EX-15.1 8 exhibit151.htm EXHIBIT 15.1 IRSA 2015 IDBD FS
Exhibit 15.1
IDB Development Corporation Ltd.
Financial Statements
December 31, 2014
(Unaudited)

* * | The following is a convenience translation to English.

TRANSLATION FROM HEBREW – IN THE EVENT OF ANY DISCREPANCY THE HEBREW SHALL PREVAIL
1

IDB Development Corporation Ltd.
Periodic Report for 2014
Table of Contents:Page

Consolidated Statements of Financial Position | 4-5
Consolidated Statements of Income | 6
Consolidated Statements of Comprehensive Income | 7
Statements of Changes in Equity | 8-10
Consolidated Statements of Cash Flows | 11-12
Notes to the Financial Statements |
Note 1-General | 13-23
Note 2- Significant Accounting Policies | 24-52
Note 3- Investments | 53-92
Note 4- Other investments, including derivatives | 92-93
Note 5- Loans, deposits, charged and restricted deposits and debit balances | 93
Note 6- Fixed Assets | 94-96
Note 7- Investment Property | 97-101
Note 8- Trade Receivables | 102
Note 9- Inventory | 102
Note 10- Intangible Assets | 103-106
Note 11- Accounts Receivable and Debit Balances | 107
Note 12- Inventory of buildings for sale | 107
Note 13- Assets and liabilities of realization groups and other assets and liabilities classified as held-for-sale | 108
Note 14- Cash and Cash Equivalents | 108
Note 15- Equity and Reserves | 109-116
Note 16- Bank Loans and other Financial Liabilities at Amortized Cost | 117-170
Note 17- Provisions | 170-171
Note 18- Employee benefits | 172
Note 19- Accounts Payable and Credit Balances | 173
Note 20- Trade Payables | 173
Note 21- Financial Instruments | 173-197
Note 22- Liens and Guarantees | 198-200
Note 23- Contingent Liabilities, Commitments and Lawsuits | 201-241
Note 24- Sales and services | 242
Note 25- The Group's share of the profits (losses) of investee companies that are treated under the equity method of accounting, net | 242
Note 26- Profit (loss) on disposal and the writing down of investments and assets, and dividends | 243
Note 27- Changes in the fair value of investment property | 244

2

Note 28- Financing income and expenses | 245
Note 29- Cost of sales and services | 246
Note 30- Selling and marketing expenses | 247
Note 31- Administrative and general expenses | 247
Note 32- Taxes on income | 248-253
Note 33- Related and Interested Parties | 254-279
Note 34- Segments | 280-292
Note 35- Events after the date of the statement of financial position | 292-294
Appendix to the Financial Statements | 295-297

Attached documents:

1. | Included by way of reference to attached papers to the financial statements of Discount Investment Corporation Ltd. as at December 31, 2014, which were submitted by it to the Israel Securities Authority and which were published on March 25, 2015 (reference no. 2015-01-061831).

˗ | Economic papers in connection with an impairment test regarding the goodwill attributed toCellcom Israel Ltd. as at December 31, 2014.

˗ Economic analysis in connection with an impairment test regarding the goodwill attributed toShufersal Ltd. as at December 31, 2014.
˗ An economic analysis regarding the value of a hybrid financial instrument in respect of a non-recourse loan as at December 31, 2014, which was received by Koor Industries Ltd. (“Koor”)within the framework of the merger between Adama Agricultural Solutions Ltd. andChemChina.

2. | A valuation as at September 30, 2014 of a commerce and offices project, Great Wash Park, LLC in Las Vegas, which is partly held by the Company and Property & Building Corporation, Ltd. ("Property & Building"), is included in these financial statements by way of reference to the said valuation which is attached with the financial statements of Property & Building as at 30 September, 2014, which was filed by it to the Israel Securities Authority and published on November 16, 2014 (ref. no: 2014-01-195366)

3. | Data regarding the Company’s liabilities are attached to these financial statements, pursuant to Regulation 38E of the Securities Regulations (Periodic and Immediate Reports), 5730 - 1970, by way of reference to the aforementioned data which are included in the report regarding the corporation's liabilities, which was submitted by the company to the Israel Securities Authority and published on March 31, 2015 (reference number 2015-01-125458).

IDB Development Corporation Ltd. Convenience translation
3

Consolidated Statements of Financial Position

|  |  | December 31 |
| Note |  | 2014(2) |  |  | 2013(2) |
|  |  | NIS millions |
Non-current assets |  |  |  |  |  |  |
Investments in investee companies accounted by the equity method | 3 |  |  | 3,753 |  |  |  | 3,749 | (1)
Other investments, including derivatives | 4 |  |  | 2,122 |  |  |  | 355 |
Loans, pledged and restricted deposits and debit balances | 5 |  |  | 151 |  |  |  | 93 |
Fixed assets | 6 |  |  | 5,559 |  |  |  | 5,488 |
Investment property | 7 |  |  | 11,175 |  |  |  | 9,827 | (3)
Assets designated for the payment of employee benefits |  |  |  | 1 |  |  |  | 1 |
Long-term trade receivables | 8 |  |  | 476 |  |  |  | 512 |
Real estate and other inventory |  |  |  | 375 |  |  |  | 374 |
Deferred expenses |  |  |  | 284 |  |  |  | 276 |
Deferred tax assets | 32 |  |  | 53 |  |  |  | 157 |
Intangible assets | 10 |  |  | 4,782 |  |  |  | 5,394 | (1)
|  |  |  | 28,731 |  |  |  | 26,226 |
Current assets |  |  |  |  |  |  |  |  |
Other investments, including derivatives | 4 |  |  | 3,317 |  |  |  | 2,982 |
Loans, deposits and pledged and restricted deposits | 5 |  |  | 514 |  |  |  | 667 |
Receivables and debit balances | 11 |  |  | 384 |  |  |  | 455 |
Current tax assets |  |  |  | 46 |  |  |  | 29 |
Trade receivables | 8 |  |  | 2,712 |  |  |  | 3,059 |
Inventory | 9 |  |  | 851 |  |  |  | 809 |
Inventory of buildings for sale | 12 |  |  | 691 |  |  |  | 849 |
Assets of disposal groups and other assets classified as held for sale | 13 |  |  | 5 |  |  |  | 4,779 | (1)
Cash and cash equivalents | 14 |  |  | 3,578 |  |  |  | 6,313 |
|  |  |  | 12,098 |  |  |  | 19,942 |
Total assets |  |  |  | 40,829 |  |  |  | 46,168 |

(1) | Reclassified - see Note 1.F(1). below.

(2) | For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b(1) below.

(3) Retrospective adoption of IFRIC 21, Levies see notes 1.E.(6).a. and 1.F.(1) below.
The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
4

Consolidated Statements of Financial Position (Cont.)

|  |  | December 31 |
| Note |  | 2013(2) |  |  | 2012(2) |
|  |  | NIS millions |
Capital | 15 |  |  |  |  |  |
Share capital |  |  |  | - |  |  |  | 61 |
Premium on shares |  |  |  | 2,698 |  |  |  | 2,146 |
Capital reserves |  |  |  | (87 | ) |  |  | (401 | )
Treasury shares |  |  |  | - |  |  |  | (656 | )
Accumulated losses |  |  |  | (2,834 | ) |  |  | (1,822 | )
Capital deficit attributed to shareholders of the Company |  |  |  | (223 | ) |  |  | (672 | )
Non-controlling interests |  |  |  | 3,534 |  |  |  | 4,687 |
|  |  |  | 3,311 |  |  |  | 4,015 |
Non-current liabilities |  |  |  |  |  |  |  |  |
Debentures | 16 |  |  | 18,721 |  |  |  | 20,672 |
Loans from banks and other financial liabilities | 16 |  |  | 3,664 |  |  |  | 4,196 |
Hybrid financial instrument in respect of non-recourse loan | 16 |  |  | 3,090 |  |  |  | 3,057 |
Financial liabilities presented at fair value |  |  |  | 13 |  |  |  | 11 |
Other non-financial liabilities |  |  |  | 108 |  |  |  | 121 | (1) (3)
Provisions | 17 |  |  | 235 |  |  |  | 132 | (1)
Deferred tax liabilities | 32 |  |  | 1,508 |  |  |  | 1,456 |
Employee benefits | 18 |  |  | 174 |  |  |  | 144 |
|  |  |  | 27,513 |  |  |  | 29,789 |
Current liabilities |  |  |  |  |  |  |  |  |
Debentures and current maturities of debentures |  |  |  | 3,303 |  |  |  | 4,527 |
Credit from banking corporations and current maturities of loans from banks and others | 16 |  |  | 1,863 |  |  |  | 2,482 |
Financial liabilities presented at fair value |  |  |  | 50 |  |  |  | 101 |
Payables and credit balances | 19 |  |  | 1,912 |  |  |  | 2,358 | (1)
Trade payables | 20 |  |  | 2,504 |  |  |  | 2,291 |
Current tax liabilities |  |  |  | 133 |  |  |  | 155 |
Overdraft |  |  |  | 80 |  |  |  | 78 |
Provisions | 17 |  |  | 160 |  |  |  | 207 | (1)
Liabilities of disposal groups and other liabilities classified as held for sale |  |  |  | - |  |  |  | 165 |
|  |  |  | 10,005 |  |  |  | 12,364 |
Total capital and liabilities |  |  |  | 40,829 |  |  |  | 46,168 |

Date of approval of the financial statements: March 30, 2015
IDB Development Corporation Ltd. Convenience translation
5

Consolidated Statements of Income

|  |  | For the year ended December 31 |
| Note |  | 2014(2) |  |  | 2013(1) |  |  | 2012 (1) |
|  |  | NIS millions |
Revenues |  |  |  |  |  |  |  |  |  |
Sales and services | 24 |  |  | 18,546 |  |  |  | 19,985 |  |  |  | 20,462 |
The Group's share in the profit of investee companies accounted for by the equity method, net | 25 |  |  | - |  |  |  | 61 |  |  |  | - |
Gain from realization and increase in value of investments assets and dividends | 26A. |  |  | 958 |  |  |  | 179 | (1) |  |  | 241 |
Increase in fair value of investment property | 27A. |  |  | 439 |  |  |  | 417 |  |  |  | 540 |
Other revenues |  |  |  | 1 |  |  |  | 24 |  |  |  | 30 |
Financing income | 28A. |  |  | 1,200 |  |  |  | 665 |  |  |  | 824 |
|  |  |  | 21,144 |  |  |  | 21,331 |  |  |  | 22,097 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales and services | 29 |  |  | 13,215 |  |  |  | 13,835 | (3) |  |  | 14,208 | (3)
Research and development expenses |  |  |  | 27 |  |  |  | 108 |  |  |  | 36 |
Selling and marketing expenses | 30 |  |  | 3,503 |  |  |  | 3,501 | (3) |  |  | 3,427 | (3)
General and administrative expenses | 31 |  |  | 1,034 |  |  |  | 1,139 |  |  |  | 1,191 |
The Group's share in the loss of investee companies accounted for by the equity method, net | 25 |  |  | 500 | (5) |  |  | - |  |  |  | 932 |
Loss from realization, impairment, and write-down of investments and assets | 26B. |  |  | 844 |  |  |  | 138 |  |  |  | 450 |
Decrease in fair value of investment property | 27B. |  |  | 26 |  |  |  | 97 |  |  |  | - |
Other expenses |  |  |  | 11 |  |  |  | 13 |  |  |  | 60 |
Financing expenses | 28B. |  |  | 2,475 |  |  |  | 2,446 |  |  |  | 2,297 |
|  |  |  | 21,635 |  |  |  | 21,277 |  |  |  | 22,601 |
Profit (loss) before taxes on income |  |  |  | (491 | ) |  |  | 54 |  |  |  | (504 | )
Taxes on income | 32 |  |  | (359 | ) |  |  | (304 | ) |  |  | (452 | )
Loss for the year from continuing operations |  |  |  | (850 | ) |  |  | (250 | ) |  |  | (956 | )
Profit from discontinued operations, after tax |  |  |  | 64 |  |  |  | 763 | (1) |  |  | 463 |
Net profit (loss) for the year |  |  |  | (786 | ) |  |  | 513 |  |  |  | (493 | )
Net profit (loss) for the year attributed to: |  |  |  |  |  |  |  |  |  |  |  |  |
The Company’s owners |  |  |  | (999 | ) |  |  | (153 | ) |  |  | (733 | )
Non-controlling interests |  |  |  | 213 |  |  |  | 666 |  |  |  | 240 |
|  |  |  | (786 | ) |  |  | 513 |  |  |  | (493 | )
Earnings (loss) per share to the Company’s owners(4) | 15 |  | NIS |  |  | NIS |  |  | NIS |
Basic and diluted loss per share from continuing operations |  |  |  | (4.10 | ) |  |  | (2.52 | )(1) |  |  | (5.79 | )
Basic and diluted earnings per share from discontinued operations |  |  |  | 0.13 |  |  |  | 1.82 | (1) |  |  | 2.43 |
Basic and diluted earnings (loss) per share |  |  |  | (3.97 | ) |  |  | (0.7 | ) |  |  | (3.36 | )

(1) | For details regarding the deconsolidation of Clal Holdings Insurance Enterprises, dated August 21, 2013, see notes 3.H.5.b and 3.I.1. below .

(2) | For details regarding the deconsolidation of Given Imaging in February 2014, and regarding the profit generated by the realization of the investment therein, see note 3.H.6.a. below.

(3) | Reclassified - see note 1.F.(2). below.

(4) | The presented data has been retroactively adjusted, in accordance with the changes in the company's issued share capital, including the benefit component in the rights issuance subsequent to the date of the statement of financial position. See note 1.F.(3). below.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
6

Consolidated Statements of Comprehensive Income

|  | For the year ended December 31 |
|  | 2014(1) |  |  | 2013(1) |  |  | 2012(1) |
|  | NIS millions |
Net profit (loss) for the year |  |  | (786 | ) |  |  | 513 |  |  |  | (493 | )
Other comprehensive income items after initial recognition under comprehensive income which have been transferred or will be transferred to profit and loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation differences for foreign operations |  |  | 348 |  |  |  | (263 | ) |  |  | (23 | )
Foreign currency translation differences for foreign operations, charged to profit or loss |  |  | 25 |  |  |  | 3 |  |  |  | 10 |
Effective part in changes in the fair value of cash flow hedging |  |  | 10 |  |  |  | (12 | ) |  |  | (5 | )
Net change in the fair value of cash flow hedging, charged to profit and loss |  |  | - |  |  |  | 11 |  |  |  | (15 | )
Profit from hedging of net investment in foreign operations |  |  | - |  |  |  | - |  |  |  | 35 |
Profit from hedging of net investment in foreign operations, charged to profit and loss |  |  | - |  |  |  | - |  |  |  | (35 | )
Impairment of net assets, charged against revaluation reserve |  |  | - |  |  |  | - |  |  |  | (5 | )
The Group's share in other comprehensive income (loss) in respect of investee companies accounted for by the equity method |  |  | 572 |  |  |  | (315 | ) |  |  | (106 | )
Total other comprehensive income (loss) after initial recognition under comprehensive income which has been transferred or will be transferred to profit and loss |  |  | 955 |  |  |  | (576 | ) |  |  | (144 | )
Other comprehensive income items which will not be transferred to profit and loss, net of tax |  |  |  |  |  |  |  |  |  |  |  |
Revaluation of fixed assets transferred to investment property |  |  | 5 |  |  |  | 7 |  |  |  | 80 |
Actuarial gain (loss) from defined benefit plan |  |  | (14 | ) |  |  | 6 |  |  |  | (23 | )
Change, net, in the fair value of financial assets at fair value through comprehensive income |  |  | (2 | ) |  |  | (8 | ) |  |  | (5 | )
The Group's share in other comprehensive income (loss) in respect of investee companies accounted by the equity method |  |  | 3 |  |  |  | - |  |  |  | (5 | )
Total other comprehensive income (loss) which will not be transferred to profit and loss |  |  | (8 | ) |  |  | 5 |  |  |  | 47 |
Total comprehensive income (loss) for the year, net of tax |  |  | 947 |  |  |  | (571 | ) |  |  | (97 | )
Total comprehensive income (loss) for the year |  |  | 161 |  |  |  | (58 | ) |  |  | (590 | )
Attributed to: |  |  |  |  |  |  |  |  |  |  |  |
The Company’s owners |  |  | (385 | ) |  |  | (487 | ) |  |  | (804 | )
Non-controlling interests |  |  | 546 |  |  |  | 429 |  |  |  | 214 |
Comprehensive loss for the year |  |  | 161 |  |  |  | (58 | ) |  |  | (590 | )

