha for securing repayment of its liabilities, and restrict their ability with respect to carrying out new investments or increasing existing investments. For information on the restrictions that apply to the Company, including during the execution of new investments, in the realization and lien of holdings by virtue of agreements with the financing entities, see Note 16.E. below. The Company and some of its investee companies are subject, in certain cases, to legal restrictions with respect to business activity and in carrying out new investments or increasing existing investments in investee companies, including the need to receive approvals or permits from various regulators  for crossing the holding rate prescribed in the law, such as directives regarding the supervision of insurance business, directives of the  Ministry of Communications, directives regarding restrictive practices, directives regulating the oil industry, directives regarding the requirement to hold tenders, directives regarding price control of products and services, directives regarding consumerism and restrictions deriving from benefits or approvals from the tax authorities. For details regarding the letter of the Company and Cellcom to the Ministry of Communications, and Cellcom’s approach for a motion for the approval of the Ministry of Communication for a change in the (indirect) control structure of Cellcom, which also included a request to change the instructions included in Cellcom’s communications licenses, including with regard to the requirement for holdings of Israeli parties, see note 23.B.1 below.
In addition, the provisions of certain laws and some of the terms of licenses in the communications sector, which were granted to a number of the Company’s investee companies, include restrictions on cross ownership (which generally means holding means of control in competitors). Furthermore, the Company’s investee companies are affected by, inter alia, changes in the budgets of government offices and bodies and by the government’s policies on various matters (such as the monetary policy). In addition, some of the Company’s investee companies have foreign operations, sell products or services outside of Israel or their securities are traded outside of Israel. These companies are affected by the economic situation including changes in the exchange rates and rate of inflation, the political situation and by legislative and regulatory arrangement in these countries.


IDB Development Corporation Ltd. Convenience translation
 
60
 
 
Note 3 – Investments (cont.)
 
G.
Additional information on investments of the Company and its investee companies (cont.)
 
 
2.
The Company and some of its investee companies are affected by “Proper Conduct of Banking Business” directives of the Israeli Supervisor of Banks, which include, inter alia, restrictions on the amount of loans a banking entity in Israel can provide to a “single borrower”, to a single “group of borrowers”, and to the largest borrowers and “groups of borrowers” of a banking entity (as these terms are defined in the aforesaid directives). The Company, its controlling shareholders and part of their investee companies are considered a single “group of borrowers” for this purpose.
These restrictions may limit the ability of the Company and certain of its investee companies to borrow additional amounts from the banks in Israel, their ability to make investments for which they require bank credit, their ability to invest in companies that have taken large amounts of credit from certain banks in Israel, and their ability to make certain business transactions together with groups that have taken such credit. However, during 2013 and 2014 and until the date of publication of the report, there was a decrease in the amount of the utilized credit from the banking system in Israel for the borrowers’ group that includes the Company, including as a result of change of control in it as part of the debt arrangement in IDB Holdings.
 
 
3.
In December 2013, the official Reshumot published in Israel the Promotion of Competition and Reduction of Centralization Law, 5774-2013 (in this section: “the Law”).
Pursuant to the provisions of the law, a pyramidal structure of control in “reporting entities” (in general –corporations whose securities are held by the public) is limited to 2 layers of reporting entities (with the company in the first layer not including a reporting entity that has no controlling shareholder). For this purpose, on the date of publication of the law in Reshumot (“Date of Publication”), the Company was considered a second-tier company and Discount Investments was considered a third-tier company. According to the law, a third layer or higher tier company may no longer control reporting corporations apart from such corporations that are under its control on the date of publication and of which it will be required to cease controlling in December 2017, at the latest. As long as a reporting entity is considered by the Companies Law to be a second-tier company, it is not entitled to control reporting entities, and if on the Date of Publication it controls reporting entities, it must cease its control of them no later than December 2019. In May 2014, the control of the Company changed as part of the completion of a creditors arrangement in IDB Holdings, subsequent to which the Company and Discount Investments are no longer considered as second and third-tier companies, respectively, and as at the date of the approval of these financial statements, the Company and Discount Investments are considered as first and second-tier companies, respectively, for the purpose of the aforesaid law. As long as Discount Investments is considered a second-tier company, it is required to cease, in December 2019 at the latest, from controlling reporting corporations under its control. In this context it is noted that in August 2014 the Company’s Board of Directors resolved to appoint an advisory committee to examine various alternatives for the Company to cope with the implications of the law and meet the restrictions set forth in it with regard to control in a pyramid structure, with the intention to enable the continued control of the Company and/or Discount Investments in “other tier companies” (currently held directly by the Discount Investments) also after December 2019.
As at the date of approval of these financial statements, the alternatives examined by the Company include, inter alia:
 
a.
Changing either the Company or Discount Investments into a private company which is not a reporting corporation (and as a result not a “tier company”); and
 
b.
A merger between the Company and Discount Investments. The Board of Directors of Discount Investments has appointed an advisory committee with a similar function. As at the date of approval of these financial statements, this is an examination only of the specified alternatives, and there is no certainty regarding the implementation of any of the specified structural changes. The implementation of an alternative that would be adopted is likely to take several years.

IDB Development Corporation Ltd. Convenience translation
 
61
 
 
Note 3 – Investments (cont.)
 
G.
Additional information on investments of the Company and its investee companies (cont.)
 
3. (cont.)
Based on an analysis made by the Company and Discount Investments, the Company estimates that it is more likely than not that the completion of one of the specified alternatives will be successful and constitute a solution for contending with the restriction on the pyramidal structure of the holdings, while allowing the Company to continue to control Discount Investments, and Discount Investments to continue to control Shufersal and Cellcom even after December 2019. Accordingly, the recoverable amount of the operations of Shufersal and Cellcom as of December 31, 2014, was calculated using the value in use method, as stated in note 10.D below.
Property & Building, which on the date of publishing the report is a third-tier company, controls reporting corporations (Gav-Yam, Ispro and Mehadrin), is examining the implications of the law over its said holdings, with a view to maintaining its control over them and it estimates that it will maintain control over them, and therefore the aforesaid law has no implications over its financial statements as of December 31, 2014.
The Company, as a first-tier company, and Discount Investments, as a second-tier company, as stated above, do not have an obligation to include independent directors on their Board of Directors or a minimal number of outside directors as stated in the aforesaid law in relation to third-tier companies onwards.
Pursuant to the law, the boards of directors of Cellcom, Property & Building, Elron, Gav-Yam, Ispro and Mehadrin include a majority of independent directors and the number of outside directors serving on their boards is at least half of the number of board members, reduced by one, rounded upwards. In addition, in June 2014, the Promotion of Competition and Reduction of Centralization (Classification of a Company as a Tier Company) Regulations, 5774-2014, came into effect, within the framework of which concessions were provided for certain corporations, which are considered as a “third-tier company”, from the updating of the composition of their board of directors to adapt it to the requirements of the Centralization Law. In October 2014, Koor received clarification letters from the Israel Securities Authority, on the opinion of the Ministry of Justice, according to which the Securities Authority will not intervene in the position, according to which with regard to the composition of Adama’s Board of Directors, the aforesaid regulations apply to Adama.
Pursuant to the law and the Promotion of Competition and Reduction of Centralization (Concessions Regarding the Number of Outside directors) Regulations, 5774-2014, and in view of the number of directors whose identity requires the consent of the Bronfman-Fisher Group according to the shareholders’ agreement between it and Discount Investments with regard to their holding of Shufersal shares as stated below, the Board of Directors of Shufersal includes a majority of independent directors and the minimal required number of outside directors on the Board of Directors of Shufersal is at least one third of the total number of directors. In this context it should be noted that in August 2014, Discount Investments entered into an agreement with a corporation of the Bronfman-Fisher Group (“Bronfman-Fisher”), which at the time held approximately 19% of the share capital of Shufersal, in an addendum to the shareholders’ agreement relating to the stipulation in the aforesaid agreement according to which Discount Investments will exercise its influence in Shufersal so that as long as Bronfman-Fisher holds the minimum defined amount of Shufersal shares, the list of directors whose appointment will be submitted for the approval of the shareholders’ meeting of Shufersal will include names of four directors whose identity will be given the consent of Bronfman-Fisher, and determines in this context that of the aforesaid four directors (out of a board of directors of fifteen members) two directors will be considered as outside directors the identity of whom was proposed by Bronfman-Fisher (and their appointment will naturally be subject to the approval of the meeting pursuant to the provisions of the law), whereas Discount Investments is entitled to object to the identity of those candidates (or any of them) on reasonable grounds.
The addendum to the shareholders’ agreement will be in effect as long as the restrictions according to section 25(d) to the Centralization Law apply to Shufersal. Accordingly, Discount Investments (which held on December 31, 2014, approximately 49.6% of Shufersal’s share capital) is effectively able to appoint the majority of the members of Shufersal’s Board of Directors.
 
 
62
 
 
 
Note 3 – Investments (cont.)
 
G.
Additional information on investments of the Company and its investee companies (cont.)
 
3. (cont.)
 
Pursuant to the addendum to the shareholders’ agreement, in September 2014 two of the four directors serving on Shufersal’s Board of Directors, whose identity received in the past the consent of Bronfman-Fisher as stated in the shareholders’ agreement, resigned, and additionally in September 2014 a special general meeting of Shufersal’s shareholders approved the appointment of three new outside directors, while the identity of two of those was suggested by Bronfman-Fisher.
With regard to the provisions of the Centralization Law relating to a separation between significant real corporations and significant financial institutions, it should be noted that as long as the Company will be a significant real corporation, after December 11, 2019, the Company will not be able to control Clal Holdings Insurance Enterprises or to hold more than 10% of any means of control in Clal Holdings Insurance Enterprises (or more than 5% of any means of a control in Clal Holdings Insurance Enterprises if Clal Holdings Insurance Enterprises will be regarded as an insurer without a controlling owner). For details regarding the timeframe determined for the sale of control and the company’s holdings in Clal Holdings Insurance Enterprises, see note 3.H.5.c below.
In November 2014, the Company’s Board of Directors had made a resolution to act, subject to the approval of the authorized organs of the companies, to promote a unification of functions at the Company and at Discount Investments, with a view to achieve costs savings.
 
H.
Development of investments in investee companies
 
The following are the main changes in investments held in 2014:
 
 
1.
Cellcom
For information on the examination of impairment and amortization for impairment made by the Group with regard to goodwill attributed to Cellcom as of December 31, 2014, see note 10.D.1 below.
 
 
2.
Property & Building and Las Vegas projects
 
a.
Property & Building held 20% of the shares of TPD Investment Limited (“TPD”), an associate in England, the principle assets of which are a hotel in England. In addition to the holding of Property & Building in TPD, an English partner also held it at a rate of 60% and an additional partner held it at a rate of 20%. The acquisition of the hotel in 2006 was financed by a bank loan, without right of recourse, the balance of which as at December 31, 2013 amounted to £394 million and the date of its repayment was in July 2014 and the remainder of the acquisition was financed by a shareholders loan. In addition, as at December 31, 2013, a debt was recorded in the books of TPD to the lending bank at an amount of 65 million pound sterling, in respect of a SWAP transaction intended to fix the interest rate of the bank loan.
In March 2014, the English partner announced that the loan had been refinanced, as part of which TPD had repaid the bank loan and settled its liabilities to the bank in respect of the swap transaction in the amount of £ 38 million (after the bank waived the balance of the payment in respect of the swap transaction in the amount of £ 36 million). The liabilities were settled through new loans received by TPD: refinancing from financial entities in the amount of £ 400 million, a bridging loan from a financial entity in the amount of £ 20 million and a shareholder’s loan from the English partner in the amount of £ 15 million. The English partner also converted a shareholder’s loan in the amount of £ 10 million into share capital of TPD.
As part of the refinancing, the English partner informed Property & Building and the additional partner that they had the option to keep their holdings (20% each) by performing an additional investment in TPD, through a new shareholder’s loan in the amount of GBP 5 million, and by converting their previous shareholder’s loans, in the amount of GBP 5.6 million each, into share capital of TPD (pro rata to the new shareholder’s loan which it allegedly provided, and to the conversion of its previous shareholder’s loan to capital), or alternatively, to have their shareholdings diluted to a rate of 6.39% each. Property & Building and the additional partner dispute the dilution itself, the calculations prepared by the English partner regarding the dilution of their holdings in TPD, and the amount of the investment required by it. It is noted that the notice submitted by the English partner stated that the dilution had effectively been performed. It is emphasized that the investments of Property & Building and the additional partner in TPD were performed, as stated above, through shareholder’s loans, the balance of which is GBP 19 million each, and which are not affected by the aforementioned dilution.

IDB Development Corporation Ltd. Convenience translation
 
63
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
2.
Property & Building and Las Vegas projects (cont'd)
 
 
a. (cont'd)
 
Property & Building and the additional partner conducted negotiations with the English partner with the aim of reaching understandings regarding the scope of the additional investment required of them, and regarding the terms to perform the aforementioned investment. These negotiations have not been successful to date, and therefore, Property & Building and the additional partner filed a claim with an English court in April 2014 against the English partner, in which the English partner was required to acquire from Property & Building and from the additional partner their holdings in TPD, according to their market value, as will be determined by the Court, as well as additional remedies pursuant to English law.
The balance of Property & Building’s investment in TPD as at December 31, 2013, amounted to NIS 25 million. In addition, recorded for this investment within the books of Property & Building at that date in respect of the investment in TPD, were negative capital reserves in respect of translation differences in the amount of NIS 52 million and negative capital reserves in the amount of NIS 77 million for hedging of cash flows.
In view of the bank’s waiver of the payment of a part of the SWAP transaction as stated above, Property & Building recorded a profit of NIS 43 million, which increased the equity attributable to the owners of Property & Building by the same amount.
At the same time, following the payment of the SWAP balance as stated above, Property & Building recognized an expense in its Statement of Income, a total of NIS 77 million against the deletion of the capital reserves with respect to cash flow hedging, as specified above. The aforementioned sums, which amounted to a total of NIS 34 million, were recorded in the first quarter of 2014 as an expense in the statement of profit or loss, under the item of the Group’s share of the loss of investee companies treated with the equity method, net.
Additionally, beginning on March 31, 2014, the investment in TPD is treated as a financial asset measured at fair value through profit or loss, and is presented in the amount of NIS 90 million, instead of the previous treatment thereof, until the end of 2013, according to the equity method. As a result of this accounting change, in the first quarter of 2014 the capital reserves from the aforesaid translation differences in an amount of NIS 52 million were written off, an additional expense was recorded in the Statement of Income in an amount of NIS 30 million in the “Loss from realization, impairment and writing-down of investments and assets” item, and the investment in TPD increased by NIS 22 million. Therefore, the equity attributable to the owners of Property & Building increased by NIS 22 million.
The share in the losses recorded by Property & Building attributable to the owners of the Company, as stated above, amounted to a loss of NIS 36 million. The equity attributable to the owners of the Company increased by NIS 37 million, with respect to the amounts recorded by Property & Building, as stated above.
In March 2015, the English partner and TPD filed a motion for a protective injunction against Property & Building and the additional partner, according to which Property & Building and the additional partner shall refrain from any action with regard to selling the hotels, as well as the receipt of compensation in an amount of more than £100 thousand. Property & Building and the additional partner reject the claims included in the aforesaid motion.
 
 
b.
For details of main realizations and revaluations of investment property made by Property & Building and its subsidiaries in 2014, see note 7.B below.

IDB Development Corporation Ltd. Convenience translation
 
64
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
3.
Shufersal
 
 
a.
In January 2014 Shufersal received a tax arrangement from the Israel Tax Authority, according to which an agreement and a plan to separate Shufersal’s real estate was exempt from income tax and betterment tax, in accordance with the provisions of Part E2 of the Income Tax Ordinance, and subject to the terms set forth therein, and accordingly, the separation entered into force from the effective date (March 31, 2013). According to the aforesaid agreement, Shufersal transferred to Shufersal Real Estate, a wholly owned subsidiary of it (“Shufersal Real Estate”), in effect as of March 31, 2013, in consideration for an allotment of shares, most of its real estate and most of its direct holdings in certain subsidiaries that hold real estate, including that debt that is attributable to the transferred assets, with the transferred debt being on the level of the internal relations between Shufersal and Shufersal Real Estate and there being no change in Shufersal’s liabilities to third parties. The purpose of the split is management focusing, development and enhancement of real estate as an additional business area of Shufersal, and exposing value for Shufersal and its shareholders. See also note 32.I below.
 
 
b.
In June 2014, the Board of Directors of Shufersal approved an updated business plan for Shufersal, which is intended to create a growth-oriented commercial and operational infrastructure for the years to come, to reinforce its competitive ability, to improve value offered to customers, including discounting the purchasing basket and improving service.
The main components of the plan include a broad reduction of prices in the formats “Shufersal Deal”, “My Shufersal”, and “Shufersal Express”, and continued reduction of prices in the format “Yesh”; reduction of price gaps between the neighborhood branches group (“My Shufersal” and “Shufersal Express”) and the discount branches group (“Shufersal Deal” and “Yesh”); expanding and strengthening of Shufersal’s private brand; issuing a new and uniform “Gold Card”, without reducing the nominal value specified therein, and at the same time, reducing the discount rate given when purchasing the card, as well as reducing discounts for customer clubs - processes which will contribute to the reduction of product prices for the entire customer public; accelerating the development of Shufersal’s digital platforms; evaluating the development and promotion of new/supplementary activities to Shufersal’s currently existing areas of activity, including activities in the institutional market, wholesale sales, and sales of non-food products through Shufersal’s digital platform; implementing increased efficiency, inter alia, by gradually closing approximately 15 branches, with a total area of approximately 40,000 sq. m., reducing branches with a total area of approximately 25,000 sq. m., savings in expenses of branches, in the supply chain and in Shufersal headquarters, and the voluntary retirement program (at the same time, Shufersal continues pursuing its plan to work towards opening new branches at a planned opening rate of 15,000 sq. m. per year).

IDB Development Corporation Ltd. Convenience translation
 
65
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
3.
Shufersal (cont.)
 
 
b.
(cont.)
 
In the second and third quarters of 2014, the following non-recurring operating expenses were included in respect of the effect of the aforementioned plan:
 
 
Details
  
Non-recurring
expenses
  
     
(NIS millions)
  
     
Total
  
Closure of branches – impairment losses
(1)
     (39 )
Closure of branches – non-recurring operating expenses
(1)
     (101 )
Reduction of branches – impairment losses
(2)
     (15 )
Voluntary retirement plan for employees
(3)
     (29 )
Total non-recurring expenses recorded by Shufersal
       (184 )
Total non-recurring expenses after attributing taxes recorded by Shufersal
       (144 )
Total non-recurring expenses after attributing taxes in the Company’s consolidated income statement (adding amortization of excess cost attributed in Discount Investments to the relevant assets)
       (197 )
The share of the Company’s owners in the specified costs after attributing taxes
       (69 )

 
(1)
Non-recurring operating expenses with respect to the closure of branches - as stated in note 2.M.2 above, for the purpose of the impairment test, Shufersal branches are combined into geographical regions which constitute separate cash generating units (hereinafter, in this section: “Cash Generating Unit” or “Region”). According to Shufersal’s strategy, the closure of a losing branch in an area that includes additional branches may result in a reduction of the profitability of other branches which are located in the same geographical area, in other words, there is a dependence between the cash flows of branches in the same geographical area. In light of the foregoing, the impairment test for retail activity is performed on the level of the region, and the recoverable amount is calculated for the cash generating unit.
Following the trend of deceleration in the food market, Shufersal performed a renewed evaluation of branches with operational and cash flow losses in the geographical regions, and reached the conclusion that 15 branches out of all evaluated branches (which are mainly leased through operational leases, as specified below) no longer contribute, either in operational and/or strategic terms, to the geographical region (the cash generating unit) with which they are associated. Due to the foregoing, Shufersal evaluated impairment for these branches separately from the cash generating unit to which they were associated, and calculated the recoverable amount for each branch on its own. Regarding the aforementioned 15 branches, Shufersal performed an evaluation of the recoverable amount of the retail activity assets, in accordance with the provisions of IAS 36. The recoverable amount of branches that are intended for closure was measured independently, primarily based on fair value, less realization costs. The fair value measurements are classified on level 3 of the fair value hierarchy (for the definition of the various levels on the hierarchy, see note 1.E.3.b above, regarding financial instruments).
The key assumption used in calculating the recoverable amount of the branches as stated is that these branches will not generate economic benefits until their closure, and therefore equipment and leasehold improvements estimated unsealable, have been fully depreciated, whilst the remainder of the assets were examined based on Shufersal’s expectation regarding the economic benefits which will be produced from them in other branches. The recoverable amount of the branches intended for closure is lower than their book value and therefore Shufersal recognized under the item “sales and marketing expenses” an impairment loss amounting to NIS 39 million, before taxes, in respect of equipment and leasehold improvements which exist in these branches. The recoverable amount as at December 31, 2014 in respect of equipment is NIS 6 million.
It should be noted that the recoverable amount of the other cash generating units attributed to Shufersal’s retail activity is higher than the book value of the units’ assets in Shufersal’s financial statements and therefore Shufersal did not recognize an impairment in their respect.

IDB Development Corporation Ltd. Convenience translation
 
66
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
3.
Shufersal (cont.)
 
 
b.
(cont.)
 
 
(1)
Non-recurring operating expenses with respect to the closure of branches  (cont'd)
In respect of two of the specified cash generating units the Company recognized an impairment loss amounting to NIS 15 million (of this amount, the share attributable to the owners of the Company amounted to NIS 5 million) in respect of excess cost attributed in the Company’s financial statements to the branches of the complex.
The recoverable amount of the remaining cash generating units attributed to Shufersal’s retail activity was calculated using the discounted cash flows (DCF) method. The main real assumptions used in the calculation of the recoverable amount are a real discount rate after tax of 7.0% (a real discount rate before tax of 9.0%), and a real long term growth rate of 1.0%. The cash flow was estimated based on the actual operating results for 2014, Shufersal’s budget for 2015 and additional assumptions. The cash flow was estimated for a period of 5 years, after which an exit value was estimated based on the long term cash flow growth assumption. The cash flow does not take into account future expansion and efficiency plans, the investments in respect of which have not been made yet. In addition, in preparing the cash flow no effects of new activities, which may contribute to the value, were included. In respect of the calculation of the recoverable amount for owned branches, Shufersal included in the cash flows from retail activity actual rent paid to Shufersal Real Estate, and measured the real estate under separate ownership according to fair value in order to express the different price of capital of the retail operations, which is different from that of the real estate. The retail cash flow added to the cash flow from the real estate was examined against the depreciated cost of the branch assets.
Of the 15 branches which are expected to close, 12 branches are leased by Shufersal under operational lease. These lease contracts are non-cancellable until the exit point specified in the contracts, which are between the years 2014 and 2023. Shufersal intends to exit the lease contracts on the earliest possible date, in accordance with an arrangement which will be reached with the property owners, or non-renewal of the extension option in the contract. In cases where it is not possible to immediately exit the lease agreement, Shufersal intends to close the branch’s activity and to rent the asset, if possible, to a sub-lessee until the end of the lease contract. In accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, Shufersal evaluated whether the engagements regarding these branches include the embodiment of an onerous contract.
In accordance with Shufersal’s assessment, and based on an assessment performed by an external appraiser, due to changes in market conditions, income from subleases are expected to be lower than the rent which is paid with respect to the properties, and therefore, Shufersal recognized a provision in the amount of the unavoidable expenses which are required to fulfil the obligations which are embodied in the lease agreements for the branches, and with respect to the operational losses, until the closure of the branches, in the total amount of NIS 101 million before taxes. This amount is measured using the risk-free interest rate.
 
 
(2)
Reduction of branches - as part of the increased efficiency program, Shufersal intends to reduce the size of branches, and to sublet the remaining areas in the properties. These branches include equipment and leasehold improvements (the “Property”), and in light of the process involving the reduction of the branches’ area, Shufersal evaluated the recoverable amount of the property in these branches, based on fair value less realization costs, and recognized under the item “sales and marketing expenses” impairment losses in the amount of NIS 15 million before tax. The main assumption in determining the aforesaid recoverable amount was that the leasehold improvements in the reduced areas in these branches will not generate economic benefits subsequent to the reduction, and were therefore fully depreciated.
 
 
(3)
Employee benefits - as part of the increased efficiency program, approval was also given for a voluntary retirement program for employees in preferred conditions, and accordingly, Shufersal recorded in 2014 expenses with respect to the dismissal of employees in the amount of NIS 29 million, before tax. Additionally, as part of the increased efficiency program Shufersal recorded actuarial losses amounting to NIS 4 million before attributing taxes (NIS 3 million net after the attribution of taxes), within other comprehensive loss in respect of the voluntary retirement program.

IDB Development Corporation Ltd. Convenience translation
 
67
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
3.
Shufersal (cont.)
 
 
c.
In the fourth quarter of 2014 and the first quarter of 2015, Discount Investments acquired on the stock exchange approximately 2.4% and approximately 0.9% of Shufersal’s share capital, respectively, in considerations which amounted to NIS 45 million and NIS 18 million, respectively. Subsequent to the aforesaid acquisitions, Discount Investments holds approximately 50.5% of the capital and voting rights at Shufersal. As a result of the aforesaid acquisitions, the Company recorded in 2014 its share of a negative capital reserve amounting to NIS 11 million from a transaction with the non-controlling shareholders, and is expected to record in the first quarter of 2015 its share of a negative capital fund amounting to NIS 5 million from a transaction with the non-controlling shareholders. In this context it is noted that in January 2015 Discount Investments received a notification of a merger between it and Shufersal by the Antitrust Commissioner permitting it to hold Shufersal at a rate greater than 50%.
 
 
d.
In March 2014, the Promotion of Competition in the Food Sector Law, 5774-2014, was published in Reshumot (“the Food Law”). The Food Law includes three sets of provisions:
 
a.
Provisions regulating the activities of suppliers and retailers, including the activities of large retailers;
 
b.
Provisions regarding geographical competition between retailers; and
 
c.
Provisions regulating price transparency.
The Food Law also includes a chapter on the subject of enforcement, penalties and financial sanctions.
In September 2014, a notice was received from the Antitrust Authority regarding the demand areas of Shufersal’s large stores.
 
Shufersal is operating in accordance with the Food Law, all provisions of which commenced application in January 2015. In Shufersal’s estimate, the Food Law may have an adverse effect on its business results, and proximate to the approval date of these financial statements, Shufersal is unable to estimate the degree to which the above will affect its business operations. Additionally, the provisions of the Food Law with regard to geographic competition of retailers may affect Shufersal’s ability to expand by opening new branches in certain areas, and under certain circumstances Shufersal may be required to close some of its active branches.
 
 
e.
In the fourth quarter of 2014, Shufersal recorded a profit in a sum of NIS 26 million from the reversal of an impairment that it recorded in the past for its investment in Lev Hamifratz Ltd., an included company that is held by it at a rate of 37% (“Lev Hamifratz”), in view of an improvement in the results of Lev Hamifratz, improved finance terms that were approved for it and negotiations that Shufersal held for the sale of its holding in Lev Hamifratz or for increasing its holding in it. The aforesaid profit was included in these financial statements in the Group’s share of the loss of investee companies that are treated under the equity, net. The Company’s share in the aforesaid profit amounted to NIS 9 million. As of the date of approval of these financial statements, Shufersal is holding negotiations with one of the partners in Lev Hamifratz for the acquisition of its share therein in an amount of 37% and in shareholders’ loans that it gave to Lev Hamifratz. There is no certainty that the aforesaid negotiations will result in a transaction.
 
 
f.
For information on the testing of impairment and amortization for impairment made by the Group with regard to goodwill attributed to Shufersal as at December 31, 2014, see note 10.D.2 below.
 
 
g.
For details regarding a voluntary retirement plan for Shufersal’s employees and regarding an actuarial estimate of a liability with respect to a defined benefit plan performed by Shufersal as part of the increased efficiency plan, see note 18.C below.

IDB Development Corporation Ltd. Convenience translation
 
68
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
4.
Koor
 
 
a.
In October 2014, Adama entered into an agreement with China National Agrochemical Corporation, which holds Adama at a rate of 60% (hereinafter: “ChemChina”), in which, at the completion date of the transaction, and subject to compliance with conditioned terms specified in the agreement, Adama will acquire, through a wholly owned subsidiary (in this section, the “Buyer”), from a wholly owned subsidiary of ChemChina (in this section, the “Seller”), as a single unit, 100% of the issued and paid-up share capital of a private holding company incorporated in China, whose main holding is class A shares, which constitutes approximately 20.15% of the issued share capital of Hubei Sanonda Co., Ltd. (hereinafter: “Sanonda”), a public company whose shares are traded on the stock exchange in Shenzhen, China, in which Adama held, prior to the aforementioned transaction, class B shares which constitute 10.6% of the issued and paid-up capital of Sanonda, as well as the entire issued and paid-up share capital of three private companies – (1) Jiangsu Anpon Electrochemical Co.; (2) Jiangsu Maidao Agrochemical Co.; and (3) Jiangsu Huaihe Chemical Co. (together with Sanonda, “the Chinese Companies”). The engagement in the agreement was approved by the audit committee and board of directors of Adama, after receiving a recommendation from the special committee of the board of directors, and from the meeting of Adama’s shareholders.
The consideration in the transaction, in the amount of CNY 1,987 million, which as of the date of approval of these financial statements is USD 320 million, which will be paid in cash on the completion date in so far as the transaction shall take place. The final consideration amount in USD will be determined in accordance with the exchange rate on the completion date. See also note 35.E.3. below.
The agreement sets forth various arrangements for indemnification between the parties, including a restriction on indemnification in certain cases. The completion of the transaction is subject to the compliance with conditioned terms, which primarily include:
-  
The correctness of the presentations made by the buyer and the seller, and compliance with their undertakings as of the completion date, in all material respects.
-  
Receipt of the required governmental approvals: (1) receipt of an exemption from the China Securities Regulatory Commission (CSRC), according to which the acquisition of Sanonda shares within the framework of the transaction (indirectly, through the acquisition of the shares of the aforementioned private holding company) does not require the performance of a tender offer; (2) approval from the Ministry of Commerce of the People’s Republic of China, or an approved local representation thereof, for the transaction and the issuance of appropriate certificates for the companies in China; (3) issuance of new business licenses to the companies in China by the Industry and Trade Administration of China (hereinafter in this section: the “Governmental Approvals”).
-  
Receipt of approval from the General Director of the Antitrust Authority in Israel for the making of the transaction, insofar as such approval may be required by law.
-  
Receipt of approvals from certain banks who have provided loans to the Chinese companies.
-  
Sanonda’s fulfillment of its liabilities in the interim period and non-performance of actions which it has been prohibited to perform under the agreement, although non-fulfillment of its liabilities, or the performance of such actions, will constitute grounds for non-completion of the merger only if they have a significant negative impact on Sanonda, as this term was defined in the agreement.
-  
Insofar as Adama will not complete an initial public offering of its shares on the New York Stock Exchange by March 31, 2015, the buyers undertaking to complete the transaction will be subject to: (A) Approval of the audit committee and board of directors of Adama, that the performance of the transaction is not reasonably expected to harm Adama’s ability to fulfill its existing and projected liabilities in the ordinary course of business, or its expected cash flow requirements, while taking into account the interests of the bondholders and the lenders, and maximizing value for Adama’s shareholders; (B) Receipt of written approval from Koor,
 

IDB Development Corporation Ltd. Convenience translation
 
69
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
4.
Koor (cont.)
 
 
a.
(cont.)
 
1.  
confirming that the financing of the agreement is not reasonably expected to have a negative impact on the value or financial position of Adama, provided that Koor exercises its right of approval in an acceptable commercial manner, and in good faith, and does not withhold approval for reasons associated with assets acquired in the transaction only (assuming that the value of these assets on the completion date of the transaction will not be significantly different than their value on the signing date of the agreement). In this context, it is noted that Koor and ChemChina have amended the shareholders agreement between them, in connection with their holding of Adama, such that, insofar as Adama will not complete the aforementioned public offering by March 31, 2015, and the transaction will be duly approved by the audit committee and the board of directors of Adama, as stated above, but will not be completed as a result of its non-approval by Koor, the commencement of the non-competition period specified in the shareholders agreement will be postponed by 24 months from September 30, 2014, and ChemChina will be entitled to postpone it by an additional six months.
2.  
Subject to compliance with all conditioned terms for the completion of the transaction (or a waiver of the existence of any particular conditioned terms, by a party which is entitled to do so under the terms of the agreement), the completion date of the transaction will fall on the later of either: the fourth business day after the issuance of a new business license for each of the target companies; or the fifteenth business day that occurs after the earlier of either: (a) the date of completion of the Adama IPO; or (b) the date on which the buyer notifies the seller of the completion of the last of the conditioned terms described above, provided that, in any case, the completion date does not occur before January 1, 2015. The parties will invest their best efforts to complete the transaction as soon as possible, after the completion of the IPO of Adama shares, and the receipt of all other authorizations required for the completion of the transaction. Insofar as the transaction will not be completed by March 31, 2015, the parties will invest their best efforts to hold a discussion in good faith regarding available alternatives for the completion of the transaction, Adama and its shareholders are examining various possibilities with regard to the performance of the business combination between Adama and the Chinese companies, either by way of completing the transaction or by other ways.
3.  
It should be noted, that the transaction is further to understandings which were included in the shareholders agreement, and that, subject to the compliance with the terms and conditions of the purchase agreement (including approval from Koor, which will be required insofar as the IPO will not be performed by March 31, 2015, as stated above), Koor provided its consent for the transaction, which was required by virtue of provisions of the shareholders agreement.
 
 
b.
Further to Discount Investments’ engagement with Koor in 2013 in a merger agreement (“The Merger Agreement”), in which Koor would become a private company whose issued and paid-up share capital (except for the deferred shares in Koor’s equity) would be held by Discount Investments (“The Merger Transaction”). In March 2014, the merger transaction was completed.
Upon completion of the merger transaction, all of the ordinary shares of Koor held by the shareholders from the public and the Company were transferred to Discount Investments in consideration for a cash payment of NIS 1,140 million, based on an amount of NIS 73.59 per share, as determined according to the value of Koor, as agreed. Pursuant to the merger agreement, during the completion of the merger transaction Koor distributed to Discount Investments NIS 987 million in cash, after Koor received approval in February 2014 from the court to carry out a distribution that does not satisfy the profit test pursuant to section 303 of the Companies Law. The amount received by the Company from the consideration for the merger is NIS 40.5 million. Subsequent to the completion of the merger transaction, Koor’s shares were delisted from the stock exchange, and Koor became a private company, wholly owned by Discount Investments.
For details regarding letters of indemnification that Discount Investments provided to the other directors and offers at Koor during the completion of the merger transaction, see note 33.B.5.d below.
 
 
 
70
 

 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
4.
Koor (cont.)
 
 
b.
(cont.)
Subsequent to the completion of the merger transaction, and in accordance with the approval by Koor’s bondholders meeting in September 2013, Koor redeemed in March 2014, in early redemption, all of its bonds in a payment of an amount of NIS 1,173 million, twhich was higher than the liability value (pari) of said bonds. For said gap, Koor recorded in 2013 and in the first quarter of 2014 expenses in the amount of NIS 39 million and NIS 35 million, respectively.
The Company’s share in the aforesaid expenses amounted to NIS 19 million and NIS 18 million, respectively.
After the completion of the merger transaction and the redemption of Koor’s aforesaid bonds, Koor was left with liquid means in an amount of NIS 261 million.
Based on the consideration of the merger in the amount of NIS 1,140 million, the Company recorded as a result of the completion of the merger transaction its share of a negative capital reserve in respect of a transaction with the non-controlling shareholders, and as a result a decrease was recorded in the amount of NIS 289 million in the equity attributable to the owners of the Company, including a reclassification of reserves originating from other comprehensive income (loss) attributed in the past to the non-controlling shareholders.
In January 2014, the court and the general meeting of the shareholders of Discount Investments approved a settlement between the parties in a legal proceeding that took place with regards to the merger transaction, in which, subsequent to the completion of the merger transaction, Discount Investments offered anyone who on the date of completion of the merger transaction were among Koor’s ordinary shareholders (with the exception of the Company and Discount Investments) the option of paying Discount Investments for every Koor share they owned as specified a sum of NIS 14.64, equivalent to that share of the value of the Koor share attributable to Adama based on the valuation of Koor shares that was used by Koor in the merger transaction, and in consideration, receive from Discount Investments a non-negotiable certificate of contractual liability (K series bonds) that entitles the holder to a right to future consideration that will be paid by Discount Investments in one of the three following circumstances, whichever is the earlier (“the supplementary arrangement”):
 
-
In the event that Adama shares are issued to the public - the sum of the future consideration for a Koor share will be calculated based on the value of Koor holdings in Adama shares at the price of an Adama share on the stock exchange after the closing date for the look up period if any applies to the sale of this holding following the aforesaid issue, less certain expenses as stated below, and this sum shall be paid within 120 days of the date on which the aforesaid look up period ends.
 
-
In the event of an actual sale of an aggregate amount of over 40% of Koor holdings in Adama shares to an unrelated third party – the sum of the future consideration per Koor share will be calculated based on the value of Koor’s holding of Adama shares at the price per Adama share set forth in the sales transaction, less said certain expenses, and this sum will be paid within 120 days from the date of completion of the sales transaction.
 
-
If by October 17, 2018, no issue is made to the public, and said sales transaction is not executed as previously mentioned - the sum of the future consideration per Koor share will be calculated based on the fair value of Koor’s holding in Adama shares on that day, as to be determined by the court-appointed appraiser, less said certain expenses, and this sum will be paid within 120 days after the date of receipt of aforesaid valuation.
 

IDB Development Corporation Ltd. Convenience translation
 
71
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
4.
Koor (cont.)
 
 
b.
(cont.)
The amounts that will be deducted from the value of Koor’s holdings in Adama shares in each of the aforesaid instances mainly involve a loan in the amount of US$ 960 million secured by Adama shares, plus interest and any other related liability and expense attributed to the public issuing, sales transaction or valuation as specified above.
In accordance with the supplementary arrangement and as part of a shelf offering report published by Discount Investments in March 2014, by virtue of its shelf prospectus from June 2013, as amended, Discount Investments issued, in March 2014, approximately NIS 1.045 million par value of bonds (Series K), for a total consideration of NIS 15 million. The bonds (Series K) are measured in the financial statements by fair value through profit or loss.
 
c.
In January 2014, Koor sold its entire balance of its holdings in Credit Suisse shares, for a total consideration of CHF 312 million (NIS 1,202 million). In respect of these realizations, Koor recorded, in the first quarter of 2014, net profit of NIS 64 million. The Company’s share in the aforementioned profit is NIS 32 million. The comparative figures for the first nine months and the third quarter of 2013 were restated in the consolidated statement of income and in the consolidated statement of cash flows, in order to present the discontinued operation separately from the continuing operation. For details, see note 3.I.1 below.
 
d.
In November 2014, Adama published a document to register its shares for trade in the U.S.A (“The Registration Document”), as part of which Adama intended to issue shares to the public at the NYSE stock exchange at a price range of USD 16 to USD 18 per share. Due to the current capital market conditions, Adama decided not to pursue the aforesaid issue and it intends to consider the timing of the issue according to developments in market conditions.
 
In view of the postponement of the issue as aforesaid, the Company performed an impairment review with respect to its investment in Adama in its financial statements as of September 30, 2014.
 
In addition, as in every period, in its financial statements as of December 31, 2014, the Company updated the value of the hybrid financial instrument for a non-recourse loan that Koor received (for details regarding the financial treatment of the aforesaid financial instrument, see note 16.F.1.d below), based on an opinion given by an independent appraiser which is attached to these financial statements pursuant to regulation 8B of the Reporting Regulations, and the value of the (K series) bonds as stated in section b above.
 
The aforesaid impairment review (as of September 30, 2014) and the base asset that was used to measure the hybrid financial instrument and the (K series) bonds (as of December 31, 2014) are based on a fair value in an amount of approximately USD 14.6 and approximately USD 14.7, respectively, per Adama share according to the value per share reflected in the lower range published as part of the aforementioned registration document (USD 16 per Adama share), after deducting the shares’ non-negotiable component at rates of approximately 8.9% and approximately 8.2%, respectively.
 
As a result of all of the aforementioned, in 2014 the Company recorded a net loss in an amount of NIS 351 million, which is made up its share in the impairment of the investment in Adama in an amount of NIS 354 million and its share of finance income, net, in a sum of NIS 3 million for updating the value of the hybrid financial instrument and the (K series) bonds.
 
For details regarding the components of the hybrid financial instrument in respect of the non-recourse loan as specified and its value on the books, see note 16.F.1.d below.

IDB Development Corporation Ltd. Convenience translation
 
72
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
4.
Koor (cont.)
 
 
e.
Permit to control Koor Tadiran Gemel Ltd.
 
On May 8, 2014, the controlling shareholders of the Company, Messrs. Mordechai Ben-Moshe and Eduardo Elsztain, through corporations controlled by them, received a letter from the Commissioner with regard to Koor’s control over Koor-Tadiran Gemel Ltd. (a management company wholly owned by Koor) (“Koor-Tadiran”). The letter stated, inter alia: that a control permit for Koor-Tadiran is held by Koor and not by the controlling shareholders thereof as required, and that the Commissioner is prepared to consider not regarding the transfer of control in the Company to them as an unlawful transfer and also allowing Koor to retain the control permit over Koor-Tadiran provided that no directors who are employed or who have been employed by the companies controlling Koor or who are or were related to the controlling shareholders in the Company will hold office in Koor-Tadiran, on the conditions stated in the letter, and on the condition that the amount of the holding of the means of control in the corporations controlled by the Company and the persons that directly and indirectly hold means of control in Koor will exceed 50% and Koor’s means of control in Koor-Tadiran will not be pledged, all of which until the examination of the application for a control in Koor-Tadiran is completed, or until July 30, 2014, whichever is the earlier.
 
On July 31, 2014, the controlling shareholders of the Company, Messrs. Mordechai Ben-Moshe and Eduardo Elsztain, received, through corporations controlled by them, a control permit to hold means of control and joint control in Koor-Tadiran through the Company, Discount Investments and Koor (together: “the holding companies”), which replaces the previous permit of May 8, 2014. This control permit states, inter alia, certain provisions with regard to the amount of the holdings in the holding companies and the making of issues of means of control in them, and it also provides that at least 50% of the means of control that the Company holds in Discount Investments will be unencumbered and free of charges. On March 16, 2015 a revised control permit was received from the Commissioner, in which the requirement included in the permit, which stipulated that at least 50% of the means of control that the Company holds in Discount Investments will be unencumbered and free of charges, was cancelled, with effect from March 15, 2015.
 
5.       Clal Holdings Insurance Enterprises
 
 
a.
Expiration of an agreement to sell the shares of Clal Holdings Insurance Enterprises held by the Company
On August 20, 2013, an agreement was signed between the Company and JT Capital Fund Pte Ltd. (“JT”), a company incorporated in Hong Kong and fully held indirectly by Mr. Li Haifeng, according to which the Company will sell 32% of its shares in Clal Holdings Insurance Enterprises (according to a company valuation of Clal Holdings Insurance Enterprises in a sum of NIS 4.6 billion), for a total consideration of NIS 1.472 billion (linked to the CPI up to the date of completion of the transaction). According to the amendment to the agreement, as of May 6, 2014 it has been determined that the consideration for the sale of approximately 32% of the shares of Clal Holdings Insurance Enterprises within the framework of the completion of the transaction will amount to NIS 1.536 billion (meaning, according to a company valuation of Clal Holdings Insurance Enterprises in a sum of NIS 4.8 billion rather than NIS 4.6 billion, linked to the CPI, according to the original agreement). At the end of May 29, 2014 and in view of the failure to obtain the regulatory permits required to complete the transaction by that date, the aforesaid agreement expired.


IDB Development Corporation Ltd. Convenience translation
 
73
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
b.
The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises
On August 21 2013, in accordance with the requirement by the Commissioner, the Company gave an irrevocable power of attorney to Mr. Moshe Tery (“Mr. Tery” or “the trustee”), who was appointed by the Commissioner as trustee for 51% of the issued share capital and voting rights of Clal Holdings Insurance Enterprises held by the Company (“means of control”). In addition it transferred the shares to a trust account, in the trustee’s name, for the purpose of exercising the powers granted by the means of control in accordance with the provisions of the trust deed, and in order to separate Clal Holdings Insurance Enterprises and the financial institutions in the Clal Group (“the Clal Group”) from any possible influence of the control struggles in the IDB Group.
In accordance with the signed trust deed, Mr. Tery will exercise all of the powers given to him by virtue of the means of control for the good of the Company and in accordance with the Commissioner’s instructions, insofar as any will be given to him from time to time, in order to ensure the proper operation of Clal Insurance Company, Clal Credit Insurance Ltd. and Clal Pension and Provident Ltd. (hereinafter, jointly: “the Clal institutions”) and to protect the interests of the policyholders and savers, including with regard to the raising of equity for the benefit of the Clal institutions in any manner that he thinks fit. The transfer of the means of control to the trustee will not affect the Company’s right to receive dividends from Clal Holdings Insurance Enterprises, insofar as a decision is made to distribute any.
If and insofar as dividends are distributed for the Means of control, they will be the property of the Company and will be transferred to the Company by the trustee. In the event of any sale, transfer or charging of the means of control, the trustee will act in accordance with the Company’s instructions on condition that he receives the Commissioner’s prior written approval to do so. The trust will be terminated on the date that all of the means of control are actually transferred from the Trustee or after approval is given by the Commissioner.
On November 27, 2013 a letter was received from the Commissioner which was addressed to the expert and observer appointed for the Company by the court, in which it was emphasized that direct or indirect control of an insurer or a management company requires the obtaining of a control permit from the Commissioner, that the trust arrangement is an interim solution and cannot become a permanent arrangement and that the transfer of means of control in IDB Holdings or in the Company within the framework of the debt arrangement in IDB Holdings will not be regarded as a transfer that contravenes the provisions of the law, provided that certain conditions and restrictions are satisfied, including:
 
1.
The offeror (and insofar as a group of proposers is concerned – all of the constituents of the group) whose proposal is submitted for the court’s approval (“the successful offeror”) will confirm in advance that it is aware that the transfer of the means of control in the Company or in IDB Holdings to it does not constitute approval of the Commissioner of the transfer of means of control in the Company and does not constitute the granting of a control permit / a permit to hold means of control in the Clal Group.
 
2.
The successful offeror shall confirm that it agrees to the appointment of a trustee chosen by the Commissioner, whether the current trustee (as stated above) or another (in this section: “the trustee”), and that it is aware that the powers given to the Trustee will be in accordance with an irrevocable trust deed attached to the letter. In addition, as long as the transaction to sell the shares of Clal Holdings Insurance Enterprises to JT (see section a above with regard to the expiration of the aforesaid transaction) has not been completed, the successful offeror confirms that it agrees that certain provisions stated in the Commissioner’s letter will apply irrevocably, including:

IDB Development Corporation Ltd. Convenience translation
 
74
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
b.
The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises (cont.)
 
 
2.
(cont.)
 
a.
The Trustee will continue to hold office as long as the Commissioner has not granted a control permit to a controlling shareholder in the Clal Group, or alternately a mechanism of an insurer without a controlling shareholder is implemented (as stated in the draft Promotion of Competition and Reduction of Centralization Law, 5772-2012 (following which the Promotion of Competition and the Reduction of Centralization Law, 5774-2013, was published on December 11, 2013) (“the draft Centralization Law”);
 
b.
During the trustee’s tenure, the successful offeror will waive the exercise of the voting rights attached to the means of control in Clal Holdings Insurance Enterprises and the financial institutions of the Clal Group, and will irrevocably agree to refrain from any action that amounts, directly or indirectly, to the direction of their operations, including by way of holding office as an officer in them, and that during the period of the trustee’s holding of office, the appointment of directors in the company and in the financial institutions of the Clal Group will be in accordance with the mechanism provided in the draft Concentration Law (and insofar as this cannot be done – by a committee that will be appointed by the Minister of Finance or the Commissioner) (see below with regard to clarifications that were received from the Commissioner on this matter);
 
c.
The letter further stated that within 30 days of the occurrence of a “Cessation Event” (as defined within that letter, which includes the non-compliance with the conditional terms in respect of the transaction to sell the shares of Clal Holdings Insurance Enterprises to JT (see section A. above)) the successful offeror will be permitted to file an application to receive a control permit or announce its intention of acting to sell the means of control in the Clal Group to third parties. The successful offeror will be given the opportunity of obtaining a control permit or a possibility of submitting to the Commissioner an agreement to sell the means of control in the Clal Group until December 31, 2014, and if the successful offeror is not granted a control permit or does not produce a sale agreement by that date, the trustee will act to realize the means of control in the Company at his sole discretion and subject to the Commissioner’s instructions, including by way of sale of the shares on the stock exchange, with the proceeds of the aforesaid sale being transferred to the Company. For an update on this matter, see below.
 
d.
As a condition for the Commissioner’s consent as stated above, the successful offeror will be required to give his prior written consent to the aforesaid conditions and will be required to act in order to obtain from the court a decision that these conditions form part of the terms of his offer for a debt arrangement in the Company. On November 28, 2013, the entities of the Elsztain-Extra Group notified the Commissioner of their consent and the giving of their undertaking as required by the Commissioner and the expert.
In addition to the aforementioned, as of January 2014 none of the directors that holds office in other corporations of the IDB Group also holds office as an officer of Clal Holdings Insurance Enterprises.
In May 2014 the attorneys of the controlling shareholders of the Company received a letter from the Commissioner with regard to the control of Clal Holdings Insurance Enterprises, in which it was stated, inter alia, that despite her aforesaid instruction in her letter of November 27, 2013, the Commissioner would be willing to consider not implementing the aforesaid instruction with regard to the appointment of directors in the Clal Group in accordance with the mechanism determined in the draft Centralization Law (and insofar as it would not be possible to do so – by a committee that would be appointed by the Minister of Finance or the Commissioner) in the event of a further term of office of an outside director in Clal Holdings Insurance Enterprises and in Clal Insurance Company.


IDB Development Corporation Ltd. Convenience translation
 
75
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
b.
The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises (cont.)
 
 
2.
(cont.)
 
 
d.
(cont.)
In addition, the Commissioner would be willing to consider not implementing the aforesaid instruction with respect to the appointment of directors in other financial institutions in the Clal Group and in Clal Agency Holdings Ltd., on the condition that directors that are or were employed in the companies controlling Clal Holdings Insurance Enterprises or that are or were related to the controlling shareholders in the Company will not hold office in these bodies, all of which on the terms stated in the letter. Pursuant to the Commissioner’s demand after the transfer of control, on May 21, 2014, the Company and the trustee signed an amended letter of appointment for the trustee for its holdings in Clal Holdings Insurance Enterprises. In September 2014, the Commissioner clarified that it was possible to extend the annual term of office of directors that held office in Clal Holdings Insurance Enterprises and in Clal Insurance Company, by voting at the general meeting of each of the aforesaid companies, and the trustee would be entitled to vote at the general meeting of Clal Holdings Insurance Enterprises by virtue of the trust deed.
 
c.
The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises
On June 29, 2014, the controlling shareholders in the Company, Dolphin and CAA (which are controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively), notified the Company that Messrs. Elsztain and Ben-Moshe filed an application with the Commissioner to receive a control permit in the Clal Group. On September 29, 2014 the Company was notified by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, inter alia, as follows: the Commissioner’s office notified Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe of its position as of that date, according to which significant gaps existed between the control structure and data submitted to the Commissioner and the requirements of a controlling shareholder, as stated in the Control of Financial Services (Insurance) Law, 5741-1981, and in a policy document regarding control of a financial institution that was published by the Commissioner in February 2014 (“the Control Policy Document”), and that as of the aforesaid date less than half of the information and documents required for examining the application had been received. The Commissioner’s office also gave notice that in view of the significant gaps (which it claimed as aforesaid), it was of the opinion that even after receipt of all of the required information, it would not be possible to approve the application of Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe to receive a joint control permit in the Clal Holdings Insurance Enterprises Group.
On December 30, 2014 a letter was received from the Commissioner, addressed to Mr. Eduardo Elsztain, Mr. Mordechai Ben-Moshe and the Company, which included, inter alia, a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises, as well as instructions relating to the continued tenure of the trustee. As stated in the letter, the examination of the application of the controlling shareholders of the Company for joint control of Clal Holdings Insurance Enterprises through the Company would no longer be reviewed, mainly in view of the fact that the Company did not comply with the criteria determined in the Control Policy Document.

IDB Development Corporation Ltd. Convenience translation
 
76
 

 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
c.
The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)
The sale outline stated in the Commissioner’s letter includes the participation of the Company and the trustee in the sale process, the principles of which are as follows:
 
1.
The Company will act to sell the control in Clal Holdings Insurance Enterprises, so that it is no longer a part of the chain of control in Clal Holdings Insurance Enterprises. In accordance with the Control Policy Document it was determined that the minimal holding rate for control over Clal Holdings Insurance Enterprises, at the date of the specified letter, is 30% of the total means of control. The sale of control as specified will be done under the conditions and dates detailed below:
 
a.
The Company will engage with a recognized investment bank (Israeli or foreign) the identity of which will be confirmed by the trustee, to formulate an action outline to sell the control. The Company’s Board of Directors and the trustee will approve the outline, until and no later than June 30, 2015.
 
b.
The Company will sign an agreement to sell the control to a potential buyer for a price and commercial terms as it sees fit, until and no later than December 31, 2015.
 
c.
Should an agreement be signed as specified in section (B) above on the date, the  possibility to complete the procedure to receive a control permit from the Commissioner will be given to the potential buyer, this until and no later than June 30, 2016.
 
2.
During the period until December 31, 2015 the Company will be entitled to sell some of the means of control in Clal Holdings Insurance Enterprises, so long as this will not impact the Company’s commitment to act to sell the control, as specified in section 1 above.
 
3.
Should any of the conditions stated in section 1 above is not complied with, on the dates stipulated alongside them, or if the control is sold to a potential buyer, and the Company retains means of control (“a terminating event”), then in each of these cases the Company will act to sell all of the means of control in Clal Holdings Insurance Enterprises that it owns, apart from the amount that it is permitted by law to hold in an insurer without a permit from the Commissioner, including by way of selling the means of control on the stock exchange or in off-exchange transactions, pursuant to the outline set out below and no later than the following dates:
 
a.
During a period of four months, starting from the occurrence of a terminating event, the Company shall sell at least 5% of the means of control in Clal Holdings Insurance Enterprises.
 
b.
During each of the subsequent periods of four months each, the Company shall sell in each period at least an additional 5% of the means of control in Clal Holdings Insurance Enterprises.
 
c.
If, in any four month period, more than 5% of the means of control in Clal Holdings Insurance Enterprises are sold, then in such a case the amount of the means of control sold in excess of the aforesaid amount will be offset against the required amount in the following period.
 
4.
Should the Company not fulfill its obligation as set forth in section (3) above, then the trustee will be entitled to act in the specified outline in its place, in accordance with all of the authorities vested in it under the stipulations of the trusteeship letter provided to it. The consideration for the sale as specified will be transferred to the Company. Expenses in respect of executing the sale of means of control will be borne solely by the Company.

IDB Development Corporation Ltd. Convenience translation
 
77
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
c.
The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)
 
5.
Notwithstanding what is stated in sections (1) to (3) above, insofar as the control is sold to a potential buyer that received a control permit from the Commissioner, and the Company retains means of control in Clal Holdings Insurance Enterprises in an amount that requires a holding permit by law, the Company may file an application to receive a holding permit for the means of control that it holds, but what is stated in this section shall not constitute prior approval for the receipt of such a permit. If the Company does not receive a holding permit as aforesaid within six months of the date on which the permit control is given to the potential buyer, this date will be regarded as a terminating event and the provisions of sections 3 and 4 above will apply, mutatis mutandis.
 
6.
At the end of each quarter, or upon a request of the Commissioner or the trustee, the Company shall deliver to the Commissioner or to the trustee, as applicable, a status report regarding the progress in the sale outline.
 
7.
It was further stated in the letter that prima facie the Commissioner did not see any reason why the Company should not sell the control also to its controlling shareholders, or to any of them (alone, or jointly with another third party),  however the letter has emphasized that any request to receive a control permit, including a request by one of the controlling shareholders in the Company, will be examined, inter alia, also in light of the stipulations of the Centralization Law, and that that stated in the Commissioner’s letter does not constitute an approval that it is possible to perform the sale as specified in accordance with the stipulations of the Centralization Law.
 
8.
The Commissioner’s letter clarified that there is no practical possibility as far as the Commissioner is concerned, to examine a number of requests for control permits in the Clal Group simultaneously, and insofar as requests requiring such examination are submitted in the future, the examination of these requests will not be done simultaneously.
 
9.
As required by the Commissioner’s letter, the Company signed an amended trusteeship letter (in the format attached to the Commissioner’s letter). Additionally, it has been clarified in the letter that as long as no other instruction was given by the Commissioner, the following instructions will apply irrevocably:
 
a.
The trustee will continue to serve in his role as long as the Company holds means of control in Clal Holdings Insurance Enterprises, without a permit, in an amount that requires a permit by law, without holding such a permit, or alternatively the Commissioner instructs in writing of the termination of the trustee’s service.
 
b.
During the trustee’s term of service, the Company and its controlling shareholders will not activate the voting rights attached to the means of control in Clal Holdings Insurance Enterprises and the corporations of the Clal Group listed in the Commissioner’s letter, including Clal Insurance Company (“Clal Group Companies”), and refrain from taking any action which may, directly or indirectly, constitute the direction of the business of Clal Holdings Insurance Enterprises or the Clal Group Companies, including by way of serving as a senior officer in Clal Holdings Insurance Enterprises or in Clal Group Companies.
 
c.
During the term of service of the trustee, appointment of directors in Clal Holdings Insurance Enterprises and in the Clal Group Companies will be done in accordance with the mechanisms stated in the Commissioner’s letter of May 8, 2014 (as stated in note 3.H.5.b above). In this regard, it has been clarified that appointment of directors in Clal Holdings Insurance Enterprises and in Clal Insurance Company will be made by the Committee for the Appointment of Directors in Insurers with no Controlling Owner, according to the meaning thereof in the Control of Financial Services (Insurance) Law, 5741-1981. Insofar as it is not possible to appoint directors by the committee as specified, the appointment of directors in these companies will be done by a different committee appointed by the Minister of Finance or by the Commissioner, or by any other way instructed by the Commissioner.
 
 
 
78
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
5.
Clal Holdings Insurance Enterprises (cont.)
 
 
c.
The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)
 
10. Subject to compliance with the conditions and restrictions stated in sections (1) to (6) above and in section (9) above, and subject to the receipt of the consent in writing by the Company to all of the conditions stated in the specified letter, the Commissioner shall not view the continued holding of the means of control in the Company and in the Clal Group Companies, as an unlawful holding.
Accordingly, on December 31, 2014 the Company’s Board of Directors approved the provision of the Company’s consent to all of the conditions included in the Commissioner’s letter and the Company’s signature on an amended trusteeship letter which entrenches the terms of the specified letter. An amended trusteeship letter was signed by the Company and the trustee on January 6, 2015.
On March 2, 2015, the Company received a letter from the Commissioner regarding a clarification of the relationship between the Company and its controlling shareholders and Clal Holdings Insurance Enterprises and the bodies under its control, in which it was stated, inter alia, that the Company and its controlling shareholders should refrain from any action that might directly or indirectly constitute directing the businesses of Clal Holdings Insurance Enterprises or the representatives of the financial institutions and agents  of the corporation owned by Clal Holdings Insurance Enterprises. In addition, the Commissioner stated that there was no reason why the process of selling the control in Clal Holdings Insurance Enterprises should not take place in the normal manner, and the Clal Group was also expected to furnish the Company with all of the information required for the sale, subject to conditions as stated in the Commissioner’s letter.
Further to the Commissioner’s letter of December 30, 2014, and the outline for the sale of control in Clal Holdings Insurance Enterprises as stated therein as aforesaid, the Company requested Clal Holdings Insurance Enterprises to begin collecting and preparing relevant documents for the purpose of setting up an information room about the Clal Group in connection with this outline.
In view of the aforementioned, there is uncertainty regarding the completion of a sale transaction within a year, and the investment in Clal Holdings Insurance Enterprises was therefore classified in the Statement of Financial Position as of December 31, 2014, as a non-current asset in the “Other Investments, including derivatives” in the Statement of Financial Position as at December 31, 2014, and the changes in fair value (market value) for the Company’s investment in Clal Holdings Insurance Enterprises for 2014 were reclassified in the Statements of Income from discontinued operations to continuing operations, including comparative figures for past periods.
 
 
d.
The stock exchange value of the shares of Clal Holdings Insurance Enterprises held by the Company as of December 31, 2014 was NIS 1,696 million.
 
The difference between the value of the shares of Clal Holdings Insurance Enterprises that the Company held shortly before the date of the approval of these financial statements, which stood at NIS 1,878 million, and the value of the shares as of December 31, 2014, is positive and amounts to NIS 182 million.
 
 
e.
Cancellation of the previous control permit
 
For details regarding the cancellation of the previous control permit for the financial institutions in the Group, see section 3.K.4 below.
 
 
f.
In March 2015, the Company wrote to the trustee, Mr. Moshe Tery, asking him to act, by virtue of his position as trustee for the company and within the framework of the powers granted to him, in order that Clal Holdings Insurance Enterprises, subject to the distribution tests provided in the law, would distribute a dividend to its shareholders, on the earliest possible date.

IDB Development Corporation Ltd. Convenience translation
 
79
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
6.
Other
 
a.
Further to a binding agreement signed by Given in December 2013 with a corporation from the Covidien Group, which is a leading global company in the field of health products (“Covidien”), for carrying out a transaction in which Covidien will acquire all of Given’s share capital for 30 dollars per share and in cash by way of a triple reverse merger transaction, in January 2014, the transaction was approved by a special majority of the general meeting of Given shareholders, and after receipt of the necessary regulatory requirements, the transaction was completed in February 2014. As a result of completion of the transaction, Discount Investments, Elron and RDC Rafael Development Corporation Ltd. (which held Given at the date of signing of the specified agreement in rates of approximately 14.7%, approximately 21.2% and approximately 8.3%, respectively) received in consideration of their holdings in Given shares amounts of 142 million dollars, 204 million dollars and 80 million dollars (61 million dollars less deduction of taxes), respectively, and the Company recorded in the first quarter of 2014, its share in the net profit (after tax) in an amount of NIS 324 million, and also the realization of the Company’s share in negative capital reserves in an amount of NIS 18 million, and as a result, the equity attributed to the owners of the Company increased by NIS 342 million.
As of the date of the sale, the Company ceased to consolidate Given’s financial statements in its financial statements.
For details regarding Given, the consolidation of which was discontinued in February 2014, see Note 3.I below.
 
b.
On February 17, 2015, after the date of the Statement of Financial Position, an agreement was signed between IDB Tourism and a number of its subsidiaries and a third party, to sell the operations of Diesenhaus Ltd. (“Diesenhaus”) in the outgoing tourism and internal tourism sector and the shares of certain subsidiaries of Diesenhaus (“The Subsidiaries”) in consideration for a total amount of up to approximately USD 13.8 million which shall be paid in a number of stages and a part of which is subject to meeting certain conditions. Within the framework of the transaction, the subsidiaries will repay their debt to Diesenhaus and these amounts will be used to reduce Diesenhaus’s credit facilities which were placed for the working capital funding needs of the subsidiaries. At the date of completion of the transaction, the Company is expected to record its share in the profit, which is estimated at an amount of NIS 12 million.
The completion of the transaction is uncertain as it is subject to suspensory conditions, including the completion of a due diligence by the buyer, the approval of the General Director of the Antitrust Authority and the approvals of third parties.
 
c.
In March 2015, after the date of the Statement of Financial Position, IDB Tourism and the Company approved the making of a settlement (“the agreement”) with S.H. Sky Investments (T.R.T.) Limited Partnership (“Sky Fund”), according to which, subject to the completion of the transaction to sell Diesenhaus’s operations (as specified in section B. above), in consideration of between USD 12.0-13.5 million, an amount of between NIS 17.4 million and NIS 19.4 million will be paid to Sky Fund out of the consideration for the Diesenhaus transaction (depending on the amount of the Diesenhaus transaction) as a success fee for the years in which Sky Fund managed the IDB Tourism group and for initiating the Diesenhaus transaction, and additionally an amount of NIS 0.6 million in respect of interest for funds deposited by the Company for Sky Fund in the trusteeship account of the trustee appointed by the Court (as stated in note 16.C.4 below) (it should be noted that this amount reflects the same conditions according to which the remaining creditors of the Company were paid in respect of amounts deposited with the observer in accordance with a settlement with the same creditors that was proposed by the observer and approved by the court).
 
The payment of the aforesaid amounts will constitute full and final payment of all of the liabilities of the IDB Tourism Group and the Company to Sky Fund. Should the Diesenhaus transaction not be completed by June 30, 2015, the agreement will be cancelled and the parties have agreed to negotiate a new settlement between them.

IDB Development Corporation Ltd. Convenience translation
 
80
 
 
Note 3 – Investments (cont.)
 
H.
Development of investments in investee companies (cont.)
 
 
6.
Other (cont.)
 
d.
In October 2014, Curetech Ltd. (“Curetech”), a company that is held in an amount of approximately 29% by Clal Venture Capital Limited Partnership (“CVC”), which is held by the Company in an amount of approximately 33%, entered into a license agreement and into a supply and production services agreement (jointly: “the agreements”), according to which Curetech will grant the buyer an exclusive global license to develop and trade the Pidilizumab drug (“the drug”) that Curetech is developing. The consideration paid to Curetech will include an immediate payment in a sum of up to $5 million, future payments that are conditional upon reaching milestones up to a total amount of $85 million, future payments that are conditional on certain annual sales’ turnovers of the drug and royalties based on sales in variable amounts, in accordance with the annual sales’ turnover.
Following the aforesaid transaction, in the fourth quarter of 2014 the Company recognized a loss in a sum of approximately NIS 32 million as a result of an amortization of surplus cost, which was attributed in CVC’s books to a license. As a result of the aforesaid amortization, the balance of the Company’s investment in CVC was set as zero. It should be noted that the aforesaid loss does not affect the cash flow of CVC or the Company.
 
 
7.
Dividends
 
a.
In November 2014 Discount Investments distributed a cash dividend at an amount of NIS 200 million. The Company’s share in the stated dividend is NIS 148 million.
 
b.
In March 2014, Shufersal distributed a cash dividend of NIS 70 million.
 
c.
In September 2014, Elron distributed a cash dividend of USD 110 million.
 
d.
Details regarding dividends received by the Company from directly held investees:
 
   
For the year ending
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
From Discount Investments
     148       -       -  
From Clal Holdings Insurance Enterprises
     -       66       236  
From Clal Industries
     -       -       194  
      148       66       430  
 
 
e.
For details regarding the Company’s letter to the trustee requesting that Clal Holdings Insurance Enterprises will distribute a dividend to its shareholders, see note 3.H.5.f above.
 f.     Balance of distributable profits
 
As at December 31, 2014, the companies that are directly held by the Company, Discount Investment and IDB Tourism, had a negative balance of profits suitable for distribution and were unable to distribute dividends.
 
I.
Details regarding companies whose consolidation was ended during the reporting period and discontinued operations
 
 
1.
Discontinued operations
In July 2012, the sale of Clal Industries to Access Industries was completed; in August 2013 the means of control in the shares of Clal Holdings Insurance Enterprises to the trustee, which entails accounting loss of control (as set forth in Note 3.H.5.b. above); in September and October 2013 Koor realized part of its holdings and in January 2014 realized the balance of its holdings in Credit Suisse, in accordance with a resolution by its board of directors from August 2013 (as specified in Note 3.H.4.c. above). As a result, the activity of Clal Industries, Clal Holdings Insurance Enterprises (until the date of loss of control as aforesaid in August 2013) and Credit Suisse are presented as discontinued operations.
As stated, following the Commissioner of the Capital Market’s outline for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises, as stated in note 3.H.5.c above, there is an uncertainty with regard to the completion of a sale transaction within a year and accordingly the investment in Clal Holdings Insurance Enterprises was classified in the Statement of Financial Position as of December 31, 2014, in non-current assets under the “Other investments, including derivatives” item, and the changes in fair value (market value) with respect to the investment in Clal Holdings Insurance Enterprises for 2014 were reclassified in the Statements of Income from discontinued operations to continuing operations, including comparative figures for past periods.


IDB Development Corporation Ltd. Convenience translation
 
81
 
Note 3 – Investments (cont.)
 
I.
Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)
 
 
1.
Discontinued operations (cont.)
 
The following are details regarding the results of discontinued activities:

 
     For the year ended December 31 2014     For the year ended December 31 2013     For the year ended December 31 2012  
     Credit Suisse      Clal Holding Insurance Enterprises Ltd.      Credit Suisse      Total      Clal Holding Insurance Enterprises Ltd.     Clal Indistries      Credit Suisse      Total  
     NIS millions  
Income
                                                
Sales and services
     -       -       -       -       -       2,328       -       2,328  
Income from insurance and finance businesses
     -       11,244       -       11,244       18,571       22       -       18,593  
Company share of the net income of investees treated using the equity accounting method, net
     -       1       -       1       7       27       -       34  
Profit from discontinued operations
     -       -       -       -       -       322       -       322  
Earnings from the disposal and increase in value of investments and assets
     64       43       637 (4)     680       26       60       159       245  
Increase in fair value of investment property
     -       -       -       -       21       -       -       21  
Other income
     -       7       -       7       2       10       -       12  
Financial income
     -       7       4       11       16       39       3       58  
      64       11,302       641       11,943       18,643       2,808       162       21,613  
Expenses
                                                                
Cost of sales and services
     -       -       -       -       -       1,770       -       1,770  
Cost of insurance businesses
     -       8,933       -       8,933       14,759       -       -       14,759  
Costs and expenses in connection with insurance businesses and financial services
     -       1,693       -       1,693       3,077       -       -       3,077  
Research and development expenses
     -       -       -       -       -       28       -       28  
Sales and marketing expenses
     -       -       -       -       -       253       -       253  
General and administrative expenses
     -       -       -       -       -       127       -       127  
Loss from the realization and impairment of investments and assets
     -       189 (2)(3)     -       189       426       32       -       458  
Other expenses
     -       24       -       24       1       20       -       21  
Financing expenses
     -       183       -       183       327       163       (9 )     481  
      -       11,022       -       11,022       18,590       2,393       (9 )     20,974  
Income  before taxes on income
     64       280       641       921       53       415       171       639  
Taxes on Income
     -       (164 )     6       (158 )     (133 )     (43 )     -       (176 )
                                                                 
Income (loss) for the period from discontinued activities
     64       116       647       763       (80 )     372       171       463  
                                                                 
Net income (loss) from discontinued activities attributed to:
                                                                
Company owners
     33       (11 )     414       403       62       359       112       533  
Non-controlling rights
     31       127       233       360       (142 )     13       59       (70 )
      64       116       647       763       (80 )     372       171       463  
 
 
(1)
Relates to the period between January 1, 2013 and August 21, 2013
 
(2)
Including an amortization of NIS 169 million in respect of setting the balance of the investment in Clal Holdings Insurance Enterprises according to the market value at August 21, 2013 (due to the expiration of the agreement to sell the Company’s holdings in Clal Holdings Insurance Enterprises, the increase in the fair value of the investment in Clal Holdings Insurance Enterprises for the period from August 21, 2013 until the end of 2013, in an amount of approximately NIS 83 million was reclassified from discontinued operations to continuing operations in the item “Loss from realization, impairment and amortization of investments and assets”). In addition, it includes expenses in a sum of NIS 2 million for the sale transaction.
 
(3)
See note 3.H.5.a above.
 
(4)
Includes NIS 12 million in respect of a distribution made by Credit Suisse in May 2013.

IDB Development Corporation Ltd. Convenience translation
 
82
 
Note 3 – Investments (cont.)
 
I.
Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)
 
 
2.
Assets, realization groups and held-for-sale liabilities
Further to what is stated in notes 3.H.5.a, 3.H.6.a and 3.H.4.c above, regarding the transaction for the sale of Clal Holdings Insurance Enterprises, the sale of Given via a reverse merger transaction and the sale of the holdings in Credit Suisse by Koor, respectively in the Consolidated Statement of Financial Position as at December 31 2013, the investments in Clal Holdings Insurance Enterprises and Credit Suisse and in the assets of Given, in the realization groups assets item and in the other assets classified as for sale, are presented within the framework of current assets, and the liabilities of Given are presented in the liabilities of the realization group and in other held-for-sale liabilities, within the framework of current liabilities.
Following the outline of the Commissioner of the Capital Market for the sale of the Company’s holdings in Clal Insurance, as stated in note 3.H.5.b above, there is uncertainty regarding the completion of a sale transaction within a year, and accordingly the investment in Clal Holdings Insurance Enterprises was classified in the Statement of Financial Position as at December 31, 2014 within non-current assets, in the item “Other investments, including derivatives”.
The following is the composition of the assets and liabilities held for sale for the above companies and others:
 
   
As at December 31, 2013
  
   
NIS Millions
  
Assets of realization groups and other assets classified as held-for-sale
      
Investment in Clal Holdings Insurance Enterprises Ltd.
     2,055  
Investment in Credit Suisse
     1,138  
Fixed assets(1)
     37  
Investment property
     187  
Intangible assets(1)
     481 (2)
Loans, deposits and investments(1)
     431  
Trade receivables(1)
     115  
Inventory(1)
     107  
Cash and cash equivalents(1)
     153  
Other assets
      75  
       4,779  
Assets of realization groups and other assets classified as held-for-sale(1)
        
Other payables and credit balances
     88  
Trade payables
     37  
Other liabilities
      40  
       165  
         
 
 
(1)
Relates to amounts in respect of Given.
 
(2)
Reclassified.


IDB Development Corporation Ltd. Convenience translation
 
83
 
Note 3 – Investments (cont.)
 
I.
Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)
 
 
3.
a.  Details regarding Given, whose consolidation was ended in February 2014:
 
The following is a summary of the balances and the effect of the deconsolidation of the financial statements of Given on the date of ending the consolidation:
 
   
At the consolidation cessation date
  
   
NIS Millions
  
Effect of the sale of the holding in Given on the financial position, as at the date of deconsolidation
      
Assets classified as held for sale
     1,332  
Liabilities classified as held for sale
     201  
Cash flow arising from the sale for the Group
        
Consideration received from the sale less cash spent within the deconsolidation
     1,323  
         
         
   
For the period from January 1, 2014 until the date of deconsolidation
  
   
NIS millions
  
Given’s effect on the Group’s results until the date of deconsolidation in February 2014
        
Sales and services
     86  
Loss attributable to the owners of the Company
     (70 )
Loss attributable to non-controlling shareholders
     (81 )

 
b.
The main companies whose consolidation was ended or begun in these financial statements
 
 
1.
The following are companies whose consolidation was ended
 
 
Investee Company name
 
 
Deconsolidation date
 
Maxima Air Separation Center Ltd.
June 2012
Clal Industries
July 2012
Ham-Let (Israel Canada) Ltd.
August 2012
Guard
August 2012
Ma’ariv Holdings Ltd.
September 2012
Titanium
December 2012
Clal Holdings Insurance Enterprises Ltd. (see also a. above and sections H.5.a and I.1 in this Note)
August 2013
Given (see also Note 3.H.6.a. below)
February 2014

 
2.
Company consolidated for the first time
 
The financial statements of Given were consolidated in the Company’s financial statements from January 1, 2013, until the date of the sale as stated in note 3.H.6.a above.

IDB Development Corporation Ltd. Convenience translation
 
84
 
Note 3 – Investments (cont.)
 
J.
The following are details regarding the liquid resources, gross debt and significant restrictions upon the transfer of resources between entities within the Group, relating mainly to a restriction upon the transfer of cash as of December 31, 2014, and after the date of the Statement of Financial Position (in NIS millions):
 
Name of the company
  
Amount of the restricted/ charged asset
    
Amount of the liability in the Statement of Financial Position (principal only)
  
Restriction
Note
The Company and directly and indirectly consolidated companies of the Company
            
Restriction on distribution of dividend
Distributable profits – dividends distribution
15.D
3.H.7
3.K and L
Cellcom
           1,353  
Financial covenants:
- Early repayment cause (cross default or cessation of rating)
- Cash dividend
- Non-creation of pledges over Cellcom’s and Netvision’s assets
16.F.2 and 22.G
Property & Building and asset companies wholly owned by it
             2,967       1,271         1,556  
Financial covenants relating to bonds:
-Early repayment cause including due to cross default, cessation of rating and lowering rating;
-                      Restrictions on dividend distribution
Financial covenants with regard to a bank loan:
- Mortgage on HSBC Building and pledges on rental agreements and rental fees from the building etc.;
- Early repayment causes
16.F.3 and 22.I
Shufersal
             863          
Financial covenants:
- Early repayment causes including due to cross default
- Meeting shareholders capital
- Non-creation of a floating pledge on all of its assets
- Restrictions on dividend distribution
16.F.4 and 22.H
Discount Investments
               3,051       521         4,557 4,487 (**)
Financial covenants with regard to a bank loan:
- Early repayment causes including due to cross default or in events of change in control;
- Refraining from giving charges to others.
Obligation towards bondholders
Pledge over Adama shares
-Pledge to secure a loan provided to Koor from a Chinese bank as part of the Adama and ChemChina merger.
16.F.1.b and 22.E
 
 
 
16.F.1.f
Adama  (*)
                
Financial covenants:
-           Early repayment causes
-           Meeting shareholders capital
-           Meeting a retained earnings balance
16.F.5.b and c
 
(*)
Upon the completion of the merger transaction with ChemChina, the profit distribution determined in the shareholders agreement and Adama’s articles of association entered into effect, according to which subject to the stipulations of the articles of association and the instructions of the Companies Law, the board of directors of Adama will be entitled from time to time to declare and cause Adama to pay dividends in respect of any financial periods, as the board of directors of Adama shall see fit justifiably considering Adama’s profits. Subject to any law and the reasonable cash flow liquidity requirements applying to Adama, Adama will declare an annual dividend at an amount of no less than 40% of its profits for that year. Since the first offering of Adama’s shares to the public was not completed within three years of the date of completing the merger transaction with ChemChina (i.e., by October 17, 2014), then, starting from the first financial year after the third anniversary of the closing of the merger transaction with ChemChina (i.e., 2015), subject to any law and the reasonable cash flow liquidity requirements applying to Adama, Adama will declare an annual dividend in an amount of no less than 80% of its profits for that year.
(**) The loan principal and accrued interest.

For additional details regarding guarantees and pledges, see note 22 below.
 
 
 
85
 
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel
 
Below are details relating to capital requirements according to the Control of Insurance Business (Minimum Equity Capital Required of an Insurer) Regulations, 5758-1998, including the amendments thereto (“the Capital Regulations”), and the Commissioner’s guidelines that apply to consolidated companies that are insurance companies in Israel.
 
     As at December 31      As at December 31  
     2014      2013  
    Insurance companies      Insurance companies   
     Clal Insurance      Clal Credit      Clal Insurance      Clal Credit  
     NIS millions  
Minimum equity:
                        
Amount required pursuant to the amended Capital Regulations
     4,569       35       4,477       34  
                                 
Current amount as calculated pursuant to the Capital Regulations:
                                
Basic tier 1 capital
     4,147       172       3,766       146  
                                 
Tier 2 subordinated capital (see section 3.b)
     432       -       621       -  
Tier 2 hybrid capital (see section 3.b)
     2,081       -       1,566       -  
Total Tier 2 capital
     2,513       -       2,187       -  
Total current capital, calculated according to the Capital Regulations
     6,660       172       5,953       146  
                                 
Surplus
     2,091       137       1,476       112  
                                 
Capital operations which took place after the reporting date:
                                
Reduction of subordinated Tier 2 capital
     (15 )     -       29       -  
Surplus taking into account Events Subsequent to the statements Date
     2,076       137       1,447       -  
                                 
The investment amount to be provided against surplus capital, in accordance with directives of the Commissioner, or which is actually held against surplus capital, and which therefore constitutes non-distributable retained earnings
     25       -       27       -  
                                 
*) Total required amount, capital requirements in respect of:
                                
Non-life insurance activities / required Tier 1 capital
     628       30       655       30  
Activities in long-term care insurance
     104       -       101       -  
Extraordinary risks in life insurance
     411       -       400       -  
Deferred acquisition costs in life insurance and disease and hospitalization insurance
     1,248       -       1,233       -  
Requirements in respect of guaranteed yield plans
     5       -       10       -  
Non-recognized assets, as defined in the Capital Regulations
     78       1       64       -  
Investment in consolidated insurance and management companies (including acquired management activities)
     551       -       548       -  
Equity required in respect of investments 
     1,024       2       963       2  
Catastrophe risks in non-life insurance
     134       -       115       -  
Operational risks
     285       2       287       2  
Guarantees
     101       -       101       -  
Total required capital
     4,569       35       4,477       34  
**Reduction of capital required in respect of the original difference (see section 3.f.)
     208       -       211       -  
Tax reserve in respect of provident fund acquisition (see section 3.f.)
     76       -       54       -  


IDB Development Corporation Ltd. Convenience translation
 
86
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel (cont.)
 
 
1.
The Board of Directors of Clal Holdings Insurance Enterprises supervises the yield on capital, which the Clal Holdings Insurance Enterprises group defines as comprehensive income (loss) for the period, which is attributed to its shareholders divided by the equity attributed to the shareholders of the Company. The Board of Directors of Clal Holdings Insurance Enterprises decides upon the amounts of the dividends for the shareholders. The Board of Directors of Clal Insurance determined the target capital at approximately 12% above the minimum equity required by law (herein: the “target equity”). It is hereby clarified that the above is not a binding equity requirement, but rather an equity level which Clal Insurance will strive to maintain, and no certainty exists that Clal Insurance will meet this target at all times. As of December 31, 2014, Clal Insurance complied with the target equity. The policy of the management of Clal Holdings Insurance Enterprises is to hold a strong capital basis in order to retain its ability to continue its operations so that it can produce a return for its shareholders, and in order to comply with external equity requirements to which it is subject by virtue of its holding in Clal Insurance, and in order to support the equity needs of its consolidated companies, some of which are subject to external equity requirements, as stated in this section and in section L below, and future business development.
 
 
 
2.
In addition to the general requirements and the Companies Law, dividend distributions performed out of capital surplus in an insurance company are also subject to liquidity requirements, and to compliance with the terms of the Investment Regulations and additional directive published by the Commissioner of Capital Markets from time to time.
 
