exhibit151.htm

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

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

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.

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)

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

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

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

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

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

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

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

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

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

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

Notes to the financial statements as of December 31, 2014

Note 1 – General

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.

Note 1 – General (cont.)

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

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

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.

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.

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.

Joint venture – a joint arrangement in which the parties there to have an interest in net assets attributable to the arrangement.

Joint operations – a joint venture in which the Group has an interest in assets and commitments to liabilities attributable to the arrangement.

Investees – subsidiaries, associates and joint ventures.

IDB Development Corporation Ltd. Convenience translation

Note 1 – General (cont.)

D. (cont.)

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

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

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

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

Note 1 – General (cont.)

E.	Basis for preparing the financial statements (cont.)

3. (cont.)

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:

Note 4 – Other Investments;

Note 6 – Fixed assets acquired in a business combination;

Note 7 – Investment property;

Note 10 – Intangible assets;

Note 21 – Financial instruments;

Note 16.F.1.d regarding the embedded derivative in the non-recourse loan;

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.

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

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.”

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:

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;

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;

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

Note 1 – General (cont.)

E.	Basis for preparing the financial statements (cont.)

Initial application of new standards and changes in estimates

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).

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

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.

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	)

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.

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

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

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

A.	Consolidated financial statements (cont.)

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.

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.

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

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

A.	Consolidated financial statements (cont.)

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

B.	Foreign currency (cont.)

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

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

Note 2 – Principles of the Accounting Policy (cont.)

C.	Financial instruments (cont.)

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

Note 2 – Principles of the Accounting Policy (cont.)

C.	Financial instruments (cont.)

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

C.	Financial instruments (cont.)

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.

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

C.	Financial instruments (cont.)

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

Note 2 – Principles of the Accounting Policy (cont.)

D.	Fixed assets

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

D.	Fixed assets (cont.)

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

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

E.	Intangible assets (cont.)

Other intangible assets

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.

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.

Customer relations – The excess cost that was attributed in subsidiaries to customer relations. These customer relations have a finite useful life.

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

E.	Intangible assets (cont.)

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:

Use in the production or supply of goods or services or for administrative purposes; or

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:

According to fair value (without the capitalization of borrowing costs) when the fair value of the investment property under construction is reliably determinable; and

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

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.

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

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

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

M. Impairment (cont.)

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

Note 2 – Principles of the Accounting Policy (cont.)

M. Impairment (cont.)

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

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

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.

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.

Note 2 – Principles of the Accounting Policy (cont.)

P.	Employee benefits (cont.)

Post-employment benefits (cont.)

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.

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.

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.

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.

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

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).

Income

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

Note 2 – Principles of the Accounting Policy (cont.)

R.	Income (cont'd)

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.

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.

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.

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.

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

Note 2 – Principles of the Accounting Policy (cont.)

R.	Income (cont'd)

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.

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.

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

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

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.

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.

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.

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

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

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

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

Note 2 – Principles of the Accounting Policy (cont.)

X.	New standards and interpretations not yet adopted (cont.)

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

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

Note 3 – Investments (cont.)

C.	Details regarding associates and joint transactions

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

Note 3 – Investments (cont.)

C.	Details regarding associates and joint transactions (cont.)

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

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

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

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)

(9)	Subsidiary income is included in the group of income in the Company’s consolidated statement of income.

IDB Development Corporation Ltd. Convenience translation

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)

(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

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

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

Note 3 – Investments (cont.)

G.	Additional information on investments of the Company and its investee companies (cont.)

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.

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:

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

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

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.

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:

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.

Property & Building and Las Vegas projects

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Shufersal

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Shufersal (cont.)

(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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Shufersal (cont.)

(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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Shufersal (cont.)

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%.

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:

Provisions regulating the activities of suppliers and retailers, including the activities of large retailers;

Provisions regarding geographical competition between retailers; and

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.

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.

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Koor

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Koor (cont.)

(cont.)

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.

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.

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.

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.

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Koor (cont.)

(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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Koor (cont.)

(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.

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Koor (cont.)

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

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Clal Holdings Insurance Enterprises (cont.)

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:

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Clal Holdings Insurance Enterprises (cont.)

The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises (cont.)

(cont.)

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”);

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);

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Clal Holdings Insurance Enterprises (cont.)

The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises (cont.)

(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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

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:

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:

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.

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.

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.

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.

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:

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.

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.

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Clal Holdings Insurance Enterprises (cont.)

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.

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.

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.

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.

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:

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.

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.

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.

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

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.

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.

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Other

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.

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.

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

Note 3 – Investments (cont.)

H.	Development of investments in investee companies (cont.)

Other (cont.)

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.

Dividends

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.

In March 2014, Shufersal distributed a cash dividend of NIS 70 million.

In September 2014, Elron distributed a cash dividend of USD 110 million.

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

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

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

Note 3 – Investments (cont.)

I.	Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)

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

Note 3 – Investments (cont.)

I.	Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)

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

Note 3 – Investments (cont.)

I.	Details regarding companies whose consolidation was ended during the reporting period and discontinued operations (cont.)

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	)

The main companies whose consolidation was ended or begun in these financial statements

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

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

Note 3 – Investments (cont.)

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.

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

Note 3 – Investments (cont.)

K.	Capital requirements for insurance companies in Israel (cont.)

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.

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.

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.

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).

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.

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

Note 3 – Investments (cont.)

K.	Capital requirements for insurance companies in Israel (cont.)

3. (cont.)

Composition of insurer’s capital (cont.)

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:

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.

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.

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.

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.

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:

The insurance company’s annual earnings projection, for the two years following the dividend distribution date.

Submission of an updated debt service plan approved by the Board of Directors of the insurance company.

Submission of a capital make-up action plan approved by the Board of Directors of the insurance company.

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

Note 3 – Investments (cont.)

K.	Capital requirements for insurance companies in Israel (cont.)

3. (cont.)

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

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.

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

Note 3 – Investments (cont.)

K.	Capital requirements for insurance companies in Israel (cont.)

3. (cont.)

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.

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.

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.

Note 3 – Investments (cont.)

K.	Capital requirements for insurance companies in Israel (cont.)

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.

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.

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

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

Note 3 – Investments (cont.)

L.	Capital requirements in companies that manage pension funds and provident funds (cont.)

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

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

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

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

Note 6 – Fixed Assets (cont.)

B.	Additional information

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.

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.

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).

Fixed assets under construction amounts as at December 31, 2014 to NIS 291 million (as at December 31, 2013 – NIS 167 million).

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.

With regard to pledges – see note 22 below.

IDB Development Corporation Ltd. Convenience translation

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		525			8,532			770			9,827
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

Note 7 – Investment Property (cont.)

B.	Update of fair value

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.

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.

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

Note 7 - Investment Property (cont.)

C.	Determination of fair value

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

Note 7 - Investment Property (cont.)

C.	Determination of fair value (cont.)

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.

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

	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

	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

	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

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

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

	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

							As at December 31, 2014
		Linkage basis	Nominal interest		Principal payment date		Nominal value		Book value
	Series	Linkage basis	%		Principal payment date		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

							As at December 31, 2014
		Linkage	Stated interest		Principal payment date		Nominal value		Book value
	Series	basis	%		Principal payment date		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

			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

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

	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	%

	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%

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

	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.

	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

	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	)

	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	)

	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

				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

	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

	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		-

	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	-	-	-

	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)

	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	)

	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	)

	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	)

	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	)

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 *

	Consolidated
	NIS millions
Up to one year		659
One year to five years		1,794
More than five years		739
		3,192

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	126
3. Claims that did not stipulate an amount	Motions to certify class actions	4