(1) | For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b. below.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
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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
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Consolidated Statements of Changes in Equity (cont'd)

|  | Attributed to the Company's owners |  |  |  |  |  |  |
|  | Share Capital |  |  | Premium on shares |  |  | Other reserves |  |  | Reserves in respect of transactions with non-controlling interests |  |  | Reserves from translation differences |  |  | Hedging reserves |  |  | Reserves in respect of available-for-sale financial assets through other comprehensive income |  |  | Revaluation reserves |  |  | Treasury shares |  |  | Accumulated losses |  |  | Total capital (capital deficit) attributed to shareholders of the Company |  |  | Non-controlling interests |  |  | Total capital |
|  | NIS millions
For the year ended December 31, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2013 |  |  | 61 |  |  |  | 2,146 |  |  |  | 251 |  |  |  | 53 |  |  |  | (419 | ) |  |  | (68 | ) |  |  | (14 | ) |  |  | 78 |  |  |  | (656 | ) |  |  | (1,671 | ) |  |  | (239 | ) |  |  | 4,807 |  |  |  | 4,568 |
Profit (loss) for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (153 | ) |  |  | (153 | ) |  |  | 666 |  |  |  | 513 |
Other comprehensive income (loss) for the year (see Note 15.E. below) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (328 | ) |  |  | (10 | ) |  |  | (3 | ) |  |  | 3 |  |  |  | - |  |  |  | 4 |  |  |  | (334 | ) |  |  | (237 | ) |  |  | (571 | )
Transactions with owners charged directly to equity, investments of owners and distributions to owners |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends to non-controlling interests |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (319 | ) |  |  | (319 | )
Acquisition of interests in subsidiaries from holders of non-controlling interests(1) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14 |  |  |  | (25 | ) |  |  | (11 | )
Sale of interests in subsidiaries to non-controlling interests(2) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (32 | ) |  |  | 64 |  |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 39 |  |  |  | 580 |  |  |  | 619 |
Non-controlling interests in respect of business combination |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 543 |  |  |  | 543 |
Change in non-controlling interests following discontinuance of consolidation of subsidiary (primarily Clal Holdings Insurance Enterprises) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,673 | ) |  |  | (1,673 | )
Sale of interests in subsidiaries to non-controlling interests through profit sharing policies, net (3) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10 |  |  |  | (9 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 306 |  |  |  | 307 |
Transaction with controlling shareholder in subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1 |
Share-based payments granted by consolidated companies |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 38 |  |  |  | 38 |
Realization of financial assets measured at fair value through other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | (3 | ) |  |  | - |  |  |  | - |  |  |  | - |
Amortization of revaluation reserve, following rise to control, to surplus |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1 | ) |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |
Balance as at December 31, 2013 |  |  | 61 |  |  |  | 2,146 |  |  |  | 251 |  |  |  | 45 |  |  |  | (692 | )(4) |  |  | (71 | ) |  |  | (14 | ) |  |  | 80 |  |  |  | (656 | ) |  |  | (1,822 | ) |  |  | (672 | ) |  |  | 4,687 |  |  |  | 4,015 |

(1) | Includes effects in respect of expiration of share-based payment instruments in consolidated companies.

(2) | Includes effects in respect of realization of share-based payment instruments in consolidated companies.

(3) | Including effects with respect to the discontinuance of the consolidation of Clal Holdings Insurance Enterprises

(4) | Includes NIS 14 million with respect to the assets and liabilities of Given Imaging Ltd., which are classified as held for sale.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
9

Consolidated Statements of Changes in Equity (Contd.)

|  | Attributed to the Company's owners |  |  |  |  |  |  |
|  | Share capital |  |  | Premium on shares |  |  | Other reserves |  |  | Reserves in respect of transactions with non-controlling interests |  |  | Reserves from translation differences |  |  | Hedging reserves |  |  | Reserves in respect of available-for-sale financial assets through other comprehensive income |  |  | Revaluation reserves |  |  | Treasury shares |  |  | Accumulated losses |  |  | Total capital (capital deficit) attributed to shareholders of the Company |  |  | Non-controlling interests |  |  | Total capital |
|  | NIS millions
For the year ended December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2012 |  |  | 61 |  |  |  | 2,146 |  |  |  | 251 |  |  |  | 140 |  |  |  | (381 | ) |  |  | (19 | ) |  |  | (12 | ) |  |  | 60 |  |  |  | (656 | ) |  |  | (938 | ) |  |  | 652 |  |  |  | 7,310 |  |  |  | 7,962 |
Profit (loss) for the year |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  | (733) |  |  | (733 | ) |  |  | 240 |  |  |  | (493 | )
Other comprehensive income (loss) for the year (see Note 15.E. below) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (38 | ) |  |  | (49 | ) |  |  | (2 | ) |  |  | 31 |  |  |  | - |  |  |  | (13 | ) |  |  | (71 | ) |  |  | (26 | ) |  |  | (97 | )
Transactions with owners charged directly to equity, investments of owners and distributions to owners |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dividends to non-controlling interests |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (687 | ) |  |  | (687 | )
Acquisition of interests in subsidiaries from holders of non-controlling interests(1) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8 | ) |  |  | (20 | ) |  |  | (28 | )
Sale of interests in subsidiaries to non-controlling interests(2) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 23 |  |  |  | 23 |
Change in non-controlling interests following discontinuance of consolidation of a subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,088 | ) |  |  | (2,088 | )
Acquisition of interests in subsidiaries to non-controlling interests through profit sharing policies, net |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (30 | ) |  |  | (16 | ) |  |  | (46 | )
Share-based payments granted by consolidated companies |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 22 |  |  |  | 22 |
Provision of beneficiary loans to a subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (6 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (6 | ) |  |  | 6 |  |  |  | - |
Charging the share of non-controlling interests in the capital deficit of a subsidiary to the owners of the Company |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (43 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (43 | ) |  |  | 43 |  |  |  | - |
Amortization of revaluation reserve, following rise to control, to surplus |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13 | ) |  |  | - |  |  |  | 13 |  |  |  | - |  |  |  | - |  |  |  | - |
Balance as at December 31, 2012 |  |  | 61 |  |  |  | 2,146 |  |  |  | 251 |  |  |  | 53 |  |  |  | (419 | ) |  |  | (68 | ) |  |  | (14 | ) |  |  | 78 |  |  |  | (656 | ) |  |  | (1,671 | ) |  |  | (239 | ) |  |  | 4,807 |  |  |  | 4,568 |

(1) | Includes effects in respect of expirations of share-based payment instruments in consolidated companies.

(2) | Includes effects in respect of realizations of share-based payment instruments in consolidated companies.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
10

Consolidated Statements of Cash Flows

|  | For the year ended December 31
|  | 2014(1) |  |  | 2013(1) |  |  | 2012(1) |
|  | NIS millions |
Cash flows from operating activities |  |  |  |  |  |  |  |  |
Profit (loss) for the year |  |  | (786 | ) |  |  | 513 |  |  |  | (493 | )
Profit (loss) from discontinued operations, after tax |  |  | (64 | )(3) |  |  | (763 | ) (2)(3) |  |  | (463 | )(3)
Adjustments: |  |  |  |  |  |  |  |  |  |  |  |
The Group's share in the loss (net profit) of investee companies accounted for by the equity method, net |  |  | 500 |  |  |  | (61 | ) |  |  | 932 |
Dividends received |  |  | 27 |  |  |  | 40 |  |  |  | 77 |
Realization losses (profits), decrease (increase) and write-downs, net, of investments, assets and dividends |  |  | (114 | ) |  |  | 41 | (2) |  |  | 209 |
Increase in fair value of real estate investments, net |  |  | (413 | ) |  |  | (320 | ) |  |  | (540 | )
Amortization of fixed assets and deferred expenses |  |  | 776 | (4) |  |  | 754 |  |  |  | 819 |
Amortization of intangible assets and others |  |  | 355 | (5) |  |  | 374 |  |  |  | 423 |
Financing costs, net |  |  | 1,274 |  |  |  | 1,766 |  |  |  | 1,444 |
Expenses of tax on income, net |  |  | 359 |  |  |  | 304 |  |  |  | 452 |
Income tax paid, net |  |  | (197 | ) |  |  | (208 | ) |  |  | (223 | )
Share-based payment transactions |  |  | 9 |  |  |  | 27 |  |  |  | 13 |
Receipts (payments) in respect of the settlement of derivatives, net |  |  | (6 | ) |  |  | (17 | ) |  |  | 20 |
|  |  | 1,720 |  |  |  | 2,368 |  |  |  | 2,670 |
Changes in other balance sheet items |  |  |  |  |  |  |  |  |  |  |  |
Change in other receivables and debit balances (including long term amounts) |  |  | (37 | ) |  |  | (53 | ) |  |  | (87 | )
Change in trade receivables (including long term amounts) |  |  | 495 |  |  |  | 559 |  |  |  | 287 |
Change in inventory |  |  | 49 |  |  |  | 196 |  |  |  | 15 |
Change in non-current inventory |  |  | (13 | ) |  |  | (43 | ) |  |  | (15 | )
Change in provisions and in employee benefits |  |  | 2 |  |  |  | 9 |  |  |  | 27 |
Change in trade payables |  |  | (20 | ) |  |  | (160 | ) |  |  | (140 | )
Change in other payables, credit balances and liabilities in respect of government grants and others (including long term amounts) |  |  | 113 | (6) |  |  | 11 |  |  |  | (114 | )
|  |  | 589 |  |  |  | 519 |  |  |  | (27 | )
Net cash provided from continuing operating activities |  |  | 2,309 |  |  |  | 2,887 |  |  |  | 2,643 |
Net cash provided from discontinued operating activities |  |  | - |  |  |  | 1,362 |  |  |  | 680 |
Net cash provided from operating activities |  |  | 2,309 |  |  |  | 4,249 |  |  |  | 3,323 |

(1) | For the principal details regarding subsidiaries whose consolidation was discontinued or applied in the Company’s financial statements, see Note 3.I.3.b. below.

(2) | For the details regarding the deconsolidation of Clal Holdings Insurance Enterprises and restatement with respect to discontinued operation, see notes 3.I.1, 3.H.5.a. and . 3.I.3.a. below.

(3) | Including effects with respect to the realization of an investment in Credit Suisse, see note 3.H.4.c. and 3.I.1. below.

(4) | Includes impairment loss in respect of fixed assets in the amount of NIS 54 million with respect to the current business plan of Shufersal, see note 3.H.3.B. below and amortization for impairment loss of excess cost attributecd to Shufersal in the amount of NIS 12 million.

(5) | Includes amortization for impairment loss of excess cost attributed to Shufersal in the amount of NIS 60 million.

(6) | Includes a provision for an onerous contract in the amount of NIS 101 million, and liabilities in respect of dismissal in the amount of NIS 29 million in respect of the current business plan of Shufersal, see note 3.H.3.B below.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
11

Consolidated Statements of Cash Flows (Cont.)

|  | For the year ended December 31 |
|  | 2014(1) |  |  | 2013(1) |  |  | 2012(1) |
|  | NIS millions |
Cash flows from investing activities |  |  |  |  |  |  |  |  |
Deposits, loans and long term investments provided |  |  | (197 | ) |  |  | (2 | ) |  |  | (12 | )
Repayment of long term deposits and loans provided |  |  | 95 |  |  |  | 18 |  |  |  | 10 |
Decrease (increase) in pledged and restricted deposits, net |  |  | 478 |  |  |  | (196 | ) |  |  | 550 |
Current investments, loans and short-term deposits, net |  |  | (438 | ) |  |  | (915 | ) |  |  | (383 | )
Investments and loans in investee companies accounted by the equity method |  |  | (50 | ) |  |  | (35 | ) |  |  | (231 | )
Non-current investments |  |  | (3 | ) |  |  | (126 | ) |  |  | (74 | )
Investments in fixed assets and intangible assets |  |  | (840 | ) |  |  | (734 | ) |  |  | (905 | )
Investments in investment property |  |  | (463 | ) |  |  | (508 | ) |  |  | (322 | )
Receipts (payments) in respect of the settlement of derivatives, net |  |  | 4 |  |  |  | (12 | ) |  |  | 14 |
Acquisitions of subsidiaries, net of acquired cash, as part of their initial consolidation |  |  | (6 | ) |  |  | 127 |  |  |  | (7 | )
Receipts in respect of the realization of consolidated companies, net of cash spent as part of the discontinuance of their consolidation |  |  | 1,315 | (2) |  |  | (2 | ) |  |  | 1,663 |
Receipts from realization of non-current investments, including dividend from the realization |  |  | 93 |  |  |  | 366 |  |  |  | 176 |
Receipts from realization of investment property, fixed assets and other assets |  |  | 229 |  |  |  | 622 |  |  |  | 539 |
Taxes paid in respect of investment property, fixed assets and other assets |  |  | (88 | ) |  |  | (12 | ) |  |  | (83 | )
Interest received |  |  | 116 |  |  |  | 136 |  |  |  | 190 |
Net cash provided from (used for) continuing investing activities |  |  | 245 |  |  |  | (1,273 | ) |  |  | 1,125 |
Net cash provided from (used for) discontinued investing activities |  |  | 1,202 | (3) |  |  | (1,915 | ) |  |  | (575 | )
Net cash provided from (used for) investing activities |  |  | 1,447 |  |  |  | (3,188 | ) |  |  | 550 |
Cash flows from financing activities |  |  |  |  |  |  |  |  |  |  |  |
Repayment of non-current financial liabilities |  |  | (5,958 | ) (5) |  |  | (5,552 | ) |  |  | (6,357 | )
Interest paid |  |  | (1,724 | ) |  |  | (1,668 | ) |  |  | (1,978 | )
Purchase of shares in consolidated companies from non-controlling interests and acquisition of options for the acquisition of non-controlling interests |  |  | (1,167 | ) (4) |  |  | (11 | ) |  |  | (27 | )
Dividends to non-controlling interests in consolidated companies |  |  | (349 | ) |  |  | (272 | ) |  |  | (449 | )
Receipts from non-controlling interests in consolidated companies, net |  |  | 2 |  |  |  | 92 |  |  |  | 18 |
Company capital issues |  |  | 1,147 |  |  |  | - |  |  |  | - |
Non-current financial liabilities received |  |  | 1,332 |  |  |  | 3,248 |  |  |  | 4,133 |
Current financial liabilities, net |  |  | 120 |  |  |  | (134 | ) |  |  | 186 |
Sales of shares in consolidated companies to non-controlling interests |  |  | - |  |  |  | 528 |  |  |  | - |
Receipts Payments in respect of the settlement of derivatives, net |  |  | (101 | ) |  |  | (27 | ) |  |  | (12 | )
Net cash used for continuing financing activities |  |  | (6,698 | ) |  |  | (3,796 | ) |  |  | (4,486 | )
Net cash used for discontinued financing activities |  |  | - |  |  |  | (659 | ) |  |  | (954 | )
Net cash used for financing activities |  |  | (6,698 | ) |  |  | (4,455 | ) |  |  | (5,440 | )
Change in cash and cash equivalents from continuing operations |  |  | (4,144 | ) |  |  | (2,182 | ) |  |  | (718 | )
Change in cash and cash equivalents from discontinued operations |  |  | 1,202 |  |  |  | (1,212 | ) |  |  | (849 | )
Change in cash and cash equivalents from continuing operations and discontinued operations |  |  | (2,942 | ) |  |  | (3,394 | ) |  |  | (1,567 | )
Balance of cash and cash equivalents at beginning of year |  |  | 6,313 |  |  |  | 9,943 |  |  |  | 11,575 |
Effects of fluctuations in exchange rates on balances of cash and cash equivalents |  |  | 54 |  |  |  | (106 | ) |  |  | (42 | )
Change in cash presented under held for sale assets |  |  | 153 |  |  |  | 23 |  |  |  | - |
Balance of cash presented under held for sale assets |  |  | - |  |  |  | (153 | ) |  |  | (23 | ) (3)
Balance of cash and cash equivalents at end of year |  |  | 3,578 |  |  |  | 6,313 |  |  |  | 9,943 |

(1) | For the principal details regarding subsidiaries whose consolidation was discontinued or applied for the first time in the Company’s financial statements, see Note 3.I.3.b. below.