 
3.
a.  Minimum capital –
The Capital Regulations set forth the minimum capital required of insurance companies, and the method used to calculate them. The activity in insurance businesses is conditional upon the existence of required minimum capital. The capital required for the purpose of the stated insurance activity is composed of a first layer, which is the higher of minimum (floor) capital or the derived capital from total activities in Non-Life insurance, according to the higher of a calculation based on premiums and a calculation based on pending claims, as well as additional capital requirement components, as described above. Non-compliance with the Capital Regulations will require the insurer to increase its equity capital up to the amount stipulated in the Capital Regulations, or to reduce the scope of its business accordingly, as relevant, until the publication date of the report, except in exceptional circumstances approved by the Commissioner, in which case the capital supplement will be postponed.
 
b.
Composition of insurer’s capital
The following are the main components and instruments included in the three layers of equity of consolidated insurance companies, their rates and conditions in accordance with the Commissioner’s Circular from August 2011 (the “Circular”). This framework will be used to determine the composition of an insurer’s equity, with the implementation of the Solvency II Directive ("Directive" or “Solvency Regime”) in Israel, as amended and updated (for details, see section d below).
 
1.
Tier 1 capital - including Basic Tier 1capital (at the level of equity attributed to shareholders). The overall rate of the Tier 1 capital must not be less than 60% of the insurer’s equity.
 
2.
Tier 2 capital - Including Tier 2 hybrid capital instruments (excluding periodic accrued interest payments), Tier 2 subordinated capital instruments (as defined in the Circular), and any other component or instrument approved by the Commissioner. A Tier 2 hybrid capital instrument is subordinate to any other debt, excluding Tier 1 capital, and includes financial instruments which are available to absorb the insurer’s losses by postponing principal and interest payments. The first repayment date for Tier 2 capital instruments will be after the end of a period reflecting the weighted average of the periods for repayment of the insurance liabilities plus two years, or 20 years, whichever is earlier, but no earlier than 8 years from the issue date. In the event that a Tier 2 hybrid capital instrument includes an early redemption incentive, the first date of the early redemption incentive may be no earlier than 5 years from the instrument’s issue date.

IDB Development Corporation Ltd. Convenience translation
 
87
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel (cont.)
 
 
3. (cont.)
 
 
b.
Composition of insurer’s capital (cont.)
 
3.
Tier 3 capital - including Tier 3 hybrid capital instruments (excluding periodic accrued interest payments) and another component or instrument approved by the Commissioner. Tier 3 capital instruments are subordinate to all other instrument, excluding Tier 1 and Tier 2 capital, and includes financial instruments which are available to absorb the insurer’s losses by postponing only principal payments. It can be stipulated that Tier 3 capital will not come before Tier 2 capital, and will be equivalent to it in the order of credit. The first repayment date of Tier 3 capital instruments is no earlier than 5 years from their issue date. In the event that a Tier 3 hybrid capital instrument includes an early redemption incentive, the first date of the early redemption incentive may be no earlier than 3 years from the instrument’s issue date. The overall amount of Tier 3 capital must not exceed 15% of the insurer’s total equity.
For this purpose, insurance liabilities include non-investment-linked liabilities, without the liability component that is fully backed by a HETZ bond, and less the share of reinsurers.
The Commissioner’s approval is required to include a hybrid capital instrument (Tier 1, Tier 2 or Tier 3) in equity.
It is noted that the Circular contains transition conditions, as follows:
 
1.
Tier 2 subordinated capital issued up to December 31, 2009 will be recognized until its final repayment date, under the conditions in which it was recognized until the publication of the Circular.
 
2.
Tier 2 subordinated capital which was issued beginning on January 1, 2010 and thereafter will not be recognized upon the application of the directive in Israel, or beginning on January 31, 2013, whichever is earlier.
 
3.
Hybrid tier 1, hybrid tier 2 and hybrid tier 3 instruments issued on January 1, 2010 or thereafter, and which were approved by the Commissioner, will be recognized until their final payment date, under the conditions under which they were issued, and in accordance with the rate restrictions applicable to the various tiers.
 
4.
Hybrid tier 1, hybrid tier 2 and hybrid tier 3 instruments will be issued beginning on the date the Circular comes into force, according to the conditions specified therein, will be fully recognized upon the application of the directive in Israel, until their repayment dates.
  
Its second part provides interim provisions with regard to the composition of insurer’s shareholders’ equity, (temporary provisions) which would apply through the application of the Directive in Israel, at a date to be announced by the Commissioner. The Temporary Order defines, inter alia, the Tier 2 capital issued according to the Capital Regulations, prior to their amendment, as Tier 2 subordinate capital, and restricts its scope to 50% of basic equity.
Deferred liability notes issued by Clal Insurance and Clalbit Finance prior to December 31, 2009, are recognized as subordinate Tier 2 equity.
Deferred liability notes issued by Clalbit Finance beginning in 2010 are recognized as Tier 2 hybrid capital.
 
 
c.
In accordance with the Commissioner’s letter, the Commissioner will not approve a dividend distribution unless, after carrying out the distribution, the insurer has a ratio of recognized equity to required equity of at least 105% and all of the following documents are submitted to the Commissioner:
 
1.
The insurance company’s annual earnings projection, for the two years following the dividend distribution date.
 
2.
Submission of an updated debt service plan approved by the Board of Directors of the insurance company.
 
3.
Submission of a capital make-up action plan approved by the Board of Directors of the insurance company.
 
4.
Minutes of the meeting of the Board of Directors of the insurance company at which the dividend distribution was approved.

IDB Development Corporation Ltd. Convenience translation
 
88
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel (cont.)
 
 
3. (cont.)
 
 
c.
Composition of insurer’s capital (cont.)
It should be noted that, notwithstanding the above, advance approval from the Commissioner is not required in the event that the total equity of the Insurance Company, as defined in the Minimum Capital Regulations, following the dividend distribution, is higher than 115% of the minimum equity required in accordance with the Capital Regulations (See also Section f. below), and provided that the insurance company delivered the documents specified above to the Commissioner.
 
The following dividends were declared and paid by Clal Insurance:
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
Amount for distributing dividends (in NIS millions)
     -       100       200  
Total NIS per share
     -       0.84       1.69  
Prior Commissioner approval required
     -    
No
    
Yes
  

 
d.
In November 2014, the Commissioner published a letter to the managers of the Insurance companies (“The Letter”) regarding an outline for implementation of a solvency regime based on Solvency II in Israel. In the letter the Commissioner noted that the European parliament resolved that the implementation of the Directive in Europe will be at the start of 2016, and schedules were set forth to implement the final instructions. In light of the intention to publish final instructions in Europe until June 2015, the Commissioner intends, during 2016, to publish instructions regarding the adjustment of the first pillar of the Directive to the local market which will replace the current instructions and that the insurance companies will be required to meet these instructions as of the annual financial statements for 2016. For a period to be determined, insurance companies will be required to meet the capital requirements both according to the existing instructions and according to the final instructions to be determined. Until the final implementation, the Commissioner intends to publish instructions for the performance of quantitative evaluation surveys (IQIS) for 2014 and 2015 and determine a quarterly reporting format according to the new outline.
Additionally, the Commissioner intends to publish instructions regarding capital management and determining an internal capital target, with respect to a gap survey which the companies will need to perform with regard to their risk management, controls and corporate governance layout and a consultation paper for the promotion of a process for self-assessment of risks and solvency (ORSA).
 
The implementation of the Solvency II Directive, according to the IQIS model derived from the Commission’s instruction to perform quantitative evaluation surveys, may reduce the capital ratio (existing capital compared to required capital) of the insurance companies at the Group. The model is structurally sensitive to changes in market and other variables and therefore the capital requirements reflected from it may be more volatile.
Since the calibration and adaptation of the model to the local market have yet to be determined, at this point there is uncertainty regarding the timing and details of the model, insofar as determined by the Commission’s regarding capital requirements, and accordingly it is not possible to evaluate the implications that will derive from it.
 
 
e.
The capital requirements under the Capital Regulations will continue to be based on solo financial statements. In order to calculate recognized capital in accordance with the Capital Regulations, an insurance company’s investment in an insurance company or in a controlled managing company, as well as in other investees, will be calculated on an equity basis using the ultimate holding rate for them.

IDB Development Corporation Ltd. Convenience translation
 
89
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel (cont.)
 
 
3. (cont.)
 
 
f.
The minimum equity required of Clal Insurance was reduced, with the Commissioner’s approval, in respect of the original difference attributed to the managing companies and to the provident funds which are under its control, at a rate of 35% of the balance of the original aforementioned difference. When calculating the amount permitted for dividend distribution, this reduction will be added to each capital level required (see details in Section 3c above). In September 2013, Clal Insurance received a letter from the Commissioner stipulating that the amount of the reduction that will be added to the minimum required capital, in calculating the amount permitted for distribution as a dividend, will be after deduction of the accumulated tax reserve at Clal Insurance in view of the acquisition of provident fund activity. It is also noted that this authorization will be revoked upon the entry into validity of the capital requirements set forth in the first layer of the Directive (see section d. above) that will replace the Capital Requirements, and does not reflect the control policy for implementation of the above requirements.
 
 
g.
In March 2013, Clal Insurance received a letter from the Commissioner according to which, concerning the instructions of the law on credit rating, the rating determined according to the internal credit rating model of Clal Insurance will be considered a rating which corresponds, in terms of risk, to the rating of a rating company, according to the conditions and for the branches determined. In accordance with the Commissioner’s approval, Clal Insurance is permitted to allocate equity in respect of matching loans, which are rated according to the internal model according to the percentages set forth in the Capital Regulations. If a loan exists with an external rating, the allocation of equity will be according to the lower of the ratings. The letter stipulates that Clal Insurance is required to file immediate and periodical reports as detailed in the annex to the letter. Likewise, by March 2 2014, the supplements required by the Commissioner regarding validation and control were provided. Clal Insurance implemented the aforementioned instructions, and, as a result, the capital requirements decreased by NIS 3 million, correct as at the end of the report period.
 
 
4.
Permit given by the Commissioner to the previous controlling shareholders of IDB Holdings, to hold control of Clal Holdings Insurance Enterprises and financial institutions
As the Company was notified on May 8, 2014, the previous controlling shareholders of the Company (Ganden Group, Manor and Livnat) received a notification from the Commissioner that further to the creditors arrangement at IDB Holdings and since they have ceased controlling financial institutions from the Clal Group, the control permits in the aforesaid financial institutions that were given to them were cancelled, including, inter alia, in Clal Insurance Company, Clal Credit Insurance and Clal Pension and Provident Funds Ltd. (“the financial institutions”) (“the previous permit”). It should be clarified that the previous permit included instructions according to which, inter alia: (a) IDB Holdings undertook to supplement (or to cause the companies under its direct or indirect control to supplement) the equity required of the Insurers according to the Capital Regulations or any other regulation or law which may replace them, provided that the maximum undertaking limit does not exceed 50% of the capital required of the Insurer, and also that the undertaking will be realized only when the Insurer’s equity is negative, in the amount of the negative equity, provided that the supplemental amount does not exceed the aforementioned undertaking limit; and (b) IDB Holdings undertook to complete (or it would act so that companies directly or indirectly controlled by it would complete) the equity of Clal Pension and Provident Funds up to the amount stipulated in the Provident Fund Regulations as these will be in force from time to time, or any other regulation or law which may replace them, while the aforesaid undertaking (with regard to the financial institutions) would remain in force as long as IDB Holdings would be the controlling shareholder of the financial institutions.
It should also be clarified that the previous permit stipulated conditions and restrictions concerning holdings and pledges in the control chain of the financial institutions in the Clal Group, and the previous controlling shareholders were required to maintain the capital requirements of Clal Holdings Insurance Enterprises, so long as there are liens on their holdings in the means of control of IDB Holdings, such that the equity of the Company will be no less, at any time, than the amount of Clal Holdings Insurance Enterprises’ holding in Clal Insurance Company multiplied by 140% of the minimum equity required of Clal Insurance Company, pursuant to the Capital Regulations, on September 30, 2005, as these were at that time, linked to the CPI for September 2005.
 
 
 
90
 
 
 
Note 3 – Investments (cont.)
 
K.
Capital requirements for insurance companies in Israel (cont.)
 
 
4.
Permit given by the Commissioner to the previous controlling shareholders of IDB Holdings, to hold control of Clal Holdings Insurance Enterprises and financial institutions (cont'd)
As the Company was informed, as of the end of the report period, the minimum equity required of Clal Insurance Enterprise Holdings, as stated above, amounted to approximately NIS 2.9 billion, while as of the end of the reporting period, Clal Holdings Insurance Enterprises’ equity was higher than this requirement. The Company was also informed that the capital requirement is examined de facto in accordance with the reviewed or audited financial statements of Clal Holdings Insurance Enterprises. The Company was also informed, with regard to equity management, that Clal Insurance Enterprise Holdings also examined the need to hold an additional cushion, in view of negative developments that might impact the equity and the equity requirements.
In view of the cancellation of the previous permit, there is uncertainty with regard to whether the capital requirements applying to Clal Holdings Insurance Enterprises pursuant thereto are still in force. The Company was informed by the Commissioner’s representatives that clarifications with respect to this notice of the Commissioner of May 8, 2014, will be given later.
For details regarding the cancellation of the control permit, see note 3.H.5.c. above.
For details regarding the appointment of Mr. Moshe Tery as trustee for the main holdings of Clal Holdings Insurance Enterprises, regarding the Commissioner’s letters of November 27, 2013, and May 8, 2014, regarding control of the Company, and also regarding the undertakings that were given to the Commissioner regarding control of the Company by the Dolphin-Extra group in connection with the IDB Holdings debt arrangement, see note 3.H.5.b. above.
For details regarding the IDB Holdings debt arrangement and also regarding the transfer of (indirect) control over the Company to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, see note 16.G.2 below.
 
 
5.
Clal Insurance is required to supplement the equity required of Clal Credit Insurance according to the Capital Regulations up to 50% of the required capital, only in the event that the equity of Clal Credit Insurance is negative, and will be valid so long as Clal Insurance is the controlling shareholder of Clal Credit Insurance.
 
 
6.
Clal Insurance is required supplement, at any time, the shareholders capital of Clal Pension and Provident, to the amount stipulated in the Income Tax Regulations (Regulations for Approval and Management of Provident Funds), 5724-1964. This undertaking will remain in force so long as Clal Insurance controls Clal Pension and Provident Funds, either directly or indirectly.
 
L.
Capital requirements in companies that manage pension funds and provident funds
 
 
1.
In February 2012, the Supervision of Financial Services Regulations (Provident Funds) (Minimum Equity Capital Required of a Managing Company of a Provident Fund or Pension Fund) Regulations, 5772-2012, and Income Tax Regulations (Rules for Approval and Management of Provident Funds) (hereinafter: the “New Regulations”) were published. Pursuant to the New Regulations, the capital requirements of managing companies were expanded, and they include capital requirements in accordance with the extent of the assets under management and the annual expenses, but not less than an initial capital of NIS 10 million.
A managing company will be permitted to distribute dividends only if its equity is at least the minimum equity required of it according to these Regulations. A managing company will also be required to provide additional capital in respect of controlled managing companies.
As of the end of the reporting period, Clal Insurance and the managing companies under its control have a capital surplus with respect to the minimum capital required in the capital regulations regarding the managing companies.


IDB Development Corporation Ltd. Convenience translation
 
91
 
Note 3 – Investments (cont.)
 
L.
Capital requirements in companies that manage pension funds and provident funds (cont.)
 
 
2.
In view of the publication of the capital regulations for managing companies and for the purpose of financing investing activities and operating activities, which include, inter alia, investment in development of a system to manage member rights in the pension funds, investment in the development of a system to manage member rights in provident funds, as well as repayment of agent commissions (which are charged to deferred acquisition costs (DAC)) to Clal Insurance, the boards of directors of Clal Insurance and Clal Pension and Provident approved the creation of a credit facility from Clal Insurance to Clal Pension and Provident Funds, up to a cumulative total of NIS 150 million, which was used up in its entirety by the end of 2013. The amounts that were withdrawn as part of the updated credit facility, will bear interest until their repayment date at an annual rate of 4.7%.
On February 5 2014, after a decision was taken to convert the updated credit facility into a capital note, Clal Pension and Provident issued a non-tradable capital note to Clal Insurance, at the level of Clal Pension and Provident’s obligation towards Clal Insurance as at December 31 2013, in a total amount of NIS 156.4 million (“Capital Note”). In accordance with its terms, the Capital Note is unlinked and does not bear interest of any kind; the Capital Note is not secured by any sureties and no liens and/or other sureties of any kind will be recorded securing repayment of the Capital Note; Clal Insurance is not entitled to repayment of the Capital Note except in case of the liquidation of Clal Pensions and Provident and after repayment of its debts to its creditors. As part of the signing of the capital note, Clal Pension and Provident’s obligation as part of the updated credit was discharged and it will not be required to any amount to Clal Insurance.
On April 22, 2014 Clal Insurance converted the capital note, so that the par value of the capital note in the amount of NIS 156.4 million, would be considered as additional investment in the books of Clal Pension and Provident Funds as share premium, without additional Clal Pension and Provident Funds shares being allocated in respect of the conversion.
In November 2014 Clal Insurance injected a total of NIS 80 million against the allocation of Clal Pension and Provident Funds shares according to its value, in accordance with the approval by the Board dated October 26, 2014 to finance operating activities and investment activities of Clal Pension and Provident Funds and the existence of future liquidity.

Note 4 – Other investments, including derivatives
 
A.
Non-current investments
 
 
 
As of December 31
  
   
2014
    
2014
  
   
NIS millions
  
Financial assets presented by fair value through profit or loss:
            
Shares registered for trade (1)
     1,700       4  
Shares not registered for trade (2)
     266       291  
Deposits
     49       47  
Derivatives not used for accounting hedging
     4       6  
Others
     102       4  
      2,121       352  
Financial assets designated at fair value through other comprehensive income:
                
Shares listed for trading
     1       3  
                 
Total non-current uncharged investments
     2,122       355  

 
(1)
Including an investment in Clal Holdings Insurance Enterprises shares in a sum of NIS 1,696 million.
 
(2)
With regard to the valuation of the fair value of the Group’s investments in a number of private companies, see note 21.G.2 below.

IDB Development Corporation Ltd. Convenience translation
 
92
 
Note 4 – Other investments, including derivatives (cont'd)
 
B.
Current investments
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Financial assets at fair value through profit or loss:
            
Government bonds and short-term treasury bills
     1,469       1,489  
Mutual fund participation certificates
     887       536  
Non-convertible corporate bonds
     651       672  
Exchange traded notes
     288       257  
Shares
     19       21  
Derivatives not for hedging purposes
     2       5  
Other
     1       2  
      3,317       2,982  

Note 5 – Loans, deposits, charged deposits and debit balances
 
A.
Non-current loans, charged deposits and debit balances
 
   
As at December 31
  
   
2014
    
2013
  
   
NIS Millions
  
Composition
            
Short-term loans and deposits
     179       29  
Charged deposits(1)
     18       52  
Deposits in trust
     -       11  
Long-term debit balances
     114       12  
      311       104  
Less current maturities of loans and deposits
     (156 )     (11 )
Less current maturities of debit balances
     (4 )     -  
      151       93  
 
 
(1)
In respect of a deposit that was pledged by the Company for a financial institution in respect of a loan which was received. For details, see note 16.C.2.

B.
Current loans, deposits and charged deposits
 
   
As at December 31
  
   
2014
    
2013
  
   
NIS Millions
  
Composition
            
Deposits at banks
     213       43  
Charged deposits
     143       612  
Other deposits and loans
     2       1  
Current maturities of non-current loans and deposits
     156       11  
      514       667  

IDB Development Corporation Ltd. Convenience translation
 
93
 

Note 6 – Fixed Assets
 
A.
Composition and movement
 
      Buildings        Machinery, plant & equipment        Communications network        Airplanes        Computer, office furniture, equipment and other        Installations and leasehold improvements        Total  
      NIS millions   
Cost                                                        
Balance as at January 1, 2013     2,566       2,555       5,628       487       1,484       1,689       14,409  
Transfer from assets held for sale
     108       42       -       -       5       -       155  
Acquisitions through business combination
     -       82       -       -       61       24       167  
Additions
     115       141       213       3       59       106       637  
Disposals(1)
     (10 )     (8 )     (346 )     -       (410 )     (42 )     (816 )
Disposals following discontinuance of consolidation
     (145 )     -       -       -       (489 )     (107 )     (741 )
Transfer from investment property under construction
     6       -       -       -       -       -       6  
Transfer to investment property
     (4 )     -       -       -       -       -       (4 )
Transfer to assets held for sale
     (116 )     (77 )     -       -       (111 )     (46 )     (350 )
Effect of changes in exchange rates
     -       (7 )     -       (35 )     (7 )     (4 )     (53 )
Balance as at December 31, 2013
     2,520       2,728       5,495       455       592       1,620       13,410  
                                                         
Additions
     113       176       340       9       59       142       839  
Disposals(1)
     (29 )     (145 )     (161 )     -       (138 )     (122 )     (595 )
Revaluation of assets transferred to investment property
     6       -       -       -       -       -       6  
Transfer from investment property
     1       -       -       -       -       -       1  
Transfer to investment property
     (46 )     -       -       -       -       -       (46 )
Effect of changes in exchange rates
     -       2       -       55       4       2       63  
Balance as at December 31, 2014
     2,565       2,761       5,674       519       517       1,642       13,678  

 
 
(1)
The Group derecognizes assets that were fully depreciated and are not used by the Group.

IDB Development Corporation Ltd.                                                                                  Convenience translation
 
94
 

Note 6 – Fixed Assets (cont.)
 
A.
Composition and movement (cont.)
 
   
Buildings
    
Machinery, plant & equipment
    
Communications network
    
Airplanes
    
Computers, office furniture, equipment and other
    
Installations and leasehold improvements
    
Total
  
   
NIS millions
  
Accumulated depreciation and impairment losses
                                          
Balance as at January 1, 2013
     544       1,897       3,902       44       1,133       1,027       8,547  
Transfer from assets held for sale
     56       30       -       -       4       -       90  
Acquisitions through business combination
     -       56       -       -       51       14       121  
Depreciation for the year
     48       151       340       21       108       106       774  
Reversal of impairment loss
     (1 )     -       -       -       -       (2 )     (3 )
Disposals(1)
     (2 )     (8 )     (341 )     -       (397 )     (42 )     (790 )
Disposals following discontinuance of consolidation
     (58 )     -       -       -       (422 )     (74 )     (554 )
Transfer to investment property
     (1 )     -       -       -       -       -       (1 )
Transfer to assets held for sale
     (49 )     (56 )     -       -       (101 )     (38 )     (244 )
Effect of changes in exchange rates
     -       (5 )     -       (4 )     (7 )     (2 )     (18 )
Balance as of December 31, 2013
     537       2,065       3,901       61       369       989       7,922  
                                                         
Depreciation for the year
     44       157       330       22       60       126       739  
Impairment loss(2)
     19       3       -       -       -       -       22  
Reversal of impairment loss
     (1 )     -       -       -       -       (1 )     (2 )
Disposals(1)
     (16 )     (142 )     (156 )     -       (131 )     (122 )     (567 )
Transfer to investment property
     (11 )     -       -       -       -       -       (11 )
Effect of changes in exchange rates
     -       2       -       9       3       2       16  
Balance as of December 31, 2014
     572       2,085       4,075       92       301       994       8,119  
Net carrying amount
                                                        
As at January 1, 2013
     2,022       658       1,726       443       351       662       5,862  
As at December 31, 2013
     1,983       663       1,594       394       223       631       5,488  
As at December 31, 2014
     1,993       676       1,599       427       216       648       5,559  
 
(1)
The Group derecognizes assets that were fully depreciated and are not used by the Group.
(2)
For details regarding non-recurring expenses recorded in respect of an updated business plan in Shufersal, see Note 3.H.3.b. above.

IDB Development Corporation Ltd.                                                                                  Convenience translation
 
95
 

Note 6 – Fixed Assets (cont.)
 
B.
Additional information
 
 
1.
The balance of borrowing costs capitalized into fixed assets as at December 31, 2014 amounts to NIS 35 million (as at December 31, 2013 – NIS 28 million). It is noted, that Shufersal acquired land with the intention of constructing a logistic center on it, which will be used for fixed assets. Costs invested in the land and equipment during 2014 amounted to NIS131 million, and included borrowing costs which were capitalized to the fixed asset which is under construction totaling NIS 7 million. The nominal discount rate used to determine the capitalized borrowing costs is 4.42%. Shufersal has no specific borrowing costs.
 
 
2.
The cost of fixed assets as at December 31, 2014 and December 31, 2013 is presented after the deduction of investment grants received totaling NIS 39 million.
 
 
3.
During the ordinary course of business, the Group acquires fixed assets using credit. The cost amounts, which have not yet been paid as at December 31, 2014 are NIS 203 million (as at December 31, 2013 – NIS 99 million).
 
 
4.
Fixed assets under construction amounts as at December 31, 2014 to NIS 291 million (as at December 31, 2013 – NIS 167 million).
 
 
5.
The fair value of fixed assets, recognized as part of a business combination is based on an estimate of the amount for which the fixed assets could have been replaced on the day of the valuation with a different asset of similar characteristics of use, in a transaction between a willing seller and a willing buyer, acting rationally in a transaction unaffected by a special relationship between the parties. Accordingly:
·  
The market value of land and buildings was valued by a real estate appraiser.
·  
The market value of leasehold improvements and equipment, facilities and vehicles in the branches was valued according to their depreciated cost on Shufersal’s books, which is a close approximation of their fair value, in light of the reasonable depreciation rates applied to them.
·  
The market value of items located in the factories, equipment and fixtures, as well as facilities, is based on the quoted market values of similar items, insofar as such are available, and replacement costs when such quotes as specified are unavailable. The estimate of reduced replacement costs takes into account adjustments in respect of physical erosion and functional and economical obsolescence of the fixed asset item.
 
 
6.
With regard to pledges – see note 22 below.


IDB Development Corporation Ltd. Convenience translation

 
96
 
 
Note 7 – Investment Property
 
A.
Composition and changes in the carrying amount of investment property

   
Investment property measured at fair value at level 3*
        
   
Available land
    
Rental buildings
    
Buildings under construction
    
Total
  
   
NIS millions
  
2014
     525       8,532       770       9,827  
Balance as at January 1, 2014
Movement in the year
                                
Acquisitions and investments in existing properties
     3       51       448       502  
Transfer from fixed assets
     -       35       -       35  
Transfer from investment property under construction
     -       454       (454 )     -  
Capitalized costs and expenses
     -       1       -       1  
Disposals
     -       -       (4 )     (4 )
Transfer to fixed assets
     -       (1 )     -       (1 )
Classification to assets held-for-sale
     -       (3 )     -       (3 )
Transfer to investment property under construction
     (42 )     -       42       -  
Increase in fair value, net
     12       372       29       413  
Translation differences, net resulting from translation of financial statements of foreign operations
     9       359       37       405  
Balance as at December 31, 2014
     507       9,800       868       11,175  

 
 
      Investment property measured at fair value at level 3*          
      Available land        Rental buildings        Buildings under construction        Total  
      NIS millions  
2013     614       10,898       512       12,115  
Balance as at January 1, 2013(1)                                
Movement in the year
                                
Acquisitions and investments in existing properties
     4       341       377       722  
Transfer from fixed assets
     -       12       -       12  
Transfer from investment property under construction
     -       113       (113 )     -  
Transfer from land
     -       -       17       17  
Sales
     -       (547 )     (3 )     (550 )
Reduction due to deconsolidation of company
     -       (2,242 )     -       (2,242 )
Transfer to fixed assets
     -       -       (6 )     (6 )
Classification to assets held-for-sale
     (106 )     (126 )     -       (232 )
Transfer to investment property under construction
     (17 )     -       17       -  
Changes in capitalized costs and expenses
     -       (2 )     (3 )     (5 )
Classification from liability for construction services
     -       -       (70 )     (70 )
Increase in fair value, net
     36       244       55       335  
Translation differences, net resulting from translation of financial statements of foreign operations
     (6 )     (250 )     (13 )     (269 )
Balance as at December 31, 2013
     525       8,532       770       9,827  
 
 
(1)
Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.
 
*   For a definition of the different levels in the fair value hierarchy, see note 1.E.3.b above.

IDB Development Corporation Ltd. Convenience translation

 
97
 
 
Note 7 – Investment Property (cont.)
 
B.
Update of fair value
 
 
1.
On December 31, 2014 the fair value of the HSBC Building in New York City was updated to an amount of USD 763 million, according to a valuation prepared by an independent appraiser in U.S.A. The previous valuation of this property was prepared for March 31, 2014 and amounted to USD 715 million. Subsequent to that, these financial statements include income totaling NIS 272 million, from an increase in fair value of investment property, a provision for payment of consultation services totalling NIS 45 million to a former interested party (included in these financial statements under the item “General and administrative expenses”) and deferred tax expenses totalling NIS 85 million.
 
The net profit arising for Property & Building from the update of value of the HSBC Building amounted to NIS 142 million and the Company’s share in this profit amounted to NIS 81 million.
For details regarding the valuation techniques to determine the fair value of investment property, see section C of this note below.
 
 
2.
On June 30, 2014, Property & Building updated the fair value estimates for all of its investment property in Israel as a year had elapsed since the previous estimate. The change in the fair value was primarily due to a significant change in the cash flow which is expected to arise from its properties, due to the fact that they are leased through CPI-linked contracts (which increased at a rate of approximately 1% from the date of the last update of the fair value estimates of all of Property & Building’s investment property in Israel, which was performed in June 2013), and due to the real increase in rent charged for Property & Building’s revenue-generating properties in Israel.
Additionally, in the second half of 2014, the fair value of revenue generating properties under construction, and of a number of available lands owned by Property & Building, was updated.
The valuations were performed by external independent appraisers who possess the appropriate skills. For details of the valuation techniques used to determine the fair value of investment property, see section C of this note below. As a result of the aforementioned updates to fair value valuations, the Company’s consolidated statements of income include income in an amount of NIS 153 million.
 
 
3.
The valuation of the Tivoli project in Las Vegas was updated to September 30, 2014 to an amount of USD 278 million. As a result, the Company and Property & Building each recognized an impairment of approx. NIS 11 million. The Company’s share in this impairment in the consolidated financial statements amounted to NIS 17 million.
Pursuant to regulation 49(a) of the Reporting Regulations, the economic valuation on the matter that was attached to the financial statements of Property & Building as at September 30, 2014, which were submitted by it to the Israel Securities Authority and published on November 16, 2014 (ref. no: 2014-01-195366) is attached to these financial statements by way of reference.



IDB Development Corporation Ltd. Convenience translation

 
98
 

Note 7 - Investment Property (cont.)
 
C.
Determination of fair value
 
 
1.
Data concerning fair value measurement of level-3 investment property
 
Asset class
Valuation techniques for determining fair value
Significant unobservable data
  
 
   
Cash flows discount rate (% for the year)
   Interaction between significant unobservable data and fair value management
           
2014
    
2013
    
           
Range
    
Weighted average
    
Range
    
Weighted average
    
Rental properties
Fair value is estimated using revenue discount techniques*: the valuation model is based on the present value of the estimated NOI (Net Operating Income) arising from the property. The valuation of real estate is based on net annual cash flows, discounted by a discount rate that reflects the specific risks embodied therein, and, as generally accepted, in comparable assets. Actual lease agreements in respect of which payments differ from appropriate rental, if any, are subject to adjustments in order to reflect actual lease payments in the period of the agreement. Valuations take into account the type of lessees actually occupying the leased property, or responsible for settling the liabilities resulting from the lease terms, or lessees that might occupy the property following the lease of a vacant property, including a general assessment of their credit worthiness; the distribution of responsibility between the Group and the lessee in respect of the maintenance and insurance of the property; the physical condition and the remaining economic life of the property, wherever these parameters are relevant.
Revenue generating assets in Israel
  
Office use
     7.5%-8.25 %     8.2 %     7.5 %-     7.9  
Estimated fair value will increase if:
 
                             9 %        
• The market value of the lease payments increases.
       
Commercial use
     7.25%-12 %     8.1 %     7.25 %-     8.2 %
• The cash flows capitalization rate decreases.
                              12 %        
There is no internal interaction between significant unobservable data.
       
Industrial use
     8%-9.5 %     8.5 %     8.0 %-     8.6 %  
                              10.5 %          
   
Revenue generating assets in U.S.A
HSBC Building
Office use
     5.25%-6.75 %     6.0 %     5.25 %-     6.1 %  
                              7.0 %          
     
GW Project
Commercial and office use
     9 %     9 %     9 %     9 %  
       
Value of rental fees (NIS per sq. meter per month)
    
   
Revenue generating assets in Israel
  
Office use
  
NIS 41-
    
NIS 61
    
NIS 13-
    
NIS 61
    
           
NIS 104
            
NIS 112
            
       
Commercial use
  
NIS 10-
    
NIS 88
    
NIS 9-
    
NIS 88
    
           
NIS 500
            
NIS 450
            
       
Industrial use
  
NIS 7-
    
NIS 32
    
NIS 7-
    
NIS 30
    
           
NIS 56
            
NIS 78
            
   
Revenue generating assets in U.S.A
HSBC Building
Office use
  
NIS 297-
    
NIS 386
    
NIS 271- NIS 489
    
NIS 320
    
           
NIS 526
                            
     
GW Project
Office use
  
NIS 447
    
NIS 447
    
NIS 399
    
NIS 399
    
     
GW Project
Commercial and office use
  
NIS 510
    
NIS 510
    
NIS 512
    
NIS 512
    
     
Construction costs per sq. meter
    
Investment property under construction
The valuation is based on the estimated fair value of investment property after the completion of the construction thereof, less the present value of the estimated construction costs expected to be incurred in order to complete the construction, while taking into account a capitalization rate adjusted for the risks and characteristics relevant to the property.
Assets under construction in Israel
      
NIS 4,000-
    
NIS 5,452
    
NIS 4,000-
    
NIS 5,100
  
Estimated fair value will increase if:
 
          
NIS 6,100, depending on location
            
NIS 6,000, depending on location
          
•  Construction costs per sq.m. decrease.
 
                            
 
 
  
•  The cash flows capitalization rate decreases.
   
Assets under construction in U.S.A – GW Project
      
NIS 5,308
    
NIS 5,308
    
NIS 3,997
    
NIS 3,997
  
There is no internal interaction between significant unobservable data.
     
Annual discount rate of the cash flows
    
   
Assets under construction in Israel
         7.75 %-     8.6 %     7 %-     9.2 %  
              9 %             10 %          
    Assets under construction in U.S.A – GW Project
 
       9 %     9 %     9 %     9 %  
Available land
The fair value is determined while using a comparison technique. The technique is based on the sq.m. value of comparable assets resulting from transactions observable in the market, after various adjustments, such as for dimensions, location, etc.
                                      
Estimated fair value will increase if the sq.m. value of comparable assets increases.
 
*   The valuation also takes into account negative cash flows, relating to betterment levies in respect of unrealized rights, in accordance with the Planning and Construction Law, 5725-1965, and the addendum to this law.

IDB Development Corporation Ltd.                        Convenience translation

 
99
 
Note 7 - Investment Property (cont.)
 
C.
Determination of fair value (cont.)
 
 
2.
Valuation processes implemented in the Group
 
The fair value of investment property is determined periodically by independent and external appraisers having the appropriate skills and experience relevant to the type and location of the property under valuation. External valuations are conducted at least once a year or whenever there are indications of changes in value (the earliest). All the valuations are examined by the management of the Group companies, and are subsequently reported to their Balance Sheet Committees.

The main data that are unobservable in the market refer to the following factors:
·  
Capitalization rates, which are based on professional publications in the relevant markets, if any, and on comparison with similar transactions, after the necessary adjustments.
·  
Market rent, which is based on professional publications in the relevant markets and on comparison with similar transactions, after the necessary adjustments.
·  
Construction costs per sq.m. that are based on agreements with performance contractors and detailed budgets for each project.
 
 
3.
Adjustments to book value
 
Following are details of significant adjustments to the valuation received for purposes of presenting the investment property in the financial statements.
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Fair value as provided by external appraisers
     11,278         (1) 9,911
Less amounts attributed to revenues receivable for rental, based on the straight-line method
     (103 )     (84 )
Fair value, as presented in the financial statements
     11,175       9,827  
 
 
(1) Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.
 
D.
Amounts that were recognized in the Statement of Income
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Amounts recognized as rent
     780       772       976  
Direct operating expenses deriving from investment property (1)
     181       176       199  
Increase in fair value of investment property
     439       417       540  
Decrease in fair value of investment property
     26       97       -  

 
(1)
Including expenses in insignificant amounts in respect of investment property that did not produce rental revenue.

IDB Development Corporation Ltd.                        Convenience translation

 
100
 
 
Note 7 - Investment Property (cont.)
 
D.
Amounts that were recognized in the Statement of Income (cont.)
 
Gains (losses) from revaluations of fair value classified at level 3
 
      For the year ended December 31, 2014  
      Available lands        Rental buildings        Buildings under construction        Total  
      NIS millioins  
Net changes in fair value attributed to investment property, not yet realized
     12       372       29       413  
 
   
For the year ended December 31, 2013
  
   
Available lands
    
Rental buildings
    
Buildings under construction
    
Total
  
   
NIS millions
  
Net changes in fair value attributed to investment property, not yet realized
     15 *     246       55       316  
Net changes in fair value attributed to investment property, realized
     21       1       -       22  
      36       247       55       338  
 
* Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.

E.
Rental agreements
 
The following are the future minimum rentals receivable from rental agreements in force as of the date of the Statement of Financial Position:
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Up to one year
     754       702  
From one year up to five years
     2,179       1,870  
Exceeding five years
     1,523       1,346  
      4,456       3,918  
 
IDB Development Corporation Ltd.                        Convenience translation

 
101
 
 
Note 8 - Trade Receivables
 
A. Long-term trade receivables
 
 
  
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Long term trade receivables
     1,142       1,462  
Less -
                
Current maturities
     (606 )     (878 )
Deferred interest income
     (52 )     (65 )
Provision for doubtful debts
     (8 )     (7 )
      476       512  

 
The balance of long term trade receivables in respect of sales of equipment in payments made by Cellcom (mainly in 36 payments) and their present values as of December 31, 2014, and December 31, 2013, were calculated based on discount rates of 3.9% and 5.2%, respectively.
 
B. Current trade receivables

 
  
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Outstanding debts
     967       1,115  
Checks receivable
     186       66  
Credit card companies
     1,212       1,303  
Current maturities of long term trade receivables
     606       878  
      2,971       3,362  
Less - provision for doubtful debts
     (259 )     (303 )
      2,712       3,059  

 Note 9 - Inventory
 
    As of December 31  
    2014     2013  
    NIS millions  
Inventory of purchased goods (mainly in respect of retail activities of Shufersal) (1)
     748       710  
Phones and other communication equipment (in respect of cellular and internet activities of Cellcom) (2)
     79       75  
Inventory of manufactured products and inventory of spare parts
     24       24  
      851       809  
 
(1)
The inventory of purchased goods is presented net of provisions for impairment of NIS 22 million (2013 - NIS 27 million).
(2)
The inventory of phones and other communication equipment is presented net of a provision for impairment and an inventory write-off of NIS 6 million (2013 - NIS 7 million).
 

IDB Development Corporation Ltd.                        Convenience translation

 
102
 
Note 10 - Intangible Assets
 
A.      Composition and changes
 
   
Goodwill
    
Brands and trade names
    
Technology, development in process and concessions
    
Licenses
    
Customer relations
    
Information systems and software
    
Expenses due to the acquisition of life and general insurance portfolios
    
Other
    
Total
  
   
NIS millions
  
Cost
                                                      
Balance as at January 1, 2013
     5,103 (1)     1,063       9 (2)     539       1,461       2,105       635       688       11,603  
Transfer from assets held for sale
     1       -       -       -       -       -       -       4       5  
Acquisitions as part of a business combination
     242       106       373       -       20       2       -       10       753  
Acquisitions and additions
     -       3       -       -       -       235       -       2       240  
Assets classified as held for sale
     (279 )(1)     (100 )     (347 )     -       (18 )     (2 )     -       (9 )     (755 )
Derecognitions
     (6 )     (10 )     -       (7 )     (357 )     (117 )     -       (14 )     (511 )
Consolidation discontinuance
     (833 )     (30 )     (4 )     -       -       (1,469 )     (635 )     (293 )     (3,264 )
Adjustments to goodwill in respect of a put option to holders of non-controlling interests in a subsidiary
     7       -       -       -       -       -       -       -       7  
Withdrawal of profits by partners in a partnership
     12       -       -       -       -       -       -       -       12  
Effect of changes in exchange rates
     (19 )     (9 )     (26 )     -       (3 )     (1 )     -       (4 )     (62 )
Balance as at December 31, 2013
     4,228       1,023       5       532       1,103       753       -       384       8,028  
Acquisitions as part of a business combination
     4       -       -       -       -       -       -       2       6  
Acquisitions and additions
     -       -       -       -       -       125       -       -       125  
Derecognitions (2)
     -       (31 )     -       -       (19 )     (96 )     -       (35 )     (181 )
Consolidation discontinuance
     -       -       -       -       -       -       -       (17 )     (17 )
Adjustments to goodwill in respect of a put option to holders of non-controlling interests in a subsidiary
     2       -       -       -       -       -       -       -       2  
Withdrawal of profits by partners in a partnership
     12       -       -       -       -       -       -       -       12  
Effect of changes in exchange rates
     6       2       1       -       2       3       -       2       16  
Balance as at December 31, 2014
     4,252       994       6       532       1,086       785       -       336       7,991  

(1)  
Reclassified, see note 1.F above.
(2)  
Reclassified against amortizations and losses from impairment of intangible assets.

IDB Development Corporation Ltd. Convenience translation

 
103
 


Note 10 - Intangible Assets (cont.)
A.      Composition and changes (cont.)
 
   
Goodwill
    
Brands and trade names
    
Technology, development in process and concessions
    
Licenses
    
Customer relations
    
Information systems and software
    
Expenses due to the acquisition of life and general insurance portfolios
    
Other
    
Total
  
   
NIS millions
  
Amortizations and impairment losses
                                                      
Balance as at January 1, 2013
     751 (1)     164         (2) 1     270       1,021       1,231       609       393       4,440  
Transfer from assets held for sale
     -       -       -       -       -       -       -       1       1  
Amortization for the year
     -       47       29       29       130       208       7       33       483  
Derecognitions
     -       (9 )     -       (7 )     (357 )     (117 )     -       (13 )     (503 )
Acquisitions as part of a business combination
     -       38       191       -       10       2       -       8       249  
Impairment loss
     91       2       -       -       -       2       -       -       95  
Assets classified as held for sale
     -       (44 )     (207 )     -       (10 )     (2 )     -       (8 )     (271 )
Consolidation discontinuance
     (116 )     (30 )     -       -       -       (839 )     (616 )     (236 )     (1,837 )
Effect of changes in exchange rates
     (1 )     (3 )     (14 )     -       (1 )     (1 )     -       (3 )     (23 )
Balance as at December 31, 2013
     725       165       -       292       793       484       -       175       2,634  
Amortization for the year
     -       37       1       29       104       108       -       20       299  
Derecognitions
     -       (31 )     -       -       (19 )     (96 )     -       (35 )     (181 )
Impairment loss (3)
      396 (4)     37       3       -       9       -       -       25       470  
Consolidation discontinuance
     -       -       -       -       -       -       -       (17 )     (17 )
Effect of changes in exchange rates
     1       -       -       -       -       3       -       -       4  
Balance as at December 31, 2014
     1,122       208       4       321       887       499       -       168       3,209  
Carrying amount
                                                                        
As at January 1, 2013
     4,352       899       8       269       440       874       26       295       7,163  
As at December 31, 2013
     3,503       858       5       240       310       269       -       209       5,394  
As at December 31, 2014
     3,130       786       2       211       199       286       -       168       4,782  

(1)
Reclassified, see note 1.F. above.
(2)
Reclassified against the cost of intangible assets.
(3)
For details regarding non-recurring expenses recorded in respect of an updated business plan in Shufersal, see note 3.H.3.b above.
(4)
With regard to the impairment of goodwill with respect to the Group’s investments in Cellcom and Shufersal, see section D. below.


IDB Development Corporation Ltd. Convenience translation

 
104
 

Note 10 - Intangible Assets (cont.)
 
B.
The fair value of intangible assets acquired in various business combinations was determined on the date of each business combination, as follows:
 
Customer relations
The fair value was determined in accordance with the revenues approach, by the capitalized value of the cash flows expected to be derived from the existing customers on the date of the business combination, after deducting the fair return on the other assets that participate in the generation of the related cash flow. In the Shufersal business combination, the customer base was defined as the members of Shufersal’s customer club who visited branches of Shufersal at least 24 times during 2009, and the revenues from them in that year constituted 59% of total revenues.
 
 
Brands and trade names
The fair value was determined by the relief from royalty approach, according to which the fair value of the asset is determined by estimating the royalties that theoretically would have been paid to a third party for the use of the asset. The economic value of the brand derives from the fact that the ownership of the asset releases the owner from the need to pay royalties as aforementioned to a third party for the use of the asset. The percentage of royalties that was used to determine the fair value of the brands is 0.2%-2% (mainly 1%-1.5%) of the expected revenues.
 
 
Rental agreements
The fair value was determined by comparing the actual rent paid by branches of Shufersal to the estimated fair amount of rent for such assets, based on the opinion of a real estate appraiser, which is based mainly on comparison to similar commercial assets in the geographical location of each branch, while making necessary adjustments with respect to the size of the areas, their location, physical condition, etc. Options for extending the lease agreements were also taken into consideration. The fair value was determined according to the capitalized value of the differences between fair rent payments and actual rent payments.
 
 
Licenses
Rights to use cellular frequencies in Israel are assessed according to their amortized costs in the books of the acquired company on the date of the business combination, since there is no market for such rights in Israel.
 
C.
Additional details on principal cash-generating units that include goodwill or an intangible asset with an indefinite useful life
 
 
1.
As at December 31, 2014, goodwill and a brand with an indefinite useful life attributable to Cellcom amount to NIS 2.135 billion and NIS 0.231 billion, respectively.
The recoverable amount of Cellcom’s activity as at December 31, 2014 was assessed by an external appraiser on the basis of the value-in-use thereof, as detailed in section D.1 below.
 
 
2.
As at December 31, 2014, goodwill attributable to Shufersal’s retail activity amounts to NIS 755 million. The recoverable amount of Shufersal’s activity as at December 31, 2014, was assessed by an external appraiser on the basis of its value in use, as detailed in section D.2 below.
 
 
3.
The Group has a number of consolidated companies, the operations of which have been attributed goodwill in an amount that is immaterial compared to the balance of goodwill in the Company’s consolidated financial statements. The value of Property & Building’s operations, which is based on Property & Building’s stock exchange value as at December 31, 2014 (and in the required adjustments in respect of the fair value of Property & Building’s financial liabilities) which is higher than the value of the specified operations in these financial statements. The recoverable amount of the operations of other companies was determined on the basis of examinations for impairment performed, including economic studies, performed by external appraisers using the value in use method. The recoverable amount of the specified operations is higher than their value in the financial statements. In those cases where the recoverable amount was found to be lower than the carrying amount, impairment reductions of immaterial amounts were recorded.

IDB Development Corporation Ltd. Convenience translation

 
105
 
Note 10 - Intangible Assets (cont.)
 
D.
Examination for impairment in investee companies in 2014
 
 
1.
In view of a decline in Cellcom’s market value and the intensifying competition in the cellular market in Israel, which led to a decline in Cellcom’s profitability, Discount Investments performed an examination for impairment of the goodwill attributed to Cellcom as at December 31, 2014. Further to that stated in note 3.G.3 above with regard to the structural changes being examined, the recoverable amount of Cellcom’s operations as at December 31, 2014 was calculated using the value in use method. In accordance with Regulation 8.b of the Reporting Regulations, an economic report concerning this subject is attached to these financial statements by way of reference, which was attached to the financial statements of Discount Investments as at June 30, 2014, which were submitted by it to the Securities Authority and released on March 25, 2015 (reference no. 2015-01-061831).
The value of the assets attributable to Cellcom’s operations less the liabilities attributable to Cellcom’s operations in the financial statements of the Company as at December 31, 2014 (including deferred tax balances attributable to excess costs created upon the acquisition of Cellcom, against which Discount Investments recorded goodwill) (hereunder “The value of Cellcom’s operations in the financial statements”), is higher than the middle of the range specified in the aforesaid economic report for the recoverable amount of Cellcom’s operations as at that date. Accordingly, the Company recorded its share in the impairment amounting to NIS 158 million in respect of the impairment of the aforesaid goodwill based on the middle of the range of the valuation of the recoverable amount as at December 31, 2014, as determined in the aforesaid economic report.
A real after-tax capitalization rate and a long-term growth rate of 8.75% and 1.75%, respectively, were used in the aforesaid economic report for determining the upper threshold of the recoverable amount. A real after-tax capitalization rate and a long-term growth rate of 9.25% and 1.25%, respectively, were used in the aforesaid economic report for determining the lower threshold of the recoverable amount.
 
 
2.
Discount Investments carried out an examination for impairment of the goodwill attributable to Shufersal as at December 31, 2014. Further to that stated in Note 3.G.3 above with regard to the examined structural changes, the recoverable amount of Shufersal’s operations as at December 31, 2014 was calculated using the value in use method. In accordance with Regulation 8.b of the Reporting Regulations, an economic report concerning this subject at the specified date is attached to these financial statements by way of reference, which was attached to the financial statements of Discount Investments as at December 31, 2014, which were submitted by it to the Securities Authority and released on March 25, 2015 (reference no. 2015-01-061831).
 
The value of the assets attributable to Shufersal’s activity less the liabilities attributable to its activity in the financial statements of the Company as at December 31, 2014 (including deferred tax balances attributable to excess costs created upon the acquisition of Shufersal, against which goodwill was recorded by Discount Investments) (“The value of Shufersal’s operations in the financial statements”), is higher than the middle of the range specified in the aforesaid economic paper for the recoverable amount of Shufersal’s activity at that date. Therefore, the Company recorded its share in an impairment in an amount if NIS 130 million with respect to the impairment of the aforesaid goodwill, based on the middle of the range of the valuation of the recoverable amount as at December 31, 2014, as determined in the specified economic paper.
The nominal discount rate after tax and the long term growth rate used in the specified economic paper to determine the middle of the range determined within it for the recoverable amount, are 8.5% and 2.3%, respectively.
 
E.
During the ordinary course of business, Cellcom acquires intangible assets using credit.
 
The acquisition amount which has not yet been paid as at December 31, 2014, amounted to NIS 34 million (as at December 31, 2013 – NIS 10 million).

IDB Development Corporation Ltd. Convenience translation

 
106
 
Note 11 - Accounts Receivable and Debit Balances
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Revenues receivable
     41       112  
Prepaid expenses
     116       110  
Advances to suppliers
     94       76  
Institutions
     20       43  
Deposits in trust
     7       12  
Other
     106       102  
      384       455  

Note 12 - Inventory of buildings for sale
 
A.
  Composition
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Costs incurred:
            
Land
     253       332  
Construction and other
     336       374  
      589       706  
Inventory of finished buildings
     102       143  
      691       849  

B.  Changes in inventory of buildings for sale:
 
   
For the year ended
December 31,
  
   
2014
    
2013
  
   
NIS millions
  
Balance at the start of the year
     849       1,144  
Additions
     154       141  
Disposals
     (329 )     (452 )
Translation differences from the translation of financial statements of foreign operations
     10       (17 )
Transfer from inventory of land
     26       40  
Less - Provision for loss
     (19 )     (7 )
Balance at the end of the year
     691       849  


IDB Development Corporation Ltd. Convenience translation

 
107
 
Note 13 - Assets and liabilities of realization groups and other assets and liabilities classified as held-for-sale
 
 
Assets
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Investment in Clal Holdings Insurance Enterprises Ltd. – see note 3.H.5.a above.
     -       2,055  
Investment in Credit Suisse - See note 3.H.4.c. above.
     -       1,138  
Other assets of realization groups (1)
     5       1,586 (2)
      5       4,779  
 Liabilities
 
Liabilities of realization groups (1)
     -       165  
 
(1)
For further details on the composition of assets and liabilities held-for-sale as at December 31, 2013, see note 3.I.2 above.
(2)
Reclassified, see note 1.F above.


Note 14 - Cash and Cash Equivalents
 
 
 
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Composition:
            
Balances at banks
     454       872  
Call deposits
     3,124       5,441  
      3,578       6,313  
 
For details on restrictions and financial covenants applying to the Company and investee companies of the Company, see notes 16.E and F below.

 

IDB Development Corporation Ltd. Convenience translation

 
108
 
 
Note 15 – Equity and Reserves
 
A.
The Company’s registered and issued share capital
The Company’s registered share capital as at December 31, 2014, amounted to 500,000,000 ordinary shares with no nominal value each (“ordinary shares”). The issued and paid up capital as at December 31, 2014 amounted to 296,298,657 ordinary shares. All of the ordinary shares are traded on the Tel-Aviv Stock Exchange and are registered to name. Each ordinary share grants the right to participate and vote in the Company’s general meetings, with one vote per share, and the right to participate in the distribution of dividends. In addition, as at December 31, 2014, 44,515,359 Series 2 share options and 44,515,359 Series 3 share options were traded, with each option being convertible to one ordinary share (see below in section B.3 of this note for details regarding the terms of each share option).
 
The Company’s registered share capital as at December 31, 2013, consisted of 100 million ordinary “A” class shares with a nominal value of NIS 1 each, and the issued share capital amounted to NIS 57,587,883, of which a total of 11,336,914 ordinary A shares were dormant shares (as defined in section 308 of the Companies Law) (“Dormant Shares”), which did not grant voting rights/ any rights. The remaining shares (46,250,969 ordinary A shares) were held by IDB Holdings.
 
In January 2014, as a result of the approval of the debt arrangement at IDB Holdings as detailed in Note 16.G.2.a below, the dormant shares were transferred to the trustees for the arrangement, for the purpose of fulfilling such arrangement.
 
On May 1, 2014, the Company decided, in accordance with the stipulations of the debt arrangement at IDB Holdings, to cancel the dormant shares and to cancel the Company’s entire registered unallocated capital of Type A shares, to unify the registered, issued and paid-up capital of the Company, in a manner whereby all of the Company’s 46,250,969 issued shares (the issued and paid-up capital less the dormant shares) will be unified into a single ordinary share, and to cancel the nominal value of the aforementioned ordinary share (“The consolidation of capital”), in a manner whereby, after the capital consolidation, the Company’s issued capital included one ordinary share with no nominal value. The aforesaid ordinary share without nominal value was split to 200 million ordinary shares with no nominal value (“ordinary shares”), and the Company’s registered capital amounted to 500 million ordinary shares.
On May 12, 2014, following the completion of the creditors’ arrangement at IDB Holdings, the Company’s shares commenced to be traded on the Tel-Aviv stock exchange. For details regarding the increase of the registered share capital and the performance of a rights issue in January-February 2015, subsequent to the date of the Statement of Financial Position, see section B.5 of this note below.
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report
 
 
The following are the amounts of the investment made in the Company’s capital during 2014 and until the date of publication of this report:
 
Method of investment
  
Amount in NIS millions
  
Date
Details in section
Conversion of convertible loans into capital
     170  
May 2014
(1)
Injection of capital by the controlling shareholders
     480  
May 2014
(1)
Rights issue
     321  
July 2014
(3)
Exercise of options by the controlling shareholders
     176  
November 2014
(4)
Total in 2014
     1,147      
Rights issue subsequent to the date of the Statement of Financial Position
     417  
January-February 2015
(5)
Total investments in capital
     1,564      


IDB Development Corporation Ltd. Convenience translation

 
109
 
 
Note 15 – Equity and Reserves (cont.)
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)
 
1.       Investments in the Company’s capital within the framework of the debt arrangement at IDB Holdings
Upon the completion of the first stage of the debt arrangement at IDB Holdings (“The Arrangement”), in May 2014, on May 12, 2014, the Company’s shares were listed for trade on the Tel-Aviv Stock Exchange and the Company became a public company. In addition, the bridging loan which the Company received in March 2014 from Dolphin Fund and Extra was repaid, in a manner by which a total of NIS 150 million of the loan principal was converted to an investment by the corporations holding the Company’s capital and the balance of the bridging loan amounting to NIS 20 million was converted to a loan in the same amount, which will be considered as part of the “Clal loans”, as defined within the arrangement’s stipulations (for details regarding the aforesaid bridging loan, see note 16.C.3 below).
On May 29, 2014 the transaction to sell the Company’s holdings in Clal Holdings Insurance Enterprises Ltd. to JT expired (see note 3.H.5.a above). In light of this, and in accordance with the stipulations of the arrangement, on June 3, 2014 an amount of NIS 480 million was provided to the Company out of the arrangement guarantee funds as an investment in the Company’s capital. Additionally, the specified bridging loan in the amount of NIS 20 million was converted to capital. Upon the provision of the specified amounts, a funds injection of a total amount of NIS 650 million was completed as an investment in the Company’s capital within the framework of the execution of the arrangement.
 
2. Publication of a shelf prospectus
On May 29, 2014 the Company published a shelf prospectus, which includes the possibility for the Company to offer securities by virtue thereof, including shares, share options and bonds which are convertible to shares and bonds, within the framework of shelf offering reports, including by way of a rights offer.
 
3.  Performance of a rights issue in June-July 2014
On June 9, 2014, the Company published a shelf offering report for an issue by way of rights to shareholders of the Company, in which the Company offered 65 million ordinary shares in the Company, 45 million share options (Series 1), exercisable into 45 million ordinary shares in the Company until November 1, 2014, against the payment in cash of the exercise price of NIS 5.50 (unlinked) for each share option (Series 1), 45 million share options (Series 2), exercisable into 45 million ordinary shares in the Company until May 1, 2015, against the payment in cash of the exercise price of NIS 6 (unlinked) for each share option (Series 2), 45 million share options (Series 3), exercisable into 45 million ordinary shares in the Company until December 1, 2015, against the payment in cash of the exercise price of NIS 6.5 (unlinked) for each share option (Series 3). Pursuant to the offering report, the Company offered 5 million rights units at a price of NIS 65 per rights unit (the rights unit included 13 ordinary shares, 9 share options (Series 1), 9 share options (Series 2) and 9 share options (Series 3); the share options were offered without consideration. Until the last date to exercise the rights, right exercise notices were received for the exercise of rights to acquire 4,946,151 rights units, by virtue of which the Company allocated a total of 64,299,963 ordinary shares, 44,515,359 share options (Series 1), 44,515,359 share options (Series 2) and 44,515,359 share options (Series 3). The immediate (gross) consideration from the issue amounted to a total of approximately NIS 321 million, of which a total of approximately NIS 231 million was with respect to the exercise of the rights by the controlling shareholders in the Company, Dolphin Netherlands B.V (“Dolphin Netherlands”), and CAA Extra Holdings Ltd. (“CAA”) in equal shares.
It should be noted that Dolphin Netherlands and CAA exercised all of the rights with respect to the shares provided to them within the framework of the arrangement (26.65% each). Additionally, Dolphin Netherlands and CAA acquired additional rights units from the trustees for the arrangement, with respect to shares which constituted, at the time, approximately 8.04% of the Company’s share capital, and also acquired rights units during routine trading on the stock exchange, which constituted 9.76% of the rights units. Dolphin Netherlands and CAA also exercised the additional rights units which they purchased, as stated above, and as a result increased their investment in the Company, and their rate of holding in the Company’s shares and share options.


IDB Development Corporation Ltd. Convenience translation

 
110
 
 
Note 15 – Equity and Reserves (cont.)
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)
 
4.  Exercising of share options (Series 1) by the controlling shareholder
On November 2, 2014, Dolphin Netherlands and CAA each exercised all of the share options (Series 1) which were held by them. It is noted that Dolphin Netherlands held 15,998,787 share options (Series 1) and CAA held 15,998,778 share options (Series 1).1 The total consideration to the Company with respect to the aforementioned exercises by Dolphin Netherlands and CAA amounted to NIS 176 million. In addition to the exercise of the share options by Dolphin Netherlands and CAA, the public exercised 1,130 share options (Series 1), for a negligible consideration. The remaining share options (Series 1) which were not exercised by the final exercise date (November 2, 2014) expired. Subsequent to the exercise of their rights and rights issue and subsequent to the exercise of the share options (Series 1), as stated above, the rate of holding of Dolphin Netherlands and CAA in the Company’s share capital increased to a rate of approximately 31.26% each (32.38% with full dilution).
The future (gross) consideration which may be received by the Company, if and insofar as all of the share options (Series 2) and share options (Series 3) issued as above will be exercised, will amount to a (gross) total of NIS 556 million. As at the publication date of the financial statements, the Company’s stock price, which stands at NIS 1.37, is significantly lower than the exercise prices of the share options (Series 2 and Series 3).
 
5.  Increasing the registered capital and performing a rights issue in January-February 2015
On January 5, 2015 and January 20, 2015, the special general meeting of the Company, following the receipt of approvals from the Audit Committee and the Company’s Board of Directors, approved the increase of the Company’s registered capital by 800 million ordinary shares and 700 million ordinary shares, respectively, in a manner by which the total registered share capital of the Company subsequent to its increase as stated amounts to 2,000 million (2 billion) ordinary shares.
On January 19, 2015 the Company published a shelf offering report by way of a rights issue to the Company’s shareholders, within the framework of which the Company offered 533,337,615 ordinary shares of the Company, 237,038,940 share options (Series 4) which are exercisable for 237,038,940 ordinary shares of the Company until February 10, 2016, against cash consideration of an exercise price amounting to NIS 1.663 (unlinked) for each share option (Series 4), 225,186,993 share options (Series 5) exercisable to 225,186,993 ordinary shares of the Company until February 12, 2017 against cash consideration of an exercise price amounting to NIS 1.814 (unlinked) for each share option (Series 5), 201,483,099 share options (Series 6) exercisable to 201,483,099 ordinary shares of the Company until February 12, 2018 against cash consideration of an exercise price amounting to NIS 1.966 (unlinked) for each share option (Series 6).
According to the offer report, the Company offered 11,851,947 rights units at a price of NIS 68.04 per rights unit (the rights unit included 45 ordinary shares, 20 share options (Series 4), 19 share options (Series 5) and 17 share options (Series 6)); the share options were offered without consideration. It should be noted, that the rights issue from January-February 2015 was performed in accordance with an outline of an irrevocable offer, received by Dolphin Netherlands on December 29, 2014, for the purpose of raising capital for the Company, as part of which additional funds may be injected as an investment in the Company’s capital. For details regarding the specified irrevocable offer, see note 16.G.2.j below.
Until the last date for exercising the rights, notifications were received for the exercise of rights to purchase 6,125,230 right units, by virtue of which the Company allocated 275,635,353 ordinary shares, 122,504,601 share options (Series 4), 116,379,371 share options (Series 5) and 104,128,911 share options (Series 6).
The immediate consideration from the issue (gross) amounted to approximately NIS 417 million, of which an amount of NIS 391.5 million is due to the exercising of rights by Dolphin Netherlands and Dolphin Fund.

 
1
The Company was given a notification regarding the exercise of the entire share options (Series 1) held by CAA prior to exercising them; in fact, one option expired without being exercised.
 

IDB Development Corporation Ltd. Convenience translation

 
111
 
 
Note 15 – Equity and Reserves (cont.)
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)
 
5.     Increasing the registered capital and performing a rights issue in January-February 2015 (cont.)
It should be noted that Dolphin Netherlands and Dolphin Fund exercised the full rights in respect of 31.27% of the issued share capital in their possession at that time, and Dolphin Netherlands also acquired additional right units within the ordinary trade on the stock exchange, which constituted approximately 17.28% of the right units, and exercised the additional right units it acquired as specified and as a result increased its investment in the Company, and the percentage of its holdings in the Company’s shares (together with Dolphin Fund) to approximately 61.48% (approximately 70.33% with full dilution). In light of CAA not participating in the rights issue, CAA’s rate of holding in the Company was diluted to a rate of approximately 16.20% (approximately 12.43% in full dilution). The future consideration, which may be received by the Company, insofar as all of the share options (Series 4), share options (Series 5) and share options (Series 6) which were issued as specified are exercised, will amount to a total of approximately NIS 620 million.
Prior to the publication of the shelf offering dated January 19, 2015, the Company, Mr. Eduardo Elsztain and corporations under his control, including Dolphin Netherlands, submitted to the Antitrust Commissioner, in the interest of caution, a request to exempt them of the duty to file a merger notice, insofar as such as required, in case that as a result of the rights issue in accordance with the aforesaid shelf offer report, the rate of holding by corporations under Mr. Elsztain’s control in the issued share capital of the Company exceeds 50%, and that at the date of publication of the specified shelf offer report the Antitrust Commission’s reply was received, the meaning of which is that the Company and corporations under Mr. Elsztain’s control as specified, are exempt from the duty to file a merger notice in circumstances as specified, insofar as this arises, and this only until January 15, 2016 and so long as Mr. Elsztain has no business activity in Israel, apart from the Company’s operations. Mr. Elsztain and Dolphin Netherlands notified the Company that they meet the specified condition for the exemption and commit to continue and fulfil it.
 
 
6.
The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA”
The changes in the amounts of the holdings in the Company following the rights issue of January-February 2015 may lead to changes in its control structure and the composition of its Board of Directors. In correspondence between corporations under the control of Mr. Eduardo Elsztain, which hold the Company’s shares (“Dolphin companies”), and CAA from February and March 2015, the Dolphin companies demanded of the Elsztain Group, subsequent to the rights issue and with regard to the shareholders agreement between the parties, among other things, changes in the composition of the Company’s Board of Directors such that Dolphin Group Companies will be the dominant controlling shareholders in the Company. CAA, which has claims regarding the rights issue and the shareholders agreement between the parties, rejected these claims and demanded to purchase securities of the Company from the Dolphin Group companies, which were purchased as part of the rights issue and subsequent to it (in a manner by which should the acquisition be made, CAA will be the dominant controlling shareholder in the Company). This demand was rejected by the Dolphin Group companies. On February 25, 2015 the Dolphin Group companies notified that they temporarily delay their demand for changes in the composition of the Board of Directors. The parties exchanged offers to hold an arbitration proceeding to settle the disputes between them. In a letter of the Dolphin companies to CAA dated March 23, 2015 the Dolphin companies claimed, that since CAA is delaying the procedure to select an arbiter between the parties, their consent to delay their demand to replace directors appointed by CAA as aforementioned, is no longer in effect, and the Dolphin companies will take measures as they will see fit in order to protect their rights and interests.
Moreover, with regard to a general meeting that was convened by the Company for March 26, 2015, at which the agenda contained the appointment of an outside director, the Dolphin companies notified CAA that they were in favor of the aforesaid appointment and that according to the provisions of the shareholders’ agreement, in view of the ratio between the holdings of the Dolphin companies and CAA of the Company’s shares, CAA was required to vote by virtue of all of its voting rights in accordance with the position of the Dolphin companies.

IDB Development Corporation Ltd. Convenience translation

 
112
 
 
Note 15 – Equity and Reserves (cont.)
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report
 
 
6.
The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA” (cont.)
In a letter of reply from CAA that was sent to the Company, CAA reiterated its position that the holdings of the Dolphin companies in the shares of the Company did not give it any preference in a vote at general meetings of the shareholders of the Company. In an additional letter of CAA to the Dolphin companies, CAA proposed a mechanism whereby the Dolphin companies would choose an arbitrator from among the arbitrators mentioned in the letter.
Following the aforesaid rights issue, on March 10, 2015, a decision of the Committee for Monitoring the Implementation of the Company’s Finance Program, which was established on December 30, 2014 (“the Monitoring Committee”) was delivered to the Company, in which it was stated that after the Monitoring Committee received an opinion regarding CAA’s commitment to inject to the Company an amount of NIS 196.5 million and Dolphin’s commitment to inject the aforesaid amount separately and together with CAA, the Monitoring Committee members decided to adopt the aforesaid opinion, according to which the Company has reasonable cause for claim against CAA for the injection of NIS 196.5 million in a rights issue, and against Dolphin by virtue of its commitment separately and together with CAA therefore, the Monitoring Committee decided that it should cause the Company to claim, and if the Company does not oblige, to claim from the controlling shareholders and primarily from CAA to immediately inject an amount of NIS 196.5 million to the Company as part of a rights issue.
The Monitoring Committee notified the controlling shareholders of the aforesaid decision, required of them, and primarily from CAA, that they will inform their willingness to inject the aforesaid amount to the Company by participating in a rights issue, and notified them that insofar as they do not inform within ten days that they intend to inject the aforesaid amount in a rights issue immediately, it intends to turn to the Company’s Board of Directors with a decision suggestion to file a legal procedure to require the controlling shareholders to perform the injection as specified. On March 22, 2015, a copy of a letter was sent to the Company, in which CAA notifies the chairman of the Monitoring Committee that, among other things, it rejects the claim that it was obliged to participate in the rights issue performed in January-February 2015, among other things, since the Company cannot have an expectation to receive additional amounts from its controlling shareholders based on the debt settlement. CAA further noted, that it does not rule out the possibility that it will participate in rights issues made by the Company in the future or that it will inject funds into the Company in a different manner. On March 29, 2015, CAA sent the Company a letter in which it claimed, inter alia, that the filing of proceedings against it by the Company would constitute a procedure that prejudices its rights and it also raised various claims with regard to the decision-making process on the issue by the organs of the company. In addition, on March 24, 2015, Dolphin Netherlands replied to the chairman of the Monitoring Committee, inter alia, that it rejected the conclusion of the Monitoring Committee with regard to its obligation to inject additional money into the Company in accordance with the terms of the debt arrangement in IDB Holdings, that if in the Company’s opinion CAA is the one that has not carried out its obligations to the Company pursuant to the debt arrangement, the Company should, in accordance with its opinion, act to exhaust all of its rights in this regard vis-à-vis CAA, and that in view of CAA’s willingness to investment money in the purchase of securities from the Dolphin companies (even though there is no basis for this), CAA should rightly invest this money in the Company.
On March 24, 2015, a letter of the trustees of the debt arrangement in IDB Holdings was sent to the Company, and in this the trustees of the arrangement addressed the issue of Dolphin Netherlands’ notice to the Company that it would take advantage (personally or through another entity controlled by Mr. Eduardo Elsztain) of the whole quantity of rights units offered to it pursuant to the shelf offer report, and Dolphin Netherlands’ notice that if and insofar as Dolphin Netherlands’ undertaking to inject money into the Company within the framework of the rights issue would be carried out (in full or in part) by another entity controlled by Mr. Eduardo Elsztain (“an Elsztain corporation”), then the Elsztain corporation would agree to give an undertaking, jointly and severally with Dolphin Netherlands,to carry out all of the undertakings of Dolphin Netherlands pursuant to the debt arrangement (see note 16.G.2.j below).

IDB Development Corporation Ltd. Convenience translation

 
113
 
 
Note 15 – Equity and Reserves (cont.)
 
B.
Investments in the Company’s capital during 2014 and until the date of publication of this report
 
 
6.
The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA” (cont.)
The trustees of the arrangement state that since some of the Company’s shares that were held by Dolphin Netherlands were sold by it to a corporation that according to Dolphin Netherlands’ statement is controlled (indirectly) by Mr. Eduardo Elsztain, IFISA, the undertaking of Dolphin Netherlands to participate in the rights issue was carried out in part by IFISA, and therefore they demand to receive the approval and undertaking of IFISA to comply with the whole of Dolphin Netherlands’ undertaking, jointly and severally with it, pursuant to the provisions of the debt arrangement, in accordance with the aforesaid undertakings and statements. The trustees of the arrangement also asked to receive notice from IFISA that it is not entitled to the rights stipulated in the debt arrangement with regard to the tender offers that CAA and Dolphin Netherlands undertook to carry out as part of the debt arrangement.
In response to the letter of the trustees of the arrangement, Dolphin Netherlands, Dolphin Fund IFISA replied that they reject the demands of the trustees of the arrangement with regard to IFISA’s confirmation and undertaking to carry out the whole undertaking of Dolphin Netherlands, jointly and severally with it, pursuant to the provisions of the debt arrangement, since Dolphin Netherlands is the one that injected the money in the rights issue, and no other corporation controlled by Elsztain participated in the aforesaid injection, and therefore the notice with regard to the “Elsztain corporation” was irrelevant and had expired, and de facto Dolphin’s undertaking was not carried out by IFISA. The letter of reply also stated that Dolphin Netherlands sold the shares to IFISA shortly after the injection of the money into the Company was made by Dolphin Netherlands at a market price and for full and fair consideration (which did not prejudice the rights of the public shareholders of the Company). With regard to the demand that IFISA would give notice that it was not entitled to rights with regard to the tender offers, the Dolphin companies stated that IFISA was not required to provide confirmations or clarifications with regard to the tender offers.
 
C.
Equity management
The Company does not manage the shareholders’ equity (shareholders deficit).
The equity (deficiency) attributed to the shareholders of the Company constituted and might constitute in the future, among other things, a parameter of the financial covenants vis-a-vis banks (see note 16.E. below), in respect of regulatory permits and dividend distributions. Said equity is exposed to volatility, due to, among other things, the fluctuations in the value of financial assets measured at fair value and changes in exchange rates, and translation differences from foreign operations.
Equity is affected, among other things, by the accounting policies of the Company. Equity may also be affected, in the future, by actions taken with regard to acquisitions or sales of shares of investee companies in accordance with International Accounting Standards (see note 2.A above), and by the implications of the debt arrangement in IDB Holdings, including the injection of amounts of funds to the Company in accordance with the terms of the arrangement, and the irrevocable offer by Dolphin Netherlands as specified in note 16.G.2.j. below). There is no certainty that all of the specified transactions will be carried out. The Board of Directors of the Company and the boards of directors of its subsidiaries monitor the amounts of the dividends distributed to their shareholders by, among other things, assessing their ability to meet their existing and projected liabilities when they become due.
 
D.
As part of the creditors’ arrangement at IDB Holdings, the Dolphinand Extra groups gave an undertaking that they will exercise their powers and rights so that the Company will not distribute a dividend before December 31, 2015.

IDB Development Corporation Ltd. Convenience translation

 
114
 

Note 15 – Equity and Reserves (cont.)
 
E.
Changes in comprehensive income (loss)
 
 
     For the year ended December 31  
     2014      2013      2012  
   
Total equity attributed to the owners of the Company
    
Non-controlling rights
    
Total equity
    
Total equity attributed to the owners
of the Company
    
Non-controlling rights
    
Total
equity
    
Total equity attributed to the owners
of the Company
    
Non-controlling rights
    
Total
equity
  
   
NIS millions
  
Income (loss) for the year
     (999 )     213       (786 )     (153 )     666       513       (733 )     240       (493 )
                                                                         
Other components of comprehensive income (loss), net of tax
                                                                        
Foreign currency translation differences from foreign operations
     237       111       348       (165 )     (98 )     (263 )     (37 )     14       (23 )
Net change in fair value of cash flow hedge, that was recognized in profit or loss
     4       6       10       4       7       11       (5 )     (10 )     (15 )
Revaluation of fixed assets that were transferred to investment property
     1       4       5       3       4       7       33       47       80  
Group’s share in other comprehensive income (loss) of investee companies accounted for by the equity method
     359       216       575       (176 )     (139 )     (315 )     (57 )     (54 )     (111 )
Other components of other comprehensive income (loss)
     13       (4 )     9       -       (11 )     (11 )     (5 )     (23 )     (28 )
Other comprehensive income (loss) for the year, net of tax
     614       333       947       (334 )     (237 )     (571 )     (71 )     (26 )     (97 )
Total comprehensive income (loss) for the year
     (385 )     546       161       (487 )     429       (58 )     (804 )     214       (590 )
 

IDB Development Corporation Ltd. Convenience translation

 
115
 

Note 15 – Equity and Reserves (cont.)
 
F.
Earnings (losses) per share
 
 
The profit (loss) per share data were retrospectively adjusted for all of the presented periods according to the changes in the Company’s issued share capital, including for the benefit component in the rights issue after the date of the Statement of Financial Position, as stated in section B.5 above.
 
 
The profit (loss) per share data are based on the following data:
 
1.       Income (loss) attributed to the holders of ordinary shares (basic)
 
     For the year ended December 31  
      2014        2013        2012  
      NIS millions  
Loss for the year from continuing operations
     (1,032 )     (553 )     (1,266 )
Difference from the Company’s share in losses of investee companies
     (1 )     -       (5 )
Loss attributed to the holders of ordinary shares from continuing operations
     (1,033 )     (553 )     (1,271 )

Net income for the year from discontinued operations
     33       400       533  
Difference from the Company’s share in losses of investee companies
     -       (1 )     -  
Profit attributed to the holders of ordinary shares from discontinued operations
     33       399       533  

 
2.
Income (loss) attributed to the holders of Ordinary Shares (diluted)
 
 
      For the year ended December 31  
      2014        2013        2012   
      NIS millions  
Loss for the year from continuing operations
     (1,032 )     (553 )     (1,266 )
Difference from the Company’s share in losses of investee companies
     (1 )     -       (5 )
Loss attributed to the holders of ordinary shares from continuing operations
     (1,033 )     (553 )     (1,271 )

                   
Net income for the year from discontinued operations
     33       400       533  
Difference from the Company’s share in losses of investee companies
     -       (1 )     (1 )
Profit attributed to the holders of ordinary shares from discontinued operations
     33       399       532  

 
 
3.
Weighted average number of ordinary shares – basic and diluted

 
      For the year ended December 31,   
      2014        2013        2012   
      Shares in Thousands  
Weighted average number of ordinary shares used for the calculation of basic and diluted earnings (losses) per share
     252,077       219,475       219,475  


IDB Development Corporation Ltd. Convenience translation

 
116
 


Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost
 
A.
Non-Current Liabilities
 
1.       Bonds
 
   
As at December 31
  
   
2014
    
2013
  
   
NIS millions
  
             
Bonds
     22,024       24,119  
Less current maturities
     (3,303 )     (3,447 )
      18,721       20,672  

 
                   
As at December 31, 2014
  
   
Linkage basis
  
Nominal interest
    
Principal payment date
    
Nominal value
    
Book value
  
 
Series
  
%
    
NIS millions
  
The Company (see also sections D and G below)
Series G
CPI
     4.50       2012-2018       1,070       1,313  
 
Series I
CPI
     4.95       2020-2025       874       1,067  
 
Series J
Unlinked
     6.60       2012-2018       412       409  
                          2,356       2,789  
 
Current maturities
                               433  
                                  2,356  
Discount Investment (see also section F.1. below)
Series D(a)
CPI
     5.00       2012-2016       255       317  
 
Series F(a)
CPI
     4.95       2017-2025       2,772       3,222  
 
Series G
Unlinked
     6.35       2012-2016       16       16  
 
Series I
Unlinked
     6.70       2010-2018       813       814  
 
Seies H and other bonds
CPI
     4.45-5.50       1997-2019       170       205  
                          4,026       4,574  
 
Current maturities
                               353  
                                  4,221  
Property & Building (see also section F.3. below)
Property Series F(b)
CPI
     4.95       2015-2023       743       781  
 
Property Series C
CPI
     5.00       2009-2017       825       1,014  
 
Property Series D
CPI
     4.95       2020-2025       1,114       1,355  
 
Property Series G (b)
Unlinked
     7.05       2012-2025       450       490  
 
Gav-Yam Series E
CPI
     4.55       2014-2018       566       687  
 
Gav-Yam Series F (c)
CPI
     4.75       2021-2026       1,226       1,518  
 
Gav-Yam Series G
Unlinked
     6.41       2013-2017       322       322  
 
Ispro Series B
CPI
     5.40       2007-2021       357       446  
                          5,603       6,613  
 
Current maturities
                               810  
                                  5,803  

IDB Development Corporation Ltd. Convenience translation

 
117
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
A.
Non-Current Liabilities (cont.)
 
 
1.
Bonds (cont.)

                   
As at December 31, 2014
  
   
Linkage
  
Stated interest
    
Principal
payment date
    
Nominal value
    
Book value
  
 
Series
basis
  
%
    
NIS millions
  
Cellcom (see also section F.2 below)
Series B
CPI
     5.30       2013-2017       555       668  
 
Series D
CPI
     5.19       2013-2017       1,454       1,722  
 
Series E
Unlinked
     6.25       2013-2017       899       897  
 
Series F
CPI
     4.60       2017-2020       715       741  
 
Series G
Unlinked
     6.99       2017-2019       285       286  
 
Series H(d)
CPI
     1.98       2018-2024       106       105  
 
Series I(d)
Unlinked
     4.14       2018-2025       223       221  
                          4,237       4,640  
 
Current maturities
                               1,092  
                                  3,548  
Shufersal (see also section F.4. below)
Series B
CPI
     5.20       2015-2019       1,706       2,210  
 
Series C
Unlinked
     5.45       2010-2017       341       343  
 
Series D
CPI
     2.99       2014-2029       443       439  
 
Series E
Unlinked
     5.09       2014-2029       420       416  
                          2,910       3,408  
 
Current maturities
                               615  
                                  2,793  


 
(a)
For details regarding an exchange acquisition offer of Series D bonds of Discount Investments, for Series F bonds was completed in January 2014, see section F.1 below.
 
(b)
In September 2014, Property & Building bonds issued to the public a total nominal value of NIS 86 million of its existing Series F, at a price that reflects an effective interest rate of 2.13% per annum, linked to the Consumer Price Index, and for a total consideration of NIS 102 million and also bonds at total nominal value of NIS 276 million of its existing Series G, at a price reflecting an effective interest rate of 4.01% per annum, which is unlinked to the CPI or to any currency, and for a total consideration of NIS 326 million.
 
(c)
In April 2014, Gav-Yam Land Corporation Ltd. (“Gav-Yam”), a subsidiary of Property & Building, issued bonds to the public at a total nominal value of NIS 221 million of its existing Series F, at a price reflecting an effective interest rate of 3.13% per annum which is linked to the CPI, and in total consideration for NIS 306 million.
 
(d)
In July 2014, Cellcom issued bonds to the public at a total nominal value of NIS 106 million of its Series H (new series), which carries interest at a rate of 1.98% per annum, and is linked to the Consumer Price Index, for total consideration of NIS 105 million and also bonds at a total nominal value of NIS 223 million of its Series I (new series), which carries interest at a rate of 4.14% per annum, unlinked to the CPI or any currency, and for a total consideration of NIS 221 million.


IDB Development Corporation Ltd. Convenience translation

 
118
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
A.
Non-Current Liabilities (cont.)
 