(2) | For details regarding the realization of the investment in Given Imaging and its deconsolidation in February 2014, see note 3.H.6.a. below.

(3) | Including effects with respect to the realization of an investment in Credit Suisse, see notes 3.H.4.c. and 3.I.1. below.

(4) | For details regarding the merger transaction between Koor and Discount Investment. see note 3.H.4.C. below. For details regarding the acquisition of Shufersal shares, see note 3.H.3.C. below.

(5) | For details regarding the early redemption of debentures and regarding the repayment of Koor’s loans, see notes 3.H.4.B. below .

(6) | Includes consideration from the exercise of options into shares received from non-controlling interests.

(7) | See note 3.E. below.

The notes attached to the consolidated financial statements constitute an integral part hereof.
IDB Development Corporation Ltd. Convenience translation
12

Notes to the financial statements as of December 31, 2014

Note 1 – General |

A. | IDB Development Corporation Ltd. (“the Company”) is an Israeli resident Company incorporated in Israel. The Company’s registered address of record is 3 Azrieli Center, Triangular Tower, 44th floor, Tel Aviv. The Company is a holding company, investing on its own behalf and through investee companies in companies mainly operating in various sectors of the Israeli and global economy. Some of the investee companies operate by way of global diversification of their investments. In recent years, the Company put a special emphasis on examining possibilities for disposing of such investments, considering, inter alia, the Company’s financing needs and regulatory developments. For this matter, see the sale of its controlling holding stake in Given which closed in February 2014 (note 3.H.6.a below) and the completion of the merger transaction as part of which Koor became a wholly owned subsidiary of Discount Investments in March 2014 (note 3.H.4.b below), which included realization of all Credit Suisse shares (note 3.H.4.b below). See also note 3.H.5.c below with regard to a letter received on December 30, 2014, from the Commissioner of the Capital Market, Insurance and Savings at the Ministry of Finance (“the Commissioner”), which includes, inter alia, a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises.

| As of the supplementary judgment, as part of which the debt arrangement at IDB Holdings Corporation Ltd. (“IDB Holdings”) was approved in January 2014 and until the date of completion of the first stage of the debt arrangement, in May 2014, all of the issued share capital (apart from shares held by the Company itself, which were dormant shares) and all of the voting rights at the Company were held by IDB Holdings through the trustees appointed by the Tel-Aviv-Jaffa District Court to carry out the debt arrangement at IDB Holdings. At the date of completion of the first stage of the debt arrangement, the (indirect) control in the Company was transferred to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, in equal shares (through corporations under their control – Dolphin Netherlands B.V. (“Dolphin Netherlands”), a company incorporated in The Netherlands and which is under the control of Mr. Eduardo Elsztain and CAA Extra Holdings Ltd. (“CAA”), a company fully owned by Mr. Mordechai Ben-Moshe), and IDB Holdings no longer holds shares of the Company.

| Following a rights issue to the shareholders of the Company, which took place in January-February 2015, the amount of the holding of corporations controlled by Mr. Eduardo Elsztain (“Dolphin companies,” and together with CAA, “the controlling shareholders”) increased to approximately 61.5% of the Company’s issued capital, whereas the amount of the holding of Mr. Mordechai Ben-Moshe, through CAA, decreased to approximately 16.2% of the Company’s issued capital (as compared with a holding before the rights issue of approximately 31.3% of the Company’s issued capital by each of the parties). Taking into account the provisions included in the shareholders’ agreement between the Company’s controlling shareholders, as the Company was informed by the controlling shareholders (and particularly the provision that insofar as either of the parties will hold more than 5% of the issued and paid-up capital of the Company more than the other party, then a decision made by that party will bind the other party and the parties will vote by virtue of their shares at the Company’s general meeting according to the decision by the party with the greater holding as well as an instruction regarding the composition of the Company’s Board of Directors), the specified changes in the rates of holding at the Company may lead to changes in the Company’s control structure and the composition of its Board of Directors. The decrease in the rate of holding of Mr. Mordechai Ben-Moshe in the Company’s issued capital to below a rate of 26.65% as stated above, may constitute cause for the lending corporations of the Company and Discount Investments to demand immediate repayment of the loans, as stated in notes 16.E.n and 16.F.1.b below. For details regarding a dispute between the controlling shareholders of the Company regarding the implementation of the aforesaid rights issue and the aforesaid changes in the amounts of the holdings in the Company resulting therefrom, and regarding offers to hold an arbitration between the parties, see note 15.B.5 below.

As at December 31, 2014, and as at the date of publication of this report, the Company’s bonds are listed on the Tel Aviv Stock Exchange (“TASE”). In addition, on May 12, 2014, after the completion of the first stage of the debt arrangement in IDB Holdings and after the transfer of the Company’s shares to Dolphin Netherlands and CAA and to the beneficiaries of the debt arrangement in accordance with the provisions of the arrangement, the Company’s shares began to be traded on TASE. For additional details regarding the debt arrangement in IDB Holdings and the legal proceedings relating thereto, see note 16.G.2 below.
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Note 1 – General (cont.) |

B. | Regarding the Company’s financial position, its cash flows and its ability to service its liabilities, it should be noted that following the completion of the debt arrangement in IDB Holdings and until the date of the report, since May 2014, a sum of NIS 1,448 million has been invested in the Company’s equity by the controlling owners of the Company (as part of the framework of investments in the company upon completion of the debt arrangement, participation in rights issues made by the Company in June 2014 and January 2015, and the exercise of options) and a sum of NIS 115 million was invested by the public as part of participation in the aforesaid rights issues.

| As part of the Company’s rights issue of January 2015, the Company received consideration in a total amount of NIS 417 million, where the participation of Dolphin Netherlands and Dolphin Fund amounted to NIS 391.5 million, whereas CAA did not participate in the rights issue. For additional details with regard to the rights issue, including with regard to the Company’s position regarding the liability of CAA to participate in the rights issue, see note 15.B.6 and note 16.G.2.j below.

| The Company’s financing agreements include grounds for demanding immediate repayment, including ones that relate to legal proceedings or events involving a change in control. As stated in note 16.E.n below, as at the date of publication of the report, the Company is acting to reach agreements with a lending corporation with regard to changes in the amounts of the holdings in it following the rights issue made in January-February 2015, as stated in note 1.A above.

| With regard to the uncertainties relating to the Company’s financial position and its ability to serve its liabilities, it should be noted that: (a)The payments of dividends from direct investees have decreased in recent years, and there are restrictions upon the distribution of dividends by those companies; (b) There is a need to arrange the control covenant and the financial covenants of the Company to lending institutions, so that alternative financial covenants are formulated that will apply initially to the results of the second quarter of 2015; see note 16.E.l below. In addition, pursuant to agreements with financing providers with regard to restrictions and financial covenants, any realization of material holdings would be subject to consent of these providers (for details of limits on borrowing, pledging, investing and realizing and additional restrictions pursuant to agreements with financing providers, see note 16.E below); in the Company’s estimate, failure to arrange the financial covenants with the financing factors as specified is a block on its ability to raise new credit or refinance its debts (on this matter see also note 16.D below regarding the rating of the Company’s bonds) and the covenants that are to be determined will have a significant effect on the Company’s options on this matter; (c) Legal proceedings are taking place against the Company, including a motion for a derivative action on behalf of Discount Investments with regard to dividends that it distributed. For details, see notes 16.G.1 and 23.C.1.h below;

(d) Pursuant to a demand of the Commissioner of Insurance, a trustee was appointed for the Company with regard to the controlling shares in Clal Holdings Insurance Enterprises and a timeframe was agreed for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises – for details, see note 3.H.5.c below; (e) The provisions of the debt arrangement in IDB Holdings and agreements relating thereto (including the agreement of the Company’s shareholders) and the manner of implementing them has a major effect on IDB Development, its cash flow position, its business and its relations with lending corporations. For details regarding uncertainties relating to the implementation of the provisions of the debt arrangement in IDB Holdings and the control structure of the Company, including with regard to claims of the controlling shareholders of the Company with regard to the provisions of the shareholders’ agreement and the possibility that changes will be made to the control structure of the Company and the composition of its Board of Directors, see note 15.B.6 below;
(f) Shortly before the date of publication of the financial statements, the stock exchange value of the Company’s holdings in its directly held investees was lower than the balance of its liabilities, even after taking into account liquid balances and non-marketable assets; in addition to the aforesaid, the Group will need to deal with the consequences of the Centralization Law. For details regarding this matter, see note 3.G.3 below.
Further to the aforesaid, and taking into account the implementation of the debt arrangement at IDB Holdings, the Company is acting and will continue to act to deal with the uncertainties that arise from the aforesaid.
IDB Development Corporation Ltd. Convenience translation
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Note 1 – General (cont.)

B. (cont.)
As stated in note 16.E.l below, the Company is continuing to act in order to reach agreements with its lending corporations in order to settle the financial covenants as well as additional contractual issues existing in the loan agreements. However, should the parties fail to reach agreements regarding the financial covenants, the financial covenants preceding the agreements dated June 29, 2012 (and in particular, the “economic equity” mechanism, including remedial periods included therein, and the financial covenant whereby the balance of cash and negotiable collateral shall not be lower than expected current maturities in the two quarters following the reported quarter (“the liquidity covenant”)) shall apply to the results of the second quarter of 2015 onwards. The Company estimates that it will not be able to meet the thresholds which had been set in the past with regard to the economic equity and it will not be able to meet the liquidity covenant, insofar as these stipulations will be reapplied to the results of the second quarter of 2015.
As of December 31, 2014, loans of the Company amounting to NIS 573 million, which are subject to the financial covenants specified above, are classified under current liabilities, this in accordance with International Accounting Standards and with note that the Company has reached agreements with those financing factors as part of which the existing financial covenant arrangements in the loan agreements have been extended for a period of less than twelve months. For additional details, see note 16.E.1 below.
The Report of the Board of Directors attached to these financial statements includes a cash flow forecast for a period of two years ending on December 31, 2016.
As of the date of the report, there is significant doubt with regard to the Company continuing as a going concern, this in light of the cash flow needs required to repay the Company’s liabilities, and considering the uncertainties specified above. There is therefore an uncertainty with regard to the Company’s capacity to execute its business plans in good order and/or in timely manner and with regard to the Company’s continued capacity to regularly repay its obligations on time. However, the Company Board of Directors has determined that the Company is solvent and can and does intend to serve its obligations in a timely manner.
The financial statements include no reclassification nor adjustments to values of the Company’s assets and liabilities, which may be required if the Company will be unable to continue operating as a going concern.

C. | These financial statements have also been prepared pursuant to the Securities (Annual Financial Statements) Regulations, 2010 (“the Financial Statements Regulations,”).

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (“IFRS”)
These financial statements were approved by the Board of Directors of the Company on March 30, 2015.

D. | Definitions

| 1. | Subsidiaries – entities controlled by the Company. Control is achieved when the Group is exposed to, or has an interest in, variable returns on its involvement with the investee and may influence these returns through its influence over the investee. When testing for existence of control, real voting rights, held by the Group and by others, are taken into account. See also note 2.A below.

| 2. | Associates – companies (including gas and oil partnerships and participation units in venture capital funds) in which the Company or its subsidiaries have a direct or indirect holding and where significant influence exists over their financial and operating policies and which are not subsidiaries. The investments in these companies are presented on the equity basis.

| 3. | Joint arrangement – an arrangement in which the Group has joint control with other(s), achieved through an agreement requiring unanimous agreement by all parties to said agreement with regard to operations which materially influence the returns from said arrangement.

| 4. | Joint venture – a joint arrangement in which the parties there to have an interest in net assets attributable to the arrangement.

| 5. | Joint operations – a joint venture in which the Group has an interest in assets and commitments to liabilities attributable to the arrangement.

| 6. | Investees – subsidiaries, associates and joint ventures.

IDB Development Corporation Ltd. Convenience translation
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Note 1 – General (cont.) |

D. (cont.)

7. | Significant influence – 20% or more of the voting rights or the right to appoint 20% or more of the board of directors, unless it is apparent that significant influence does not actually exist. A holding of less than 20% of such rights may also be considered as granting significant influence in cases where such influence is clearly apparent.

8. | Functional currency and presentation currency

| These financial statements are presented in NIS, which is the Company’s functional currency, and the financial data in them have been rounded to the nearest million, except when otherwise indicated. The NIS is the currency that represents the principal economic environment in which the Company operates.

9. | Financial statements regulations – the Israeli Securities Regulations (Annual Financial Statements), 2010.

10. | The Israeli Companies Law – the Companies Law, 5759-1999.

11. | IFRS – International financial reporting standards.

12. | In these financial statements –

The Company | -IDB Development Corporation Ltd.
The Group | -The Company and its investees.
IDB Holdings | -IDB Holding Corporation Ltd. – the parent company until May 7, 2014.
Discount Investments | -Discount Investment Corporation Ltd.
Clal Holdings Insurance Enterprises | -Clal Holdings Insurance Enterprises Ltd.
IDB Tourism | -IDB Tourism (2009) Ltd.
Elron | -Elron Electronic Industries Ltd.
Cellcom | -Cellcom Israel Ltd.
Given | -Given Imaging Ltd.
Shufersal | -Shufersal Ltd.
Property & Building | -Property & Building Corporation Ltd.
Koor | -Koor Industries Ltd.
Adama | -Adama Agricultural Solutions Ltd. (formerly: Makhteshim-Agan Industries Ltd.)
Credit Suisse | -Credit Suisse Group AG

E. | Basis for preparing the financial statements

1. | Basis of measurement

| These financial statements were prepared on the basis of the historical cost of assets and liabilities except for the following assets and liabilities: financial instruments, derivatives and other assets and liabilities measured at fair value through profit or loss; financial instruments measured at fair value through other comprehensive income; liability for cash-settled share-based payment; investment property; inventory; biological assets; non-current assets and disposal groups held-for-sale; insurance liability; assets and liabilities for employee benefits; deferred tax assets and liabilities; biological assets measured at fair value less selling costs; liabilities in respect of options to investors the exercise price of which is linked to the CPI; provisions and investments in equity accounted investees.

For | information regarding the measurement of these assets and liabilities see Note 2 regarding significant accounting policies.

| The value of non-monetary assets and equity items that were measured on the historical cost basis was adjusted to changes in the Consumer Price Index (CPI) until December 31, 2003, since until that date the economy of Israel was considered hyperinflationary economy.

IDB Development Corporation Ltd. Convenience translation
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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
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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.

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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. |

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Note 1 – General (cont.)

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

3. (cont.)

| b. | Fair value determination

For the purpose of preparing these financial statements, the Group is required to determine the fair value of certain assets and liabilities. Additional information about assumptions used in determining the fair value is presented in the following notes:

| 1. | Note 4 – Other Investments;

| 2. | Note 6 – Fixed assets acquired in a business combination;

| 3. | Note 7 – Investment property;

| 4. | Note 10 – Intangible assets;

| 5. | Note 21 – Financial instruments;

| 6. | Note 16.F.1.d regarding the embedded derivative in the non-recourse loan;

| 7. | Annex B – Share-based payment arrangements

In determining the fair value of assets or liabilities, the Group uses observed market data, in as much as possible; fair value measurements are classified into three levels of the fair value hierarchy, based on data used for the estimate, as follows:

| Level 1 - Quoted (un-adjusted) prices on active markets for identical assets or liabilities.

| Level 2 - Observed market data, directly or indirectly, not included in Level 1.

| Level 3 - Data not based on observed market data.

| 4. | Examination of the materiality of asset valuations for purposes of disclosure or attachment

The Company examines the materiality of asset and liability valuations, for the purpose of their disclosure or attachment to the annual and interim financial statements, in accordance with Regulation 8B of the Regulations (Periodic and Immediate Reports) Securities, 5730-1970, and Legal Position 105-23: Parameters for Examining Materiality of Valuations, which was issued by the Securities Authority in July 2014. Generally, a valuation will be deemed very material if the object of the valuation constitutes 10% or more of the Company’s total assets in the consolidated Statement of Financial Position at the last day of the reporting period, or if the effect of the change in value on the net profit or comprehensive income attributable to the Company’s owners, as applicable, exceeds 10% of the net profit or comprehensive income attributable to the Company’s owners, respectively, for the reporting period (“the Results Test”) provided that for the results test, the effect of change in value due to valuation of net or comprehensive income attributable to equity holders of the Company, as the case may be, amounts to 5% or more of equity attributable to equity holders of the Company. A valuation which is not highly material would be deemed material if it fulfils a quantitative threshold which is half of the quantitative threshold which is parallel for the classification of a very material valuation as specified above (meaning 5% rather than 10% and 2.5% rather than 5%). Application of the Results Test for materiality of a valuation in an interim period shall be done with respect to the net profit or the comprehensive income attributable to the Company’s owners, as applicable, projected for the current year as a whole.
If it is not possible to reasonably estimate the projected net profit or comprehensive income for the current year as a whole, the Results Test will be applied with respect to net profit or comprehensive income, as applicable, for the four quarterly periods prior to the last date of the interim period. When the valuation meets the Results Test for being defined as “very material” (“a very material valuation according to the Results Test”), the Company evaluates whether on the basis of qualitative considerations, it is appropriate to determine that it is not very material and therefore will not be attached to the financial statements.
IDB Development Corporation Ltd. Convenience translation
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Note 1 – General (cont.)

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

4. Examination of the materiality of asset valuations for purposes of disclosure or attachment (cont.)
In accordance with the aforesaid legal position, the Company’s evaluation also includes an additional test, the “Representative Income” test, which constitutes an accepted parameter for evaluating the results of holding companies like the Company. The Representative Income parameter is used by the Company to examine materiality and insignificance also in other contexts. According to the aforesaid additional test, in the absence of other special qualitative considerations, a very material valuation according to the Results Test will not be deemed a very material valuation and will not be attached to the financial statements if the effect of the change in the value of the valuation object (attributable to owners of the Company) is less than 10% of the “Annual Representative Income” attributable to the Company’s owners (which is the profit for four quarters), calculated on the basis of the average in absolute values of the quarterly profit/loss attributable to the Company’s owners in each one of the last 12 quarters.
Moreover, in the absence of special qualitative considerations, a very material valuation according to the Results Test will not be deemed very material and will not be attached to the financial statements if the effect of the object of the valuation on net profit or comprehensive income (attributable to the owners of the Company), as applicable, as included in the financial statements of the current reporting period (annual or interim), is less than 10% of net profit or comprehensive income (attributable to the owners of the Company) for the prior reporting year, and it is not probable to exceed 10% of the projected net profit or comprehensive income (attributable to the owners of the Company) of the coming reporting year. In instances in which as a result of applying these tests, a very material valuation according to the Results Test is not attached, disclosure of such is provided in the Directors’ Report, as required by the aforesaid legal position.
Qualitative considerations could lead to the attachment of the valuation even if from a quantitative viewpoint, it does not meet the tests for definition as “very material.”

| 5. | Attachment of material associates

Regarding the application of regulations 44 and 44A of the Securities (Periodic and Immediate Reports) Regulations and regulations 23 and 24 of the Securities (Annual Financial Statements) Regulations, 5770-2010, with respect to associates whose financial statements are required to be attached because the reporting quarter the amount included in the income statement in respect of the Company’s investment in the associate reflects, twenty percent or more of the Company’s profit or loss for the reporting quarter, or that condensed information regarding the associate is required to be attached because the amount included in profit or loss in respect of the Company’s investment in the associate constitutes, in its absolute value, 10 percent or more of the Company’s profit or loss in the reporting quarter, in its absolute value, the position of the Company is that in the absence of any special qualitative consideration, the financial statements of associates that meet all three following ratios will be considered immaterial in relation to the financial statements of the Company and will therefore not be attached, and condensed information will not be disclosed in respect thereto:

| a. | The result of multiplying the associate’s assets by the rate held in it, is less than 0.5% of total assets in the Company’s Statement of Financial Position;

| b. | The result of multiplying the associates’ income by the rate held in it, is less than 0.5% of total income in the consolidated income statement of the Company for the reporting quarter;

| c. | The Company’s share of the results of the associate (in absolute value) is less than 5% of the Group’s share of profits of associates, net, in the reporting quarter (in absolute value).

IDB Development Corporation Ltd. Convenience translation
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Note 1 – General (cont.)

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

| 6. | Initial application of new standards and changes in estimates

| a. | Interpretation of the Committee for Interpretations of International Financial Reporting IFRIC 21, Levies (hereunder – “the interpretation”)

| The interpretation provides guidelines for the accounting treatment of liabilities for the payment of governmental levies which are covered by IAS 37, Provisions, Contingent Liabilities and Contingent Assets, as well as governmental levies which are not covered by IAS 37, due to the fact that the timing and amounts of their repayment are certain. A “levy” is defined as a negative flow of resources which is imposed on an entity by the government through legislation and/or regulation.

The interpretation provides that a liability for payment of a levy will be recognized only upon the occurrence of an event which creates the obligation for payment, also in cases where the entity has no practical possibility of avoiding the event.

| The interpretation affects the accounting treatment of betterment levies in the Group’s financial statements, in a manner whereby the liability for payment of betterment levies is recognized on the exercise date of the rights. Accordingly, the measurement of the fair value of the investment property prior to the recognition of the liability to pay betterment fees, includes the negative cash flows attributed to the levy. The interpretation was adopted retrospectively beginning on January 1, 2014. The effect of the retrospective adoption of the interpretation is that sums in the amount of NIS 92 million were written off from the item for other non-financial liabilities, which is included under non-current liabilities in the Statement of Financial Position as at December 31, 2013, and which were taken into account in the calculation of the fair value of the investment property on that date (as a decrease in value).

| b. | Amended IAS 32, “Financial Instruments: Presentation” (“IAS 32”)

IAS 32 clarifies that an existing entity has the immediate legally enforceable right to offset financial assets and financial liabilities that were recognized, if this right is not conditional on any future event, and is enforceable both in the ordinary course of business and in case of insolvency or bankruptcy of the entity and of all parties against the financial asset. IAS 32 was adopted retrospectively beginning on January 1, 2014. The application of IAS 32 did not materially affect the financial statements.
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Note 1 – General (cont.)

F. | Reclassification

Comparative figures were re-classified for consistency. This reclassification had no impact on equity or results in the indicated periods.

| 1. | The following are the reclassifications made in the Statement of Financial Position

|  | As of December 31 |
|  | 2013 |
|  | NIS millions |
Non-current assets |  |  |
Investments in equity accounted investees |  |  | 61 |
Investment property |  |  | (92 | )
Intangible assets |  |  | (67 | )
Total non-current assets |  |  | (98 | )
Current assets |  |  |  |
Assets of realization groups and other assets held for sale |  |  | 6 |
Total current assets |  |  | 6 |
Total Assets |  |  | (92 | )
Non-current liabilities |  |  |  |
Provisions |  |  | 6 |
Other non-financial liabilities |  |  | (94 | )
Total non-current liabilities |  |  | (88 | )
Current liabilities |  |  |  |
Other accounts payable |  |  | (11 | )
Provisions |  |  | 7 |
Total current liabilities |  |  | (4 | )
Total liabilities |  |  | (92 | )

| 2. | The following are reclassifications made in the Statement of Income:

|  | For the year ended December 31 |
|  | 2013 |  |  | 2013 |
|  | NIS millions |
Income |  |  |  |  |  |
Profit from realization and increase in value of investments |  |  | 83 | * |  |  | - |
Total income |  |  | 83 |  |  |  | - |
Expenses |  |  |  |  |  |  |  |
Cost of sales and services |  |  | 137 |  |  |  | 124 |
Selling and marketing expenses |  |  | (137 | ) |  |  | (124 | )
Total expenses |  |  | - |  |  |  | - |
Profit after tax for the year from discontinued operations |  |  | (83 | )* |  |  | - |

* See footnote 2 in note 3.I.1.

| 3. | Reclassifications made on the profit per share data

The profit per share figures were adjusted retrospectively for all of the reported periods in accordance with the changes in the Company’s issued share capital, including for the beneficial component in the rights issue after subsequent to the date of the Statement of Financial Position, as stated in notes 15.A and 15.B.5 below.
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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
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Note 2 – Principles of the Accounting Policy (cont.)

A. | Consolidated financial statements (cont.)

1. Business combinations (cont'd)

| In a business combinations achieved in stapes, the difference between the acquisition date fair value of the Group’s pre-existing equity rights in the acquired entity and the carrying amount at that date is recognized in profit or loss under gain on sale and increase in value of investments and assets, dividends and gain from rise to control. For this purpose, the fair value of a marketable asset is its market value, except when circumstances clearly indicate that the fair value of the aforesaid asset is different from its market value.

| The consideration paid includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration classified as a financial liability in the Statement of Income, whereas contingent consideration classified as an equity instrument is not remeasured. Changes in liabilities for contingent consideration in business combinations that occurred before January 1, 2010, continue to be applied to goodwill and are not recognized in the Statement of Income.

| Costs associated with the acquisition that were incurred by the acquirer in the business combination such as: broker’s fees, consulting fees, legal fees, valuations and other fees with respect to professional or consulting services, other than those related to debt or capital issuance with respect to the business combination, are expensed in the period in which the services are rendered.

Structured entities
A Group associate does business with structured entities for securitization of its customer debt. The aforementioned associate has no direct nor indirect holding in shares of said entities. A structured entity is included on the consolidated financial statements of the aforementioned associate when control of said entity is achieved, as defined above.

| 2. | Non-controlling shareholders

Non-controlling shareholders comprise the equity of a subsidiary that cannot be attributed, directly or indirectly, to the parent Company and they include additional components such as: share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries.
Measuring non-controlling shareholders rights on the date of the business combination
Non-controlling shareholders rights that are instruments that give rise to a present ownership interest and entitle the holder to a share of net assets in the event of liquidation (for example: ordinary shares), are measured at the date of the business combination at either fair value, or at their proportionate interest in the identifiable assets and liabilities of the acquired entity, on a transaction-by-transaction basis. This accounting policy choice does not apply to other instruments that meet the definition of non-controlling shareholders rights (for example: options to ordinary shares). Such instruments will be measured at fair value or in accordance with other relevant IFRSs.
Allocation of profit or loss and other comprehensive income to shareholders
Income or loss and any other comprehensive income items are attributed to equity holders of the Company and to non-controlling shareholder. Total profit or loss and other comprehensive income is attributed to equity holders of the Company and to non-controlling shareholders, even if this results in a negative balance of non-controlling shareholders. If there is an arrangement between the shareholders by which the parent Company bears all the losses, such an arrangement is accounted for as a transaction between shareholders on the equity level.
Transactions with non-controlling shareholders, while retaining control
Transactions with non-controlling shareholders while retaining control, are accounted for as equity transactions. Any difference between the consideration paid or received and the change in the non-controlling shareholders is recognized in a reserve from transactions with non-controlling shareholders under the equity attributable to the Company’s owners. The capital reserve from transactions with non-controlling shareholders is not applied to the Statement of Income or the Statement of Comprehensive Income (not even upon the sale of the subsidiary for which the reserve was created).
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Note 2 – Principles of the Accounting Policy (cont.)

A. | Consolidated financial statements (cont.)

| 2. | Non-controlling shareholders (cont'd)

When changes occur in the holding rate of a subsidiary, while retaining control, the Company reallocates the cumulative amounts that were recognized in other comprehensive income between the Company’s owners and the non-controlling shareholders. The amount of the adjustment to non-controlling shareholders is calculated as follows:
For an increase in the amount of the holding, according to the proportionate share acquired from the balance of non-controlling shareholders in the consolidated financial statements prior to the transaction and allocated original differences.
For a decrease in the amount of the holding, according to the proportionate share realized by the owners of the subsidiary in the net assets of the subsidiary, including any goodwill and attributable original differences, without any change in their values. The cash flows deriving from transactions with non-controlling shareholders while retaining control are classified under financing activities in the statement of cash flows.
Inter-Company transactions for the transfer of shares of subsidiaries (whether the transactions are executed in cash or by an exchange of shares), in which there has been a change in the rate of the non-controlling shareholders, were accounted for as transactions with non-controlling shareholders.

| 3. | Transactions resulting in discontinuance of consolidation of financial statements

Loss of control
Upon the loss of control, the Group derecognizes the assets and liabilities of the subsidiary, any non-controlling shareholders and amounts recognized in capital reserves through other comprehensive income related to the subsidiary. If the Group maintains any investment in the former subsidiary, this outstanding investment is measured at fair value upon loss of control. The difference between the sum of the proceeds and fair value of the retained interest, and the derecognized balances is recognized in the Statement of Income, under the item for “profit from realization and increase in value of investments and assets, dividends” or under the item for “loss from realization, impairments and amortization of investments and assets”, according to the matter. Subsequently the retained interest is accounted for as an equity-accounted investee or as a financial asset depending on the level of influence retained by the Group in the relevant Company.
The amounts recognized in capital reserves through other comprehensive income with respect to the same subsidiary are reclassified to profit or loss or to retained earnings in the same manner that would have been applicable if the subsidiary had itself realized the same assets or liabilities.
4. Joint operations
When the Group has interest in assets and liabilities attributed to joint arrangements, the Group recognizes the assets, liabilities, income and expenses of the joint operations pro-rata to its interest in these items, including its share of items jointly held or created. Gain or loss from transactions with joint ventures are only recognized up to the shares of the other parties to the joint venture. When these transactions provide indication of impairment of said assets, the Group recognizes the loss in full.

| 5. | Reversal of mutual transactions

Intra-group balances and any material unrealized income and expenses arising from intra-group transactions, are reversed in preparing these financial statements. Unrealized gain from transactions with associates and joint ventures have been reversed against the asset subject to the transaction, in conformity with Group interest in these investments. Losses not yet realized were eliminated in the same manner in which gains not yet realized were eliminated, as long as there was no evidence of a decline in value.
6. Investment in associates and joint ventures
In assessing significant influence over an associate, potential voting rights that are currently exercisable or convertible into shares thereof. Investment in associates and joint ventures is accounted for using the equity method and is initially recognized at cost. The investment cost includes transaction costs.
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Note 2 – Principles of the Accounting Policy (cont.)