 
1.
Bonds (cont.)
 
                   
As at December 31, 2013
  
   
Linkage basis
  
Nominal interest
    
Principal payment date
    
Nominal value
    
Book value
  
 
Series
  
%
    
NIS millions
  
The Company
Series C
CPI
     5.90       2013       5       7  
 
Series G
CPI
     4.50       2012-2018       1,431       1,757  
 
Series H
CPI
     4.10       2013       14       17  
 
Series I
CPI
     4.95       2020-2025       874       1,069  
 
Series J
Unlinked
     6.60       2012-2018       551       547  
                          2,875       3,397  
 
Current maturities
                               609  
                                  2,788  
Discount Investments
Series D
CPI
     5.00       2012-2016       1,187       1,473  
 
Series F
CPI
     4.95       2017-2025       1,884       2,179  
 
Series G
Unlinked
     6.35       2012-2016       24       24  
 
Series I
Unlinked
     6.70       2010-2018       961       962  
 
Other bonds
CPI
     4.45-5.50       1997-2019       222       271  
                          4,278       4,909  
 
Current maturities
                               698  
                                  4,211  
Property & Building
Property Series F
CPI
     4.95       2009-2023       657       686  
 
Property Series C
CPI
     5.00       2009-2017       1,110       1,358  
 
Property Series D
CPI
     4.95       2020-2025       1,119       1,358  
 
Property Series E and G
Unlinked
     5.70-7.05       2012-2025       341       343  
 
Gav-Yam Series E
CPI
     4.55       2014-2018       707       859  
 
Gav-Yam Series F
CPI
     4.75       2021-2026       1,005       1,218  
 
Gav-Yam Series G
Unlinked
     6.41       2013-2017       429       429  
 
Ispro Series B
CPI
     5.40       2007-2012       408       513  
                          5,776       6,764  
 
Current maturities
                               848  
                                  5,916  
Cellcom
Series B
CPI
     5.30       2013-2017       740       893  
 
Series D
CPI
     5.19       2013-2017       1,939       2,305  
 
Series E
Unlinked
     6.25       2013-2017       1,199       1,197  
 
Series F
CPI
     4.60       2017-2020       715       744  
 
Series G
Unlinked
     6.99       2017-2019       285       286  
                          4,878       5,425  
 
Current maturities
                               1,093  
                                  4,332  
Shufersal
Series B
CPI
     5.20       2015-2019       1,706       2,252  
 
Series C
Unlinked
     5.45       2010-2017       455       460  
 
Series D
CPI
     2.99       2014-2029       472       468  
 
Series E
Unlinked
     5.09       2014-2029       448       444  
                          3,081       3,624  
 
Current maturities
                               199  
                                  3,425  



IDB Development Corporation Ltd. Convenience translation

 
119
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
A.
Non-Current Liabilities (cont.)
 
 
2.
Bank loans and other financial liabilities
 
   
December 31
  
   
2014
    
2013
  
   
NIS millions
  
Loans from banks (see details in subsection (a) below)
     4,437       5,352  
Loans from others
     582       450  
      5,019       5,802  
Less current maturities
     (1,491 )     (1,735 )
      3,528       4,067  
Liabilities in respect of construction (1)
     103       132  
Other liabilities (2)
     125       125  
      228       257  
Less current maturities
     (92 )     (128 )
      136       129  
      3,664       4,196  

 
(1)
The liabilities are or will be paid in construction services or in cash, at a certain percentage of the sales receipts of the project.
 
(2)
Including a liability in connection with a partnership agreement signed in August 2006 among Shufersal, Leumi Card Ltd. (“Leumi Card”) and Paz Oil Company Ltd. (“Paz”), for the founding of a limited partnership (“the partnership”) by the abovementioned parties, to concentrate the ongoing administrative activity of credit cards of the Shufersal chain. The partners’ share in the partnership is as follows: Shufersal – 64%, Leumi Card Ltd. – 16% and Paz – 20%.

The profits to be earned from the joint activity will be divided among the partners, based on the aforementioned percentages. The partnership agreement is valid for 10 years, from August 31, 2006, and includes an optional extension. As part of the partnership agreement, arrangements were set up among the partners regarding their holdings in the partnership, including the granting of a Call option to Shufersal to purchase the holdings of Leumi Card and Paz and the granting of a Put option to Leumi Card and Paz to sell their holdings to Shufersal, all in accordance with the terms set out in the agreement. As at December 31, 2014, the Group recorded a liability for the purchase of the shares of Leumi Card and Paz in the partnership in an amount of NIS 108 million (2013 - NIS 99 million). The increase in the liability in 2014 was allocated to goodwill in an amount of NIS 2 million and to financing expenses in an amount of NIS 7 million.

The estimated amount of the liability was measured in accordance with the present value of the option, which is based on the cash flows of the actual results of operation for 2014, and on the basis of the forecasted future cash flows of the partnership. The estimated growth rate for 2016 is 2.5%, and beginning in 2017, is 1.2%. The pre-tax discount rate in real terms is 10.64% (after-tax – 9.8%).





IDB Development Corporation Ltd. Convenience translation

 
120
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
A.
Non-Current Liabilities (cont.)
 
2.       Bank loans and other financial liabilities (cont.)
 
a.Bank loans
 
       
Book value as at December 31
  
 
Linkage
Interest
  
2014
    
2013
  
 
basis
%
  
NIS millions
  
The Company (see also section C.(1) below)
Unlinked
6.49-7.55
     190       549  
 
Unlinked
Prime + 1.0-1.95
     633       696  
 
USD
LIBOR +3.38%
     -       195  
          823       1,440  
Discount Investments (see also section F.1.b below)
Unlinked
5.39-5.90
     214       281  
 
Unlinked
Prime + 0.52-0.6
     307       379  
          521       660  
Cellcom
Unlinked
6.0
     -       12  
                     
Shufersal
Unlinked
3.70-4.90
     -       3  
 
CPI
3.25-4.95
(2013: 4.4-7.40)
     6       6  
          6       9  
Property & Building (see also section F.3.a below)
Unlinked
6.4
     35       192  
 
CPI
4.3
     1,041       1,102  
 
USD
5.0
     1,524       1,356  
          2,600       2,650  
                     
Elron
USD
WSJ+0.75%
     -       14  
Bartan
Unlinked
4.8
     11       15  
                     
IDB Tourism
Unlinked
4.7
     9       2  
 
USD
5.1-5.65
     239       346  
          248       348  
IDB Group (see also section F.3.c below)
USD
LIBOR + 5
     228       204  
                     
Total loans
         4,437       5,352  

 
3.
Net liability for non-recourse loan (1)
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
             
Host contract of a hybrid financial instrument in respect of non-recourse loan
     3,162       3,664  
Less the embedded derivative
     (72 )     (607 )
Hybrid financial instrument in respect of non-recourse loans (1)
     3,090       3,057  
 
 
For details of the linkage terms, see note 21.D.
 
(1)
See section F.1.d below.

IDB Development Corporation Ltd. Convenience translation

 
121
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
B.
Current Liabilities
 
 
Credit from banking corporations and current maturities of loans from banks and others
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Current maturities of other liabilities
     181       215  
Current maturities of loans from banks
     1,402       1,648  
Short-term loans from banks
     266       601 (1)
Short-term loans
     14       18  
      1,863       2,482  
 
 
(1)
For details regarding the repayment of the entire balances of the Morgan Stanley credit and the Citigroup credit in January 2014, see section F.1.e below.
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position
 
 
1.
In December 2010, the Company signed an agreement with a banking institution that previously provided it with a loan of NIS 750 million. As part of the agreement, each of the (equal semi-annual) principal payments of the loan will be deferred for three years, so that instead of the payments being executed semi-annually commencing from March 2011 through March 2015, they will be executed semi-annually commencing from March 2014 through March 2018. In addition, each of the principal payments will bear, commencing from their initial dates of payment until the new dates of payment (i.e., for a three-year period), interest on the basis of the Prime rate plus a margin of 1.3% instead of the fixed interest that was paid until the original repayment dates. In accordance with the aforementioned consent, additional refinancing of current principal payments in respect of this loan were also performed in March and September of 2014, and a final refinance was made in March 2015. For information pertaining to financial restrictions and covenants in connection with the aforementioned loan and additional loans of the Company, see note 16.E. below.
 
 
2.
Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”))
 
In May 2012, the Company engaged with financial entities from the Menorah Group in an agreement to receive a loan secured by charge in the amount of NIS 150 million.
The loan is linked to the CPI and bears CPI-linked interest at an annual rate of 6.9%, payable quarterly. The loan principal will be paid in two portions: in 2017 – an amount of NIS 50 million will be paid, and in 2018 – an amount of NIS 100 million will be paid. As part of the aforesaid loan, the Company granted to the lender options to purchase shares of Discount Investment that are held by the Company (constituting approximately 1.7% of the issued share capital of Discount Investment as at the date of this report) at an exercise price of NIS 25 per share, limited to a benefit ceiling of NIS 21 per option (the benefit ceiling reflects a share price of NIS 46). The aforesaid options will be exercisable (fully or partly, in one or more portions, at the lender’s discretion) until May 2016. The actual exercise of the options will be executed, at the Company’s discretion, in cash (without a transfer of shares) or in shares of Discount Investment, according to the value of the benefit component on the exercise date. According to the loan agreement, the loan was secured by a lien on the Company’s shares in Discount Investment, Clal Industries Ltd. and Clal Holdings Insurance Enterprises, with the initial mix of these shares being as determined at an initial ratio of 150% between the value of the charged shares to the outstanding balance of the loan according to stock exchange closing prices. In July 2012 (subsequent to the completion of the transaction involving the sale of shares of Clal Industries Ltd. which were held by the Company), according to the provisions of the loan agreement, 2.2 million shares of Clal Industries that were previously charged were released from the charge, against the deposit of a cash amount of NIS approx. 51 million.
According to the loan agreement, in the event that the ratio between the value of the charged shares and the outstanding balance of the loan falls below 150% during the loan period, the Company will provide the lender additional collateral by providing a charged monetary deposit and/or additional shares of Discount Investment and/or Clal Holdings Insurance Enterprises (at the Company’s discretion) so that the cover ratio will be 167% according to the stock exchange closing prices. Furthermore, various thresholds were provided, which may be higher, for releasing shares from the aforesaid lien and for releasing dividend receipts in respect of the charged shares.

IDB Development Corporation Ltd. Convenience translation

 
122
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
2.
Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)
 
A condition for the aforesaid shares being qualified to serve as collateral is, inter alia, no change in the Company’s control over the aforesaid companies. A change in control as aforesaid will require providing a lien and monetary deposit in advance, as provided in the agreement.
The Company will be able to repay the loan in early repayment, under conditions which were agreed and subject to the payment of an early repayment fee, which amounts according to the Company’s calculations, as at March 2015, in an amount of approximately NIS 35 million. The circumstances upon which the loan may be put up for immediate repayment include, in addition to circumstances customary in these types of loans, inter alia, another loan of the Company being put up for immediate repayment, a transfer of control in the Company, a decision being made to merge the Company, Discount Investment and Clal Holdings Insurance Enterprises (prior to the completion of the merger transaction between Koor and Discount Investments, as stated in note 3.H.4.b above, this condition related to Koor as well), except for a merger in which the relevant company is the absorbing company.
Additionally, the agreement sets forth a right to place the loan for immediate repayment in case of a decision being made to perform a merger between Discount Investment and Koor, without the lender’s consent, if the Company does not deposit and charge, in favor of the lender, a monetary deposit in an amount equal to all of the deposited and charged shares of the company which was merged into the absorbing company. In light of this, in March 2014, within the framework of the completion of the transaction for the merger of Discount Investment with Koor Industries, the amount the Company received out of the consideration for the aforementioned merger (approx. NIS 40 million) was charged in favor of the secured lender, in place of the shares of Koor which had been charged to the same lender.
The following are details regarding the liens on the Company’s assets provided in favor of the aforesaid secured lender as at December 31, 2014 and proximate to the date of publication of the report:
 
The pledged asset
  
As of December 31, 2014
    
Shortly before the publication of this report
  
   
Amount
    
Rate of pledged holdings
    
Amount
    
Rate of pledged holdings
  
   
NIS millions nominal value
    
%
    
NIS millions nominal value
    
%
  
Discount Investments
     13.5       15.8       20.4       23.9  
Clal Holdings Insurance Enterprises
     2.2       4       2.2       4  
Cash (NIS millions)
     18 2               2 18        
                                 


 
2According to the provisions of the loan agreement, the dividend paid by Discount Investments on November 18, 2014, in respect of the Discount Investments shares pledged in favor of the loan at an amount of NIS 18 million, was deposited upon its payment in an account which is pledged in favor of the secured creditor.

IDB Development Corporation Ltd. Convenience translation

 
123
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
2.
Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)
 
The following are details regarding the ratios of the value of the security to the net balance of the loan of the secured lender:
 
   
Value of marketable shares pledged in favor of the lender (“security value”)
    
Balance of the loan, net 3
    
Ratio of security value to balance of the loan, net in percentages (“cover ratio”)
    
Minimal cover ratio required by the lender
  
   
NIS millions
    
%
  
As of December 31, 2014
     225       136       165 %     150 %
As of March 26, 2015
     194       134       220 %     150 %

The following are brief details of main developments that occurred in 2014 and up to the date of publication of this report, with regard to the loan to the aforementioned secured lender, including with regard to the release and addition of collateral:
On April 30, 2014, after receiving approval from the Board of Directors, the Company contracted the trustee with whom were deposited the cash and the pledged shares to secure the loan from Menorah (the “trustee”), with a request to release surplus collateral in the amount of approximately NIS 92.4 million, as well as shares of Discount Investment which constitute approximately 13.2% of its issued and paid-up capital, this in accordance with the provisions of the loan agreement with regard to release of surplus collateral. In response to the Company’s request, Menorah responded on April 30, 2014, inter alia, that it had grounds for requiring the immediate repayment of the loan balance, due to the fact that the Ganden Group ceased being the controlling shareholder in the Company subsequent to the approval of the debt arrangement at IDB Holdings, and additional alleged grounds set forth in the loan agreement. Menorah also notified the Company on the same date regarding its demand for the immediate repayment of the outstanding balance of the loan, with the addition of an early repayment fee and expenses in the amount of approximately NIS 197.4 million as at April 29, 2014.
At the same time, Menorah notified the trustee regarding its objection to the release of the collateral, as requested by the Company. The Company categorically rejected that stated in Menorah’s notification.
On May 11, 2014, the Company filed a motion with the Court, in which the Court was requested to determine, inter alia, that: the demand for immediate repayment was performed without grounds, that it contravenes the Court’s decisions and absolutely contravenes the purpose underlying the creditors’ settlement in IDB Holding; and alternatively - even if Menorah does have grounds for immediate repayment, the exercise of this right, at the time when it was made, and in light of the circumstances, constitutes the exercise of a contractual right in breach of good faith and in an unreasonable manner, and that Menorah is not entitled to receive the payment of a fine or early repayment fee; and that Menorah must release surplus collateral given by the Company with respect to the loan.
On May 15, 2014, a letter was received in the Company’s offices from Menorah, according to which insofar as the Company does not pay the entire debt by May 20, 2014, Menorah will instruct the trustee (with whom the collateral was deposited) to pay to it the entire funds held by the trustee, and to act to realize the balance of the collateral held by it, and to pay to Menorah the balance of the Company’s debt.
On May 18, 2014, the Company filed an urgent motion to issue an temporary injunction in the presence of one party, directed to the trustee and to Menorah, as part of which the Court was requested to order the trustee and Menorah not to perform disposition of the funds and of the securities which are deposited with them, with the purpose of securing the Company’s debts towards Menorah, until the issuance of a final ruling regarding the Company’s motion.

 
3Less a pledged deposit amounting to NIS 18 million.

IDB Development Corporation Ltd. Convenience translation

 
124
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
2.
Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)
 
On the same date, the Court’s decision was given to issue a temporary injunction, as stated above, until another decision has been reached. On May 26, 2014, Menorah’s response to the motion for an injunction was filed with the Court, in
which the Court was requested to dismiss the Company’s motion for an injection, and to order the cancellation of the temporary injunction which was given in the presence of one party.
On June 23, 2014, Menorah filed its response to the Company’s motion dated May 11, 2014, in which the Court was requested to reject the Company’s motion. On July 1, 2014, the position of the Official Receiver was filed with the court, in which it was stated, inter alia, that Menorah’s demand for immediate repayment should not be granted and that the court should order the release of the surplus collateral in accordance with the Company’s motion. On July 8, 2014, a hearing was held in the Tel-Aviv District Court, after which Menorah requested of the Court, with the Company’s consent, that it would postpone giving its decision on the proceeding by one day in order to allow the parties to end the dispute between them consensually. Since no agreements were reached within the defined period, Menorah gave notice to the Court that it withdraws its motion for immediate repayment and withdraws its opposition to the release of the surplus collateral in accordance with the Company’s motion of April 2014, and requested the court to order the closing of the motion without costs. On July 10, 2014, the court granted Menorah’s motion and part of the collateral that had been deposited by the Company in favor of Menorah was released, in an amount of approximately NIS 92.3 million in cash, and also approximately 13.2% of the share capital of Discount Investments, in accordance with the Company’s motion from April 2014.
As a result of the decline in the market value of the collateral provided by the Company for the loan, and a decline in the cover ratio between the value of the collaterals and the balance of the loan, below the rate of approximately 150%, and in order to company with the coverage ratio specified in the loan agreement for such a case (approximately 167%), the Company pledged, on November 13, 2014, 2,229,000 additional shares of Discount Investments, in the value of approximately NIS 30.9 million (as at the date of the pledging), so that subsequent to the aforesaid pledging, approximately 11.7% of Discount Investments shares and approximately 4% of Clal Holdings Insurance Enterprises shares were pledged in favor of the repayment of the loan. In accordance with the stipulations of the loan agreement with Menorah, dividend paid in respect of the pledged shares, is directly transferred upon its distribution to an account pledged in favor of Menorah. Accordingly, the dividend paid by Discount Investments on November 18, 2014 in respect of the Discount Investments shares which are pledged in favor of the loan in the amount of approximately NIS 18.2 million (out of the total NIS 148 million, the Company’s share in the dividend) was deposited upon its payment into a pledged account. According to the loan agreement, the Company is entitled to demand the release of the dividend amounts from the pledged account immediately subsequent to its distribution or at any interest payment date, under the condition that the release would not decrease the cover ratio to under approximately 167%, a condition which is satisfied as at the date of publication of the report.
In light of the continued decline in the market value of the collateral provided by the Company in favor of the loan, and a decline in the cover ratio between the value of the collateral and the net balance of the loan (less the pledged dividend at an amount of approximately NIS 18 million), and in order to meet the required cover ratio in such case (approximately 167%, as stated above), the Company pledged, on December 21, 2014 and on January 18, 2015, 3,500,000 and 6,878,000 additional shares of Discount Investments, at values of approximately NIS 28 million and approximately NIS 42 million, as at the date of each pledge as stated above, respectively, in a way that subsequent to the stated addition of collateral, the balance of the loan (principal and interest), which at the date of publication of this report amounts to approximately NIS 152 million, is secured by a pledge of approximately 23.9% of the issued and paid-up share capital of Discount Investments and approximately 4% of the issued and paid-up share capital of Clal Holdings Insurance Enterprises and by a cash deposit in a sum of approximately NIS 18.2 million, and the ratio of the collateral to the net balance of the loan (i.e., the balance of the loan less the pledged cash deposit as aforesaid) is as stated in the table above.

IDB Development Corporation Ltd. Convenience translation

 
125
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
2.
Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)
On the basis of the ratio between the value of the collateral for the loan on the date of the report and the balance of the loan, and taking into account mechanisms for the release of collateral and/or cash in the loan agreement, the Company estimates that it can release the cash that is charged in the deposit in favor of Menorah, and it intends to act to release it.
In this context, with regard to the restriction included in the Company’s financing agreements with its lending corporations, with regard to the pledging limit of additional assets for additional collateral to the lenders, it is noted that the Company updated in advance its lending Corporations, the agreements with which include the stated restriction (without any of them voicing objection), as follows: (a) that the Company intends to increase the collateral in favor of the repayment of the Menorah loan; and (b) that according to the Company’s position, subsequent to the release of the collaterals in favor of the Menorah loan in July 2014 as stated above, the cumulative total of pledged assets is less than at the date of application of the additional pledges limit (June 2012). According to the Company’s position, the total cumulative amount available to it before the utilization of the full pledges limit as at December 31, 2014 and shortly before the date of publication of the report, is NIS 116 million and NIS 73 million, respectively.
 
 
3.
Advancing a bridging loan to the Company and converting it into capital – On March 10, 2014, the Company signed an agreement with Dolphin Fund Limited and E.T.H M.B.M Extra Holdings Ltd. (companies under the control of Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively (jointly and severally: “the investors”)); Adv. Hagai Olman and Mr. Eyal Gabbay (the trustees for the creditors’ arrangement in IDB Holding (“the trustees for the arrangement”); and IDB Holding (through the trustees for the arrangement), regarding the provision of a bridging loan to the Company in the amount of NIS 170 million (“the loan”). The stated bridging loan was given in accordance with the provisions of the debt arrangement in IDB Holding, as specified in note 16.G below. For details of the conversion of the bridging loan into the Company’s capital and additional investments in the Company’s capital in accordance with the provisions of the debt arrangement as aforesaid, see note 15.B.1 above.
It should be noted that in the period in which the investors provided the Company a bridging loan on account of the capital injections, the Company paid on June 30, 2014 interest totaling approximately NIS 1.25 million.
 
 
4.
Payment of interest to the Company’s creditors in respect of amounts deposited in the observer’s trusteeship account
 
In accordance with the decision by the District Court in Tel-Aviv-Jaffa dated June 9, 2013 (as part of the legal proceeding as specified in Note 16.G below), the Company regularly transferred the amounts to its financial creditors in accordance with their payment schedules, to a designated trusteeship account held by the Court appointed observer. In accordance with the Court’s decision from October 17, 2013, 65% of the aforementioned funds were released in favor of the creditors to which they were due, including the income accumulated in the deposit account in respect of these amounts, and as of that date the Company was required to continue to pay its payments to its financial creditors, so that 65% of them will be transferred to the creditors to which they are due, and 35% will continue to be transferred to the aforesaid trusteeship account. During January 2014, the full balance of these funds was released by the observer, in accordance with the Court’s decision dated January 15, 2014. As of the date of release of the balance of funds, the Company transferred and is transferring to its financial creditors, the full payments to which they are due, in accordance with the payment schedules of their loans.
 
During 2013 the Company received letters from its lending corporations according to which their position is that the Company has violated the loan agreement with them and that they are entitled, inter alia, to arrears interest payment with respect to any payment which unpaid and/or will not be paid to them at its due date.
 
During 2013 the Company received letters from its lending corporations according to which their position is that the Company has violated the loan agreement with them and that they are entitled, inter alia, to arrears interest payment with respect to any payment which unpaid and/or will not be paid to them at its due date.
 
 
126
 
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
4.
Payment of interest to the Company’s creditors in respect of amounts deposited in the observer’s trusteeship account (cont.)
 
 
As part of a motion filed with the Court in November 2013 by a bank creditor of the Company (whose loan was finally repaid according to its payment schedule in January 2014), the Company was required to pay all of the interest payments (including excess interest) to which the aforesaid bank creditor is entitled according to the loan agreement in respect of the funds held in trusteeship by the observer as stated above. The Company’s position is that payment transfers made to the observer, in accordance with the Court’s decision, constitute full repayment of its liabilities, and accordingly the relevant creditors are not entitled to arrears interest payment in respect of them and the Company has claims also with regard to the non-entitlement to interest and linkage beyond the interest on the deposit which was held by the observer. On March 27, 2014, the observer filed, following the Official Receiver’s offer to authorize the observer to manage the negotiations between the parties, a settlement proposal, subject to the consent of the Company and the creditors, according to which the Company will bear approximately one third of the difference between the contractual interest (which does not include arrears interest) and the interest on the deposit accumulated on the observer’s account, meaning in total the Company will pay of approximately NIS 7 million to its creditors, beyond the interest on the deposit which has been paid to them. On September 21, 2014, a hearing was held on the aforementioned motion, in which the Court instructed that it would be appropriate for the parties to reach a settlement. The parties were requested to notify the representative of the parent company whether they accepted the aforementioned proposal by the observer. On September 30, 2014, the trustees for the Company’s bonds Series G, I and J announced, in light of the Court’s position, as expressed in the hearing dated September 21, 2014, their intention to notify the Court on October 7, 2014 of their agreement for the Court to determine the matter of the interest payment by way of a settlement.
 
Additionally, in a meeting of the holders of the Company’s Series C bonds, which was held on October 1, 2014, a decision was reached to instruct the trustee for the series C bonds to agree to the observer’s settlement proposal. Further to the creditor’s aforementioned notices, on October 20, 2014, the Company’s Board of Directors resolved to accept the settlement proposal, with respect to the creditors who had agreed to it. In light of the above, the Company requested the Court to approve the settlement proposal with those of the Company’s creditors who have agreed to it (Bank Hapoalim, Israel Discount Bank, Bank Mizrahi Tefahot, HSBC bank, BNP bank, Harel Insurance Company, and the holders of the series C, G, H, I & J bonds) in a manner whereby they will be paid a total of NIS 6.4 million, in accordance with the proportion of the distribution between the creditors, as set forth in the observer’s settlement proposal, while determining in its decision that the Company’s consent does not derogate from its rights and claims regarding any entities which have not agreed to the settlement – Sky Fund. On October 26, 2014, a ruling was given on the settlement by the Court, with respect to the dispute between the Company and all of the parties, excluding Sky Fund. The Court stated that the proposal weighed, in a balanced manner, all of the risks and rewards of each of the parties to the request, and ordered payment to the creditors (excluding Sky Fund) in the total amount of NIS 6.4 million, by December 1, 2014.
 
It is noted that this amount was paid in full by the Company during November 2014, and accordingly, the Company reversed, in the fourth quarter of 2014, a provision in an amount of NIS 15 million.
 
With respect to Sky Fund, due to the fact that it has not filed a motion with the Court on the matter, the Court determined that its claims should not be heard, and insofar as it will file a motion with the authorized Court, such claims will be heard. As at the date of publication date of the report, a motion by Sky Fund has not been filed on the subject. The balance of the provision on the books as at December 31, 2014 in respect of the interest for the period in which payments for the creditors were deposited into the trust account, amounts to a total of NIS 1.5 million. For details of the settlement between IDB Tourism, the Company and Sky Fund regarding, inter alia, the payment of interest for the money that was deposited in the observer’s trust account, see note 3.H.6.c above.

IDB Development Corporation Ltd. Convenience translation

 
127
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
C.
Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)
 
 
5.
Offsetting the expenses of trustees to the arrangement
 
In connection with the funds which were deposited in the observer’s account and which were released in accordance with the Court’s decisions dated October 17, 2013 and January 15, 2014, as stated above, it is noted that the trustees for the Company’s bonds Series G, I and J offset, from the payments which had been released and transferred to them, as stated above, amounts for the purpose of covering the expenses of the relevant trustee and his agents, and covering additional expenses, which according to the specified trustees, it was the Company’s duty to bear. During the reporting period, the Company reached agreements with the trustees to the bonds, and paid a total of NIS 890 thousand, net, in respect of the trustee’s expenses, as stated above. On September 17, 2014, each of the trustees for the aforementioned bonds announced that, following negotiations between the trustee’s service providers, the trustee and the Company, agreements had been reached regarding the reduction of the payments to the service providers, and payment of their fees by the Company, and that such agreements allowed repayment, to the aforementioned bond holders, some of the amounts which had been offset, as stated above. In light of the above, on September 30, 2014, the trustees for the aforementioned bonds repaid to the holders of the aforementioned series of bonds, who held the bonds on the relevant specified dates (with respect to Series G and I - July 4, 2014 and with respect to Series J – November 28, 2013), NIS 1,280 thousand out of the amounts that had been offset by the trustees to cover the aforementioned expenses.
 
 
6.
In connection with the convertible bonds issued by IDB Tourism to Sky Fund, the repayment of which was secured by a guarantee from the Company, on August 11, 2013, the repayment date of the aforementioned bonds, the Company repaid to Sky Fund, by virtue of the aforementioned guarantee, the balance of the bonds in the amount of approx. NIS 70 million (by depositing the payment with the Observer, whereby, in accordance with the Court’s decisions, all of the aforementioned funds which had been deposited with the observer were released, as specified in note 16.C.4 above).
 
 
7.
With regard to a guarantee which was provided by the Company in favor of IDB Tourism (2009) Ltd. (“IDB Tourism”), a wholly owned subsidiary of the Company, in respect of a loan in the amount of USD 39 million which was received in the past by IDB Tourism from a banking corporation, and regarding a letter received from the banking corporation in which it was demanded that the Company repay the loan, by virtue of the guarantee that it provided, on April 1, 2014, the Company paid to the aforementioned banking corporation a total of USD 39 million (NIS 135.7 million). On July 6. 2014, approval was received from the banking corporation for the cancellation of the Company’s guarantee in favor of IDB Tourism.
In addition, in May 2014, the Company converted capital notes and a bond which IDB Tourism had issued in favor of the Company, into deferred capital notes amounting to NIS 158 million. Additionally, deferred capital notes were issued to the Company in an amount of NIS 209 million (in respect of guarantees which the Company paid for the benefit of IDB Tourism).


IDB Development Corporation Ltd. Convenience translation

 
128
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
D.
Current Rating of the Company’s Bonds
 
On July 6, 2014, Maalot announced a rating of BB for the Company and for the Company’s bonds Series G, I and J (as compared with the previous rating of D), with a negative rating outlook. As part of the main considerations involved in the determination of the rating, Maalot noted, inter alia, that following the transfer of control and the capital injections which were performed to the Company’s account, the Company’s capital structure and its level of liquidity had significantly improved, however, the Company still faces many challenges, which primarily include the leveraging of approximately 83% (LTV), which is not sustainable in the medium and long term, in Maalot’s assessment. Maalot noted that the Company’s liquidity profile continues to be defined as “weak” according to the criteria of Maalot, as reflected in a significant gap which still exists between the Company’s sources and its uses in 2015. On January 20, 2015 Maalot notified that there is no change in the Company’s rating following its intentions to issue rights to purchase shares.
On March 1, 2015, Maalot announced the lowering of the Company’s rating, and the ratings of its bonds, to a rating of B, with a negative outlook. As part of the main considerations involved in the determination of the rating, Maalot noted, inter alia, that the lowering of the rating is due to a continued increase in the leverage ratio in recent months and significant liquidity challenges in the short term.
 
E. Financial Restrictions and Covenants
 
Financial restrictions and covenants - In connection with the Company’s loans from its lending corporations, where the balance of its debt to them as at December 31, 2014, amounts to approx. NIS 0.9 billion (“the lending corporations”), the Company has undertaken, inter alia, to company with financial covenants. On June 29, 2012, agreements were reached (materially similar agreements were reached vis-a-vis each lending corporation separately),4 which include, inter alia, updates to previous financial covenants, which will apply and will be calculated with respect to the end of a reported quarter, in force as at June 29, 2012. Certain updates were made to these agreements from August 2012, and certain updates were performed in March 2013 (as specified in section L below). The following is a description of the principal aforementioned financial covenants:
 
 
a.
Net debt of the Company (solo) and of its wholly owned designated subsidiaries (directly or indirectly), will not exceed a limit of NIS 6.7 billion, net of an amount equal to the total cash receipt which will be actually received by the Company (after the deduction of taxes, levies and any other payments required with respect to the sale) with respect to the sale or transfer of the holdings of the Company (or of a subsidiary wholly owned by the Company5) in corporations in which the Company is an interested party.
 
b.
The balance of cash and marketable securities will not fall below the amount of the forecasted current maturities for the two quarters following the reporting quarter (“the liquidity covenant”) (no change was made to this covenant as part of the understandings of June 2012). See section L below for details regarding consent to suspend this covenant.
 
c.
Value of holdings in the relevant companies - the average aggregate market value (in accordance with the stock exchange closing price) of the Company’s holdings (concatenated, with full dilution) in Clal Holdings Insurance Enterprises, Shufersal and Cellcom, on the last day of the reporting quarter, together with the 19 consecutive trading days which preceded it, with the addition of the Company’s relative share (in consideration to its chain holding rates) of the cash dividend amounts distributed by the aforementioned companies beginning on June 29, 20126 (“the value of holdings in the relevant companies” and “the relevant companies”, respectively), will be no less than NIS 1,692 million. The Company will not be considered as breaching this condition if, during the ten consecutive trading days after the last day of the reported quarter, the average value of the holdings in the relevant companies exceeds the aforementioned amount.7

 
4
In case of differences in the wording of the agreements vis-a-vis the lending corporations, the more stringent and restrictive wording is provided hereunder.
 
5
Excluding IDB Tourism.
 
6
And subject to the condition that as at the date of the examination, the addition with respect to the dividends distributed by Cellcom and Shufersal, and the addition with respect to the dividends distributed by Clal Holdings Insurance Enterprises, will be restricted by the cash amounts held by Discount Investment and the Company, respectively.
 
7
Except in the event that, during the 12 business days after the last date of the reported quarter, a suspension of trading of three or more days occurred.

IDB Development Corporation Ltd. Convenience translation

 
129
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.           Financial Restrictions and Covenants (cont.)
 
 
c.
Value of holdings in the relevant companies (cont'd)
Additionally, the value of the holdings in the relevant companies (including with the addition of the cash dividend amounts distributed by the relevant companies, as stated above), with it being divided into the Company’s debit balance towards each relevant lending corporation, as at the last day of the reported quarter (“the debit balance at the end of the quarter”), will not fall below 2.81. The Company will not be considered as having breached this condition if, during the ten consecutive trading days after the last day of the reported quarter, the average value of the holdings in the relevant companies, divided by the balance at the end of the quarter of the debt towards the relevant lending corporation, exceeds 2.81.7
The Company will be considered as having breached the covenants specified above in this section including if the trading of the shares of any of the relevant companies is suspended or stopped for at least 10 trading days within the period which includes the last day of the reported quarter and the 28 business days which preceded it.
In the event that the Company has given to any financier an undertaking to fulfill a covenant involving the average value of the holdings to debt and/or another similar covenant, and the financier has provided debts towards it, partly or fully, for immediate repayment due to the breach of the same covenant in its favor, the above will be considered a breach of the aforementioned covenant, also towards the other financiers which have received from the Company an undertaking to fulfill such covenant (Cross Default).
The aforementioned covenant with respect to the value of the holdings in the relevant companies (which occurred, as stated above, on June 29, 2012) replaced a covenant which is calculated based on “economic capital”. The calculation of economic capital was based on the total value of the Company’s share in corporations held by it, independently or through holding companies under its control (i.e., Discount Investments, and at that time also Koor and Clal Industries) (hereinafter, jointly, in this section: “the headquarter companies”), (in accordance with the Company’s actual concatenated rate of holding of the same held corporation), not including the value of its holdings in the headquarter companies themselves, less the total net financial debt of the Company and of each of the headquarter companies (according to the Company’s actual rate of holding of the headquarter companies).
As part of the economic capital covenant, the Company undertook that the Company’s economic capital will not fall below NIS 2 billion. the Company will be considered as having fulfilled the aforementioned covenant, even if at the end of the reported quarter the economic capital was lower than NIS 2 billion, but higher than NIS 1.5 billion, until the three quarters subsequent to the reported quarter have passed, where in each one of such quarters, economic capital did not surpass NIS 2 billion. Even in the event that, in any financial report published by the Company, the Company’s economic capital is lower than NIS 1.5 billion, the Company will not be considered as having breached its undertaking, if during the period which passed from the date of the date of the aforementioned financial report and the date of its publication, the Group (the “Group” - the Company, including its consolidated companies (including partially consolidated companies) and associates) took action where, if the foregoing had been reflected in the published financial report, the economic capital would not have fallen below NIS 1.5 billion.
 
 
d.
The loan agreements with some of the lending corporations include provisions which require their advance consent in the event that assets of the Company are charged, where the total value of the above exceeds 25% of the total value of all assets (including cash) (“value of all assets”), in the event of the sale of major holdings (on this matter, the shares of Discount Investment and Clal Holdings Insurance Enterprises which are held by the Company, and, until the aforementioned understandings were reached with lending corporations in June 2012, also the shares of Clal Industries) to third parties, where the cumulative value of the major holdings sold as aforesaid will be 20% or more of the total value of all assets, and also in the event that the cumulative value of major holdings sold together with the cumulative value of the Company’s charged assets is 25% or more of the value of all assets.8
 
 
8
Regarding the specified instructions: the rate of value of the Company’s pledged assets and/or main holdings, will be determined at the date of creation of each pledge and/or at the date of each sale according to the matter; the value of each asset will be calculated according to the higher of market value or the value presented within the Company’s (unconsolidated) financial statements, unless the book value as stated is higher by 25% or more than the market value consecutively in two subsequent quarters, in which case the “value” will be determined according to market value, as long as the aforesaid gap continues.
 
 
 
130
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.     Financial Restrictions and Covenants (cont.)
 
d. (cont.)
It was agreed with the lending corporations that the performance of the Clal Industries transaction (which was completed in July 2012) will not be considered a breach of the aforementioned restrictions regarding the creation of charges and the sale of assets. it was also agreed that the sale of the remaining holding of Clal Industries shares, at a rate of approx. 10.64% (which was performed in March 2013), will not require obtaining the consent of the lending corporation (subject to the condition that the consideration will be in cash, and will be used for permitted purposes as defined) and will not be included in the total of the amount of sale of the principal holdings (as defined in subsection (3) below).
In the understandings reached with the lending corporations in 2012, as specified above, it was agreed that along with the aforementioned restrictions and covenants, the Company will not be entitled to create charges and to sell assets, other than in accordance with the following provisions: 9
 
 
1.
The Company will be entitled to perform additional charges on holdings in investee companies, beginning on June 29, 2012, without approval from the lending corporations, insofar as an addition of collateral is required for existing secured lenders only, up to a value of collateral of NIS 100 million (less repayments to secured creditors, as specified below), where towards some of the lending corporations, the aforementioned limit will be calculated in accordance with the market value of the assets as at June 29, 2012, and for the other part, according to the market value of the assets on the date of the charge (“the charges bank” or “the restriction on additional charges”).
Additionally, the Company will be entitled to charge in favor of the secured creditors, additional charges, in place of any of the currently charged assets, provided that the value of the alternative assets does not exceed the value of the replaced asset, according to the agreed-upon terms. The aforementioned alternative charges will not reduce the series of charges. For details regarding a monetary charge in favor of secured lender of the Company of the Menorah Group, in place of Koor shares which were charged in its favor, see note 16.C.2 above.
 
 
2.
The Company will be entitled to schedule earlier repayments to secured creditors on account of the principal of existing debts, subject to the provision of an update to the lending corporations. However, the performance of such payments (beyond the required repayments which were performed in connection with the Clal Industries transaction) will reduce the amount of the series of charges specified above by half of the amount whose payment date was rescheduled for an earlier date, as aforesaid.
In this regard, early repayments to secured creditor that were made by the Company in August and September of 2012 reduced the series of additional charges in a manner whereby, the charges bank was empty after these repayments. However, the Company’s position is that following the release in July 2014 of surplus collateral provided in favor of the secured lender from the Menorah Group, as stated in note 16.C.2 above, the cumulative total of the charged assets is lower than at the date of application of the additional charge restriction in June 2012, and accordingly, the cumulative total available to the Company until full utilization of the additional charge limit proximate to the date of publication of this report, is NIS 73 million.
 
 
3.
The Company will be entitled to sell, beginning on June 29, 2012, holdings in Clal Holdings Insurance Enterprises and in Discount Investment Corporation (“major holdings”), without the approval of the lending corporation, subject to the following conditions: (a) The cumulative market value of the major holdings sold after June 29, 2012 must not exceed a total of NIS 100 million, where for some of the lending corporations, the aforementioned limit will be calculated according to the market value of the assets as at June 29, 2012, and for the other part, in accordance with the market value as at the date of the sale (“restriction regarding the sale amount of the major holdings”); (b)The Company will not discontinue its holdings of control (at least 50.01% of issued and paid-up capital, with full dilution) of any of the aforementioned companies; and (c)The consideration with respect to the sale of the aforementioned holdings will be in cash only, and will be entirely used only for the agreed and permitted uses, as these are defined in section E below.
 
 
9
Where regarding some of the lending corporations, the restrictions applicable to charges and sales (as specified in subsections 1 to 3 below) will apply with respect to charges and sales which are beyond the rates permitted as specified in section D.
 
 
 
131
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.           Financial Restrictions and Covenants (cont.)
 
 
e.
The balance of the Company’s liquid resources, from any source whatsoever, will only be used for the agreed-upon purposes, including repayment of existing debts according to their amortization schedules, early repayment of existing debts which are secured by charges, for the purpose of fulfilling financial ratios by virtue of existing debts towards the aforementioned financiers, for the purpose of financing current expenses in the ordinary course of business, and for the purpose of performing permitted investments, as defined below (hereinafter, jointly: “permitted uses”).
“Permitted investments” - existing investments which have been specified in the agreements with the lending corporations (including in the petroleum sector, projects in Las Vegas, IDB Tourism10 and other investments in a cumulative total of up to NIS 2 million), according to the scope of the forecasted cash flows published by the Company in its report for the first quarter of 2012, in a total amount which will not cumulatively exceed NIS 239 million, where out of the total aforementioned sum, up to NIS 100 million could have been invested in the Plaza project in Las Vegas.11 Since the Company no longer holds the Plaza project in Las Vegas, the amount of permitted investments amounts to a total that shall not cumulatively exceed NIS 139 million. A breach event performed by the Company and still in effect, the performance of any investment will require advance approval from the lending corporations.12
 
 
f.
The Company will not perform changes to the terms of the unsecured loans which have been provided to it, which will improve the condition of the relevant creditor, unless it will reach an understanding with the other lending corporations (where the loan agreements with whom include the financial covenants specified above) regarding an identical improvement of their condition, including changes to the original amortization schedule of its existing credit, in a manner which will involve the earlier scheduling of any repayment date, except for an early repayment initiated by the Company in favor of secured creditors, and an improvement of the interest terms to a certain lender, including an undertaking according to which, in the event that the Company agrees to increase the interest rate with respect to any of its unsecured debts, the increased interest rate will apply at the same ratio also towards the other lending corporations.
 
 
g.
The Company will not perform (directly and/or through a wholly owned subsidiary) a buy-back, redemption or repayment of any bonds whatsoever which have been issued and/or will be issued by it, and will not finance any of the aforementioned activities. It is clarified that the foregoing does not apply to current repayments, in accordance with currently existing amortization schedules.
 
 
h.
The understandings with the lending corporations also stipulated that the report of forecasted cash flows published by the Company in the first quarter of 2012 does not assume a dividend distribution by the Company during the period included therein, due to the negative amount of the Company’s distributable surplus. However, the Company undertook to provide notice 21 days before reaching a decision regarding a dividend distribution. On this matter, “dividend” means: including transaction with related parties and other companies in the Group. See also section e. above that by virtue of the undertaking included in it, the Company is prevented from distributing dividends.
 
 
i.
The Company has undertaken not to provide any loans to a shareholder or to any entity related to a shareholder, excluding as part of the permitted investments, as defined in section e above, and not to make repayment in any manner, to any entity in the group of existing and/or future shareholders, except as agreed. For details regarding a bridging loan given to the Company by the Dolphin Group and Extra, which was converted into the Company’s share capital, see notes 16.C.3 and 15.B.1 above.
 
 
j.
The Company has undertaken not to pay management fees to a shareholder or to a related party to a shareholder, without the advance written consent of the lending corporations, except as agreed.


10
It should be noted that during January 2014, the Company notified its lending corporations in connection with an investment which it performed in IDB Tourism, in the amount of NIS 10 million.
 
11
See also section l below regarding the Company’s obligation towards two of its lenders, not to invest additional funds in the Plaza project.
 
12
The trustees for the bonds of the Company and IDB Holdings demanded that the Company does not make any additional investments without their consent. The Company updates, in certain cases, the trustees to the bonds with regards to making investments.

IDB Development Corporation Ltd. Convenience translation

 
132
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E. Financial Restrictions and Covenants (cont.)
 
 
k.
In the event that an undertaking to fulfill certain financial covenants has been given to a certain lending corporation, which includes various and/or additional terms in addition to the terms specified in the letters of undertaking given to the other lending corporations (“the additional terms”), notice will be given to the other lending corporations, and at the request of any of the foregoing, the Company will agree to the application of the additional terms also with respect to it.
 
 
l.
Negotiations to arrange the financial covenants
As part of the specified agreements from 2012 it was further agreed that until March 31, 2013, the parties will act towards formulating an arrangement to replace the aforesaid, and that would be initially examined on July 10, 2013 with respect to the data of the second quarter of 2013. In case the parties do not reach an agreement by March 30, 2013, the covenant with regard to the economic capital will be re-applied as of July 10, 2013, with respect to the data of the second quarter of 2013, and additionally the adjustment periods included within the economic capital will apply (as specified in section (C) above). In addition, the covenants with regard to cash balance and marketable securities and the covenant with regard to the net debt limit (in a formula to be amended). The amendments to the restrictions and to the covenants made on June 29, 2012 (as amended in August 2012) (apart from the amendments stated in sections c and d.1 to d.3 above), will continue to apply even in case no such agreement is reached as stated.
In view of the foregoing, in March 2013 the Company reached an understanding with its lending corporations, according to which the covenants described above will continue to apply on all matters pertaining to the evaluation of the results for all four quarters of 2013, and the results of the first quarter of 2014, while adding the following updates:
 
 
1.
Until the end of April 2014, the parties will work to formulate an arrangement which will replace the existing financial covenants and apply for the first time to the results of the second quarter of 2014 (ending on June 30, 2014). If the parties do not reach an understanding, the financial covenants from before the understandings of June 29, 2012 will come into effect again (and particularly the “economic capital” mechanism, including the mending periods included in it).
 
2.
The covenant involving the balance of cash and marketable securities (see section (B) above) has been suspended beginning in the second quarter of 2013, and it was agreed that it will be re-applied, unless otherwise agreed, with respect to the results for the second quarter of 2014 and thereafter;
 
In June, September and December 2014, the Company reached additional agreements with its lending corporations, according to which the financial covenants arrangements existing in the loan agreements were extended from time to time, and in total, until March 31, 2015, in such a way so that the results of the second, third and fourth quarters of 2014 were/ will be examined according to them, including agreements regarding the continued suspension of the covenant with regard to the balance of cash and marketable securities. Within the framework of the aforesaid agreements, the parties will act to formulate an arrangement to replace the existing covenant arrangements, that will apply as of April 1, 2015, with respect to the results of the first quarter of 2015 and thereafter.
In March 2015, after the date of the Statement of Financial Position, the Company reached additional agreements with the relevant lending corporations (apart from one corporation), according to which the existing financial covenant arrangements in the loan agreements were extended once again in such a way that the results for the first and second quarters of 2015 will be examined on their basis, including consents with regard to the continued suspension of the liquidity covenant in relation to those quarterly results. Another banking corporation (“the bank”) gave the Company approval to extend the existing financial covenant arrangements as aforesaid in relation to the results for the first quarter of 2015 only. The Company intends to act in order to obtain the bank’s consent to extend the covenants also in relation to the results of the second quarter of 2015. As long as consent with the bank as aforesaid is not obtained, the financial covenants that exist with regard to all of the relevant banking lenders will apply de facto only with respect to the results of the first quarter of 2015.

IDB Development Corporation Ltd. Convenience translation

 
133
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.  Financial Restrictions and Covenants (cont.)
 
l.       Negotiations to arrange the financial covenants (cont.)
If the Company reaches consent with the bank to extend the financial covenants also with respect to the second quarter of 2015, the parties will act to formulate an arrangement that will replace the existing covenant arrangements with regard to the results of the third quarter of 2015 and thereafter, and if no such arrangement is reached, the previous financial covenants will apply once again (and especially the liquidity covenant and the “economic capital” mechanism, including the remedy periods included in it). As of the date of the report, the Company estimates that it will not be able to meet the levels that were determined in the past as part of the covenants regarding the economic capital and the liquidity covenant, if they are reapplied as aforesaid. The Company is continuing to act in order to reach consents with the relevant financing corporations in order to arrange the calculated financial covenants that were determined in the provisions of its loan agreements as stated above, and additional contractual issues that exist in the loan agreements.
It should be noted that concurrently with the stated agreements with the lending corporations from March 2013, the Company committed to each of its lending corporations, that an agreed resolution mechanism will apply with respect to any dispute with the aforesaid lender with regard to the question whether there was cause entitling the lender to a right for immediate repayment, in case an event occurred which may adversely impact the Company’s financial ability. According to the stated mechanism, if the lender notifies the Company that they believe an event occurred which may adversely impact the Company’s financial ability, and the Company disputes that, the lender may notify the Company that the dispute will be resolved by two arbitrators (whose identity was agreed by the parties, a representative of the lender and a representative of the Company) and their ruling will bind the Company. In case the arbitrators cannot reach a decision, the arbitrator, who is the lender’s representative, may appoint an additional arbitrator whose ruling will be binding. Additionally, the Company has undertaken towards two of its additional lending corporations, that it will not perform any investments whatsoever in the Plaza project in Las Vegas; the Company has also undertaken towards one of the aforementioned lending corporations that no additional investment will remain in the gas sector activity, without the advance approval of the aforementioned lender (except for payments with respect to liabilities which have been given in the past at a scope of which will not exceed NIS 4 million).
In addition, the Company has notified the aforementioned lending corporations that should corporation the convent arrangements with one lending corporation include a provision which his not included in the arrangements with another lending corporation, the other lending corporation will be entitled to request an update to the covenants established with it, such that these will include the aforementioned provision.
As of December 31, 2014 and shortly before the date of publication of this report, the Company is in compliance with the calculated financial covenants by which it was bound as of December 31, 2014.
As of December 31, 2014, loans of the Company, which are subject to the specified financial covenants, totaling NIS 573 million, are classified within current liabilities, in accordance with International Accounting Standards and with note to the fact that the Company had reached agreements with those relevant lending corporations, as part of which the financial covenant arrangements existing within the loan agreements were extended only until March 31, 2015, meaning to a period of less than 12 months.

IDB Development Corporation Ltd. Convenience translation

 
134
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.  Financial Restrictions and Covenants (cont.)
 
 
m.
Additional grounds for immediate repayment
In addition to the aforementioned financial restrictions and covenants, in agreements with banks and financial entities (subject to certain provisions and to the various relevant definitions provided in each agreement) and in certain bonds issued by the Company, there are customary provisions regarding the right to require immediate repayment, including, inter alia, the following circumstances (in whole or in part, as applicable): provisions which grant the banks and the financial entities thee right to demand early repayment in certain cases involving a change in control (with regard to this cause see below); provisions which grant the right to demand immediate repayment of the loans, in the event that another debt of the Company has been repaid through an early repayment or immediate repayment, or through any repayment which is not in accordance with the original amortization schedule, at the demand of the creditor (cross acceleration) or due to the existence of grounds for requiring immediate repayment of another debt of the Company (cross default) (with respect to the bonds (Series G) of the Company - in the event that immediate repayment is required of another series of the Company’s bonds); Reaching of a decision to liquidate and/or submission of a petition for liquidation or for the appointment of a provisional liquidator against the Company, and the filing of a motion to suspend proceedings against the Company or the filing of a motion to issue an assets receivership order or to initiate rehabilitation proceedings, a creditors’ settlement / arrangement or convention or scheduling of creditors’ meetings in connection with an arrangement / insolvency or the filing of a motion for an arrangement or settlement, all in the event that the aforementioned motions have not been canceled / withdrawn within a certain period of time (according to the provisions of each agreement and/or trust deed); Notice given by the Company to its creditors for receipt of an extension or settlement; negotiations or a declaration stating that the Company intends to conduct negotiations for the purpose of formulating an arrangement / settlement proposal between the Company and its creditors or shareholders, or approval of such an arrangement or settlement proposal; filing of a motion for assets receivership regarding all or part of the Company’s property, appointment of a temporary, permanent, or other liquidator, special manager, trustee, or temporary, permanent or other assets receiver, realization of charges, imposition of foreclosures or taking of similar enforcement actions, all in the event that the motions / actions have not been canceled within a certain period of time (in accordance with the provisions of each agreement and/or trust deed); the reaching of a decision or intention with respect to the performance of a structural change (such as a merger); discontinuance of the payment of debts or arrears in payment; announcement by the Company that it intends to stop paying its debts; the existence of a reasonable concern or material concern that the Company will not be able to repay its debts, or will stop payments; a situation wherein the Company will cease, or where it is reasonable to believe that it will cease, conducting its business affairs; an event which may harm the Company’s financial ability or an event which has a significantly negative influence on the Company or on its business condition; an event which causes material harm or which may cause material harm to the rights of the holders of bonds; the filing of a claim or initiation of regulatory or other proceedings or investigations in which the Company is involved, and where it is reasonable to believe that the foregoing will pose a material risk to its ability to fulfill its obligations; cancellation / suspension / expiration / restriction of approval / permit / license / exemption issued by a governmental authority, which are required by the Company in order to fulfill its obligations, in a manner which may have a materially adverse effect on the Company’s ability to fulfill its obligations; etc.; and all in certain circumstances as set forth in the agreements or in the debentures, as applicable.

IDB Development Corporation Ltd. Convenience translation

 
135
 


Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E. Financial Restrictions and Covenants (cont.)
 
 
n.
Change of control in the Company
 
Upon the completion of the creditors’ settlement at IDB Holdings in May 2014, Mr. Elsztain and Mr. Ben-Moshe (through companies controlled by them) became controlling shareholders in the Company. With respect to this change in control, the Company received in June-July 2014 the consent from the relevant lending corporations, regarding the stipulation that the transfer of control to Messrs. Elsztain and Ben-Moshe will not constitute grounds for requiring immediate repayment and some of the foregoing made their consent contingent upon the receipt of similar understandings from all of the Company’s relevant lending corporations (apart from the secured lender). It is noted that one lender stipulated its consent upon the condition that if any of the controlling shareholders specified above (directly or indirectly, including through corporations under their control) no longer holds at least 26.65% of the Company’s issued capital (with full dilution), including no longer holding all of the rights associated with the shares, as these were in effect on the date of consent (July 3, 2014), the foregoing will constitute grounds for requiring the immediate repayment of the credit. The Company notified the other relevant lending corporations that so long as the aforementioned stipulation vis-à-vis this lender was in force, the Company would consider the credit agreements which were signed vis-à-vis the aforementioned lenders as including a similar stipulation. It is noted that the Company’s secured creditor of the Menorah Group has not granted its consent for the change in the control of the Company (the Company has not contacted them on the matter).
The Company’s position, based, inter alia, on legal advice that it received, as of December 31, 2014, its financial creditors do not have grounds to demand immediate repayment of the Company’s debt because of an event of change of control that occurred in the Company in May 2014. In addition, in view of the fact that Menorah withdrew its motion to demand immediate repayment of the Company’s debt (a motion that was based, inter alia, on the change of control that occurred in the Company in May 2014), and withdrew its objection to the release of the surplus collateral as requested by the Company and in view of the circumstances that led Menorah to act in this manner, the Company estimates, based on its legal advisors, that the likelihood of success of a motion by any of the Company’s financial creditors (whether a secured creditor or not) to demand immediate repayment of the Company’s debt to them as a result of the change of control in the Company arising from the approval and completion of the arrangement in IDB Holdings or on other grounds is small. It should be emphasized that apart from Menorah’s demand for immediate repayment of the debt to it, a motion that it withdrew, no other creditors demanded the immediate repayment of the debt to them in connection with the aforesaid. For additional information regarding the Menorah loan, see note 16.C.2.
As stated in note 15.B.5 above, within the framework of the rights issue to the Company’s shareholders which took place in January-February 2015, the cumulative holding rate of Mr. Elsztain and Mr. Ben Moshe (through corporations under their control) has increased from approximately 62.5% (31.27% each) to approximately 77.7% of the Company’s issued capital, however the holding rate of Mr. Ben Moshe on his own (through a corporation under his control) decreased to approximately 16.2% of the Company’s issued capital. In light of this, the Company notes (without derogating from any claim or right it is entitled to) that five of its lending corporations (banks and a financial entity) may claim that they have cause to place the loans provided by them to the Company for immediate repayment. The Company contacted the lending corporation (which was given, as stated above, a right to place the loan for immediate repayment in case one of the controlling shareholders ceases to hold on their own at least 26.65% of the Company’s issued capital) and requested its consent to that as long as Mr. Elsztain and Mr. Ben Moshe hold over 53.3% of the Company’s issued capital cumulatively, changes in their holding rate at the Company resulting from the rights issue will not constitute a breach of the provision in the agreement with regard to a change in control, and alternatively that the effect of the aforesaid provision in the agreement will be suspended until June 30, 2015 (while in this period the bank and the Company will discuss the revision of the current provisions relating to the composition of the control group at the Company).
In addition, the Company updated the other relevant lending corporations with regard to its request to the aforesaid lending corporation. As of the date of this report, the Company has not yet reached consents with the aforesaid lending corporation and there is no certainty that its consent to the Company’s aforesaid request will be obtained. With regard to a similar control covenant included in loans given to Discount Investments, see note 16.F.1.b below.
 
 
 
136
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
E.  Financial Restrictions and Covenants (cont.)
 
 
o.
Cancellation of the transaction for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises to JT
On January 27, 2014, the Company contacted the relevant lending corporations towards which the Company has undertaken the financial covenants described above, for the purpose of obtaining their approval that the completion of the transaction involving the sale of the Company’s holdings in Clal Holdings Insurance Enterprises to JT (as stated in note 3.H.5.a. above), including the performance of any of the actions accompanying the transaction will not constitute, at the time of the performance of the transaction and at any subsequent date, a breach of any of the Company’s undertakings as included in the financing agreements with those lending corporations.
The Company received consent from all of the lending corporations to complete the aforesaid transaction, as well as their consent that if the transaction materializes, adjustments will be made to various financial covenants.
As stated in note 3.H.5.a above, on May 29, 2014, the aforesaid agreement with JT expired and was cancelled. Therefore, the adjustments to the covenants which were approved and signed by the relevant financing entities for the purposes of the aforesaid transaction (including their approval of the transaction, as stated above), did not come into effect.
For details regarding a letter from the Capital Market Commissioner dated December 30, 2014 which includes a timeline for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises, see note 3.H.5.c above.
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies
 
 
1.
Discount Investment Corporation
 
 
a.
In January 2014, Discount Investment Corporation issued to the public, according to its shelf offer report of January 2014, which was published pursuant to its shelf prospectus of December 2013 (which amended its shelf prospectus of June 2013), series F linked bonds with a nominal value of NIS 898 million, by way of an expansion of the series, in return for the acquisition of series D linked bonds with a nominal value of NIS 794 million.
 
The series F bonds issued as aforesaid were listed on the stock exchange and the series D bonds that were acquired by Discount Investments as aforesaid expired and were delisted from the stock exchange.
 
 
b.
In July 2014, two banking corporations that provided loans to Discount Investments, the principal balances of which as at December 31, 2014 are NIS 271 million and NIS 250 million, with regard to their right to place the stated loans for immediate repayment in case of a change in control, agreed that the change of control as part of the completion of the debt arrangement of IDB Holdings, as stated in note 16.G.2 below, shall not constitute grounds for demanding immediate repayment of their loan to Discount Investments if all of the following conditions are satisfied: (a) Messrs. Eduardo Elsztain and Mordechai Ben-Moshe, who hold the controlling interests (indirectly and in equal shares) in the Company, shall each hold, directly and/or indirectly through Companies controlled by them, at least 26.65% of the issued and paid up share capital of the Company (on a fully diluted basis) and the rights attached to the aforesaid shares; (b) the Company shall itself control Discount Investments directly and/or indirectly (on a fully diluted basis). It should be noted, that each of the stated lenders is entitled to place its loan for immediate repayment in case another creditor of Discount Investments places for immediate repayment a debt of Discount Investments towards it. As stated in note 15.B.5 above, in February 2015 rights issued by the Company were exercised, and subsequently the rate of holding by Mr. Mordechai Ben Moshe in the issued capital of the Company fell below a rate of 26.65%, a change which may constitute grounds for any of the banking corporations mentioned above to place its loan for immediate repayment. Discount Investments contacted each of the banking corporations and requested their consent that changes in the percentage holdings of the control group of the Company as a result of the rights issue will not constitute grounds for to place its loan for immediate repayment, as long as Messrs.

IDB Development Corporation Ltd. Convenience translation

 
137
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
1.
Discount Investment Corporation (cont.)
 
 
b. (cont'd)
 
Elsztain and Ben-Moshe continue to hold cumulatively (directly or indirectly through corporations that they control) more than 53.3% of the Company’s issued capital, and alternatively that non-holding by a controlling shareholder of the minimum stated threshold of 26.65% of the Company’s issued capital shall not constitute grounds to place the loan for immediate repayment during the period until June 30, 2015, and in this period the banking corporation and Discount Investments will discuss the revision of the provisions of the loan agreement with respect to the composition of the Company’s control group. As at the date of approval of this report, the banking corporations have not yet responded to Discount Investments’ request and there is no certainty that agreements will be achieved with the banking corporations or any of them on this matter.
 
 
c.
In December 2014, the Board of Directors of Discount Investments approved a plan for repurchase of its bonds, as they are in outstanding from time to time, by Discount Investments or a wholly owned subsidiary, in a total scope of NIS 200 million during a period of 12 months. The acquisitions will be made from time to time on the stock exchange and/or off of the stock exchange, directly and/or by a third party, in different scopes and prices, according to the discretion of the management of Discount Investments and with note, inter alia, to the market conditions and to the price of its bonds on the stock exchange, and only so long as no acquisition will cause a loss to Discount Investments at the time of its performance. In December 2014, a wholly owned subsidiary of Discount Investments acquired its bonds in an immaterial amount and after the date of the Statement of Financial Position, the aforesaid subsidiary acquired on the stock exchange series D bonds of Discount Investments with a nominal value of NIS 44 million, series F bonds with a nominal value of NIS 53 million and series I bonds with a nominal value of NIS 5 million, for a total consideration of NIS 106 million. The aforesaid bonds will not be delisted from trade on the stock exchange. As a result of the aforesaid acquisitions, the Company will record in the first quarter of 2015, its share in the profit in an amount of NIS 19 million.
 
 
 
d.
As part of completion the merger agreement between Adama and ChemChina in October 2011, Koor was given, through a Chinese bank (‘the Chinese bank’) a non-recourse loan in a sum of $960 million, secured by a charge on Adama’s shares held by Koor immediately after the completion of the merger transaction (hereafter in this section, ‘the charged shares’ and ‘the non-recourse loan’), which is repayable by means of Adama shares as stated below. The non-recourse loan was given to Koor and its wholly owned subsidiary, and was divided between Koor and the aforesaid subsidiary in proportion to the number of charged shares held by each one of them.
 
In December 2013, the aforesaid subsidiary was merged with Koor and liquidated without winding-up, and from that date the loan agreement has been with Koor only. As part of the non-recourse loan agreement, it was held, inter alia, that the voting rights for the charged shares belong to Koor, except in a case of a ‘breach event’ (see below), in which case the Chinese bank will be entitled to the voting rights by virtue of the charged shares. Koor is entitled to transfer the charged shares (subject to restrictions in the agreement between the shareholders of Adama), in whole or in part, provided that in the case of a transfer to an unrelated third party, the consideration that it will receive will be used first to repay the proportional share of the loan (according to the number of charged shares that are transferred). In a case of a breach event (as defined below), the Chinese bank will be entitled to demand immediate repayment of the loan, and to realize the charge, unless Koor pays the loan within five working days of the date on which its immediate repayment is demanded. As a rule (apart from in exceptional cases), there is no repair period for breach events.

IDB Development Corporation Ltd. Convenience translation

 
138
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
1.
Discount Investment Corporation (cont.)
 
 
d. (cont'd)
 
 
The following are details regarding the main terms of the non-recourse loan:
 
·  
Payment of principal and interest: the principal of the non-recourse loan will be paid in full at the end of seven years from the date on which the loan is given. In the first four years from the date on which the non-recourse loan is given (hereafter ‘the period of the first four years’), the interest is not paid (apart from dividends received on the charged shares) but is added to the principal every three months and will be paid with the principal at the end of the seventh year. After the period of the first four years, the current interest will be paid in case at the end of each interest period (the interest period is every three months on fixed dates).
Koor was given the right, starting from one year after the date of giving the non-recourse loan, to make early repayment of the non-recourse loan, in whole or in part, (in which case a proportional part of the charged shares would be released in accordance with the proportional part of the loan that was repaid) or by way of a transfer of the charged shares (in accordance with the proportional part of the loan that was repaid early) to ChemChina or the Chinese bank.
·  
Interest: the non-recourse loan bears interest at a rate that does not exceed the finance cost that ChemChina will take for the purpose pf paying the overall merger consideration, and in any case will not exceed the Libor rate (for six months) plus 4.5% per annum that will be fixed for each two consecutive quarters in advance. (Taking into account the Libor rate shortly before the date of approval of these financial statements, the effective interest (after grossing up the deduction of taxes insofar as any will be payable and before commissions) is estimated at approximately 5.3%). Insofar as there will be a liability to deduct tax at source in Israel for the interest payments, Koor will pay these payments and will gross up the full tax. In addition, Koor undertook to indemnify ChemChina for business taxes that ChemChina will be liable to pay pursuant to the law in China for such interest payments (insofar as there will be no exemption for such taxes) up to an amount of 5% of the interest (plus grossing-up, insofar as it applies). It should be noted that the payment of the business tax in China is likely to be charged also during the period when the interest is accumulated (i.e., during the period of the first four years).
·  
‘Breach event’: the non-payment of the loan principal or interest; Koor’s liquidation or insolvency, suspension of proceedings or creditors’ arrangements, or the filing of proceedings for liquidation, insolvency, a suspension of proceedings or creditors’ arrangements that are not cancelled within the stated period; an incorrect declaration on a material aspect or a material breach of the terms of the loan agreement; if the performance of Koor’s undertakings pursuant to the loan agreement will become unlawful.
·  
The charged shares: realization of the charge on the charged shares will be the only remedy available to the Chinese bank for the purpose of repaying the loan and securing the liabilities pursuant to the loan, except in certain cases where the validity of the charge in favor of the Chinese is prejudiced during the period of 90 days from the date of transfer of Adama’s shares to an authorized transferee, insofar as they will be transferred, pursuant to agreements with ChemChina, in which case the loan will become a recourse loan (with a right of recourse against Koor for the lower of the balance of the debt for the loan or the value of the charged shares), but only as long as the defect is not remedied. Should the loan become a recourse loan, such a defect will constitute grounds for the Chinese bank to demand immediate repayment of the loan, if the defect is not remedied within the period of time determined.
The charge also applies to dividends and other distributions that will be received for the charged shares, except for dividends surpluses that were defined as dividends and other distributions that will be distributed for the charged shares in a calendar year in excess of the interest accrued and not paid or that accrued in that year (including the interest that will be added to the principal). The dividends and other distributions (apart from dividend surpluses) will be deposited in an account controlled by the Chinese bank and will be used for the purpose of making early repayment of the loan, and the release of dividend surpluses to Koor as stated above, and during the period of the first four years also for the payment of interest as aforesaid.

IDB Development Corporation Ltd. Convenience translation

 
139
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
1.
Discount Investment Corporation (cont.)
 
d.     (cont.)
 
The non-recourse loan does not include covenants or stipulations with regard to the ratio of the collateral to the debt, but it does include several prohibitions relating to the charged shares themselves (such as a prohibition of an additional charge, a transfer of the charged shares that is not in accordance with the provisions of the agreement, and so on).
The following are the components of the hybrid financial instrument for the aforesaid non-recourse loan:
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Host contract in the hybrid financial instrument for the non-recourse loan
     3,170       3,676  
Embedded derivative
     (72 )     (607 )
      3,098       3,069  
Less deferred expenses
     (8 )     (12 )
Hybrid financial instrument for the non-recourse loan
     3,090       3,057  

The book value of the host contract was determined on the basis of the future value of Adama’s shares, discounted at the effective interest rate that was determined on the initial date of separation (the completion of the Adama-ChemChina transaction).

The future value of Adama’s shares was estimated as follows:
 
·  
As of December 31, 2014 – the future value of Adama shares was calculated by discounting the base asset value (less the non-marketability component of the shares) until the date of delivery of the shares (and alternatively the date of repayment of the loan) at the rate of return on capital as at December 31, 2014. Based on the findings of a binomial model it was estimated that the date of delivery of the shares (and alternatively the date of repayment of the loan) is approximately one year after the date of the estimate.
·  
As at December 31, 2013 – the value of Adama’s shares expected at the end of loan term was calculated based on the rate of return on the capital as of December 31, 2013, which was used in estimating the value of Adama’s shares. The value of Adama’s shares, which was estimated in accordance with a capitalization of Adama’s operating cash flow forecast for the aforesaid date, is capitalized with Adama’s weighted cost of capital, less Adama’s net financial liabilities.
 
The fair value of the embedded derivative is determined according to the binomial options pricing model, which is derived from the Black & Scholes formula, in consideration of estimates and parameters which are based on unobservable data used by the valuation model, such as the valuation of the base asset (as stated above), standard deviation and non-marketability discount, whilst using variables based on observable market data.

IDB Development Corporation Ltd. Convenience translation

 
140
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
1.
Discount Investment Corporation (cont.)
 
d.     (cont.)
 
The main estimates that were used by the appraiser during the relevant periods in determining the fair value of the embedded derivative and the book value of the host contract in the hybrid instrument for the non-recourse loan:
 
 
As of December 31, 2014
As of December 31, 2013
Standard deviation
33.05%
39.3%
Non-marketability discount *
For the purpose of estimating the discount rate for non-marketability until the date of registration for trade or the making liquid of the base asset, a put option model was used (Average Put Option). Accordingly, a fixed discount rate was estimated at 8.2%.
For the purpose of estimating the discount rate for non-negotiability, the average put option model was used for various possible listing dates (see above). The discount rate was reduced to its minimum value throughout the model in accordance with the various probabilities for negotiability of the shares on future dates. The weighted amount of the discount as of the date of the estimate stood at 8.1%.
Control premium
Not relevant.**
3.3%-6.6% and on average 4.95% of the value of the base asset***.
Rate of return on the capital
12.54%
12.11%
 
*
The estimates regarding the date of a future issuance or the making liquid of the shares were changed at the date of valuation as at December 31, 2014 subsequent to the postponement of the issuance as aforesaid. In the valuation as at December 31, 2013, the non-marketability discount that decreases until the expected listing date is consistent with the valuation methodology that was used with regard to scenario method valuation and is consistent with the treatment for the host contract, whose value was based inter alia on the main scenario of listing by the end of the option period, and therefore a non-marketability discount was not deducted in that scenario.
**
The valuation as at December 31, 2014 was based on the value per share reflected in the lower range published within the registration document as aforesaid and as the aforesaid value does not reflect a control value, no control premium deduction was required at this date.
***
The control premium inherent in the value of the benefit as of the date of completion of the Adama-ChemChina transaction is estimated at a sum of $169 million. In May 2011 a decision was made by the court in a legal proceeding against Koor and Adama with regard to the aforesaid transaction, according to which the value of the surplus benefit should be divided between all of the shareholders of Adama, and the settlement in the aforesaid legal proceeding in which Koor paid $45 million to the other shareholders of Adam was given the force of a final judgment.

The host contract in the hybrid financial instrument for the aforesaid loan embodies an effective rate of return of approximately 12%.
Regarding the total finance expenses for the aforesaid financial instrument, which were recorded in these financial statements, see note 28.b below.

IDB Development Corporation Ltd. Convenience translation

 
141
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
1.
Discount Investment Corporation (cont.)
 
 
e.
Until January 15, 2014, Koor and private headquarter companies wholly owned by it, were engaged with a corporation from the Morgan Stanley Group and with a corporation from Citigroup (“the lending corporations”) in credit facility arrangements without right of recourse, which were secured by Credit Suisse shares (“Morgan Stanley Credit” and “Citigroup Credit,” jointly: the “Credit Arrangements with the Lending Corporations”).
As part of the realization of the entire balance of Koor’s holdings in Credit Suisse shares in January 2014, as stated above, Koor repaid the entire balance of the Morgan Stanley credit and the Citigroup credit, out of the consideration from the realization of Credit Suisse shares, as stated above, and as at the approval date of these financial statements, Koor has no liabilities in respect of the credit arrangements with the lending corporations.
 
 
f.
In March 2015, the Board of Directors of Discount Investments approved, at the request of the trustees to its series B, D, F, G, H & I bondholders, the provision of a commitment by Discount Investments according to that specified below, and this until September 15, 2015 (“the commitment period”):
-  
Discount Investments will not distribute any dividend of any type to its shareholders.
-  
Discount Investments will not pledge directly or through a headquarter company under its full ownership, the control core in any of the companies held by it, unless it delivers prior written notice to the trustees of its bonds 21 days in advance.
-  
Discount Investments will not receive a new loan at an amount exceeding NIS 50 million which is secured by charges over its assets or that includes financial covenants towards the lender, unless it delivers to the trustees of the bonds prior written notice 21 days in advance.
-  
Discount Investments will not repay in early repayments, payments to a single financial creditor at a total amount exceeding NIS 50 million during the commitment period, unless it provides prior written notice to the trustees 21 days in advance.
-  
Discount Investments will not change for any of its financial creditors: (1) the interest rates; (2) the financial covenants; and (3) the collaterals provided to them according to the existing credit and financing agreements, unless it provides prior written notice of 21 days to the trustees.
-  
Discount Investments will deliver notice to the trustees and any of its financial creditors, the debt towards which is over NIS 10 million, will give written notice of the placing of its debt for immediate repayment.

It should be noted that Discount Investments will be entitled to give, at any time, 30 days’ written notice that it wishes to terminate its aforesaid commitments.
In addition, Discount Investments’ commitments will be cancelled immediately insofar as legal proceedings of any kind will be taken by the trustees to the bonds (or some of them) against Discount Investments or insofar as a meeting of the bond holders (of all series or some of them) is convened, the agenda of which will include, inter alia, the appointment of advisors (economic and others), appointing representatives on behalf of the bond holders, taking legal proceedings of any kind against Discount Investments, placing its debt for immediate repayment or any issue similar in essence to the above issues.


IDB Development Corporation Ltd. Convenience translation

 
142
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
2.       Cellcom
 
 
a.
Cellcom undertook to comply with financial covenants and other restrictions with regard to the series F and series G bonds that it issued to the public in Israel in March 2012, including:
·  
A debt to EBITDA13 ratio exceeding 5, or exceeding 4.5 over four consecutive quarters, shall be regarded as grounds for demanding immediate repayment of the aforesaid bonds. As of December 31, 2014, this ratio stood at 2.3.
·  
An undertaking not to distribute more than 95% of the profits that may be distributed pursuant to the Companies Law (‘the profits’), provided that if the debt to EBITDA ratio13 exceeds 3.5, Cellcom shall not distribute more than 85% of the profits, and if the debt to EBITDA ratio13 exceeds 4, Cellcom shall not distribute more than 70% of the profits. A failure to comply with this criterion will be regarded as grounds for demanding immediate repayment of the aforesaid bonds.
·  
A demand for immediate repayment of another debt of Cellcom (cross-default), except for immediate repayment of a debt in an amount of NIS 150 million or less, shall be regarded as grounds for demanding immediate repayment of the bonds.
·  
An undertaking not to create charges, subject to certain exceptions. A failure to comply with this undertaking shall be regarded as a ground for demanding immediate repayment of the bonds.
·  
An undertaking to pay additional interest of 0.25% per annum on the aforesaid bonds for a decrease of two ratings in their rating in comparison to the ratio given to the aforesaid bonds prior to their issue, and an undertaking to pay additional interest of 0.25% per annum on the aforesaid bonds for every additional rating up to a maximum addition of 1% per annum. In June 2013, Maalot revised the rating of Cellcom’s bonds traded on the Tel-Aviv Stock Exchange from a rating of AA- with a negative rating forecast to a rating of A+ with a stable rating forecast.
As a result of the aforesaid revision of the rating, and since it led to a decrease of two ratings in the rating of the aforesaid bonds in relation to their rating on their date of issue, the annual rate of interest that Cellcom will pay for the aforesaid series F and series G bonds was increased as of July 5, 2013, by 0.25% to 4.60% and 6.99%, respectively.
·  
Where the aforesaid bonds stop being rated for a period exceeding 60 days, this shall constitute grounds for demanding immediate repayment.

As of December 31, 2014, and shortly before o the date of approval of these financial statements, Cellcom complied with the covenants that were determined.


 
13
Debt to EBITDA ratio – the ratio between Cellcom’s net debt and its EBITDA, neutralizing non-recurring effects. For this matter, net debt - credit and loans from banking corporations and from others and liabilities for bonds, less cash and cash equivalents and current investments in negotiable securities; EBITDA – profit before depreciation and reductions, other expenses/income, net, finance expenses/income, net, and taxes of income, for the period of the 12 months that preceded the date of Cellcom’s last consolidated financial statements.
 

IDB Development Corporation Ltd. Convenience translation

 
143
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
2.       Cellcom (cont.)
 
 
b.
In connection with the issuance of series H and I bonds of Cellcom to the public in Israel, which took place in July 2014, Cellcom undertook, pursuant to a new trust deed (“the new trust deed”), to comply with financial covenants and other additional covenants, beyond the obligations which it accepted as part of a trust deed in connection with the issuance of its bonds (Series F and G) (“the existing trust deed”) as specified in section a. above, including: (1) in addition to the financial covenant which Cellcom undertook in the past, in the existing trust deed, according to which, if the net debt to EBITDA ratio exceeds 5, or exceeds 4.5 for four consecutive quarters, the foregoing will constitute grounds for requiring the immediate repayment of the bonds, the aforementioned financial covenant, in accordance with the new trust deed, will also constitute a condition for distributing a dividend; and (2) compliance with the financial covenants will constitute a condition for the issuance of additional bonds from either of the two new series.
 
The new trust deed includes grounds for requiring the immediate repayment of the bonds, are mostly similar to the grounds for requiring immediate repayment specified in the existing trust deed, excluding certain new grounds for requiring immediate repayment which are not included in the existing trust deed, and certain changes to the grounds for requiring immediate repayment which are in the existing trust deed, including: (1) breach of the aforementioned restriction regarding dividend distribution; (2) requiring the immediate repayment of another debt of Cellcom (cross default), in a minimum amount of NIS 150 million, which constitutes grounds for requiring the immediate repayment of Cellcom’s bonds. In accordance with the existing trust deed, the foregoing will not apply to any cross default which has been caused by another series of Cellcom bonds; (3) the existence of a real concern that Cellcom will not fulfill its material obligations towards the bond holders; (4) the inclusion of a warning in Cellcom’s financial statements of a concern regarding the continued existence of Cellcom as a going concern, for a period of two consecutive quarters; and (5) a breach of Cellcom’s undertakings regarding the issuance of new bonds.
 
 
As at December 31, 2014, and shortly before the approval of these financial statements, Cellcom was in compliance with the covenants that were determined.
 
 
3.
Property & Building
 
 
a.
In June 2012, a corporation that is wholly owned by Property & Building, which directly holds the HSBC building (“the building corporation”) and a special purpose American corporation that directly holds all of the rights in the building corporation (“the additional corporation,” and jointly, “the property companies”) entered into loan agreements (jointly, in this section: “the agreement”) with the American bank, J.P. Morgan Chase Bank, N.A. (“Morgan Bank”), in which Morgan Bank gave the property companies a loan in a total amount of $400 million for a period of ten years. The loan is comprised of a main loan in an amount of $300 million, which was given to the building corporation (‘the main loan’), and a secondary loan in an amount of $100 million, which was given to the additional corporation (“the secondary loan,” and jointly with the main loan hereafter in this section, “the loan”). The following are details of the main terms of the loan:
 
·  
The balance of the loan as of December 31, 2014: $400 million (NIS 1,556 million).
·  
The date of repaying the principal: the principal of the main loan is repayable starting from the sixth year after it was given in accordance with a thirty year payment schedule, in monthly payments. The balance of the principal of the loan (including the secondary loan) is repayable in one payment at the end of the loan period in July 2022.
·  
The rate of interest: fixed annual interest in an average amount of 5.04% (calculated on the basis of 360 days per annum – reflects an effective interest rate of 5.23% per annum). The interest is paid each month.
·  
The loan currency: US dollar.

IDB Development Corporation Ltd. Convenience translation

 
144
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
3.       Property & Building (cont.)
 
a. (cont.)
 
·  
Collateral: as collateral for the repayment of the main loan (in a sum of $300 million), a first degree mortgage was registered on the HSBC building and the land on which it is constructed, and additional charges as customary on the lease agreements and rent accruing from the property, on the bank accounts involved in operating the property, a change on insurance receipts, rights to tax returns with regard to the asset and so on. As collateral for the repayment of the secondary loan (in a sum of $100 million), a first degree charge was registered on all of the rights in the building corporation.
·  
A right of recourse against Property & Building and/or the property companies: the loan is without any right of recourse against Property & Building and/or the property companies. A wholly owned subsidiary of Property & Building, which indirectly owns the property in its entirety (in this section “the subsidiary”), gave a carve-out guarantee for an unlimited amount for the payment of all of the losses that may be caused to Morgan Bank as a result of special defined cases only, which are customary cases in agreements of this kind (such as fraud, false representation, and so on). In addition, Property & Building gave a limited carve-out guarantee up to an amount of $125 million. Moreover, each of the property companies and the subsidiary undertook to indemnify Morgan Bank for any loss that it may suffer, for an unlimited amount, as a result of cases concerning hazardous substances and environmental protection.
·  
Cross-default mechanism: a breach of the main loan constitutes a breach of the secondary loan, but not vice versa.
·  
Additional restrictions:
1.  
All of the money received from operating the HSBC building are deposited in designated accounts that are charged to Morgan Bank (as of December 31, 2013 – a sum of NIS 40 million). This money is transferred during the lifetime of the loan to the building corporation after the current payment of the loan principal and interest thereon. In the following cases, the money received will be held in the designated accounts until the incident is repaired or terminated:
§  
A breach of the agreement that constitutes a ground for demanding immediate repayment of the loan.
§  
The existence of insolvency and/or bankruptcy proceedings of Property & Building.
§  
When the quarterly debt service cover ratio (the ratio between the net operating income for the period and the total payments of principal and interest for the loan during that period) is less than 1.05.
§  
In a case of non-renewal of the lease agreement by HSBC Bank (the main tenant of the HSBC building) or the vacating of the premises by it before the end of the lease agreement without it being replaced by another tenant in accordance with the terms stipulated in the agreement.
2.  
The taking loans and additional debts by the property companies requires approval of Morgan Bank, but it is possible to receive additional finance by complying with certain criteria that are stipulated in the agreement.
3.  
It is not possible to create additional charges on the HSBC building or with regard thereto.
4.  
The ownership rights in the HSBC building and the ancillary rights may be transferred subject to an assignment of the loan and Morgan Bank’s consent. Morgan Bank’s consent will not be required in a case of a transfer of rights insofar as Property & Building (directly or indirectly) will continue to hold at least 25% of the HSBC building and the rights ancillary rights thereto and it will continue to retain control of the building corporation. There are no restrictions on a change of the holdings in Property & Building as long as Property & Building is a public company.