A. | Consolidated financial statements (cont.)

6. Investment in associates and joint ventures (cont'd)
These financial statements include the Group’s share of profit or loss of investees and joint ventures (including recognition of profit or loss with respect to the Company’s share of a capital reserve recorded by investees and joint ventures with respect to transactions with non-controlling shareholder) and in their other comprehensive income (loss), after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term interests that form part thereof, is reduced to nil. When the Group’s share of long-term interests that form a part of the investment in the investee is different from its share in the investee’s equity, the Group continues to recognize its share of the investee’s losses, according to its economic interest in the long-term interests at that time. The recognition of further losses of the investee is discontinued unless the Group has an obligation to support the investee or has made payments on behalf of the investee, or has granted loans to it.
Excess cost of associates and joint ventures is presented as part of the investment. The excess cost of an investment in an associate or joint venture over the Group’s interest in the fair value of the associate’s identifiable assets (including intangible assets) net of the fair value of its identifiable liabilities (after the allocation of taxes) on the date of acquisition is attributable to goodwill.
Excess cost allocated in an associate or joint venture to identifiable assets and identifiable liabilities having a finite useful life is amortized according to the aforesaid useful life. Goodwill and intangible assets having an indefinite useful life are not systematically amortized. For review of impairment of goodwill and intangible assets, see Note 2.m below.
For attribution of deferred taxed with respect to investment in associates and joint ventures - see note 2.M.3 below.
For adjustments from translation of financial statements of associates and joint ventures, see section b.2 below.

| 7. | Change in the amounts of holdings in equity-accounted associates and joint ventures on a balance sheet basis value, while maintaining significant influence or joint control

When the Group increases its interest in an associate or joint venture accounted for by the equity method while retaining significant influence, it implements the acquisition method only with respect to the additional interest obtained whereas the previous interest is not remeasured and remains the same.
When there is a decrease in the interest in an associate or joint venture accounted for by the equity method while retaining significant influence or joint control, the Group derecognizes a proportionate part of its investment and recognizes a gain or loss from the sale under the item for “profit from realization and increase in value of investments and assets, and dividends” or under the item for “loss from realization, impairment and amortization of investments and assets”, according to the matter. The cost of the rights sold is determined according to a weighted average for purposes of calculating the gain or loss from the sale.
Furthermore, a proportionate part of the amounts recognized in capital reserves through other comprehensive income with respect to said equity-accounted associate or joint venture are reclassified to profit or loss or to retained earnings. The aforementioned accounting treatment also applies in cases where an investment in an associate turns into an investment in a joint venture or vice versa.

| 8. | Loss of significant influence or joint control

The Group discontinues application of equity-based accounting upon losing significant influence over the investee or joint control of the joint venture, and accounts for its remaining investment as a financial asset or – in the case of achieving control – as a subsidiary, as the case may be.
Upon losing significant influence or joint control, the Group measures at fair value any remaining investment in the former associate or joint venture.
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Note 2 – Principles of the Accounting Policy (cont.)

A. | Consolidated financial statements (cont.)

| 8. | Loss of significant influence or joint control (cont'd)

The Company recognizes on the income statement under the item for “profit from realization and increase in value of investments and assets, and dividends” or under the item for “loss from realization, impairment and amortization of investments and assets,” respectively, any difference between the fair value of any remaining investment and any proceeds from realization of any part of the investment in the associate or joint venture and the carrying amount of said investment upon said date. The amounts recognized in equity through other comprehensive income with regard to that associate or joint venture are reclassified to profit or loss or retained earnings, in the same manner that would have been required had the associate or joint venture realize the related assets or liabilities itself.
9. Acquisition of an asset company
Upon acquisition of an asset company, the Group exercise judgment in determining whether this is an acquisition of a business or of an asset, in order to determine the accounting treatment of such transaction. When reviewing whether an asset company constitutes a business, the Group evaluates, inter alia, the nature of existing processes at the asset company, including the scope and nature of any management, security, cleaning and maintenance services provided to tenants.
Transactions where the acquired company constitutes a business are treated as a business combination, as described above. However, transactions where the acquired company does not constitute a business are treated as the acquisition of a group of assets and liabilities. In such transactions, the acquisition cost including any transaction costs is attributed pro-rata to the identified assets and liabilities acquired based on their pro-rata fair value upon acquisition. In the latter case, no goodwill is recognized and no deferred taxes are recognized for temporary differences upon the acquisition date.

B. | Foreign currency

The functional currency is determined separately for each investee Company, including an associate that is presented by the equity method, and this currency is the basis for measuring its financial position and results of operations. When the functional currency of an investee Company is different from that of the Company, the investee Company constitutes a foreign operation and its financial statements are translated for purposes of their inclusion in the financial statements of the Company.

| 1. | Foreign currency transactions

Transactions in foreign currencies are translated to the relevant functional currencies of the Group companies at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items denominated in foreign currency and measured at historical cost, are translated using the exchange rate as of the transaction date. Foreign currency differences arising on translation to the functional currency are generally recognized in profit or loss, although such foreign currency differences are recognized in other comprehensive income (loss) when they arise from the translation of derivatives used in cash flow hedges, to the extent the hedge is effective.

| 2. | Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to euro at exchange rates at the reporting date. The income and expenses of foreign operations are translated to NIS at exchange rates at the dates of the transactions.
Foreign currency translation differences are recognized as part of other comprehensive income (loss) since the transition date to IFRS (January 1, 2007), and are presented in equity as part of the translation reserve for foreign operations (“translation reserve”).
When the foreign operation is a non-wholly-owned subsidiary of the Group, then the relevant proportionate share of the foreign operation translation difference is allocated to the non-controlling shareholders.
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Note 2 – Principles of the Accounting Policy (cont.)

B. | Foreign currency (cont.)

| 2. | Foreign operations (cont.)

The financial statements of a foreign operation not directly held are translated into NIS according to the step-by-step consolidation method, by which the financial statements of the foreign operation are first translated into the functional currency of the direct parent company and are after that translated into the functional currency of the ultimate parent company.
Therefore, when a foreign operation not directly held is disposed of, the Group reclassifies to profit or loss the cumulative amount in the translation reserve that was created in the direct parent company of the foreign operation. If the indirectly held foreign operation and the direct parent company have the same functional currency, the Group’s policy is to not classify to profit or loss foreign currency differences that were accumulated in the translation reserve of the ultimate parent company upon the disposal of a foreign operation not directly held as aforesaid.
When a directly held foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as a part of the gain or loss on disposal.
Furthermore, when the Group’s interest in a subsidiary that includes a foreign operation changes, while retaining control in the subsidiary, a proportionate part of the cumulative amount of the translation difference that was recognized in other comprehensive income (loss) is reattributed to non-controlling shareholders.
When the Group realizes part of an investment which is an associate or a joint venture which includes foreign operations, while maintaining significant influence or joint control, the pro-rata share of the accumulated exchange rate difference amount is reclassified to profit and loss.
In general, exchange rate differentials with respect to loans obtained by or extended to foreign operations, including foreign operations which are subsidiaries, are recognized on the consolidated financial statements under profit & loss.
When the settlement of loans that the Group received from a foreign operation or provided to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses deriving from these financial items are included as part of a net investment in a foreign operation, are recognized as part of other comprehensive income (loss) and are presented within equity as part of the translation reserve. The settlement of these loans is not considered disposal of a net investment in a foreign operation and therefore upon settlement of the loans as aforesaid, the foreign currency differences that were recognized in their respect in other comprehensive income will not be included in profit or loss.

C. | Financial instruments

| 1. | Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity and debt securities, loans and credit granted, trade and receivables, cash and cash equivalents.
Initial recognition of financial assets
The Group initially recognizes loans and receivables and deposits on the date that they are created according to their fair value on the trade date. All other financial assets acquired in a regular way purchase, including assets designated at fair value through profit or loss, are recognized initially on the trade date. Financial assets are initially measured at fair value. If the financial asset is not subsequently accounted for at fair value, then the initial measurement includes transaction costs that are directly attributable to the asset acquisition or creation. The Group subsequently measures financial assets at either fair value or amortized cost as described below.
Derecognition of financial assets
Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers to others the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability.
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Note 2 – Principles of the Accounting Policy (cont.)

C. | Financial instruments (cont.)

| 1. | Non-derivative financial instruments (cont.)

Derecognition of financial assets (cont'd)
Regular way sales of financial assets are recognized on the trade date, meaning on the date the Company undertook to sell the asset.
Regarding the offset of financial assets and financial liabilities, see section 5 below.
Classification of financial assets into categories and the accounting treatment of each category
Since January 1, 2012 the Group has applied IFRS 9 (2009) Financial Instruments (“IFRS 9”) on an early basis with regard to the classification and measurement of financial assets, with a date of initial application of January 1, 2012, without early adoption of the remainder of the rules which were determined in the final version of IFRS 9 (2014), Financial Assets which is mentioned in section 1 of note 2.X below.
IFRS 9 requires that an entity classify its debt instruments as being measured at amortized cost or fair value according to the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. IFRS 9 permits in certain cases to recognize the changes in fair value of the equity instruments in other comprehensive income (loss).
In accordance with the transitional provisions of IFRS 9, the classification of the financial assets held by the Group on the date of initial application of IFRS 9 (those not yet derecognized as of January 1, 2012) was based on the facts and circumstances of the business model by which the assets were held at that date.
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any impairment loss, if:
The asset is held within a business model with the objective of holding the assets to collect the contractual cash flows.
According to the contractual terms of the financial asset, the asset gives rise on specified dates cash flows that are solely payments of principle and interest, and
The Group has not elected to designate it at fair value through profit or loss in order to reduce or eliminate an accounting mismatch.
The fair value of financial assets measured at amortized cost, including trade and other receivables, excluding construction work in progress is estimated as the present value of future cash flows, discounted at the market rate of interest at the measurement date. Short-term trade and other receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. The fair value of loans and other receivables is determined at initial recognition. In periods subsequent to initial recognition, the fair value is determined for disclosure purposes only.
The Group’s policy on impairment of financial assets measured at amortized cost is described in note 2.M.1 below.
Cash and cash equivalents – Cash comprises cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
Financial assets measured at fair value
Financial assets other than those classified as measured at amortized cost are subsequently measured at fair value with all changes in fair value recognized in profit or loss, other than as described below. Regarding certain financial assets which are capital in nature that are not held for trade, the Group has chosen the initial date of recognition of the asset, or the date of initial implementation of IFRS 9, to recognize the changes in fair value to other comprehensive income. For instruments which are measured according to fair value through other comprehensive income, profits and losses are never transferred to profit or loss and impairments are not recognized in the income statement.
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Note 2 – Principles of the Accounting Policy (cont.)

C. | Financial instruments (cont.)

| 1. | Non-derivative financial instruments (cont.)

Financial assets measured at fair value (cont'd)
Upon the disposal of the asset, the Group transfers the balance of the reserve in respect of it to retained earnings. The income from dividends in respect of these instruments are recognized in the income statement, unless they distinctively represent a recovery of some of the investment costs.
It should be noted that in April 2012 the Company and Koor decided not to apply the investment of Koor in shares of Credit Suisse to other comprehensive income (loss) on the date of the initial implementation of IFRS 9, but to recognize changes in fair value of the investment in the Statement of Income.

| 2. | Derivative financial instruments, including hedge accounting

The Group holds derivative financial instruments to hedge its foreign currency, linkage risk exposures and derivatives that do not serve hedging purposes, including separable embedded derivatives.
Derivatives are initially recognized at fair value. Attributable transaction costs are recognized on the income statement when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as follows.
Hedge accounting
A hedge is classified by the Group as an accounting hedge if at the beginning of the hedge the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.
The Group makes an assessment, both at the inception of the hedge relationship as well as in subsequent periods, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are expected to be within a range of 80%-125%.
For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect profit or loss.
Cash flow hedging
Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized through other comprehensive income (loss) directly in a hedging reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. The amount recognized in the hedging reserve is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss under the same line item in the income statement as the hedged item.
If the hedging instrument no longer meets the criteria for hedge accounting as described above, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. If the forecasted transaction has either taken place or is no longer expected to occur, then the cumulative gain or loss previously recognized in the hedging reserve is recognized immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognized in the hedging reserve is transferred to the carrying amount of the asset when it is recognized. In other cases the amount recognized in the hedging reserve is transferred to income statement in the same period that the hedged item affects profit or loss.
Economic hedging
Hedge accounting is not applied to derivative instruments that economically hedge certain monetary assets and liabilities denominated in foreign currencies or linked to the CPI. Changes in the fair value of such derivatives are recognized on the income statement as financing income or expenses.
Derivatives that do not serve as a hedge and a hedge that does not meet the criteria of an accounting hedge
The changes in fair value of these derivatives are recognized in the income statement as financing income or expenses.
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Note 2 – Principles of the Accounting Policy (cont.)

C. | Financial instruments (cont.)

| 2. | Derivative financial instruments, including hedge accounting (cont.)

Separable embedded derivatives that do not serve hedging purposes
Embedded derivatives are separated from the host contract and accounted for separately if: (a) the economic characteristics and risks of the host contract and the embedded derivative are not closely related, (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and (c) the combined instrument is not measured at fair value through profit or loss.
Changes in the fair value of separable embedded derivatives are recognized in the income statement as financing income or expenses. See also note 16.F.1.d below regarding an embedded derivative included in the non-recourse loan that was received by Koor.
Since January 1, 2012, within the framework of adopting IFRS 9, the Group has not separated embedded derivatives in a financial asset host contract. Instead, the entire financial instrument is assessed and classified as described above in section 1 above.
Business combination contracts
Since January 1, 2010 forward contracts between an acquirer and a seller with respect to the sale or acquisition of a controlled entity, in a business combination at a future acquisition date, are not accounted for as a derivative, when the term of the forward contract does not exceed the period normally necessary for obtaining the approvals required for the transaction. The aforesaid accounting treatment does not apply to acquisitions and sales of equity accounted investees not within the framework of business combinations, which are treated in accordance with the balance sheet value method.

| 3. | Hybrid financial instruments

The non-recourse loan Koor received as part of the sale of control in Adama in 2011, which is secured solely by a pledge on shares of Adama, is economically equivalent to a combination of Koor’s obligation to transfer shares of Adama, against consideration received, with a call option of Koor to purchase shares of Adama. Accordingly, the non-recourse loan was separated into these two components, on the basis of an opinion of an independent appraiser.
The commitment to transfer shares of Adama (including the inflow that will derive from them), is the host contract, which is measured at initial recognition at fair value (at the amount in cash that was received as a loan which reflects that value of the cash flow deriving from holding shares of Adama at the date of the transaction, and is consistent with the value of the shares reflected in the price of the transaction). In subsequent periods the aforesaid liability is measured at amortized cost according to the present value of the expected fair value of the Adama shares on the expected date of repayment of the loan, discounted at the effective interest rate determined on the initial date of separating the host contract and the embedded derivative (based on the yield rate on equity that was used in the valuation of Adama shares). The value of the shares of Adama was estimated as specified in note 16.F.1.d below. The embedded derivative represents a call option of Koor to purchase shares of Adama and is calculated taking into consideration the future interest payments on the loan. Changes in the value of the host contract and the embedded derivative are recognized in profit or loss.
The aforesaid host contract and embedded derivative (“hybrid financial instrument for a non-recourse loan”) is presented net in a separate item in the Statement of Financial Position, and disclosure of its components and the main estimates used in the calculation thereof is given in note 16.F.1.d below.

| 4. | Assets and liabilities linked to the CPI which are not measured at fair value

The value of CPI-linked financial assets and liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual increase/decrease in the CPI.

| 5. | Financial liabilities

The Group has non-derivative financial liabilities, such as: bank overdrafts, bonds issued by the Group, loans and credit from banking institutions and other credit providers, finance lease liabilities, and trade and other payables.
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Note 2 – Principles of the Accounting Policy (cont.)

C. | Financial instruments (cont.)

| 5. | Financial liabilities (cont'd)

Initial recognition of financial liabilities
The Group initially recognizes debt instruments issued, at their date of creation according to their fair value on the trade date.
Financial liabilities are initially recognized at fair value plus all attributable transaction costs. Subsequent to initial recognition, financial liabilities are measured at amortized cost, in accordance with the effective interest method.
Transaction costs directly attributable to an expected issuance of an instrument that will be classified as a financial liability are recognized as an asset in the Statement of Financial Position. These transaction costs are deducted from the financial liability upon its initial recognition, or are amortized as financing expenses in the income statement when the issuance is no longer expected to occur. Upon the expansion of bond series in consideration for cash, the bonds are initially recognized according to their fair value which is the consideration received for the issuance (as this is the best market to which the issuer has immediate access), without any recognition of profit or loss in respect of the difference between the consideration for the issue and the stock exchange value of the marketable bonds near the time of their issue.
Derecognition of financial liabilities
Financial liabilities are derecognized when the obligations of the Group, as set out in the agreement, expire, are settled or are cancelled.
Change in terms of debt instruments
An exchange of financial liabilities having substantially different terms, between an existing borrower and lender are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value, with the difference being recognized in profit or loss under financing income or expenses. Moreover, significant changes in terms and conditions of an existing financial liability or part thereof is treated as discharge of the original financial liability and recognition of a new financial liability.
The terms are substantially different also if the discounted present value of the cash flows according to the new terms, including any commissions paid, less any commissions received and discounted using the original effective interest rate, is different by at least ten percent from the discounted present value of the remaining cash flows of the original financial liability.
In addition to the aforesaid quantitative examination, the Group also examines qualitative criteria in order to determine whether there has been an exchange of debt instruments having substantially different terms, including the overall features of the exchanged debt instruments and the economic parameters inherent in them, which when substantially different may create a different economic risk for the holder of the debt instruments at the time of the exchange. These economic parameters comprise, inter alia, the average duration of the exchanged debt instruments and to what extent the terms of the debt instruments (such as linkage to the CPI, linkage to foreign currency, variable interest) have an effect on the cash flows from the instruments. In this respect, in the absence of any unusual circumstances indicating otherwise, a new debt instrument that removes or adds linkage to the CPI or the exchange of a debt instrument bearing variable interest with a debt instrument bearing fixed interest and vice versa, is considered a debt instrument with substantially different terms.
Offset of financial instruments
A financial asset and financial liability are offset and presented in a net amount in the Statement of Financial Position when the Group has an immediately enforceable right to offset the amounts recognized and it has the intention to settle the asset and the liability on a net basis or to realize the asset and settle the liability simultaneously.
6. Issuance of block of securities
The consideration received from the issuance of a block of securities is attributed at first to financial liabilities that are measured each period at fair value through profit or loss, and then to financial liabilities that are measured only upon initial recognition at fair value.
The remaining amount is the value of the equity component. Direct issuance costs are attributed to the specific securities in respect of which they were incurred, whereas joint issuance costs are attributed to the securities on a proportionate basis according to the allocation of the consideration from the issuance of the block, as indicated above.
IDB Development Corporation Ltd. Convenience translation
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Note 2 – Principles of the Accounting Policy (cont.)

D. | Fixed assets

| 1. | Recognition and measurement

Fixed asset items are measured at cost less accumulated depreciation and any accumulated impairment losses.
The cost includes costs that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, and any other costs directly attributable to bringing the asset to the location and condition necessary for it to begin operating in the manner intended by management, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located (when the Group has an obligation to dismantle and remove the asset or to restore the site), as well as capitalized credit costs. Purchased software that is integral to the related equipment is recognized as part of that equipment. Spare parts, servicing equipment and stand-by equipment are classified as fixed assets if compliant with the definition of fixed assets pursuant to IAS 16 – otherwise they are classified as inventory.
When major parts of a fixed asset item (including costs of major periodic inspections), such as communication networks, have different useful lives, they are accounted for as separate items (major components) of fixed assets, and each component is depreciated over its useful life.
Changes in the obligation to dismantle and remove the items and to restore the site on which they are located, other than changes deriving from the passing of time, are added or deducted from the cost of the asset in the period in which they occur. The amount deducted from the cost of the asset shall not exceed the balance of the carrying amount on the date of change, and any balance is attributed in the income statement. The costs of constructing facilities for the prevention of environmental pollution, which increase the useful life or efficiency of the facility, or reduce or prevent pollution of the environment, are included in the cost of the fixed assets and depreciated according to the Group’s regular depreciation policy.

| 2. | Subsequent costs

The cost of replacing part of a fixed asset item and other subsequent costs are recognized in the carrying amount of the fixed asset if it is probable that the future economic benefits associated with them will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part of a fixed asset item is derecognized. The costs of the day-to-day maintenance of fixed asset items are recognized on the income statement when incurred.

| 3. | Depreciation

Depreciation is the systematic allocation of the recoverable value of an asset over its useful life span. Depreciable amount, or another amount in lieu of cost, is the asset cost less its residual value.
An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.
Depreciation is recognized in income statement (unless it is included in the carrying amount of another asset) on a straight-line basis over the estimated useful lives of each part of a fixed asset item, since this method reflects the forecasted consummation pattern of the future economic benefits inherent in the asset in the best manner. Leased assets, including land under financing lease and leasehold improvements, are depreciated over the lease period or the useful life of the assets, whichever is shorter, unless it is reasonably expected that the Group would take ownership of the asset upon termination of the lease period. Owned land is not depreciated. Costs of significant overhauls are depreciated over the earlier of the remaining useful life of the relevant asset or the date of the next overhaul.
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Note 2 – Principles of the Accounting Policy (cont.)

D. | Fixed assets (cont.)

| 3. | Depreciation (cont'd)

The estimated useful lives for the current and comparative periods are as follows:

|  | Years |  |
Buildings |  |  | 25-50 |  |
Machinery, plant & equipment |  |  | 3-22 |  | (mainly 10-14 years)
Office furniture and equipment |  |  | 3-17 |  |
Computers |  |  | 3-7 |  |
Vehicles |  |  | 3-10 |  |
Fixtures in leased buildings |  |  | 3-24 |  |
Communications network |  |  | 4-20 |  |
Communications network control and examination equipment |  |  | 4-7 |  |
Airplanes |  |  | 20-25 |  |
Land under finance lease* |  | Up to 98 years (including future lease option)

| * | See also section G below in this note.

The estimates used for the depreciation methods, useful lives and residual values are reviewed at least at the end of each financial year, and adjusted if appropriate.

E. | Intangible assets

| 1. | Goodwill

Goodwill that arises on the acquisition of subsidiaries, acquisition of an operation in business combinations and goodwill that arises when recognizing and recording a contingent consideration liability relating to a put option granted by the Group to non-controlling shareholders, is presented as part of intangible assets. For information on measurement of goodwill at initial recognition – see section a.1 above in this note.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses, if any. Goodwill, in respect of investees which are handled according to the equity basis method, is included in the investment’s book value.

| 2. | R&D

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in income statement when incurred.
Development activities are activities that are connected to a plan or design for the production of new or substantially improved products and processes. Development costs are recognized as an intangible asset only if: development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset.
The expenditure recognized as an intangible asset from research activities includes the cost of materials, direct labor, overhead costs that are directly attributable to preparing the asset for its intended use and capitalized borrowing costs. Other development expenditure is recognized in income statement as incurred.
Direct and certain indirect development costs deriving from the development of an information system for self-use, and salaries of employees working on the development of software during the development period, are recognized as an intangible asset. These assets are amortized on a straight-line basis from the date the asset is ready for use. These assets are tested for impairment once a year until such date as they are available for use.
In subsequent periods, development expenditure recognized as an intangible asset is measured at cost less accumulated amortization and accumulated impairment losses.
IDB Development Corporation Ltd. Convenience translation
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Note 2 – Principles of the Accounting Policy (cont.)

E. | Intangible assets (cont.)

| 3. | Other intangible assets

| a. | Intangible assets that are acquired in a business combination are recognized at their acquisition date fair value. Subsequent to initial recognition, intangible assets acquired by the Group are measured at cost (including direct costs required in order to bring the assets to operation), less accumulated amortization (other than intangible assets having an indefinite useful life) and impairment losses.

| b. | Subsequent expenditure is recognized as intangible asset only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in income statement as incurred.

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

| d. | Brand – The excess cost that was attributed in subsidiaries to a brand. Some of the brands have a finite useful life and some have an indefinite useful life.

| e. | Lease agreements – Excess cost attributed in a subsidiary to lease agreements. The lease agreements have a limited period of time. The useful life of this asset takes into consideration also options to extend the lease period.

| f. | Other than goodwill, for part of the brands and the agreement with Rafael, which have indefinite useful lives, amortization is calculated in accordance with the expected economic benefit from the assets in each period, on the basis of the estimated useful life of each group of assets, from the date that they are available for use (meaning are brought to the working condition for their intended use). If the intangible assets consist of several components with different estimated useful lives, the individual significant components are amortized over their individual useful lives. Intangible assets created in Group companies are not systematically amortized until they are available for use. Therefore, intangible assets not available for use, such as development costs, are tested for impairment at least once a year, until such date as they are available for use.

The estimated useful lives for the current and comparative periods of the principal intangible assets are as follows:

| Years
Client relations | 5-10 years (2012 & 2013: 5-20 years, mainly 6-8 years)
Brands and trademarks | 20 years (2012 & 2013: 8-20 years, mainly 20 years)
Licenses | 17-20 (mainly 17 years)
Licensing in associate | 8
IT | 4
Software | 3-7
Concessions | 8-33 (mainly 4-10 years)
Use rights of patents and technology | 2012 & 2013: 8-20 years (mainly 8 years)
Development costs recognized as intangible asset | 2012 & 2013: 3 years
Intangible assets from acquisition of products in associate | 20
Non-competition and confidentiality agreement | 2-5
Marketing rights in associate | 5-10
Lease agreements | 3-20
Orders backlog | 1-3
Right to use trademarks of an associate | mainly 4 years

The systematic amortization of development in progress that was acquired in a business combination begins upon the beginning of sales deriving from the developed technology. The amortization period reflects the future useful life, based on an assessment of the period in which there will be sales deriving from the developed technology.
The estimates regarding amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
IDB Development Corporation Ltd. Convenience translation
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Note 2 – Principles of the Accounting Policy (cont.)

E. | Intangible assets (cont.)

| 3. | Other intangible assets (cont.)

Goodwill and a brand having an indefinite useful life are not systematically amortized but are tested for impairment at least once a year.
The Group examines at least once a year the useful life of intangible assets that are not periodically amortized in order to determine whether the events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.

F. | Investment property (real estate)

Investment property is property (land or building – or part of a building – or both) held by the Group (as the owner or by the lessee under a finance lease) either to earn rental income or for capital appreciation or for both, but not for:

| 1. | Use in the production or supply of goods or services or for administrative purposes; or

| 2. | Sale in the ordinary course of business.

Investment property is initially measured at cost including capitalized borrowing costs. Cost includes expenditure that is directly attributable to acquisition of the investment property. The cost of self-constructed investment property includes direct labor and material cost and other costs directly attributable to bringing the asset to the condition required for its intended use by management. In subsequent periods the investment property is measured at fair value with any changes therein recognized in income statement.
The Group measures its investment property under construction as follows:

| 1. | According to fair value (without the capitalization of borrowing costs) when the fair value of the investment property under construction is reliably determinable; and

| 2. | When the fair value is not reliably determinable, at fair value of the land plus cost during the construction period until the earlier of the date on which construction is completed or when its fair value becomes reliably determinable.

When property is transferred from owner-occupied property to investment property, measured at fair value, the asset is re-measured according to fair value and is classified as investment property. Any gain from the re-measurement is recognized in other comprehensive income (loss) and presented in equity in a revaluation reserve, unless the gain reverses a previous impairment loss on the property, in which case the gain is first recognized in profit or loss (up to the amount of the previous impairment loss). Any loss is included directly as an expense. When an investment property that was previously classified as a fixed asset is sold, any related amount included in the revaluation reserve is transferred directly to retained earnings. When the investment property measured according to fair value becomes a fixed asset (owner-occupied property) or inventory, its fair value at the date of the change becomes the cost for subsequent accounting treatment. When inventory becomes investment property measured at fair value, any difference between the fair value of the property on that date and its previous value on the books is included directly in profit or loss.
The Group estimates the value of investment property at least once a year and when there are indications of changes in its value (whichever earlier).
Gains and losses on disposal of an investment property are measured by comparing the proceeds from disposal with the fair value of the investment property before its sale, and are recognized in profit or loss under the item for “increase in the fair value of investment property”, or “decrease in the fair value of investment property”, as relevant.

G. | Leased Assets and Lease Payments

Leases, including land leases from the Israel Land Administration (“ILA”) or from third parties, where the Group essentially bears all risk and reward associated with the property, are classified as financing leases. Upon initial recognition the leased assets are measured and a liability is recognized at an amount equal to the lower of its fair value and the present value of the minimum lease payments. When measuring the liability for non-capitalized leases of land from the Administration, the Group discounts the future minimum lease payments at a real interest rate of 5% on the basis of the capitalization rate used by the Administration at the date of the lease agreement.
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Note 2 – Principles of the Accounting Policy (cont.)

G. | Leased Assets and Lease Payments (cont'd)

Future payments for exercising an option to extend the lease from the Administration are not recognized as part of an asset and corresponding liability since they constitute contingent lease payments that are derived from the fair value of the land on the future dates of renewing the lease agreement. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that type of asset.
Other leases are operating leases and the leased assets are not recognized on the Group’s Statement of Financial Position. Property under an operating lease classified by the Group as investment property is recognized in the Group’s Statement of Financial Position at fair value, and the lease is accounted for as a finance lease at initial recognition, meaning the asset is recognized at the fair value of the property or the present value of the minimum lease payments, whichever lower.
Prepaid lease fees to the Administration in respect of land leases classified as operating leases are presented on the Statement of Financial Position and recognized in profit or loss over the lease period. The lease period takes into consideration an option to extend the lease period if at the beginning of the lease it was probable that the option will be exercised.
When a lease includes both a land component and a buildings component, each component is considered separately for the purpose of classifying the lease, with the principal consideration regarding the classification of land being the fact that land normally has an indefinite useful life.
Lease payments in respect of operating leases of land related to projects under construction, which is not inventory, are recorded as a prepaid expense. Payments for an operating lease, other than contingent lease fees, are charged to the statement of profit and loss using the straight line method over the lease term.
Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

H. | Transactions for the acquisition of an irrevocable right to use the capacity of underwater communication lines

Transactions for the acquisition of an irrevocable right to use the capacity of underwater communication lines are accounted for as arrangements for the receipt of service. The amount paid in respect of the rights to use communication lines is recognized as a prepaid expense and is amortized on a straight line basis over the period specified in the agreement, including the period of the option, which constitute the estimated useful life of such capacities. See also section t. below.

I. | Inventory

Inventory is measured at the lower of cost and net realizable value. The cost of inventory includes expenditure incurred in acquiring the inventory and bringing it to its existing location and condition. In the case of inventories of work in progress and finished goods, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Net realizable value is determined on an ongoing basis, and takes into consideration the type of the product and its age, on the basis of past experience accumulated with respect to the life of the product.
Cost of inventory is determined as follows: inventory of goods in stores and warehouses – at the last purchase price (reflecting average moving price); inventory of raw and packing materials – on a moving average basis or a “first in-first out” basis according to the type of material; inventory of finished goods and work in progress – at a standard cost that reflects the average manufacturing cost for the period, or on the basis of production expenses, with the component of raw and auxiliary materials being determined on a “first in – first out basis and the labor component and indirect expenses being determined on a weighted average basis or on a moving average basis,
all in accordance with the nature of the finished product; purchased goods and spare parts – on a “first in – first out” basis or on a moving average basis.
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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
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Note 2 – Principles of the Accounting Policy (cont.)