IDB Development Corporation Ltd. Convenience translation

 
145
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
3.       Property & Building (cont.)
 
a. (cont.)
 
5.  
Transactions with major tenants, related parties or with regard to main parts of the HSBC building are subject to the approval of Morgan Bank.
6.  
It is not possible to sell, transfer, charge or issue securities of Property & Building, except as stated above and in other permitted transfers.
7.  
It is not possible to change the type of incorporation of the property companies and they undertook to act in a single field of activity as the property corporation and not to change the field of activity.
·  
Grounds for demanding immediate repayment of the credit: in a case of a breach of the aforesaid restrictions with regard to the change on the HSBC building or a transfer of the rights therein without the prior consent of Morgan Bank, and if customary grounds in agreements of this kind arise, Morgan Bank may demand immediate repayment of the loan, make use of money deposited in the aforesaid designated accounts, take control of the building and manage it, and act to realize the collateral. The property company is in compliance with all of the aforesaid restrictions.
 
 
b.
The following are details of main terms relating to the series F and G bonds that Property & Building issued to the public in 2012:
 
·  
Collateral: Property & Building’s aforesaid bonds from series F and G are not secured by charges, but Property & Building undertook not to charge its assets (apart from certain exceptions stated in the Trust Deed), in addition to charges existing on the date of issuing the aforesaid bonds. Property & Building will be entitled to cancel its undertaking not to create charges, subject to creating collateral in favor of the trustee of the bonds as stated in the Trust Deed.
·  
Financial covenants: with regard to the series F and G bonds, Property & Building undertook to comply with the following financial covenants:
 
Description of the covenant
  
Covenant
    
As of December 31, 2014
  
Minimal equity attributed to the shareholders of Property & Building
  
NIS 700 million
    
NIS 1,529 million
  
The maximum ratio between the net financial debt and the net consolidated assets of Property & Building
     75 %     61.8 %
The maximum ratio between the net financial debt and the annual EBIDTA of Property & Building consolidated
     17       13.9  

The financial covenants are examined each calendar quarter, on the basis of the audited consolidated financial statements of Property & Building. As of December 31, 2014, Property & Building complied with the aforesaid financial covenants and to the best of its knowledge it also complied with them shortly before the date of approval of these financial statements.

IDB Development Corporation Ltd. Convenience translation

 
146
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
3.       Property & Building (cont.)
 
b. (cont.)
·  
Additional restrictions: Property & Building undertook not to make a distribution, if as a result thereof the net financial debt ratio to the net amount of consolidated assets exceeds 70% or if the equity attributed to its shareholders will be less than NIS 900 million. In addition, if the rating of the bonds of Property & Building will decrease by two ratings in comparison to their rating on the date of the aforesaid issue, the rate of interest for the bonds from the aforesaid issue will increase by 0.5%. For each decrease in rating by a further rating, the interest rate for the bonds of the aforesaid issue will increase by an additional 0.25%, but not more than 1% in aggregate.
·  
Grounds for demanding immediate repayment of the bonds from the aforesaid issue: in addition to standard grounds for immediate repayment (including, inter alia, insolvency events and various enforcement operations against Property & Building, a significant deterioration in its business and a real concern of non-payment, delisting, a merger subject to exceptions, a change in its field of operations, and so on), immediate payment of the aforesaid bonds may be demanded in the following cases:
Non-compliance with the aforesaid financial covenants in two consecutive quarters.
·  
Cross-default – if immediate payment is demanded for another series of Property & Building’s bonds or a bank loan in an amount of more than NIS 300 million.
A decrease in the credit rating of Property & Building below Baa2 or the rating company stops rating its bonds.
 
c.
In the third quarter of 2014, Great Wash Park, LLC, which is an investee company held by IDB Group USA Investments Inc. (hereinafter: “IDBG”), a company under the joint control and the joint ownership of Property & Building and IDB Development, and which is building a commercial and office project in Las Vegas, USA, extended the repayment date of a bank loan in the amount of USD 59 million, until December 2016, without changing the other loan terms.
 
 
4.
Shufersal
 
The following are details of the main terms relating to the series D and E bonds (jointly in this section, ‘the bonds’) that Shufersal issued to the public in October 2013:
 
·  
A mechanism that adjusts the interest rate as a result of a change in the rating of the bonds: the bonds were rated by Maalot with an A+ rating. In the event that the bond rating will be two ratings lower than an A+ rating (or a corresponding rating), the annual interest will increase by an amount of 0.25%. In any case of an additional decrease in the rating, the annual interest rate will increase by an additional 0.25% for each additional rating as aforesaid. In any case, the additional annual interest for the reduction in the rating as aforesaid shall not exceed 1% in addition to the annual interest determined on the date of issuing the bonds. If the bonds are rated lower than (BBB-) (or any corresponding rating) and the rating is not increased within 60 days to above the aforesaid level, it shall constitute a ground for demanding immediate repayment.
·  
Right to early repayment: from October 2014, Shufersal will be entitled to opt to carry out an early redemption of its bonds, in whole or in part.
·  
Financial covenants which Shufersal undertook to comply with (Shufersal will be regarded as in breach of its liabilities stated below only if it does not comply with the relevant financial covenants during two consecutive calendar quarters).
·  
The ratio between Shufersal’s net debt and its total balance sheet on the date when each calendar quarter ends, as these figures appear in its consolidated reviewed or audited financial statements, as applicable, for the relevant calendar quarter, shall not exceed 60%. For this purpose, “net debt” – the cumulative amount of the following balance sheet items: current maturities of long-term loans, current maturities of bonds, long-term liabilities to banking corporations and others, and long-term liabilities for bonds, less cash and cash equivalents, short-term deposit and negotiable collateral.

IDB Development Corporation Ltd. Convenience translation

 
147
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
4.
Shufersal (cont.)
 
·  
Shufersal’s total equity (including rights that do not grant control) on the last day of each calendar quarter, as this figure appears in the consolidated reviewed or audited financial statements, as applicable, for the relevant calendar quarter, shall not be less than NIS 550 million.
·  
An undertaking not to create a current charge: Shufersal undertook not to create a current charge on all of its assets in favor of any third party, unless it receives approval of a meeting of the bondholders to do so.
·  
Cross-default: grounds for demanding immediate repayment of the bonds was determined in a case where immediate repayment of another debt that Shufersal took from a banking corporation or a financial institution was demanded (except for a debt where there is no right of recourse against Shufersal), provided that the total amount of the demand for immediate repayment as aforesaid exceeds NIS 300 million; or immediate repayment is demanded (not on Shufersal’s initiative) for another series of bonds that was issued by Shufersal and which is in circulation, provided that the total amount for which the demand for immediate repayment was made exceeds NIS 40 million.
·  
The need for the consent of the bondholders for certain operations: as part of the grounds for demanding immediate repayment of the bonds, the trust deeds of the bonds also determined the following grounds: [a] the implementation of a merger (as defined in the Companies Law) between Shufersal and another company, with certain exceptions determined in the trust deeds, without obtaining approval of the bondholders, unless the acquiring company gives notice that there is no reasonable concern that as a result of the merger the acquiring company will not be able to carry out all of the liabilities for the bonds on time; [b] a sale by Shufersal to another (except a sale to corporations controlled by it) of all or most of its assets (as the term is defined in the trust deeds) without receiving approval of the bondholders, with certain exceptions that are stipulated in the trust deeds. Shufersal undertook not to expand the series of bonds, insofar as an expansion of a series as aforesaid will prejudice its existing rating at that time.
·  
Restrictions on distributing dividends: Shufersal undertook not to make a distribution of dividends to its shareholders and/or a self-purchase of its shares and/or any other distribution as defined in the Companies Law: (1) insofar as the result of a distribution as aforesaid is that Shufersal’s total capital (including rights that do not grant control), according to its consolidated financial statements, will fall below NIS 750 million; (a) insofar as in consequence of such a distribution, the ratio between Shufersal’s net debt (as defined above), calculated in accordance with Shufersal’s most recent audited or reviewed (as applicable) consolidated financial statements prior to the date of the distribution and its annual EBITDA (as defined below), taking into account such a distribution, will exceed 7.

 
For this purpose, ‘annual EBITDA’ means the cumulative amount during a period of twelve calendar months of Shufersal’s operating profit (before expenses and other income), plus depreciation and amortization, calculated in accordance with the figures as stated in Shufersal’s audited or reviewed (as applicable) consolidated financial statements for the last four quarters that preceded the date of the distribution.
 
As of December 31, 2014, Shufersal was in compliance with the financial covenants determined for it, as stated above.


IDB Development Corporation Ltd. Convenience translation

 
148
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
5.
Adama
 
 
a.
In February 2014, Adama performed a private offering of bonds with a total nominal value of NIS 488 million, from its existing Series D, which were offered at a price which reflected an effective interest rate of 2.64% per year, unlinked to the CPI or to any currency. The total consideration received by Adama with respect to these bonds amounted to NIS 527 million.
 
 
b.
Adama has an obligation to various banks to comply with financial covenants by virtue of the financial documents that regulate the long-term bank credit of Adama and its consolidated companies (“the finance documents”), of which the main ones, as of December 31, 2014, are as follows:
1.  
The ratio between Adama’s interest-bearing financial liabilities and its equity shall not exceed 1.25. As of December 31, 2014, this ratio stood de facto at 0.7.
2.  
The ratio between the Adama’s interest-bearing financial undertakings and its earnings before interest, taxes, depreciation and amortization (EBITDA) shall not exceed 4. As of December 31, 2014, this ratio stood at 2.5.
3.  
Adama’s equity shall not be less than $1.22 billion. As of December 31, 2014, the equity amounted to a sum of $1.598 billion.
4.  
The finance documents of one of the banks stipulate further that the amount of Adama’s surplus balance or profit balance according to its financial statements as of any date shall not be less than a sum of $700 million. As of December 31, 2014, Adama’s surplus balance amounted to a sum of $1.114 billion.
Pursuant to what was agreed between Adama and the bank with which it entered into the securitization agreement mentioned in section c below, and with the banks to which Adama has an obligation to comply with financial covenants by virtue of the finance documents, the balance of the debt is not included within the framework of the securitization agreement as a part of the financial liabilities for the purpose of examining the financial covenants.
In addition, the finance documents contain sections that provide that a change of control (according to the definition of this term in the relevant finance documents) in Adama and/or in its subsidiaries –Adama Makhteshim and Adama Agan – which will be done without the prior written consent of the relevant banks, will constitute a ground to demand immediate repayment of all of the relevant liabilities. Adama obtained the consents of the relevant banks for the transfer of control, pursuant to the transaction of its merger with a company from the ChemChina group that was completed in October 2011.
 
 
c.
The securitization agreement for the book debts of Adama and its consolidated companies (including the updates to it) includes liabilities of Adama to comply with financial ratios, of which the main ones are as follows:
 
1.
The ratio between Adama’s net debt and its equity shall not exceed 1.25. As of December 31, 2014, this ratio stood at 0.7.
 
2.
The ratio between Adama’s net debt and its EBITDA shall not exceed 4. As of December 31, 2014, this ratio stood at 2.5.
 
3.
Adama’s equity shall not be less than US$1 billion. As of December 31, 2014, the equity amounted to US$ 1.598 billion.


IDB Development Corporation Ltd. Convenience translation

 
149
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
F.
Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)
 
 
5.
Adama (cont.)
 
 
c.
(cont.)
 
In the securitization agreement and in the agreements with the banks, there are cross-default clauses according to which the party with which Adama entered into an agreement will be entitled to demand immediate repayment of the debts to it, in circumstances where an event has occurred that entitles another financer to demand immediate repayment of Adama’s debts or those of its consolidated companies, in whole or in part, to that other financer, all of which provided that the amount of Adama’s debts and liabilities and those of its consolidated companies to that other financer exceeds a minimum amount as determined in the various finance agreements.
In addition to the aforesaid, Adama undertook as part of letters of consent to the financers, to comply with additional standard terms, which in Adama’s estimation, shortly before the date of approval of these financial statements, are not capable of materially restricting its operations.
As of December 31, 2014, Adama was in compliance with the financial covenants determined by the financing banks as part of the finance agreements and it also complied during the reporting period with all of the financial covenants and restrictions applying to it that were determined in the finance agreements and in the aforesaid securitization agreement.
 
 
6.
Other consolidated companies
 
 
1.
Israir took a loan from a banking corporation, whose balance, as of the date of the Statement of Financial Position, is aproximately NIS 235 million, for the purpose of financing the purchase of airplanes. For this debt, the company gave a comfort letter as stated in note 22.C below. During the period, Israir reached non-bonding agreements with the bank with regard to the deferral of the repayment of the loan. As of the date of the report, the bank is extending the repayment of the loan every two weeks. Moreover, contacts are taking place with various financing institutions to refinance the loan in return for a charge on the airplanes as stated in section 2 below, in such a way that will also allow Israir to complete the purchase of an additional airplane, for which Israel paid a prepayment in a sum of approximately $8 million.
 
2.
On March 3, 2015, IDB Tourism and Israir, two wholly owned subsidiaries of the Company (directly and indirectly) engaged with a foreign banking corporation with a letter of commitment (“letter of commitment”) according to which the foreign banking corporation will act to arrange finance at an estimated scope of US$90 million (“the credit”) in favor of Israir, which will be secured by a charge on four aircraft owned by Israir (the finance, if received, is intended in part to repay existing credit secured by the same four aircraft) as well as a charge on a new, fifth aircraft which is planned to be delivered to Israir during the first quarter of 2016. Within the commitment letter, the foreign banking corporation was provided an agreed exclusivity period to place and arrange the credit as stated. The commitment letter does not bind the foreign banking corporation to provide the credit. At this date, there is no certainty that a binding financing agreement will be signed with the foreign banking corporation or that the credit will be provided to Israir as stated.
 
3.
As part of the financial covenants that were determined in loan agreements of the IDB Tourism group with banks, the balance of which as of December 31, 2014, stands at a sum of approximately NIS 250 million, it was determined that in the event of a change of control in the Company, directly or indirectly, the aforesaid banks have the right to demand immediate repayment of the loans that were given to IDB Tourism and/or to companies controlled by it.
 
IDB Tourism and companies of the group are in continuous contact with the aforesaid banking corporations. In the opinion of the management of IDB Tourism, even in a case of a change of control, IDB Tourism will not be required to pay the aforesaid loans immediately.
 
4.
Additional consolidated companies are a party to loan agreements in which financial covenants were determined. As of the date of the Statement of Financial Position, the aforesaid companies were in compliance with the criteria determined as aforesaid.

IDB Development Corporation Ltd. Convenience translation

 
150
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto
 
1.  Legal proceeding regarding the Company’s financial position
 
The following are main updates with regard to legal proceeding regarding the Company’s financial position, with regard to a motion for an involuntary debt arrangement filed in April 2013, inter alia, against the Company.
It should be noted that the Company has regularly published and is publishing on MAGNA court papers and decisions regarding the proceedings described below.
 
 
a.
On April 21, 2013, a “Motion for the Recovery of IDB Development Corporation Ltd.” (“the involuntary arrangement motion”) was filed pursuant to section 350 of the Companies Law, in the Tel-Aviv-Jaffa District Court, by Hermetic Trust (1975) Ltd., as trustee for the Company’s series G and I bonds and by Strauss Lazar Trust Company (1992) Ltd., as trustee for the Company’s series J bonds (jointly “the applicants”), against the Company and inter alia against IDB Holdings, the lending banks and the Company’s unsecured and secured financial creditors, the trustees for the Company’s series C and H bonds, and S.H. Sky Investments (T.R.) Limited Partnership. In the aforesaid motion it was claimed that the Company is in a state of insolvency without any practical possibility of raising capital and without any ability to comply with all of its future liabilities, and therefore the court was requested to order the convening of meetings in order to approve a creditors’ arrangement. At the same time, the applicants filed an urgent motion for temporary remedies in which the court was requested to appoint an officer of the court who would be authorized to supervise the management of the Company and whose consent would be required for carrying out certain operations and to instruct that the payments to the Company’s financial creditors will be deposited in a trust account opened by the officeholder. Accordingly, on April 30, 2013, the Court ordered the appointment of Attorney Hagai Olman as an officeholder who was given powers of an observer (“the observer”) and Mr. Eyal Gabbay as economic expert. On June 9, 2013 the Court order, inter alia, that the amounts intended for paying the Company’s creditors should be deposited with the observer. On October 17, 2014, the Court ordered the release of 65% of the funds deposited in the observer’s account to the creditors entitled to them and the continued making of payments to the creditors at the aforesaid percentage. On January 7, 2014 a motion was filed with the Court by the trustees for the Company’s bonds (series G, I and J) to order the release of the funds deposited in the observer’s trust account.
 
 
b.
On January 8, 2014 a notice was filed to the Court by the trustees to the aforesaid bonds, according to which in light of the approval of the creditors’ arrangement at IDB Holdings, as suggested on behalf of Dolphin Group and on behalf of Extra Group, the trustees to the aforesaid bonds agree to the deletion of the motion for an involuntary debt arrangement. On January 14, 2014 the observer’s response and the Official Receiver’s response to the deletion motion were filed to the Court.
 
Both of the aforesaid responses expressed, inter alia, the position that it would be right to close the case on the involuntary debt arrangement motion against the corporation only after implementation of the arrangement in IDB Holdings and that all of the money deposited with the observer should be released to the corporation’s creditors, and an order should be made that the payments should continue to be made to the creditors by the corporation according to schedule. On the same date, the expert also filed his position, according to which, in view of the approval of the debt arrangement in IDB Holdings and the change in circumstances, it was possible to transfer the payments from the observer’s account to the creditors.
 
Moreover, it was stated that there might be a basis for concluding both proceedings, in IDB Holdings and in the corporation, at the same time. On January 15, 2014, the Court ruled on the striking-out motion and held that, as at that date, the proceeding relating to the involuntary debt arrangement motion would remain as it was, in order, inter alia, to complete the creditors’ arrangement in IDB Holdings, which was also relevant to the corporation, and in order to allow the observer to supervise what was being done in the corporation. With regard to the motions to release the money, the court ordered the observer to transfer the balance of the money that was deposited in the trust account to the corporation’s creditors, according to their proportional shares.

IDB Development Corporation Ltd. Convenience translation

 
151
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
1.       Legal proceeding regarding the Company’s financial position (cont.)
 
 
b. (cont'd)
 
 
For additional details regarding the funds in the observer’s account which were released to the Company’s financial creditors, and regarding a ruling on a settlement between the Company and its creditors (excluding Sky Fund which objected to the settlement offer) given in October 2014 by the Court, which ratifies a settlement offer by the observer on the matter of interest payments to the Company’s creditors in respect of the funds deposited with the observer as stated, see NoteC.4 above.
 
c.
For details regarding the Company’s motion to the Court with respect to Menorah’s demand for immediate repayment of the debt towards it, and regarding further developments with regard to the loan from Menorah, including the release of some of the collateral provided to Menorah in July 2014 and the pledging of additional collateral in November and December 2014 and January 2015, see Note C.2 above.
 
d.
For details regarding the ratification of the creditors’ arrangement at IDB Holdings and its implementation, see Note G.2 below.
 
e.
On May 15, 2014, the trustees for the Company’s (series G and J) bonds gave notice that after the completion of the creditors’ arrangement at IDB Holdings, the activity of the representatives of the Company’s bond holders has ended.
In the opinion of the Company’s legal advisers as at the date of publishing the report, the involuntary arrangement motion, which was filed as part of the aforesaid proceeding, is no longer relevant, and there are no additional legal proceedings being discussed.
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto
 
The following are main updates with regard to the creditors’ arrangement at IDB Holdings and the legal proceedings with respect to it, which occurred mainly during 2014 and up to the date of publishing the report, whilst focusing on matters relating to the Company.
It should be noted that the Company regularly published and publishes on Magna the motions, Court notices and rulings that are relevant to it with regard to the matters specified below.
 
a. The ratification of the debt arrangement at IDB Holdings
 
On December 17, 2013, a judgment was given and on January 5, 2014, a supplementary judgment was given by the Tel-Aviv-Jaffa District Court, in which it approved a creditors’ arrangement in IDB Holdings, in accordance with a creditors’ arrangement outline that was filed with the aforesaid court on November 26, 2013, by Mr. Eduardo Elsztain and a corporation under his control, Dolphin Fund Limited (“Dolphin Fund”) together with E.T.H. M.B.M Extra Holdings Ltd. (“Extra”) (under the control of Mr. Ben-Moshe), and as a result control of IDB Holdings and the Company was taken away from the previous controlling shareholders. In the supplementary judgment, the court appointed Mr. Eyal Gabbay and Adv. Hagai Olman as trustees for implementing the creditors’ arrangement in IDB Holdings (“the trustees,” or “the trustees for the arrangement”), and it authorized them to carry out the operations necessary to implement and execute the creditors’ arrangement as aforesaid, including, inter alia: examining the debt claims of the creditors of IDB Holdings; seizing all of the assets of IDB Holdings and registering the trustees as the holders of the assets in trust in any register (including the seizing and registration of the shares that IDB Holdings held in the Company), and to ensure the registration of the shares in the name of those entitled to them pursuant to the provisions of the creditors’ arrangement. It was also determined that from the date of the supplementary judgment, the term of office of the directors of IDB Holdings and the term of office of the directors on behalf of IDB Holdings in the Company.
On January 22, 2014, the shares of the Company, which had been held until that date by IDB Holdings directly, were transferred to IDB Holdings through the trustees for the arrangement.
As stated below, in May 2014 the first stage of the debt arrangement at IDB Holdings was completed, as part of which, inter alia, the shares of the Company were transferred in May 2014, which constituted 53.3% of the Company’s issued and paid-up capital, to Dolphin Netherlands B.V.

IDB Development Corporation Ltd. Convenience translation

 
152
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
a.  The ratification of the debt arrangement at IDB Holdings (cont'd)
 
(“Dolphin Netherlands”), a company incorporated in the Netherlands, which is controlled (indirectly) by Dolphin Fund and Mr. Eduardo Elsztain, and to CAA Extra Holdings, Ltd. (“CAA”), a company wholly owned by Mr. Mordechai Ben Moshe, in equal shares, and the (indirect) control of the Company was transferred to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe through Dolphin Netherlands and CAA, respectively.
The remaining shares in the Company transferred to the trustees to the arrangement and to the beneficiaries of the arrangement.
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Dolphin and Extra Group
 
The following are the main points of the offer for the debt arrangement that were filed with the court on November 26, 2013, by the Dolphin and Extra Group (hereinafter “the investors” pursuant to the arrangement offer)14,15 and which was approved by the court as specified in January 2014, as the Company was informed by the parties to the arrangement:
The arrangement offer included provisions regarding the injection of money into the Company by the Dolphin and Extra Group, the amount of which would be determined depending upon whether the Clal Holdings Insurance Enterprises transaction would be completed by September 30, 2014 (“the last date for completing the Clal Holdings Insurance Enterprises transaction”) (as the Clal Holdings Insurance Enterprises transaction expired in May 2014 without being completed, as specified in note 3.H.5.a above, therefore the arrangement alternative that was implemented was the alternative of the non-completion of the Clal Holdings Insurance Enterprises transaction, and therefore the description below will include the main provisions of the arrangement offer with regard to the aforesaid alternative actually implemented), as follows:
 
 
1.
As part of the arrangement and as of the first completion date,16 the issued capital of the Company will be set at 200,000,000 ordinary shares (without a nominal value) and its registered capital with be determined as 500,000,000 (as specified below, the Company’s registered capital was changed on May 1, 2014).
 
2.
As part of the arrangement, the creditors of IDB Holdings will be entitled to receive all of the following amounts of the consideration (“the consideration for the arrangement”), on the dates and in the manner stated in subsections 4 to 6 below:
 
a.
The amounts of cash in the account of IDB Holdings less an amount that was set aside for the benefit of anticipated future expenses;17
 
b.
Shares of the Company;

 
14
As part of the creditors’ arrangement offer, ExtraHolding GmbH and ExtraEnergie GmbH, German companies controlled indirectly by Mr. Mordechai Ben-Moshe, undertook to those entitled per the arrangement (i.e., the creditors of IDB Holdings) to provide Extra the funds that it is liable to pay pursuant to the creditors’ arrangement offer, so that Extra would comply with its financial undertakings pursuant to the creditors’ arrangement. However, see note 16.G.e below, with regard to the agreements letter signed by the parties on April 8, 2014 arranging the identity of the investor at the debt arrangement, according to which Extra, ExtraHolding GmbH and ExtraEnergie GmbH are not bound by any commitment with regard to the arrangement.
 
15
According to the provisions of the arrangement, the Dolphin and Extra Group were able to inform, until the date of implementation of the arrangement, that the investment will be made by a special-purpose limited company, set up for the purpose of the implementation of the arrangement and which is owned by the Dolphin and Extra Group. With regard to the agreements letter signed by the parties on April 8, 2014 arranging the identity of the investor, see note 16.G.(e) below.
 
16
‘The first completion date’ – a date that will occur at least seven days after the conditions precedent of the arrangement will be satisfied. As stated in note 16.G.1 below, the first completion date occurred on May 7-12, 2014.
 
17
On the first completion date, an amount of NIS 150 million was distributed to those entitled per the arrangement, out of the cash balance of IDB Holdings, and an amount of NIS 39 million was allocated in favor of future expenses.

IDB Development Corporation Ltd. Convenience translation

 
153
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
 
2.
(cont.)
 
 
c.
A sum of NIS 300 or NIS 800 million, which will be paid to the beneficiaries of the arrangement18 by the investors in return for the shares of the Company, which the investors will buy from the beneficiaries of the arrangement (‘the consideration for the acquired shares of IDB Development’).
It should be emphasized that the amounts of cash as stated in this subsection c and the amount of the shares of IDB Development that the beneficiaries of the arrangement will receive as stated in subsection b above, will vary depending upon the completion or non-completion of the Clal Holdings Insurance Enterprises transaction by the last date for completion of the Clal Holdings Insurance Enterprises transaction. As specified below, as the Clal Holdings Insurance Enterprises transaction expired without having been completed, the arrangement alternative, by which the beneficiaries to the arrangement will hold a total of 46.7% of the Company’s issued and paid-up capital, and the consideration for the acquired IDB Development shares will amount to NIS 300 million19, was implemented.
 
 
d.
The net proceeds, in a sum of approximately NIS 48 million, for a settlement with the Manor family and the Livnat family (former controlling shareholders of the Company), which was approved by the court on October 31, 2013, in a claim for the return of amounts of dividends that were distributed to them by IDB Holdings in the years 2008-2010 (“the dividend settlement”).
 
 
e.
Receipts from the claims that will be accepted by IDB Holdings in the future, after completion of the arrangement (less the fees and expenses involved in conducting the legal proceedings), which the court-appointed expert for examining the debt arrangement estimated before the date of approval of the debt arrangement at approximately NIS 200 million (the aforesaid amount includes the receipts from the dividend settlement (“the receipts from the claims”).20
It should be emphasized that only a part of the consideration for the arrangement has been received on the date of implementing the arrangement, as stated below. A part of the consideration for the arrangement will be received at later stages than the date of implementing the arrangement (thus, for example, the receipts of the claims that may be received even in another few year) and some of the consideration is also conditional and dependent and may not even be received (“future receipts”).21

 
18
“The beneficiaries of the arrangement” – creditors of IDB Holdings, whose debt will be subject to the arrangement, pursuant to the provisions of the arrangement offer.
 
19
It is noted that in accordance with the provisions of the arrangement, had Clal Insurance Enterprise Holdings transaction been completed before the last date for completion of the Clal Insurance Enterprise Holdings transaction, the beneficiaries of the arrangement would have held, subsequent to the completion of the arrangement, a total of 29.95% of the Company’s issued and paid-up capital, and the consideration for the acquired IDB Development shares would have been NIS 800 million.
 
20
Subject to the instructions of the court, all of the rights of claim in the name of and on behalf of IDB Holdings only will be assigned to the trustees for the arrangement, in such a way that will ensure that the rights of claim of IDB Holdings against third parties (shareholders, officers and so on) (hereafter: ‘the claims’) will be exhausted, and the receipts from the claims, net, after covering all of the fees and expenses involved in the various legal proceedings, will be allocated to persons who were beneficiaries of the arrangement and will be paid to the beneficiaries of the arrangement shortly after they are received.
 
21
It is noted that within the arrangement considerations, a conditional consideration was included (which was not fulfilled), according to which an amount of NIS 100 million was to be paid to the beneficiaries of the arrangement insofar as Clal Insurance Enterprise Holdings transaction is not completed until the last date to complete the Clal Insurance Enterprise Holdings transaction, however in place of that an alternative transaction would be signed to sell the holdings in Clal Insurance Enterprise Holdings, until December 31, 2014 (according to a company valuation of Clal Insurance Enterprise Holdings in the amount of NIS 4.2 billion at least), the consideration of which at an amount of at least NIS 1.344 billion (gross) would be received by the Company until June 30, 2015.

IDB Development Corporation Ltd. Convenience translation

 
154
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
 
3.
Pursuant to the provisions of the arrangement, the investors gave their consent that insofar as the first completion date will not occur by March 15, 2014, and insofar as it will be necessary in order to provide the cash flow needs of the Company, the Company will be given, no later than March 15, 2014, a bridging loan in a sum of at least NIS 100 million out of a sum of NIS 950 million that was made available for the purpose of implementing the arrangement offer (‘the money for the arrangement’). For details regarding an agreement to provide a bridging loan to the Company, in a sum of NIS 170 million, signed on March 10, 2014, see note 16.C.3 above. Upon the completion of the arrangement in May 2014, an amount of NIS 150 million out of the loan was converted to the Company’s share capital (see section f of this note below).
 
 
4.
The arrangement stipulated that if on the first completion date it will not yet be known whether the Clal Holdings Insurance Enterprises transaction will be completed or not, then the following provisions shall apply:22
 
 
a.
A sum of NIS 650 million out of the money for the arrangement will be deposited in trust with the trustees for the arrangement (‘the trust amount’) until an event terminating the Clal Holdings Insurance Enterprises transaction occurs or until September 30, 2014, whichever is the earlier.
 
b.
A sum of NIS 150 million out of the money for the arrangement will be invested by the investors in the Company, as stated in Note 16.G.(2). (f) below, a sum of NIS 150 million out of the amount of the bridging loan was converted into an investment in the capital of the Company and a sum of NIS 20 million out of the bridging loan became a part of the Clal loans and in June 2014 this amount was also converted into an investment in the Company’s capital.
 
c.
Moreover, according to this alternative it was determined in the arrangement offer that the investors will buy shares of the Company from the beneficiaries of the arrangement. The purchase of the shares will be done by means of a payment in cash in a sum of NIS 150 million to the arrangement trustees, which will be transferred by them to the trustees of the arrangement on the first completion date. After the first completion date, the shares of the Company in the possession of the investors will amount to 53.3% of the issued and paid-up capital of the Company.
 
d.
It was determined that the shares of the Company that constitute 20.75% of the issued and paid up capital of the Company after the first completion date (‘the Clal alternative shares’) will be deposited with the arrangement trustees in trust for the investors. The investors and the arrangement trustees will act with regard to the Clal alternative shares in accordance with the instructions of the investors for all intents and purposes.
 
e.
It was determined that the shares of the Company that constitute 25.95% of the issued and paid-up capital of the Company after the first completion date will be distributed among the beneficiaries of the arrangement.
 
f.
It was determined that the receipts of the dividend settlement that were transferred prior to the first completion date and the net amounts of cash in the account of IDB Holdings, as stated in Note 16.G.2.b.(2) above, will also be distributed to the beneficiaries of the arrangement.

 
22
It is noted that as at the first completion date of the debt arrangement (May 7, 2014) it was not yet known whether the Clal Insurance Enterprise Holdings transaction would be completed, so in reality the initial provisions were implemented on the first completion date.
 

IDB Development Corporation Ltd. Convenience translation

 
155
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
4.
(cont'd)
 
 
g.
It has further been determined that on the first completion date, all of the bonds of IDB Holdings (including the unpaid debt balance and including entitlement to interest) and all of the finance agreements of IDB Holdings with the lending banks were cancelled, with all of their annexes and the documents ancillary to them. After completing the distribution of the consideration received as part of the arrangement (i.e., the consideration on the first completion date and on the second completion date, as defined below), the arrangement trustees shall give notice of the amount regarded as paid on account of the liabilities of IDB Holdings to its creditors, as these liabilities are reflected in the debt determinations. The balance of the debt of IDB Holdings that has not yet been paid to its creditors shall not bear any interest or linkage differentials whatsoever and shall be paid, if at all, out of additional future receipts that will be received within the framework of the arrangement, if any.
 
5.
 
September 30, 2014 – the last date for completion of the Clal Holdings Insurance Enterprises transaction
 
As stated above, after the first completion date, the creditors of IDB Holdings were still entitled to receive additional consideration within the framework of the arrangement, where the type and scope of consideration depends upon the question of the completion or the non-completion of the Clal Holdings Insurance Enterprises transaction by the last date for the completion of the Clal Holdings Insurance Enterprises transaction. Details will be given below of the manner of implementing the second stage of delivering the consideration of the arrangement to the beneficiaries of the arrangement (the aforesaid second stage – ‘the second completion date’), according to the scenario by which the Clal Holdings Insurance Enterprises transaction expired without having been completed:
In the settlement offer, it was determined that insofar as the Clal Holdings Insurance Enterprises transaction will not be completed by the last date for completion of the Clal Holdings Insurance Enterprises transaction, then the following operations will be carried out on the second completion date:
 
 
a.
A sum of NIS 500 million out of the trust amount will be invested in the Company. Insofar as the aforesaid sum, in whole or in part, was given to the Company as the Clal loan, that amount will be converted into capital in the Company (for details regarding the provision of an amount of NIS 480 million to the Company and the conversion of the balance of the bridging loan amounting to NIS 20 million to the Company’s capital, see note 16.G.f below);
 
b.
The Clal alternative shares will be distributed in full to the beneficiaries of the arrangement;
 
c.
An amount of NIS 150 million out of the trust amount will be distributed to the beneficiaries of the arrangement.

IDB Development Corporation Ltd. Convenience translation

 
156
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
6. Undertakings for a future purchase of shares of the Company
As part of the arrangement, the investors undertook to offer to buy shares of the Company from its shareholders from among the public, within the framework of (one or more) secured tender offers,23 as stated below:
According to the arrangement offer, in case Clal Holdings Insurance Enterprises transaction is not completed before the last date for completion of the Clal Holdings Insurance Enterprises transaction, then, (one or more) tender offers will be made on a total scale of approximately NIS 512 million:
 
 
a.
Tender offers up to December 31, 2015, for shares of the Company held by the shareholders from among the public, with a share value according to the arrangement (as defined below), in return for a sum of at least NIS 249.8 million.
 
b
 
Tender offers up to December 31, 2016, for additional shares of the Company held by the shareholders from among the public, with a share value according to the arrangement plus 5%, on an overall scale that, together with the amount in the tender offers up to December 31, 2015, will amount to at least NIS 512.09 million.
 
“Value of the share according to the arrangement” – for the purpose of this subsection (6), the result obtained from dividing (a) a sum of NIS 1,133 million, plus the amounts that will be injected into the Company pursuant to subsections (4)[b] and (5) above, by (b) the number of shares in the issued and paid-up shares of the Company immediately after the second completion date (and after the injection of the investment amount in the Company as stated in the arrangement plan), subject to adjustments, as stated in the arrangement plan, subject to adjustments as stated in the arrangement plan.
 
 
7.
Extra and Dolphin Fund will participate, each according to its share, in issues of rights that the Company will carry out, insofar as it will decide to carry them out, to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively. In the clarification document of November 28, 2013, to the joint offer of November 26, 2013, it was clarified as follows: “It will be further clarified that section 12 of the joint offer regarding an undertaking on the part of Extra Israel and Dolphin Fund Limited to participate, each according to his share, in issues of rights that will be made by the Company, insofar as the Board of Directors of the Company will decide to make them, in order to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively, constitutes a valid and complete undertaking on the part of the investor within the framework of the joint offer, including to the creditors of IDB Holdings in favor of the Company.”

 
23
As collateral for carrying out the undertaking to make tender offers, the investors will charge, on the first completion date in favor of the trustees for the arrangement, a number of shares of IDB Development equal to half the number of the shares that the investors undertook to offer to buy as part of the tender offers, and the following provisions will apply: (1) the trustees of the arrangement will release from the change, prior to the implementation of each tender offer as aforesaid, half of the number of the shares for which the investors will give notice that they are about to make a tender offer in that tender offer, in return for or for the purpose of depositing collateral that the investors will deposit for the implementation of that tender offer; (2) at any time, the trustees of the arrangement or the investors can demand a change on additional shares or a release of shares from the charge so that half of the shares, for which the investors remain liable to make a tender offer pursuant to the above provisions, will be charged at any time in favor of the trustees of the arrangement, subject to what is stated in subsection (1). Within the framework of the Letter of Consent of April 8, 2014, as stated in note 16.G.e below, it was resolved to increase the number of shares to ensure the making of the tender orders as aforesaid for all of the shares that the investors undertook to acquire within the framework of the tender offers (instead of half).

IDB Development Corporation Ltd. Convenience translation

 
157
 


Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
 
8.
In the event that the investors do not comply with the undertaking to make the payments that the investors are liable to make on the date of completion of the arrangement, the beneficiaries of the arrangement will be able to choose, as they wish, one of the following two alternatives for agreed compensation: (1) All of the stages of implementing the arrangement will take place except that instead of the shares that are supposed to be issued to the investors, the Company shall issue to the investors shares in a reduced amount as stated in the arrangement offer; or (2) receiving agreed compensation in an amount of NIS 100 million (NIS 50 million from each of the items of collateral provided by the Dolphin and Extra Group); and with regard to the two alternatives, the aforesaid compensation (as applicable) will constitute an absolute, final and exhaustive remedy against the investors, the Dolphin and Extra Group.
 
 
9.
Corporate governance provisions
 
The arrangement includes various provisions regarding the composition of the Company’s Board of Directors and other corporate governance matters, both with respect to the period from the date of approval of the arrangement and until its implementation (“The interim period”) and with respect to the period from the date of its implementation (while with respect to this period, the majority of them are entrenched within the Company’s articles of association).

IDB Development Corporation Ltd. Convenience translation

 
158
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

 
10. The following table summarizes the main commercial terms stated above, according to the scenario in which the Clal Holdings Insurance Enterprises transaction was not completed:

 
Main commercial terms of the debt arrangement according to the scenario where the Clal Holdings Insurance Enterprises transaction was not completed (in NIS millions)
Value of the company before the money
1,133
Injection into the Company
650
Cash for the beneficiaries of the arrangement (part of which will be distributed on the first completion date and part on the second completion date)
150 on the first completion date
150 on the second completion date
Total as part of the arrangement: 300
Shares of the Company that will be received by the beneficiaries of the arrangement as part of the arrangement
46.7%
Shares of the Company held by the investors
53.3%
Undertaking to buy shares of the Company through tender offers (backed up by a charge on the Company’s shares, as specified in Note 16.G.2.b.6 above and Note 16.G.2.e below)
Tender offers will be made in a total amount of approximately NIS 512 million, as follows:
a.Tender offers up to December 31, 2015, for shares of the Company held by the shareholders from among the public, with a share value according to the arrangement (as defined below), in return for a sum of at least NIS 249.8 million.
b.Tender offers up to December 31, 2016, for additional shares of the Company held by the shareholders from among the public, with a share value according to the arrangement plus 5%, on an overall scale that, together with the amount in the tender offers up to December 31, 2015, will amount to at least NIS 512.09 million.
‘Share value according to the arrangement’ – as stated in Note 16.G.2.b.6 above.
Additions
The arrangement offer provided that until the completion of the arrangement, the Company will be given a bridging loan in an amount of at least NIS 100 million, in return for a charge of the shares of the Company or the cash in the account of IDB Holdings, according the choice of the beneficiaries of the arrangement.24
Extra and Dolphin Fund will participate, each according to its share, in issues of rights that the Company will carry out, insofar as it will decide to carry them out, to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively. In addition, clarifications were given as stated in Note 16.G.2.b.7 above.
Cash held by IDB Holdings and receipts from claims, insofar as any are received (to the best of the Company’s knowledge, as of the date of publication of the report, the amount of cash in IDB Holdings’ account is approximately NIS 27 million).
Will be transferred to the beneficiaries of the arrangement, after deducting expenses.


 
24In March 2014, a bridging loan was granted to the Company, at an amount of NIS 170 million out of the collateral funds of the debt arrangement, as specified in Note 16.C.3 above.

IDB Development Corporation Ltd. Convenience translation

 
159
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
b.
Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)
 
 
11. The preliminary approvals from the Tax Authority (VAT and Income Tax), which were received by IDB Holdings on March 18 and 20, 2014, respectively, determine the tax arrangements that arise from the debt arrangement on the level of IDB Holdings and on the level of deduction of tax at source for the beneficiaries of the arrangement.
 
12. On April 6, 2014, Cellcom received approval of the Ministry of Communications for the transfer of indirect control in the Cellcom Group to Eduardo Elsztain and Mordechai Ben-Moshe, through corporations controlled by them, as a result of the implementation of the debt arrangement in IDB Holdings. In the report filed by the trustees for the settlement with the Court on April 6, 2014, the trustees stated, inter alia, that upon the receipt of the aforementioned approval from the Ministry of Communication, all of the conditional terms for the completion of the creditors’ settlement had been fulfilled; however, following the request by the investors to establish a designated corporation under their control, which will constitute the investor in accordance with the provisions of the creditors’ settlement, changes were required to some of the permits which had already been received, in order to complete the settlement. For developments on this matter, see notes 16.G.2.e and f below.
 
 
c.
On January 22, 2014, a ‘Motion for cancellation of a decision, reconsideration and giving instructions’ was filed by Mr. Nochi Dankner and Ganden Holdings Ltd. (former controlling shareholders of the Company and of IDB Holdings, “the Dankner Group”), in which the court was requested to cancel the supplementary judgment that was given on January 5, 2014, or alternatively to reconsider this decision (“the Motion to Reconsider”). On April 8, 2014 the Court dismissed the Motion to Reconsider.
During February 2014, appeal notices were filed to the Supreme Court on behalf of Nochi Dankner and Ganden Holdings, on the judgement dated December 17, 2013, and on the supplementary judgment dated January 5, 2014. The appeals were filed by counsel for Mr. Nochi Danker and not by IDB Holdings and/or its counsel. On May 14, 2014 the Court dismissed the aforesaid appeals.
 
 
d.
On March 25, 2014, a letter was sent by the trustees for the implementation of the arrangement to Mr. Eduardo Elsztain, further to his notice that the investor on behalf of the Dolphin Group would be a special-purpose corporation wholly owned and controlled by Dolphin Fund, directly or through another foreign corporation wholly owned and controlled by Dolphin Fund (‘the special-purpose company’). In their letter, the trustees emphasized that the founding of the special-purpose company for the purpose of implementing the arrangements did not derogate from the liabilities of Mr. Elsztain and Dolphin Fund pursuant to the provisions of the arrangement, including future liabilities, and including the tender offers and rights issue.
 
 
e.
On April 8, 2014, a letter of understanding was signed between all of the aforementioned entities (“the Letter of Understanding” or “the updated arrangement outline”), according to which Dolphin Fund, Mr. Eduardo Elsztain and Extra notified the trustees of the arrangement, in accordance with the provisions of the arrangement, that:

IDB Development Corporation Ltd. Convenience translation

 
160
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
e.
(cont.)
 
 
a.
The “Investor”, as defined in the settlement, will be a designated limited liability company, with the name of “D.H. the Investor in the Settlement Ltd.” (“the designated company”), which is owned (in equal parts) by Dolphin Fund and by Extra.
 
 
b.
The trustees for the settlement were notified of the designated company’s decision and announcement that the Company’s shares to which it is entitled under the settlement (including on the first completion date, according to the meaning thereof in note 16.G.2 above) should be transferred to the two corporations specified below (“the holding corporations”):
 
1.
Half of the shares to Dolphin Netherlands BV (“Dolphin”), which is (indirectly) wholly owned by Dolphin Fund.
 
2.
Half of the shares to CAA, which is wholly owned by Mr. Mordechai Ben-Moshe.
 
 
c.
In accordance with the provisions of the settlement, the entities which are obligated by the provisions of the settlement, jointly and severally, are only the designated company, due to its status as the “Investor,” as defined in the settlement, and the holding corporations,25 and for the avoidance of doubt, Extra, ExtraHolding GmbH, ExtraEnergie GmbH, Dolphin Fund and Eduardo Elsztain are not bound by any obligation whatsoever under the settlement including all documents comprising the settlement, as well as all annexes or clarifications submitted with respect thereto or by virtue thereof.
 
 
The Letter of Understanding included, inter alia, the following undertakings:
 
 
a.
Increasing the number of the Company’s shares that will serve as collateral for the purpose of the undertakings to publish and perform the tender offers in accordance with the settlement, in a manner whereby the Holding Corporations will pledge, on the first completion date, in favor of the trustees for the settlement, Company shares in a number equal to the total number of shares which the Holding Corporations undertook to offer to purchase within the framework of the tender offers, and not half, as originally determined.
 
                   b.
 In the event of a rights issue performed by the Company prior to the distribution of the “Clal alternate shares” (see note 16.G.2.b.4.d. above), then a mechanism will be agreed between the trustees for the settlement, and the Holding Corporations and the Designated Company, to secure the entitlement of the Holding Corporations or the entitlement of the beneficiaries of the settlement (as applicable) to rights which were due to them on the date of the rights issue, with respect to Clal alternate shares, in a manner which will not prevent the beneficiaries of the settlement, if entitled to receive the Clal alternate shares, or from the Holding Corporations, if entitled to receive the Clal alternate shares, from purchasing rights, in accordance with their share, or in any other manner which will be agreed upon with the Holding Corporations and the trustees for the settlement.
 
On April 8, 2014, the trustees for the settlement filed a report with the Court, in which they requested approval for the Letter of Understanding (“the report of the trustees for the settlement”), and on the same date, the Court approved the Letter of Understanding, in accordance with the contents of the report of the trustees for the settlement. In accordance with the Court’s decision, the trustees for the settlement signed the Letter of Understandings, and accordingly, confirmed that in light of the foregoing, the entities obligated under the provisions of the settlement are only the designated company, due to its status as the “Investor,” as defined in the settlement, and the holding corporations. Moreover, the trustees for the settlement confirmed that E.T.H M.B.M Extra Holdings Ltd., ExtraHolding GmbH, ExtraEnergie GmbH, Dolphin Fund and Eduardo Elsztain are not obligated by any obligation whatsoever under the settlement (including all documents comprising the settlement, as well as all annexes or clarifications submitted with respect thereto) or by virtue thereof.

 
25
It is hereby clarified that the designated company and the holding corporations were established upon the conclusion of the Letter of Understanding, and that they did not take upon themselves any undertakings whatsoever beyond those specified in the settlement, and as specified in this section.
 

IDB Development Corporation Ltd. Convenience translation

 
161
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
e. (cont.)
 
 
b.
(cont.)
 
 
On April 13, 2014, the trustees for the bonds of IDB Holdings filed a motion with the Court to clarify that the rights and claims of the bond holders are reserved to them, as specified in the motion, with respect to that stated in the report of the trustees for the settlement dated April 8, 2014, and the Court approved the foregoing request on the same date.
 
The designated company, Dolphin Netherlands and CAA (together: “the undertaking companies”) have confirmed and notified the Israel Securities Authority and the Company as follows: CAA and Dolphin Netherlands have each confirmed that by the end of 2016: (a) the sole and exclusive activity of each of them is and will be the holding of the Company’s shares, and no other activity whatsoever is being or will be conducted by them, of any type or kind, save such holding of the Company’s shares; and (b) that none of them have or will have any undertaking, of any kind whatsoever, save their undertakings in accordance with the creditors’ settlement. The designated company has confirmed that by the end of 2016 it does not have and will not have any activity or undertaking, of any kind whatsoever, save its undertakings in accordance with the creditors’ settlement.
Before the performance of any change in the circumstances described above in any of the undertaking companies, by the end of 2016, the undertaking companies regarding which the aforementioned change will apply, as the case may be, will reach an understanding with the staff of the Israel Securities Authority regarding an agreed-upon outline for disclosure of the financial statements of the undertaking companies, to which the foregoing change applies, or any other agreed-upon alternative.
 
 
f.
Performance of the creditor’s arrangement in IDB Holdings and the distribution of the consideration for the arrangement. On April 29, 2014, all of the conditions precedent for completion of the arrangement were fulfilled. Between May 7 and May 12, 2014, the creditors’ arrangement at IDB Holdings was completed. Inter alia, on May 8, 2014, Company shares constituting 53.3% of the Company’s issued and paid-in share capital were transferred to Dolphin Netherlands and to CAA in equal parts, and (indirect) control of the Company was transferred to Mr. Eduardo Elsztain and to Mr. Mordechai Ben-Moshe, such that IDB Holdings no longer holds any Company shares; NIS 150 million out of the bridging loan provided to the Company in March 2013 (as specified in Notes 16.G.2.b.3 and 16.G.3 above) was converted into Company capital and NIS 20 million out of the bridging loan was repaid upon the completion of the arrangement on May 7, 2014 and became part of the Clal loans; as of May 12, 2014, Company shares were listed for trading on the stock exchange and the Company became a public company; in conjunction with the completion of the arrangement, the beneficiaries of the arrangement received NIS 150 million out of the cash balance at IDB Holdings and NIS 39 million was allocated for future expenses.
At the end of May 29, 2014, the Clal Holdings Insurance Enterprises transaction expired having not been completed, as specified in Note 3.H.5.a above. In view of the aforesaid and in line with the provisions of the creditor’s arrangement at IDB Holdings, on June 3, 2014 the Company received NIS 480 million out of collateral funds of the arrangement, as investment in Company’s capital. Furthermore, the balance of the bridging loan (extended to the Company in March 2014), amounting to NIS 20 million, was converted into capital.
Upon provision of the aforementioned amounts, the total fund injection amounting to NIS 650 million as investment in Company capital, in conjunction with execution of the arrangement.
On June 5, 2014, a motion was filed by the creditor’s arrangement Trustees with the Tel Aviv-Jaffa District Court, petitioning the Court to allow the Trustees to execute the second stage of the creditor’s arrangement at IDB Holdings and to immediately distribute the balance of arrangement proceeds held by the Trustees (NIS 150 million as well as 20.75% of Company shares, namely “the Clal alternative shares”) to the arrangement beneficiaries, leaving in Trust the maximum amount which may be due with respect to contingent debt claims filed with the Trustees in conjunction with the agreement (according to the Trustees’ request, the maximum proceeds which may be due, according to the creditor’s arrangement, with respect to contingent debt claims, amount to 16,085,076 Company shares and NIS 77.5 million).
 
 
 
162
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
f. (cont.)
 
The aforementioned contingent debt claims have been filed by the Company and by former Board members and officers of the Company, with respect to derivative claims for reimbursement of dividends distributed by the Company to IDB Holdings (as stated in note 23.C.1.d below).
On June 9, 2014, the Company filed its response to the motion by the arrangement Trustees for distribution of outstanding proceeds of the arrangement, in which the Company noted that it had no objection to the motion by the arrangement Trustees for distribution of shares, however they petitioned the Court to dismiss the motion by the Trustees, with regard to distribution of the funds held with them.
On June 11, 2014, the Court granted the motion of the trustees to the arrangement for the distribution of the shares to the beneficiaries of the arrangement (apart from those claiming the contingent debt claims) in light of the agreement between the parties.
Further to the aforementioned resolution by the Court, on June 15, 2014 the arrangement Trustees distributed to the arrangement beneficiaries 25,173,481.26 Company shares held by the arrangement Trustees, which are part of the Clal alternative shares, which as of said date accounted for 12.59% of the Company’s issued share capital. The trustees noted, in the aforementioned notice, that they kept 16,085,076 Company shares (which as of said date accounted for 8.04% of the Company’s share capital), pending resolution of the contingent debt claims and also kept NIS 150 million, pending a resolution by the Court.
On June 26, 2014, the arrangement Trustees filed their response to the comments filed to the Trustees’ motion for distribution of outstanding proceeds of the arrangement. The Trustees in their response, petitioned the Court to reject the requests made in the comments (to retain and not distribute all cash on hand held by the Trustees) and to approve the cash distribution due to creditors of IDB Holdings in conjunction with Stage II of the creditors’ arrangement, while retaining the maximum amount which may be due with respect to contingent debt claims to be held in Trust at this stage (as stated above, this amount is NIS 77.5 million).
On July 30, 2014, a notice and mutually agreed motion was filed with the Court with regard to the motion by the Trustees for distribution of outstanding proceeds of the arrangement, which noted that the Trustees and respondents to the motion have reached agreement with regard to distribution of cash proceeds in Stage II of the creditors’ agreement in IDB Holdings, whereby NIS 72.5 million of cash amounts payable to the agreement beneficiaries in Stage II of the agreement, which is held in trust by the Trustees, would by distributed by the Trustees to creditors of the Company, with the Trustees retaining in trust 16,085,077 Company shares and NIS 77.5 million, which is the maximum proceeds which may be due pursuant to the creditors’ arrangement with respect to the contingent debt claims.
The aforementioned cash and shares would be held in trust by the Trustees to secure payment of the contingent debt claims, would not be distributed to creditors of IDB Holdings and would not be otherwise used, pending fulfillment of one of the conditions set forth in the aforementioned mutually agreed motion. On August 6, 2014, the Court granted the motion by the Trustees for distribution of outstanding proceeds as requested. In view of the foregoing, on August 25 and August 31, 2014, NIS 72.5 million was distributed to the beneficiaries of the arrangement, such that as of the report issue date, the Trustees retain 16,085,077 shares of the Company (which as of the report issue date and after the rights issue by the Company, as set forth above, constitute approximately 2.81% of the Company’s share capital (1.60% with full dilution) and also retain approximately NIS 77.5 million, pending resolution of the contingent debt claims filed with the Trustees as part of the arrangement, or a decision of the Court.

IDB Development Corporation Ltd. Convenience translation

 
163
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
f. (cont.)
Further to the shelf offering report issued by the Company on June 9, 2014, regarding the implementation of a rights issue (as stated in note 15.B.3 above), on June 15, 2014 a mutually agreed urgent motion was filed with the Court, seeking approval of an agreed arrangement (“the agreed arrangement”), reached by the arrangement Trustees, Dolphin and CAA, whereby Dolphin and CAA would acquire the rights conferred pursuant to the Company’s shelf offering report on the arrangement Trustees, with respect to 16,085,077 ordinary shares of the Company (which as of the aforesaid date constituted approximately 8.04% of the Company’s share capital), which are held by the Trustees.
In the motion, it was stated that the Trustees were of the opinion that the amounts to be received by the Trust upon exercise of the agreed arrangement would reflect the loss which may be incurred by creditors of IDB Holdings, due to their being unable to take part in the rights issuance with regard to shares held in trust by the Trustees.
As part of the agreed arrangement, it was clarified that amounts paid by Dolphin Netherlands and CAA to the Company in respect of utilization of rights and exercising of share options (which they will receive and purchase) arising from the rights issue, will be set against their undertakings to participate in rights issues in 2014 and 2015.
This agreed arrangement concluded all disputes between the Trustees and the holding corporations with regard to the Company shares held in trust by the Trustees, with regard to the rights issuance conducted by the Company in June-July 2014. The motion was granted by the Court on the same date.
 
 
g.
On January 18, 2015 the Company received a letter from the trustees to the arrangement, in which they raised claims against the rights issue the Company performed in accordance with a shelf offer report dated January 19, 2015 (as specified in note 15.B.5 above), which included claims that the rights issue of the Company does not reflect the value of control of the Company, rather the value of the interest of the minority shareholders derived from the obligation of the Company’s controlling shareholders to perform tender offers on the Company’s shares in accordance with the provisions of the debt arrangement at IDB Holdings and that the interest of the minority shareholders will be diluted if minority shareholders participate in the rights issue; and that dilution of the entitlement of the minority shareholders to participate in the tender offers and the increase of the Company’s issued share capital amount to an interested parties’ transaction that benefits the controlling owners and requires the approval of the general meeting. The trustees of the arrangement asked the Company to act to carry out only a private placement of rights, with the approval of the shareholders’ meeting, in accordance with the Company’s liquidity needs, and they requested that the controlling owners would undertake to refrain from trading their shares until the date of realizing their whole undertaking to carry out tender offers or until the end of 2016, whichever is the earlier. Alternatively, the Company was requested to examine a possibility of separating the entitlement to participate in the tender offers from the Company’s shares prior to the rights issue, so that the right to participate in the tender offers would be given solely to the existing minority shareholders in the Company. Moreover, the Company was requested to give notice of its consent to release the shares deposited in trust with the trustees of the arrangement, unconditionally.
 
On January 22, 2015, the Company responded to the trustees of the arrangement in a letter in which it rejected all of their claims against the rights issue, and it stated in the letter, inter alia, that: while the need to raise capital for the Company immediately could not be in dispute, the other possibilities that the trustees of the arrangement proposed (such as making a private placement or separating the entitlement to participate in the tender offers from the Company’s shares prior to the rights issue so that the right to participate in the tender offers would belong only to the minority shareholders that existed prior to the rights issue) are not within the Company’s ability, are not within its exclusive control and were not proposed to the Company by its controlling shareholders;

IDB Development Corporation Ltd. Convenience translation

 
164
 


Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
g.
(cont.)
 
 
that the beneficiaries of the arrangement were not given protection that the undertakings to make tender offers would be solely to them, but from the outset it was clear that the right would belong to all of the minority shareholders on the date of making the offers; that the rights issue is beneficial and it by nature treats the shareholders equally and is not an interested parties’ transaction; to the request of the trustees of the arrangement that the Company would agree unconditionally to release the shares deposited with them in trust, the Company replied that it already gave its conditional consent to the release of these shares, there is no reason why the trustees of the arrangement should not agree to the Company’s offer and that the trustees of the arrangement are fully liable for the release of the shares deposited with them to the beneficiaries of the arrangement and they will be liable for all of the damage that will be caused to them, if any, as a result thereof. The Company emphasized that if the trustees of the arrangement would apply to the court with regard to the rights issue, they should take into account the huge damage that might be caused as a result thereof to the Company and the derivative liability for that.
 
In addition, on January 26, 2015, a motion was filed with the court by the Organization for Protection of the Public’s Savings and Mr. Ohad Aloni, in which the court was requested to approve the publication of a specification of an ordinary/ involuntary tender offer for the purchase of ordinary shares with no nominal value of the Company, issued to the minority shareholders of the Company in accordance with the shelf offer report published by the Company on January 19, 2015, in order to protect the aforesaid minority shareholders from the dilution of their entitlement to participate in the tender offers which Dolphin Netherlands and CAA undertook to perform in accordance with the provisions of the debt arrangement at IDB Holdings (as specified in note 16.G.b.6 above) (“the Motion to Publish a Tender Offer”). On January 28, 2015, the Court approved the motion by Hermetic Trust (1975) Ltd., in its role as a trustee for the bond holders (Series G and I) of the Company, an urgent motion to join the procedure in light of the expected implications of the motion to publish a tender offer on the rights of the bond holders of the Company and on the Company’s ability to serve its debt. On January 29, 2015 the Israeli Securities Authority filed its position on the motion to publish a tender offer, in which the Authority gave notice that the petitioners’ motion is not legally possible. At the same date the Company filed its response to the motion to publish a tender offer, as part of which it was claimed that the motion is bound to be rejected both due to lack of authority by the Court to discuss the motion as well as the fact that the motion contradicts the Companies Law. It was also claimed, that the motion adversely impacts the Company’s ability to raise capital.
On February 1, 2015, the trustees to the arrangement filed their response to the motion to publish a tender offer, according to which the petitioners’ motion is inapplicable and entails significant disadvantages. as part of this response, the trustees of the arrangement proposed an alternative solution, according to which Dolphin Netherlands would buy from the trustees of the arrangement the rights that would be issued for the shares held by them in trust and it would acquire additional rights from the minority public shareholders that would choose to transfer their rights to the trustees of the arrangement for the purpose of selling them, and they asked the Court to approve the agreed arrangement as aforesaid.
On February 3, 2015, the trustees filed a motion to allow them not to trade the rights issued within the rights issue at the Company in respect of the Company’s shares held in trust by them, and cause their expiry, since the alternative solution proposed by the trustees of the arrangement as stated above had turned out to be not implementable.
On February 3, 2015, the response by Hermetic Trust (1975) Ltd. was filed to the Court, in its role as a trustee to the bond holders (Series G and I) of the Company, as part of which it was noted that it objects to any motion which may prevent the trade in the rights and cause their expiry, as this would reduce the potential injection of capital into the Company.

IDB Development Corporation Ltd. Convenience translation

 
165
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
g.
(cont.)
 
On February 4, 2015, a discussion was held at the Court on the matter as part of which The Organization for Protection of the Public’s Savings and Mr. Ohad Aloni accepted the Court’s offer not to insist on their motion to publish a tender offer. In addition the Court noted that it is aware of the impact on the minority shareholders at the Company which was pointed out by the aforesaid petitioners and the trustees to the arrangement with regard to the intended issue, however this is not sufficient to prevent the performance of the issue. Additionally, the Court instructed the trustees to act according to their understanding and judgement with regard to their motion not to trade the rights in respect of the shares held by them in trust.
Accordingly, the trustees to the arrangement did not trade the issued rights as stated and caused their expiry.
 
 
h.
On February 9, 2015, the trustees to the arrangement filed to the Court a motion to instruct the distribution of considerations to the beneficiaries to the arrangement, despite the Company’s objection and the granting of a warrant preventing the Company from objecting to the settlement agreement with regard to the derived claims against IDB Holdings (for details regarding the aforesaid derived claims and the settlement agreement as specified, see note 23.C.1.d below). as part of the aforesaid motion, the Court was requested to approve the distribution of the remaining consideration to which the beneficiaries of the arrangement are entitled in accordance with the debt arrangement at IDB Holdings and which have not been distributed yet and are currently held in trust by the trustees to the arrangement (apart from the amounts paid in accordance with the settlement agreement with regard to the specified derived claims, subsequent to its approval, at an amount of NIS 7 million to the Company).
In accordance with the agreement between the parties and the Court’s ruling, the Company will file its position with regard to the aforesaid motion by March 10, 2015. On February 23, 2015, a motion was filed to the Court by the Organization for the Protection of the Public’s Savings, Ltd. to grant right to respond to the motion by the trustees to the arrangement to provide instructions to distribute considerations to the beneficiaries to the arrangement despite the Company’s objection, as stated above.
In accordance with the Court’s decision of March 1, 2015, the Court would consider the motion upon receipt of the Company’s response. On March 10, 2015, the Company’s response to the aforesaid motion was filed, as part of which the Court was requested to dismiss the aforesaid motion, since according to it the provisions of the arrangement do not contain a provision that prevents the Company from submitting a debt claim to the trustees and there is no provision that prejudices the rights of the Company or that releases IDB Holdings from a claim of the Company against it. In a decision of the court of that date, the trustees were requested to reply to the Company’s response by April 5, 2015.
The Company objects to the settlement offer regarding the derivative claims against IDB Holdings, as as part of the aforesaid settlement the Company was required to waiver claims against IDB Holdings and against IDB Holdings’ directors, even in case an additional claim is filed against the Company with respect to a motion to approve a derivative claim against the Company filed in the matter of Discount Investments in respect of performing distributions of dividend by Discount Investments (see note 23.C.1.h below), and therefore the settlement does not merely benefit the Company but also binds it to waive rights.
On March 26, 2015, the trustees of the arrangement filed a reply to the response of IDB Development, in which the trustees of the arrangement reiterated what was stated in the motion and rejected the Company’s opposition, mainly for the reason that it conflicts with the provisions of the creditors’ arrangement in IDB Holdings.

IDB Development Corporation Ltd. Convenience translation

 
166
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
i.
A motion to provide an injunction to copy the IT materials of IDB Holdings – further to the motion by the trustees to the arrangement, a legal adviser was appointed to conduct investigations and represent the trustees to the arrangement in legal proceedings of IDB Holdings (the legal firm Naor-Gersht) (‘the legal adviser” or “the investigators”). On January 21, 2015, a motion was filed with the Court to grant an injunction for the copying of IDB Holdings’ computer material by the aforesaid legal adviser, as part of which the Court was requested to grant an injunction ex parte, which allows the aforesaid legal adviser or anyone on his behalf to copy, through a skilled professional, all of the magnetic media relating to IDB Holdings saved on the computer servers at the offices of IDB Holdings, and this, inter alia, because of the mixed use of the servers of the Company and IDB Holdings. On February 1, 2015, the Court granted the motion as requested. Pursuant to a decision of the Company’s Audit Committee and Board of Directors, on February 4, 2015, the Company filed with the Court an urgent motion to clarify the Court’s decision with regard to the copying of IDB Holdings’ IT material with regard to the manner of its application, in light of that in order to fulfil the Court’s decision and to transfer to copy all of the material belonging to IDB Holdings, screening and filtering work must first be done between the material belonging to IDB Holdings and the material belonging to the Company (which, in the Company’s opinion, the aforesaid legal adviser is not entitled to receive).
On the same day, an initial response was filed with the Court on behalf of the aforesaid legal adviser, with regard to the Company’s urgent motion to clarify the Court’s decision as stated, as part of which the Court was requested to allow the legal adviser to file its response to the Company’s motion within several days, whilst committing that the files copied from the Company’s and IDB Holdings’ servers will not be opened and will be kept in a safe at the office of the trustee Adv. Hagai Olman until the Court’s ruling. Additionally, on February 4, 2015, the legal adviser filed an urgent motion to provide an injunction according to the Contempt of the Court Ordnance, according to which the Court was requested to provide an injunction binding the Company’s management to provide to the aforesaid legal adviser immediately the computer drives to which the information was copied, which are stored at IDB Holdings’ safe, when there is no prevention that until the Court’s ruling the drives will first be transferred to the offices of the trustees to the arrangement. On February 4, 2015, a notice was filed to the Court regarding a procedural agreement with regard to the copying of the computer materials, according to which it was agreed, inter alia, that the computer drives of the legal adviser, kept in the IDB Holdings safe and the information copied onto them, will be transferred at this point, as is, to a trustee who will be determined with the parties’ consent, who will keep the computer drives sealed in his office without any one being granted permission to view them and who will transfer them to either of the parties pursuant to the Court’s decision or pursuant to written consent delivered to him by the trustees of the arrangement and the Company. It was further agreed that the motion to grant orders pursuant to the Contempt of Court Ordinance would be struck out without any order for costs, with each party reserving its claims. In the Court’s decision of February 5, 2015, the aforesaid consent of the parties was given the effect of a court decision.
On March 8, 2015 a notice was filed to the Court with regard to the reaching of an agreed settlement and a motion to grant it the effect of a decision, as part of which the parties reached an agreement with regard to the delivery of the material on the magnetic media, and according to which all of the documents on the magnetic media which relate to IDB Holdings will be transferred as is to the aforesaid legal adviser and all of the documents on the magnetic media which relate to the Company only, will not be transferred at this point to the legal adviser, and this without derogating from any claim either of the parties may have with regard to this.

IDB Development Corporation Ltd. Convenience translation

 
167
 

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
i.
(cont.)
The Company will deliver to the legal adviser, documents that belong to it according to the requests of the legal adviser on specific issues, and this unless it can provide reasonable justification no to do so, in which case in the lack of agreement between the parties a ruling will be made by the Court. All of the documents on the magnetic media belonging to the two companies or whose ownership is questionable will be delivered to the legal adviser. It was further agreed that at the first stage the information and the documents to which such separation is done as stated and which will be delivered to the legal adviser will relate to the years 2007-2013 only and later on documents will be delivered to the legal adviser with respect to the other years according to the demand by the legal adviser, if he believes there is a need to do so.
On March 11, 2015, an urgent motion was filed with the Court to grant a right of response to a “notice of reaching an agreed arrangement and a motion to grant it the effect of a decision” as stated above on behalf of former directors and shareholders at IDB Holdings (“the former directors and shareholders”). The former directors and shareholders were sued by IDB Holdings in a proceeding relating to a distribution of dividends by IDB Holdings in the years 2008-2010 and the trustees to the arrangement are conducting the claim against the former directors and shareholders, through the aforesaid legal adviser (Naor-Gersht legal firm).
Since the motion to approve the aforesaid arrangement raises a concern that documents that are subject to attorney-client confidentiality will be revealed to the trustees and the legal adviser, the Court was requested to allow the former directors and shareholders to give brief reasons for their claims against the motion to approve the agreed arrangement as stated above. On March 12, 2015, the court approved the motion to grant the force of a decision to the agreed arrangement that the parties reached with regard to the delivery of the material on the magnetic media as stated above. On the same day, the former directors and shareholders of IDB Holdings filed with the court an urgent motion to stay its decision of March 12, 2015, in order to allow them to apply to the Supreme Court in an appeal against the decision. On March 13, 2015, the court decided to stay the performance of its decision of March 12, 2015, and it ordered the trustees of the arrangement and the investigators to file their position on the motion. On March 19, 2015, the investigators’ response was filed; in it, they stated that the trustees of the arrangement and the investigators as aforesaid agree that insofar as as part of the documents that were seized any document would be found that was exchanged between the former directors and shareholders and their attorneys, which contained legal advice that was given solely to a former officer (as opposed to a document that also includes advice that was given to the Company), those documents would not be transferred to the investigators at this stage, and all of the parties would reserve all of their claims. In its decision of March 20, 2015, the court ordered the former directors and shareholders to submit their reply to the aforesaid response of the investigators by March 29, 2015.
 
 
j.
Irrevocable offer received from Dolphin Netherlands to raise capital for the Company – on January 1, 2015, after having received the recommendations of the independent committee on this matter, the Company’s Board of Directors resolved, on the basis of Dolphin Netherlands’ offer (which was in effect until that date), to raise capital, which has been received at the Company on December 29, 2014, that the Company will act to raise capital by way of a rights issue in accordance with the outline of the offer. For details regarding a rights issue performed by the Company in January-February 2015, in accordance with the outline of the stated offer, see note 15.B.(5) above. Following are the principles of the irrevocable offer received by the Company from Dolphin Netherlands for the raising of significant capital for the Company and the strengthening of its capital structure:
 
 
1.
The Company will immediately perform a rights issue of scope of approximately NIS 800 million (including the public’s share) (“the maximum immediate consideration”).
 
 
 
168
 
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
J.
(cont.)
 
 
2.
As part of the rights issue, the following will be issued to the existing shareholders of the Company: (a) shares of the Company (“the rights offer shares”) and (b) share options (issued for no consideration) exercisable for shares of the Company (“the share options”). The maximum future consideration for the Company from the exercising of all of the share options will be approximately NIS 1.2 billion (including the public’s share).
 
3.
The price per share (“PPS”) of the rights offer shares will be according to accepted market conditions and following consultation with capital market experts.
 
4.
The share options will be divided into three series as follows:
 
a.
First series exercisable for a period of one year from the date of the rights offer at an exercise price equal to 110% of the PPS.
 
b.
Second series exercisable for a period of two years from the date of the rights offer at an exercise price equal to 120% of the PPS.
 
c.
Third series exercisable for a period of three years from the date of the rights offer at an exercise price equal to 130% of the PPS.
 
 
5.
Dolphin Netherlands’ undertaking to inject funds –
Subject to a resolution by the Company’s Board of Directors to perform the rights issue stated above, Dolphin Netherlands undertakes as follows:
 
1.
Dolphin Netherlands (or another entity controlled by Mr. Eduardo Elsztain) undertakes to inject funds into the Company in an amount of not less than NIS 256 million and up to NIS 400 million, as follows:
 
a.
NIS 256 million, to be injected by exercising all of the rights relating to the rights offer shares issued to Dolphin in the rights issue.
 
b.
An additional investment (“the additional investment”) at an amount equaling – (a) the maximum immediate consideration less (b) the amounts actually received by the Company in the rights offer, apart from share options exercising, so long as the additional investment does not exceed an amount of NIS 144 million.
 
c.
The additional investment will be performed by acquiring additional rights in the rights issue and in case Dolphin Netherlands (or another entity controlled by Mr. Eduardo Elsztain) does not purchase additional rights to cover the full additional investment by acquiring additional rights in the rights offer, the amount remaining will be invested by participating at an additional rights issue performed by the Company, at a scope of no more than NIS 460 million.
 
2.
According to the Company’s request, Dolphin Netherlands will exercise share options from the first series in total consideration for the Company of up to NIS 150 million, under the condition that such a request is made within six months and twelve months from the date of the rights issue.
 
3.
Dolphin Netherlands will exercise all of the share options it receives in the rights offer, subject to fulfilling the following two cumulative conditions:
 
a.
The Company and its relevant lenders reach an agreement regarding the changing of covenants to which the Company is obligated with respect to these lenders.
 
b.
A control permit is obtained from the Commissioner of the Capital Market, Insurance and Savings for control of Clal Insurance Company Ltd., a subsidiary of Clal Holdings Insurance Enterprises (“Clal Insurance Company”), while Clal is controlled by the Company (with regards to the matter of the control of Clal Insurance Company, see also note 3.H.5.c. above).
 
4.
Any amount injected by Dolphin Netherlands into the Company in accordance with this subsection (5), will be on account of the amounts to which “the investor” has undertaken as part of the undertaking to participate in a rights offer by the Company in accordance with the debt arrangement at IDB Holdings.

IDB Development Corporation Ltd. Convenience translation

 
169
 
Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)
 
G.
Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
 
2.
The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)
 
j.             (cont.)
 
 
It should be further noted that prior to the making of the rights issue that was completed in February 2015, Dolphin Netherlands gave notice that insofar as the undertaking of Dolphin Netherlands to inject money into the Company as part of the terms of Dolphin’s offer would be performed (in full or in part) by another entity controlled by Mr. Eduardo Elsztain (“Elsztain corporation”) as stated above in the offer of Dolphin Netherlands, then the Elsztain corporation would agree to undertake, jointly and severally with Dolphin Netherlands, to perform all of the undertakings of Dolphin Netherlands pursuant to the debt arrangement in IDB Holdings and that any amount that would be injected by Dolphin Netherlands and/or the Elsztain corporation into the Company as part of the rights issue would be account of the amounts that the “investor” undertook as a party of the undertaking to participate in rights issues of the Company pursuant to the debt arrangement in IDB Holdings.

Note 17 - Provisions
 
A.
Composition
 
   
Site dismantling and remediation (B)
    
Legal claims (C)
    
Contractual obligations and onerous contracts (D)
    
Provision for warranty and other provisions
    
Total
  
   
NIS millions
  
Balance as at January 1, 2014
     21       83 (1)     207       28 (1)     339  
Provisions made during the year
     1       35       162 (2)     -       198  
Provisions utilized during the year
     -       (2 )     (23 )     -       (25 )
Provisions reversed during the year
     (1 )     (44 )     (75 )     (8 )     (128 )
Changes from exchange rate differences
     -       -       11       -       11  
Balance as at December 31, 2014
     21       72       282       20       395  
                                         
Non-current portion
     21       -       196       18       235  
Current portion
     -       72       86       2       160  
Balances as at December 31, 2014:
     21       72       282       20       395  
                                         
Non-current portion
     21       2       87       22 (1)     132  
Current portion
     -       81 (1)     120       6       207  
Balances as at December 31, 2013:
     21       83       207       28       339  
 
(1)
Reclassified, see note 1.F.1 above.
 
 
(2)
For details regarding a provision recorded by Shufersal as part of an updated business plan with respect to onerous rental contracts, for the leasing of commerce areas, which are not cancellable, see note 3.H.3.b above.
 
B.
Site dismantling and remediation - The Group companies are required to recognize certain costs of removal of assets and remediation of sites on which the assets were located. The aforesaid expenses are calculated based on the dismantling value in the current year, while taking into consideration the best assessment of future changes in price, inflation, etc., and are capitalized at a risk-free interest rate. The forecasts regarding the volume of the removed or constructed assets are updated according to expected changes in regulations and technological requirements.

IDB Development Corporation Ltd. Convenience translation

 
170
 

Note 17 – Provisions (cont.)
 
C.
Legal claims - Legal claims are filed against Group companies in the ordinary course of business, and regarding part of the claims, motions are filed for approving them as class actions. Where provisions were necessary to cover the exposure resulting from said claims, provisions were included, which are adequate in the opinion of the managements of the Group companies, based on, inter alia, legal opinions regarding the chances of such claims. For details on claims, see note 23.C, and for details on contingent liabilities, see note 23.A.
 
D.
Other contractual obligations - Provisions for other contractual obligations include a number of obligations arising from a contractual liability or legislation, in respect of which there is a high component of uncertainty in terms of the timing and the amounts required in order to settle the liability.

Note 18 - Employee benefits
 
Employee benefits include post-employment benefits, other long-term benefits, termination benefits, short-term benefits and share-based payments The Group’s liability for employee severance benefits in respect of its Israeli employees is calculated in accordance with the Israeli severance pay law.
As regards post-employment benefits, the Group companies have defined benefit plans for which they make contributions to central severance pay funds and insurance policies. The Group companies also have defined contribution plans for some of their employees who are subject to section 14 of the Severance Pay Law, 5723-1963. Regarding share-based payments in a main investee company, see Annex II of the Financial Statements.
 
A.  Composition:
 
   
As at December 31
  
   
2014
    
2013
  
   
NIS Millions
  
Employee benefits presented as non-current liabilities
            
Present value of unfunded obligations
     104       75  
Present value of funded obligations
     449       422  
Total present value of defined benefit obligations (post-employment)
     553       497  
Fair value of plan assets
     392       366  
Recognized liability for defined benefit obligations
     161       131  
Liability for grants
     20       21  
Liability for other long-term benefits
     12       12  
Liability for vacation and remuneration of employees
     52       53  
Total
     245       217  
                 
* Plan assets comprise:
                
Equity instruments
     72       64  
Government bonds
     146       147  
Corporate bonds
     100       100  
Cash and other
     74       55  
Total
     392       366  
                 
Total employee benefits presented in the following sections:
                
Assets designed for payment of benefits for employees
     1       1  
Accounts payable and credit balances
     72       74  
Long-term employee benefits
     174       144  

IDB Development Corporation Ltd. Convenience translation

 
171
 

Note 18 - Employee benefits (cont.)
 
B.
In November 2014 The Israel Securities Authority published accounting staff position document number 21-1 relating to the existence of a deep market in high quality corporate bonds in Israel, for the determination of the discount rate of obligations for defined benefit denominated in NIS in accordance with IAS 19, Employee Benefits. According to the aforesaid position document, the proper implementation manner for transition from use of the rate of return of government bonds to a rate of return of high quality corporate bonds is on a prospective basis. As a result of the specified change in the discount rate, Adama recorded actuarial gains under other comprehensive income, amounting to USD 10 million. The Company’s share in the aforesaid actuarial gains recorded by Adama amounts to NIS 11 million.
 
C. 
Significant changes to employee benefits at a consolidated company – Shufersal
In 2014 Shufersal made a number of changes to its estimates with regard to its liability with respect to a defined benefit plan, and among other things the following changes were made (which were recorded under actuarial differences within other comprehensive income (loss)):
 
 
1.
Change to measurement according to a discount rate derived from the returns on corporate bonds – as a result from the change in the discount rate as specified in section B. above. As a result of the specified change, a decrease occurred in the liability (gross) of Shufersal with respect to a defined benefit plan totaling NIS 29 million (the Company’s share in the aforesaid amount is NIS 10 million).
The gap between the corporate discount rate and the government discount rate as of December 31, 2014, according to which the liability was calculated at Shufersal is approximately 0.85% on average.
 
2.
The increasing of the minimum wage in Israel – in January 2015 an amendment to the Minimum Wage Law was approved, according to which the minimum wage will be increased to NIS 5,000 per month in three stages: on April 1, 2015 the minimum wage will be increased to NIS 4,650, on August 1, 2016 the minimum wage will be increased to NIS 4,825 and on January 1, 2017 the minimum wage will be increased to NIS 5,000. As of April 2016 the minimum wage will be 47.5% of the average wage in the market at April in each relevant year. Shufersal estimates, that the increase of the minimum wage as stated may have an adverse effect on its business results and cause an addition to its payroll expenses. As a result of the aforesaid increase in the minimum wage, in increase occurred in the liability (gross) of Shufersal with respect to a defined benefit in the amount of NIS 4 million (the Company’s share in the aforesaid amount was NIS 1 million).
 
3.
Update of employee turnover rate – in 2014 Shufersal updated the turnover rate, including the expected rate of employees leaving in a manner that entitles them to severance supplements by law. As a result, an increase occurred in the liability (gross) of Shufersal with respect to a defined benefit plan, at an amount of NIS 18 million (the Company’s share in the stated amount is NIS 7 million).
 
D. 
Voluntary retirement plan in Cellcom
In June 2014 Cellcom offered its employees a voluntary retirement plan, which included a non-recurring grant to each employee who chose to participate in the plan. Cellcom recorded a non-recurring expense amounting to NIS 39 million with respect to the total grants for the employees who chose to join this plan. The Company’s share in the stated expense amounted to NIS 12 million.


IDB Development Corporation Ltd. Convenience translation

 
172
 

Note 19 - Accounts Payable and Credit Balances
 
   
December 31
  
   
2014
    
2013
  
   
NIS millions
  
             
Accrued expenses - interest
     491       765  
Accrued expenses - other
     131       124 (1)
Liabilities to employees
     344       349  
Institutions
     62       58  
Advances from purchasers of apartments
     204       311  
Provisions for expenses
     90       68  
Advance payments from customers
     367       318  
Advanced revenues
     77       84  
Other accounts payable and credit balances
     146       281  
      1,912       2,358  
(1)           Reclassified; see note 1.F.1 above.

Note 20 - Trade Payables
 
   
December 31
  
   
2014
    
2013
  
   
NIS millions
  
             
Outstanding debts
     2,166       1,982  
Post-dated checks
     338       309  
      2,504       2,291  

Shufersal purchases from a main supplier amount to approximately NIS 1.2 billion in 2014 and 2013.

Note 21 - Financial Instruments
 
A.
Management of financial risks
 
The Group is exposed to the following risks, which arise from the use of financial instruments:
 
 
-
Credit risks
 
-
Market risks (comprised of index risk, currency risk, interest risk and other price risk)
 
-
Liquidity risks
 
-
Operating risks
 
The Company does not determine the risk management policy of its investee companies.
The person responsible for the management of financial risks in the Company is the chief financial officer.
The direct handling of the Company’s financial exposures, the formulation of hedging strategies, the supervision of their implementation and the provision of an immediate response, if possible – taking note of the various restrictions that apply to the Company (see note 16.E above), to unusual developments in the various markets that have a direct impact on the Company’s risks, if they are relevant to the Company, is in the hands of the person responsible for the management of risks in the Company, who is assisted by a team, and all such matters are discussed and examined by the Company’s audit committee and Board of Directors.
As at the reporting date, the principal risk that the Company faces is the liquidity risk (see below).