M. Impairment (cont'd)
1. Financial assets (cont'd)
Individually significant financial assets measured by amortized cost are tested for impairment on an individual basis. Other financial assets presented at amortized cost are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are applied to the Statement of Income.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized (such as repayment by the debtor). For financial assets measured at amortized cost, the reversal is recognized in the Statement of Income.

| 2. | Non-financial assets

Timing of impairment testing
The carrying amounts of the Group’s non-financial assets, investment property, inventory and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. Indications that are examined by the Group with respect to the value of its investments include a decline in prices on the stock exchange, continuing losses on its investments, the industry in which its investees operate, excess cost included in the investments and other parameters.
If any such indication exists, then the asset’s recoverable amount is estimated. Once a year and on the same date for each cash generating unit, or more frequently if there are indications of impairment, the Group estimates the recoverable amount of the goodwill and intangible assets that have indefinite useful lives or are unavailable for use.
Determining cash-generating units
For the purpose of an impairment test, the assets which cannot be individually tested are grouped together to the smallest group of assets which generates cash from ongoing use, which are essentially independent of other assets and other groups of assets (“cash generating units”).
With regard to cash generating units of a retail chain at an investee company (“the chain”), the procedure of impairment test for the group is performed in three stages:
In the first stage, the group examines for each of the chain’s branches whether there are signs pointing to an impairment of the branch.
At the second stage, branches with a discounted cash flow, which does not exceed the amortized cost of the branch assets as recorded in the Group’s books (including identifiable intangible assets attributable to the branch) are examined as part of a cash generating unit which constitutes an operating complex, whilst the positive cash flows of one branch are dependent upon the cash flows of a different branch in the same geographical area. This, in light of the strategy of the investee company, according to which the closure of one loss-making branch at an area where additional branches are located, may cause a decrease in the profitability of a branch located in the same geographical area.
At the third stage, the Group estimates the recoverable amount of the cash generating unit which was identified, as specified above, which contains the branch that has a discounted cash flow which does not exceed the amortized cost of the branch’s assets, net, as specified above.
Measurement of recoverable amount
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In determining value in use, the Group discounts the estimated future cash flows that reflect the current position of the asset and represent the best estimate regarding the economic conditions that will exist during the remaining useful life of the asset. The cash flows in respect of a cash-generating unit are discounted using a pre-tax interest rate that reflects current market participants’ assessments of the time value of money and the risks specific to the asset or the cash-generating unit, for which the estimated future cash flows from the asset or cash-generating unit were not adjusted. In assessing the impairment of associates and joint ventures, the cash flows are discounted using an appropriate after-tax interest rate.
Corporate assets
The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one cash-generating unit. Certain corporate assets are allocated to cash-generating units on a reasonable and consistent basis and tested for impairment as part of testing of the cash-generating units to which the corporate assets are allocated.
IDB Development Corporation Ltd. Convenience translation
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Note 2 – Principles of the Accounting Policy (cont.)

M. Impairment (cont.)

| 2. | Non-financial assets (cont.)

Corporate assets (cont'd)
Other corporate assets that cannot be reasonably and consistently allocated to cash-generating units are allocated to groups of cash-generating units if there are indications that a corporate asset may be impaired or indications of impairment in a group of cash-generating units, in which case the recoverable amount is determined for the group of cash-generating units that uses the corporate asset. In such case, the recoverable amount is determined for the group of cash-generating units served by the headquarters.
Recognition of impairment loss
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in income statement. Impairment losses on an asset that was revalued in the past and the revaluation was included in a capital reserve, are recognized in other comprehensive income until the reserve is reduced to zero and the balance is recognized in the income statement. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, including those existing in the Group before the business combination, that are expected to benefit from the synergies of the combination.
Each unit or group of units to which goodwill was allocated as aforementioned represents the lowest level in the Group for which goodwill is monitored for internal management reporting purposes and is not larger than an operating segment (before the aggregation of similar segments).
When goodwill is not monitored for internal reporting purposes, it is allocated to operating segments (before the aggregation of similar segments) and not to a cash-generating unit (or group of cash-generating units) lower in level than an operating segment.
For purposes of testing impairment of goodwill attributed to cash generating units held also by non-controlling shareholders, which were initially measured according to their relative interest in the net assets of the acquired entity, the carrying amounts of the goodwill and the other excess costs allocated to the cash generating unit are adjusted to include also the goodwill and the other excess costs attributed to the non-controlling shareholders. Subsequently, a comparison is made between this adjusted carrying amount and the recoverable amount of that unit in order to determine whether it has been impaired. The adjustments of the goodwill and the other excess costs are made according to the holding rate in the entity to which they are attributed on January 1, 2010 or the original date on which they were recognized, whichever later, and disregarding any control premiums included in goodwill balances.
Allocation of impairment loss to non-controlling shareholder
If there is indication of impairment of a cash generating unit, an impairment loss is allocated between the owners of the Company and the non-controlling shareholders according to their pro rata share in the goodwill and other excess costs to which the impairment relates, prior to their adjustment as specified above. Nonetheless, if the impairment loss attributed to the non-controlling shareholders relates to goodwill or other excess costs that were not recognized in the consolidated financial statements of the parent Company, this impairment is not recognized as an impairment loss. In these cases, only an impairment loss attributed to goodwill and other excess costs recognized in the financial statements of the Company is recognized as an impairment loss.
Reversal of impairment loss
An impairment loss in respect of goodwill is not reversed. In respect of other assets, for which impairment losses were recognized in prior periods, an assessment is performed at each reporting date for any indications that these losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized
IDB Development Corporation Ltd. Convenience translation
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Note 2 – Principles of the Accounting Policy (cont.)

M. Impairment (cont.)

| 3. | Investments in associates and in joint ventures

An investment in an associate or in a joint venture is tested for impairment when there are objective evidence indicating an impairment. Such objective evidence include general market information, a decline in stock exchange prices, continued losses at its investments, the sector in which its investments operate, failure to meet research & development milestones of investee companies, significant deviation from the business plan of the investee companies, capital raising efforts at a price lower than the value of the investment in the financial statements and additional parameters. Goodwill which constitutes part of the investment account in respect of the associate or joint venture is not recognized as a separate asset, and therefore an impairment is not examined in respect of it.
If there are objective evidence indicating that the value of the investment may have been impaired, the Group estimates the recoverable amount of the investment, which is the greater of its value in use and its net selling price.
In assessing value in use of an investment, the Group estimates its share of the present value of estimated future cash flows that are expected to be generated by the associate or joint venture, including cash flows from its operations and the consideration from the final disposal of the investment, or estimates the present value of the estimated future cash flows that are expected to be derived from dividends that will be received and from the final disposal.
An impairment loss is recognized when the carrying amount of the investment, after applying the equity method, exceeds its recoverable amount, and it is recognized in profit or loss under the Group’s share of loss of equity accounted investees, net.
An impairment loss is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment in the associate or joint venture.
An impairment loss is only reversed if change occurs to estimates used to determine the recoverable amount of the investment after the date on which impairment lost was most recently recognized. The carrying amount of the investment, after reversal of impairment loss, shall not exceed the carrying amount of the investment which would have been determined using the equity method if no impairment loss had been recognized.
If excess costs are attributed to assets in an associate or to assets in a jointly controlled entity, and the aforesaid Company recognizes impairment on such assets, then the Company amortizes the aforesaid attributed excess cost and recognizes the amortization in profit or loss.

N. | Non-current assets and disposal groups held for sale

Non-current assets (or groups of assets and liabilities for disposal) are classified as held for sale if it is highly probable that they will be recovered primarily through a sale transaction or a distribution to the owners and not through continuing use. When a company is obligated to a sale plan that involves losing control over a subsidiary, all the assets and liabilities attributed to the subsidiary are to be classified as held for sale whether or not the Company will retain any non-controlling shareholders in the subsidiary after the sale.
Immediately before classification as held for sale, the assets (or components of a disposal group) are re-measured in accordance with the Group’s accounting policy. After that, the assets, the components of the disposal (or the group held for sale or distribution) are measured at the lower of their carrying amount and fair value less costs to sell.
Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities, except that no loss is allocated to assets outside the scope of measurement provisions of IFRS 5, such as: inventories, financial assets, deferred tax assets, plan assets for employee benefits, investment property measured at fair value. Impairment losses recognized on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.
In subsequent periods, depreciable assets classified as held for sale are not periodically amortized, and investments in associates classified as held for sale are not accounted for on equity basis.
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Note 2 – Principles of the Accounting Policy (cont.)

O. | Share capital

Ordinary shares
Costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity.
Treasury shares
The Company’s shares held by the Company and/or by subsidiaries were stated at cost as a deduction from the Company’s equity as a separate column in the statement of changes in equity. The profit or loss from acquisition, sale, issue or cancellation of treasury shares is recognized directly in equity.

P. | Employee benefits

| 1. | Post-employment benefits

The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies or with pension funds, and they are classified as defined contribution plans and as defined benefit plans.
a. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. The Group’s obligations for contributions to defined contribution pension plans are recognized as an expense when the obligation to make a contribution occurs.

| b. | Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Group’s net obligation in respect of post-employment defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. This benefit is presented at its present value, net of the fair value of plan assets.
The Group determines the net interest for the liability (asset), net with respect to defined benefit by multiplying the liability (asset), net with respect to said defined benefit by the capitalization rate used to measure the liability with respect to said defined benefit, as determined at the start of the annual reporting period.
The capitalization rate for December 31, 2012 and December 31, 2013 was determined according to the yield on Government bonds denominated in the same currency that have maturity dates approximating the terms of the Group’s obligations at those dates. The capitalization rate as of December 31, 2014 is determined according to the yield, at the reporting date, on high quality linked corporate bonds denominated in NIS, the date of repayment of which is similar to the terms of the Group’s liabilities at that date (see also note 18.B.and C below). The calculations are performed annually by a qualified actuary, according to the projected unit credit method.
When the calculation results in a net asset for the Group, an asset is recognized up to the net present value of economic benefits available in the form of a refund from the plan or a reduction in future contributions to the plan. An economic benefit in the form of refunds from the plan or by way of reduction of future contributions would be deemed available to the Group when it may be exercised during the plan term or after disposition of the obligation.
Remeasurement of the liability (asset), net with respect to defined benefit includes actuarial gain and loss, return on plan assets (other than interest) as well as any change to the effect on maximum assets (if applicable, other than interest). Remeasurements are immediately charged through Other Comprehensive Income, directly to Retained Earnings.
Interest cost with respect to commitment for defined benefit, interest income with respect to plan assets and interest with respect to the effect of maximum assets charged to the income statement, are presented under financing income and financing expenses, respectively.
When the benefits provided by the Group to employees are increased or reduced, the portion of the increased benefit relating to past service by employees, or the gain / loss from such reduction, is immediately recognized on the income statement when the plan increase or reduction occurs.
Upon settlement of a defined benefit plan, the Group recognizes gain or loss from such settlement. Such gain or loss is the difference between the settled portion of the present value of the defined benefit liability upon the settlement date and the settlement price, including any transferred plan assets.
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Note 2 – Principles of the Accounting Policy (cont.)

P. | Employee benefits (cont.)

| 1. | Post-employment benefits (cont.)

| b. | Defined benefit plans (cont.)

The Group has retirement insurance policies issued prior to 2004; according to terms of these policies, the real excess gain accumulated for the severance pay component is payable to the employee upon retirement. For such policies, plan assets include both the severance pay component and the accumulated real excess gain (if any) on contributions towards severance pay through the date of the Statement of Financial Position and these are presented at fair value. These plan assets are used for a defined benefit plan which consists of two obligation components: the defined benefit plan component with respect to severance pay, calculated on an actuarial basis as noted above, and the other component - an obligation to pay the accumulated real excess gain (if any) upon retirement of the employee. This component is measured at the amount of real excess gain accumulated through the report date.

| 2. | Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits other than post-employment plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The amount of these benefits is discounted to its present value. The capitalization rate of this obligation as at December 31, 2012, and December 31, 2013, was determined according to the yield on Government bonds denominated in the same currency that have maturity dates approximating the terms of the Group’s obligations at those dates.
The capitalization rate as of December 31, 2014, is determined according to the yield, at the reporting date, on high quality linked corporate bonds denominated in NIS, the date of repayment of which is similar to the terms of the Group’s liabilities at that date (see also note 18.B and C below). The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in income statement in the period in which they arise.

| 3. | Benefits with respect to termination of employment

Benefits with respect to termination of employment are recognized as an expense when the Group has distinctively obligated, with no real possibility to withdraw its commitment, to terminate the employment of employees, prior to those employees reaching the date of retirement as accepted according to a formal detailed plan, or to provide benefits with respect to termination of employment as a result of an offer made to encourage voluntary retirement.
Benefits provided to employees at voluntary retirement are recognized as an expense when the Group has offered its employees a plan which encourages voluntary retirement, and when it is expected that the offer will be accepted and the number of employees who will accept the offer can be estimated reliably.

| 4. | Short-term benefits to employees

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated (such as maternity leave).
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits, based on when the Group expects the benefits to be fully settled.

| 5. | Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards.
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Note 2 – Principles of the Accounting Policy (cont.)

P. | Employee benefits (cont.)

Q. | Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable (more likely than not) that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability without adjustment for the debtor’s credit risk. The carrying amount of the provision is adjusted in each period to reflect the passage of time. The adjustment is recognized as Financing Expenses.
The Group recognizes a reimbursement asset if, and only if, it is virtually certain that the reimbursement will be received if the Company settles the obligation. The amount recognized with respect to indemnification does not exceed the amount of the provision.
1. Warranty
A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
2. Onerous contracts
A provision for onerous contracts is recognized when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Prior to recognizing the provision, the Group recognizes impairment of assets related to the aforesaid contract.
3. Contingent liabilities and legal claims
Legal claims, which have unique characteristics, are not grouped together and the necessity of recognizing provisions for them is assessed on an individual basis.
A provision for lawsuits is recognized when the Group has a current legal obligation or an implied obligation due to an event which has occurred in the past, when use of financial resources in order to discharge the obligation is more likely than not, and the obligation may be reliably estimated. When the influence of the value of time is material, the provision is measured at its present value. The amounts provisioned are based on the estimated risk inherent in each claim, with events occurring during litigation potentially requiring this risk to be re-evaluated. When assessing the chances of legal claims that were filed against the Company and its investee companies, the companies based themselves on the opinion of their legal counsel. These opinions by legal counsel are to the best of their professional judgment, considering the stage of these proceedings as well as accumulated legal experience on the different issues. The outcome of such claims will be determined by the Court.
There are legal proceedings in the Group that have been recently initiated the outcome of which cannot be assessed at this stage. See also note 23.C below.
The provision for unasserted claims is recognized according to the overall chance of success of the claim, should one be filed, against the Group companies (on the basis of the probability of the claim being filed and of its chance of success).

R. | Income

| 1. | Sale of goods

Income from the sale of goods in the ordinary course of business is measured at the fair value of the consideration received or receivable, net of returns and discounts. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted. When the credit period is longer than the accepted credit period in the industry, the Group recognizes the future consideration discounted to its present value using the risk rate of the customer or the rate used in the relevant market. The difference between the fair value and the nominal amount of the future consideration is recognized as financing income over the excess credit period.
If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of income as the sales are recognized. Discounts granted to customers at a fixed amount or rate that are unrelated to the amount of the customer’s purchases, are recognized at the time of sale as a reduction of sales.
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Note 2 – Principles of the Accounting Policy (cont.)