IDB Development Corporation Ltd. Convenience translation

 
173
 


Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
Exposure to fluctuations in the market value of investee companies
Most of the assets of the Company are direct investments in two companies, the shares of which are traded on the stock exchange: Discount Investments and Clal Holdings Insurance Enterprises. The investment in Discount Investments is usually a long-term investment and is not presented in the Statement of Financial Position at fair value. The investment in Clal Holdings Insurance Enterprises is measured at fair value through profit and loss (see notes 3.H.5.a-d). Changes in the prices of the securities of these companies and of companies held by them can affect, directly or indirectly, the reported business results, capital, cash flows, the value of the Company and/or the equity value; they can also have an impact on the possibilities and terms of realization of these assets, that are and can be used as collateral to secure credit, on the rating of the Company’s bonds, on the degree to which the Company complies with the financial covenants of lenders and supervisory agencies, on the ability to distribute a dividend, on the availability of credit and financing and the terms thereof. In this respect, a negative change in prices, may result, among other things, in a decrease in the consideration and/or the equity (directly in equity or through capital gains – pursuant to generally accepted accounting principles) of the Company and of the investment companies held by it, a decrease in the profitability of the investee companies and reductions recorded by the Company and investee companies thereof in their investments in investee companies.
The Company does not usually use hedge instruments against these risks.
The security and economic situation in Israel and around the world may also have a negative impact on the business results of the investee companies, and accordingly, on the business results, equity, cash flows and value of the Company.
The Company is indirectly exposed, mainly through its major investments and their investee companies, to changes in the prices of raw materials, the prices of securities, other prices and other economic indices, which may have a material impact on the assets and liabilities of the companies, including the liabilities of the companies to vendors, customer debts to the companies, the value of inventories held by the companies and of other assets and liabilities. In addition, the Company is exposed to inflation, interest and exchange rate risks.
The major companies impacting on the market risks of the Company are the direct investee companies – Discount Investments and Clal Holdings Insurance Enterprises (“Clal Insurance”), and a number of their investees: Cellcom, Koor, Adama, Shufersal and Property & Building.
 
 
1.
Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism)
 
 
Market risks - The Company is directly exposed to market risks as a result of changes in the tradable value of its holdings, changes in the consumer price index, and changes in interest rates, which may affect its assets and liabilities and impair the business results, shareholders’ equity, cash balances and cash flows, and the value of the Company. Considering the situation of the Company and the restrictions applying to it, the ability of the Company to manage market risks has significantly decreased, since as at the reporting date the Company is not able to engage in new hedge contracts.
 
The Company is exposed to the various market risks, also indirectly, due to the impact thereof on its investee companies.
 
Direct exposure of the Company’s liabilities to the CPI increase – As at the reporting date, the Company has CPI-linked liabilities totaling NIS 2.6 billion with a duration of 3.7 years, compared with CPI-linked liabilities totaling NIS 3 billion with a duration of 3.8 years as at December 31, 2013. These index-linked liabilities constitute 66% and 59% of the Company’s debt as at December 31, 2014 and 2013, respectively.
In the past, the Company partially hedged this exposure by acquiring CPI forward contracts. As at the reporting date, 2 such contracts were held which amounted to NIS 78 million, for a (weighted) average remaining period of 2.5 months, and hedge against an average increase in the CPI of 2.5%. These contracts expired shortly before the date of Statement of Financial Position. As at December 31, 2013, the contracts held amounted to NIS 313 million, for a (weighted) average remaining period of 7.5 months.
In addition, the Company entered into a swap transaction for the exchange of a CPI-linked liability for a nominal liability over a specific series of bonds, the balance of which as at the date of the Statement of Financial Position is NIS 29 million nominal value.

IDB Development Corporation Ltd. Convenience translation

 
174
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
  
1.
Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism) (cont.)
It is noted, that the value of contracts of the stated type is measured in the statement of financial position according to fair value, and it is effected not only from the actual increase in CPI, but also and primarily from the expectations reflected in the market with regard to the remaining period (and which may change from one period to the next). This causes the economic hedge by the contracts not to reduce the volatility of the accounting expense, and sometimes even increase it.
Exposure to variances in the market value of the Company’s assets and the effect of market variables on these values – as a general rule, the Company does not perform hedging transactions against these exposures, mainly because these assets are held, usually, for an extended period. However, in some cases in the future such hedges may be performed as said.
Effects of NIS exchange rates - The Company is exposed to the effect of exchange rates on the fair value of investee companies which operate abroad and/or mostly in foreign currency.
Liquidity risks
For details regarding the Company’s financial position and plans, see note 1.B above.
The Company included in the Board of Directors’ Report as at December 31, 2014, a projected statement of cash flows of the Company and its wholly-owned administrative companies (except for IDB Tourism), which contains a breakdown of the financial liabilities and the financial sources from which the Company expects to repay them in the two-year period commencing on the date of the Statement of Financial Position.
The Company’s activity (repayment of debts, general and administrative expenses and in the past also investments and dividends) is financed mainly by proceeds from the sale of assets, and in the past, generally, by dividends received from investee companies, issuances of bonds and loans from financial corporations, including from banks. Since the completion of the debt arrangement at IDB Holdings, the Company’s payments include primarily repayments of debts and general and administrative expenses and they are financed by raising capital, in which the controlling shareholders take a significant part. As at December 31, 2014, the liquid means held by the Company totaled NIS 296 million (of which NIS 198 million were an investment in a tradable portfolio), compared with liquid means of NIS 747 million (of which NIS 396 million were deposited in favor of the creditors of the Company in accordance with the instructions of the court and NIS 16 million were investments in a tradable portfolio) as at December 31, 2013. The Company manages liquidity risks in order to ensure a sufficient degree of liquidity for meeting its obligations and expected payments on time, to the extent possible without damaging the assets value as stated. For this purpose the Company recently performed raisings of capital, including by way of rights issue to its shareholders. Among other methods, the Company uses cash flow forecasts, to the extent possible given the nature of its businesses, in order to monitor cash flow requirements. The duration of the gross outstanding debts of the Company, which as at December 31, 2014 amounted to NIS 3.9 billion, is 3.03 years (compared to 2.95 years as at December 31, 2013).
The Company has bank loans of NIS 822 million and a loan from a financial institution of NIS 75 million as at December 31, 2014, in respect of which the Company undertook to meet financial covenants. For details on the financial covenants and causes for immediate repayment, including due to change of control, and agreements reached with regards thereto, see note 16.E above.
For details on a secured loan from a financial institution, against which the Company pledged a deposit and part of its investments, including additional charges subsequent to the date of the Statement of Financial Position, see note 16.C.2 above.
The Company is exposed to a liquidity risk deriving also from it being part of one of the major borrower groups in the Israeli economy and as such – it is subject to the restriction of a sole borrower in Israeli banks.
For details on guarantees and comfort letters furnished by the Company to a subsidiary, see note 26.C-D.1 below.
As at the reporting date, the bonds of the Company were rated BB with a negative outlook. In March 2015, after the date of the Statement of Financial Position, Maalot lowered the rating of the Company’s bonds, see note 16.D above.

IDB Development Corporation Ltd. Convenience translation

 
175
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
 
1.
Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism) (cont.)
 
Exposure to changes in interest rates – As noted, the Company holds some of its liquid means in an NIS trust fund, which is measured at fair value which is slightly sensitive to changes in interest rates. As at December 31, 2014, the amount of investment in the aforesaid fund totaled NIS 198 million. In addition, the Company has NIS-denominated liabilities at variable interest rates, to banks and a financial institution, at a total amount of NIS 708 million. Therefore, an increase in the interest rate will cause an increase in the Company’s future interest payments.
 
Credit risks – In accordance with the policy of the Board of Directors, the Company’s management invests liquidity surpluses mainly in deposits in local banks, which are not creditors of the Company, with the aim of maintaining the liquid balances at low risk. As at December 31, 2014, the Company’s total liquid balances amounted to NIS 296 million, of which an amount of NIS 198 million was invested in an NIS trust fund and the balance is kept as aforementioned in deposits, mainly with banks which are not creditors of the Company.
The Company’s policy with regard to risk management, as specified above, is only performed for the Company itself and wholly owned subsidiaries, apart from IDB Tourism.
The Company does not set policy and does not manage the risks of the investee companies thereof. The policy of the investee companies is set directly by the companies themselves. Furthermore, the Company does not engage in activities designed to hedge market risks deriving from the operations of its investees, or from the operations of companies held by them. Moreover, the Company does not manage the aggregate risks of the investee companies and/or the companies held by them.
 
 
2.
Risk management policy of subsidiaries
 
 
a.
Discount Investments
 
Market risks - Discount Investments is directly exposed to market risks resulting from changes in exchange rates and in the rate of inflation in Israel, as well as from market variables that affect the markets on which its holdings are traded and accordingly the value of such. Discount Investments is also exposed indirectly to various market risks that affect the performance of its investee companies.
Approximately 74% of Discount Investments’ debt as at December 31, 2014, is in CPI-linked NIS-denominated bonds, and the rest of the debt is in unlinked NIS-denominated loans and bonds. The bonds bear fixed interest, and their fair value is affected from time to time by changes in the market interest rate.
 
Direct effects of the NIS exchange rates – As at December 31, 2014, Discount Investments held an insignificant part of its cash balances in dollars. Occasionally, Discount Investments sells or purchases holdings, the consideration of which is denominated in foreign currency, usually the dollar. The exposure in these transactions is present in the period before the closing of the transaction.
Discount Investments is also exposed to the effect of exchange rates on the NIS market value of its investee companies that operate abroad and/or mainly in foreign currency.
In addition, the non-recourse loan specified in Note 16.F.1.d. above, which Koor received as part of the completion of the merger transaction of Adama with ChemChina, is exposed to changes in the exchange rate of the U.S. Dollar.
 
Direct exposure to the increase in the CPI – As at December 31, 2014, Discount Investments has debt in respect of CPI-linked bonds in an amount of NIS 3.9 billion, with a duration of approximately 5 years.
Discount Investments partially hedges this exposure by acquiring CPI forward contracts for periods between 1-3 years. As at December 31, 2014, the contracts held amounted to NIS 1.75 billion, for an average remaining period of 7 months.
It should be noted that these kind of contracts are measured for accounting purposes at fair value, which is affected not only by the actual increase in the CPI until the date of measurement, but also by the market’s anticipations for the rest of the period (and which may change from one date of measurement to the other). The effect of the aforementioned is that the economic hedge obtained by using these contracts may not reduce the fluctuations in the accounting result, and sometimes may even increase it.

IDB Development Corporation Ltd. Convenience translation

 
176
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
2.       Risk management policy of subsidiaries (cont.)
 
 
a.
Discount Investments (cont.)
 
Exposure to fluctuations in the market values of Discount Investments’ assets and to the effect of market variables on these values – Discount Investments does not hedge against such exposures.
 
Exposure to changes in interest rates – Bonds issued by Discount Investments and bank loans received by it, amounting on the date of the statement of financial position as at December 31, 2014, to NIS 4.7 billion and NIS 214 million, respectively, bear fixed interest, and are therefore not exposed to cash flow fluctuations from changes in interest rates. Bank loans received by Discount Investments, totaling NIS 306 million at December 31, 2014, and have variable interest rate, are exposed to changes in the prime interest rate. In addition, the non-recourse loan specified in Note 16.F.1.d above received by Koor as part of the completion of the merger transaction of Adama with ChemChina, is exposed to changes in the LIBOR interest rate of the US Dollar for 6 months (this interest rate moved in 2014 between 0.4% and 0.3%, and proximate to the date of approval of these financial statements, is approximately 0.395%). As at the date of approval of these financial statements, Discount Investments does not hedge this risk. In the past, Discount Investments did not engage in hedges against the value exposure deriving from the fixed interest rates of its bonds, and that was the situation also as at the date of approval of these financial statements.
 
Credit risks - In accordance with the policy of the Board of Directors of Discount Investments, the management of Discount Investments invests its surplus liquidity so as to obtain a fair return on it, while maintaining a suitable return-risk ratio, in solid channels – mainly short-term shekel deposits in a number of major Israeli financial institutions, and it also invests in liquid securities, which include mainly trust funds, exchange traded funds, government and corporate bonds with a rating of at least A+. In addition, the maximum percentage of securities of a single issuer, which Discount Investments holds in its portfolio does not exceed 10% of the value of the investment portfolio. Discount Investments carries out transactions in derivative financial instruments only through banking corporations and entities that are required to maintain collateral levels in accordance with scenarios. Except for the above, Discount Investments has no other material financial assets that are exposed to credit risks.
 
Liquidity risk – The policy of Discount Investments is to act so that it has sufficient liquid resources to meet its liabilities when due. Within this framework, Discount Investments aspires to maintain an appropriate cash balance. It is noted, that as at the date of approval of these financial statements, Discount Investments has a liquid resources balance of NIS 1,262 million, whilst the total repayments of principal and interest with respect to the debt of Discount Investments until the end of the first quarter of 2016 (approximately one year subsequent to the date of approval of these financial statements) amounts to approximately NIS 891 million.
 
Discount Investments conducts continuous examinations of the future cash flow projections and the various sources available to it, which include, among others, the following:
 
·  
Expected dividends from investee companies - in such respect, Discount Investments monitors the profitability of the investee companies, the available cash flows thereof and their ability to distribute dividend.
 
·  
Sale of holdings in investee companies - it should be noted, that Discount Investments controls major public companies, leading their fields of operation, whose shares are highly tradable, and the holdings of Discount Investments therein are not pledged under specific pledge. Discount Investments is able to realize limited percentages of the share capital of investee companies thereof, and is also able to realize all or most of its holding in the shares of one of the investee companies.
 

IDB Development Corporation Ltd. Convenience translation

 
177
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
2.       Risk management policy of subsidiaries (cont.)
 
 
a.
Discount Investments (cont.)
 
Liquidity risk (cont'd)
 
·  
Debt recycling - Discount Investments examines periodically the possibility of enlarging an existing bonds series, replacing existing bonds series of short duration with existing bonds series of longer duration (similar to the replacement carried out in January 2014, as detailed in Note 16.F.1.a. above), or issuing a new bonds series. In addition and if necessary, Discount Investments will act in order to raise loans from financial institutions. Recently the market value of Discount Investments main assets has declined (mainly as a result of the competitive environment in which they operate) and as a result the leverage level of Discount Investments and the yields to maturity on its bonds have increased, which may limit its ability to refinance its debt as stated.
 
 
b.
Cellcom
 
Credit risk – The management of Cellcom monitors the exposure to credit risk on an ongoing basis. Cellcom conducts credit assessments on customer accounts exceeding a certain amount, and requires collateral against them. The management of Cellcom regularly monitors outstanding customer debts.
Cellcom’s cash and cash equivalents are deposited in major banking institutions in Israel. Cellcom invests only in highly liquid bonds and only when the counterparty has a credit rating of at least AA- granted by Maalot. Cellcom actively monitors credit ratings, and in view of these high credit ratings, Cellcom’s management does not anticipate that the counterparties will not meet their obligations.
As at December 31, 2014, Cellcom does not have a substantial concentration of credit risks. Financial instruments that could potentially subject Cellcom to credit risk consist mainly of trade receivables balances. Credit risk from trade receivables balances is limited due to the composition of the customer base, which includes a large number of individual customers and businesses.
 
Liquidity risk – Cellcom invests surplus cash not required for funding its current operations in interest-bearing investment channels, such as short-term deposits and bonds. Such investment channels are selected according to forecasts of Cellcom’s future cash needs for meeting its obligations. Cellcom examines current forecasts of its liquidity needs, in order to ensure that cash balances are sufficient to cover its operating needs. The company verifies the availability of unutilized credit lines, in order to avoid exceeding the determined credit limits and deviating from financial covenants that it must meet. Said forecasts take into account factors such as Cellcom’s plans to use debt for funding its operations, meeting binding financial covenants, and meeting also external prescriptions, e.g. laws or regulation.
 
Market risk - Cellcom purchases and sells derivatives in the regular course of business, and also undertakes financial liabilities for the purpose of managing market risks, in accordance with the policy determined by Cellcom’s board of directors.
 
Interest and CPI risk – Cellcom is exposed to fluctuations in the interest rate, including changes in the CPI, since the majority of its borrowings are linked to the CPI. As part of the risk management policy, Cellcom has entered into forward contracts that partially hedge its exposure to changes in the CPI.
 
Currency risk – Cellcom’s operating income and cash flows are exposed to currency risk, mainly due to handset and network- related acquisitions and its international roaming services activity. Cellcom also has bank accounts that are denominated in foreign currencies other than its principal currency, primarily in USD and Euro. In the framework of its financial exposures hedging policy, Cellcom uses forward and option transactions to partially hedge its exposure to fluctuations in foreign exchange rates.

IDB Development Corporation Ltd. Convenience translation

 
178
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
2.       Risk management policy of subsidiaries (cont.)
 
 
c.
Property & Building
The operations of Property & Building are financed mainly by CPI-linked long-term shekel loans. The revenues of Property & Building in Israel are all linked to the CPI and any surplus cash is invested for short periods, mainly in shekel deposits and marketable securities. Property & Building’s foreign operations are financed, to the extent possible, with credit in the operating currency of the local market in which the operations are carried out.
 
Market risks - The nature of its business exposes Property & Building to market risks deriving from changes in external factors, such as the level of activity of the real estate sector in the economy, changes in the consumer price index, changes in the Construction Inputs Index, and changes in market interest rates. Property & Building is also exposed to changes in foreign currency exchange rates in its investments abroad. Such exposure derives from both the current operations of the investee companies thereof abroad and the methods of financing the investments.
Property & Building hedges the financial exposures to the risks described above that derive from its operation in Israel by matching the linkage bases of the expenses to those of its revenues, and also by diversifying its financing sources and types of credit. Accordingly, Property & Building regularly examines the credit conditions in the various alternatives and the assessments regarding changes in forecasted inflation rates and market interest rates.
According to the degree of the current exposure, Property & Building assessed that there is no room for the use of derivative financial instruments for purposes of hedging against market risks.
Regarding the exposure to changes in foreign currency exchange rates in its investments abroad, Property & Building acts to reduce the exposure by investing in companies whose operating currency is the foreign currency of the target countries, and also by matching the linkage basis of these investments to those of the revenues and sources of financing.
 
Interest rate risk - Property & Building’s interest rate risk primarily arises from long-term liabilities (bonds and loans), most of them at fixed interest.
 
Credit risks – Regarding surplus cash, the policy of Property & Building is to invest it for short periods of time, mainly in deposits and marketable securities (mainly bonds). The deposits are held in a number of financial institutions of the highest level in Israel.
 
 
d.
Shufersal
 
Credit risks – Shufersal does not have significant concentrations of credit risk, since its policy ensures that retail sales are for the most part transacted in cash or credit cards. In addition, the wide spread of its customers significantly reduces credit risk.
Shufersal has a procedure for granting credit to customers. According to the procedure, the customer provides identifying documents, the details of those authorized to make purchases, and collateral, such as post-dated security checks and bank guarantees, personal guarantees or promissory notes. Obligo approval authority according to credit amounts is conferred to credit managers, finance manager and up to the deputy CEO and CFO, according to the credit amounts. In addition, an aging report of the customers’ credit debt is monitored on a monthly basis.
Shufersal limits its exposure from investments of liquid means thereof, by investing in rated securities only, with a rating of at least A by Maalot and at least “aa” by Midroog.
The opposing parties to the derivatives currently held by Shufersal, are banks rated between AA and AAA with a stable outlook based on Maalot’s rating.
 
Market risk - Shufersal purchases and sells derivatives in the regular course of business, and also undertakes financial liabilities for the purpose of managing market risks.
 
Currency risk – Most of Shufersal’s activity is carried out in Israeli currency. Shufersal manages the currency exposure that arises from fluctuations in exchange rates, in respect of liabilities and cash flows denominated in foreign currency due to the import of products denominated in dollars. Shufersal has taken measures to reduce the currency exposure by purchasing futures contracts.
 
CPI risk – Shufersal occasionally applies a policy of hedging the risks deriving from CPI-linked rental contracts and its CPI-linked bonds, by executing hedging transactions.

IDB Development Corporation Ltd. Convenience translation

 
179
 
Note 21 - Financial Instruments (cont.)
 
A.
Management of financial risks (cont.)
 
2.       Risk management policy of subsidiaries (cont.)
 
 
e.
Elron
 
Credit risk – Elron holds the majority of its deposits and cash and cash equivalents balances in various financial institutions with a high rating, and disperses its investments among the various institutions.
 
Currency risk – Elron’s operation currency and that of the majority of its investee companies is the US Dollar. Accordingly, Elron holds a significant amount of its deposits and its balances of cash and cash equivalents in US Dollars.
 
3.
As at December 31, 2013, the investments in Credit Suisse shares and in Clal Holdings Insurance Enterprises were classified as held for sale (in January 2014, the investment in Credit Suisse was realized in full, as stated in note 3.H.4.c above). In addition, the assets and liabilities of Given were classified as a realization group held for sale (the realization of Given was completed in February 2014, as stated in note 3.H.6.a above). Therefore, as at December 31, 2013, the investments in Credit Suisse and in Clal Holdings Insurance Enterprises and Given’s assets and liabilities were not included in this note.
 
B.
Credit risks
 
As at December 31, 2014, cash and cash equivalents amounted to NIS 3,578 million, investments in marketable bonds amounting to NIS 2,120 million and short term deposits amounting to NIS 356 million. The deposits are held with banking corporations of the highest rating.
The revenue from sales and services of the consolidated companies are mainly from customers in Israel. The consolidated companies are continually monitoring customer debts, and the financial statements of the aforesaid companies include provisions for doubtful debts which properly reflect, according to the assessment of the consolidated companies, the loss embodied in debts whose collection is doubtful.
The consolidated companies have no significant concentrations of credit risk, in light of the policy in place at the consolidated companies, which ensures that sales are in the majority of cases made in cash or by credit card, and in the real estate sector are secured by the units themselves until their delivery, which is only made when payment for them is completed.
 
 
1.
The maximum exposure to credit risk on the date of the Statement of Financial Position was as follows:
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Non-current assets
            
Other investments*
     151       51  
Loans, deposits, restricted deposits and debit balances
     140       81  
Long-term trade receivables
     476       512  
Current assets
                
Current investments, excluding derivatives*
     2,121       2,163  
Short-term loans, deposits and pledged and restricted deposits
     514       667  
Financial receivables
     132       212  
Trade receivables
     2,712       3,059  
Cash and cash equivalents
     3,578       6,313  
Derivatives
                
Exchange rate forward contracts
     1       3  
Index forward contracts
     5       8  
      9,830       13,069  

 
*
Excluding shares, participation certificates in trust funds and exchange trade funds.
 
**
In addition, the Group has loans granted to investee companies accounted for by the equity method, amounting to NIS 540 million and NIS 642 million as at December 31, 2014 and 2013, respectively. For additional details regarding loans to affiliated companies, see note 3.A.2.

IDB Development Corporation Ltd. Convenience translation

 
180
 

Note 21 - Financial Instruments (cont.)
 
B.
Credit risks (cont.)
 
 
2.
The maximum exposure to credit risk due to trade receivables, accounts receivable, loans and other investments, by geographic regions and according to their book value, was as follows:
 
   
As of December 31
  
   
2014
    
2013
  
             
   
NIS millions
  
Israel
     9,005       12,495  
United States
     707       540  
United Kingdom
     106       8  
Other regions
     12       26  
      9,830       13,069  

 
3.
The maximum exposure to credit risk due to trade receivables, accounts receivable, loans and other investments, by counterparties, according to their book value, was as follows:
 
   
December 31
  
   
2014
    
2013
  
   
NIS millions
  
Financial corporations
     4,117       7,041  
End customers
     1,703       2,078  
Short term loans and bonds issued by the Israeli government
     1,469       1,483  
Credit card companies
     1,039       1,095  
Bonds issued by other corporations*
     651       678  
Accounts receivable, investments and other loans
     405       296  
Communication operators
     206       172  
Retail customers
     100       111  
Corporations
     44       46  
Distributors and agents
     25       17  
Private customers
     23       19  
Lessees
     21       22  
Purchase vouchers
     17       10  
Wholesale customers
     10       1  
      9,830       13,069  

*
As at December 31, 2014 and December 31, 2013, bonds at an amount of NIS 647 million and NIS 668 million, respectively, are rated A- or higher.

IDB Development Corporation Ltd. Convenience translation

 
181
 
Note 21 - Financial Instruments (cont.)
 
B.
Credit risks (cont.)

 
4.
The following is the aging of debts of trade receivables, accounts receivable, loans and other investments:
 
 
   
December 31
  
   
2014
    
2013
  
   
Gross
    
Provision for doubtful debts
    
Gross
    
Provision for doubtful debts
  
   
NIS millions
  
Not past due
     9,679       (30 )     12,883       (21 )
0 - 30 days past due
     34       (1 )     33       (1 )
31 - 120 days past due
     16       (4 )     18       (2 )
Above 120 days past due
     369       (233 )     445       (286 )
      10,098       (268 )     13,379       (310 )
Net balance
             (9,83 )             13,069  

 
5.
The following are the changes in the provision for impairment in respect of trade receivables and accounts receivable balances and loans granted during the year:
 
   
For the year ended
December 31
  
   
2014
    
2013
  
   
NIS millions
  
             
Balance at the beginning of the year
     310       426  
Increase in expenses from doubtful debts
     37       104  
Bad debts written off
     (79 )     (152 )
Cessation of consolidation of investee companies, net
     -       (68 )
Balance at the end of year
     268       310  


IDB Development Corporation Ltd. Convenience translation

 
182
 

Note 21 - Financial Instruments (cont.)
 
C.  Liquidity risks
 
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding amounts in respect of which netting agreements are in place. Amounts are not capitalized.
 
 
    As at December 31, 2014  
     Carrying amount (1)     Forecast cash flow (2)     First year     Second year     Third year     Forth year      Fifth year     Over 5 years  
     NIS millions  
Non-derivative financial liabilities
                                                
Bonds(3)
     22,451       (27,099 )     (4,400 )     (4,208 )     (4,520 )     (2,866 )     (1,861 )     (9,244 )
Loans from banks
     4,462       (5,301 )     (1,076 )     (1,279 )     (546 )     (398 )     (168 )     (1,834 )
Host contract in hybrid financial instrument in respect of non-recourse loan(4)
     3,162       (5,444 )     (60 )     (264 )     (263 )     (4,857 )     -       -  
Loans from others
     584       (652 )     (42 )     (39 )     (87 )     (131 )     (26 )     (327 )
Liabilities in respect of construction
     103       (103 )     (35 )     (7 )     (55 )     (6 )     -       -  
Other liabilities
     125       (125 )     -       (113 )     -       -       (4 )     (8 )
Overdraft
     80       (80 )     (80 )     -       -       -       -       -  
Short-term loans from banks
     266       (266 )     (266 )     -       -       -       -       -  
Short-term loans from others
     14       (14 )     (14 )     -       -       -       -       -  
Financial accounts payable and credit balances
     635       (635 )     (635 )     -       -       -       -       -  
Trade payables
     2,504       (2,504 )     (2,504 )     -       -       -       -       -  
                                                                 
Financial liabilities - Derivative instruments
                                                                
CPI forward contracts
     62       (62 )     (49 )     (9 )     -       (4 )     -       -  
Other derivatives
     1       (1 )     (1 )     -       -       -       -       -  
Total
     34,449       (42,286 )     (9,162 )     (5,919 )     (5,471 )     (8,262 )     (2,059 )     (11,413 )

(1)
The carrying amount includes current maturities and accrued interest as at December 31, 2014. The forecast cash flow includes all future interest payments.
(2)
The forecast cash flow was calculated based on the known CPI, interest rate and exchange rate as at December 31, 2014. The forecast cash flow does not include expected effects of changes in the CPI, exchange rates and interest rates.
(3)
See note 35.C below regarding the bond exchange made by Cellcom subsequent to date of the Statement of Financial Position.
(4)
Represents the contractual cash flows of the non-recourse loan, which is secured by and repayable through shares of Adama, and includes Koor’s obligations to indemnify ChemChina in respect of business taxes that ChemChina will be charged, in accordance with Chinese law, in respect of interest payments on the aforementioned loan (to the extent that there will be no tax exemption on such taxes), see note 16.F.1.d. above.

IDB Development Company Ltd. Convenience translation                                                                                                                                                                                                                            
 
183
 
Note 21 - Financial Instruments (cont.)
 
C.  Liquidity risks (cont.)
 
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding amounts in respect of which netting agreements are in place. Amounts are not capitalized (cont.)
 
 
     As at December 31, 2013    
     Carrying amount(1)     Forecast cash flow (2)     First year     Second year     Third year     Fourth year     Fifth year     Over 5 years  
     NIS millions  
Non-derivative financial liabilities
                                                
Bonds(3)
     25,875       (30,974 )     (5,904 )     (4,629 )     (4,421 )     (4,272 )     (2,587 )     (9,161 )
Loans from banks
     5,410       (6,312 )     (1,878 )     (808 )     (1,079 )     (512 )     (362 )     (1,673 )
Liabilities for the transfer of shares of Makhteshim Agan(4)
     3,664       (4,871 )     (14 )     (54 )     (235 )     (234 )     (4,334 )     -  
Loans from others
     460       (549 )     (114 )     (34 )     (32 )     (80 )     (124 )     (165 )
Liabilities in respect of construction and investment property
     132       (132 )     (53 )     (55 )     (19 )     -       (2 )     (3 )
Other liabilities
     125       (125 )     -       (8 )     (104 )     -       (5 )     (8 )
Overdraft
     78       (78 )     (78 )     -       -       -       -       -  
Short-term loans from banks
     601       (601 )     (601 )     -       -       -       -       -  
Short-term loans from others
     18       (18 )     (18 )     -       -       -       -       -  
Financial accounts payable and credit balances
     662 *     * (662)     * (662)     -       -       -       -       -  
Trade payables
     2,291       (2,291 )     (2,291 )     -       -       -       -       -  
                                                                 
Financial liabilities - Derivative instruments
                                                                
CPI forward contracts
     75       (75 )     (64 )     (10 )     (1 )     -       -       -  
FX Options and forward contracts
     19       (19 )     (19 )     -       -       -       -       -  
Non-banking derivative financial instruments
     18       (18 )     (18 )     -       -       -       -       -  
Total
     39,428       (46,725 )     (11,714 )     (5,598 )     (5,891 )     (5,098 )     (7,414 )     (11,010 )

*
Reclassified.
(1)
The carrying amount includes current maturities and accrued interest as at December 31, 2013. The forecast cash flow includes all interest payments.
(2)
The anticipated cash flow was calculated on the basis of the CPI, interest and exchange rates known as at December 31, 2013. The anticipated flows do not include expected effects of changes in the CPI, exchange rates and interest.
(3)
The cash flow includes the amount of the early redemption of Koor’s bonds, in accordance with the amendment to the trust deeds, as at December 31, 2013, see note 3.H.4.c. above.
(4)
Represents the contractual cash flows of the non-recourse loan, which is secured by and repayable through shares of Adama, and includes Koor’s obligations to indemnify ChemChina in respect of business taxes that ChemChina will be charged, in accordance with Chinese law, in respect of interest payments on the aforementioned loan (to the extent that there will be no tax exemption on such taxes), see note 16.F.1.d. above.



IDB Development Company Ltd. Convenience translation                                                                                                                                                                                                                            
 
184
 

Note 21 - Financial Instruments (cont.)
 
D.           Linkage basis of assets and liabilities in the Statement of Financial Position
 
   
As at December 31, 2014
  
   
CPI-
linked
    
Dollar-
linked
    
Other currency-
linked
    
Unlinked
    
Non-monetary
items(1)
    
Total
  
   
NIS millions
  
Assets(2)
                                    
Investments in investee companies accounted for by the equity method
     -       -       -       -       3,753 (3)     3,753  
Other investments, including derivatives
     4       -       98       53       1,967       2,122  
Loans, restricted and pledged deposits and debit balances
     20       262       -       18       11       311  
Fixed assets
     -       -       -       -       5,559       5,559  
Investment property
     -       -       -       -       11,175       11,175  
Assets designated for payment of employee benefits
     -       -       -       -       1       1  
Long-term trade receivables and accounts receivable
     -       -       -       1,082       -       1,082  
Non-current inventory
     -       -       -       -       375       375  
Deferred expenses
     -       -       -       -       284       284  
Deferred tax assets
     -       -       -       -       53       53  
Intangible assets
     -       -       -       -       4,782       4,782  
Current investments, including derivatives
     858       1       -       1,264       1,194       3,317  
Short-term loans and deposits
     5       245       -       108       -       358  
Accounts receivable and debit balances
     10       25       3       90       252       380  
Current tax assets
     -       -       -       -       46       46  
Trade receivables
     -       179       75       1,852       -       2,106  
Inventory
     -       -       -       -       851       851  
Inventory of buildings for sale
     -       -       -       -       691       691  
Assets held for sale
     -       -       -       -       5       5  
Cash and cash equivalents
     -       373       56       3,149       -       3,578  
Total assets
     897       1,085       232       7,616       30,999       40,829  
                                                 
Liabilities(2)
                                                
Bonds
     17,810       -       -       4,214       -       22,024  
Loans from banks and other financial liabilities
     1,458       2,101       -       1,687       -       5,246  
Hybrid financial instrument in respect of non-recourse loan (4)
     -       3,090       -       -       -       3,090  
Financial liabilities, presented by fair value
     61       2       -       -       -       63  
Other liabilities
     -       -       -       3       172       175  
Non-current provisions
     -       -       -       -       235       235  
Deferred tax liabilities
     -       -       -       -       1,508       1,508  
Employee benefits
     -       -       -       -       174       174  
Current credit from banking corporations and others
     -       -       -       280       -       280  
Creditors and credit balances
     362       88       2       637       757       1,846  
Trade payables
     -       310       60       2,134       -       2,504  
Current tax liabilities
     -       -       -       -       133       133  
Overdraft
     -       66       14       -       -       80  
Current provisions
     -       -       -       -       160       160  
Total liabilities
     19,691       5,657       76       8,955       3,139       37,518  
Net balance as at December 31, 2014
     (18,794 )     (4,572 )     156       (1,339 )     27,860       3,311  
 
(1)
Including shares, participation certificates in mutual funds, exchange-traded notes and monetary items excluded from the scope of IFRS 7.
(2)
Non-current assets and liabilities in this table include the current maturities in respect thereof.
(3)
Including loans totaling NIS 369 million and NIS 28 million, linked to the exchange rates of the dollar and the euro, respectively.
(4)      Regarding the right of Koor and its consolidated company to repay the loan by way of a transfer of shares of Adama, see note 16.F.1.d above.

IDB Development Corporation Ltd. Convenience translation

 
185
 

Note 21 - Financial Instruments (cont.)
 
D.           Linkage basis of assets and liabilities in the Statement of Financial Position (cont.)
 
   
As at December 31, 2013
  
   
CPI-
linked
    
Dollar-
linked
    
Other currency-
linked
    
Unlinked
    
Non-monetary
items(1)
    
Total
  
   
NIS millions
  
Assets(2)
                                    
Investments in investee companies accounted for by the equity method
     -       -       -       -       3,749 (5)(3),     3,749  
Other investments, including derivatives
     6       -       -       51       298       355  
Loans and debit balances
     23       14       -       55       12       104  
Fixed assets
     -       -       -       -       5,488       5,488  
Investment property
     -       -       -       -       9,827 (6)     9,827  
Assets designated for payment of employee benefits
     -       -       -       -       1       1  
Long-term trade receivables and accounts receivable
     -               -       1,390       -       1,390  
Non-current inventory
     -       -       -       -       374       374  
Deferred expenses
     -       -       -       -       276       276  
Deferred tax assets
     -       -       -       -       157       157  
Intangible assets
     -       -       -       -       5,394 (5)     5,394  
Current investments, including derivatives
     996       3       -       1,169       814       2,982  
Short-term loans and deposits
     20       118       -       518       -       656  
Accounts receivable and debit balances
     15       113       3       81       243       455  
Current tax assets
     -       -       -       -       29       29  
Trade receivables
     4       120       14       2,043       -       2,181  
Inventory
     -       -       -       -       809       809  
Inventory of buildings for sale
     -       -       -       -       849       849  
Assets held for sale
     -       605       95       18       4,061 (5)     4,779  
Cash and cash equivalents
     -       1,078       27       5,208       -       6,313  
Total assets
     1,064       2,051       139       10,533       32,381       46,168  
                                                 
Liabilities(2)
                                                
Bonds
     19,418       -       -       4,701       -       24,119  
Loans from banks and other financial liabilities
     1,352       2,198       -       2,509       -       6,059  
Hybrid financial instrument in respect of non-recourse loan (4)
     -       3,057       -       -       -       3,057  
Financial liabilities, presented by fair value
     11       -       -       -       -       11  
Other liabilities
     -       -       -       -         (5),(6)206      206  
Non-current provisions
     -       -       -       -         (5)132      132  
Deferred tax liabilities
     -       -       -       -       1,456       1,456  
Employee benefits
     -       -       -       -       144       144  
Current credit from banking corporations and others
     742       18       431       508       -       1,699  
Financial liabilities presented at fair value
     64       24       -       -       13       101  
Creditors and credit balances
     630         (5) 67     4       704         (5) 868      2,273  
Trade payables
     -       219       25       2,047       -       2,291  
Current tax liabilities
     -       -       -       -       155       155  
Overdraft
     -       59       17       2       -       78  
Current provisions
     -       -       -       -         (5) 207      207  
Liabilities of disposal groups and other liabilities classified as held for sale
     -       58       23       42       42       165  
Total liabilities
     22,217       5,700       500       10,513       3,223       42,153  
Net balance as at December 31, 2014
     (21,153 )     (3,649 )     (361 )     20       29,158       4,015  

(1)
Including shares, participation certificates in mutual funds, exchange-traded notes and monetary items excluded from the scope of IFRS 7.
(2)
Non-current assets in this table include the current maturities in respect thereof.
(3)
Including loans totaling NIS 314 million, NIS 122 million and NIS 64 million, linked to the exchange rates of the dollar, the pound sterling and the euro, respectively.
(4)
Regarding the right of Koor and its consolidated company to repay the loan by way of a transfer of shares of Adama, see note 16.F.1.d above.
(5)
Reclassified; see note 1.F.1 above.
(6)
Retrospective implementation of IFRIC 21, Levies – see notes 1.E.6.a and 1.F.1 above.

IDB Development Corporation Ltd. Convenience translation

 
186
 

Note 21 - Financial Instruments (cont.)
 
E.  CPI and foreign currency risks
 
 
1.
Sensitivity analysis
 
A change in the exchange rates of the following currencies as at December 31, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis was performed assuming that all other variables, particularly the interest rates, remained constant.
 
         
As at December 31, 2014
  
         
Effect on profit and loss
    
Effect on equity
  
   
Rate of change
    
Effect on
total profit (loss)
    
Effect on profit attributed to the shareholders
    
Effect on
total equity
    
Effect on equity attributed to the shareholders
  
   
%
    
NIS millions
  
CPI
     1       (144 )     (90 )     (144 )     (90 )
Dollar
     5       (155 )     (111 )     (155 )     (111 )
                                         
CPI
     2       (290 )     (181 )     (290 )     (181 )
Dollar
     10       (310 )     (221 )     (310 )     (221 )
                                         
CPI
     (1 )     144       90       144       90  
Dollar
     (5 )     155       111       155       111  
                                         
CPI
     (2 )     290       181       290       181  
Dollar
     (10 )     310       221       310       221  


         
As at December 31, 2013
  
         
Effect on profit and loss
    
Effect on equity
  
   
Rate of change
    
Effect on
total profit (loss)
    
Effect on profit attributed to the shareholders
    
Effect on
total equity
    
Effect on equity attributed to the shareholders
  
   
%
    
NIS millions
  
CPI
     1       (172 )     (102 )     (172 )     (102 )
Dollar
     5       (131 )     (71 )     (131 )     (71 )
Swiss Franc
     5       (21 )     (10 )     (21 )     (10 )
                                         
CPI
     2       (345 )     (203 )     (345 )     (203 )
Dollar
     10       (266 )     (143 )     (266 )     (143 )
Swiss Franc
     10       (43 )     (21 )     (43 )     (21 )
                                         
CPI
     (1 )     172       102       172       102  
Dollar
     (5 )     133       71       133       71  
Swiss Franc
     (5 )     21       10       21       10  
                                         
CPI
     (2 )     345       203       345       203  
Dollar
     (10 )     268       143       268       143  
Swiss Franc
     (10 )     43       21       43       21  

 
Notes to the above sensitive analysis:
 
(1)
The analysis was performed in respect of monetary financial instruments only. Shares, participation certificates in mutual funds and exchange-traded notes were excluded from this sensitivity analysis.
(2)
The analysis including effects of financial derivatives.
(3)
Changes in exchange rates of other currencies did not have a material effect on equity and profit or loss.



IDB Development Corporation Ltd. Convenience translation

 
187
 

Note 21 - Financial Instruments (cont.)
 
E.  CPI and foreign currency risks (cont.)
 
 
2.
Positions in derivatives
 
 
a.
As at December 31, 2014, in NIS millions:
 
 
 
 
CPI / NIS
  
   
Nominal value
    
Fair value
    
Nominal value
    
Fair value
  
   
Up to one year
    
More than one year
  
   
Long
  
1. Future contracts for hedging purposes* – not eligible for hedge accounting
     3,053       (49 )     700       (14 )
Future contract - SWAP**
     7       1       22       4  

*
These contracts are designed to hedge CPI-linked liabilities, so that if the CPI actually increases by more than the index stipulated in the contract, the Group will receive the difference; in the opposite case, the Group will pay the difference.
**
This future contract swaps the CPI-linked liability cash flow for a nominal Shekel cash flow at fixed interest.

   
USD / NIS
  
   
Nominal value
    
Fair value
  
   
LONG
    
SHORT
    
LONG
    
SHORT
  
2. Derivatives for hedging purposes – not eligible for hedge accounting
                        
Up to one year
                        
Future purchases of dollars
     18       -       -       -  
CALL options
     25       -       1       -  

 
b.
As at December 31, 2013, in NIS millions
 
   
CPI / NIS
  
   
Nominal value
    
Fair value
    
Nominal value
    
Fair value
  
   
Up to one year
    
More than one year
  
   
LONG
  
1. Future contracts for hedging purposes* – not eligible for hedge accounting
     2,615       (64 )     653       (11 )
Future contract - SWAP**
     7       1       29       6  

*
These contracts are designed to hedge CPI-linked liabilities, so that if the CPI actually increases by more than the index stipulated in the contract, the Group will receive the difference; in the opposite case, the Group will pay the difference.
**
This future contract swaps the CPI-linked liability cash flow for a nominal Shekel cash flow at fixed interest.

   
USD / NIS
  
   
Nominal value
    
Fair value
  
   
LONG
    
SHORT
    
LONG
    
SHORT
  
2. Derivatives for hedging purposes – not eligible for hedge accounting
                        
Future purchases of dollars
     92       -       (1 )     -  
CALL options
     231       -       1       -  
Cross Currency Swap
     145       -       (12 )     -  
                                 
Derivatives for hedging purposes – eligible for hedge accounting
                                
Future purchases of dollars
     90       -       (6 )     -  

 
Euro / NIS
 
Up to one year
 
Nominal value
Fair value
 
LONG
SHORT
LONG
SHORT
3. Derivatives for hedging purposes:
        
Future purchases of Euro– not eligible for hedge accounting
4
-
-
-


IDB Development Corporation Ltd. Convenience translation

 
188
 

Note 21 - Financial Instruments (cont.)
 
F.  Interest rates risks
 
1.       Type of interest
 
The Group’s interest rate risk primarily arises from effects of changes in the interest rate on the value of long-term liabilities (bonds and loans), most of them at fixed interest. Notwithstanding, some of the long-term loans are at variable interest. In this case, the Group is exposed to a cash flow risk in respect of a change in interest.
Following are details on the type of interest of the Group’s interest-bearing financial instruments and according to their book value:

   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Instruments at fixed interest
            
Financial assets*
     5,919       8,403  
Financial liabilities
     (25,799 )     (28,127 )
      (19,880 )     (19,724 )
Instruments at variable interest
                
Financial assets
     106       115  
Financial liabilities**
     (1,617 )     (3,563 )
      (1,511 )     (3,448 )

*     Mostly deposits included within cash and cash equivalents.
**
Not including the non-recourse loan provided to Koor by a Chinese bank, which is repayable with Adama shares – see note 16.F.1.d above.

 
2.
Sensitivity analysis of the annual anticipated cash flow for instruments at variable interest rates
 
An absolute changes of 1% in interest rates at the reporting date would have increased or decreased total equity and total annual profit or loss by the amounts shown below. This analysis was performed assuming that the other variables, particularly the foreign currency rates, remain constant.

   
As at December 31
  
   
2014
    
2013
  
   
Profit (loss)
    
Equity
    
Profit (loss)
    
Equity
  
   
Increase
    
Decrease
    
Increase
    
Decrease
    
Increase
    
Decrease
    
Increase
    
Decrease
  
Instruments at variable rate – sensitivity of cash flow, net
     (16 )     16       (16 )     16       (9 )     16       (9 )     16  

 
*
Not including the effect of the change in interest rate on the non-recourse loan Koor received from a Chinese bank, which is repayable with Adama shares – see note 16.F.1.d above.

 
3.
Following are the effects of changes in interest rates on equity, for fixed interest rate instruments measured at fair value
 
 
December 31,
 
2014
2013
 
Effect on
total equity and total profit or loss
Effect on share of
shareholders
Effect on
total equity and total profit or loss
Effect on share of
share
holders
 
NIS millions
         
Absolute Increase of 1% in the interest rate
(106)
(54)
(87)
(40)


IDB Development Corporation Ltd. Convenience translation

 
189
 

Note 21 - Financial Instruments (cont.)
 
G.  1.  Fair value of financial instruments
 
The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, trade receivables, accounts receivable and debit balances, short-term loans and deposits, other investments, derivatives, overdraft from banking corporations, short-term loans and credit, liabilities in respect of investment property, other liabilities, accounts payable and credit balances and trade payables, are identical or proximate to their fair value.

The fair value of the other financial assets and liabilities and the carrying amounts as shown in the Statement of Financial Position, are as follows:
 

   
2014
         
Fair value(5)
  
 
   
Carrying amount
    
Level 1
    
Level 2
    
Level 3
    
Total
   Capitalization interest rate used in the calculation of fair value
Financial Assets
                                
Long-term trade receivables(1)
     476       -       -       476       476  
5.20
Financial liabilities
                                          
Bonds(2),(3)
     (22,451 )     (22,214 )      (19 )      -       (22,230 ) 
1.09-17.93
Long-term loans from banks(2),(3)
     (4,462 )     -       (4,259 )      (18 )      (4,277 ) 
1.90-110.27
Host contract in compound financial instrument in respect of non-recourse loans(4)
     (3,162 )      -       -       (3,150 )      (3,150 ) 
12.54
Loans from others
     (584 )     -       (525 )      -       (525 )
2.59-15.96
      (30,659 )      (22,214 )     (4,803 )      (3,168 )      (30,190 )   
 

   
2013
  
         
Fair value(5)
    
 
  
   
Carrying amount
    
Level 1
    
Level 2
    
Level 3
    
Total
     Capitalization interest rate used in the calculation of fair value  
Financial Assets
                                    
Long-term trade receivables(1)
     512       -       -       512       512       5.20  
Financial liabilities
                                                
Bonds(2),(3)
     (25,875 )      (26,648 )      (58 )     -       (26,710 )      0.53-12.85  
Long-term loans from banks(2),(3)
     (5,410 )     -       (5,252 )      (50 )      (5,302 )      0.8-424.82  
Host contract in compound financial instrument in respect of non-recourse loans(4)
     (3,664 )      -       -       (3,360 )     (3,360 )      12.1  
`Loans from others
     (460 )     -       (322 )     -       (322 )     1-35.24  
      (35,409 )      (26,648 )      (5,632 )      (3,410 )      (35,690 )         

 
(1)
The fair value of long-term trade receivables was determined on the basis of the present value of the future cash flows, discounted by the market interest rate as at measuring date.
 
(2)
The carrying amount includes current maturities and accrued interest. The fair value as at the date of the report includes principal and interest that were paid in January of the subsequent year, and in respect of which the Ex Day fell before the date of the report.
 
(3)
The fair value of bonds which are traded on the stock exchange was assessed based on their quoted price, and the related interest rate reflects the yield-to-maturity embodied in such quoted price. The fair value of bonds which are not traded on the stock exchange and of long-term loans from banks was estimated using the future cash flows discounting technique, in respect of the principal and interest component, discounted by the market interest rate as at the measurement date.
 
(4)
The fair value of the host contract in the compound financial instrument related to the non-recourse loan was determined by an external appraiser based on the value of the shares of Adama, see note 16.F.1.d. above.
 
(5)
For details on the different levels in the fair value hierarchy, see note 1.E.3.b above.


IDB Development Corporation Ltd. Convenience translation

 
190
 

Note 21 - Financial Instruments (cont.)
 
G.
(cont.)
 
 
2.
Fair value hierarchy of financial instruments measured by fair value
 
For details on the different levels in the fair value hierarchy, see note 1.E.3.b above.
The fair value of financial assets measured by fair value is determined with reference to the quoted closing bid price at the date of the Statement of Financial Position, and in lack of such quoted price – by other accepted valuation methods, whilst giving maximal consideration to observable market data (such as use of an interest curve).
As at December 31, 2014 and 2013, the Group has financial assets amounting to NIS 55 million and NIS 61 million, respectively, and financial liabilities amounting to NIS 62 million and NIS 107 million, respectively, which are measured at fair value at level 2.
The financial instruments measured at fair value at level 2 include, among others:
 
·  
Forward contracts, the fair value of which is estimated based on quotes by banks/ brokers or based on the discounting of the difference between the forward price, as denominated in the contract, and the current forward price for the remaining period of the contract until redemption, using appropriate market interest rates for similar instruments, including adjustments required due to credit risks of the parties, when appropriate.
·  
Foreign currency options, the fair value of which is determined according to Black & Scholes model, and the Garman-Kohlhagen model.
 
The reasonableness of the quotes is examined by discounting an estimate of future cash flows based on the terms and length of period until the settlement of each contract and whilst using market interest rates of similar instruments as at the date of the measurement.


IDB Development Corporation Ltd. Convenience translation

 
191
 

Note 21 - Financial Instruments (cont.)
 
G.
(cont.)
 
The rest of the Group’s financial instruments, which are presented at fair value, are measured at fair value at level 1, excluding that detailed in the tables below:
 
 
2.
Fair value hierarchy of financial instruments measured by fair value
 
 
Financial instruments measured at fair value at level 3
 
 
   
For the year ended December 31, 2014
  
   
Financial assets
    
Financial liabilities
  
   
Financial assets measured at fair value through profit and loss
    
Embedded derivative in non-recourse loan and other
  
   
NIS millions
  
Balance as at January 1, 2014
     296       602 (2)
Total income (losses) recognized:
             -  
In Statement of Income
     15 **     (535 )
In other comprehensive income (in the ‘Reserves from translation differences’ item)
     12       -  
Amounts paid or accrued
     -       19  
Acquisitions
     3       -  
Sales
     (44 )     -  
Redemptions
     (2 )     -  
Issue of series T bonds in Discount Investments
     -       (15 )
Initial recognition in fair value***
     90       -  
Balance as at December 31, 2014
     370 (1)     71 (2)
*The total profits (losses) for the period that were included in the Statement of Income for assets and liabilities held as of December 31, 2014:
  
Net income (loss) from realization and  increase in value (impairment) of investments and assets
     (10 )     (535 )
 
 
**Not including income from dividends in a sum of NIS 24 million.
*** A financial asset measured at fair value in the Statement of Income as a result of a decrease in the amount of the holding and the loss of material influence – see note 3.H.2.a below.

 
(1)
The Group holds several private companies, and the fair value of the Group’s investments therein was assessed by using the following assessment methods:
·  
The cash flow discount method was implemented where the companies under assessment are capable to estimate the future cash flows thereof.
·  
The transactions method - according to this method, the value of the Group’s investments in the companies under assessment was assessed on the basis of the price determined in other transactions involving the securities thereof, while carrying out the relevant adjustments.
·  
Option Pricing Model - An option pricing model based on the Black & Scholes model or on the binomial model. This method is based on the assumption that the securities of an entity may be considered as call options on the value of such entity as a whole.
·  
The value of investments in venture capital funds which are not registered for trade is determined on the basis of the Group’s share in the funds’ equity based on the financial statements thereof, which are based on fair value or valuations of the investments thereof.
 (2)
Including an embedded derivative in respect of a non-recourse loan received by Koor as stated in note 20.F.4.b above.
 
The fair value estimate of the embedded derivative will increase following an increase in the standard deviation and the underlying asset, and also following a decrease in the non-tradability discount rate.

IDB Development Corporation Ltd. Convenience translation

 
192
 
Note 21 - Financial Instruments (cont.)
 
G.
(cont.)
 
 
2.
Fair value hierarchy (cont.)
 
 
Financial instruments measured at fair value at level 3 (cont.)
 
   
For the year ended December 31, 2013
  
   
Financial assets
    
Financial liabilities
  
   
Financial assets measured at fair value through profit and loss
    
Financial assets designated to fair value through other comprehensive income
    
Total
    
Embedded derivative in non-recourse loan and other
  
   
NIS millions
  
Balance as at January 1, 2013
     931       4       935       653  
Total gains (losses) recognized:
                                
In profit and loss
     37 **     -       37       (85 )
In other comprehensive income (in the ‘Reserves from translation differences’ item)
     (6 )     (4 )     (10 )     -  
Amounts paid or accrued
     (2 )     -       (2 )     13  
Acquisitions
     59       -       59       -  
Sales
     (92 )     -       (92 )     -  
Business combination
     -       -       -       (4 )
Redemptions
     (5 )     -       (5 )     -  
Settlements
     -       -       -       21  
Financial instruments of realization groups classified as held-for-sale
     (2 )     -       (2 )     4  
Cessation of consolidation
     (624 )     -       (624 )     -  
Balance as at December 31, 2013
     296       -       296 (1)     602 (2)
 *The total income (losses) for the period that were included in the Statement of Income for assets and liabilities held as of December 31, 2013:     1                       (85 )
 
 
**Excluding dividend income in a sum of NIS 9 million.
 
 
(1)
The Group holds several private companies, and the fair value of the Group’s investments therein was assessed by using the following assessment methods:
·  
The cash flow discount method was implemented where the companies under assessment are capable to estimate the future cash flows thereof.
·  
The transactions method - according to this method, the value of the Group’s investments in the companies under assessment was assessed on the basis of the price determined in other transactions involving the securities thereof, while carrying out the relevant adjustments.
·  
Option Pricing Model - An option pricing model based on the Black & Scholes model or on the binomial model. This method is based on the assumption that the securities of an entity may be considered as call options on the value of such entity as a whole.
·  
The value of investments in venture capital funds which are not registered for trade is determined on the basis of the Group’s share in the funds’ equity based on the financial statements thereof, which are based on fair value or valuations of the investments thereof.
(2)
Including an embedded derivative in respect of a non-recourse loan received by Koor as detailed in note 20.F.4.b above.
 
The fair value estimate of the embedded derivative will increase following an increase in the standard deviation and the underlying asset, and also following a decrease in the non-tradability discount rate.

IDB Development Corporation Ltd. Convenience translation

 
193
 

Note 21 - Financial Instruments (cont.)
 
G.
(cont.)
 
 
2.
Fair value hierarchy (cont.)
 
Fair value sensitivity analysis with respect to financial instruments measured by Level 3 fair value
 
Although the Group believes the fair value amounts determined for measurement and/or disclosure are appropriate, using different assumptions or measurement methods may change the fair value amounts.
With respect to the measurement of the fair value of the embedded derivative in the non-recourse loan, a possible and reasonable change in any of the following unobservable data would have increased (decreased) the profit or loss and the equity as follows (after tax):
 
   
As at December 31, 2014
  
   
Effect on total equity
    
Effect on the profit or loss
  
Unobservable data
  
Increase in the parameter of
    
Decrease in the parameter of
    
Increase in the parameter of
    
Decrease in the parameter of
  
   
NIS millions
  
Change of 5% in the standard deviation of Adama shares
     29       (27 )     29       (27 )
Change of 2.5% in the discount rate in respect of the non-marketability of Adama shares
     (21 )     24       (21 )     24  
Change of 5% in Adama’s value
     45       (38 )     45       (38 )

   
As at December 31, 2013
  
   
Effect on total equity
    
Effect on the profit or loss
  
Unobservable data
  
Increase in the parameter of
    
Decrease in the parameter of
    
Increase in the parameter of
    
Decrease in the parameter of
  
   
NIS millions
  
Change of 5% in the standard deviation of Adama shares
     48       (50 )     48       (50 )
Change of 2.5% in the discount rate in respect of the non-marketability of Adama shares
     (6 )     4       (6 )     4  
Change of 5% in Adama’s value
     104       (100 )     104       (100 )

With respect to the other financial instruments classified as Level 3 in the fair value hierarchy, the possible effect as a result of a reasonable change in unobservable data is not material.

 

IDB Development Corporation Ltd. Convenience translation

 
194
 
Note 21 – Financial Instruments (cont.)
 
H.           Price risk – sensitivity analysis
 
 
1.
Change in the fair value of securities measured by fair value through profit or loss would have affected the profit or loss by the following amounts (after tax):
 
   
For the year ending December 31
  
   
2014
    
2013
  
   
Effect on the profit or loss
    
Effect on the shareholders share
    
Effect on the profit or loss
    
Effect on the shareholders share
  
   
NIS millions
  
Increase of 5%
     250       175       148       67  
Increase of 10%
     498       348       296       136  
Decrease of 5%
     (250 )     (175 )     (148 )     (67 )
Decrease of 10%
     (498 )     (348 )     (296 )     (136 )

 
 
2.
A change in the fair value of financial assets measured by fair value through other comprehensive income would have affected the equity in immaterial amounts.

 
I.   Offsetting financial assets and financial liabilities
 
The following are details of the book value of financial instruments recognized, which were offset in the statements of financial position:
 
   
As at December 31, 2014
    
As at December 31, 2013
  
   
Gross amounts of financial assets (liabilities) recognized
    
Gross amounts of financial assets (liabilities) recognized and offset in the Statement of Financial Position
    
Net amounts of financial assets (liabilities) presented in the Statement of Financial Position
    
Gross amounts of financial assets (liabilities) recognized
    
Gross amounts of financial assets (liabilities) recognized and offset in the Statement of Financial Position
    
Net amounts of financial assets (liabilities) presented in the Statement of Financial Position
  
   
NIS millions
  
Financial assets
                                    
Trade receivables
     342       (238 )     104       340       (264 )     76  
Financial liabilities
                                          
Trade payables and accrued expenses
     (264 )     238       (26 )     (316 )     264       (52 )
 
See also note 16.F.1.d above with regard to the embedded derivative presented offset by the host contract in a hybrid financial instrument in respect of a non-recourse loan received by Koor.


IDB Development Corporation Ltd. Convenience translation

 
195
 


Note 22 – Charges and Guarantees
 
A.
The Company and several consolidated companies registered fixed and/or floating liens on their assets (including shares, real estate assets, investment property and fixed assets) to secure repayment of the liabilities. In addition, certain consolidated companies have undertaken not to register liens on their assets in favor of third parties without prior written consent from the lenders (negative pledge). In certain events, creation or realization of liens is subject to regulatory permits, including pursuant to the terms of various permits and/or licenses. See note 16.E.d.1 and 2 above for information pertaining to the provisions that were set out in agreements between the Company and banks, which determine, inter alia, a limit on charging additional assets in order to give additional collateral to secured lenders.
 
B.
With respect to a loan that was received by the Company from a financial institution, the book value of which as of December 31, 2014, is NIS 148 million, the Company charged shares of Discount Investments and shares of Clal Holdings Insurance Enterprises, as well as an amount of cash of NIS 18 million. For details, see also note 16.C.2 above.
 
C.
The Company gave a bank a comfort letter with respect to its holdings in Israir, by which, inter alia, it will make all efforts to help Israir obtain financial means to meet its liabilities to the bank, and if necessary will act to sell the airplanes so that the sale proceeds may serve to repay the debt. The comfort letter states that it does not create of an undertaking to repay the credit and/or security and/or guarantee. In the comfort letter, the Company undertook to retain control of IDB Tourism and/or its subsidiary (see also note 23.B.10 and 11 below).





IDB Development Corporation Ltd. Convenience translation

 
196
 


Note 22 – Charges and Guarantees (cont.)
 
D. Guarantees
 
 
1.
Guarantees for loans received from banking corporations
 
The Guarantor
Details
  
Sum of the guarantee
as at December 31, 2014
  
     
NIS Millions
  
The Company
Guarantee to wholly owned consolidated company of the Company for a loan from a banking corporation
     7  
Shufersal and its consolidated company
Guarantee for the associate’s debt to the banking corporation
     25  
Property & Building
Guarantees to wholly owned consolidated company of the Company for loans from banking corporations
     457  
Property & Building
Guarantees for associates and joint transactions for their loans from banking corporations
     360  
IDB Tourism (2009)
Guarantee to a consolidated company for a loan from a banking corporation
     235  
Andim Tourism and Aviation Ltd.
Guarantee for consolidated companies to banking corporations
  
For an unlimited amount *
  
 
 
*
The balance of the debt to the banking corporation as at 31 December, 2014, is NIS 22 million.
 
 
2.
Other guarantees
 
The Guarantor
Details
  
Sum of the guarantee
as at December 31, 2014
  
     
NIS Millions
  
Consolidated companies of Property & Building
Guarantees and insurance policies that were provided by banks and insurance companies at the request of consolidated companies of Property & Building to secure the money of the purchasers of the apartments, in accordance with the Sales (Apartments)(Assurances of Investments of Purchasers of Apartments) Law 5735-1974.
     310  
Property & Building and its consolidated companies
Bank guarantees for institutions, service providers, land owners and others during the ordinary course of their business.
     166  
Koor
Guarantee to Bezeq with regards to a service provision agreement for products sold to it by a Koor subsidiary.
     165  
Cellcom and its consolidated companies
Bank guarantees on behalf of the Israeli government to assure implementation of the terms of the licenses.
     83  
Cellcom and its consolidated companies
Bank guarantees on behalf of suppliers, government institutions and others
     49  
Shufersal
Various guarantees
     4  
Diesenhaus Ltd.
Bank and other guarantees to consolidated companies to secure credit from suppliers and lessees and performing tenders
     3  
Diesenhaus Travel and Tourism (1979) Ltd.
Bank and other guarantees to consolidated companies to secure credit from suppliers and lessees and performing tenders
     2  
Open Sky Ltd.
Bank guarantees in favor of airlines
     5  
Israir Flight and Tourism Ltd.
Bank guarantees in favor of suppliers
     5  
IDB Tourism (2009)
Guarantee in favor of a supplier of a consolidated company
     10  


IDB Development Corporation Ltd. Convenience translation

 
197
 

Note 22 – Charges and Guarantees (cont.)
 
E.
Discount Investments undertook to two banks that provided it loans whose balance as at December 31, 2014, amounted to NIS 521 million to avoid granting liens on behalf of others, subject to certain exceptions set forth in the aforesaid loan agreements (these exceptions include with regards to the two said banks an instance of a fixed pledge on an asset on behalf of a third party that financed its purchase, in order to secure credit for the purchase of said asset only, and with regards to one of the aforesaid banks - even in the case of a fixed pledge on behalf of a third party, when simultaneously said asset will be charged with an identical charge on behalf of said bank to secure Discount Investments’ loans from it).
 
F. 
Ÿ
Adama shares owned by Koor are charged to secure the loan received by Koor from a Chinese bank, as stated in note 16.F.1.d.
 
Ÿ
To secure the undertakings of the other consolidated companies and their subsidiaries to banks and others, in the total amount of NIS 3,130 million, and to secure bank guarantees amounting to NIS 476 million, these companies pledged various assets, including the share capital of investee companies and property rights (sum of said undertaking also includes loans from Morgan Bank, as stated in note 16.F.3.a above, some of which was also registered as a first class mortgage as specified in said note).
 
G.
As part of the issuance of Cellcom bonds (see also Note 16.f.2. above), Cellcom undertook to not register liens on its assets, with the exception of certain unusual cases.
 
H.
As part of the issuance of Shufersal bonds from Series D and E (see note 16.F.4 above), Shufersal undertook to not register a fixed lien on all of its assets to any third party, unless it obtained approval of the meeting of holders of bonds.
 
I.
As part of the issuance of Cellcom bonds of Series F and G (see note 16.F.3.b above), Property & Building undertook to not register liens on its assets, with the exception of certain exceptions listed in the trust deed, in addition to existing liens on the date of issuance of said bonds.
 
J.
To secure the undertakings of the other consolidated companies and their subsidiaries to banks and others, in the total amount of NIS 355 million, and to secure bank guarantees amounting to NIS 12 million, these companies pledged various assets, including their share capital and investee companies and property rights, planes, insurance rights of property and land rights.

IDB Development Corporation Ltd. Convenience translation

 
198
 


Note 23 – Contingent Liabilities, Commitments and Lawsuits
 
 
A.
Contingent Liabilities
 
 
1.
The Group has issued certain officers and employees in the Group, as well as to certain officers in a number of investee companies, advance letters of undertaking to indemnify those officers on account of their responsibility and liability for acts in the course of their duties, same being subject to certain terms and conditions and pertaining to certain pecuniary liabilities, applied to them in the setting of their said responsibilities and which, pursuant to law, indemnification is permitted on which account. See also note 33.B.5 below.
 
2.
In the preparation of economic papers, economic opinion and actuary declarations prepared for the Company and investee companies, by external experts, the Company and its investee companies gave said experts undertakings to indemnify them on account of damages that are caused to them as a result of third party actions against them pertaining to those economic papers, economic opinion and actuary declarations.
 
3.
In relation to the implications of legislation to promote competition and minimize market concentration, on the Company’s ability to control reporting corporations, see note 3.G.3 above.
 
B.
Commitments:
 
 
1.
Cellcom has undertakings relating to the license granted to it in 1994, the principal ones of which are:
Not to mortgage any asset that serves to perform the license without the Ministry of Communication’s prior consent, and the joint equity of all of Cellcom’s shareholders, together with Cellcom’s equity, will be no less than 200 million USD. In this regard, a shareholder who holds less than 10% of the capital rights in Cellcom will not be taken into consideration.
In Cellcom’s estimation, it is in compliance with the aforesaid obligations.
As a result of exercising rights issued by the Company as stated in note 15.B.5 above, in February 2015 a change occurred in its control structure, as a result of which the control structure in Cellcom also changed which will require a permit from the Ministry of Communication, including due to the Israeli holding requirement included in Cellcom’s licenses. Cellcom contacted the Ministry of Communication and intends to file a formal request to approve the specified changes, which may include a request to change the communications licenses of Cellcom, including with regard to the Israeli holding requirement pursuant to the aforesaid licenses. As at the date of approval of these financial statements, one of the controlling shareholders disputes the aforesaid changes.
 
 
2.
As of December 31, 2014, Cellcom and companies held by it have obligations to purchase equipment for the communication network, cellular telephone equipment and software and system maintenance, in a sum of approximately NIS 995 million.
 
 
3.
During 2003-2013, Netvision entered into several agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd. (hereinafter jointly: “Med Nautilus”). Under the agreements with Med Nautilus, Netvision acquired IRUs in certain communication capacities on Med Nautilus’ communication lines, as well as maintenance and operation services in connection with the aforesaid communication lines. The 2013 agreement contains an option, according to which Netvision is entitled to purchase additional capacity. The duration of the agreement pertaining to part of the capacity purchased from Med Nautilus is until May 2032. Netvision has the option to terminate the agreements pertaining to certain portions of the capacity in 2022 and 2027. The balance of Netvision’s liabilities to Med Nautilus on account of the IRUs of international communication lines under all the agreements extant as of December 31, 2014, is NIS 343 million.
 
 
4.
In March 2012 and May 2013, Cellcom entered into agreements with Apple Sales International to purchase and distribute iPad Tablets and iPhone devices, respectively, in Israel. In accordance with the terms and conditions of the agreements, Cellcom undertook to purchase, over a period of 3 years, a minimum number of such devices, which is expected to constitute a significant share of the aggregate expected total sum of acquisitions of tablets and cellular phones by Cellcom over such period. The aggregate sum of purchases will be dependent on the iPad and iPhone prices, respectively, at the date of purchase thereof.

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
B. Commitments (cont.)
 
 
5.
In 2013 Cellcom renewed its agreement with Amdocs on account of operation, maintenance, management and development services for Cellcom and Netvision’s billing system and customer system. The agreement is until February 2024, and Cellcom is entitled to terminate it, commencing on August 2016, subject to payment of compensation on account of the early termination. Moreover, Cellcom entered into a new agreement with Amdocs to develop a new version of the billing system that would serve Cellcom and Netvision. In March 2014, Cellcom engaged in an additional agreement with Amdocs to supply a customer relations management system which will replace Cellcom’s and Netvision’s existing customer relations management systems and serve both companies. As part of the agreement, Cellcom has undertaken to purchase maintenance services for a period of one year from the launch date of the system, subsequent to which it has an option to purchase maintenance services for seven additional years. As at December 31, 2014 Cellcom’s total liabilities with regard to these agreements amount to NIS 108 million.
 
 
6.
The following are details of Cellcom’s engagements in agreements for sharing networks and sites:
 
 
a.
In December 2013 Cellcom engaged with Golan Telecom Ltd. (“Golan”), as part of which Cellcom granted Golan an Indefeasible Right of Use with respect to its second and third generation network, which will replace the intra-national roaming agreement extant between Golan and Cellcom, Golan will continue to operate its own network center.
In May 2014, after the Ministry of Communication published a networks sharing policy, Cellcom engaged in a network sharing agreement with Golan, to construct and operate a shared fourth generation radio network. Both Golan and Cellcom will provide the frequencies required to operate the fourth generation radio network and each of the parties will acquire and operate its own network center.
Both of the aforesaid agreements were updated in September 2014 subsequent to the publication of additional requirements with respect to network sharing by the Ministry of Communication, and are, as a rule, for a period of 10 years at least. The fourth generation network agreement includes conditions with regard to ownership and a mutual indefeasible usage right in the fourth generation radio equipment, as well as the setting up of a joint venture for a joint operation of the fourth generation radio network. Upon the termination of the fourth generation sharing agreement, each party will be entitled to acquire indefeasible usage rights in the passive infrastructure of the other party.
The entering of all of the agreements into effect is subject to the granting of regulatory approvals and there is no certainty such approvals will be granted. If these agreements are approved, Cellcom anticipates its revenue from Golan to be at a similar annual level to its revenue from Golan in 2013-2014, for the period of the agreements.
 
 
b.
In September 2014, Cellcom engaged with Pelephone Communication Ltd. (“Pelephone”) in a cooperation agreement with regard to maintenance services for passive components at cellular sites, including the merging of passive components and reducing costs, through a joint contractor. The selected contractor through a process of obtaining quotes will engage in separate agreements with each of Cellcom and Pelephone, as a rule, for a period of 5 years at least. The agreement is subject to regulatory approvals and there is no certainty such approvals will be granted.
 
 
7.
In June 2014, the Board of Directors of Cellcom resolved to implement Cellcom’s entry into the TV Over IP services sector. In advance of its launch of the aforementioned services, Cellcom engaged in purchasing agreements for equipment, content and associated services. Entry into a new and saturated market will require significant investments and additional operating expenses.
 
 
8.
There are engagements entered into by Properties and Building and by consolidated subsidiaries of its in Israel, principally pertaining to the acquisition of land, residential construction and development and erection of buildings, which are estimated, as of December 31, 2014, at an aggregate sum of NIS 328 million.
 
 
9.
A consolidated subsidiary of Property and Building engages in the ordinary course of its business in combination transactions with land owners (including “demolition and construction” projects) according to which, in consideration of the purchase of the land, the vendors will receive a share of the proceeds of the project and/or some of the units to be built. The transactions are partly conditional on approval of a city building plan allowing residential building on the land.

IDB Development Corporation Ltd. Convenience translation

 
200
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
B. Commitments (cont.)
 
 
10. In April 2007 Israir entered into a contract with Airbus to purchase three airplanes. Two of the airplanes were received during 2010, and the third airplane, on account of which Israir has paid an advance of approximately $8 million, has not yet been received. Pursuant to the terms and conditions of the agreement, Israir was supposed to transfer an additional sum of advance on account of the third airplane by the end of the first half of 2012. In light of the failure to meet the payment stipulation in the agreement, Israir and Airbus decided that the delivery date for the plane, which was expected to be August 2013, will be postponed to 2016.
It should be noted that despite the delay in the payments per the terms and conditions of the agreement and the postponement of receipt of the plane, Israir expects to transfer to Airbus the remainder of the payments on account of the plane by the date it is received. In light of the foregoing, no depreciation in value was recognized on account of the advance paid.
 
11. For details regarding an agreement of IDB Tourism with a foreign banking corporation in a letter of commitment, which will be secured by a charge on four aircrafts owned by Israir and a charge on a new fifth aircraft, see note 16.F.6.2.
 
12. As of December 31, 2014 the Company and its consolidated subsidiaries had liabilities to pay rent as follows:
 
   
Consolidated
  
   
NIS millions
  
Up to one year
     659  
One year to five years
     1,794  
More than five years
     739  
      3,192  
 
C.
Lawsuits
 
The Company and other Group companies are party to lawsuits. The cost which may be incurred due to these lawsuits is provided for on the Company’s financial statements, or those of relevant Group companies, as the case may be, only if it is more likely than not (i.e. a probability higher than 50%) that a liability may arise due to past events and the liability amount may be reasonably quantified or estimated. The amounts of provisions made are based on estimated by relevant Group companies with regard to the risk associated with each lawsuit (except for some lawsuits, for which – due to the early stage of handling these lawsuits - the likelihood of success cannot be estimated). Note, on this matter, that events that take place during litigation may require re-assessment of such risk. Estimates by relevant Group companies with regard to such risk are based on the opinion of their legal counsel and on estimates by these relevant Group companies with regard to amounts of reasonable settlement agreements which these companies are likely to incur should both parties agree on such settlement agreements.
Below is a concise overview of lawsuits pending against the Company and other Group companies, categorized by groups with similar features. The amounts of the following lawsuits are presented as of their filing date, unless otherwise indicated.
 
 
1.
Lawsuits against the Company
 
 
a.
In May 2009, a lawsuit was filed with the Tel Aviv District Court (“the Court”) against the Company, seeking cancellation of the Company’s full buy-back offer issued by the Company in January 2009, with the share buy-back pursuant to this offer completed in March 2009 (“the tender offer”) and, alternatively, an assessment relief, pursuant to Section 338 of the Companies Law, 1999 (“The Companies Law”), along with a motion for class action status for this lawsuit. The class which plaintiffs seek to represent includes all offerees in this tender offer.
On March 12, 2014, the Court rejected the motion for class action status due to absence of cause, and consequently also rejected the lawsuit itself. The Court charged the plaintiffs with payment of legal and other expenses incurred by the Company in this litigation, as determined by the Registrar.
On June 30, 2014, the Company filed a motion for a costs assessment, in which the Court was requested to find the plaintiffs liable for costs incurred by the Company in regard to its defense, amounting to approximately NIS 1.3 million (as of the date of filing the motion). On March 2, 2015, the Court found the plaintiffs liable to pay the Company’s costs in an amount of approximately NIS 1.1 million, plus linkage differentials and interest.

IDB Development Corporation Ltd. Convenience translation

 
201
 

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
a. (cont'd)
On March 9, 2015, the plaintiffs filed a motion for a review of the decision in the motion for the costs assessment and the Company filed its response on March 26, 2015. On March 24, 2015, the plaintiffs filed a Notice of Appeal on the decision of the registrar in the motion for the costs assessment. The hearing of the appeal on the decision in the motion for the costs assessment was set down for April 29, 2015.
On May 4, 2014, the plaintiffs appealed the verdict to the Supreme Court, seeking to appeal the Court decision dated December 29, 2013 whereby the Court ordered deletion of part of the plaintiffs’ summation; to have the verdict annulled; and to grant class action status. Concurrently, the appellants filed a bond to secure the respondent’s expenses in this appeal, in conformity with statutory provisions. The appeal claims, inter alia, that the Court was wrong in its verdict and reasoning, since – according to the appellants – it has been proven that the consideration paid to offerees in conjunction with the tender offer did not reflect the fair value of Company shares; that the decision to go ahead with the tender offer was wrongly made; that most Board members were interested parties and in conflict of interest; and therefore such decision was subject to special approval, in conformity with Section 275 of the Companies Law; that the price in the tender offer should have been determined in conformity with a regular tender offer made by the Company in July 2008; that the appropriate way to value the Company was using the NAV model and not the DCF method; and that evidence presented by the appellants was sufficient to prove fulfillment of required conditions for grant of class action status to their lawsuit.
The parties files their summations and on March 25, 2015, the appellants filed their summations in reply. A hearing of the appeal is scheduled for April 26, 2015.
It should be noted that according to the opinion of legal counsel and considering the claims made in the statement of appeal, the Company believes it has good defense claims and therefore it is not likely (i.e. the probability is lower than 50%) that the Supreme Court would accept the appeal and grant class action status to the revised additional claim.
 
 
b.
In October 2010, a lawsuit was filed with the Central District Court by Alpha Capital Anstalt (“Alpha”) and by Ness Energy of Israel Inc. (“Ness Israel”) (jointly: “the plaintiffs”) against the Company, Noya Oil and Gas Exploration Ltd. (which owns a 75% controlling stake in the Modi’in General Partner) (“Noya”) and Du-Tzach Ltd., a company controlled by Mr. Yitzhak Sultan (“Du-Tzach”) (jointly: “the defendants”). In this lawsuit, the plaintiffs seek declarative injunction against the share allocation (“the allocation”) made by Noya to Du-Tzach, which resulted in Du-Tzach becoming a 95% owner of Noya’s issued share capital and against sale of half of Du-Tzach’s holding stake in Noya to the Company.
 
The plaintiffs also seek a declaratory injunction stating that Ness Israel (which held all of Noya’s share capital prior to the allocation) holds all of Noya’s share capital. The plaintiffs’ major claims in this lawsuit are, inter alia, that the allocation was made unbeknownst to the plaintiffs and therefore without their consent and with no consideration received by the plaintiffs. The plaintiffs allege that the allocation constitutes theft of Noya from the plaintiffs, is unlawful, was made in breach of the plaintiffs’ right of first refusal and in breach of the fiduciary duty and duty of care by officers of Noya towards shareholders thereof. Due to the foregoing, the plaintiffs allege that the allocation to Du-Tzach and the sale to the Company should be annulled.
Another company added to this lawsuit as co-defendant is Viceroy LLC (“Viceroy”), which claims that Viceroy and not Alpha is the sole owner of Ness Israel and also claims that the allocation to Du-Tzach and the sale to the Company should be annulled, for similar reasons.
The defendants reject the alleged claims against them, claiming inter alia that the allocation was made lawfully and that Alpha and Viceroy are not entitled to receive the Noya shares. The Court proposed that the parties should reach a settlement whereby Ness Israel would receive 5% of Noya shares to conclude the proceeding - the defendants agreed to this proposed settlement but the plaintiffs refused it. As further background, note that the Company has learned that in November 2010, Alpha filed a claim against Viceroy in a Court in Oklahoma, seeking a declaration by the Court about Alpha’s ownership interest in Ness Israel.

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
b. (cont'd)
 
In conjunction with a decision on Alpha’s motion for interim relief, the Court in Oklahoma determined that the Ness Israel shares were transferred to Alpha but no decision has been given to date with regard to Alpha’s motion for a declaration that it was entitled to hold all Ness Israel shares.
On July 29, 2014, the plaintiffs filed a notice with regard to a settlement agreement reached between Alpha and Viceroy, in which the parties agreed that Alpha owned Ness Israel and all other claims with regard to the proceeding in Oklahoma were rejected. As of the report date, the parties have filed their summations. On August 19, 2014, the Court decided that the defendants would file their comments on this notice after filing the response summations.
Based on the opinion of legal counsel - which was based on information provided there to during this proceeding, on the manner of testimony by witnesses of the parties and on the aforementioned proposed settlement by the Court - the Company believes that the likelihood of the claim against the Company being rejected is higher than the likelihood of it prevailing.
 
 
c.
In September 2012, a motion for approval of a derivative claim was filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to be a shareholder of IDB Holdings (“the plaintiff”). The motion was filed against controlling shareholders of IDB Holdings, officers of the Company and of IDB Holdings (in this section c., jointly: “the companies”) who served on the relevant dates (jointly: “the defendants”) as well as against the Company and IDB Holdings as pro-forma defendants. The motion concerns decisions by the companies with regard to a transaction involving acquisition shares of Ganden Tourism and Aviation Ltd. (currently named Andim Tourism and Aviation Ltd.) (“Ganden Tourism”) by the Company, which closed in October 2009.
The plaintiff claims, inter alia, that this transaction was devoid of any economic reason for the companies, that it was not in their best interest and that it was expected to cause them to incur significant damage; the acquisition transaction benefitted controlling shareholders of the companies by releasing them of guarantees they had provided to secure debt of Ganden Tourism and from the need to further finance its operations; and that the external value engaged in order to determine the fair price for acquisition of the shares and the consulting company which advised that institutional investors support the approval of this transaction at the General Meeting of shareholders were in conflict of interest with regard to the aforesaid transaction.
The plaintiff claims that the officers preferred the interest of the controlling shareholders of the companies over the interest of the companies, thereby being in breach of their fiduciary duty and duty of care to which they are subject; that the controlling shareholders acted other than in good faith and were in breach of their duty of fairness and care towards the companies; and finally, that releasing the controlling shareholders of the companies from their guarantees to secure Ganden Tourism’s debt and anticipated further investment of owners’ loans to finance Ganden Tourism’s operations and the transfer of the burden of said guarantees and further investment to the Company constitutes unjust enrichment.
The plaintiff petitioned for a motion instructing the controlling shareholders of the companies and officer thereof to compensate the companies or to reimburse to the companies, jointly and severally, an amount equal to the damage incurred as alleged in the motion, amounting to NIS 480 million, or at least NIS 212 million, which is the amount of damage allegedly incurred by the companies due to assuming the guarantees for Ganden Tourism’s debt from the controlling shareholders of the companies.
In January 2013, the defendants and the companies filed their responses to the motion for approval of derivative claim, in which they objected to the motion due, inter alia, to it being unfounded, the approval of said transactions being lawful, with special care to the best, proper corporate governance rules and to all rules applicable to interested party transactions and that the aforementioned claim and litigation thereof is not in the best interest of the companies.
On October 19, 2014, the Court rejected the motion to reject out of hand, filed by all defendants in this proceeding (other than the companies). The main reason for this being that the plaintiff, after the creditors’ arrangement at IDB Holdings, directly holds Company shares and although, after the creditors’ arrangement, the plaintiff has no status to make claims on behalf of IDB Holdings.
 
 
203
 
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
c.
(cont.)
 
The Court thus ordered that the motion for approval would be eliminated with regard to those who only served as Board members of IDB Holdings and that for the time being, IDB Holdings would remain as defendant in this proceeding but, should the motion be granted, IDB Holdings would be eliminated from the proceeding as defendant. The Court added that the Company’s objection to approval of the derivative claim would be taken into considerations by the Court in determining the outcome of the motion for approval.
As of the report date, the parties have filed their summations and the plaintiff has filed their response summation. Based on the opinion of legal counsel, the Company believes that the motion is more likely to be rejected than granted.
To the best of the Company’s knowledge, negotiations are taking place between the applicant and the insurance company of the former officers of the companies, with regard to a possibility of settling the proceeding consensually with regard to the causes of action against the former officers of the companies (as opposed to the causes of action against the former controlling shareholders of the companies). If these negotiations mature into a settlement, the Company may receive an immaterial amount from the insurance company. The Company is not a party to these negotiations, and it cannot estimate the likelihood that a settlement will be reached. In any case, the Company is not expected to be exposure to any liability as a result of these negotiations.
It should be noted that since this is an application for approval of a derivative claim, even should the motion be granted, the Company is expected to be a potential beneficiary of this proceeding and not a potential liable party thereof.
 
 
d.
In April 2013, a motion for approval of derivative claim and a statement of derivative claim were filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to hold Company bonds, in the name of the Company, against IDB Holdings and against members of the Board of Directors of the Company in the relevant period. This motion alleges that the dividend distributed by the Company in November 2011, amounting to NIS 64 million, constitutes a forbidden distribution pursuant to Section 302 of the Companies Law and that the decision to distribute this dividend was made unlawfully. The motion alleges that, according to the plaintiff, the earnings test in conformity with the Companies Law was not performed, since upon the date of decision on this distribution, it was expected that the Company’s next (future) financial statements would indicate negative retained earnings.
The relief sought from IDB Holdings is reimbursement of the aforementioned dividend payment, in conformity with section 310 of the Companies Law; the relief sought from the aforementioned Board members is compensatory damages to be paid to the Company for the damage incurred by the Company due to breach of their fiduciary duty and duty of care towards the Company, equal to the distribution amount.
On November 6, 2013, the District Court allowed the motion and approved the filing of a derivative claim for reimbursement of NIS 64 million to the Company, for cause of conducting a forbidden distribution, since the earnings test was not fulfilled upon the relevant dates for this distribution.
In December 2013, the Company filed a motion for an additional hearing of the Court decision to approve the derivative claim (“the additional hearing”), to be heard by three judges of the Economic Section of the Tel Aviv-Yafo District Court. Due to negotiations between the parties (see below), the hearing was postponed.
 
Contingent settlement agreement –
On March 9, 2014, the applicant in this proceeding, the applicant in the motion for another derivative claim filed against the Company, which is described in section C.1.e below in this note (in this subsection, “the other derivative actions”) and IDB Holdings filed, through the trustees of the debt arrangement, a motion for approval of a contingent settlement agreement they have reached, whereby all claims and events subject to the two motions for derivative claim would be completely and finally removed against IDB Holdings only, such that the proceedings would continue in regular fashion with regard to the other defendants, including the Company,

IDB Development Corporation Ltd. Convenience translation

 
204
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
d.
(cont.)
 
for payment of NIS 7 million to be paid to the Company by the Trustees for the debt restructuring out of cash payable to eligible parties of this debt arrangement, on the date when the eligible parties of this debt arrangement would receive the cash payment pursuant to the creditors’ arrangement, and for an additional payment of NIS 16 million to be paid to the Company by the Trustees for the debt restructuring, in cash - but only from any receipts to be received in future by IDB Holdings, if any, in conjunction with motions and derivative claims filed against the controlling shareholders and Board members of IDB Holdings, on behalf of IDB Holdings, or any future claims to be filed in lieu thereof (“the contingent settlement agreement”). The settlement agreement is contingent on the fulfilment of conditions precedent, including Court approval of the debt restructuring, approval by the Court hearing the derivative claims being settled, approval by IDB Holdings creditors; and approval by the other defendants on the two motions, officers and the Company) and alternatively, approval by the Court which approved this debt restructuring, allowing the trustees of the debt arrangement to distribute to the beneficiaries of the debt arrangement that are not respondents in the motions the proceeds payable to them, in full, pursuant to the creditors’ arrangement on the date of implementation of the arrangement, and that the Trustees of the debt arrangement are not required, in view of the settlement, to keep back any amounts or assets whatsoever as collateral for the debt claims filed with them.
On March 12, 2014, Board members and officers of IDB Holdings filed with the Court their objection to the motion for approval of the contingent settlement agreement. On March 18, 2014, the Company Board of Directors resolved to approve the contingent settlement, subject to certain conditions – primarily subject to rejecting the claim by Discount Investments with regard to the Company (see note 23.C.1.h below) (“the Discount Investments claim”). On March 20, 2014, the Trustees for the debt restructuring filed their response with the Court, whereby they propose, with the Company’s consent, a litigation arrangement which would allow the creditor’s arrangement at IDB Holdings to be carried out, while fully preserving the rights of all parties, including those opposed to approval of the contingent settlement agreement. This arrangement was approved by the Court hearing the creditors’ arrangement in its decision of March 24, 2014, and again on May 1, 2014, following the notice of the trustees of the arrangement that agreement had also been reached with regard to the procedural arrangement with the directors and officers who objected to the contingent settlement.
On May 5, 2014, the Company gave notice to the Court of its position of approving the contingent settlement, as well as its consent to the procedural arrangement (subject to fulfillment of conditions set forth in each one of these); the Company’s response clarified, inter alia, that the Company gave its approval and consent with due attention to the fact that the Company’s position has been and remains that there was no ground for claims underlying the legal proceedings in this claim and in the other derivative claim, and that the dividend distributions subject to each of these proceedings were conducted lawfully. The Court resolved to give its decision on the motion for approval of the contingent settlement agreement after the decision of the Court that is hearing the creditors’ arrangement with regard to that arrangement, which was also filed for its approval.
It should be noted that in view of the filing of the motion for approval of a settlement in both of the aforementioned legal proceedings (see below), as of the date of the report the contingent settlement is suspended.
 
Settlement agreement –
In July 2014, the parties presented to the Court a (non-final) general outline for another settlement agreement. The Court resolved that, should such final outline not be achieved and/or should it not be approved by the Court, a hearing of the motion for an additional hearing would be scheduled and the proceeding would continue as usual.

IDB Development Corporation Ltd. Convenience translation

 
205
 

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
d.
(cont.)
 
On September 15, 2014, the parties (other than the Company) to this claim and to the other derivative claim filed a motion for approval of a comprehensive settlement, the main points of which are as follows:
 
1. 
The settlement agreement would become effective contingent on fulfillment of all of the following conditions precedent: (a) Approval of the settlement agreement as a final, conclusive verdict - both in this claim and in the other derived claim; (b) Final, conclusive approval of the settlement agreement by the Court hearing the IDB Holdings debt restructuring.
 
2.
This derived claim and in the other derived claim would be accepted, meaning that amounts paid pursuant there to would be paid in conformity with the outline set forth in the settlement agreement.
 
 
3.
The maximum amount which the Company may receive pursuant to the settlement agreement (subject to fulfillment of the conditions precedent) is NIS 50.6 million, partly paid by IDB Holdings and partly paid by the other defendants in this claim and in the other derivative claim (through the insurance company), as set forth below: (a) NIS 34.6 million would be paid to the Company as follows: NIS 7 million would be paid by IDB Holdings in cash; another NIS 27.6 million would be paid by the other defendants in this claim and in the other derivative claim (through the insurance company). (b) NIS 16 million would be paid to the Company by IDB Holdings out of future receipts by IDB Holdings, if any, in conjunction with motions for approval of derivative claims and/or derivative claims by IDB Holdings against the controlling shareholders and officers thereof.
 
 
4.
The award to plaintiffs in this claim and in the other derivative claim and their legal fees would be paid out of the aforementioned amounts, as percentage, as determined by the Court.
 
 
5.
Payment of the aforementioned amounts would be made against final and absolute discharge of all claims by the Company against any party, at present or in future, with regard to the dividends distributed by the Company in 2010-2011 and the Company would be prevented by Court action from making any claims with regard to said distributions (“the estoppel clauses”).
 
On October 21, 2014, the Company filed its response to approval of the settlement in the outline described above, according to which it objects to its approval insofar as it includes the estoppel clauses. The Company said, inter alia, that it cannot accept a situation whereby it would be forced, by the settlement agreement, to be exposed to a substantial claim (the Discount Investments claim), while negating its rights of recourse, claim or indemnification. The Company position was, inter alia, that it was necessary to wait for the decision of the Court hearing the IDB Holdings creditors’ arrangement, in which a motion for summary dismissal of the Discount Investments claim had been filed (see below). The Company gave notice in its response that it would be willing to consent to the settlement agreement if it is determined that the Company’s waiver in conformity with the estoppel clauses only refers to this claim and to the other derivative claim and does not refer to any other proceedings, and especially the Discount Investments claim, whereas the trustees gave notice that they agree to the comprehensive settlement as it stands.
In December 2014, responses to the Company’s position were filed. On December 25, 2014, the Court held a hearing at which the Court expressed its position (off the record) that the settlement agreement should not be approved with the current estoppel clauses as currently worded and insisted that it could only approve the settlement agreement if the estoppel clauses would be modified so as to clarify that they only apply to the causes of action that are the subject of this claim and the other derivative claim, and do not apply to other proceedings and other causes of action, such as the Discount Investments claim. At this hearing, a hearing of the final settlement agreement was scheduled; since then, several postponements have been requested due to attempted negotiations to reach a revised settlement as stated below (as of this date – April 19, 2015), and afterwards 15 additional days will be given to the Company to respond to the amended settlement.

IDB Development Corporation Ltd. Convenience translation

 
206
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
d.
(cont.)
 
On December 29, 2014, the Court hearing the creditors’ arrangement issued a blocking order with regard to the Discount Investments claim, according to which the filing of a motion for certification of a derivative claim on behalf of Discount Investments against the Company was prohibited (see section C.1.h below in this note.) Despite this, on January 6, 2015, the Company filed a notice with the Court whereby the Company indicated that the Court resolution with regard to the blocking order does not change the Company’s general position, as elaborated in its response dated October 21, 2014 (see above), since this resolution is expected to be appealed. Note that on February 12, 2015, the blocking order was appealed to the Supreme Court.
On February 9, 2015, the trustees for the debt arrangement filed a motion with the Court hearing the creditors’ arrangement, to determine and order that the Company is not entitled to object to the settlement; on March 10, 2015, the Company filed its response to the trustees’ motion, according to which the Company opposes the Trustees’ motion and what is claimed therein, and it asked the Court to dismiss the Trustees’ motion summarily and/or on its merits. On March 26, 2015, the trustees of the debt arrangement filed an additional motion with the court, which was requested to reject the Company’s response and accept the previous motion.
As of the date of the report, the parties to this derivative claim and to the other derivative claim (see section C.1.e below in this note) are holding negotiations to reach an amended settlement between them, according to which, if the Discount Investments claim is successful, the Company will reserve the right to file a lawsuit against directors and officers of the Company and against IDB Holdings for a cause of action arising from this claim, if it pays the insurance company (before the filing of such a claim) NIS 7.5 million (linked to the Consumer Price Index), and also assigns to the insurance company a right to receive 7.5/16 of the amount to be paid to the Company pursuant to the settlement agreement by IDB Holdings out of future proceeds to be received by IDB Holdings, if any, in conjunction with motions for approval of derivative claims and/or derivative claims by IDB Holdings against the controlling shareholders and officers thereof.
In March 2015, the Company’s Audit Committee and Board of Directors approved the key amendments to the aforementioned settlement agreement which would be filed with the Court, should its wording be completed and agreed by the other parties.
In accordance with the opinion of legal counsel, given the innovative decisions by the Court in the primary proceeding and questions arising from this proceeding, and given the unique procedures for handling derivative claims and to appeal the approval for filing a derivative claim - the Company is currently unable to estimate the outcome of these proceedings. Note that since this is a derivative claim, even should the primary proceeding be heard, the Company is expected to be a potential beneficiary in the proceeding and not a potential debtor.
 
 
e.
On August 1, 2013, a motion for approval of a derivative claim was filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to be a holder of Company bonds, in the name of the Company, against IDB holdings and officers that currently hold office in the Company or held office in it in the past.
This motion alleges that the four dividends distributed by the Company in 2010-2011 in a total amount of NIS 442 million were forbidden distributions and that the decisions to make the distributions were made unlawfully, since the distributions did not pass the earnings test and the solvency test, as set forth in Section 302 of the Companies Law. IDB Holdings is required to reimburse to the Company the dividends distributed, pursuant to Section 310 of the Companies Law, while the other defendants – officers of the Company – are required to compensate the Company for damage allegedly incurred by the Company due to the alleged breach of duty by the officers, in the amount of the distributions.
It is the Company’s position that all of the aforementioned dividend distributions were made lawfully, based on resolutions lawfully passed by the Company’s competent organs and in conformity with all statutory tests and that they are not forbidden distributions. The Company filed its response to the motion, as well as a motion to reject the motion out of hand or, alternatively, to replace the plaintiff and/or its attorneys in conjunction with a preliminary motion.

IDB Development Corporation Ltd. Convenience translation

 
207
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
e.
(cont.)
As of the report date, the plaintiff has yet to file replies to the Company’s response to the motion for certification, and its response to the motion for summary dismissal of the motion has not yet been filed, because of negotiations held by the parties to reach a comprehensive settlement. For details of a contingent settlement and a settlement in this claim and another derivative claim, see section C.1.d above in this note.
Based on the opinion of legal counsel, which is based on information provided there to by the Company and subject to the precedential nature of questions being reviewed in this proceedings, the Company currently believes that the aforementioned motion is more likely to be rejected than to be granted.
Also note that since this is an application for approval of a derivative claim, even should the motion be granted, the Company is expected to be a potential beneficiary of this proceeding and not a potential liable party thereof.
 
 
f.
For more information on a “Motion for the Recovery of IDB Development Corporation Ltd.” (the motion for an involuntary arrangement) pursuant to section 350 of the Companies Law, which was filed with the Tel Aviv-Jaffa District Court on April 21, 2013, and on the legal proceeding with regard to the Company’s financial position, including the opinion of the Company’s legal counsel, see note 16.G.1 above.
 
 
g.
On November 28, 2013, the Company received final warning letters prior to taking legal action, from attorneys of the Trustees for IDB Holdings bonds (Series A, B, C, D and E). These warning letters are addressed to Board members and management of the Company and of IDB Holdings alleging, inter alia, that IDB Holdings “captains”, including its officers, are directly liable for the alleged heavy damage incurred by IDB Holdings, its shareholders and creditors.
 
These letters list a string of alleged deeds and omissions in the affairs of IDB Holdings and/or the Company and/or investees (present or past) thereof, which the aforementioned Trustees allege were made or caused by officers of IDB Holdings and which the Trustees allege are partly concerning the conduct of IDB Group at times, other than in the best interest of Group companies (and in particular, the Company and IDB Holdings) - but rather in the best interest of controlling shareholders thereof. The letters further allege that the aforementioned Trustees intend to have launched appropriate legal proceedings, whether by IDB Holdings, by an officer or by any other party (including by the Trustees) in order to ensure full payment for damage allegedly caused by the events listed in the letters.
 
 
h.
In December 2013, a motion for approval of a derivative claim was filed with the Central District Court, by a plaintiff who claims to be a shareholder of Discount Investments, against Discount Investments, against Board members of Discount Investments in 2010-2011 and against the Company (“the Rosenfeld motion”) with regard to dividend distributions declared by Discount Investments, for being forbidden distributions due to failing the earnings test.
In January 2014, a motion for approval of a derivative claim was filed with the Tel Aviv-Yafo District Court, by a plaintiff who claims to be a shareholder of Discount Investments, against Discount Investments, against Board members and two other officers of Discount Investments in 2010-2011, the Company and certain other shareholders of Discount Investments, affiliated with the Company or with the controlling shareholders of the Company at that time, including Clal Holdings Insurance Business Ltd. and Clal Finance Ltd. as well as the Independent Auditors of Discount Investments (“the defendants”, “the Height motion”). The Court was asked to approve a derivative claim against the defendants with regard to a tender offer by Discount Investments for Shufersal shares, made in February 2010, which increased the holding stake of Discount Investments in Shufersal from 42.2% to 50.3% (“the tender offer”) and with regard to dividend distributions declared thereafter by Discount Investments, from May 2010 through March 2011.

IDB Development Corporation Ltd. Convenience translation

 
208
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
 
h.
(cont.)
 
On March 18, 2014, the Extra-Elsztain Group filed a motion (“the Extra-Elsztain motion”) with the Court hearing the IDB Holdings debt arrangement, against the aforementioned plaintiffs and against the other parties to the motions, seeking to forbid them from filing or managing any derived claim proceedings on behalf of Discount Investments nor any other proceeding against the Company with respect to said dividend distributions and seeking the motions to be rejected or delayed or, alternatively, to forbid them from filing or managing such proceedings due, inter alia, to delay, lack of good faith and estoppel created against them by approval of the IDB Holdings debt arrangement. On March 23, 2014, a consolidated motion for approval of derived claim was filed with the Central District Court, in conjunction with the Rosenfeld motion, by the two plaintiffs (“the consolidated motion”), which consolidates and combines the Rosenfeld motion and the Height motion and which supersedes the Rosenfeld motion; concurrently, the plaintiffs asked to withdraw the Height motion. The Court approved the withdrawal of the Height motion and unification of both proceedings into a single motion.
The consolidated motion is essentially similar to the Height motion, as follows: (1) In terms of the parties; (2) in terms of the issues - the tender offer and dividend distributions on the same dates; (3) in terms of the alleged claims against the plaintiffs alleging, inter alia, that the tender offer was made needlessly and not in the best interest of Discount Investments, that gain recognized by Discount Investments due to the tender offer was a notional revaluation gain, which was in contravention of accounting principles - since there was no change in effective or formal control by Discount Investments over Shufersal due to the share purchase in this tender offer and therefore, there was not control achieved and therefore no revaluation and recognition of notional gain possible as a result thereof, and that the dividends distributed by Discount Investments, amounting in total to NIS 1.25 billion, were forbidden distributions due to failing the earnings test, as stipulated by the Companies Law; (4) in terms of the relief sought - to require the defendants to reimburse Discount Investments for the dividends thus distributed, the amount invested in purchase of Shufersal shares in conjunction with the tender offer (NIS 423 million) with interest on these amounts - for a total of NIS 1.988 billion, such that some defendants would be charged for the full said amount and other defendants would be charged for part thereof.
It should be noted that with regard to the Company, the Court is asked to instruct the Company to repay NIS 1.082 billion to Discount Investments for dividends distributed by Discount Investments to the Company, pursuant to section 310 of the Companies Law.
Further to the motion that was filed on March 18, 2014, as stated above, on December 29, 2014, the Court handed down its decision, granting the Extra-Elsztain motion by issuing a blocking order, forbidding the plaintiffs from filing a motion for approval of derivative claim on behalf of Discount Investments against the Company and against the other defendants, nor managing a claim for approval of derived claim on behalf of Discount Investments against the Company with respect to dividends distributed by Discount Investments in 2010-2011. The Court noted in the decision that the foregoing would not prevent the plaintiffs from filing a motion for approval of derivative claim against the other defendants (i.e. not against the Company) for a different cause for which no blocking order was requested by the controlling shareholders of the Company (i.e. with regard to the tender offer).
On February 12, 2015, the plaintiffs filed a motion of appeal regarding the aforementioned Court decision and on February 24, 2015, the Court hearing the proceeding ordered a delay of proceeding pending a decision on.
Based on the opinion of legal counsel, the Company believes that given the precedential nature of the decision by the Court hearing the debt restructuring, it is difficult to assess the probability of success of this appeal. On the one hand, this is a precedential decision which blocks and prevents filing a claim against a company not included in a creditors’ arrangement; on the other hand, the Company is a key to the IDB Holdings debt restructuring and exposing it to such derivative claim is very likely to cause the debt arrangement to collapse.

IDB Development Corporation Ltd. Convenience translation

 
209
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
h. (cont.)
 
Given the Company’s key role in the debt restructuring, the Appellate Court may resolve that under the unique circumstances of the appeal subject, it should not interfere in the decision by the Court hearing the debt restructuring, despite its precedential nature, and that in this unique case, the Insolvency Court is authorized to issue a blocking order to prevent the collapse of the complex debt restructuring approved by the Court. However, the claims made in this appeal are significant and it is difficult to assess the probability of success of this appeal. Furthermore, based on information provided to the Company’s legal counsel and based on formulating a (detailed) first draft response, it would appear that the motion against the Company is more likely to be rejected than to be granted (i.e. a probability lower than 50%). In addition, there is the fact that a blocking order has been issued and the likelihood of the appeal being rejected, leaving the blocking order in place and causing the claim against the Company to be rejected out of hand. Note that even should the appeal of the decision to issue a blocking order prevail and should the blocking order be cancelled for “lack of authority”, the incisive determinations by the Court hearing the debt restructuringof IDB Holdings, with regard to lack of good faith, delay and prevention of the plaintiffs would stand and would reinforce the reasons for denying the motion for approval of derivative claim.
 
 
i.
On June 29, 2014, the Campaign for Government Quality in Israel, NGO (“the petitioner”) filed a petition with the Supreme Court in Jerusalem, sitting as the High Court of Justice (“the petition” and “the High Court of Justice”, respectively) against the Supervisor of Banks, the Governor of the Bank of Israel, former controlling shareholders of the Company, the Company, IDB Holdings and four banks.
In this petition, the High Court of Justice was petitioned to grant the following orders nisi: (1) An order nisi ordering the Supervisor of Banks to justify why they have yet to respond to the petitioner’s requests with regard to exercising the Supervisor of Banks’ authority with regard to debt restructuring in general and in particular with IDB Group, in conformity with provisions of the Administrative Proceedings Amendment Act (Decisions and Justifications), 5719-1958; (2) an order nisi ordering the Supervisor of Banks to justify why they should not conduct a comprehensive, systematic inquiry into the conduct of the banking system in extending credit to IDB Group; reach conclusions and publish such conclusions; and act in conformity with their authority to correct any faults identified, including by requiring the banks to fully back IDB Group debt; (3) an order nisi ordering the Governor of the Bank of Israel to instruct the Supervisor of Banks to act as stipulated in the order nisi (2) above, or to assume the authority to act in this way in conformity with the Banking Ordinance.
The petitioner claims that the financial conduct of IDB Group was patently irresponsible, in addition to its business conduct which strived to maximize risk which did not always make business sense.
On August 11, 2014, the former controlling shareholders of the Company filed their response to the petition. On August 14, 2014, IDB Holdings, through the trustees for the debt arrangement, filed its response to the motion, asking the Supreme Court of Justice to exempt IDB Holdings from filing any further documents and from attending the hearings in this proceeding, since given the circumstances of IDB Holdings and its creditors’ arrangement, it cannot be impacted in any way by the orders petitioned for and the Trustees for the debt restructuring see no reason to take a position with regard to this petition.
On October 6, 2014, the Company filed its response to the petition, in which the Company claimed, inter alia, that the bank credit extended to the Company was extended under clear terms and conditions and subject to clear restrictions, as is customary for similar agreements and for similar corporations and that the Company has been and is in compliance with all its obligations towards the banks which have extended credit to the Company, so that there is no cause nor justification to intervene in their relationship, in terms and conditions of credit extended and repaid on time and definitely no cause to instruct such debt to be collected other than when due. The banks and the Supervisor of Banks have also filed their responses to the petition.

IDB Development Corporation Ltd. Convenience translation

 
210
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
1.
Lawsuits against the Company (cont.)
 
i. (cont.)
 
On November 4, 2014, the Supreme Court of Justice resolved that based on reasons cited by IDB Holdings and in absence of response to IDB Holdings’ motion, IDB Holdings is exempt from attending the hearings and from filing documents with regard to the petition. The Court further resolved that the petition would be scheduled for a hearing by three judges on November 9, 2015.
Based on the opinion of legal counsel, the Company believes, in this early stage of the proceeding when the petition has yet to be heard, that it is not possible to assess the likelihood of success of this petition. However, note that the orders applied for in the petition are against the Supervisor of Banks and the Governor of the Bank of Israel - rather than against the Company.
 
 
j.
For more information about a proceeding concerning a motion filed by the Company with the Court in May 2014 with regard to a demand from Menorah for immediate repayment of the Company’s debt there to, which has been concluded, see note 16.c(2) below.
 
 
k.
On January 21, 2015, a motion was filed with the Court, seeking a Court order for copying computer content of IDB Holdings by the Legal Counsel for Inquiries and Representation of the Trustees of the debt restructuring in legal proceedings, whereby the Court was asked to issue an order in presence of one party, allowing the aforementioned Legal Counsel to copy all magnetic media concerning IDB Holdings, which is stored in computer servers at IDB Holdings offices due, inter alia, to the mix of servers of the Company and of IDB Holdings. For further details and for additional motions and decisions on this matter, see note 16.G.2.i above.
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group
 
Investee companies of Clal Holdings Insurance Enterprises are involved in claims, including lawsuits that are not in the normal course of business (lawsuits not in the normal course of business are referred to as “lawsuits”).
Further to what is stated at the beginning of section C of this note, it should be noted that in light of the costs which could arise from the lawsuits, provisions are made in the financial reports of the relevant subsidiary companies, only if it more likely than not (meaning a probability of more than 50%) that a liability for payment shall be created as a result of pat events, and that the amount of the liability can be quantified or estimated within a reasonable margin of error. The provisions that were made are based on the estimated risk in each of the lawsuit, as of a date close to the publication date of this statement (except for several of the lawsuits which were filed during the last two quarters, and that their success rates cannot be estimated since they are in their preliminary stage). In this matter, please note that events occurring during the litigation may necessitate a reevaluation of this risk.
The assessments of the investee companies of Clal Holdings Insurance Enterprises Group regarding the risk are based on both the opinions of their legal counsels and on the estimates of the relevant companies as to the amounts of the settlement agreements that the managements of these companies predict that more probably than not they will have to bear. We would like to emphasize that in the opinion of the legal counsels regarding most of the motions to certify the claim as a class action, for which no provisions were made, the assessment of the attorney relates to the chances of the motion to certify the claim as a class action and does not relate to the chances of success of the claim itself, if it is certified as a class action. This is due to, among other things, the fact that the scope and content of the hearing on the claim itself, after it has been certified as a class action, will be influenced by the decision of the court to recognize the claim as a class action, which usually relates to the causes of the claim that were either approved and those that were not approved, to the remedies that were approved and those that were not approved, etc.
In addition to the legal proceedings mentioned below, there is also a potential exposure, which at present is impossible to assess or quantify, that additional class action suits will be filed against companies of the Clal Holdings Insurance Enterprises group due to the complexity of the insurance products of these companies, together with the complexity of the regulatory environment that applies to the operations of the companies in the Clal Holdings Insurance Enterprises group, which may result in a dispute with a customer regarding the interpretation of a provision of law or agreement, or the manner of implementation of a provision of law or agreement, which are applicable to the relationships between companies of the Clal Holdings Insurance Enterprises group and the customer.

IDB Development Corporation Ltd. Convenience translation

 
211
 

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
C.
Lawsuits (cont.)
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
This exposure is especially high in the areas of long-term savings and long-term health insurance in which Clal Insurance operates, inter alia in view of the fact that in these areas the policies were issued decades ago, while at present, after significant changes in the regulatory environment and against the background of developments in legal precedent and the Commissioner’s position, the same policies may be interpreted differently, after the fact. Moreover, in these areas the policies are valid for dozens of years and, therefore, there is a risk that in those cases in which a customer’s claim is accepted and a new interpretation is given to the policy, the future profitability of the company in respect of the existing policy portfolio will be affected. This is in addition to the possible compensation that could be given to the customers due to past activity.
Alongside these aspects, in December 2014, an amendment to the Control of Financial Services (Insurance) Law, 5741-1981, was published, which reflects a significant reform in the field of approving an insurance program, and in addition, in July 2014, a position paper was published on the subject of principles for drafting insurance policies, which includes a list of practices that should be included in an insurance policy and a list of practices that ought not to be included in an insurance policy because they are prejudicial (‘the insurance policy reform’). The insurance policy reform allows the Commissioner, in certain conditions, to order the insurer to stop introducing an insurance policy or to order an insurer to make a change to an insurance policy, even with regard to policies that have already been marketed by the insurer. It is not possible to foresee to what extent insurers are exposed to claims in connection with the provisions of the policy, the manner of implementing the Commissioner’s powers pursuant to the insurance policy reform and its implications, which may be raised, inter alia, by means of the procedural mechanism provided in the Class Actions Law.
In addition, there is a risk, which at present cannot be assessed or quantified, of problems in the manner in which products in the areas of long-term savings and health are operated, which are characterized, as mentioned above, by a very long life span and are subject to significant, complex and frequent changes, including changes in regulatory and tax provisions.
The complexity of these changes and their implementation over a large number of years creates a greater operating risk, also in view of the many automation systems in the financial institutions in the Clal Holdings Insurance Enterprises group and their limitations, in light of additions/changes to the basic wording of the products and in light of many and frequent changes made over the life span of the product, including by employees and/or employers and/or someone on their behalf, in relation to the insurance coverage and/or in relation to savings deposits.
This complexity and these changes relate to, among other things, the volume and rates of deposits, the different components of the product, the manner in which funds are classified to employees, products and their components, the dates on which they are recorded, the identification of arrears in making deposits and the handling of such arrears, and to the employment, personal and underwriting status of the customers. This complexity becomes even stronger in light of the multiplicity of the parties operating against the investee companies of Clal Holdings Insurance Enterprises Group in managing and operating the products, including regarding conflicting instructions that come from them or from people acting on their behalf.
 
The financial institutions in the group are involved on a regular basis in learning, identification and handling of issues which may derive from the aforementioned complexities, both in relation to individual cases and in relation to types of customers and/or products. In addition, further to the provisions of the Commissioner’s directive regarding the cleansing of data regarding the rights of members of financial institutions, the investee companies of Clal Holdings Insurance Enterprises Group have been making preparations to carry out a comprehensive process of data cleansing in the systems dealing with long-term savings and opposite customers in connection with product data and customer data. The financial institutions in the group made certain provisions in their financial statements as needed, but at this stage the companies of the group cannot estimate the full scope and costs of the treatment and cleansing processes and the full consequences thereof, including in relation to their past activity. In addition, it is impossible to even predict the types of claims that will arise in connection with the above and/or the exposure that derives from them in connection with the activities in these areas which could arise through, among other ways, the procedural mechanism of the class action suit and/or wide-ranging decisions made by the Commissioner.

 
 
212
 
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
The exposure to claims that have not yet been filed against the companies of the group is brought to the attention of the companies in several ways. This is done, among other ways, by customers, employees or suppliers contacting people in the aforementioned investee companies and especially to the public complaint officers at the aforementioned investee companies, through complaints of customers to the public complaint unit of the Commissioner’s office and through suits (that are not class actions) filed with the courts and through the Commissioner’s position papers. Please note that to the extent that we are dealing with customer complaints submitted to the Public Complaints Unit of the Commissioner’s office, in addition to the risk that a customer will choose to raise his claims also as part of a class action suit, the investee companies of Clal Holdings Insurance Enterprises Group are also exposed to the risk that the Commissioner will issue a ruling that will apply to a broad group of customers. In recent years, there has been an increase in the exposure to this risk, due to the increased involvement shown by the Commissioner in relation to complaints of customers coming to his door and in the inclination of the Commissioner to take a principled stand by making a broad ranged decision. For additional details regarding wide-ranging decisions, see section D below.
The investee companies of Clal Holdings Insurance Enterprises Group cannot predict whether the claim of costomer that was brought to the attention of the companies will lead to the filing of a class action suit, even in those cases in which a customer threatens to do so. In addition, these investee companies cannot assess the size of the potential exposure that may be generated in the event such a class action suit is filed.
The provision included in the financial statements of Clal Holdings Insurance Enterprises as at December 31, 2014, for all of the lawsuits not in the normal course of business against the investee companies of Clal Holdings Insurance Enterprises Group amounted to NIS 92 million.
The amount of the lawsuits not in the normal course of business against the investee companies of Clal Holdings Insurance Enterprises Group is a total of NIS 11,697 million (the “total amount”) (this amount includes: lawsuits in which the amount being sued is attributed to the investee companies of Clal Holdings Insurance Enterprises Group; suits in which the amount of the claim noted in the suit is not attributed only to the investee companies of Clal Holdings Insurance Enterprises Group, but also to other defendants as well; a suit in which the amount noted in the claim is an annual amount (and accordingly, the total amount is dependent upon the period); and claims filed after the date of the Statement of Financial Position. In addition, this amount does not include claims in which the amount of the claim was not noted).
The following is a concise and general summary of the lawsuits pending against the investees of Clal Holdings Insurance Enterprises Group, classified according to groups with similar characteristics:
 
 
a.
Consumer claims and derivative actions
 
Against the investee companies of Clal Holdings Insurance Enterprises Group there are pending claims filed by customers of the investee companies. Among these claims, there are claims that have been recognized as class action suits, claims for which there are pending motions to have them certified as class action suits, and other claims which are immaterial. These claims include mainly claims of improper actions, not in accordance with laws, licenses or breaches of agreements with customers or performance of tort damages toward customers (especially misleading a customer, or a negligent misrepresentation), causing damage, either monetary or non-monetary, to customers. A significant amount of these claims also include claims of charging excessive premiums and payment of lower than called for insurance compensation (“consumer claims”). In addition, there are three pending motions to have claims certified as derivative actions.
Of the total amount, as at December 31, 2014, the amount being sued which is attributed to the investee companies of Clal Holdings Insurance Enterprises Group in respect of consumer claims (of which six claims in a total amount of NIS 574 million are at a preliminary stage and therefore the relevant investees are unable to estimate the likelihood of their success) is NIS 4,190 million (of which an amount of NIS 76 million is claimed in an action that was certified as a class action and an amount of NIS 4,114 million is claimed in motions to certify claims as class actions).
In addition, an amount of NIS 107 million which is being sued for is an annual amount and, accordingly, the total amount is dependent upon the period.

IDB Development Corporation Ltd. Convenience translation

 
213
 

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont'd)
 
In addition, other consumer claims have been filed against the investee companies of Clal Holdings Insurance Enterprises Group together with other defendants (of which there is one claim in an amount of NIS 45 million that is at a preliminary stage and therefore the relevant investees cannot estimate the likelihood of it succeeding), in a total amount of NIS 2,039 million (the amount being sued for in motions to certify the claims as class actions), in which the plaintiffs have not detailed the amount attributed to the investee companies of Clal Holdings Insurance Enterprises Group, out of the total amount being claimed from all of the defendants.
Claims have been made against Clal Insurance Enterprises Holdings group (of which there are two claims in which no amount of the claim is stated, which are at a preliminary stage and therefore the relevant investees are unable to estimate the likelihood of their success) in which the amount of the claim was not stipulated, and an additional consumer claim, which has been certified as a class action, in which the plaintiff appraised the amount of the claim to be approximately “hundreds of millions of shekels”. These claims generate an additional exposure of the investee companies of Clal Holdings Insurance Enterprises Group, beyond the amounts set out above.
In addition, three derivative actions were filed for a total amount of approximately NIS 5,276 million.
Moreover, during the reporting year and until the date of publishing the report, a settlement was approved by the court in one consumer action that was filed against investees of Clal Holdings Insurance Enterprises, where the amount claimed was in an amount of NIS 882 million,
In addition, two claims that were filed against investees of Clal Holdings Insurance Enterprises, for a total amount of approximately NIS 515 million, were withdrawn.


IDB Development Corporation Ltd. Convenience translation

 
214
 
 
Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions
 
The following are details of the consumer class actions and derivative actions, classified according to the amount of claim:

Amount of claim
Type of claim
Number of claims
1.Claims that stipulate the amount referring to the company
    
a.Up to NIS 100 million
Claims certified as class action
Motions to certify class action
1
14
b.       Between NIS 100-500 million
Motions to certify class action
8
c.       Between NIS 500 million and 1 billion
Motions to certify class action
1
d.Above NIS 1 billion
Motions to certify class action
1
e.Annual amount stated (and accordingly the total amount is dependent upon the period)
Motions to certify class action
1
2.Claims that stipulate a comprehensive for all of the defendants, without attributing a specific amount to each defendant
    
a.       Up to NIS 100 million
Motions to certify class action
4
 
Motions to certify derivative action
1
b.       Between NIS 100-500 million
Motions to certify class action
1
c.Between NIS 500 million and 1 billion
Motions to certify class action
2
d.       Above NIS 1 billion
Motions to certify derivative action
2
3.     Claims that did not stipulate an amount
 
Claims certified as class actions
Motions to certify class actions
4
 
The following are details of the pending consumer claims, in which the amount claimed exceeds 5% of the recognized equity for the purpose of the Clal Insurance’s equity requirements:
 
 
1.
In April 2008 Clal Insurance received a monetary claim that was filed with the Jerusalem Labor Court (“the claim”) as well as a motion to certify the claim as a class action (“the motion”).
 
The plaintiff contends that Clal Insurance determined in an “Executive Pension Plan” insurance policy that the pension coefficient according to which insured women will be paid the insurance proceeds, when they reach retirement age, will be lower than that of insured men, because of the longer life expectancy of women. And yet Clal Insurance collected and continues to collect from insured women risk premiums identical to those it charges men, despite the fact that the women’s mortality rates are much lower than those of men. According to the plaintiff, in 2001 or close thereto, Clal Insurance modified the policies, but only in respect of new policies.
The principal remedy sought from the court is to rule that:
 
 
a.
The discrimination practiced by the respondent contravenes any law and any provision and/or action based on this discrimination be declared null and void.

 
26The amount of the claim is estimated as “hundreds of millions.”

IDB Development Corporation Ltd. Convenience translation

 
215
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
1. (cont.)
 
 
b.
The plaintiff and other members of the class it seeks to represent (“the class”) are entitled to select between the following alternatives: (1) to equalize the pension coefficient for an insured woman and an insured man and to rule that in the event of a lump sum payment instead of a pension, the lump sum payment shall be increased to the insured woman, in the ratio existing between the pension coefficient of an insured man and the pension coefficient of an insured woman at the relevant age; (2) to reduce both retroactively and prospectively the amount of risk premium charged to the insured women and to set them at the appropriate risk amounts, according to the plaintiff, for an insured woman, whereby the reduced amounts shall be added to the accumulated amount of savings.
 
 
c.
To issue appropriate rulings in respect of the other members of the class who have not been located or have not exercised their right to select between these choices.

The causes of action in this claim are, inter alia, violation of the principle of equality and discriminatory behavior, discriminatory terms in a standard contract, lack of good faith and unjust enrichment.
The class that the plaintiff seeks to represent is all women who purchased “Executive Pension Plan” insurance policies from the respondent in which a distinction between men and women in respect of pension payments is made, whereas no distinctions were made between the sexes with regards to the risk premium.
The plaintiff does not stipulate the amount of damage caused to her and in the absence of the required data to assess the exact monetary amount, she estimates the overall amount of damage to the members of the class at hundreds of millions of shekels.
Three other claims, based on the same grounds and against other insurance companies, were filed with the Jerusalem Labor Court. In April 2008, together with motions to certify the claims as class actions, the President of the National Labor Court decided to consolidate the proceedings in respect of the various claims and hold them in the Jerusalem Regional Court.
In August 2014, the Jerusalem Regional Labor Court certified the Motion for Certification of a Class Action, while determining that the elements required for accepting the motion at this preliminary stage of the hearing, such as the existence of joint questions of fact or law, were satisfied. The Labor Court emphasized that at this stage it was not considering the action on its merits, and it was sufficient from its viewpoint that it was not a ‘frivolous claim’ in order to certify the motion.
The Labor Court determined that the cause of the action is a failure to distinguish between women and men when calculating the risk premium in executive insurance policies.
The class that was approved for the purpose of the action is women that have insurance policies with the respondents in whose risk policies no distinction was made between rates for women and rates for men.
Pursuant to the decision of the Labor Court, it was held that the court was not necessarily bound by the remedy sought, and that the question of the remedy that would be granted if the class action was accepted would be considered as part of the hearing of the action on its merits. The court ordered the publication of notices to members of the class and payment of legal expenses in a negligible amount.
In December 2014, Clal Insurance filed a Motion for Leave to Appeal the decision to certify the action as a class action, and the National Labour Court decided that the Motion for Leave to Appeal required a response and ordered the respondents to file their response.

IDB Development Corporation Ltd. Convenience translation

 
216
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
 
2.
In April 2010 a monetary claim against Clal Insurance and three other insurance companies (“the respondents”) was filed with the Central District Court (“the claim”), together with a motion to certify the claim as a class action (“the motion”).
The plaintiff – the Israeli Consumer Council – contends that the respondents violate the commitments imposed on them and do not actively seek to locate insured customers and beneficiaries in order to return funds they hold, without any demand being made. The plaintiff contends that the respondents are obligated to locate the owners of the rights and notify them of their rights, but do not make any attempt to locate them and provide them with the information, do not consult the Population Registry, do not report to the administrator general, do not manage unclaimed funds separately from other funds, and do not transfer the funds to the administrator general when the time to do so arrives. The plaintiff contends that as a result of this negligence on the part of the respondents, owners of rights do not receive their funds and, in addition, the respondents benefit from management fees exceeding the permitted rate, and from other fees and yields produced by the unclaimed assets.
The class which the plaintiff seeks to represent is all holders of rights to assets which are in the possession, under the responsibility, or under the control of the respondents, which were not notified by the respondents to the fact that they have rights to assets which are in the possession of the defendant, in accordance with the obligations imposed on the respondents.
The plaintiff requests a remedy which will require the respondents to transfer the funds to the rights holders and to perform all the required actions, as determined by the provisions set forth by the Commissioner. In addition, the plaintiff requests an injunction which will instruct the respondents to compensate the members of the class and return their money to them, with added linkage and interest as required by law, together with the management fees which were collected as a result of these funds. In addition, the plaintiff requests that an officer be appointed as a receiver, or as a different officer, in order to enforce the injunctions issued by the court, as the court deems necessary, or, alternatively, to instruct any other form of remedy for the benefit of the class and the public.
Clal Insurance responded to the motion.
In January 2012 the court ordered the Attorney General to present his opinion on the matter, especially with regards to the status of new regulatory procedures in this matter. In September 2012 the position of the Attorney General was filed, in which he clarifies that on January 30, 2012, the Regulations for Supervision of Financial Services (Provident Funds) (Locating Members and Beneficiaries), 2012, were listed, and were entering into effect on January 1, 2013, and that at the same time was listed a directive for financial institutions, dealing with the procedure for locating members and beneficiaries, which also enters into effect in the aforementioned date (“the new regulation”). Accordingly, the Commissioner made it clear that in light of the new regulation and the time of it coming into effect, the previous directive on the matter was cancelled (“the old directive”). In addition, he also noted that accordingly, the remedy requested by the plaintiff, according to which the court shall instruct the respondents to create a separate fund for unclaimed funds, contradicts the provisions of the new regulation, according to which the designated fund, which was created for the unclaimed funds in accordance with the old directive, shall be dissolved.
In December 2012 the plaintiff announced that in light of the position expressed by the Attorney General, as mentioned above, it requests to amend the motion to certify the claim as a class action with regards to the requested remedies.
In April 2013 the parties notified the court of their agreement to begin a process of mediation before a mediator. The mediation processes are ongoing.
 
 
3.
In January 2008 Clal Insurance received a claim filed against it with the Tel Aviv-Jaffa District Court (“the claim”) together with a motion to certify the claim as a class action (“the motion”). The claim was filed by several plaintiffs and against other respondents, all of which are insurance companies.

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
 
3. (cont'd)
 
The lawsuit deals with a payment referred to as “sub-annual”, which is a payment that is collected in life insurance policies in which the premium is set as an annual amount, while the payment is made in several installments (“sub-annual”). The plaintiff argues that Clal Insurance collected sub-annual payments in an amount exceeding the allowed rate, and the plaintiff contends that it does this in several ways: collecting sub-annual payments relative to the “policy factor,” collection of sub-annual payments at a rate exceeding the allowed rate in accordance with the insurance control directives, collection of sub-annual payments relative to the savings element in life insurance policies and collection of sub-annual payments relative to policies that do not refer to life insurance.
The requested remedies are the refunding of all the amounts that the respondents illegally collected, as well as an injunction instructing the respondents to change their mode of operation with regards to the matters specified in the claim.
If the claim is certified as a class action, the amount claimed from all the respondents is estimated by the plaintiffs to be NIS 2.3 billion, of which the amount claimed from Clal Insurance is NIS 543 million.
In February 2010, the parties reached a procedural arrangement according to which the plaintiff’s claims that Clal Insurance collected sub-annual payments in a higher rate than permitted in respect of insurance policies issued prior to 1992, and that Clal Insurance collected the maximum sub-annual payments allowed even when the number of payments were less than twelve payments, shall be erased from the motion and claim. Accordingly, the amount being demanded from Clal Insurance was amended to NIS 398 million.
The Commissioner presented his position on the matter, in which he accepted the position of the insurance companies.
In February 2014, the court ordered the applicants to give notice within thirty days of whether they intended to withdraw the motion. In April 2014, the applicants gave notice that they are not withdrawing the Motion for Certification.
 
 
4.
In March 2010, a monetary claim was filed against Clal Insurance with the Central District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The class which the plaintiff seeks to represent includes any person who held, both a fixed-payment policy of Clal Insurance and a capital-based policy (either of Clal Insurance or of another insurance company), prior to the entry into effect of Amendment No. 3 to the Supervision of Financial Services (Provident Funds) act, 2008 (“amendment No. 3”), and to whom, following the above legal Amendment, a pension conversion factor27 was not guaranteed, or to whom a pension conversion factor was guaranteed which was worse than the pension conversion factor set forth in their fixed-payment policy.
According to the plaintiff, Clal Insurance unlawfully and inappropriately used Amendment No. 3, which states that funds deposited in provident funds beginning in 2008 will be withdrawable as pension payments only, and not as a capital withdrawal (withdrawal of a one-time amount). According to the plaintiff, when policy holders converted their capital-based policies to non-fixed-payment policies prior to Amendment No. 3, Clal Insurance was required to apply to a policy the pension conversion factor guaranteed to a policy holder for the fixed-payment policy which they owned, whereas Clal Insurance effectively chose to apply, to converted capital-based policies, a new pension conversion factor, according to the life expectancy as at 2009, and by so doing caused a reduction in the monthly pension payment which it will be required to pay to policy holders at retirement age. According to the plaintiff, Clal Insurance changed its policy after filing the class action.

 
27
A pension conversion factor is the coefficient that reflects the life expectancy and which is used by the insurer at the retirement age for purposes of converting the amount of the accumulated savings into a monthly allowance.
 

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
4. (cont.)
 
According to the plaintiff, this constitutes grave and unlawful action on part of Clal Insurance, which acted intentionally to obfuscate and conceal the changes it had made to the capital-based policies of its policy holders, and the damages it had caused to the pension rights of its policy holders, while collecting profits at the expense of its policy holders and acting in breach of the law’s intent.
The plaintiff is requesting, on his own behalf and on behalf of the class members, that Clal Insurance be ordered to attach to the capital-based policies of its policy holders the same pension conversion factor that they would have had in a fixed-payment policy prior to amendment No. 3. Alternatively, the plaintiff is requesting that Clal Insurance be ordered to enable him and the remaining class members to provide the total pension savings amount, retroactively beginning on the date on which amendment No. 3 came into effect and thereafter, to a fixed-payment policy with the preferable pension conversion factor. Alternatively, the plaintiff requests that Clal Insurance be ordered to compensate the plaintiff and the remaining class members in the amount of the damages caused by the allegedly unlawful policy towards the pension rights of the class members, or in the amount of its enrichment at the expense of the class members, as a result of its allegedly unlawful policy.
The plaintiff is also requesting that the Court order special compensation to the plaintiff, and the repayment of his counsel’s legal fees.
The plaintiff estimates the total number of class members at approximately 37,752 members, and the corresponding financial compensation to the class members at approximately NIS 107 million for each year.
In June 2011, the Commissioner’s position was filed with the court, through the Attorney-General of Israel, according to which an insurance company is not required to apply pension conversion factors which were determined in the past, or to transfer policy holders’ funds to a fixed-payment policy which they had previously owned. It was further stated, with regard to the question of whether the amount used to calculate provisions up to the salary amount can be changed, tit was determined that the matter depends on the particular terms of each policy, and that the plaintiff’s policy includes no term which would require Clal Insurance to change the amount of provisions, or the rates of deposit.
 
 
5.
In May 2011, a claim was received by Clal Insurance which was filed with the Central District Court (“the claim”), against it and against other insurance companies (jointly: “the defendants”) along with a motion to certify the claim as a class action (“the motion”).
The plaintiffs contend that the respondents collect, without any foundation in policy terms, and without consent, sums which amount in some instances to a significant proportion of the premiums paid by the policy holders, and referred to as the “policy factor” and/or “other management fees” (“policy factor”). The plaintiffs contend that collection of the policy factor is illegal, even though in principle the respondents were permitted by the Commissioner’s circulars, to collect a policy factor in life insurance policies, subject to a number of restrictions. The plaintiffs also argue that the Commissioner’s approval of collection of a policy factor is a necessary but insufficient condition, since for the purpose of the collection of a policy factor according to the Commissioner’s directives, a suitable contractual provision is also required, and a notice or disclosure of the collection of this payment to the policy holder is not sufficient.

IDB Development Corporation Ltd. Convenience translation

 
219
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
5.  (cont.)
 
The plaintiffs note that in April 2011, the Court with which the current Claim was filed approved a motion to recognize a claim against another insurance company (“the other claim”), identical to this claim, as a class action. It should be noted that the other insurance company filed a motion for leave to appeal this ruling with the Supreme Court, which ruled in September 2012 that the motion for leave to appeal, and the appeal itself, were accepted on the grounds that the District Court had not heard a material issue which was raised before it, which involves the question of whether the policy factor was collected from the savings component of from the risk component, and therefore, the District Court’s decision to approve the claim as a class action was revoked, and the hearing of the other motion for approval would be returned to the District Court for a new hearing.
The class which the plaintiffs seek to represent includes any current or past policy holders of any of the plaintiffs, or any from whom any amount was collected as a policy factor.
The plaintiffs request, on their own behalf and on behalf of the class members, for remedies by way of payment of an amount in compensation/repayment of the policy factor amount which was actually collected from the class members, with the addition of the yield which they failed to receive in respect of this amount, as a result of the amount having been deducted from the premium as a policy factor not being invested for them. The plaintiffs also request an injunction ordering the respondents to alter their mode of operation with relation to the collection of the policy factor, and to pay remuneration to the plaintiffs and legal fees for their counsel. The plaintiffs’ claim is in respect of the policy factor collected from them between the years 2004 and 2010, inclusive. According to various estimates and assumptions made by the plaintiffs in respect of the policy factor collected by the respondents over the past seven years, and the relevant annual yields, the amount claimed by the class members against all of the respondents is estimated by the plaintiffs as a nominal amount of NIS 2,325 million. Of this amount, the amount attributed to Clal Insurance according to its alleged share of the market is NIS 662 million.
In November 2012 the Commissioner, through the Attorney-General of Israel, submitted his position on the case.
In December 2012, a pre-trial hearing was held. Following the hearing, the respondents were required to submit to the Commissioner information regarding the question of the possible impact of an approval of the claim as a class action on the stability of the respondents, in accordance with section 8(b)(2) of the Class Actions Law, 5766-2006.
 
 
6.
In July 2011, a claim was filed against Clal Insurance, with the Central District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The class which the plaintiff seeks to represent includes all policy holders and/or beneficiaries which were insured by the defendant in insurance policies of the general insurance branches, and which paid the defendant excess credit fees and/or collection fees and/or payment arrangement fees, in breach of the provisions of the law and/or in breach of the interest rates presented to the holders of those policies, beginning on May 1, 1984.
The claim deals with allegedly illegal over collection of credit fees by the respondent from its policy holders, and with a violation of the provisions of the law, in deception of its policy holders.
The total claim amount in the class action is estimated by the plaintiff at NIS 882 million.
In May 2014, a motion was filed with the court for approval of a settlement in the action, together with the settlement itself. The validity of the settlement is conditional upon the court’s approval.
The settlement provides, inter alia, that Clal Insurance will give the beneficiaries of ‘personal insurance’ and ‘other insurance,’ as defined in the settlement (‘the beneficiaries’) a discount in an agreed amount on the credit fees that an insured who is one of the beneficiaries will be charged for a general insurance policy that he will buy at Clal Insurance. In July 2014, the court gave a judgment approving the settlement and determining guidelines for its implementation.

IDB Development Corporation Ltd. Convenience translation

 
220
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
 
7.
In May 2012, a claim was filed against Clal Insurance, Clal Health, and against an additional insurance company and three HMOs (“the respondents”) with the District Court of Jerusalem (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The claim and the motion deal with collective long-term nursing care insurance which the members of the various HMOs are entitled to join, in accordance with the established terms of the policies. The plaintiffs contend that the defendants, in absolute breach of the law, refuse to insure the plaintiffs with long-term care insurance (or alternatively, establish terms which are impossible for them), and by so doing impair the class members’ rights to equality and dignity.
The claim and the motion were field against Clal Health, which is the insurer in the collective policy for the members of Maccabi Health Services, and in the collective policy for the members of the Leumit Health Fund, and against Clal Insurance, since, according to the plaintiffs’ claim, a reasonable person would not distinguish between the two companies, but would classify them as a single entity, and has no way of knowing that they are separate entities.
The class which the plaintiff seeks to represent includes all persons with disabilities (according to the definition of “person with disability” in the Equality Act) who were customers of the defendants, but with whom the defendants canceled the nursing care insurance contract, as well as all persons with disabilities who wanted to be insured by long-term nursing care insurance but were refused insurance by the defendants, and all persons with disabilities who wanted to be insured by long-term nursing care insurance but did not contact the defendants with the knowledge that they would have refused to insure them.
The plaintiffs demand that the Court rule and declare that the defendants have violated the provisions of the aforementioned laws. The plaintiffs further request that the Court require the following of the respondents: to stop discriminating against the class members, to establish clear policies with regard to treatment in an individual, specified, egalitarian manner, with no bias whatsoever towards persons with disabilities; to present an orderly policy on all matters relating to refusal of insurance, and specifically with regard to persons with disabilities, which will include a notice regarding the rights of individuals who are refused insurance, to grant retroactive coverage to those class members who are found qualified to receive insurance after an egalitarian underwriting procedure and/or to class members who were policy holders and who were removed from the insurance by the insurance companies.
The Court is further requested to require the defendants to compensate all of the class members in respect of the damage caused to them, both by the violation of the Equality Act, and by the injury caused to their dignity and to the equality, in the amount of NIS 660 million.
Mediation proceedings are taking place between the parties.
 
 
8.
In May 2012, a claim was filed against Clal Insurance, Clal Health, Toren Insurance Agencies Ltd., and against additional insurance companies (“the defendants”) with the District Court of Jerusalem (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The claim and the motion deal with discrimination, as alleged by the plaintiffs, against persons with disabilities, and with the respondents’ refusal to insure the above in individual insurance policies such as health, travel, pension, personal accident, life, long-term nursing care and loss of working capacity insurance (“the Individual Insurances”).
The class on whose behalf the plaintiffs are requesting class action approval for the claim, which is estimated by them as including approximately 700,000 people, includes all individuals who approached the respondents for insurance during the determining period, and whom the respondents refused to insure with one of the Individual Insurances, due to a disease or disability which they have, as well as persons with disabilities (as defined in the Equality Law) who did not approach, or will not approach the respondents in the future due to the knowledge that the respondents would refuse to insure them in light of their disability.

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
8. (cont.)
 
The plaintiff demand that the Court rule and declare that the respondents have violated the aforementioned provisions of the law. The plaintiff further demand that the Court require the defendants to perform the following: to discontinue their discrimination against the class members, and to establish clear policies with regard to individual, specific and egalitarian treatment, without bias towards persons with disabilities; to present an orderly policy on all matters relating to the refusal to grant insurance and the granting of insurance coverage to persons with disabilities; and to grant retroactive coverage to those class members who are found qualified to receive insurance following an egalitarian underwriting process.
The Court has also been requested to order the respondents to compensate all of the class members for the damage which was caused to them, both by injury to their dignity and feelings, and by injury to the right of equality and injury to autonomy, as well as monetary damages in respect of lost time and hassle, in an amount equal to NIS 934 million.
Mediation proceedings are taking place between the parties.
 
 
9.
In May 2013 a claim was filed against Clal Insurance with the Tel Aviv district Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The claim deals with Clal Insurance’s alleged violation of its obligation to add linked interest and linkage differentials as determined by law in respect of the insurance benefits it pays. The plaintiff contends that the interest and linkage differentials should be calculated starting from the time the insurance incident occurred and until the actual time of payment. Alternatively, the plaintiff contends that the insurers must pay linkage differentials starting from the time of the occurrence of the insurance incident and until the time of the actual payment, and interest starting from 30 days after the time the insurance claim was filed and until the time the insurance benefits are actually paid. Allegedly, Clal Insurance does not do so.
The class the plaintiff seeks to represent is: a. the first class – any person who received during the 7 years prior to the filing of the claim and/or any person who shall receive before a ruling is given in the matter of the claim, insurance benefits from Clal Insurance, without the interest required by law being added to the insurance benefits; b. the second class – any person who received during the 7 years prior to the filing of the claim and/or any person who will receive before a ruling is given in the matter of the claim insurance benefits from Clal Insurance, without the linkage differentials required by law being added to the insurance benefits.
The plaintiff estimates the total amount for the first class at NIS 518 million (in case it is ruled that interest must be calculated starting from the occurrence of the insurance incident), and at NIS 210 million (in case it is ruled that the interest must be calculated starting from 30 days after the time the claim is filed with the insurance company).
The plaintiff estimates the total amount for the second class, with regards to linkage differentials, at an additional sum of NIS 490 million.
The remedies requested by the plaintiff are that Clal Insurance be ordered to pay members of the first class linked interest as required by law, that Clal Insurance be ordered to pay members of the second class linkage differentials as required by law, that Clal Insurance be ordered to pay members of both classes linkage and interest differentials with respect to the missing payment paid, starting from the time of underpayment of insurance benefits until the time the difference is actually paid to members of both classes. In addition and/or alternatively, in case it is determined that compensating members of the group is unpractical due to the specific circumstances of the matter at hand, the Court is asked to instruct to compensate the public as it sees fit. In addition, it is requested that Clal Insurance is ordered to pay special compensation to the plaintiff, and the repayment of his counsel’s legal fees.
It is noted that other similar claims have been filed against other insurance companies. In May 2013, Clal Insurance was presented with the applicants’ motion for a joint hearing in the matter of the claims.

IDB Development Corporation Ltd. Convenience translation

 
222
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
10.
In June 2013 a claim was filed against Clal Insurance with the Tel-Aviv-Jaffa District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).
The claim and the motion deal with the plaintiff (“the insured”), who was insured under a collective long-term nursing insurance policy through the Makefet pension fund, and was recognized by Clal Insurance during 2010 as requiring nursing, contending that Clal Insurance pays its insured insurance benefits which are reduced and lacking in a manner that does not include the addition of linkage and interest differentials.
The class that the plaintiff seeks to represent is any person who received during the 7 years prior to the filing of the claim and/or any person who will receive, before a ruling is given in the matter of the claim, insurance benefits from Clal Insurance, without the interest and linkage differentials required by law being added to those insurance benefits.
The plaintiff petitions the Court to issue a declaratory ruling ordering Clal Insurance to pay insurance benefits to its insured with the added interest and linkage differentials required by law, starting for the time the insurance incident occurred and until the time of actual payment, as is ordered by article 28 of the Insurance Contract Law– 1981; to instruct Clal Insurance to pay the interest and linkage differentials which were reduced from the insurance benefits paid to the individuals comprising the class the plaintiff seeks to represent, if those individuals wish to receive such payment; to instruct Clal Insurance to correct its negligence from that time and thereafter by paying the individuals comprising the class the plaintiff seeks to represent insurance benefits which include the interest and linkage differentials required by law; to instruct the payment of adequate legal fees to the insured’s legal counsels; to instruct that Clal Insurance pay special compensation to the insured in respect of his capacity as a plaintiff in a class action.
The amount of the class action is approximately NIS 474 million.
 
11.
In July 2013 a claim was filed against Clal Insurance with the Central District Court (“the claim”), together with a motion to certify the claim as a class action (“the motion”). Both the motion and the claim were filed against a medical expert and a medical service company which provide services to Clal Insurance.
The claim deals with the allegation that Clal Insurance, in the manner in which it phrases the insurance policy, denies students who are insured by a Student personal accident policy the right to compensation for permanent aesthetic disabilities, and that Clal Insurance operates in a systematic manner, in cooperation with experts operating on its behalf, in contradiction of the policy – which, despite the qualifications regarding aesthetic disability, allows an exceptions committee to determine that aesthetic scarring shall award the injured party disability status – in a manner which prevents, and indirectly denies, any chance to receive compensation due to aesthetic disability through the aforementioned exceptions committee.
The class the plaintiffs seek to represent are any students who are and have been studying in an educational institution of a local authority and/or educational institutions who have announced their intention to join the insurance arrangement, who have not turned 21 yet and suffered an aesthetic disability only and/or an aesthetic disability accompanying another disability (including their entitled parents), and that in the past 18 years suffered a disability awarding them (or their parents) the right to determine a permanent disability due to aesthetic scarring of any kind. The amount of the claim, including the class action, was estimated by the plaintiff at a sum of NIS 500 million.
In August 2014, the plaintiffs filed a consensual motion to withdraw the motion (“the withdrawal motion”), without either party admitting the claims of the other party or waiving its claims.

IDB Development Corporation Ltd. Convenience translation

 
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
11. (cont.)
 
as part of the Motion to Withdraw, Clal Insurance undertook to send guidelines to its physicians and workers in which clarifications would be given with regard to the manner of resolving the claim in a case of aesthetic scarring, and it undertook to pay the plaintiffs and the attorney remuneration and attorneys’ fees in a negligible amount. The Motion to Withdraw is subject to the approval of the court, and it is not certain that this will be given. In November 2014, further to the motion of the court, the Attorney-General filed his response to the Motion to Withdraw, according to which he has no objection to approval of the motion and he leaves the decision on the matter to the discretion of the court.
In February 2015, a judgment was given, in which the Motion to Withdraw as aforesaid was granted, the motion was struck out and personal claims of the applicants were dismissed.
 
12.
In February 2014 a motion to certify a derivative action and a derivative action (derivative action case no. 9167-01-14) were filed with the District Court (Financial Department) in Tel-Aviv against Clal Insurance, four other insurance companies and Clalit Health Services (“Clalit”).
In March 2014, a Motion for Certification of a Derivative Action and a derivative action were filed (Derivative Action 46222-03-14) were filed with the District Court (Economic Department) against Clal Insurance, four additional insurance companies and Maccabi Health Services (“Maccabi”). The subject-matter of the motion and the claims raised in it are similar to the action described in this section above (jointly, “the motions” and “the claims”).
In April and October 2014, decisions were given by the court, ordering a consolidation of the cases and the filing of consolidated written pleadings in the motions and the claims.
The motion and the claim concern the allegation that the health funds are not exhausting and exercising the participation right that they have prima facie pursuant to law in respect of the insurance companies for expenses it incurred through the complementary insurance plans with regards to those cases in which there exists, allegedly, an overlapping of liability between the complementary insurance plan and the commercial health insurance policies sold by the insurance companies.
The plaintiffs contend that the overlap exists mainly in respect of performing medical procedures and choosing a surgeon in Israel, and in respect of medical consultation.
It is further contended that the insurance companies allegedly encourage their policyholders to activate the complementary insurance plans at the HMOs and to avoid activating the commercial insurance policy, by awarding the insured a monetary reward, all this in order to avoid absorbing the materialization of the risk of an insurance incident on their own, while rolling the risk over to the HMOs, and thus, allegedly, gaining unjust enrichment.
The plaintiffs contend that health funds’ participation right in relation to the insurance companies is a result of the overlapping of liabilities between the complementary insurance plans and the commercial health insurance policies sold by the insurance companies, and it stems from a general principle which has a wide legal application, which is common to all the branches of the liability laws and pursuant to the provisions of sections 56 and 59 of the Contracts (General Part) Law, 5733-1973, enrichment laws, and judicial precedents.
The main remedy requested in the exercise of the health funds’ participation right in relation to the insurance companies while ordering each one of the insurance companies to pay the health funds at least half of the monetary expenses incurred by the health funds due to the complementary insurance plans, both for the component of medical procedures and the ability to choose a surgeon in Israel, and for the component of medical consultation, for a period of seven years prior to the time the motion was filed, and in cases in which those insured by the health funds also possessed a commercial health insurance, providing coverage for both components.


IDB Development Corporation Ltd. Convenience translation

 
224
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
12. (cont.)
 
The motion was filed after the health funds rejected the applicant’s request to exhaust the participation right as mentioned above in relation to the insurance companies, on the grounds that in terms of the provisions made by law and other grounds there is no cause for the aforementioned request, for as long as the provisions of the existing laws haven’t been changed, including administrative measures.
Regarding Clalit’s claim, the plaintiffs estimate the amount of the claim against all of the insurance companies at an amount of approximately NIS 3.5 billion, with added interest and linkage. The plaintiff does not allocate a specific part of the sum to Clal Insurance, but does mentioned that according to the data provided by the Capital Markets, Insurance and Savings Division at the Ministry of Finance, as of the end of 2011, the market share of Clal Insurance is 14% of the overall market share of insurance companies in this field, when the overall market share of the respondent insurance companies is 98%.
Regarding the Maccabi claim, the plaintiffs estimate the amount of the action against all of the insurance companies in an amount of approximately NIS 1.7 billion, together with interest and linkage. The plaintiff does not attribute a part of the amount of his claim to Clal Insurance, but he states that according to the figures of the Capital Market, Insurance and Savings Department at the Ministry of Finance, as of 2011 and 2012, Clal Insurance’s market share is 14% of the total market of the insurance companies in the sector, and the total market share of the insurance companies that were sued is 98%.
 
13. 
In July 2014, a claim (“the claim”) and a Motion to Certify the Action as a Class Action (“the motion”) were filed with the Central District Court in Lod against Clal Pension and Provident Ltd. and against four additional pension fund management companies (“the defendants”).
The claim and the motion were filed by two Amutot (non-profit corporations) that claim that their goal is to help the elderly population (“the plaintiffs”). The plaintiffs claim that they are entitled to file a class action pursuant to section 4(a)(3) of the Class Actions Law, in view of the public purposes that they are promoting, despite the fact that neither of the defendants was harmed personally and directly, and despite the fact that the plaintiffs’ efforts to find a class plaintiff were unsuccessful.
The claim relates to the raising of the management fees charged to pensioners in pension funds managed by the defendants. According to the plaintiffs, at the stage of receiving the pension, the defendants in bad faith abuse their contractual right according to the provisions of the pension rules to raise the management fees, and they sweepingly raise the management fees paid by pensioners to the management company to the maximum permitted management fees that they are permitted to charge pursuant to the law (0.5% of the accumulated balance), while taking advantage of the fact that the pensioners are a “captive audience” that is prevented from moving what they have accumulated to other pension funds, while active members pay on average significantly lower management fees (approximately 0.3% of the accumulated balance and approximately 2% of their current deposits). It was further claimed that the defendants do not disclose to their members that immediately after they become pensioners, the management fees that they will pay the defendants will be raised to the maximum management fees.
The group that the plaintiffs wish to representative in the action is anyone who is a member of a comprehensive new pension fund managed by one of the defendants, and who is entitled to an old age pension and/or will be entitled to receive an old age pension in the future.
The plaintiffs wish to compel the defendants to return the excessive management fees that were charged to the members of the class unlawfully together with interest and linkage; to compel the defendants to reduce the management fees charged to the pensioners, so that they do not exceed the management fees charged before each one them becomes a pensioner; to prohibit the defendants from raising the management fees for the members shortly before they become pensioners; to award special compensation to the plaintiffs and attorneys’ fees to the class attorneys.
 
 
 
225
 


Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
13. (cont.)
 
In the plaintiffs’ estimation, according to an actuarial opinion attached to the motion, the management fees that the defendants collect from the accumulated assets for the pension funds amount to approximately 5% of the pension paid to the members, of which the overcharging in their estimation amounts to a sum of approximately 2% of the pension paid each month to the pensioner and which will be paid in the future to members who will become pensioners, if the overcharging is allowed to continue. In the plaintiffs’ estimation, the management fees that are unlawfully charged by the defendants to existing pensioners are estimated at a sum of NIS 48 million, the management fees that will be unlawfully charged in the future by the defendants to existing pensioners are estimated at a sum of NIS 152 million, and the management fees that will be unlawfully charged in the future by the defendants to future pensioners for the amounts accumulated to date are estimated at a sum of NIS 2,800 million. The aforesaid amounts are alleged with respect to all of the defendants.
 
14. 
In November 2014, a claim (“the claim”) and a Motion for Certification of the Claim as a Class Action (“the motion”) were filed in the Tel-Aviv District Court (Economic Division) against Jerusalem Bank (“Jerusalem Bank”) and against several additional defendants that held office as directors of Clal Finance Batucha Investment Management Ltd. (“Clal Batucha”) in the years 2007 until the sale of Clal Batucha to Jerusalem Bank in December 2013 (“the defendants”).
 
The subject-matter of the case is the plaintiff’s claims that Clal Batucha, in its capacity as a portfolio manager, carried out transactions with securities of companies in the IDB group, while preferring its own interests and those of various companies in the IDB group over the interests of its customers.
 
According to the plaintiff, Clal Batucha violated provisions of the law, including provisions of the Regulation of the Occupation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 5755-1995 (“the Investment Regulation Law”), which concern the duty of faith of Clal Batucha to its customers, its duty to notify its customers with regard to conflicts of interests that it has in carrying out such transactions, and its failure to obtain their prior consent before carrying out any transaction that involves a conflict of interests, and a prohibition of preferring financial assets of Clal Batucha or a corporation related to it.
According to the plaintiff, he was involved in an agreement for the management of investments with Clal Batucha, which bought for his portfolio securities of companies in the IDB group, and by its actions Clal Batucha caused him significant losses.
The plaintiff claims that the defendant directors breached the duty of care they owed to the members of the class.
The class that the plaintiff wishes to represent is anyone that received from Clal Batucha Investment Management Services, and as part thereof securities were bought for him, which were issued by companies in the ‘IDB concern,’ without obtaining his prior approval with regard to each transaction and as a result of the acquisition as aforesaid, he was caused damage. In this regard, the plaintiff includes in the ‘IDB concern’ all of the corporations that were held or controlled (directly or indirectly) by IDB Holdings and the corporation.
The plaintiff is petitioning the court (a) to grant an order against Clal Batucha and against the other defendants to deliver particulars and details with regard to the damage that was caused (according to him) to each of the members of the class; (b) to find the defendants liable to compensate the members of the class for their full damage, or alternatively to determine another remedy in favor of the members of the class, in whole or in part. In addition, the court is requested to determine remuneration for the class plaintiff and attorneys’ fees for the class plaintiff’s attorney.
The amount of the plaintiff’s personal claim stands at a sum of approximately NIS 18,624. According to the Statement of Claim, the alleged damage to all of the members of the class cannot be estimated at this stage.

IDB Development Corporation Ltd. Convenience translation

 
226
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
a.
Consumer claims and derivative actions (cont.)
 
14. (cont.)
 
Clal Finances Ltd. (‘Clal Finances’) is not a party to the claim, but it received a notice regarding the filing of the claim from Jerusalem Bank pursuant to the agreement for the sale of Clal Batucha to Jerusalem Bank, according to which Clal Finances has an indemnification undertaking.
The aforesaid indemnification undertaking may be operated if and insofar as Jerusalem Bank will be found legally liable in connection with the claim as aforesaid and subject to the terms of the agreement between the parties.
In addition, some of the directors that held office in Clal Batucha during the period when it was controlled by Clal Holdings Insurance Enterprises and are being sued as part of the claim have letters of indemnification from Clal Holdings Insurance Enterprises and/or Clal Finances and Clal Batucha.
 
  15. 
In December 2014, an action (‘the claim’) and a motion to certify it as a class action (‘the motion’) were filed in the Jerusalem District Court against Clal Insurance.
The plaintiff’s claim in the action and the motion is that Clal Insurance should link the pensions for loss of work capacity to the profits index of a certain investment basket to which the policy is linked, whereas in practice Clal Insurance prima facie does not link the pensions to the profits index of the investment basket but prima facie pays significantly lower pensions than it should, while offsetting and deducting from the profits index, unlawfully and contrary to the provisions of the policy and the Commissioner’s instructions, annual interest in an amount of 2.5%.
The class that the plaintiffs wish to represent is all of the holders of Clal Insurance’s profit-participating policy for loss of work capacity, to whom Clal Insurance paid loss of work capacity pensions, without full linkage to the profits index provided in the policy and/or it did not pay them bonuses as determined in the policy.
The remedies requested by the plaintiff are: (1) to order Clal Insurance to pay retroactively the represented class the amounts that Clal Insurance should have paid the members of the class if it had linked the pensions that it paid to the members of the class to the profits index, to which Clal Insurance should have linked the pension payments according to the policy and according to every law, as claimed in the motion; (2) not to impose a prescriptive limit on the aforesaid retrospective liability that the court is requested to impose on Clal Insurance; (3) to find Clal Insurance liable to return to the members of the class all of the amounts that Clal Insurance paid them and which it later offset; (4) to find Clal Insurance liable to return to the members of the class premiums that were not returned to them and/or were not returned in full; (5) to find Clal Insurance liable to pay the insured bonuses in accordance with the terms of the policy; (6) to find Clal Insurance liable to add to the repayment amounts default interest pursuant to regulation 41Q1 of the Income Tax (Rules for Approval of Provident Funds) Regulations, 5724-1954, and/or linked interest and additional punitive interest pursuant to sections 28 and 28A of the Insurance Contract Law, 5741-1981; (7) to grant temporary remedies insofar as it will be necessary to do so. In addition, the plaintiff requests that Clal Insurance is found liable to pay attorneys’ fees to the plaintiff’s attorney and remuneration to the plaintiff.
 
The comprehensive alleged damage to all the members of the class is not estimated by the plaintiff for the reason that she claims that she does not know the number of policyholders that are entitled to restitution. The plaintiff’s alleged personal damage amounts to a sum of NIS 800 thousand.


IDB Development Corporation Ltd. Convenience translation

 
227
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
b.
Insurance agency claims
 
Out of the total sum, there is one pending lawsuit pending against investee companies of Clal Holdings Insurance Enterprises Group filed by insurance agencies and/or shareholders thereof which include, mainly, claims of violations of provisions of law, and/or a breach of agreements and/or claims for damages.
As at December 31, 2014, the amount being claimed from the investee companies of Clal Holdings Insurance Enterprises Group in respect of these claim amounted to NIS 20 million.
Please note that this amount was set for the purpose of the court fee in an amount of NIS 20 million. However, according to the plaintiff, the amount of the damages caused to him is NIS 237 million. In February 2013, a settlement agreement was signed between the parties, to mutually withdraw the claims against one another, as part of which it was stipulated that the appeal filed by the plaintiffs would be erased, so that the decision of the District Court rejecting the claim would become absolute. As part of the compromise, Clal waived payment of a loan debt owed by the plaintiff and it paid the attorney fees of the plaintiff. All of the amounts involved were immaterial.
In April 2013, the Supreme Court ruled that in light of the settlement agreement signed by the parties, and the motion to erase the appeal against Clal Insurance and officers of Clal Insurance (the respondents), the respondents shall be classified as formal respondents and be exempt from the need to present summary arguments and appear for the hearing.
 
 
c.
Between January 2004 and June 2013, Clal Insurance entered into a renewable annual agreement with the Hadassah Medical organization (“Hadassah”) for second tier professional liability insurance, providing insurance coverage from claims in an amount higher than the sum provided by the self-insurance provided by Hadassah (“the first tier”).
The liability limit provided by Clal Insurance as part of the second tier changed throughout the years in which the insurance coverage was provided, when the insurance liability during the last insurance period, starting from January 2012 and ending in June 2013, was for claims higher than approximately NIS 8.8 million but no higher than approximately NIS 18 million per case, and no higher than a total of approximately NIS 36 million for all those insured throughout the insurance period (the aforementioned sums are linked to the consumer price index of January 1, 2012). In February 2014 Hadassah filed with the District Court of Jerusalem a motion for issuing a stay of proceedings order and for the appointment of a trustee for the purpose of formulating a recovery plan and a creditor’s arrangement in accordance with articles 350B(d)(1) and 350(d) of the Companies Law (“the motion”). During the proceedings conducted as part of the motion, various claims were heard, according to which the insurance companies that insured Hadassah with professional liability insurance, including Clal Insurance, are supposed to pay the financial costs that may be imposed on the first tier, beyond the amount of the designated deposit that Hadassah deposited for this purpose, in case Hadassah would not pay the claims itself. Clal Insurance clarified to the trustee that its position is different, and that it is liability for the second tier only. In May 2014, a motion to approve a recovery program was filed with the court. This includes one-time assistance of the State for Hadassah in an amount of NIS 140 million, and ongoing support, which together are supposed to supplement the accumulated fund at Hadassah up to the amount of the Hadassah actuarial liabilities for contingent claims in the first tier for the period up to December 31, 2013. To the best of Clal Insurance’s knowledge, on May 22, 2014, the recovery program was approved by the court and the suspension of proceedings was cancelled.


IDB Development Corporation Ltd. Convenience translation

 
228
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
d.
Moreover and in general, in addition to the general exposure that the institutional bodies of the Clal Holdings Insurance Enterprises group have with respect to future actions, from time to time, including as a result of complaints of policyholders, audits and requests to receive information, there is also an exposure for warnings regarding the Commissioner’s intention to impose on those bodies financial sanctions and/or instructions of the Commissioner regarding an amendment and/or restitution and/or the implementation of certain operations with regard to operations that were carried out by institutional bodies in the group in the past, with regard to a policyholder or group of policyholders and/or exposure for wide-ranging decisions that the Commissioner publishes as part of his authority pursuant to the Control of Financial Services (Insurance) Law, 5741-1981, in which framework the Commissioner can also order the making of restitution to customers for the defects addressed by the warnings or the decisions and/or position papers published by supervisory bodies whose status and degree of influence are uncertain. Moreover, from time to time the financial institutions are subject to hearings and/or discussions with the Commissioner of Insurance’s office with regard to the aforesaid warnings and/or decisions and no final decision has yet been made in those matters. In the reporting year, financial statements in the group received several warnings with regard to an intention to impose financial sanctions on them. Each warning in itself is not in a material amount and the financial institutions are examining the need to make provisions in the financial statements with regard to the aforesaid warnings on the basis of an opinion of their legal advisers and/or are in the process of studying the warnings, as applicable.
 
The following are details regarding the Commissioner’s position or fundamental decisions that have or may have an effect on the Clal Holdings Insurance Enterprises group, as aforesaid:
 
 
1.
In August 2013, the Commissioner published a fundamental decision with regard to raising management fees without giving notice and on December 17, 2014, an amendment to the decision was published, postponing the dates for completing its implementation (‘the decision’).
 
Pursuant to the provisions of the decision, management companies are required to examine all of the accounts in which management fees were raised in the period between January 1, 2006, and December 31, 2009 (hereinafter: ‘the restitution period’) and to return to each member, who was charged management fees during that period other than pursuant to the provisions of regulation 53B(a) of the Income Tax Regulations, the amounts that he was overcharged, unless an examination exception and/or a restitution exception applies to that member, as stated below. The amounts standing to the member’s credit according to the decision will bear annual interest at a rate of 5.1%, starting from the date on which the management fees were overcharged until the date of making the payments pursuant to the provisions of the decision.
 
The decision determined cases in which an exemption will be given with regard to the examination and restitution of money, and other cases in which an exemption will be given with regard to the restitution of money only. Moreover, various provisions were determined with regard to the manner of carrying out the restitution, documentation of the restitution, giving notice to members and reporting to the Commissioner with regard to the implementation of the restitution instructions.
 
Pursuant to the provisions of the decision, by August 31, 2005, management companies are required to complete the making of the examination and the restitution, and by December 31, 2015, the companies are required to send the Commissioner a summary report of the internal auditor of the companies, confirming the implementation of the provisions of the decision. Clal Pension and Provident is acting to make the restitution.


IDB Development Corporation Ltd. Convenience translation

 
229
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
d.
(cont.)
 
 
2.
In December 2014, a fundamental draft decision was published with regard to joining group life insurance (‘the draft decision’). The draft decision was published as a result of wide-ranging on the subjects of collective life insurances that the Commissioner carried out in the insurance companies, in which cases were found in which policyholders were included in collective life insurance policies with obtaining their prior, written and express consent, even though the policyholders paid the cost of the insurance (in full or in part) (“the policyholders”).
 
Pursuant to the provisions of the draft decision, an insurance company needs to have the ability to present a written consent of a policyholder to join such collective life insurance. It was also determined that with regard to existing collective life insurance policies with regard to which an insurance company cannot present a written consent, the insurance company should verify the existence of written consent of those policyholders to joining the aforesaid policies, no later than the forthcoming renewal date of the policies or within eight months of the date of publication, whichever is the earlier (“the renewal date”). If the insurance company does not obtain the consent of a certain policyholder in such policies by the renewal date, the insurance shall not be renewed for that policyholder in the group of policyholders, and notice of this shall be sent to the policyholder (while the policy continues for the other policyholders). The aforesaid shall not apply to a group of policyholders for which the Commissioner gave approval to exempt the insurance company from the duty of maintaining a list of policyholders.
 
The company is studying the draft decision. At this stage, before the final wording is published, there is no certainty with regard to its provisions, as well as the manner of implementation that will be required and the expected ramifications of the draft decision, insofar as one will be published. It should be noted that the insurance companies are holding discussions with the Commissioner with regard to the draft decision.
 
 
3.
In February 2015, a fundamental decision was published with regard to the Equal Rights for Persons with Disabilities Law, 5758-1998 (“the Equal Rights Law”). as part of the decision, it is clarified, inter alia, that the insurance company is liable to deliver to a policyholder with disabilities that is given different treatment, as defined in the law, or a person with disabilities who was refused insurance, a reasoned notice in writing that will state that the insurance company’s decision derived from the fact that in its estimation the particular insurance risk as a result of the disability is greater in comparison to the insurance risk of persons who do not have that disability. The aforesaid notice shall also include a synopsis of at least one of the following matters: the actuarial figures, statistical figures, medical information or other information regarding the increase of the specific insurance risk, which formed the basis for the aforesaid decision of the insurance company, and a summary of the information on which it relied with respect to that person (such as: a reference to professional articles or a reference to a reinsurer’s guidelines, with regard to the underwriting terms on which the company relief for the purpose of its decision). With regard to a class action being managed against Clal Insurance in this regard, see section C.2.a.7 and C.2.a.8 above in this note. The decision gives the Commissioner authority with regard to the implementation of the provisions of the law.
 
In September 2014, the draft Equal Rights for Persons with Disabilities (Insurer’s Notice regarding Different Treatment of a Person or a Refusal to Insure him) Regulations, 5774-2014 (‘the draft regulations’), which state, inter alia, the wording of the notice that should be given to the insured pursuant to the Equal Rights Law, with regard to the right of a person whom an insurer has refused to insure or who received different treatment from the insurer as stated in the Equal Rights Law to file a complaint with the Commissioner and with the Complaints Committee or to file a claim with the court. The regulations will come into effect 30 days after they are published. The companies are holding discussions with the Commissioner with regard to the draft regulations.

IDB Development Corporation Ltd. Convenience translation

 
230
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
d.
(cont.)
 
 
4.
In March 2015, the Commissioner published a draft of a fundamental decision regarding the payment of VAT and impairment of an automobile that was not repaired. Pursuant to the draft decision, it was determined that in a case where an insured or a third party claims his direct damage for the repair of the automobile and the insurer does not reject his claim, he is liable to pay him an insurance payout that includes, inter alia, the impairment of the automobile and the VAT (provided that he is not entitled to deduct input tax), even if he did not repair the car de facto. The company is studying the draft decision. At this stage, before the final wording of the decision is published, there is no certainty with regard to its provisions, as well as the manner of implementation that will be required and the expected ramifications of the draft decision, insofar as it will be published as a binding decision.
 
 
5.
Moreover, Clal Insurance is holding discussions with the Commissioner as part of a draft decision concerning one-time deposits of policyholders in policies that guarantee a yield (‘the policies’). Pursuant to the draft, Clal Insurance is required to carry out certain operations with regard to policyholders where the actual yield of the one-time deposits, which bore the yield of a profit-participating portfolio, was equal to or exceeded the guarantees yield in the policies, and certain operations with regard to policyholder where the actual yield on the one-time deposits was lower than the guaranteed yield. Clal Insurance is holding discussions with the Commissioner with regard to the draft decision. Therefore, at this stage, in view of the fact that it is not known that the final wording of the decision will be, if and insofar as one will be made, Clal Insurance is unable to estimate the ramifications and the extent of its impact on Clal Insurance, if and insofar as it will be published.
 
 
6.
In January 2015, the “Commissioner’s Position – Definition of the Insurance Event in Nursing Insurance” was published, with the purpose of clarifying the Commissioner’s interpretation of the definition of a nursing insurance event that appears in the Nursing Circular. Pursuant to the position paper, when resolving claims, an insurance company is required to examine whether a policyholder is capable of carrying out by himself a material part of the action, so that the examination will be made in accordance with the purposive interpretation described as part of the position paper. The company is studying the ramifications of the Commissioner’s position with regard to the manner of resolving nursing insurance claims. At this stage, before an up-to-date practice has been formulated for the implementation of the provision of the circular, and in view of the manner of implementing the circular to the best of the company’s understanding, the Company’s estimates that no material change will occur in the manner in which it implements the circular. However, the manner in which the circular will be interpreted by the Commissioner and the courts after the publication of the Commissioner’s position may have an impact on the scope of the change that will result from the Commissioner’s aforesaid position.
 
 
7.
In addition, in January 2015, before the final wording of the Commissions Regulations was published as stated above, the Commissioner published a wide-ranging position of the Commissioner with regard to the payment of a financial institution to a licensee (‘the position paper’). Pursuant to the position paper, the Commissioner objects to financial institutions paying licensees commissions that are based on the management fees paid by the member or the policyholder, according to which the commissions that will be paid to the licensee will be higher insofar as the management fees that will be paid by the customer will be higher.
The insurance companies contacted the Commissioner with regard to the status and legality of the position paper. In March 2015, the Commissioner notified the financial institutions, inter alia, that the position paper does not constitute a new positive regulation of the manner in which the commissions should be calculated, that the Commissioner did not intend to exercise the enforcement power given to him pursuant to the provisions of the law in this regard with respect to the customers that joined before the publication of the position paper, and even in the period shortly thereafter, and that the Commissioner intended to publish clarifications with regard to the position paper.

IDB Development Corporation Ltd. Convenience translation

 
231
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
2.
Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)
 
 
d.
(cont.)
 
 
7.
(cont.)
 
The financial institutions in the group are studying the implications of the position paper, inter alia with regard to its legality, its effect on agreements with agents and marketers, including the need to construct a new remuneration model and the ability to create a connection between income and expenses in these marketing channels. According to the Commissioner’s position, there may be implications for the field of pension savings in general, on the amount of the management fees that will be charged to the customers and on the financial institutions in the group. The company is unable to estimate, at this stage, all of these implications.
 
 
e.
In addition to the lawsuits set out in sections A, B and C above, the total amount of the pending immaterial lawsuits against investee companies of Clal Holdings Insurance Enterprises Group is NIS 66 million.
 
 
3.
Lawsuits against Discount Investments
 
 
a.
In September 2012, a motion to certify the filing of a derivative action in an amount of NIS 370 million in the name of Discount Investments against its directors was filed with the Tel-Aviv-Jaffa District Court (in this section, “the Motion for Certification”), by applicants claiming to be minority shareholders of Discount Investments (hereinafter in this section, “the applicants”). Together with the motion for approval, a draft of the derivative claim was also filed with the Court.
The Motion for Certification relates to investments made by Discount Investments in Maariv at both the initial stage that Discount Investments invested in acquiring control of Maariv and at various later stages, and it alleges, inter alia, that the directors named in the motion acted negligently and recklessly, and breached their duty of skill and caution towards Discount Investments with regard to their care and/or involvement in those investments, and therefore they should compensate the company for the damage it incurred, which according to the plaintiffs, on the basis of an expert opinion on their behalf, is estimated at NIS 370 million.
 
 
b.
In July 2014, a claim was filed with the court against Koor with regard to a claim of a breach of an agreement for the payment of a finder’s commission for the sale of Adama to ChemChina, in a total amount of NIS 32 million.
 
 
c.
For information on motions for certifying the filing of derivative actions that were filed by the Petitioners who are claiming to be shareholders of Discount Investments, with regards to dividends distributed by Discount Investments in 2010-2011, and that were filed, as applicable, against Discount Investments, against directors and two officers of Discount Investments during the relevant period, against the Company, against Clal Holdings Insurance Enterprises, against Clal Finance and against other parties, see section C.1.h above in this note.

IDB Development Corporation Ltd. Convenience translation

 
232
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
4.
Lawsuits against Cellcom and its subsidiaries
 
In the normal course of business, Cellcom and its subsidiaries are involved in various lawsuits filed against them. The provision included in Cellcom’s financial statement of December 31, 2014, for all of the lawsuits against it, amounts to approximately NIS 47 million.
Presented hereunder are the details of pending claims against Cellcom, classified into groups having similar characteristics. The amounts indicated hereunder are correct for the dates on which the claims were filed.
 
a.  Consumer Claims
In the normal course of business, claims have been filed against Cellcom by its customers. These are mostly motions for approval of class actions, primarily concerning allegations of illegal collection of funds, unlawful conduct or breach of license, or a breach of agreements with customers, causing monetary and non-monetary damage to them. As at December 31, 2014, the amounts claimed from Cellcom in consumer claims, amount to NIS 2,761 million (this amount includes a claim that was certified as a class action, as stated below).
In addition, there are additional consumer claims against Cellcom in which the amount claimed was not stipulated if they become certified as class actions, and in their respect Cellcom has an additional exposure to that mentioned above.
In addition, there are consumer claims against Cellcom jointly with other defendants which amount to NIS 958 million and additional consumer claims against Cellcom and additional defendants for which the amount of the claim insofar as they will be certified as class actions was not stated, for which Cellcom has additional exposure beyond the aforesaid.
Moreover, an appeal was filed with regard to the dismissal of a claim against Cellcom and a motion to certify it as a class action, in a total amount of at least several hundreds of millions of sheqels.
In November 2013, the Central District Court granted a motion that was filed in September 2011 to certify a claim filed against Cellcom in September 2011 as a class action, with regard to an allegation that Cellcom breached its agreements with its clients by failing to give them the full amount of the refunds to which they are entitled according to the agreements. The total amount of this claim was estimated by the plaintiff at NIS 15 million.
Among all of the claims against Cellcom and the motions to certify them as class actions, there are motions to certify class actions amounting to NIS 780 million, and an additional claim for which the amount of the claim, insofar as it will be certified as a class action, was not stated. At the preliminary stage that they have reached, Cellcom is unable to estimate the likelihood of their success.
Out of all of the claims against Cellcom and the motions to certify them as class actions, settlements or withdrawal arrangements have been filed with the court in five motions for certification of class actions against Cellcom for a total amount that has been estimated by the plaintiffs at NIS 253 million, in a motion to certify a class action against Cellcom and another defendant for an amount of NIS 28 million without stating the amount of the claim attributed separately to Cellcom, and an additional motion for certification of a class action where the amount clamed was not stated, but the proceedings have not yet ended.

IDB Development Corporation Ltd. Convenience translation

 
233
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
4.
Lawsuits against Cellcom and its subsidiaries (cont.)
 
a.  Consumer Claims (cont.)
 
The following are details of the number and total amounts of claims that have been certified as class actions, and claims where there is a motion to certify them as consumer class actions, which are pending against Cellcom as at December 31, 2014, classified according to the amount of the claim:
 
Amount of the claim
  
Number of claims
    
Amount of the claims
(millions of NIS)
  
Up to NIS 100 million
     34       885  
NIS 100 million to NIS 500 million
     7       1,263  
NIS 500 million to NIS 1 billion
     1       606  
Claims in which no amount was stated
     8       -  
Claims against Cellcom and additional defendants jointly
     7       958  
Claims against Cellcom and additional defendants in which no amount was stated
     4       -  

After the date of the Statement of Financial Position, two additional claims and a motion to certify them as class actions were filed with the court against Cellcom for a total amount of NIS 16 million and an additional claim and motion to certify it as a class action against Cellcom for an amount of NIS 15 billion (as stated below); because of the preliminary stage they have reached, Cellcom cannot assess their chances of success; six class actions against Cellcom for a total amount of approximately NIS 178 million, a class action against Cellcom, which did not state the amount of the claim, and two class actions against Cellcom and additional defendants for a cumulative amount of NIS 130 million without them stating separately the amount claimed against Cellcom ended (by being struck out or dismissed); a settlement has been filed in a class action against Cellcom in which the amount of the claim is not stated, but the proceedings have not yet ended; an appeal has been filed with regard to the striking out of an action against Cellcom and a motion to certify it as a class action, for an amount of NIS 220 million, and at this stage Cellcom cannot estimate the likelihood of the success of the aforesaid appeal.
The following are details of a claim and motion to certify it as a class action against Cellcom, which was filed after the date of the Statement of Financial Position, where the amount claimed is more than NIS 1 billion:
In March 2015, a claim and motion to certify it as a class action were filed with the court against Cellcom, by two plaintiffs who claim that they are customers of Cellcom. The plaintiffs claim in their action that Cellcom unlawfully invaded the privacy of its customers and they are claiming as a result compensation for non-pecuniary loss. If the claim is certified as a class action, the amount claimed in it was estimated by the plaintiffs in a total sum of NIS 15 billion. At this preliminary stage, Cellcom is unable to estimate the likelihood of success of the aforesaid claim and motion.

IDB Development Corporation Ltd. Convenience translation

 
234
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
4.
Lawsuits against Cellcom and its subsidiaries (cont.)
 
 
b.
Environmental claims
In the normal course of business, claims have been filed against Cellcom in issues related to the environment, including claims regarding non-ionizing radiation from cellular handsets and claims in respect of sites belonging to Cellcom. These are mostly motions for approval of class actions, relating to allegations of unlawful conduct or breach of license causing monetary and non-monetary damage (including claims for future damages). As of December 31, 2014, two claims were pending against Cellcom; motions to certify these as class actions were originally filed, for a total amount of NIS 4.7 billion.
In 2014, the court dismissed the motions for certification of the aforesaid two claims as class actions, except with regard to certain causes of action which it decided to hear on the basis of settlements in similar class actions against other cellular operators (Pelephone Communications Ltd. and Partner Communications Ltd.) that were approved by the court, which Cellcom was also prepared to adopt. The aforesaid settlements include undertakings of the cellular operators to provide certain information with regard to non-ionizing radiation, to sell certain accessories at a discount and to carry out certain examinations of devices in certain circumstances, where the cost of carrying out these undertakings is estimated by Cellcom in amounts that are not material for it. The plaintiffs filed an appeal against the judgment approving the settlements with Pelephone and Partner, inter alia, with regard to the type of examinations that will be made as aforesaid.
 
c.  Other claims
In the normal course of business, various lawsuits have been filed against Cellcom by employees, subcontractors, suppliers, authorities and others which deal mostly in claims of breach of provisions of the law governing termination of employment and obligatory payments to employees, claims for breach of agreements, copyright infringements, patent infringement and compulsory payments to authorities.
As at December 31, 2014, the total amount of these claims against Cellcom amount to NIS 85 million. In addition, a lawsuit against Cellcom and two other cellular operators was filed requesting non-financial remedies for an alleged infringement of a patent in iPhone devices.
 
 
5.
Lawsuits against Koor and its subsidiaries
In the Normal course of business, Adama is involved in various legal claims. The provisions included in its financial statements as of December 31, 2014, for the costs that may arise from these claims are in a total sum of US $13.2 million.
Presented hereunder are details of claims pending against Adama, that were not fully provided for in its financial statements, and their chances of success were not considered to be remote by the legal counsel of Adama and its subsidiaries, classified into groups having similar characteristics. The amounts indicated hereunder are correct for the dates on which the claims were filed.


IDB Development Corporation Ltd. Convenience translation

 
235
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
5.
Lawsuits against Koor and its subsidiaries (cont.)
 
 
a.
Environmental claims
In the ordinary course of business, legal claims have been filed with the courts against subsidiaries of Adama on issues relating to the environment and on issues relating to their sites. The claims (including a claim and motion to certify it as a class action) mainly involve allegations regarding emissions, odors and noise, which cause pecuniary damages and non-financial loss (including claims for future damages).
As of December 31, 2014, the amounts that are claimed from the consolidated companies of Adama under the aforesaid claims amounts to a total of US $20 million. In some of the aforesaid claims, additional remedies are requested.
The following are details of the number and amounts of the environmental claims that are pending against the consolidated companies of Adama on their own as of December 31, 2014, in which the amount claimed was stipulated, classified according to the amount of the claim:
 
Amount of the claim
  
Number of claims
    
Amount of the claim (Millions of NIS)
  
Up to NIS 100 million
     1       78  

Moreover, in February 2014 plaintiffs in a claim and a motion to certify it as a class action for an amount of NIS 642 million filed an appeal with the Supreme Court after it was dismissed in December 2013 by the Beer-Sheba District Court.
 
 
b.
Claims of employees, subcontractors, suppliers, authorities and others
In the normal course of business, various claims were filed against Adama by employees, subcontractors, suppliers, authorities and others which concern, inter alia, claims for breaches of provisions of the law regarding termination of employment and obligatory payments to employees, claims for breach of contract and patent infringement, and compulsory payments to authorities.
As of December 31, 2014, the total amount claimed from Adama for the aforesaid claims amounted to $39 million.
 
 
6.
Lawsuits against Shufersal
In the ordinary course of business, Shufersal is involved in several legal claims against it. The provision included in its financial statements as of December 31, 2014, for all of the claims against it amounts to NIS 9 million.
The following are details of the claims pending against Shufersal, classified into groups with similar characteristics.


IDB Development Corporation Ltd. Convenience translation

 
236
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
6.
Lawsuits against Shufersal (cont.)
 
a.  Consumer claims
In the normal course of business, legal claims were filed against Shufersal by its customers. These are mostly motions for certification of class actions, which mainly concern claims of charging money unlawfully, acting contrary to the law or a license, or a breach of the agreements with customers, causing financial and non-financial loss to them.
As at December 31, 2014, the total amount claimed from Shufersal for consumer claims was NIS 518 million. Regarding several of these claims, for a total amount of NIS 65 million, their likelihood of success cannot be estimated by Shufersal because of the preliminary stage that they have reached.
In addition, consumer claims and motions to certify them as class actions were filed against Shufersal and additional defendants, where the total amount attributed to Shufersal amounts of NIS 157 million. Moreover, consumer claims and motions to certify them as class actions were filed against Shufersal and additional defendants, where the amount claims therein amounts to NIS 78 million, without any stipulation of the amount of the claim attributed separately to Shufersal. Of these, there are several claims for a total amount of NIS 50 million, where because of the preliminary stage that they have reached, Shufersal is unable to estimate their likelihood of success.
The following are details of the number and amounts of the claims where there is a motion to certify them as consumer class actions, which were pending against Shufersal as of December 31, 2014:
 
Amount of the claim
  
Number of claims
    
Amount of the claims
(in millions of NIS)
  
Up to NIS 100 million
     34       620  
Between NIS 100 and 500 million
     1       133  

After the date of the Statement of Financial Position, five consumer claims and motions to certify them as class actions were filed against Shufersal for a total amount of NIS 295 million. At the preliminary stage that these have reached, Shufersal cannot estimate the likelihood of their success.
After the date of the Statement of Financial Position, nine motions to certify class actions against Shufersal, for a total amount of NIS 460 million, which were included in the breakdown of claims above, ended with the plaintiffs withdrawing with the court’s approval (one of the claims that were dismissed as aforesaid, for an amount of NIS 182 million, was included among the claims that were filed after the date of the Statement of Financial Position).


IDB Development Corporation Ltd. Convenience translation

 
237
 
 
Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
6.
Lawsuits against Shufersal (cont.)
 
 
b.
Claims of employees, subcontractors, suppliers, authorities and other claims
In the normal course of business, legal claims were filed with the courts against Shufersal by employees, subcontractors, suppliers, authorities and others, which relate mainly to claims of breaches of the provisions of the law in relation to the termination of workers’ employment and compulsory payments to employees, claims of breaches of contract and compulsory payments to authorities. As of December 31, 2014, the total amount for which Shufersal was being sued for these claims was NIS 19 million. In 2014, an indictment was filed against Shufersal, the Vice-President of Operations and a Shufersal’s supply chain, and four additional executives in Shufersal (who are not officers). The indictment alleged offenses against the provisions of the Hours of Work and Rest Law, 5711-1951, with regard to the employment of workers for overtime in excess of what is permitted in the aforesaid law. In Shufersal’s estimation, on the basis of the opinion of its legal advisers, if and insofar as at the end of the aforesaid proceeding Shufersal will be found guilty of the charges that will be claimed against it, Shufersal will be exposed to the payment of a fine that is not material.
In February 2010, an indictment was filed with the Jerusalem District Court against Shufersal, its former President and CEO and its former Vice-President of Commerce and Marketing (in this section: “former officers of Shufersal”), which attributed to the defendants offenses against the Restrictive Trade Practices Law and the Penal Law with respect to allegations regarding non-compliance with the instructions in the approval of the merger between Clubmarket Marketing Chains Ltd. (“Clubmarket”) and Shufersal, and an attempt to perform a restrictive arrangement.
In December 2013 the Court convicted Shufersal and the former officers of Shufersal in two offenses of non-compliance with the provisions stated in the approval of the merger and four offenses of an attempt to perform a restrictive arrangement, and acquitted them of an additional indictment of non-compliance with the instructions in the approval of the merger.
In July 2014, the court handed down a sentence in the aforesaid criminal proceeding, in which Shufersal was ordered to pay a fine of NIS 3 million, and to give an undertaking in a sum of NIS 5 million, for a period of three years, not to commit an offense pursuant to the Restrictive Trade Practices Law, and the two former officers of Shufersal were sentenced to imprisonment, including actual imprisonment for periods of two months and one month, respectively (which have been stayed until proceedings have ended in the Supreme Court), fines in sums of between NIS 250 thousand and NIS 450 thousand, and additional sanctions. In September 2014, Shufersal filed with the Supreme Court an appeal against its aforesaid conviction and against the sentences that were consequently imposed on it, as stated above. The two former officers of Shufersal also filed appeals of their own.
 
 
7.
Lawsuits against Elron
Elron’s financial statements for December 31, 2014, include a provision in an amount immaterial to it in respect of all the claims against it.
As at December 31, 2014, three claims and motions to certify them as class actions are pending in the court against Elron and other defendants, alleging non-compliance with provisions of company laws and securities laws with regard to the same set of facts.
The remedy requested in one of the claims is monetary compensation without stipulating the amount claimed, although it does contain various arguments regarding the method of determining the damages caused to the plaintiffs, which depends, inter alia, on clarifying certain circumstances and the nature of each alleged damage. The Court rejected the motion to certify the aforementioned claim as a class action, but the plaintiffs filed an appeal, and in May 2012 the Supreme Court handed down a ruling in which it partly accepted the aforesaid appeal. The aforesaid ruling states, inter alia, that the motion to approve the class action is accepted with certain changes from that requested in said motion, while also providing certain instructions as to the holding of the proceeding, and stating that the proceeding is being remanded to the District Court so that it will hear it as a class action against the defendants specified in it, including against Elron and its former officers. Elron denies the claim’s allegations against it.

IDB Development Corporation Ltd. Convenience translation

 
238
 


Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)
 
C.
Lawsuits (cont.)
 
 
7.
Lawsuits against Elron (cont.)
 
Elron recorded in its financial statements a provision in an amount immaterial to it in respect of the aforesaid claim, which in the opinion ofElron’s management, based on, inter alia, the opinion of its legal counsel, sufficiently covers the economic resources that may be required from it to settle this claim, if any.
The two additional claims along with motions to certify the claims as class actions were submitted against the same defendants and on the basis of the same main facts of the claim described above. The amount being claimed was not stated in these additional claims. The Court decided that at this stage the defendants are not required to reply to these additional claims.
 
 
8.
Lawsuits against the IDB Tourism Group
 
There are various pending claims against IDB Tourism and its investee companies including, inter alia, claims filed by employees and/or subcontractors and/or suppliers and/or authorities, mainly in respect of claims of breach of provisions of law in connection with employment of employees and obligatory payments to employees, claims for breach of contract and compulsory payments to authorities, and consumer claims that were filed by customers, mainly for claims regarding dealings contrary to law and a breach of the provisions of the law, discrimination and misrepresentation, while causing financial damage. As at December 31, 2014, the total amount being claimed from IDB Tourism and its investees with respect to these claims was NIS 22 million (not including provisions for tax claims).
Moreover, a motion to certify a class action was filed against a subsidiary of IDB Tourism, with regard to a failure to provide basic hotel services that are expected of the level of hotel that the subsidiary undertook to provide. The causes of action in the claim are, primarily, breach of contract, or, secondarily, unjust enrichment, breach of the duty of care, disclosure and good faith imposed in the sale of a service, or, thirdly, misrepresentation and breach of a duty of disclosure to the consumer in a total amount of NIS 18 million. In the subsidiary’s estimation, based on that of its legal advisers, it is more likely than not that the motion for certification of the class action, in its current format, will be denied.
For the aforesaid claims, IDB Tourism and its investees have recorded provisions for legal claims in a sum of NIS 10 million, mainly for a decision of the Supreme Court in Portugal in October 2014, which held that damage had been caused to the company Euro Atlantic (a Portuguese airline company) for breach of a lease contract.
In addition, the financial reports include a provision in a sum of NIS 10 million for tax assessments that were issued for Israir for the years 2005-2010, after a judgment was given in an appeal by the Supreme Court, which held that Israir is not a resident of the Eilat area, as this term is defined in the Free Trade Area Law, and for a National Insurance assessment that was issued for Israir.
In January 2015, after the date of the Statement of Financial Position, the court granted a motion to certify a class action against Israir, as well as Arkia, El Al and the Airports Authority, in which the court was requested to determine that the plaintiff class would include persons with hearing disabilities and users of a hearing aid that made use or could have made use of the respondents’ aviation services in the last seven years. The remedies sought as part of the class action are personal compensation in a sum of NIS 500 and compensation for the whole class in a sum of NIS 84 million (and that the respondents should be liable to pay remuneration to the applicants and attorneys’ fees pursuant to the Class Actions Law).
Motions were filed with the court (by the applicants’ attorney) to certify similar class actions against Israel Railways and the bus companies Egged, Dan and Nativ Express, in which the hearing has been consolidated and a pretrial hearing is set down for May 10, 2015. The applicants have said that they will agree to the same panel hearing the case and that the hearing will also be consolidated with this case. Israir is at a preliminary stage of examining the claim and therefore it is not able to estimate the amount of the exposure, if there is any, and therefore no provision has been included in Israir’s financial statements.

IDB Development Corporation Ltd. Convenience translation

 
239
 
 
Note 24 – Sales and services
 
 
 
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
From the sale of purchased products
     11,532       11,843       11,540  
From the performance of works and services, primarily communications services
     3,608       4,024       4,621  
Tourism services
     1,001       1,059       1,223  
From the sale of communications equipment
     1,005       942       1,356  
From the rental of buildings and from storage services
     829       822       833  
From the sale of products that have been manufactured
     129       716       285  
From the sale of apartments and land (1)
     396       534       379  
From management fees and consultancy fees of an investments house
     46       45       45  
From the sale of newspapers, advertising space and printing works
     -       -       180  
Total
     18,546       19,985       20,462  
                         
 
Note 25 – The Group's share of the profits (losses) of investee companies that are treated under the equity method of accounting, net
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Profit (loss) under the equity method of accounting
                  
The Group's share of the net profit (loss) of investee companies treated under the equity method of accounting
     30       112       (777 )
Amortization of surplus cost for included companies
     (40 )     (51 )     (97 )
Loss on impairment in the value of investments
     (490 )(1)     -       (58 )
Total net profit (loss) on the equity method basis
     (500 )     61       (932 )

 
(1)             For details regarding the amortization of the investment in Adama, see note 3.h.4.d above.



IDB Development Corporation Ltd. Convenience translation

 
240
 
 
Note 26 – Profit (loss) on disposal and the writing down of investments, assets and dividends
 
 
A.
Profit on disposal and increase in the value of investments and assets, dividends and profit as a result of an increase to control
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Gain from the disposal of investments in investee companies
       (1) 873      18       149  
Gain on increase in the value of investments that are measured at fair value through the statement of income
     54         (2) 126      25  
Dividend income and cash distributions from financial assets that are measured at fair value through profit and loss
     24       9       22  
Cancellation of provision for impairment of assets
     7       13       2  
Gain on the loss of control in a subsidiary and from the loss of significant influence in an affiliated company, including re-measurement to fair value of the equity rights that remain in the company being sold
     -       10       26  
Gain on the issuance of equity of investee companies to a third party
     -       1       5  
Gain on the re-measurement to fair value of equity rights in a company that has been acquired, which were held prior to the acquisition of control
     -       2       -  
Gain from disposal of assets
     -       -       12  
      958       179       241  
                         
 
(1)
For details of the disposal of the investment in Given – see note 3.H.6.a above.
 
(2)
Restated, including a sum of NIS 83 million for the increase in value of Insurance Enterprise Holdings, which were presented as part of the discontinued activity, as stated in note 3.I.1 above.

 
B.
Loss on disposal, decrease in value and the writing down of investments and assets

   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Impairment in the value of assets and investments
       (1)  405     89       385  
Impairment loss on investments measured at fair value through the statement of income
       (2) 399     22       45  
Loss from loss of control in a subsidiary and from the loss of material influence in an included company, including a remeasurement for fair value of residual capital rights that remain in the sold company
       (3)  32     -       -  
Loss on the disposal of assets
     8       27       6  
Loss from the sale of investments in investee companies
     -       -       14  
      844       138       450  
                         
 
(1)
For details regarding the amortization of goodwill for the corporation’s investments in Cellcom and Shufersal – see notes 10.d.1 and 10.d.2, respectively, above.
 
(2)
Including a loss from impairment of the investment in Clal Holdings Insurance Enterprises in a sum of NIS 360 million.
 
(3)
For details regarding the accounting treatment of TPD – see note 3.h.2.a above.



IDB Development Corporation Ltd. Convenience translation

 
241
 
 
Note 27 – Changes in the fair value of investment property

   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
                   
A. Increase in the fair value of investment property
                  
Revaluation of the HSBC Building and the building in Chicago (see also note 7.b.(1) above)
     272       175       354  
Revaluation of investment property in Israel (see also Note 7.b.(2) above)
     167       242       186  
      439       417       540  
                         
                         
B.        Impairment in the fair value of investment real estate
                        
Decrease in value of a commercial and office project in Las Vegas (GW) (see note 7.b.(3) above)
     26       79       -  
Decrease in value of a building in Chicago
     -       18       -  
      26       97       -  
                         
 
Note 28 –
Financing income and expenses
 
 
A.
Financing income
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
                   
Financial assets and financial liabilities at fair value through the statement of income
                  
Net change in the fair value of financial assets
     55       84       103  
Dividend income
     -       -       7  
Loans, receivables and financial instruments at amortized cost
                        
Income from interest in deposits in banks
     63       87       128  
Income from interest on loans, deposits and receivables*
     12       14       29  
Financing income  on sale transactions in payments*
     71       95       101  
Income from the self-purchase of bonds
     -       -       33  
Income from other financial instruments
                        
Change in value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor (1)
     928       -       -  
Other
                        
Net gain on changes in foreign currency exchange rates (3)
     -       323       60  
Financing income on assets designated for the payment of employee benefits
     10       9       12  
Income from interest from investee companies that are treated under the equity method of accounting
     33       25       316  
Others
     28       28       35  
Total financing income
     1,200       665       824  
 
 
* Including index-linkage differentials.

IDB Development Corporation Ltd. Convenience translation

 
242
 
 
Note 28 – Financing income and expenses (cont.)
 
 
B.
Financing expenses
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Financial liabilities measured at amortized cost
                  
Interest expenses and linkage differentials on financial liabilities
     1,389       2,045       2,062  
Change in the value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor (1)
     -       181       161  
Financial assets and financial liabilities at fair value through the statement of income
                        
Change in the fair value of conditional consideration in respect of a business combination
     7       6       7  
Interest expenses on financial liabilities
     5       2       2  
Net negative change in the fair value of derivative financial instruments including instruments for hedging cash flows that have been transferred from equity (2)
     592       176       19  
Other
                        
Net loss on changes in foreign currency exchange rates (3)
     431       -       -  
Financing expenses on employee benefit liabilities (the discounting component)
     14       13       18  
Other financing expenses on financial liabilities
     -       1       5  
Commissions
     11       13       9  
Other financing expenses
     45       24       30  
Total financing expenses
     2,494       2,461       2,313  
Less capitalized credit costs
     (19 )     (15 )     (16 )
Total financing expenses reflected in the statement of income
     2,475       2,446       2,297  
                         
 
(1)
For details regarding the book value of the host contract in a hybrid financial instrument for a non-recourse loan of Koor, see note 16.A.3 above.
 
(2)
In 2013 and 2014, Koor recorded expenses of NIS 553 and NIS 85 million, respectively, for a change in the value of the embedded derivative in the hybrid financial instrument for the non-recourse loan. In 2012, Koor recorded income in a sum of NIS 17 million for a change in the value of the embedded derivative in the hybrid financial instrument for the non-recourse loan. The aforesaid amounts are included in the net negative change in the fair value of derivative financial assets.
 
(3)
Including an expense in a sum of NIS 426 million in 2014 and income in a sum of NIS 270 million and NIS 84 million in 2013 and 2012, respectively, for exchange rate differentials that were recorded for the host contract in the hybrid financial instrument for a non-recourse loan.

 
C.
Financing income and expenses, net, include the following amounts, relating to financial assets (liabilities), which are not presented at fair value through the statement of income:
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Total interest income
     147 *     202       259  
Total interest expenses
     1,389       2,045       2,062  
                         
 
 
*
Not including a change in the value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor.
 

IDB Development Corporation Ltd. Convenience translation

 
243
 
 
Note 29 – Cost of sales and services
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Sales of products that have been manufactured:
                  
Materials
     34       85       124  
Depreciation and amortization
     4       12       37  
Salaries and social benefits
     7       30       122  
External work
     4       5       14  
Purchase of finished goods
     -       -       11  
Other manufacturing expenses (primarily energy expenses)
     14       64       82  
Changes in inventory, work in progress and finished goods
     (4 )     (7 )     (4 )
      59       189       386  
                         
Construction:
                        
Construction costs
     189         (1) 375      128  
Land
     108       57       79  
Provision for a loss
     19         (1) 7      -  
Other costs
     58       61       44  
      374       500       251  
Works and services:
                        
Rental of buildings and storage services
     145       147       142  
Rental fees and ancillary expenses
     339       391       394  
Performance of works and services, primarily communications services
     905       1,099       1,188  
Salaries
     652       658       657  
Depreciation and amortization
     518       576       614  
Inventory written down
     292       282       284  
Cost of tourism services and other services
     768       793       940  
Sale of purchased products
     8,318         (2) 8,390       (2)  8,207
Sale of communications equipment
     738       719       1,013  
      12,675       13,055       13,439  
                         
Others:
                        
Provision for impairment in value
     9       -       3  
Royalties and levies
     98       91       129  
Total others
     107       91       132  
Total
     13,215       13,835       14,208  

(1)               Reclassified.
(2)              Reclassified – see note 1.f.2 above.

IDB Development Corporation Ltd. Convenience translation

 
244
 
 
Note 30 – Sales and marketing expenses*
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Wages, salaries and social benefits (1)
     1,333       1,442       1,353  
Advertising
     229       265       254  
Depreciation and amortization
     350 (3)     299       318  
Rent, building maintenance and municipal taxes
     979 (3)     883       891  
Commissions and royalties
     217       206       214  
Packaging and delivery expenses
     -       - (2)     20 (2)
Others
     395       406       377  
      3,503       3,501       3,427  
(1)Including share based payments.
     2       7       2  
*Less participation of suppliers.
     46       48       50  
(2)Reclassified – see note 1.f.(2) above
                        
(3)For details regarding one-time expenses that were recorded for a current business program in Shufersal, see note 3.H.3.b. above.
                        
                         

Note 31 – Research and development expenses
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Wages and salaries (1)
     357       388       362  
Depreciation and amortization
     163       199       246  
Rent and building maintenance
     97       117       122  
Consulting and legal (2)
     182       138       128  
Provision for doubtful and bad debts
     33       83       79  
Others
     202       214       254  
      1,034       1,139       1,191  
(1)Including share based payments.
     2       10       11  
(2)Including consulting services relating to the purchase of real estate assets abroad.
     50       4       13  
                         



IDB Development Corporation Ltd. Convenience translation

 
245
 
 
Note 32 – Taxes on income
 
 
A.
Tax expense components
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Current tax expenses
                  
Taxes for current period (1)
     244       396       503  
Net adjustments for previous years
     (13 )     (6 )     (42 )
Total current tax expenses
     231       390       461  
Deferred tax expenses (income)
                        
Change in deferred taxes for temporary provisions (1)
     128       (9 )     165  
Change in deferred taxes as a result of a change in the tax rates
     -       81       2  
Total deferred tax expenses
     128       72       167  
Total tax es on income (including tax for discontinued operations)
     359       462       628  
After neutralization of taxes for discontinued operations
     -       (158 )     (176 )
Taxes on income expenses from continuing operations
     359       304       452  
                         
 
 (1)
Takes into account losses, tax benefits and temporary provisions from previous years, for which deferred taxes were not recorded as stated in section I below.

 
B.
The tax rates that apply to the income of the companies in the Group
 
·  
The following are the relevant tax rates in Israel in the years 2012-2014:
2012 – 25%.
2013 – 25%.
2014 – 26.5%.
Companies tax applies to the income of the Company and investee companies, which are not overseas investee companies and which are not insurance companies.
·  
In August 2013, the Knesset passed legislation, increasing the tax rate for companies to 26.5% (an increase of 1.5%) from January 1, 2014, and also amending the Law for the Encouragement of Capital Investments such that as from that date, the tax that will apply to a preferred company in Development Area A will stand at 9% and the tax rate that will apply to companies in the rest of the country will stand at 16%. The current taxes for the reported periods are calculated in accordance with the tax rates presented above.
- As a result of the said change in the tax rates, the deferred tax balances have been updated, and as a result of this a non-recurring expense of NIS 71 million was recorded under taxes on income and an expense of NIS 3 million under the Group's share of the loss of investee companies that are treated under the equity method of accounting, net in the third quarter of 2013 (NIS 27 million of these amounts has been attributed to the shareholders in the Company).
 
 
C.
The non-application of International Financial Reporting Standards (IFRS) for tax purposes
 
In February 2010, January 2012 and July 2014, legislation was published to amend the Income Tax Ordinance, as part of which it was determined that Israeli Accounting Standard No. 29 on the subject of the adoption of the International Financial Reporting Standards (IFRS) would not apply for the purposes of the determination of the chargeable income for the years 2007 to 2013. The said legislation does not have a significant impact on the Company's financial
statements, in relation to the determination of the chargeable income for the aforesaid years.

 
IDB Development Corporation Ltd. Convenience translation

 
246
 
 
Note 32 –
Taxes on income (cont.)
 
 
D.
Reconciliation between the amount of the theoretical tax on the income (loss) before taxes on income and the tax expenses
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Loss before taxation, as reported in the statement of income
     (491 )       (1)  54     (504 )
The Group's principal tax rate
     26.5 %     25 %     25 %
Tax (tax saving) calculated in accordance with the Group's principal tax rate
     (130 )     14       (126 )
Tax (tax saving) in respect of:
                        
The Group's share of the (profits) losses after tax on (profits of) disposal and write-downs of investee companies that are exempt from taxation, net
     230         (1)  (110)     271  
Adjustments in respect of different tax rates in subsidiary companies that operate overseas
     24       30       53  
Change in timing differences in respect of which deferred taxes have not been recognized
     127       185       52  
Losses, tax benefits and timing differences from previous years in respect of which deferred taxes have not been recorded
     (150 )     (541 )     (23 )
Reduction of deferred tax assets that were recognized in previous years for losses carried forward
     -       10       32  
Losses and current benefits for tax purposes in respect of which a deferred tax asset has not been recognized and credits for which  a tax benefit has not been recognized
     259       687       216  
The impact of changes in the tax rates
     -       71       -  
Disallowed expenses
     25       18       31  
Income that is exempt from taxation
     (8 )     (42 )     (25 )
Prior year taxation
     (21 )     -       (2 )
Other differences
     3       (18 )     (27 )
Taxes on income
     359       304       452  
                         
 
 
(1)
Restated – See Note 3.i.1 above on the subject of discontinued operations.

 

IDB Development Corporation Ltd. Convenience translation

 
247
 
 
Note 32 – Taxes on income (cont.)
 
 
E.
Final tax assessments
 
The Company and consolidated companies have final tax assessments for the following periods:
 
 
1.
The Company – up to and including the 2012 tax year.
 
2.
For companies in the Group – up to and including the tax years 1996-2013.
 
 
F.
Losses and deductions for tax purposes that are available to be transferred to the coming years:
 
The estimated business losses and capital losses for tax purposes that are available to be carried forward to the coming years are as follows:
 
 
1.
As of December 31, 2014, the Company has capital losses of NIS 4.1 billion and business losses of NIS 1.7 billion, which are available to be carried forward. Deferred taxes have not been recorded in respect of these losses since there is no certainty that they will be exploited in the foreseeable future.
 
2.
The balance of the losses for tax purposes of consolidated companies amounts to approximately NIS 13.2 billion as of December 31, 2014, and deferred taxes have not been recorded in respect of NIS 11.2 billion of these losses since there is no certainty that they will be utilized in the foreseeable future.
 
 
G.
In 2013, the Group recognized a deferred tax asset in an amount of NIS 108 million and a deferred tax liability in an amount of NIS 15 million, in respect of timing differences relating to Given and in respect of unexploited tax losses, which are expected to be exploited at the time of the completion of the transaction that is mentioned in note 3.H.6.a above. As a result, in 2013 the Group recorded net deferred tax income of NIS 100 million (the Company's share of the aforesaid income amounted to NIS 23 million) and a capital reserve on translation differences of NIS 5 million, which is attributed to the Company. In 2014, the Group recorded a reversal of the amounts of the aforesaid deferred taxes on the date of the actual disposal of Given.
 
 
H.
Further to what is stated in note 3.H.3.a above with regard to a program for the split of Shufersal’s real estate, the spin-off was made as a split exempt from Income Tax and Land Appreciation Tax pursuant to the provisions of part E2 of the Income Tax Ordinance and subject to the terms provided therein. The main restrictions that were imposed on Shufersal Real Estate and Shufersal as a result of the spin-off, which mostly end on March 31, 2015, mainly concern the issue of the shares of the Shufersal Real Estate Company and the sale of assets by Shufersal Real Estate, and reduced Income Tax and an exemption from real estate taxation for real estate for which construction has not yet begun or real estate/branches whose construction is in progress and where the utilized building rights, prior to the spin-off, were less than 30% of the building rights that can be utilized.


IDB Development Corporation Ltd. Convenience translation

 
248
 
           
 
Note 32 – Taxes on income (cont.)
 
 
I.
Deferred tax assets and liabilities
 
1.  Deferred tax assets and liabilities that have been recognized
 
The deferred taxes in respect of companies in Israel have been calculated in accordance with the tax rate that is expected to apply at the time of the reversal, as detailed above. Deferred taxes in respect of the subsidiary companies that operate outside of Israel have been calculated in accordance with the tax rates that are relevant in each state.
 
   
Fixed assets
    
Employee benefits
    
Financial instruments
    
Deductions and losses carried forward for tax purposes
    
Intangible assets
    
Investment property
    
Others
    
Total
  
   
NIS millions
  
Movement in deferred tax assets (liabilities):
                                                
Balance as of January 1, 2013
     (437 )     84       (179 )     475       (659 )     (866 )     79       (1,503 )
Changes reflected in the statement of income
     20       9       125       208       18       (330 )     (41 )     9  
Changes reflected in the statement of other comprehensive income
     6       (4 )     1       (7 )     -       7       9       12  
Business combinations
     -       -       (1 )     10       (3 )     -       1       7  
Changes as a result of a change in the tax rates
     (25 )     3       (1 )     11       (32 )     (45 )     8       (81 )
Discontinuation of consolidation and disposal groups that are held for sale, net
     (4 )     (39 )     62       (121 )     335       23       1       257  
                                                                 
Balance as of December 31, 2013
     (440 )     53       7       576       (341 )     (1,211 )     57       *(1,299 )
Changes reflected in the statement of income
     (16 )     7       (109 )     134       48       (199 )     7       (128 )
Changes reflected in the statement of other comprehensive income
     (11 )     7       (4 )     40       -       (52 )     (8 )     (28 )
Balance as of December 31, 2014
     (467 )     67       (106 )     750       (293 )     (1,462 )     56       *(1,455 )
                                                                 


IDB Development Corporation Ltd.                           Convenience translation
 
249
 
             
 
 
Note 32 – Taxes on income (cont.)
 
 
I.
Deferred tax assets and liabilities (cont.)
 
 
1.
Deferred tax assets and liabilities that have been recognized (cont.)
 
   
As of December 31, 2014
  
   
Fixed assets
    
Employee benefits
    
Financial instruments
    
Deductions and losses carried forward for tax purposes
    
Intangible assets
    
Investment property
    
Others
    
Total
  
   
NIS millions
  
Deferred tax assets
     40       70       19       750       5       -       99       983  
Deferred tax liabilities
     (507 )     (3 )     (125 )     -       (298 )     (1,462 )     (43 )     (2,438 )
Total
     (467 )     67       (106 )     750       (293 )     (1,462 )     56       (1,455 )*
 
 
*
Presented in the Statement of Financial Position.
 

   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Deferred tax assets
     53       157  
Deferred tax liabilities
     (1,508 )     (1,456 )
      (1,455 )     (1,299 )
                 

IDB Development Corporation Ltd.                           Convenience translation
 
250
 
 
 
Note 32 – Taxes on income (cont.)
 
 
I.
Deferred tax assets and liabilities (cont.)
 
 
2.
Timing differences for which deferred taxes have not been recognized
 
Deferred tax assets have not been recognized in respect of the following timing differences:

   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Deductible timing differences
     11,472       11,698  
Losses for tax purposes
     17,084       19,334  
      28,556       31,032  
                 
Deferred tax assets have not been recognized in respect of these timing differences, since it is not expected (less than 50%) that the timing difference will reverse in the foreseeable future and nor will there be chargeable income in the foreseeable future, against which it will be possible to exploit the tax benefits.
No deferred tax liability has been recognized in respect of timing differences in an amount of NIS 776 million (2013 – NIS 1,557 million), relating to investments in investee companies, since the decision as to whether to sell those companies lies in the Group's hands and the Group intends not to dispose of them in the foreseeable future or where the assessment is that the chances of disposing of them are less than 50%. The said timing differences do not include timing differences relating to subsidiary companies of the Company and in respect of which the Group has the ability to control the manner of their reversal.
The said amounts have been calculated on the basis of the difference between the cost of each investment for tax purposes and the value of that investment as recorded in the accounting records – all of which has been calculated at the level of the investor company, without adjustments to the level of the Company as a result of balances of goodwill and surplus costs, which relate to the Company's investment in Discount Investments and which relate to the operations of Cellcom, Shufersal, Property and Building, and Adama, as stated in note 3.F above.

IDB Development Corporation Ltd.                           Convenience translation
 
251
 
           
 
 
Note 33 - Related and Interested Parties29
 
 
Before the approval of the IDB Holdings debt arrangement, the Company was fully owned by IDB Holdings. On January 22, 2014, the shares of the Company, which had been held until that time by IDB Holdings directly, were transferred such that they were held by IDB Holdings through the trustees of the debt arrangement. On May 7, 2014, the first stage of the debt arrangement in IDB Holdings was completed, and in it, inter alia, on May 8, 2014, shares of the Company that constituted 53.3% of the issued and paid-up share capital of the Company were transferred to Dolphin Netherlands B.V., which is (indirectly) controlled by Dolphin Fund Limited (a corporation controlled by Mr. Eduardo Elsztain) and Mr. Eduardo Elsztain, and to CAA Extra Holdings Ltd., a Company fully owned by Mr. Mordechai Ben-Moshe, in equal shares, and the (indirect) control of the Company passed to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe. At the same time, the trustees of the debt arrangement began to be regarded as interested parties in the Company by virtue of their holdings in shares of the Company, which constitutes at that time 20.75% of the issued capital of the Company, in trust. As of the date of publishing the report, the trustees of the arrangement are no longer interested parties by virtue of holdings.
 
A.
Insignificant transactions that are not extraordinary
 
 
1.
The Audit Committee (and in previous years, the Company’s Board of Directors) determined guidelines and rules for classifying a transaction of the Company or of its subsidiary with an interested party as an insignificant transaction as provided in regulation 41(a3)(1) of the Securities Regulations (Annual Financial Statements) 5770 - 2010 (“the Financial Statements Regulations”). These rules and guidelines are used to examine the scope of the disclosure required in a periodic report and in the prospectus (including in shelf prospectus reports) with respect to a transaction of the Company, an entity controlled by it and a related company with a controlling shareholder or in which the controlling shareholder has an interest in the approval of the aforementioned transaction, as specified in regulation 22 of the Securities Regulations (Periodic and Immediate Reports), 5730 - 1970 (“the Periodic Reports Regulations”) and in regulation 54 of the Securities Regulations (Details of a Prospectus and Draft of a Prospectus – Structure and Shape), 5729 - 1969 (hereunder – “the Prospectus Details Regulations”), for examining the need to provide an immediate report on the said transaction of the Company as specified in regulation 37A(6) of the Periodic Reports Regulations, for the purpose of approving transactions with a controlling owner or in which the controlling owner has a personal interest, which are not extraordinary and are not negligible, pursuant to the provisions of section 117(2a) of the Companies Law and for the purpose of approving negligible transactions with an interested party or in which an interested party has a personal interest (all of which as stated in section 126 of the company’s Articles).30 (The types of transactions specified in the aforementioned Financial Statement Regulations, Periodic Reports Regulations and Prospectus Details Regulations are hereafter referred to as “interested party transactions”).
 
These rules are used in connection with transactions between the Company and related parties and between related parties inter se. The aforementioned rules and guidelines were updated in March 2010 and May 2010.
 
 
252
 
 
 
Note 33 - Related and Interested Parties (cont.)
 
A.
Insignificant transactions that are not extraordinary (cont.)
 
 
2.
To the best of the Company’s knowledge, the Company and its subsidiaries conduct or conducted insignificant transactions that are not extraordinary with interested parties of the Company, such transactions between the Company and related parties of the Company, including among themselves (including joint transactions between companies in the Group), and they have commitments to conduct such transactions of the following types and characteristics:
 
(a) Transactions involving the receipt of banking and financial services from banks and financial institutions (including provident fund, pension fund and study fund management services); (b) insurance by insurers in the Clal Holdings Insurance Enterprises Group in all insurance branches (including employee loyalty insurance, insurance of assets, property and liabilities, executive insurance policies, professional liability insurance, etc.), and including insurance policies shared by the Company and/or IDB Holdings and/or additional companies of the Clal Holdings Insurance Enterprises Group and/or of the IDB Group. It is clarified that generally, when the exposure is not insignificant, most of the exposure is covered by reinsurance and/or is shared with independent third parties, and as a result, the payment of claims in respect of the aforementioned policies is mostly performed by those parties; (c) purchase and sale transactions of products, services and raw materials (such as communication products and services, call center services, computing and software services, food products, office supplies, paper and cardboard products, clothing, textile, transportation, hygiene products and supplemental cleaning and kitchen products, chemicals and plant protection products, including commissions in respect of such transactions and services); (d) sales and purchases of gifts and coupons (and/or the provision of subsidies for such transactions); (e) transactions for the purchase and/or rent and/or operating lease of motor vehicles; (f) transactions for the purchase and/or rental of commercial motor vehicles, trucks and generators; (g) transactions for the purchase of travel and tourism services in Israel and abroad and event production services; (h) transactions relating to the provision of legal services by a legal firm in which an interested party was a partner; (i) lease transactions for real estate assets and property management services; (j) computing and organizational consultation transactions; (k) management of provisions made in respect of employees; (l) garage services; (m) delivery and consignment services, packing and export services; (n) archive, warehouse management and logistics, transportation and lifting services; (o) administrative services; (p) garbage treatment, shredding, collection and recycling services; (q) irrigation and extermination services; (r) lease of advertisement areas; (s) supplying and/or distributing envelopes, newspapers, magazines and journals; (t) acquisition of subscribers to newspapers and magazines and for newspaper advertisements; (u) earthwork; (v) agency services with respect to insurance business performed by insurance agencies.
Some of the types of transactions mentioned above are relevant to previous years, relate to transactions with parties related to the former controlling shareholders of the Company and therefore are no longer relevant in 2014 and thereafter, as stated in the first footnote of this note. Since January 2014 (when control was taken from the former controlling owners of the Company), the vast majority of the transactions that are not extraordinary to which these rules are applied are transactions between the Company and parties related to the Company and inter se (including joint transactions between companies in the Group), and undertakings to carry out such transactions.


 
29
It should be noted that (a) as part of the approval of the creditors’ arrangement in IDB Holding Corporation Ltd. By the court on January 5, 2014 (in accordance with the outline of Mr. Eduardo Elsztain and a corporation controlled by him (Dolphin Fund Limited) together with E.T.H. M.R.M. Extra Holdings Ltd. (which is controlled by Mr. Mordechai Ben-Moshe)), the control of IDB Holdings (and indirectly also the Company) was taken from the previous owners, Nochi Dankner, Shelly Bergman, Ruth and Isaac Manor and Avraham Livnat (including parties related to any of the above) (“the previous controlling shareholders”). Consequently, starting from the aforesaid date, the Company no longer regards transactions in which the previous controlling shareholders have or had a personal interest as transactions in which a current controlling shareholder in the Company has a personal interest or as transactions with related parties; (b) Until July 5, 2012, the date of completion of the sale of most of the Company's holdings in Clal
 
Industries Ltd. (“Clal Industries”), Clal Industries was a (consolidated) subsidiary under the control of the Company. As from the aforesaid date and in respect of 2012 and 2013, and until March 6, 2013, Clal Industries, for the sake of caution and for the purpose of this note, is considered a related party of the Company. On March 6, 2013, IDB Development sold the rest of its holdings (approx. 10.6%) in Clal Industries. For the sake of caution, from March 6, 2013 until the end of 2013, transactions of the Company and/or of companies under its control with companies in the Clal Industries Group may have been considered transactions in which the controlling shareholder in the Company during the relevant periods (Mr. Avraham Livnat) might have a personal interest due to business ties of companies controlled by him with a company controlled by Clal Industries; and (c) as a result the appointment of a trustee for the Company’s holdings in Clal Holdings Insurance Enterprises, as described in note 3.H.5.b. above, the Company discontinued the consolidation of the financial statements of Clal Holdings Insurance Enterprises in the Company’s financial statements for the third quarter of 2013, and therefore, this note includes transactions of the Clal Holdings Insurance Enterprises Group with the Company and with its related parties in respect of 2013 and 2014.
 
30
In this regard, the Audit Committee determined in March 2014 that transactions as aforesaid in which the controlling shareholder has a personal interest, which are not extraordinary or negligible, shall be approved by the Audit Committee, and in March 2015, the Audit Committee determined that transactions with an interested party or in which an interested party has a personal interest (all of which as stated in article 126 of the company’s Articles), which are negligible transactions, do not require approval of the Audit Committee and will be approved pursuant to the provisions of the law and the Articles. A banking corporation (Union Bank of Israel Ltd.) is considered, for the purpose of this note, an interested party of the Company as well as a related party to the Company and other companies in the IDB Group until 2013 (due to the fact that it is a corporation under the control of Mrs. Ruth Manor, who was one of the former controlling shareholders of the Company); Clal Finance Batucha, Epsilon Investment House Ltd. (“Epsilon”) and Clal Insurance Enterprises are considered interested parties of companies of the IDB Group and related parties of the Company and companies of the IDB Group during the periods relevant to this note.
 

IDB Development Corporation Ltd.                           Convenience translation
 
253
 
 
Note 33 - Related and Interested Parties (cont.)
 
A.
Insignificant transactions that are not extraordinary (cont.)
 
 
2.
(cont.)
 
The Company and/or companies of IDB Group, as well as interested parties of the Company, received and/or receive, from time to time banking, financial and/or economic services (including handling and management of issuances and purchase/sale offers, issuance rating and underwriting services, credit agreements and credit facilities, purchasing of rights in funds, distribution and brokerage, portfolio management, investment consultation, economic and business consultation, hedge funds, management of deposits made in respect of employees, stock exchange member company services, index products, investment banking services, factoring, financing and mortgages, etc.) from the aforementioned banking corporation and/or from any of the aforementioned financial institutions, and from companies held by them.
Furthermore, from time to time, the Company, IDB Group companies and/or interested parties in the Company held and/or hold participation units in mutual funds managed by related parties and that were managed and/or that manage securities deposits and deposited and/or are depositing OTC deposits with Clal Finance Batucha and/or Epsilon and/or companies held by them.
 
 
3.
According to the covenants and guidelines, if no special qualitative considerations arise from the overall circumstances of the matter, an interested party transaction that is not an extraordinary transaction (i.e., it is executed in the ordinary course of business, at market terms and is not supposed to have a material effect on the profitability, assets or liabilities of the Company) will be considered insignificant if the relevant ratio calculated for the transaction is less than 0.5% and the amount of the transaction does not exceed NIS 8 million (with this amount being adjusted from time to time according to the rate of increase in the Consumer Price Index from the index known at the beginning of 2010). As of December 31, 2014, this amount stands at NIS 8.7 million (‘the amount of the negligibility ceiling”). In every interested party transaction that is being examined for insignificance, one or more of the ratios relevant to the specific transaction will be calculated on the basis of the most recent audited or reviewed consolidated financial statements of the Company: (a) for purchases of fixed assets (“non-current asset”) – the amount of the transaction compared to total assets in the statement of financial position that is included in the most recent consolidated financial statements of the Company; (b) for sales of fixed assets (“non-current asset”) – the gain/loss from the transaction compared to the average annual profit (meaning for four quarters) in the last 12 quarters for which audited or reviewed consolidated financial statements of the Company were published.
For this purpose, the gain/loss from the transaction and the profit/loss of each quarter are to be taken into consideration at their absolute value; (c) for financial liabilities – the volume of the transaction compared to total liabilities in the statement of financial position included in the most recent consolidated financial statements; (d) for purchases/sales of products (other than fixed assets) or services – the volume of the transaction compared to revenues from sales and services in the last four quarters for which audited or reviewed consolidated financial statements of the Company were issued. With respect to multi-year transactions, the scope of the transaction will be calculated for the purpose of evaluating the insignificance on an annual basis. For example, in a multi-year insurance transaction, the annual paid premiums will be calculated according to the scope of the transaction. In cases where the Company believes that all the aforementioned quantitative ratios are irrelevant to the insignificance examination of the interested party transaction, the transaction will be considered insignificant on the basis of some other relevant ratio to be determined by the Company, providing that the relevant ratio calculated for the transaction is less than 0.5%, and the amount of the transaction does not the amount of the negligibility ceiling. The qualitative examination of an interested party transaction may lead to classification of the transaction as a transaction that is not insignificant, notwithstanding the foregoing. Thus for example, an interested party transaction is usually not considered insignificant if it is perceived by management of the Company as being a significant event and is a basis for making management decisions, or if interested parties are expected to receive from the interested party transaction benefits that it is important they be reported to the public. Separate interested party transactions that are inter-dependent, so that they are in fact a part of the same engagement (such as concentrated negotiations regarding all the transactions) shall be examined as one transaction.

IDB Development Corporation Ltd.                           Convenience translation
 
254
 
 
Note 33 - Related and Interested Parties (cont.)
 
A.
Insignificant transactions that are not extraordinary (cont.)
 
 
3.
(cont.)
 
 
An interested party transaction that was classified as insignificant by an investee company of the Company will also be considered insignificant at the level of the Company.
Each year, the Company’s Audit Committee shall review the implementation of the instructions of these covenants and guidelines by the Company, and shall conduct a sample examination of transactions in which the Company is a direct party and which were classified as insignificant transactions according to the instructions of the procedure. As part of the sample assessment of such transactions, the Audit Committee shall review, among other things, the manner in which the prices and other terms of the transactions were determined, under the circumstances of the matter, and shall assess the impact of the transaction on the financial position and results of operations of the Company. The actions of the Audit Committee as set out in this paragraph, including the aforementioned sample assessment, the manner in which the assessment was made and a summary of the results and conclusions of such assessment shall be disclosed in the periodic report of the Company. Accordingly, the sample assessment was presented before the Company's Audit Committee in March 2015, together with the method by which it was performed and a summary of its results and conclusions, as follows: a list was presented of transactions that the Company executed itself (solo) with related companies in 2014, during the relevant periods, including the name of the related party, the nature of the engagement and the amount of the transaction in the aforesaid year. A sample of such transactions was also analyzed and compared with price proposals that were received from third parties at the time of examining the transactions in question. The Audit Committee of the Company will examine the need to update the aforementioned procedure from time to time, taking into account the interested party transactions that the company makes and changes in the relevant provisions of the law, and it will require the approval of the Audit Committee at least once a year.
 
 
4.
The classification of a transaction as insignificant was made on the basis of the aforementioned covenants and guidelines that were valid on the date of the transaction, as relevant.
In this note, for the purpose of identifying interested parties and identifying transactions with related parties or transactions in which interested parties have a personal interest, as a rule transactions with third parties were not taken into account because of the fact that securities of those third parties are held by financial institutions that are directly or indirectly controlling by the Company as part of holdings that are not nostro holdings (such as provident funds, trust funds), and therefore this note also does not include details of transactions and balances with third parties as aforesaid. Furthermore, this note does not provide disclosure of transactions with subsidiaries that are not reflected in these consolidated financial statements (other than extraordinary transactions that occurred in 2014 or are ongoing).

IDB Development Corporation Ltd.                           Convenience translation
 
255
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date
 
 
1.
Until 2014 (inclusive), the Company and IDB Holdings shared manpower that served in both companies (except for employees who were employed in IDB Holdings itself (the former Chairman of the Board and the former Executive VP’s of IDB Holdings), in accordance with an arrangement which was approved by the general meeting of the Company’s shareholders in January 2004, after approval by its Audit Committee and Board of Directors (“the manpower arrangement”), regarding the distribution of the payroll expenses paid to the shared manpower. In accordance with the manpower arrangement, the Company is the employer of the relevant employees, and IDB Holdings participated in their manpower expenses at the rate of 20% from the said expenses, up to an annual maximum amount which amounted, as of May 2014, to NIS 23.4 million. The manpower arrangement also stipulated that it did not apply to any payments paid by the Company to the Chairman of the Board of the Company and/or his deputies, and it provides, after an amendment to the manpower arrangement was approved in March 2011 by the Board of Directors of the Company, after having been approved by the Company's Audit Committee, that when Mr. Haim Gavrieli begins to serve as the Company’s CEO on April 1, 2011, the manpower arrangement would also apply to amounts paid by the Company to the Company’s CEO as from that date.
It should be noted that the Company did not charge IDB Holdings as part of the aforementioned arrangement with respect to the employment of the Company’s CFO, whose employment in the Company began in January 2014, and who does not serve as an officer in IDB Holdings.
 
For the period from January 1, 2014, until May 2014 (inclusive), the Company paid expenses for joint manpower in a sum of NIS 4.6 million; IDB Holdings contributed to these expenses in an amount of 20%, i.e., a sum of NIS 0.92 million. In addition, IDB Holdings paid the Company a sum of NIS 410 thousand, which constitutes 20% of the amounts of provisions for the termination of employment relations, vacation and holiday pay for the joint manpower, which were recorded in the Company’s books.
In the years 2013 and 2012, the Company paid expenses for the joint manpower in a sum of NIS 16.28 million and NIS 18.96 million, respectively, and IDB Holdings paid NIS 3.26 million and NIS 3.79 million of those amounts, respectively.
 
According to understandings reached between the Company and IDB Holdings, since June 2014 the aforesaid agreement and the arrangement stated in subsections (2) and (3) below no longer apply, and new consents apply between the Company and IDB Holdings, according to which IDB Holdings pays from that time fixed monthly amounts for management services that are provided by the Company to IDB Holdings. For the period from June 1, 2014, until December 31, 2014, IDB Holdings paid the Company a sum of NIS 850 thousand for the management services. On March 30, 2015, the Audit Committee and the Board of Directors of the Company approved the Company’s transaction with IDB Holdings (through the trustees of the arrangement) in the agreement (in this section b – “the Management Services Agreement”), according to which management services will be provided to IDB Holdings by the Company or someone acting on its behalf (“the service providers”), from January 1, 2015, until August 31, 2015 (or earlier, insofar as the sale of the shelf corporation of IDB Holdings will be completed before that date). as part of the Management Services Agreement, there are provisions, inter alia, with regard to granting a release from liability, pursuant to the law, to the service providers for any damage resulting from a breach of a duty of care in an act done in gone faith when providing the services, starting from January 2014. The Management Services Agreement is subject to the approval of the court. For providing the services pursuant to the Management Services Agreement, IDB Holdings shall pay the Company for the first quarter of 2015 a fixed monthly sum of NIS 80 thousand (plus VAT) and for the remainder of the months until the agreement ends, a fixed monthly sum of NIS 65 thousand (plus VAT).

IDB Development Corporation Ltd.                           Convenience translation
 
256
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
2.
Until May 2014 (inclusive), the Company and IDB Holdings had arrangements that were approved by the general meeting of the Company’s shareholders in January 2004, after having been approved by the Company's Audit Committee and Board of Directors, as follows:
 
 
a.
The Company paid the office expenses, property insurance, employers liability, third party responsibility and employees fidelity, refreshment and entertainment expenses and related expenses (“the additional expenses”), and IDB Holdings participated in these expenses at the rate of 20% (up to an annual maximum amount of NIS 310 thousand, linked to the CPI, with the addition of 20% per annum of this amount beginning from January 1, 2004; as of May 31, 2014, the aforesaid maximum amount was NIS 2.59 million). In 2014 (up to and including May 2014), the Company and IDB Holdings paid the additional expenses in a total amount of NIS 0.68 million, of which the Company’s share was NIS 0.55 million (in 2013 and 2012, the total amount of the additional expenses stood at NIS 1.72 million and NIS 1.99 million, respectively, of which the Company’s share was NIS 1.38 million and NIS 1.59 million, respectively).
 
 
b.
The Company paid IDB Holdings, for each year (up to and including May 2014), 80% of the annual depreciation of the furniture and equipment (“the furniture and equipment”) owned by IDB Holdings which serve both companies at the Azrieli Center in Tel Aviv (up to an annual maximum of NIS 640 thousand, linked to the CPI, that increases each year by 20%, as from January 1, 2004; as of May 31, 2014, the aforesaid maximum amount was NIS 5.3 million). For this purpose, it should be noted, that the annual amount of the depreciation on the furniture and equipment, based on figures in the books of IDB Holdings as of May 31, 2014, amounted to NIS 8.6 thousand (in 2013 and 2012, the amount stood at NIS 23.3 thousand and NIS 29.7 thousand, respectively). The Company and IDB Holdings split the amount so that the Company paid 80% and IDB Holdings paid 20%.
 
As stated in subsection 1 above, according to the understandings reached between the Company and IDB Holdings, starting from June 2014, the aforesaid arrangements no longer apply, and new consents apply between the Company and IDB Holdings according to which IDB Holdings pays from that date fixed monthly amounts for management services that are provided by the Company to IDB Holdings.
 
 
3.
a.
In August 2004 the Company entered into an agreement with Clal Industries (through a wholly-owned subsidiary)31, as well as with DIC and Property & Building, regarding the division of the use of the space leased by the Company at the Azrieli Center in Tel Aviv that includes offices, parking spaces and storage space, which is used by the said companies as well as the Company (“the leasehold”), and regarding the breakdown of the rental and related fees in respect of the leasehold as from May 1, 2004 (“the expense breakdown agreement”). The Company’s undertaking in the Expense Breakdown Agreement was approved by the general meeting of the Company’s shareholders in September 2004, after it was approved by its Audit Committee and Board of Directors. The Expense Breakdown Agreement provides, inter alia, that additional companies of the IDB Group may request to join the arrangements between the parties, following which, at the terms provided in it. In July 2005, K.B.A. Townbuilders Group Ltd. (a company which was controlled by Clal Industries and was held by Property & Building) joined the Expense Breakdown Agreement;32 as of September 2006, Koor joined the Expense Breakdown Agreement; and as of May 2010, Modiin – Energy Management (1992) Ltd., a company controlled (indirectly) by the Company, joined the agreement33 (the aforesaid companies together with the Company, Clal Industries, DIC and Property & Building are hereinafter called: “the participating companies”).

 
31
As at January 1, 2014, this agreement was assigned to Clal Industries Ltd., with the consent of the parties to the agreement.
 
32
It is noted that in August 2013, Property & Building sold its holdings in this company, and as from September 30, 2013, this company does not make use of the leasehold, and accordingly, does not participate in the distribution of expenses.
 
33
After the date of the Statement of Financial Position, the Company and Modiin – Energy Management (1992) Ltd. reached understandings with regard to a past debt of Modiin that was in dispute with regard to this agreement.
 

IDB Development Corporation Ltd.                           Convenience translation
 
257
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
3.
a.  
(cont'd)
 
 
Under the Expense Breakdown Agreement, the Company places parts of the leasehold at the disposal of the participating companies and each one of the participating companies bears the relative share of the rental and related expenses pertaining to the leasehold, on the basis of the ratio of the number of employees employed by that company in the leasehold’s premises, to the total number of employees employed by all of the participating companies in the office space, without taking into consideration the operating staff that serves all the participating companies in the leasehold’s premises and the payment for parking spaces and storage space included in the leasehold, which is based on the space actually used by each company.
The Expense Breakdown Agreement stipulated, inter alia, that for purposes of its directives, employees of IDB Holdings would be considered as if they were employees of the Company (other than two former joint CEOs of Clal Industries who were employees of IDB Holdings who were considered employees of Clal Industries for this purpose; as at the reporting date, there are no employees employed by IDB Holdings). It should be noted that IDB Holdings participated in the Company’s expenses up to and including May 2014, in accordance with the arrangement that existed between it and the Company as described in subsection b below.
The first lease period of the leasehold ended on March 31, 2011. In February 2011, after approval by the Company’s Audit Committee and Board of Directors, the Company’s general meeting of shareholders approved extending the lease period for an additional period of 60 months ending on March 31, 2016 at lower lease payments, and in accordance with the Expense Breakdown Agreement it was approved to extend it for the same period too. The other participating companies have also provided their approval, based on decisions of their competent organs and as relevant. Furthermore following the provisions of Amendment 16 of the Companies Law (“Amendment 16”), in November 2011 the Audit Committee of each of Clal Industries, Discount Investments and Property & Building decided that the period of the Expense Breakdown Agreement, as was extended as aforementioned, is reasonable in the circumstances of the matter.
In respect of each of the years 2014, 2013 and 2012, the Company’s share of the rent and ancillary payments as stated above amounted to NIS 3.1 million, NIS 4.1 million and NIS 4.5 million, respectively, and after the participation of IDB Holdings as described in section (b) below for the period up to May 2014 (inclusive), the Company paid a sum of NIS 2.8 million, NIS 3.3 million and NIS 3.6 million, respectively, out of the aforesaid payments.
 
 
b.  
In January 2004, after receiving the approval of the Company’s Audit Committee and Board of Directors, the general meeting of the Company’s shareholders approved arrangements between the Company and IDB Holdings regarding the breakdown of the rental and related payments in respect of certain areas the Company leases at the Azrieli Center in Tel Aviv (as described in section (a) above). In accordance with these arrangements, commencing on January 1, 2004, the Company paid 80% of the rental and related payments that were payable by it in accordance with the arrangements described in subsection a above, while IDB Holdings paid 20% of the said amounts, until May 2014 (inclusive). Since June 2014, new consents have come into effect between the Company and IDB Holdings (through the trustees of the arrangement), according to which IDB Holdings pays fixed monthly amounts (for further details, see subsection 1 above).

IDB Development Corporation Ltd.                           Convenience translation
 
258
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
4.
In December 2005, after receiving the approval of its Audit Committee and Board of Directors, the Company’s general meeting approved the registration of the Company and of a wholly owned subsidiary as a “single dealer” together with IDB Holdings in accordance with the Value Added Tax Law, 5736 - 1975. The registration as a single dealer is not supposed to change the overall tax liability of the consolidated dealers. Nevertheless, such a registration creates a partnership for VAT purposes that can create a joint obligation of the single dealer for all the debts accumulated in the consolidation period by each one of the dealers included in the dealers’ consolidation. The Company and IDB Holdings have undertaken towards each other (“the other company”) to indemnify the other company for any amount the other company is required to pay (if at all) by the tax authorities, which is due to a debt not relating to a transaction executed by the other company, and therefore the other company is not required to pay VAT on it at source. In June 2014, the registration of the Company and IDB Holdings as one dealer as aforesaid was separated, and each of the companies was registered as a separate dealer. As of the date of separating the registration as aforesaid and as of the date of publishing the report, there were no liabilities between the Company and IDB Holdings. However, in view of the state of IDB Holdings, it is possible that the Company will have an exposure in an immaterial amount for the aforesaid.
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors
 
 
a.
Officers’ liability insurance:
 
 
The liability of the officers of the Company, IDB Holdings and some of their investee companies, including officers who and/or whose relatives are controlling shareholders of the Company, was and is insured by several insurance policies as stated in this note below:
 
 
The July 2013 decisions – In July 2013, the general shareholders’ meeting of the Company approved (after approval was given by of the Company’s Remuneration Committee and Board of Directors) entering into transactions, from time to time, of the Company, IDB Holdings and most of the private corporations held by them (not through public companies) (“the IDB Holdings Division”) in insurance policy/policies, which will be shared by the companies of the IDB Holdings Division, or which will be separate for any of them, for a number of insurance periods which will not cumulatively exceed three years, beginning on August 1, 2013, which will include officers’ liability insurance, including officers and/or relatives of such officers who are controlling shareholders in the Company, in which the controlling shareholder of the Company have a personal interest in their service / employment, as these will be from time to time during those periods, whereby such engagements may also be made by way of extending, from time to time, existing policies, in whole or in part, including by changing the terms of the policies which will be extended, as aforesaid, and/or by ways of purchasing insurance cover for a period of up to two years after the end of the policy which ended with respect to claims which will be filed for the first time after the end of that policy, in respect of actions which were performed before the end of the policy period (meaning, the purchase of a “disclosure period” for a period of up to two years), in the event of non-renewal or cancellation of an existing policy - in accordance with the principal terms of the agreement specified in the decisions of July 2013, including, inter alia, a total maximum liability limit of up to $ 140 million, per claim and cumulatively for the insurance period, as well as a limit applicable to the annual premiums for any insurance year which will not exceed $ 1 million for the policy shared by the companies of the IDB Holdings Division, with the addition of 20% per year (whereby, out of the above amount, the share of each one among IDB Holdings and the Company (along with the rest of the shared companies) will not exceed half of the relevant amount per year), or a total of $ 800 thousand per policy in case of a separate policy for each IDB Holdings and the Company (with or without additional private headquarter companies) for a given insurance year, with an increase of 20% per year. Moreover, such insurance policies can be issued by insurers controlled by Clal Insurance Enterprise Holdings, including its subsidiary Clal Insurance Company Ltd.

IDB Development Corporation Ltd.                           Convenience translation
 
259
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
a.
Officers’ liability insurance: (cont.)
 
 
(“Clal Insurance”), and in such a case (as long as Clal Holdings Insurance Enterprises is controlled by the Company), the insurer will not be involved in determining the insurance premium for those policies by the reinsurers, and the amount of the handling fees that will be paid to the insurer shall not deviate from what is accepted in the insurance market for transactions of such a type and scope as of the date of the transaction, and shall not exceed 10% of the premiums paid for the aforesaid policies.
“A run-off type policy” – in November 2013, the general meeting of the Company (after approval of its Remuneration Committee and Board of Directors) approved the purchase of insurance cover whereby, starting from the end of the insurance period of the officers’ liability insurance policies that existed at that time, i.e., from December 1, 2013 (“the effective date”), policies that were valid until that date will be expanded so that they will provide insurance cover for an additional period of six years (“the extended discovery period”) with regard to claims that will be filed for the first time during the aforesaid period only for acts that were done before the effective date – i.e., converting the policies into run-off type policies for a period of six years from the effective date. The total insurance premium paid by the companies of the IDB Holdings division on a one-time basis for the purchase of the aforesaid insurance cover amounted to a cost of approximately $2.17 million, which includes the fronting fees of the insurer (which is an insurer controlled by Clal Holdings Insurance Enterprises) in an amount of 10%, where the Company paid half of the cost. The liability limits of the existing policies, in a total amount of $140 million, will remain unchanged and will continue to apply also with regard to the extended discovery period.
As the Company has been told, meetings of the bondholders of IDB Holdings that were convened by the trustees for its bondholders in order to adopt a resolution on this matter resolved to agree to the purchase of the aforesaid insurance cover.
 
It should be noted that the aforementioned decisions regarding the Company’s engagements in officer’s liability insurance policies were also approved on the dates specified above by the general shareholders’ meeting of IDB Holdings (after approval by its Remuneration Committee and Board of Directors).
 
The 2013-2014 policy – According to the decisions of July 2013, companies of the IDB Holdings Division purchased an officers’ liability insurance policy with respect to the period of one year beginning on December 1, 2013, the terms of which are in accordance with the principal terms of the engagement as determined in the resolutions from July 2013, with liability limits of $ 50 million per incident and cumulatively, at a total cost of $990 thousand (the Company paid half of the cost).
 
As part of the aforesaid policy, it is stipulated inter alia that the provision regarding “transaction” events (as mentioned below) will not apply with respect to any event which was under the auspices of the Court’s decision. Following the taking out of a kind of “run off” type policy, the coverage under the policy was limited solely to claims that will be filed during the insurance period for acts done after December 1, 2013.
 
In this regard, a ‘transaction’ event is one of the following events: (1) a consolidation or merger into another entity or a sale of the main assets to another; (2) a purchase by any person or entity (whether separately or together with others) of more than 50% of the voting rights or the right to appoint directors; (3) becoming a subsidiary of another entity or a change of control; or (4) insolvency, receivership, bankruptcy or liquidation.


IDB Development Corporation Ltd.                           Convenience translation
 
260
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
a.
Officers’ liability insurance: (cont.)
 
 
Changes in the 2013-2014 policy – On the date of completing the creditors’ arrangement in IDB Holdings and listing the shares of the Company on the Stock Exchange, the Company ceased to be a subsidiary of IDB Holdings, and in the absence of a change of the aforesaid policy, the policy was not to cover the officers of the Company for acts during the remainder of the insurance policy.
 
In view of the aforesaid, the Company and IDB Holdings entered into an agreement on May 7, 2014, with regard to changes in the policy that relate to settling the continued insurance cover of officers in the Company, according to which the cover will continue to apply as it was at the time that the Company was a subsidiary of IDB Holdings during the balance of the insurance period of the policy, provided that liability for the listing of the Company’s shares on the Stick Exchange will be excluded and liability for the expected publication of the shelf prospectus by the Company and the issues of securities pursuant thereto will be excluded (‘the agreement’).
This agreement was signed following the Remuneration Committee, the Audit Committee and the Board of Directors of the company gave its approval on May 5, 2014, and the general meeting of the Company gave its approval on May 7, 2014, for the Company to enter into the agreement.
 
The main points of the agreement are as follows: (a) the IDB Development Group (the Company and specific subsidiaries stated above, jointly: ‘the IDB Development Group’) will continue to be insured in accordance with the policy even after the Company has stopped being a subsidiary of IDB Holdings; (b) IDB Holdings undertook that throughout the whole insurance period, it would not cancel the policy and/or cause it to be cancelled or change its terms in any way that will derogate from the insurance cover provided by the policy to the IDB Development Group and/or to the officers in the Company. IDB Holdings and the Company undertook, inter alia, that throughout the whole of the insurance period they would not act in a manner that will derogate from the insurance cover that is provided by the policy or in any manner that will prejudice their rights and the rights of the policyholders pursuant to the policy, and that they will assist one another with regard to the realization of their rights as part of the policy, insofar as their involvement is required pursuant to the terms of the policy, and they confirmed that subject to the law and without derogating from any right of the insured pursuant to the policy, they will coordinate between them a request to an insurance company with regard to the policy in the case of a claim that includes claims both against the officers and/or the directors in IDB Holdings and against the officers in the Company; (c) the policy will be changed in such a way that the liability of the insurer with regard to the listing of the Company’s shares on the Stock Exchange or with regard to the expected publication of the shelf prospectus and the issue of securities will pursuant thereto will be excluded by the Company; (d) the Company and IDB Holdings will act to reach an agreement between them, with regard to the insurance cost according to the policy from the date of completing the arrangement, taking into account the significance of the creditors’ arrangement and in it the scope of the assets of the group under the Company as compared with the scope of the activity and the assets of IDB Holdings after the completion of the creditors’ arrangement. Pursuant to the agreement between the Company and IDB Holdings, whereby IDB Holdings paid 1/3 of the premium expenses, while the company paid 2/3 of the premium expenses (as opposed to an equal division between them), for the period starting on the day of completing the first stage of the debt arrangement, namely May 7, 2014, until the end of the insurance period. The consent of the insurers to the changes required in the policy (see sections (a) and (c) in the paragraph above) was received.

IDB Development Corporation Ltd.                           Convenience translation
 
261
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
a.
Officers’ liability insurance: (cont.)
 
 
Changes in the 2013-2014 policy (cont.)
The total insurance premiums paid in 2014 by the Company and IDB Holdings in respect of all the aforesaid insurance policies amounted to NIS 5,805 thousand, broken down as follows: the Company – NIS 4,511 thousand, IDB Holdings – NIS 1,294 thousand (the officers’ liability insurance premiums paid in 2013 and 2012 were in accordance with the following distribution: the Company - 80%, and IDB Holdings - 20%, and the amount paid was NIS 9,899 thousand and NIS 1,211 thousand, respectively, of which the Company's share was NIS 5,099 thousand and NIS 825 thousand, respectively).
The handling fees paid to Clal Insurance for the issuance of the policies for 2014, 2013 and 2012 did not exceed 10% of the insurance premiums paid for the aforesaid policies.
 
 
Remuneration policy – insurance – On November 13, 2014, the general meeting of the Company’s shareholders approved the Company’s remuneration policy, after it was approved by the Board of Directors of the Company. According to the remuneration policy, the officers of the Company (including directors) may be entitled, subject to the approval of the competent organs for this purpose in the Company, to officer’s liability insurance, subject to the provisions of every law. The remuneration policy states that the maximum cover for a current insurance policy shall not exceed $150 million and the maximum cover for an insurance policy of the POSI (“Public Offering of Securities Insurance”) type should not exceed $120 million (for details regarding POSI type insurance that was bought by the company in May 2014, see this section below).
It was further determined that in any case and irrespective of the maximum cover, the premiums paid for a current insurance policy would not exceed $1.5 million per annum, and the premiums paid for the POSI policy shall not exceed $1.5 million per annum, that the deductible in all of the policies will be in accordance with what is accepted in the market.
 
2014-2015 policy – On November 26, 2014, the Company’s Remuneration Committee entered into a directors’ and officers’ liability insurance policy for the Company and for certain private corporations that are held, directly and/or indirectly, by the Company other than through public companies, as part of while the liability of all of the officers in the Company (including the CEO of the Company and the directors and officers that are controlling shareholders in the Company and their relatives or ones where the controlling shareholders of the Company have a personal interest in their terms of office and employment), from time to time, will be insured, pursuant to the provisions of regulation 1.b.1 of the Companies (Concessions in Interest Party Transactions) Regulations, 5760-2000, for a period of a year, starting on December 1, 2014, and its terms are in accordance with the terms determined in the remuneration policy. The liability limits of the policy are a sum of NIS 75 million dollars per claim and cumulatively, and its total cost is approximately $986 thousand (including fronting fees of Clal Insurance at a rate of 10%). The Remuneration Committee determined that policy is in accordance with market terms and will not materially affect the Company’s profits, assets or liabilities. It should be noted in January 2015, the Company received the insurer’s approval that a transfer of control in the Company from the current controlling shareholders of the company to the control of one of them shall not constitute a transaction event pursuant to the definitions of the policy as stated above.
The cover pursuant to the 2013-2014 policy, the 2014-2015 policy and the  "run-off type policy” was taken out through Clal Insurance, with the support of reinsurers in an amount of 100%.

IDB Development Corporation Ltd.                           Convenience translation
 
262
 


Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
a.
Officers’ liability insurance: (cont.)
POSI type policies – on May 5, 2014, the Remuneration Committee, the Audit Committee and the Board of Directors of the Company gave their approval, and on May 7, 2014, the general meeting of the Company gave its approval, for the purchase of a policy to insure the company with Public Offering of Securities Insurance (POSI) (‘the POSI policy’), from Migdal Insurance Company Ltd., which insures the Company, its directors and officers: (1) with regard to the listing of the Company’s shares as part of the creditors’ arrangement in IDB Holdings; (2) with regard to the publication of a shelf prospectus; (3) and with regard to the issue of future securities by virtue of the shelf prospectus. The policy covers the company, its directors and officers for an insurance period of seven years starting from May 7, 2014, their liability for the listing of the Company’s shares on the Stock Exchange as part of the arrangement, in relation to the publication of the shelf prospectus and in relation to the issues of securities pursuant to the shelf prospectus as aforesaid, with a liability limit of $50 million per claim and cumulatively according to the policy. The POSI policy covers issues pursuant to the shelf prospectus in a total amount of up to NIS 1 billion. For the aforesaid policy the Company paid a one-time sum of $660 thousand.
On January 26, 2015, the Company’s Remuneration Committee (pursuant to the provisions of regulation 1.b.1), and the Board of Directors of the Company approved the purchase of additional insurance cover as part of the POSI policy, so that it will also apply to the rights issue pursuant to the shelf offer report that the Company’s published on January 19, 2015, without changing the existing liability limits (namely, $50 million per claim and cumulatively) and the other terms of the policy. For the aforesaid extension, the Company paid an additional one-time premium in a sum of $227.5 thousand.
 
b.  Indemnification of officers:
The Company adopted resolutions according to which it will indemnify its officers (including former officers) and anyone holding office on its behalf in investees as director, for any amount that they will be liable to pay as part of any legal proceeding that will be filed against them with regard to their acts or omissions as part of carrying out their duties as aforesaid, subject to certain conditions, in any case and insofar as such an indemnification will be for a financial liability and of the type that may be indemnified according to the law from time to time. The Company issued letters of indemnification as aforesaid to several former officers of the company (“the initial letters of indemnification”). During 2000 and thereafter, the Company issued to its officers additional letters of indemnification, pursuant to the Companies Law, according to its wording at that time (without derogating from the initial letters of indemnification), according to which the Company undertook to indemnify them for any liability or expenses that may be indemnified according to law, which will be imposed on them as a result of acts that they did in their capacity as officers of the Company and that relate to one or more of the types of event determined by the Board of Directors and stated in the letters of indemnification.
According to the aforesaid letters of indemnification, the maximum amount of the indemnification that the Company will pay (in addition to the amounts that will be received from an insurance company, if any, as part of insurance that was bought by the Company) for all of the officers in the Company cumulatively, pursuant to the letters of indemnification that will be issued to them by the Company pursuant to the indemnification resolution by virtue of which the aforesaid letters of indemnification were issued, for one or more to the types of event stated in the Addendum to the letters of indemnification, shall not exceed 25% of the equity of the Company on December 31, 1999.


IDB Development Corporation Ltd.                           Convenience translation
 
263
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
b.  Indemnification of officers: (cont.)
 
Following the enactment of the Companies Law (Amendment no. 3), 5765-2005 (“Amendment no. 3”), in May 2005 the general meeting of the shareholders of the Company, after the approval of its Audit Committee and Board of Directors, approved the giving of a prospective undertaking to indemnify officers in the Company, including officers from among the controlling shareholders, according to which the Company undertook, insofar as it is permitted to do so pursuant to law, to indemnify them for any liability or expense as stated in the letter of indemnification, that will be imposed on them or that they will incur as a result of acts that they did in their capacity as officers of the Company and/or in their capacity, at the Company’s request, as officers of any other company, which relate to the events stated in the Addendum to the letter of indemnification (“the 2005 letters of indemnification”). According to the 205 letters of indemnification, the maximum amount of the indemnification that the Company will pay for a financial liability that will be imposed on an officer in favor of another person, as stated above, together with the amounts of the indemnification on this ground pursuant to the other letters of indemnification that were or will be given for this purpose to officers in the Company and to employees of the Company that hold or will hold office at the Company’s request as officers of other companies (in addition to the amounts that will be received from an insurance company, if any, as part of insurance that the Company bought), cumulatively, for one or more of the events stated in the Addendum to the letters of indemnification, shall not exceed a cumulative amount that is equal to an amount of 25% of the Company’s equity according to its annual financial statements known before the actual payment of the indemnification.
Accordingly, since 2005, the Company has issued to its officers, including officers that were controlling shareholders of the Company or their relatives, 2005 letters of indemnification as aforesaid. It was also determined that the 2005 letters of indemnification would apply to event that occurred after the date of their approval as aforesaid, and to avoid doubt, it is clarified that the 2005 letters of indemnification do not derogate from letters of indemnification that were lawfully issued previously.
In December 2011, the general meeting of the Company approved an amendment to the Articles of Incorporation of the Company, according to which, inter alia, the Company is entitled to insure the liability of its officers and also to indemnify them, inter alia, pursuant to the provisions of the Streamlining of Enforcement Proceedings in the Israel Securities Authority (Legislative Amendments) Law, 5771-2011, and the Strengthening of Enforcement in the Capital Market (Legislative Amendments) Law, 5771-2011 (jointly, “the Administrative Enforcement Laws”). Moreover, the Company’s general meeting and its Audit Committee and Board of Directors approved the granting of new indemnification letters by the Company to its officers (“the new indemnification letters”), as this term is defined in the wording of the new indemnification letter, who currently hold office and/or will hold office in the Company from time to time, including officers who are directors, and officers who are controlling shareholders in the Company (as these were on the date of the general meeting that took place in December 2011) or their relatives or persons with regard to whom the controlling shareholders in the Company may be considered as having a personal interest in a grant of indemnification letters to them, in respect of their actions taken in their capacity as officers of the Company and their actions taken within their service, at the Company's request, as officers of any other company, in which the Company holds shares (directly or indirectly) or in which the Company has any other interest, in accordance with the provisions of the Companies Law, the Securities Law, the administrative enforcement laws, and the indemnification provisions included in the aforesaid indemnification letter.
 



IDB Development Corporation Ltd.                           Convenience translation
 
264
 


Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
b.  Indemnification of officers: (cont.)
 
In accordance with the new indemnification letters, the indemnification amounts for a monetary indebtedness that is imposed on an officer in favor of another person in a court ruling (including in a court ruling that was handed down in a court-approved compromise or arbitration award, providing that the said indebtedness is related, directly or indirectly, to one or more of the events specified in the new indemnification letter) together with the indemnification amounts for the said indebtedness that are paid to officers in the Company in accordance with indemnification letters drafted as a new indemnification letter, including officers serving presently or in the future as officers in other companies at the request of the Company, will in aggregate not exceed an amount equal to 25% of the equity attributable to the Company’s shareholders according to its most recent financial statements (annual or quarterly) that were issued before the actual date of paying the indemnity, plus the amounts of the insurance benefits the Company may receive from time to time, in the framework of an officers’ liability insurance policy, in respect of one or more of the events specified in an annex to the new indemnification letter. This in addition to the indemnification for reasonable litigation expenses, including attorney's retainer that will be spent or incurred by an officer for proceedings that will be filed against him, as described in the new indemnification letter.
 
The new indemnification letter also provides that its provisions supersede any previous commitment or understanding (from before the signing of the new indemnification letters), provided verbally or in writing, between the Company and its officers with respect to the matters indicated in the new indemnification letter, also with respect to events that occurred before the signing of the new indemnification letter. The aforesaid is subject to the stipulation that the previous indemnification letter provided to the officer, if provided, continue to be in effect, subject to any law, with respect to any event that occurred before the signing of the new indemnification letter (even if the indemnification in respect of which was requested from the Company after the signing of the new indemnification letter) if the terms of new indemnification letter impair the terms of indemnification of the said officer with respect to such an event.
It should be noted that in November 2011 the competent organs of IDB Holdings approved the grant of new indemnification letters as aforesaid by the Company (further to approvals of the competent organs of the Company) to officers of the Company, those presently serving and those who will serve in it from time to time, who are controlling shareholders in the Company (as these were on the date of the general meeting that took place in November 2011) or their relatives or persons where the controlling shareholders may be regarded as having a personal interest in approving the grant of indemnification letters to them or who are directors in IDB Holdings. Since the date of the meeting, the Company has issued to its officers, including officers that were controlling shareholders of the Company or their relatives, new letters of indemnification. as part of the remuneration policy that was approved as stated in section B.5.a above in this note, it was determined that the officers in the company (including directors) may be entitled, subject to the approval of the competent organs of the Company for this purpose, to a letter of indemnification, subject to the provisions of any law, and that the amount of the indemnification shall not exceed 25% of the Company’s equity (provided that this amount shall not be less than NIS 100 million in total).

IDB Development Corporation Ltd.                           Convenience translation
 
265
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
b. Indemnification of officers: (cont.)
 
 
As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the company published an immediate report for convening a special general meeting of the company, at which the agenda will include approval of the granting of letters of indemnification from the company for the officers that hold office in the Company and/or that will hold office in the Company from time to time, and who and/or whose relatives are controlling shareholders in the Company on the date of the report, and also for officers in the Company whose controlling owners in the Company may be regarded as having a personal interest in the approval of granting letters of indemnification to them, who hold office and/or will hold officer in the Company from time to time, for their operations by virtue of their office in the Company and for their operations by virtue of their office, at the request of the company, as officers in another company, in which the Company holds shares (directly or indirectly) or in which the Company has any interest, with the wording and on terms that are identical to the wording of the letter of indemnification used by the Company, which came into effect on May 7, 2014 (the date of completion of the first stage of the debt arrangement in IDB Holdings).
 
 
c.
Release of officers:
 
The Company issued prospective letters of release to the directors and other officers of the Company, including those that were controlling shareholders or their relatives, from any liability towards the Company, subject to the law, in respect of any damage that was and/or will be caused to the Company following a breach of the duty of care towards it, while acting in good faith in their capacity as officers of the Company, and/or according to its request in any other company, with respect to the events stipulated in the addendum to the release letter. The release letters apply to events that occurred after the date of their approval. The issuance of the release letters, as described above, was approved by the Company’s general shareholders’ meeting on May 5, 2005, after prior approval by its Audit Committee and Board of Directors. In November 2011, after approval by its Audit Committee and Board of Directors, and in light of the provisions of Amendment 16, the general meeting of IDB Holdings reapproved the Company giving an advance release from liability to its officers, those presently serving and those who will serve in it from time to time, who and/or whose relatives are controlling shareholders in the Company (as they were on the date of the general meeting of IDB Holdings that took place as aforesaid in November 2011), subject to the provisions of the law.
Furthermore, in November 2011 the Audit Committee of IDB Holdings decided to limit until November 30, 2020 (meaning for an additional period of nine years from the date of the decision) the period that events occurring during it will be included in the scope of the release from liability letters that were granted and will be granted by the Company from time to time, according to the existing decisions on this matter with respect to officers in the Company who controlling shareholders in the Company may be considered as having a personal interest in providing them a release from liability. as part of the remuneration policy that was approved as stated in section B.5.a above in this note, it was determined that officers in the Company (including directors) may be entitled, subject to approval of the competent organs for this purpose in the Company, to a letter of release, subject to the provisions of any law. As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the Company published an immediate report to convene a special general meeting of the Company at which the agenda will contain approval for granting an exemption from liability by the Company to officers from among the controlling owners (i.e., who and/or whose relatives are controlling owners of the company), who hold office in the Company and/or who will hold office in the Company from time to time, according to the wording of the letter of release used by the Company.

IDB Development Corporation Ltd.                           Convenience translation
 
266
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
d.
Interested parties in the Company (including controlling shareholders in it during the relevant periods) and/or their relatives, who serve and/or who served as directors or other officers in subsidiaries and/or related companies of the Company, receive from certain companies, as aforesaid, indemnification and/or release letters, and their liability is insured as accepted in those companies. Without derogating from the generality of the foregoing, it is noted that as part of the completion of the merger transaction of Koor with Discount Investments, as stated in note 3.H.4.b. above, in March 2014, Discount Investments provided the directors and officers of Koor (including those among them who are or were interested parties and/or controlling shareholders in the Company) indemnification letters with respect to their actions by virtue of their service in Koor and with respect to their actions by virtue of their service at the request of Koor as officers in the investee companies of Koor, or in whom Koor has an interest. The maximum indemnification amount pursuant to the aforesaid indemnification letters is identical to the amount of the indemnification in the letters of indemnification given by Discount Investments to its directors and officers.
 
 
e.
Directors’ remuneration:
 
 
1.
In October 2010, after approval by the Company’s Audit Committee and Board of Directors, the general shareholders’ meeting of the Company resolved to approve the payment of directors’ remuneration for the years 2011 through 2015 (inclusive), including directors who are controlling shareholders of the Company and/or their relatives (“directors who are controlling shareholders”) at the time of the resolution. According to the aforesaid resolution, the directors’ remuneration payable to each director in respect of any given time in the aforementioned period will be at the maximum amounts allowed and according to the director’s aforesaid classification as an expert or non-expert director, and according to the classification of the Company, all as applicable at that time according to the Companies (Rules Concerning Remuneration and Expenses for an Outside Director) Regulations, 5760-2000 (“the Remuneration Regulations”). The directors’ remuneration will not be paid to directors of the Company who receive from the Company or from a company under its control or from IDB Holdings, a salary for responsibilities other than that of a director, for as long as the director is entitled to such a salary. In view of the provisions of Amendment no. 16, the validity of the aforesaid resolution regarding the payment of remuneration to directors from among the controlling shareholders or to directors where the controlling shareholders have a personal interest in the payment of remuneration to them, expired at the end of three years from July 2010, i.e., in July 2013, and from the aforesaid date, the Company has not paid directors’ remuneration to directors from among the controlling shareholders.
 
 
As of the date of the report, the Company published an immediate report regarding the convening of a special general meeting of the Company (‘the meeting report’), at which the agenda contains the approval of payment of remuneration to the directors that hold office in the Company and/or that will hold office in the Company from time to time, and who and/or whose relatives are controlling shareholders of the Company, and to directors of the Company where controlling shareholders of the Company may be regarded as having a personal interest in the approval of the payment of remuneration to them, who hold office and/or who will hold office in the Company from time to time. According to the meeting report, the payment of remuneration to the directors as aforesaid shall be in the maximum possible fixed amounts and in accordance with the classification of each director as aforesaid as an expert director or as a non-expert director and in accordance with the classification of the Company, all of which at that time pursuant to the Remuneration Regulations.
 
Directors’ remuneration and related expenses not exceeding accepted amounts, which were paid by the Company to its directors in 2014, 2013 and 2012 (a total of 8 to 12 recipients), amounted to a total of NIS 1,287 thousand, NIS 1,270 thousand and NIS 1,241 thousand, respectively.
 
 
 
267
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
5.
Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)
 
 
e.
Directors’ remuneration: (cont.)
 
 
2.
IDB Holdings received directors’ remuneration from investee companies of the Company in respect of the service of officer/s in IDB Holdings (who were also officer/s in the Company), including officer/s who were controlling shareholder/s and/or a relative of a controlling shareholder, as directors in those investee companies. In 2014 (for their holding of office in the fourth quarter of 2013 only), 2013 and 2012, the aforesaid amounted to NIS 0.11 million, NIS 0.64 million and NIS 1.2 million, respectively.
 
 
3.
Investee companies of the Company received directors' remuneration from other investee companies for the service of interested parties of the Company, including individuals who were controlling shareholders and/or their relatives, as directors in those paying companies.
 
 
6.
As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the Company published an immediate report regarding the convening of a special general meeting of the Company at which the agenda included approval of the payment of expenses and/or a reimbursement of expenses, whether prospectively or retrospectively, to the joint chairmen of the Board of Directors of the Company, for personal expenses that they actually incurred and/or will incur as part of their position in the Company, and including such expenses that they will lay out for anyone acting on their behalf (such as advisors, personal assistants, administrative staff), all of which in return for the production of written receipts, from May 7, 2014 (i.e., the date on which Messrs. Eduardo Elsztain and Mordechai Ben-Moshe began to be controlling owners in the Company) and for three additional years from the date of the approval of the general meeting and subject to its approval, as stated below: reimbursement of expenses in Israel – the payment / reimbursement will be for expenses that were and/or will actually be incurred, as part of carrying out their duties in the company and will include expenses that are required for the Company in order to manage its current business operations; expenses for participating in meetings of the Board of Directors and committees of the Board of Directors of the Company; expenses for promoting the Company’s business and expanding its operations, including expenses involved in business meetings with service providers, etc., including, inter alia, the following expenses (for each of the joint chairmen): meal expenses, including hospitality expenses, suppliers, etc., in an amount that shall not exceed NIS 3,000 per month; travel and parking expenses in a total amount that shall not exceed NIS 1,500 per month (not including car maintenance); communication expenses in a total amount that shall not exceed NIS 500 per month. In addition, the Company will pay expenses for office space that was and/or is being made available to the limited staff of each of the joint chairmen of the Board of Directors at the Company’s existing offices, at a total estimated cost of up to approximately NIS 8,000 per month. The aforesaid total estimated cost is the additional cost that the Company will pay in view of the agreement between the Company and additional parties (including also companies held by the Company) with regard to the division of the use of the areas that the Company rents from a third party in the Azrieli Center in Tel-Aviv (for details regarding this agreement, see section B.3.a above in this note). In the period that passed from May 7, 2014, to December 31, 2014, the cumulative reimbursement of expenses for the two joint chairmen together amounts to approximately NIS 93 thousand. If the matter is not approved by the general meeting of the Company, the joint chairmen shall pay the aforesaid expenses and return to the Company the amounts it paid for them.
 
It is clarified that nothing stated above shall prevent the Company from paying directly any costs and expenses of the Company that derive from foreign business trips of the joint chairman on behalf of the Company, and the Company shall pay the costs of foreign business trips on behalf of the Company (or private companies that it controls) made by the chairmen, including expenses in reasonable amounts for flight tickets, car rental/taxis abroad, hotel accommodation and subsistence expenses, provided that the purpose of the trip is business on behalf of the Company as aforesaid.
IDB Development Corporation Ltd.                           Convenience translation
 
268
 

 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
6.
(Cont'd)
 
 
The chairmen shall pay themselves any additional cost of a foreign trip that derives for an extension of the duration of the stay abroad for their own private purposes and/or as a result of the use of that trip also for private purposes. The aforesaid provisions for the reimbursement of expenses shall apply whether additional terms of office and employment have and/or will be approved for the chairmen by the Company or not. The Company’s internal auditor and Remuneration Committee will make a check each quarter and monitor the reimbursement of expenses, with regard to the reasonableness of the components and amount of the quarterly expenses, as well as the manner of making the reimbursement pursuant to the Company’s instructions and procedures.
 
 
7.
Other transactions
 
 
a.
On July 31, 2006 the Company’s Board of Directors resolved that the Company’s annual budget for charitable donations would be determined each year by the Company's Board of Directors and would be up to 1.5% of net income according to its annual audited consolidated financial statements for the prior year. Furthermore, on the same date, after receiving the approval of the Company’s Audit Committee, the Company's Board of Directors resolved, with respect to donations given by the Company to not-for-profit associations that are certified as public institutions under Section 46 of the Income Tax Ordinance, to approve the granting of donations by the Company to IDB Community Fund (RA) (“the Fund”), which has the necessary certificate. Donations by the Company to the Fund in each calendar year will be up to 100% of the overall donations budget for that year but not more than 1.5% of the annual net income of the Company according to its audited consolidated financial statements for the prior year (“Fund Donations Account”). Full or partial use of the Fund Donations Account will be made pursuant to resolutions passed from time to time by the Board of Directors of the Company.
Mr. Nochi Dankner, who was a controlling shareholder in the Company during the relevant period, could have been considered as having a personal interest in the aforesaid resolution, due to his service as Chairman of the Fund and Chairman of the Fund’s Board and due to the service of his wife, Mrs. Orly Dankner, as a member of the Fund’s Board.
 
The decision regarding approval of a fixed annual Fund Donations Framework for the Company was approved by the Company’s general meeting of shareholders in September 2006, after it was approved by its Audit Committee and Board of Directors. It is noted that also subsidiaries of the Company have approved a donations framework for the Fund, as aforesaid, and from time to time, have provided donations to the Fund accordingly.
 
In accordance with the provisions of Amendment 16, in November 2011 the Audit Committee of IDB Holdings decided to limit the period of the aforesaid decision of the Company’s general meeting of shareholders to a period beginning on the date of the said general meeting and ending on November 30, 2017, meaning an additional approx. six years from the date of the aforementioned decision. Similar decisions were made also by subsidiaries of the Company that had also approved a donation framework for the aforementioned Fund, and are public companies.
 
In 2014, 2013 and 2012, the Company did not pass any resolutions regarding the contribution to the aforementioned Fund. In 2012, the Company gave a sum of NIS 1 million as a donation to the Fund and in 2013 and 2014 no donations were given by the Company to the Fund. It should be noted that, as of the reporting date, Mr. Haim Gavrieli, the CEO of the Company, holds office as chairman of the board of the Fund and a board member in the Fund.

IDB Development Corporation Ltd.                           Convenience translation
 
269
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
7.
Other transactions (cont.)
 
 
b.
In June 2013, the District Court in Jerusalem approved a settlement in connection with the claim and the motion to approve it as a class action against Discount Investments and against the directors and the CEO of Koor, that was filed in March 2009 concerning claims of non-compliance with the provisions of the Companies Law and Securities laws and whose total amount of monetary remedies that were claimed amounted to NIS 272 million.
 
Pursuant to the settlement that was approved, Discount Investments will make four annual payments in the amount of NIS 4.5 million each, beginning in August 2013 as remuneration to the Group that will be composed of Koor shareholders (with the exception of the Company) that did not use the rights they received from Koor to purchase shares as part of a rights issue which was performed by Koor in November 2008. If some of the aforementioned some of remuneration remains and is unclaimed, it will be donated to a public cause. In addition, Discount Investments paid a sum of NIS 3.6 million, some of which as compensation to the Plaintiff in the legal proceedings and the majority as retainer to the attorney. The legal proceedings against the directors and general manager of Koor were denied. In August 2013, Discount Investments received from the officers’ liability policy insurers about half of the sums to be borne by Discount Investments, as specified above. The said settlement was approved in April 2013 by the general assembly of shareholders of Discount Investments, including the Company and IDB Holdings, and some of their officers (including controlling shareholders during the relevant period) may be considered as having a personal interest in Discount Investments’ entering into the said settlement.
 
 
c.
Further to the notice of the trustees of the debt arrangement of IDB Holdings, in which the creditors of IDB Holdings were invited to submit debt claims to the Arrangement Trustees by March 6, 2014, which would set out the debt of IDB Holdings to them, on March 5, 2014, the Board of Directors of the Company decided, after the approval of the Audit Committee, to approve the filing of a debt claim against IDB Holdings, in a sum of NIS 442 million, with regard to distributions of dividends that were made by the Company in the years 2010 and 2011, and motions and derivative claims with regard to the distributions of dividends, which are described in notes 23.C.1.d and 23.C.1.e above (in this subsection – “the derivative claims”).
 
 
d.
For information about an agreement signed on March 10, 2014, for the advancing of a bridging loan to the Company in a sum of NIS 170 million between the Company and Dolphin Fund Limited and E.T.H. M.B.M Extra Holdings Ltd. (companies controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively), jointly and severally; Adv. Hagai Olman and Mr. Eyal Gabbay (trustees of the debt arrangement); and IDB Holdings (through the trustees of the debt arrangement), out of the funds secured for creditors arrangement in IDB Holdings, and with regard to the advancing of the aforesaid bridging loan, see note 16.C.3 above. The Company's entering into the aforesaid bridging loan agreement was approved by the Audit Committee and the Board of Directors of the Company on the aforesaid date.
 
 
e.
In May 2014, the Board of Directors of the Company resolved, after it received approvals of the Audit Committee of the Company, to make short extensions of an agreement between the Company and JT Capital Fund Pte. Ltd. (“JT”) for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises(“the Clal Insurance agreement”). On May 5, 2014, the Board of Directors of the Company resolved, after receiving the approval of the Audit Committee of the Company for this, to enter into an amendment to the Clal Insurance agreement, as stated in note 3.H.5.a above (it should be noted that at the end of May 29, 2014, the Clal Insurance agreement expired without the transaction being completed).


IDB Development Corporation Ltd.                           Convenience translation
 
270
 
 
Note 33 - Related and Interested Parties (cont.)
 
B.
Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)
 
 
7.
Other transactions (cont.)
 
f.
On May 20, 2014, the Board of Directors of the Company resolved, after receiving the approval of the Audit Committee of the Company for this purpose, to approve a transaction of entering into a loan agreement between the Company and the trustees of the debt arrangement in IDB Holdings, in a total amount of NIS 500 million (principal) (including a supplementary loan in a sum of NIS 20 million (principal), which had already been advanced de facto to the Company as part of the bridging loan agreement that was signed on March 10, 2014 (see subsection d. above) (‘the loan agreement’)). It should be noted that, pursuant to the terms of the loan agreement, since before the credit was advanced to the Company a terminating event for the Clal Insurance transaction occurred (see note 3.H.5.a above) the loan agreement was cancelled.
 
C.
Other employment and remuneration transactions
 
 
1.
In 2014, the cost in the Company’s books of employing Mr. Haim Gavrieli as CEO of the Company amounted to an amount of NIS 2,011 thousand and a sum of NIS 976 thousand, which is equal to a retirement bonus that will be paid on the date of retirement (in an amount of the cost of six months’ employment, as approved by the general meeting of the Company in November 2014) (in 2013 and 2012, approximately NIS 1.8 million and approximately NIS 2 million, respectively). According to the agreement that existed between the Company and IDB Holdings with regard to the use of joint manpower (see section B.1 of this note above), IDB Holdings contributed 20% of the cost of employing Mr. Gavrieli until May 2014 (inclusive). Since June 2014, there is a new agreement between the Company and IDB Holdings (through the arrangement trustees) according to which IDB Holdings pays fixed monthly amounts for management services (for additional details, see section B.1 above in this note).
 
 
2.
In 2014, 2013 and 2012, the Company received directors’ remuneration from its held companies, for the office of interested parties therein as directors in those companies, in a total amount of NIS 214 thousand, NIS 291 thousand and NIS 316 thousand, respectively (not included directors’ remuneration from Discount Investments; for details of the management agreement with Discount Investments, see section D.1 below).
 
 
3.
During the years 2014 and 2013, the Company paid fees for the services of each of Messrs. Eyal Gabbay and Hagai Olman, who acted as experts on behalf of the court (Mr. Eyal Gabbay) and as an observer on the Board of Directors of the Company (Adv. Hagai Olman), a sum of NIS 304 thousand and NIS 1,134 thousand, respectively.
 
D.
Other transactions or payments
 
 
1.
There was an agreement between the Company and each of Discount Investments and Clal Insurance Enterprise Holdings, according to which the Company provided management services to those companies, which included, inter alia, appointments of employees of the Company, IDB Holdings, or their subsidiaries as directors in those companies, in return for management fees. In view of the provisions of Amendment no. 16, in November 2011 the general meeting of Discount Investments approved once again, and in May 2012 the general meeting of Clal Holdings Insurance Enterprises approved once again, after the approval of the Audit Committees and Boards of Directors of each of them, the making of such an agreement by each of them with the Company.
 
In February 2014, after the termination of the office of all of the directors on behalf of the Company in the companies of the Clal Holdings Insurance Enterprises Group, and in view of the restrictions which were imposed on the Company as part of the Commissioner’s letter of November 2013 (see note 3.H.5.b. above), Clal Holdings Insurance Enterprises gave notice to the Company of the suspension of the management agreement between them. Consequently, as of the date of publication of the report, Clal Holdings Insurance Enterprises does not pay management fees to the Company.

IDB Development Corporation Ltd.                           Convenience translation
 
271
 
 
Note 33 - Related and Interested Parties (cont.)
 
D.
Other transactions or payments (cont.)
 
 
1.
(cont.)
 
 
In November 2014, three years expired from the approval of the aforesaid transaction by the general meeting of Discount Investments. Therefore, in view of the provisions of the Companies Law, since December 2014 and as of the date of publication of the report, Discount Investments does not pay management fees to the Company and such a payment is subject to the approval of the competent organs of Discount Investments, including the approval of its general meeting with a special majority.
 
It should be noted that from March 2014 until the date of publication of the report, no employees of the Company held office on the Board of Directors of Discount Investments. In the years 2014, 2013 and 2012, the Company received management fees from the aforesaid companies in a total amount of approximately NIS 1 million, NIS 3.85 million and NIS 5.1 million, respectively
  2.
In March 2014, the Audit Committee and the Board of Directors of the Company gave their approval that the Company would be liable for half of the costs relating to the implementation of the creditors’ arrangement in IDB Holdings. According to a report of the trustees of the arrangement as filed with the court, these costs include, inter alia, half of the costs of obtaining the various permits required for implementing the arrangement, half of the costs of the examination ordered by the District Court as part of the judgment of December 17, 2013, half of the costs of handling the investment in the Company and advancing the loans to the Company, all of the costs of the Company’s legal advisers with regard to the implementation of the arrangement and half of the costs of listing the Company’s shares, with the exception of fees that the Company will pay in full. In 2014, the Company paid for its share of the costs relating to the implementation of the creditors’ arrangement in the Company a sum of NIS 1.4 million.
  3.
On August 4, 2014, the Board of Directors of the Company resolved, after obtaining the approval of the Audit Committee of the Company for this purpose, to approve the Company’s position with regard to a settlement between the parties (not including the Company) in the derivative actions, not to oppose the settlement, except what is stated in the provisions that deprive the Company of the right to take legal action in other actions that also relate to distributions of dividends, which the Company made during the years 2010-2011, on account, inter alia, of Discount Investments’ claims (see note 23.C.1.h above). The resolution was ratified in January 2015. On March 5, 2015, the Board of Directors of the Company resolved, after obtaining the approval of the Audit Committee of the Company for this purpose, to agree to an amendment of the settlement between the parties in the derivative actions, and insofar as its wording is completed and agreed by the other parties, it will be filed with the court hearing the derivative actions. According to the main elements of the aforesaid amendment that is being formulated, if the Discount Investments’ claim is successful, the Company will retain the right of suing the directors and officers of the Company and IDB Holdings for a cause of action arising from that claim, on certain conditions. For further details, see note 23.C.1.d. above.
 
 
4.
Additional joint transactions between investees and related parties:
 
 
·
In November 2010, Koor and the Clal Insurance Group undertook to invest in equal shares a total sum of $250 million in the EMCO Fund (a private investment fund managed by corporations from the Credit Suisse Group). The period of making the investments in the EMCO Fund ended in November 2012. As of December 31, 2014, and as of the date of this report, the cumulative amount of the investment of Koor in the EMCO fund stood at a sum of approximately NIS 46 million. In addition, Koor and the Clal Insurance Group are liable to make investments in a sum of up to $2 million in the Group, each. Since the beginning of the investment in the ENCO Fund, Koor and Clal Insurance have received from the Fund amounts on a scale of approximately $29 million each.
 
·
In January 2014, the Audit Committee and Board of Directors of Discount Investments approved an undertaking of Discount Investments, according to which for a period of three years from the completion of the merger of Adama with ChemChina (October 17, 2011), Discount Investments would not carry out transactions as a result of which it would stop controlling Koor, unless after them Koor would continue to be controlled by another entity from the IDB Group, and after the aforesaid period of three years, Discount Investments would not sell the control in Koor to a competitor of Adama or a competitor of ChemChina. The aforesaid undertaking is valid as long as the provisions of the Shareholders’ Agreement between Koor and ChemChina with regard to Adama, which relate to the control of Koor, will remain valid.
 

IDB Development Corporation Ltd.                           Convenience translation
 
272
 
 
Note 33 - Related and Interested Parties (cont.)
 
D.
Other transactions or payments (cont.)
 
 
5.
Additional transactions during the course of regular business, which are not exceptional, in amounts that exceed NIS 8.7 million for a single transaction:
 
·  
Shufersal carried out a large number of regular transactions with suppliers that are interested parties and related parties of the Company in a total amount of NIS 17 million, NIS 439 million and NIS 377 million in 2014, 2013 and 2012 respectively. The transactions included the acquisition of food products, toiletries and other products for sale in stores.
·  
In 2012, the Hadera Paper Group (from the Clal Industries Group) acquired from Cargal Carton Products in the amount of NIS 45 million.
·  
In 2013, Adama received insurance services from Clal Insurance Group in the amount of $4.5 million (in 2012 – $4.5 million).
·  
Shufersal is insured by elementary insurance, car insurance and health insurance by Clal Insurance. The total annual premium paid by Shufersal for the insurance policies in 2014 and 2013 amounted to NIS 19 million and NIS 18 million, respectively.
·  
Property & Building received interest income for loans it granted to equity accounted investee companies that amounted in 2014 to NIS 34 million (in 2013 – NIS 32 million and in 2012 – the sums were lower than the negligibility threshold for disclosure).
·  
Adama sold some of its products in the normal course of its business to the companies Cresud S.A.C.I.F. y A and Futuros y Opciones.Com S.A., companies that operate in Argentina, which are indirectly controlled by Mr. Eduardo Elsztain, one of the controlling owners of the Company. These sales amounted in 2014 and 2015 up to the date of the report to approximately $3.6 million and approximately $260 thousand, respectively.




IDB Development Corporation Ltd.                           Convenience translation
 
273
 


Note 33 - Related and Interested Parties (cont.)
 
 
E. Transactions with related parties and interested parties
 
 
1.
Balances with related parties and interested parties
 
   
Interest
    
As at 31 December
  
   
Rate
    
2014
    
2013
  
   
%
    
NIS Millions
  
Long-term loans for investee companies(1)
                  
Shekel (linked and unlinked)
     2.3-9.31       143 (2)     142 (2)
Linked to dollar rate
     3.6-15.0       369       314  
Linked to Euro
     3.6       28       64  
Linked to Pound Sterling
     6.0       -       122  
Customers, debtors and accounts receivable:
                        
Associates and jointly-controlled entities
             14       11  
Other related parties and interested parties
             44       27  
Cash and short-term deposits deposited with the interested party
             -       268  
Highest balance due in the year of cash in Union Bank of Israel (interested party)
             -       445  
Accounts payable:
                        
Interested parties
             -       3  
Liability to suppliers and service providers:
                        
   Associates and jointly-controlled entities
             -       1  
Other related parties and interested parties
             8       68  
 
Loans received:
                        
Bonds of the Company and of Consolidated Companies held by Interested and Related Parties
             438       513  
Including current maturities
             90       123  
Loans received from interested parties
             -       3  

 
 
(1) The dates of repayment for the loans have not yet been determined.
 
 
(2) The loans are presented in the consolidated statements after the amortization for impairment in an amount of NIS 39 million and NIS 62 million as of December 31, 2014, and December 31, 2013, respectively.

IDB Development Corporation Ltd.                           Convenience translation
 
274
 


Note 33 - Related and Interested Parties (cont.)
 
 
E. Transactions with related parties and interested parties (cont.)
 
 
1.
Balances with related parties and interested parties (cont.)
 
The following are the terms of the bonds held by interested parties:
 
   
As at 31 December 2014
  
Linkage Base
  
Sum
    
Interest
    
Dates of Repayment
  
   
NIS Millions
    
%
        
Linked
     396       2.99-5.40       2016-2029  
Unlinked
     42       5.45-6.70       2015-2018  
      438                  
 

   
As at 31 December 2013
  
Linkage Base
  
Sum
    
Interest
    
Dates of Repayment
  
   
NIS Millions
    
%
        
Linked
     463       2.99-5.70       2014-2029  
Unlinked
     50       5.45-6.70       2014-2018  
      513                  

 
2.
Revenue and expenses from related parties and interested parties
 
 
                       For the year ended December 31  
     2014      2013      2012      2014      2013      2012  
     Number of recipients       NIS millions  
Revenue:
                          
 
        
Participation of the parent company in salary and incidental expenses and other expenses
                       2 *     4       6  
Management fees from investee companies
                       -       1       23  
Expenses:
                                          
a. Benefits for employment of key managerial
    personnel (including directors):
                                          
    Short-term benefits for key managerial personnel
     1       1       1       3       2       2  
    Short-term benefits for directors
     -       1       3       -       5       8  
b. Benefits for employment of relatives of directors
    and interested parties
     -       3       6       -       1       3  
c. Benefits for directors and interested parties who are not employed (salary of directors in the Company and in consolidated companies)
     7       12       12       1       3       5  
d. Other expenses:
                                                
Donations to the IDB Community Involvement
Fund (RA)
                             -       -       1  

 
*
For the period from January 1, 2014, until and including May 2014.

IDB Development Corporation Ltd.                           Convenience translation
 
275
 

Note 33 - Related and Interested Parties (cont.)
 
 
E. Transactions with related parties and interested parties (cont.)
 
 
3.
The following are transaction with former related parties and interested parties, which were described in the Related Parties and Interested Parties Note in the Company’s financial statements of 2013:
 
     
For the year ending December 31
  
     
2013
    
2012
  
     
Amounts of transactions in
NIS millions
  
Nature of the transaction
Related party / interested party *
               
1. Payment for courier services that was paid by a subsidiary (Cellcom) to a company held by Avi Fisher together with his relative.
A company controlled by the Company
     -       11.3  
                   
2. Income from flight services that a subsidiary received from held companies and officers in a subsidiary (IDB Development), including officers who or whose relatives are controlling shareholders of the company.
Held companies
     -       1.4  
                   
3.Payments that subsidiaries of the company (the Mashav Group) made for services that they received from held companies under the joint control of the Company and a controlling shareholder therein (companies in the Taavura Group).
Held companies
     16 **     132  
                   
4.Income from the provision of services that a held company under joint control of a subsidiary and a controlling shareholder in the Company (a company from the Taavura Group) received from a company held by a controlling shareholder in the Company (Taavura Tifzoret).
A company controlled by a controlling shareholder
     9 **     55  
                   
5.Payments for various services that were paid by companies under joint control (companies from the Taavura Group) to a company held by a controlling shareholder of the Company (Taavura Tifzoret).
A company controlled by a controlling shareholder
     3 **     49  
                   
6.Payments made by subsidiaries (companies from the Mashav Group) for transport services to a company held by a controlling shareholder of the Company (Taavura Tifzoret).
Held company
     3 **     25  
                   
7.Income from providing logistic services received by a held company under joint control (a subsidiary of Maman Cargo and Handling terminals Ltd. (‘Maman’) from a company controlled by a controlling shareholder of the Company (H & O Fashion Ltd.).
Held company
     2.4 **     14  
                   
8.Payments for logistic services paid by a subsidiary (Shufersal) to a jointly controlled held company (a subsidiary of Maman).
Held company
     20       22  
                   
9.Rent paid by a jointly controlled held company (a subsidiary of Maman) to a company that is jointly controlled by Maman and another subsidiary (Gav Yam Real Estate Ltd.).
Held company
     9       9  
                   
10.Payments for management and operating services paid by a subsidiary (Cellcom) to a company held by the controlling shareholder together with his relatives (Tikshuvim Business Communications Center Ltd.).
A company controlled by a controlling shareholder
     -       8  
                   
11.Income from providing storage services that a jointly controlled held company (Maman) received from a company (indirectly) held by a controlling shareholder of the Company (O.P.S.A. International Shipping Ltd.).
Held company
     1.7 **     8.4  
                   
12.Income from sales, maintenance and ancillary services that a jointly controlled company (a company in the Taavura Group) received from a held company (Yafora Ltd.).
Held company
     -       10  
                   
13.Rent that a subsidiary (Shufersal) paid to a company in which a controlling shareholder together with his relatives are interested parties.
A company in which a controlling shareholder has an interest
     11       11  


IDB Development Corporation Ltd.                           Convenience translation
 
276
 
 
Note 33 - Related and Interested Parties (cont.)
 
 
E. Transactions with related parties and interested parties (cont.)
 
 
3.
The following are transaction with former related parties and interested parties, which were described in the Related Parties and Interested Parties Note in the Company’s financial statements of 2013: (cont.)
 
     
For the year ending December 31
  
     
2013
    
2012
  
     
Amounts of transactions in
NIS millions
  
Nature of the transaction
Related party / interested party *
14.Rent that was paid to a subsidiary (Gav-Yam) by another subsidiary (Hadera Paper).
Companies controlled by the Company
     26       28  
 
 
                  
15.A payment for the purchase of products that was made by a subsidiary (Shufersal) to another subsidiary (Hogla Kimberley).
Companies controlled by the Company
     210       -  
                   
16.Payments made by a subsidiary (Shufersal) for the purchase of products for a held company (Yafora Tavori).
Held company
     147       -  
                   
17.A payment made by a subsidiary (Shufersal) for leasing services to a company owned by a controlling shareholder who holds it jointly with his relatives (Prime Lease Car Fleet Management Ltd.).
A company controlled by a controlling shareholder
     7       15  
                   
18.A final payment made by subsidiaries (IDB Development and Discount Investments) to another subsidiary (Clal Finances) for an indemnification undertaking in an agreement for the sale of 50% of the shares of Ilanot Batucha Investment House Ltd. in 2003.
A company controlled by the Company
     -       5  
                   
19.A provision with regard to a consulting agreement with an interested party with regard to the purchase of real estate abroad (Rock Real).
Interested party in the Company
     62       77  

*           Related party /interested party – relates to the relevant periods presented in this table.
**           Until March 9, 2013.

IDB Development Corporation Ltd.                           Convenience translation
 
277
 
 
Note 34 – Segments
 
 
A.
General
 
The Company has implemented IFRS 8 on the subject of operating segments in these financial statements. In accordance with IFRS 8, sectorial information is presented with regard to the Company’s operating segments, based on the Company's management and internal reports ("The management reports").
The Company regards as segments those companies with regard to which the chief operational decision makers have regularly received information, during the relevant reporting years, and which constitute a significant economic component for the group, including for the purpose of the allocation of resources.
The sector results, as stated below, include the Company’s share of the net profits (losses) of a sectorial company, the profit (loss) that the Company generated from the disposal of or the writing down of the investment in a sectorial company, and the profit that the Company derived from dividends that have been received from a sectorial company, which is classified as a financial asset that is measured at fair value through the statement of income and from a profit or loss on a change in value of a sectorial company that is classified as a financial asset that is measured at fair value through the statement of income, in those cases where this information is examined by the chief operating decision makers in the Company for the purpose of the evaluation of sectorial performance and for the making of decisions regarding the allocation of resources.
Information regarding the assets of the companies in a sector, as detailed below, include the amount of the assets of the companies in the sector in accordance with their financial statements and on respect of a company in a sector that is classified as a financial asset that is measured at fair value through the statement of income – the sectorial assets are the Company’s investment in that company in accordance with its market value.
Information regarding the liabilities of the companies in a sector (except in respect of a company in a sector, which is classified in the Company's books as financial asset that is measured at fair value through the statement of income), includes the liabilities of the companies in the sector in accordance with their financial statements, with the addition of loans that have been received, which are reported with the sector. Liabilities in respect of a company in a sector that has been classified in the Group's accounting records with the comparison figures as a financial asset that is measured at fair value through the statement of income, includes liabilities that the Group has taken upon itself and are reported with the sectorial company.
Information regarding the results, assets and liabilities of the Clal Holdings Insurance Enterprises sector, which is classified in the Company’s books as a financial asset that is measured at fair value through the Statement of Income, has since August 2013 included the results, assets and liabilities of Clal Holdings Insurance Enterprises according to its financial statements, after implementing standard IFRS-9.
 
 
B.
The sectorial results
 
The results of the segments, which are reported below, include the various items in the sectorial companies' statements of income, and less the non-controlling interests' share and constitute the Company’s share of the net income (loss) of the sectorial companies.
In the item on the Group’s share in net profit (loss) of the held corporations that are dealt with using the balance sheet value method, net, in the item of profit from the realization of investments and assets and dividends and in the item on loss from the realization and reduction of investments and assets were also included with the profit or loss, as the case may be, that the Company has generated from the disposal, writing down or impairment in value of its investments in sectorial companies, a profit or loss from a change in value of a sectorial company that is classified as a financial asset that is measured at fair value through the statement of income, is included under gain on disposal and increase in value of investments and assets, dividends, and under loss on disposal, impairments in value and the writing down of investments and assets, respectively. The tax effect, in so far as there may be one, which relates to the said profits (losses) has been recorded under taxes on income.

IDB Development Corporation Ltd.                           Convenience translation
 
278
 
Note 34 – Segments (cont.)
 
B.         The sectorial results (cont.)
 
For the year 2014
  
Cellcom
    
Property and Buildings and projects in Los Angeles
    
Shufersal
    
Adama (1)
    
Clal Holdings Insurance Enterprises (3)
    
Others (4)
    
Adjustments (5)
    
Consolidated
  
   
NIS millions
  
Revenues
                                                
From sales and services
     4,570       1,168       11,602       11,474       -       1,001       (11,269 )     18,546  
Income from insurance business
     -       -       -       -       15,044       -       (15,044 )     -  
Gain in the disposal of investments and assets,
     -       -       -       -       29       -       929       958  
Increase in the fair value of real estate for investment and other properties
     -       425       12       -       -       -       2       439  
Other income
     -       -       -       17       2       -       (18 )     1  
Financing income
     100       98       85       462       -       3       452       1,200  
Total sectorial income in the year 2014
     4,670       1,691       11,699       11,953       15,075       1,004       (24,948 )     21,144  
Expenses
                                                                
Cost of sales and services
     2,664       534       9,050       7,832       -       823       (7,688 )     13,215  
Cost of insurance business
     -       -       -       -       11,787       -       (11,787 )     -  
Costs and expenses in connection with insurance business and financial services
     -       -       -       -       2,556       -       (2,556 )     -  
Oil exploration expenses
     -       -       -       -       -       78       (78 )     -  
Research and development expenses
     -       -       -       120       -       -       (93 )     27  
Selling and marketing expenses
     672       24       2,680       2,040       -       94       (2,007 )     3,503  
Administrative and general expenses
     463       132       125       400       -       83       (169 )     1,034  
Company’s share in net profit (loss) of affiliated companies, net
     -       78       -       591       (42 )     -       (127 )     500  
Loss upon disposal and impairment in value of investment property and other assets
     217       30       182       -       360       2       53       844  
Drop in fair value of investment property and other assets
     -       26       -       -       21       -       (21 )     26  
Other expenses
     39       -       1       11       41       13       (94 )     11  
Financing expenses
     298       502       158       908       218       19       372       2,475  
      4,353       1,326       12,196       11,902       14,941       1,112       (24,195 )     21,635  
Income (loss) before taxes on income
     317       365       (497 )     51       134       (108 )     (753 )     (491 )
Taxes on income
     (129 )     (161 )     78       (167 )     (189 )     (1 )     210       (359 )
Non-controlling interests
     (219 )     (147 )     205       (141 )     (305 )     49       345       (213 )
Discontinued operations after taxation
     -       -       -       -       -       64       -       64  
                                                                 
Sectorial results for the year 2014 –attributed to Company shareholders
     (31 )     57       (214 )     (257 )     (360 )     4       (198 )     (999 )
Depreciation and amortization included under expenses
     581       9       472       664       203       26                  
Impairment in value included under expenses
     298       -       233       354 (5)     21       -                  
      67       76       54       131       1,137       1                  
Interest expenses
     251       502       168       387       190       13                  


IDB Development Corporation Ltd.                           Convenience translation
 
279
 
 
Note 34 – Segments (cont.)
 
 
B.
The sectorial results (cont.)
 
 
 (1)
The liabilities of the Adama Sector as of December 31, 2014, which are stated below in this note, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,162 million (the non-recourse loan is repayable by means of Adama shares, as detailed in Note 16.F.1.d above), where the financing income in respect thereof (interest and linkage differences) for the year ended December 31, 2014 amounts to NIS 544 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of the internal reporting format, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.
 
In addition, the Adama sector liabilities as of December 31, 2014 include an embedded derivative with a value of NIS 72 million, where the financing expenses in respect of the revaluation of the derivative for the year ended December 31, 2014 amounts to NIS 551 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.
 
 
(2)
The Clal Holdings Insurance Enterprises' results are presented in accordance with Clal Holdings Insurance Enterprises' full operating results for the entire year 2014.
 
 
(3)
Includes the IDB Tourism and Oil and Gas Assets sectors and Credit Suisse.
 
 
(4)
Derives mainly from the elimination of inter-sectorial balances that are recorded in the financial statements based on the balance sheet value as well as companies that do not comply with the definitions for a sector of operations.
 
 
(5)
For details of the impairment recorded for the investment in Adama, see note 3.H.4.d.



IDB Development Corporation Ltd.                           Convenience translation
 
280
 


Note 34 – Segments (cont.)
 
 
B.
The sectorial results (cont.)
 
For the year 2013
  
Cellcom
    
Property and Buildings and projects in Los Angeles
    
Shufersal
    
Adama (1)
    
Credit
Suisse(2)
    
Clal Holdings Insurance Enterprises(3)
    
Others (4)
    
Adjustments (5)
    
Consolidated
  
   
NIS Millions
  
Revenues
                                                      
From sales and services
     4,927       1,306       11,909       11,130       -       -       1,059       (10,346 )     19,985  
Income from insurance business
     -       -       -       -       -       18,494       -       (18,494 )     -  
The Company’s share of the net income (loss) of affiliated companies, net
     -       (10 )     -       (90 )     -       5       3       153       61  
Gain in the disposal of investments and assets, dividends and gain on an increase to control
     3       2       -       -       637       32       -       (495 )     (7)179  
Other income
     -       16       -       46       -       5       8       (51 )     24  
Increase in the fair value of investment property
     -       394       23       -       -       -       -       -       417  
Financing income
     156       104       39       480       -       11       21       (146 )     665  
Total sectorial income in the year 2013
     5,086       1,812       11,971       11,566       637       18,547       1,091       (29,379 )     21,331  
Expenses
                                                                        
Cost of sales and services
     2,910       661       9,098 (7)     7,746       -       -       860       (7,440 )     13,835  
Cost of insurance business
     -       -       -       -       -       14,568       -       (14,568 )     -  
Costs and expenses in connection with insurance business and financial services
     -       -       -       -       -       2,708       -       (2,708 )     -  
Oil exploration expenses
     -       -       -       -       -       -       113       (113 )     -  
Research and development expenses
     -       -       -       -       -       -       -       108       108  
Selling and marketing expenses
     717       29       2,417 (7)     1,884       -       -       105       (1,651 )     3,501  
Administrative and general expenses
     570       82       123       413       -       -       98       (147 )     1,139  
Impairment in value of investment property and other assets
     -       97       -       -       -       21       -       (21 )     97  
Loss on the disposal and writing down of investments and assets
     -       -       91       -       -       -       -       47       138  
Other expenses
     2       -       12       6       -       30       -       (37 )     13  
Financing expenses
     402       654       168       987       -       245       53       (63 )     2,446  
      4,601       1,523       11,909       11,036       -       17,572       1,229       (26,593 )     21,277  
Income (loss) before taxes on income
     485       289       62       530       637       975       (138 )     (2,786 )     54  
Taxes on income
     (142 )     (189 )     (53 )     (162 )     6       (390 )     (2 )     628       (304 )
Non-controlling interests
     (234 )     (112 )     (39 )     (283 )     (232 )     (513 )     119       628       (666 )
Discontinued operations after taxation
     -       -       -       -       -       -       -       (7)763       (7)763  
                                                                         
Sectorial results for the year 2013 –attributed to shareholders in the Company
     109       (12 )     (30 )     85       411       72       (21 )     (767 )     (153 )
Depreciation and amortization included under expenses (6)
     666       10       421       682       -       198       25                  
Impairment in value included under expenses
     7       -       83       -       -       21       -                  
Interest income
     98       69       39       84       -       1,684       2                  
Interest expenses
     308       539       151       438       -       254       32                  

IDB Development Corporation Ltd.                           Convenience translation
 
281
 


Note 34 – Sectors (cont.)
 
 
B.
The sectorial results (cont.)
 
 
 (1)
The liabilities of the Adama Segment as of December 31, 2013, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,664 million (the non-recourse loan is repayable by means of Adam shares, as detailed in Note 16.F.1.d above), where the financing income in respect thereof (interest and linkage differences) for the year ended December 31, 2013 amount to NIS 89 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of the internal reporting format, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker.
 
In addition, the Adama sector liabilities as of December 31, 2013 include an embedded derivative with a value of NIS 607 million, where the financing expenses in respect of the revaluation of the derivative for the year ended December 31, 2013 amounted to NIS 85 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.
 
 
(2)
The Credit Suisse sector is classified as discontinued operations, as detailed in Note 3.H.4.c above. The liabilities of the Credit Suisse sector as of December 31, 2013, which are detailed further on in this note, include NIS 431 million of loans from foreign banks, where the financing income in respect of them (interest and exchange differences) in the year ended December 31, 2013 amount to NIS 48 million. This financing income is not presented as part of the information in connection with a sector, since it does not form part of the format for the internal reporting, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker. In addition, financing income in respect of liabilities for options on the exchange rate of the Swiss Franc against the Shekel for the year ended December 31, 2013 amount to NIS 4 million. This financing income has been presented as part of the Credit Suisse sector, but separately from the sectorial results (since they form part of the internal reporting sector, under the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker, but separately from the sectorial results).
 
 
(3)
Clal Holdings Insurance Enterprises' results are presented in accordance with Clal Holdings Insurance Enterprises' full operating results for the entire year 2013, in accordance with the data that the Company’s chief operating decision maker received in 2013.
 
 
(4)
Includes the IDB Tourism and Oil and Gas Assets sectors.
 
 
(5)
Derives primarily from the elimination of inter-sectorial balances that are recorded in the financial statements under the equity method of accounting as well as companies that do not comply with the definitions for a sector of operations.
 
 
(6)
Not including the writing down of investments that are recorded under the Company's share of the net income (loss) of affiliated companies, net under gain on disposal and write-downs of investments and assets.
 
 
(7)
Reclassified, see Note 1.F.2 above.

IDB Development Corporation Ltd.                           Convenience translation
 
282
 
 
Note 34 – Segments (cont.)
 
 
C.
The sectorial results

 
For the year 2012
  
Cellcom
    
Property and Buildings and projects in Los Angeles
    
Shufersal
    
Adama(1)
    
Credit Suisse(2)
    
Mashav(3)
    
Clal Holdings Insurance Enterprises
    
Oil and gas Assets (4)
    
Tourism(4)
    
Adjustments(5)
    
Consolidated
  
   
NIS Millions
  
Revenues
                                                                  
From sales and services
     5,938       1,159       11,570       10,910       -       1,516       -       -       1,222       (11,853 )     20,462  
Income from insurance business
     -       -       -       -       -       -       18,571       -       -       (18,571 )     -  
Gain in the disposal of investments and assets, dividends and gain on an increase to control
     6       (2 )     11       -       159       -       26       -       -       41       241  
Other income
     2       -       -       15       -       21       2       23       -       (33 )     30  
Increase in the fair value of investment property
     -       523       (3 )     -       -       2       21       -       -       (3 )     540  
Financing income
     181       393       48       469       -       17       5       4       2       (295 )     824  
Total sectorial income in the year 2012
     6,127       2,073       11,626       11,394       159       1,556       18,625       27       1,224       (30,714 )     22,097  
Expenses
                                                                                        
Cost of sales and services
     3,369       405       8,897 (7)     7,566       -       1,202       -       -       998       (8,229 )(7)     14,208  
Cost of insurance business
     -       -       -       -       -       -       14,759       -       -       (14,759 )     -  
Costs and expenses in connection with insurance business and financial services
     -       -       -       -       -       -       3,080       -       -       (3,080 )     -  
Oil exploration expenses
     -       -       -       -       -       -       -       63       -       (63 )     -  
Research and development expenses
     -       -       -       -       -       -       -       -       -       36       36  
Selling and marketing expenses
     865       26       2,385 (7)     1,877       -       16       -       -       132       (1,874 )(7)     3,427  
Administrative and general expenses
     629       89       124       391       -       -       -       33       97       (172 )     1,191  
The Company’s share of the net income (loss) of affiliated companies, net
     2       873       -       109       -       111       -7       124       (3 )     (277 )     932  
Loss on the disposal and writing down of investments and assets
     2       -       188       -       -       -       426       335       -       (501 )     450  
Other expenses
     -       6       -       12       -       -       1       1       3       37       60  
Financing expenses
     440       564       148       894       -       71       316       1       32       (169 )     2,297  
      5,307       1,963       11,742       10,849       -       1,4       18,575       557       1,259       (29,051 )     22,601  
Income (loss) before taxes on income
     820       110       (116 )     545       159       156       50       (530 )     (35 )     (1,663 )     (504 )
Taxes on income
     (220 )     (224 )     5       (151 )     -       (43 )     (133 )     (3 )     -       317       (452 )
Non-controlling interests
     (407 )     (123 )     (1 )     (327 )     (55 )     (62 )     145       372       (4 )     222       (240 )
Discontinued operations after taxation
     -       -       -       -       -       -       -       -       -       463       463  
Sectorial results for the year 2012 –attributed to shareholders in the Company
     193       (237 )     (112 )     67       104       51       62       (161 )     (39 )     (661 )     (733 )
Depreciation and amortization included under expenses (6)
     761       12       462       713       -       -       229       -       28                  
Impairment in value included under expenses
     -       -       188       -       -       -       237       335       -                  
Interest income
     114       217       43       77       -       -       1,680       2       2                  
Interest expenses
     346       456       157       429       -       -       251       -       23                  


IDB Development Corporation Ltd.                           Convenience translation
 
283
 
 
Note 34 – Segments (cont.)
 
 
C.
The sectorial results (cont.)
 
 (1)
The liabilities of the Adama Sector as of December 31, 2012, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,753 million (the non-recourse loan is repayable by means of Adama shares, where the financing expenses in respect thereof (interest and linkage differences) for the year ended December 31, 2012 amount to NIS 78 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of internal reporting format, as part of the Adama sector, which is routinely provided to the Group's chief operational decision maker.
 
In addition, the Adama sector liabilities as of December 31, 2012 include an embedded derivative with a value of NIS 679 million, where the financing income in respect of the revaluation of the derivative for the year ended December 31, 2012 amounted to NIS 17 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operational decision maker.
 
 (2)
The Credit Suisse sector is classified as discontinued operations, as detailed in note 3.H.4.c above. The liabilities of the Credit Suisse sector as of December 31, 2012, which are detailed further on in this note, include NIS 1,240 million of loans from foreign banks, net of charged deposits where the financing expenses in respect of them (interest and exchange differences) in the year ended December 31, 2012, amount to NIS 44 million. This financing income is not presented as part of the information in connection with a sector, since it does not form part of the format for the internal reporting, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operational decision maker. In addition, the liabilities of the Credit Suisse sector as of December 31, 2012, include liabilities for options on the exchange rate of the Swiss Franc against the Shekel in an amount of NIS 14 million, where the financing income in respect thereof for the year ended December 31, 2012 amounted to NIS 12 million. This financing income has been presented as part of the Credit Suisse sector, but separately from the sectorial results (since they form part of the internal reporting sector, under the Credit Suisse sector, which is regularly provided to the Group's chief operational decision maker, but separately from the sectorial results).
 
(3)
As a result of the sale of the Company’s main holdings in Clal Industries, Mashav ceased to be a reportable sector in the Company's financial statements, as of the third quarter of 2012.
 
(4)
This sector is not reportable.
 
(5)
Derives primarily from the elimination of the Adama sector balance that is recorded in the financial statements under the equity method of accounting, from the cancellation of balances in respect of the Clal Insurance Business Holdings presented in the financial statements as a financial asset that is measured at fair value, as well as companies that do not comply with the definitions for an sector of operations.
 
(6)
Not including the writing down of investments that are recorded under the Company's share of the net income (loss) of affiliated companies, net under gain on disposal and write-downs of investments and assets.
 
(7)
Reclassified, see Note 1.F.2 above.


IDB Development Corporation Ltd.                           Convenience translation
 
284
 
Note 34 – Segments (cont.)
 
 
D.
The composition of the adjustments to consolidated
 
   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
Sales and services
    
Sectorial results – attributed to the shareholders in the Company
    
Sales and services
    
Sectorial results – attributed to the shareholders in the Company
    
Sales and services
    
Sectorial results – attributed to the shareholders in the Company
  
   
NIS Millions
  
Cancellation of amounts in respect of sectors that are classified in the financial statements as held companies that are treated under the equity method of accounting (1)
     (11,474 )     -       (11,130 )     -       (10,910 )     -  
The inclusion of the expenses of head office companies that are held and which do not meet the definition of a sector
     226       (237 )     733       (1,522 ) (2)     573       (1,124 )
Discontinued operations
     -       -       -       763 (2)     (1,516 )     463  
Other adjustments
     (21 )     39       51       (8 )     -       -  
                                                 
      (11,269 )     (198 )     (10,346 )     (767 )     (11,853 )     (661 )

 
(1)
In relation to companies whose financial statements have been initially consolidated in the period – including their sales and services, from the beginning of the year until the time of their initial consolidation.
 
 (2)
Reclassification; see note 1.F.2 above.




IDB Development Corporation Ltd.                           Convenience translation
 
285
 

Note 34 – Segments (cont.)
 
 
E.
Sectorial balance sheet figures as of December 31, 2014

   
Cellcom
    
Property and Buildings and projects in Los Angeles
    
Shufersal
    
Adama
    
Clal Holdings Insurance Enterprises
    
Others (1)
    
Adjustments
    
Consolidated
  
   
NIS millions
  
                                                     
  1 )
Sectorial assets *
     7,240       15,188       7,063       18,452       91,088       886       (99,088 )     40,829  
  *  
Includes investments in investee companies that are treated with the equity method of accounting
     -       561       51       299       212       -       -       -  
  2 )
Sectorial liabilities
     6,148       13,228       6,054       15,325       86,785       677       (90,699 )     37,518  
                                                                       
  3 )
Adjustments of fair value, goodwill and surplus cost that are attributed to the sector
     1,427       132       752       529       -       -       -       -  

(1)
Includes the IDB Tourism sector and the Oil and Gas Assets.

IDB Development Corporation Ltd.                           Convenience translation
 
286
 

Note 34 – Segments (cont.)
 
 
F.
Sectorial balance sheet data as of December 31, 2013
 
   
Cellcom
    
Property and Buildings and projects in Los Angeles
    
Shufersal
    
Adama
    
Credit
Suisse
    
Clal Holdings Insurance Enterprises
    
Others (1)
    
Adjustments
    
Consolidated
  
   
NIS Millions
  
                                                           
  1.  
Sectorial assets *
     7,579 (3)     14,516 (3)     7,278       15,470       1,138       86,050       974       (86,837 )(2)(3)     46,168  
  *  
Includes investments in held companies that are treated under the equity method of accounting
     -       589       25       254       -       138       -       -       -  
  2.  
Sectorial liabilities
     6,869 (3)     12,831 (2)     6,080       13,653       431       82,123       1,039       (80,873 )(2)(3)     42,153  
  3.  
Adjustments of fair value, goodwill and surplus cost that are attributed to the sector
     1,525 (3)     128       1,012       1,242       -       -       -        -        -   

 
(1)
Includes the IDB Tourism sector and the Oil and Gas Assets.
 
(2)
Retroactive application of IFRIC 21 - Levies, see note 1.E.6.a above.
 
(3)
Reclassified.

 

IDB Development Corporation Ltd.                           Convenience translation
 
287
 

Note 34 – Sectors (cont.)
 
 
G.
Sectorial assets
 
 
** The composition of the adjustments to consolidated:
 
   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
The sectorial assets
            
Elimination of amounts in respect of a sector that is classified in the financial statements as a held company that is treated under the equity method of accounting
     (18,452 )     (15,578 )
Elimination of amounts in respect of a sector that is classified in the financial statements as a financial asset that is measured at fair value
     (91,088 )     (86,050 )
Inclusion of the amount of the investment in a company that is presented as a financial asset that is measured at fair value
     1,696       3,182  
Inclusion of the amount of the investment in companies that are recorded under the equity method of accounting, as recorded in the financial statements
     3,102       2,055  
Inclusion of adjustments to fair value for the assets of held companies and goodwill in respect thereof
     2,770       3,453 (2)
Inclusion of the assets of head office companies and held companies that do not meet the definition of a sector
     3,048       6,142 (1)
Other adjustments
     (164 )     (41 )(1)
                 
      (99,088 )     (86,837 )
The sectorial liabilities
                
Elimination of amounts in respect of a sector that is classified in the financial statements as a held company that is treated under the equity method of accounting
     (15,325 )     (13,669 )
Elimination of amounts in respect of segments that are classified in the financial statements as a financial asset that is measured at fair value
     (86,785 )     (82,123 )
Inclusion of the liabilities of head office companies and held companies that do not meet the definition of a sector
     11,168       14,495 (1)
Inclusion of adjustments to fair value for the liabilities of subsidiary companies
     392       464 (2)
Other adjustments
     (149 )     (40 )(1)
      (90,699 )     (80,873 )
                 
 
(1)
Retroactive application of IFRIC 21 - Levies, see note 1.E.6.a above.
 
(2)
Reclassified.

 
H.
Investments in equity
 
   
Cellcom
    
Property and Building and projects in Los Angeles
    
Shufersal
    
Adama
    
Clal Holdings Insurance Enterprises
    
Others
  
   
NIS millions
  
For 2014
     487       371       458       667       405       17  
For 2013
     365       503       349       753       327       -  
                                                 

The equity investment for a sector is the amount of the non-current assets that have been added in the sectorial company.

IDB Development Corporation Ltd. Convenience translation 

 
288
 

Note 34 – Segments (cont.)
 
 
I.
The types of products and services from which the reportable segments generate their revenues:
 
 
- Cellcom – Cellular telephone services, content and added value services, other services and revenues from the sale of end-user equipment in the cellular field, as well as the provision of internet connection services, international telephony and the provision of managed services.
 
- Property and Buildings and project in Los Angeles – the rental of income-generating properties and residential buildings.
 
- Shufersal – Retail and the rental of income-generating properties.
 
- Adama – the sale of agro products and non-agro products.
 
- Clal Holdings Insurance Enterprises- operates through subsidiary companies in the fields of insurance, pensions and provident funds, in the field of financial services and in the holding of assets and real businesses.
 
- Credit Suisse – Financial services in the private banking field, investment banking and asset management. (Credit Suisse ceased to be a reportable sector in the Company’s financial statements as from 2014.
 
- Mashav – include the cement companies, through Nesher, which produces cement and Taavura, which is engaged in the provision of haulage, infrastructure and logistical services, the importing and marketing of trucks, buses, heavy equipment and cranes. (Mashav ceased to be a reportable sector as from the third quarter of 2012.
 
 
J.
Information regarding income from products and services, based on the financial information in the Company’s consolidated financial statements

   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Information in respect of sales and services to external customers
                  
Cellular -
                    
 
Cellular communications and other services
     2,621       2,937       3,445  
 
Landline communications services
     489       559       599  
 
Sale of telephone equipment
     1,005       942       1,356  
Internet services -
       451       483       531  
Real Estate -
                          
 
Leasing of income-generating properties
     803       795       828  
 
Residential construction
     423       560       382  
Retail -
       11,532       11,843       11,503  
Tourism -
       1,001       1,059       1,222  
Financial -
Other
     45       45       45  
Journalism, advertising space and printing works -
       -       -       180  
Other products -
       176       762       371  
        18,546       19,985       20,462  


IDB Development Corporation Ltd. Convenience translation 

 
289
 


Note 34 – Segments (cont.)
 
 
K.
Information on the basis of geographical areas
 
The country of residence of the Company and of some of the sector companies is Israel. The country of residence of some of the sector companies is abroad and some of them produce their revenues in foreign countries.
 
 
1.
Revenues from sales to external customers on the basis of geographical location, based on the financial information in the Company's consolidated financial statements

   
For the year ended December 31
  
   
2014
    
2013
    
2012
  
   
NIS millions
  
Israel
     17,889       18,591       19,738  
USA
     473       955       435  
Europe
     112       273       177  
Asia, except for India and Japan
     13       66       56  
Others
     59       100       56  
      18,546       19,985       20,462  
                         
 
 
2.
Non-current assets on a geographical basis*

   
As of December 31
  
   
2014
    
2013
  
   
NIS millions
  
Israel
     18,026       18,146  
USA
     4,105       3,328  
Europe
     54       54  
      22,185       21,528  
                 
 
*
Excluding investments in held companies that are treated under the equity method of accounting


Note 35 – Events after the date of the Statement of Financial Position
 
A.
For details of the rights issue that the Company undertook in January 2015, whose immediate proceeds amounted to a gross total of NIS 417 million; see note 15.B.5 above.
 
B.
In January 2015, Adama carried out a private issue of 533,330 units of Adama securities, as detailed below:
 
Item
  
Additional details
  
Quantity for each unit
Total quantity issued
Series B bonds
       (1)
NIS 1,000 par value
NIS 533,000,000 par value
Option notes
       (2)
5 option certificates
2.67 million options
 
 
The total net proceeds from the issue amounted to NIS 690 million.
 
(1)
Series B bonds were issued by way of expanding the series and are linked to the index with an annual interest rate of 5.15%, and the repayment of principal will be made in 17 equal installments between the years 2020 and 2036.
(2)
Options are not registered for trade on the Stock Exchange and may be exercised by May 10, 2015 (inclusive).  Each option may be realized into NIS 100 par value of Adama’s existing Series B bonds against a payment in cash (which is not linked to any basis of linkage whatsoever) totaling NIS 127. The options not exercised by May 10, 2015 shall expire. Should all of the options stated above be exercised in full, then Adama will issue NIS 267 million par value of Series B bonds and will receive in return NIS 339 million.

IDB Development Corporation Ltd. Convenience translation 

 
290
 


Note 35 – Events after the date of the Statement of Financial Position (cont.)
 
 
C.
In February 2015, Elron invested in Pocared Diagnostics Ltd. (Pocared), an Israeli company that is developing an advanced technological system to automatically and swiftly diagnose infectious diseases using an optical technology, and that was being held by Elron at the rate of 50.3% of its issued share capital and dealt with accordingly using the balance sheet value method, invested a sum of $4.5 million (out of a total investment of $5 million that Elron and other of its shareholders invested in Pocared.
 
It should be mentioned that some of Pocared’s shareholders, including Elron, undertook to invest an additional sum in Pocared of up to $10 million subject to Pocared complying with certain milestones. Elron's share in the above additional investment total is $8.9 million.
 
As a result of this investment, Elron’s holding in Pocared rose to about 53.3% of its issued share capital and to about 50.1% of its share capital on a full dilution basis, and for the first time Elron has the right to appoint most of Pocared’s board of directors and as from February 2015, Elron will begin to consolidate Pocared’s financial statements into its own. Owing to this change in the accounting records, Elron is expected to declare, during the first quarter of 2015, an estimated profit of $11 million in respect of the new measurement of fair value of Pocared’s shares that Elron was holding prior to the above consolidation (a fair assessment of value totaling $11.7 million less the value in Elron’s books of the previous holding totaling $0.7 million). The Company's share in Elron's profit estimated above amounts to $4 million dollars. The above profit data that Elron will record as a result of the change in the accounting records method, is an estimate only and is subject to the completion of a valuation of Pocared’s assets and liabilities by an external appraiser and also the approval of Elron’s financial statements as of March 31, 2015.
 
 
D.
In February 2015, Cellcom issued shares to the public, pursuant to its shelf offer report of January 2015, which was published pursuant to its shelf prospectus of January 2015 (which amended its shelf prospectus of June 2014) and also through a private issue to institutional investors:
·  
NIS 844 million nominal value additional bonds from Cellcom’s existing H series (which are index-linked) by way of expanding the series in return for the purchase of NIS 555 million nominal value of D series bonds (which are index-linked).
·  
NIS 335 million nominal value for additional bonds from Cellcom’s existing I series (which are not index-linked), by way of expanding the series in return for the purchase of NIS 272 million nominal value B Series bonds (which are not index-linked).
 
The bonds in the H and I Series that were issued as aforesaid were listed on the Stock Exchange, and the D and E series bonds, which were purchased by Cellcom as aforesaid, expired and were delisted from the Stock Exchange.
 
 
E.
In February 2015, Cellcom entered into an engagement through a collective labor agreement with the employees’ representatives and with the New General Federation of Workers for a period of three years (from 2015 until 2017).  This agreement applies to Cellcom’s employees and those of 013 Netvision Ltd., a subsidiary of Cellcom, apart from management positions and other particular positions. This agreement relates to policy and hiring conditions involving different aspects, including a minimum wage, an annual increase in salary, incentives, benefits and one-time payments or other annual payments to employees, a welfare budget, as well as regarding the procedures for manning job positions, mobility and dismissal, the authority of Cellcom’s management and that of the employees’ representatives in relation to the above procedures. The agreement includes innovative conditions according to which employees have the right to participate in Cellcom’s operating profit over and above a certain threshold and to enjoy additional payments under certain conditions.  According to Cellcom’s estimates, the cost of this agreement to Cellcom over the coming three years is estimated at NIS 200 million before tax.
 
 
F.
For details concerning the approval of the Discount Investments Board, at the request of the trustees for the holders of its bonds involving B, D, F, G, H & I series, for giving its undertaking in connection with certain activities, see Note 16.F.1.f above.

IDB Development Corporation Ltd. Convenience translation 

 
291
 


Note 35 – Events after the date of the Statement of Financial Position (cont.)
 
 
G.
In February 2015, the percentage of Mr. Mordechai Ben-Moshe’s holding in the Company's issued share capital decreased. This decrease may constitute a ground to demand immediate repayment of the loans that the Company and Discount Investments received. For details, see notes 16.E.n and 16.F.1.b above. Furthermore, the aforesaid change in the structure of the control of the Company will require the approval of the Ministry of Communications with regard to Cellcom’s licenses. For details, see note 23.B.1 above.
 
 
H.
For details concerning the agreement that was signed between IDB Tourism and several of its subsidiaries and a third party, for the sale of Diesenhaus’ tourist activities both domestic and incoming and the shares of certain of Diesenhaus’ subsidiaries which are subject to pending conditions, see note 3.H.6.b above.
 
For details concerning IDB Tourism and the Company's engagement in the compromise agreement with the Sky Fund, subject to completing the transaction for the sale of Diesenhaus’ activities, see Note 3.H.6.c above.
 
 
I.
For details concerning the IDB Tourism and Israir’s engagement with a foreign banking corporation by way of a Letter of Undertaking for a reorganization amounting to an estimated scope of about $90 million for the benefit of Israir; see note 16.F.6.1 above.
 
 
J.
Regarding claims submitted against held corporations after the date of the statement on financial position and changes that apply after this date involving pending and standing claims as of the financial statement’s date, see note 23 above.


IDB Development Corporation Ltd. Convenience translation 

 
292
 


Annex A – List of the Main Companies as of December 31, 2014

List of the main companies that are directly held by the Company

     
Holding percentage
    
Company name
Holding company
  
%
    
Discount Investment Corporation Ltd.
IDB Development Corporation Ltd.
     73.92  
Consolidated subsidiary
Clal Holdings Insurance Enterprises Ltd.
IDB Development Corporation Ltd.
     54.97  
Investment presented at fair value through the Statement of Income
IDB Tourism (2009) Ltd.
IDB Development Corporation Ltd.
     100.00  
Consolidated subsidiary
IDB Group Investment Inc. (1)
Maniv Issues Ltd.
     50.00  
Consolidated subsidiary
Modiin Energy Limited Partnership
IDB Development Corporation Ltd.
     9.12  
Included partnership

List of the main companies that are held by Discount Investment Corporation Ltd.

     
Holding percentage
    
Company name
Holding company
  
%
    
Koor Industries Ltd. (2)
Discount Investment Corporation Ltd.
     100.00  
Consolidated subsidiary
             
Elron Electronic Industries Ltd.
Discount Investment Corporation Ltd.
     50.32  
Consolidated subsidiary
Bartan Holdings and Investments Ltd. (3)
Discount Investment Corporation Ltd.
     55.68  
Consolidated subsidiary
Epsilon Investment House Ltd.
Discount Investment Corporation Ltd.
     68.75  
Consolidated subsidiary
Property & Building Corporation Ltd.(5)
Discount Investment Corporation Ltd.
     76.46  
Consolidated subsidiary
Gav Yam Land Ltd.
Property & Building Corporation Ltd.
     69.07  
Consolidated subsidiary
Israel Property Rental Corporation Ltd.(ISPRO) (1)
Property & Building Corporation Ltd.
     100.00  
Consolidated subsidiary
MATAM - Haifa Science Industries Center
Property & Building Corporation Ltd.
     50.10  
Consolidated subsidiary
Neveh-Gad Building & Development Ltd.
Property & Building Corporation Ltd.
     100.00  
Consolidated subsidiary
Hadarim Properties Ltd.
Property & Building Corporation Ltd.
     100.00  
Consolidated subsidiary
PBC USA Investment Inc.
Property & Building Corporation Ltd.
     100.00  
Consolidated subsidiary
Cellcom Israel Ltd. (5)
Discount Investment Corporation Ltd.
     41.78 (4)
Consolidated subsidiary
Netvision Ltd.
Cellcom Israel Ltd.
     100.00  
Consolidated subsidiary
Shufersal Ltd. (5)
Discount Investment Corporation Ltd.
     45.49 (4)
Consolidated subsidiary
Shufersal Real Estate Ltd.
Shufersal Ltd.
     100.00  
Consolidated subsidiary
Adama Agricultural Solutions Ltd. (5)
Koor industries Ltd.
     40.00  
Included

(1)
The other 50% is held indirectly by Property & Building Corporation Ltd.
(2)
See note 3.H.4.b.
(3)
Includes a holding through another company in the Discount Investments Ltd. group.
(4)
45.17% of voting rights.
(5)
Includes a holding through companies that are fully owned by the holding company.


IDB Development Corporation Ltd. Convenience translation 

 
293
 


Annex A – List of the Main Companies as of December 31, 2013 (cont.)

List of the main companies held by IDB Tourism (2009) Ltd.

     
Holding percentage
    
Company name
Holding company
  
%
    
Clal Travel & Tourism Holdings Ltd.
IDB Tourism (2009) Ltd.
     100.00  
Consolidated subsidiary
Diesenhaus Ltd.
Clal Travel & Tourism Holdings Ltd.
     100.00  
Consolidated subsidiary
Diesenhaus Unitours Incoming Tourism (1998) Ltd.
Diesenhaus Ltd.
     100.00  
Consolidated subsidiary
Diesenhaus Travel & Tourism (1979) Ltd.
Diesenhaus Ltd.
     100.00  
Consolidated subsidiary
Diesenhaus Ramat Hasharon (1982) Ltd.
Diesenhaus Travel & Tourism (1979) Ltd.
     50.00  
Affiliated company
Anadim Tourism & Aviation Ltd.
IDB Tourism (2009) Ltd.
     100.00  
Consolidated subsidiary
Open Ski Ltd.
Anadim Tourism & Aviation Ltd.
     53.50  
Consolidated subsidiary
Israir Airlines &  Tourism Ltd.
Anadim Tourism & Aviation Ltd.
     100.00  
Consolidated subsidiary


IDB Development Corporation Ltd. Convenience translation 

 
294
 


Annex B –Share Based Payments

The main option programs for employees in the Company’s subsidiaries as of December 31, 2014:

   
In Cellcom
  
The subsidiary company’s equity as of December 31, 2013
      
Number of shares
     100,584,490  
Total equity attributed to the shareholders of the subsidiary (in NIS millions)
     1,076  
General details of the plan
        
The year in which the plan was approved
     2006  
The number of options remaining as of December 31, 2014, which have not yet been granted
  
(a) 769,517
  
The maximum contractual lifetime of the options at the time of their grant
  
3.5-6 years
  
Vesting
        
The number of vesting years from the time of the grant
     2-4  
The vesting time of the first tranche – end of year from the date of the grant
     1  
The vesting time of the last tranche – end of year from the date of the grant
     2-4  
The percentage of the options vesting at the end of each year
     25%-50 %
The exercise price (for the options in existence as of December 31, 2014)
        
The base exercise price per share at the time of the grant of the options
  
(a) $5.91-$31.74
  
Adjustment of the exercise price for the distribution of dividends
  
Yes
  
Adjustment of the exercise price for a change in the index
  
No
  
The share price of the subsidiary company on the Stock Exchange (for the options in existence as of December 31, 2014)
        
At the time of the grant (the time of the approval by the Board of Directors)
   $ 6.14-$33.69  
At the time of the allocation of the options
   $ 6.14-$33.69  
Movements in the number of option warrants in circulation in 2014
        
Balance as of January 1, 2014
     2,965,964  
Exercised in the course of the year
     (1,986,093 )
Expired or forfeited in the course of the year
     (341,006 )
Balance as of December 31, 2014
     638,865  
Additional data as of December 31, 2014
        
Exercise price of the options in circulation
   $ 5.67-$28.95  
Weighted average exercise price of the options in circulation
   $ 15.86  
Number of exercisable options
     445,365  
Weighted average exercise price of the exercisable options
   $ 17.00  
Weighted average lifetime of the options in circulation
  
2.1 years
  
Benefits inherent in the options that have been granted (including in respect of plans that have ended)
        
Expenses recorded in the year 2014 (in NIS millions)
     3  
Expenses recorded in the year 2013 (in NIS millions)
     9  
Expenses recorded in the year 2012 (in NIS millions)
     7  

(a)
The exercise price serves solely and exclusively for the purpose of determining the benefit component of the options, in accordance with which the quantity of shares that will actually be issued in return for exercising the options will be calculated. Only the nominal value of the shares that will be issued in return for exercising the options will be paid when the options are exercised.


 
295
 
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