R. | Income (cont'd)

| 1. | Sale of goods (cont'd)

Discounts depending on the amount of the customer’s purchases are recognized as a reduction of sales and are included in the financial statements proportionately on the basis of the volume of purchases made by customers that the relevant Group companies assess it is highly probable will become entitled to the discount, providing that these customers can be estimated reliably.
For sales of products, the Group usually recognizes income when goods are delivered to the customer or reach the customer’s warehouse. For some international shipments, income is recognized upon loading the goods onto the carrier transport. When two or more of the Group’s income-generating activities or products are sold as part of a single arrangement, the Group separately handles each component that can be identified as a separate accounting unit.
The allocation of consideration from an income arrangement to its separate units of account is based on the relative fair values of each unit. If the fair value of the delivered item is not reliably measurable, then income is allocated based on the difference between the total arrangement consideration and the fair value of the undelivered item.

| 2. | Customer loyalty programs

For customer loyalty programs, the fair value of the consideration received or receivable in respect of the initial sale is allocated between the award credits and the other components of the sale. The amount allocated to the award credits is estimated by reference to the fair value of the discounted products for which they could be redeemed, since there are no direct market quotes for similar award credits. The fair value of the right to purchase discounted products is estimated taking into account the expected redemption rate and the timing of such expected redemptions. Such amount is deferred and income is recognized only when the award credits are redeemed and the Group has fulfilled its obligations to supply the discounted products, or they have expired. The amount of income recognized in those circumstances is based on the number of award credits that have been redeemed in exchange for discounted products, relative to the total number of award credits that is expected to be redeemed. Deferred income is also released to income when it is no longer considered probable that the award credits will be redeemed.

| 3. | Sale of inventory of land and residential apartments

Income from sale of inventory of land and residential apartments is measured at fair value of the consideration received or to be received.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of residential apartments, including those built for the land owners in building services for land transactions, transfer of risk and yield usually occurs when the apartment is handed over to the buyer.

| 4. | Services

Income from services rendered is recognized in the Statement of Income pro rata to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

| 5. | Income from communication services and sale of communication equipment

Income deriving from use of communication networks of the Group, including cellular services, internet services, international calls, fixed local calls, interconnection fees and roaming services, is recognized upon the performance of the service, in proportion to the stage of completion of the transaction and when all the other criteria for recognizing income have been met.
Proceeds from the sale of cellular call cards are recognized initially as deferred income and recognized as income according to use or when they expire.
A transaction for the sale of end-user equipment usually involves a transaction for the sale of services. Usually, the sale of the cellular phone equipment to the customer is executed with no contractual obligation of the customer to consume services in a minimal amount for a predefined period. As a result, the Group accounts for the sale of the cellular phone equipment as a separate transaction and recognizes income from sale of cellular phone equipment according to the value of the transaction upon delivery of the equipment to the customer. Income from services is recognized and recorded
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Note 2 – Principles of the Accounting Policy (cont.)

R. | Income (cont'd)

| 5. | Income from communication services and sale of communication equipment (cont'd)

When the customer is obligated towards the Group to consume services in a minimal amount for a predefined period, the contract is characterized as a multiple element arrangement and thus, income from sale of cellular phone equipment is recorded in an amount not higher than the fair value of the aforesaid equipment that is not contingent upon delivery of additional components (such as services) and is recognized upon delivery to the customer and when the criteria for income recognition are met. The Group determines the fair value of the individual elements based on prices at which the deliverable is regularly sold on a standalone basis, after considering discounts where appropriate.
The Group offers other optional services, such as extended warranty on equipment, which are provided for a monthly fee and are either sold separately or bundled and included in packaged rate plans. Income from these services is recognized when the service is provided.
When the Group acts as an agent or an intermediary without bearing the risks and rewards resulting from the transaction, the income is presented on a net basis (as a profit or a commission). However, when the Group acts as a principal supplier and bears the risks and rewards resulting from the transaction the income is presented on a gross basis, while distinguishing the income from the related expenses.
Income from long-term credit arrangements are recognized on the basis of the present value of future cash flows, discounted according to market interest rates at the time of the transaction. The difference between the original credit and its present value, as aforementioned, is spread and recorded as interest income over the credit period.

| 6. | Income from provision of tourism services

Income from rendering tourism services is recognized when the service is rendered.
Income from a transaction to render services is recognized on the basis of the stage of completion of the transaction and when all of the following conditions are fulfilled:

| The amount of income can be reliably measured;

| The economic benefits related to the transaction are expected to flow to the Group;

The stage of completion of the transaction on the date of the report of financial position can be reliably measured; and
The costs incurred as part of the transaction and the costs needed to complete the transaction can be reliably measured.

| 7. | Income from commissions on a gross and net basis

In respect of transactions in which the Group bears the primary obligations of the agreement and bears the major risks and benefits from the transaction, income is recognized on the gross basis. In respect of transactions in which the Group acts as an agent or broker without bearing the major risks and benefits from the transaction, the income is recognized on the net basis.
8. Commissions, credit margins and membership fees
When the Group acts in the capacity of an agent rather than as the primary supplier in a transaction, the income recognized is the net amount of commission made by the Group. Income deriving from commissions are recognized on the basis of the transactions executed with the credit cards of an investee company at the rate and on the date the businesses were credited. Income deriving from credit margins of credit cards are recognized on the date the customer is charged and income from subscription fees are recognized on a monthly basis.
9. Income from rent and management fees
Rental income from investment property and management fees for regular operation of properties are recognized in income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease.
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Note 2 – Principles of the Accounting Policy (cont.)

R. | Income (cont'd)

| 10.Fair value of consideration that is contingent upon the occurrence of certain events

The value of a contingent consideration, which derives from the sale of a business and will be received upon the occurrence of certain future events, is initially determined at fair value. The fair value is determined based on assumptions regarding the occurrence of the future events and the date on which the Group will have a cash inflow as a result of such events, which are sometimes not under the control of the Group. In circumstances that the fair value of that contingent consideration cannot be reliably determined because of a wide range of possible future scenarios that will affect the fair value, and because the probabilities of the different alternatives in this range cannot be reliably estimated, the Group does not recognize any gain from the contingent consideration until sufficient information is obtained, if at all.

S. | Cost of sales

| 1. | The cost of sales, from retail operations, includes the cost of purchasing retail inventory less supplier discounts, as aforementioned, and includes also expenses regarding loss, depreciation of goods, independent shelf stocking, storage and handling of inventory until the end selling point. It also includes operation and management costs of commercial centers held by the Group as part of investment property.

Cost of sales in the Group as regards the supply of communication services includes mainly equipment purchase costs, salaries and related expenses, costs of added value services, royalties, ongoing license fees, interconnection and roaming expenses, cell site leasing costs, depreciation and amortization expenses and maintenance expenses, directly related to services rendered.

| 2. | Supplier discounts – the Group recognizes discounts received from suppliers as a deduction from the purchase cost. Therefore, the part of the discounts that relates to the purchases added to the closing inventory is attributed to inventory, and the rest of the discounts reduce the cost of sales.

Some of these discounts are at a fixed rate that does not depend on the volume of purchases (this discount is calculated as a fixed percentage of the purchases made from the supplier or as a fixed amount that does not depend on the volume of purchases) and they are recognized upon the execution of the proportionate purchases that entitle the Group to the aforesaid discounts.

T. | Leases

Lease payments
Payments made under operating leases, other than conditional lease payments, are recognized in income statement on a straight-line basis over the term of the lease, including the optional period when on the date of the transaction it was reasonably certain that the option will be exercised. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Minimum lease fees payable under an operating lease are charged to the income statement when incurred.
Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the balance of the liability.
Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Determination whether an arrangement contains a lease
At inception or upon reassessment of an arrangement, the Group determines whether such an arrangement is or contains a lease.
An arrangement is a lease or contains a lease if the following two criteria are met:

| ● | The fulfilment of the arrangement is dependent on the use of a specific asset; and

| ● | The arrangement contains a rights to use the asset.

Other payments and consideration required according to the arrangement are separated at the outset of the arrangement or upon the re-examination of payments in respect of the lease and other components according to their proportionate fair value.
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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”.
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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.
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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.
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Note 2 – Principles of the Accounting Policy (cont.)

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

| 2. | IFRS 15, Income from Contracts with Customers (“IFRS 15”)

IFRS 15 replaces the current existing assumptions regarding income recognition and presents a new model for recognition of income from contracts with customers. IFRS 15 sets forth two approaches for income recognition: at one point in time or over time. The model includes five stages for transaction analysis in order to determine the timing of the recognition of income and its amount. In addition, IFRS 15 sets new, more extensive disclosure requirements than those that currently exist.
IFRS 15 will be applied to annual reporting periods commencing on January 1, 2017, with the possibility of early adoption. IFRS 15 includes various alternatives for the implementation of the transition instructions, so that companies can choose one of the following alternatives upon initial implementation: full retrospective implementation, full retrospective implementation that includes practical reliefs; or implementation through adjustment of the retained earnings balance to the date of initial implementation in respect of transactions which have not yet concluded.
The Group has not yet begun the examination of the ramifications of adopting IFRS 15 on the financial statements.

Note 3 – Investments

For a list of the Group’s main companies – see Annex A of the financial statements.

A. | Composition of investments in equity accounted investees

|  | as at December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS Million |
Value in Statement of Financial Position of the investment in shares |  |  | 3,801 |  |  |  | 3,181 | *
Loans and a capital note |  |  | 540 |  |  |  | 642 |
Less: provision for impairment |  |  | (588 | ) |  |  | (74 | )
|  |  | 3,753 | (1) |  |  | 3,749 | (1)

| * | Reclassification; see note 1.F.1 above.

(1) | The aforesaid value includes:

Balance of attributed excess cost – for amortization |  |  | 106 |  |  |  | 130 |
Balance of goodwill |  |  | 468 |  |  |  | 855 |
|  |  | 574 |  |  |  | 985 |

| (2) | Loans and a capital note

|  | Interest rates as at December 31, |  |  | as at December 31 |
|  | 2014 |  |  | 2014 |  |  | 2013 |
|  | % |  |  | NIS Millions |
Dollars or linked thereto |  |  | 6-15.0 |  |  |  | 369 |  |  |  | 314 |
NIS (CPI-linked and unlinked) |  |  | 2.3-9.1 |  |  |  | 143 |  |  |  | 142 |
Other currencies or linked thereto |  |  | 3.6 |  |  |  | 28 |  |  |  | 186 |
|  |  |  |  |  |  | 540 |  |  |  | 642 |

| Most of the loans have no repayment dates.

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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.

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Note 3 – Investments (cont.)

C. | Details regarding associates and joint transactions

| 1. | Summary information on an associate which is material

This section gives details of associates that meet one or more of the following criteria:

· | The Company’s share in the sum of the investment in the associate (in linkage) exceeds 10% of the total assets in the relevant consolidated Statement of Financial Position;

· | The Company’s share in the associate’s results (in linkage) exceeds 10% (in absolute value) of the net profit attributed to the Company’s owners in the relevant year.

In 2012, the associates did not meet the aforementioned criteria.
The figures below* relate to Koor’s holding in Adama at a rate of 40%. Adama is a global company, which was incorporated in Israel.

|  | 2014 |  |  | 2013 |
|  | Adama |
|  | NIS millions |
Current assets |  |  | 11,861 |  |  |  | 9,513 |
Non-current assets |  |  | 6,590 |  |  |  | 5,957 |
Total assets |  |  | 18,451 |  |  |  | 15,470 |
Current liabilities |  |  | (7,201 | ) |  |  | (5,633 | )
Non-current liabilities |  |  | (5,034 | ) |  |  | (4,963 | )
Total liabilities |  |  | (12,235 | ) |  |  | (10,596 | )
Total assets, net |  |  | 6,216 |  |  |  | 4,874 |
The Group’s share of the assets, net |  |  | 2,487 |  |  |  | 1,950 |
Goodwill |  |  | 983 |  |  |  |  | (1) 884
Reconciliations for fair value made on the acquisition date |  |  | 88 |  |  |  | 115 |
Impairment of investment (see section H.4.d in this Note below) |  |  | (541 | ) |  |  | - |
Other reconciliations |  |  | (14 | ) |  |  | (1 | )
Value of the associate in the Group’s books |  |  | 3,003 |  |  |  | 2,948 |
Income |  |  | 11,474 |  |  |  | 11,669 |
Profit for the period |  |  | 498 |  |  |  | 471 |
Other comprehensive income (loss) |  |  | 148 |  |  |  | (171 | )
Total comprehensive income of the associate |  |  | 646 |  |  |  | 300 |
Less other comprehensive loss attributable to non-controlling shareholders of the associate |  |  | 2 |  |  |  | - |
Total comprehensive income attributable to the owners of the associate |  |  | 648 |  |  |  | 300 |
The Group’s share in the associate’s total comprehensive income |  |  | 259 |  |  |  | 120 |
Amortization of reconciliations for fair value made on the acquisition date |  |  | (38 | ) |  |  | (49 | )
Impairment of investment (see section H.4.d in this Note below) |  |  | (516 | ) |  |  | - |
Foreign currency translation differentials for the associate |  |  | 356 |  |  |  | (223 | )
Other reconciliations |  |  | (5 | ) |  |  | (5 | )
Total comprehensive income (loss) of the associate as presented in the books |  |  | 56 |  |  |  | (157 | )

| * | Assets and liabilities were translated according to the representative exchange rates as at December 31 of each year and income and profit or loss were translated according to the average exchange rates in each year.

| (1) | Restated; see note 1.F.1.

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Note 3 – Investments (cont.)

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

| 2. | Summary information on associates and joint transactions that are not material

Aggregate sums with adjustment for percentages of ownerships held by the Group:

|  |  | For December 31 |
|  |  | 2014 |  |  |  | 2013 |  |  |  | 2012 |
|  |  | NIS millions |
A.Summary of data on investee companies (1) |  |  |  |  |  |  |  |  |  |  |  |
Book value of investee companies |  |  | 426 |  |  |  | 447 |  |  |  | 4,367 |
The Group’s share in profit for the period |  |  | (122 | ) |  |  | (99 | ) |  |  | (959 | )
The Group’s share in other comprehensive income (loss) |  |  | 163 |  |  |  | (21 | ) |  |  | (110 | )
The Group’s share in total comprehensive income (loss) |  |  | 41 |  |  |  | (120 | ) |  |  | 1,069 |
B.Summary of Data on Joint Transactions |  |  |  |  |  |  |  |  |  |  |  |
Book value of investments in joint transactions |  |  | 324 |  |  |  | 354 |  |  |  | 363 |
The Group’s share in profit (loss) for the period |  |  | (23 | ) |  |  | 21 |  |  |  | 27 |
The Group’s share in other comprehensive income (loss) |  |  | 2 |  |  |  | (3 | ) |  |  | (1 | )
The Group’s share in other comprehensive income (loss) |  |  | (21 | ) |  |  | 18 |  |  |  | 26 |

| (1) | The data includes sums for investment in Credit Suisse Emerging Markets Credit Opportunity Fund LP (hereunder “EMCO Fund”), 12.2% of which is held by Koor. It should be noted that although the amount of the Group’s holding in the EMCO Fund is less than 20%, it will be subject to the equity accounting method. Koor has a material influence over the EMCO Fund since it has the power to participate in certain material decisions of the Fund, such as decisions pertaining to investment, through a joint representative of Koor and Clal Insurance group representative. Noted that the EMCO Fund statements were prepared for November 30, 2013 and November 30, 2012, and Koor made the necessary adjustments in its financial statements for the time gap between the aforesaid statements of the EMCO Fund and the financial statements of Koor as of December 31, 2012-2014, respectively.

| (2) | According to the materiality tests as stated in section (1) above in this note, the investment in Adama for 2012 was not classified as material, and therefore the above figures include the amounts that relate to Adama.

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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.
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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.

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Note 3 – Investments (cont.)

E. | Subsidiaries (cont.)

Details of investees whose non-controlling shareholders are material (1)

|  | as at December 31, 2013 |  |  | For the year ended December 31, 2013 |
|  | Holding percentage of share capital and voting rights of non-controlling shareholders |  |  | Current assets |  |  | Non-current assets |  |  | Current liabilities |  |  | Non-current liabilities |  |  | Total assets, net |  |  | Book value of non-controlling shareholders |  |  | Income (9) |  |  | Net profit |  |  | Other comprehensive income (loss) |  |  | Total comprehensive income (loss) |  |  | Profit (loss) attributed to non-controlling shareholders |  |  | Other comprehensive income (loss) attributed to non-controlling shareholders |  |  | Cash flows from current activity |  |  | Cash flows from investing activity |  |  | Cash flows from financing activity |  |  | Increase (decrease) net of cash and cash equivalents |  |  | Dividends distributed to non-controlling shareholders |
|  | % |  |  | NIS Millions |
Subsidiaries that are directly held by the company |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount Investments (2) |  |  | 26.1 |  |  |  | 16,754 |  |  |  | 25,134 |  |  |  | 9,982 |  |  |  | 25,987 |  |  |  | 5,919 |  |  |  | 4,679 |  |  |  | 19,936 |  |  |  | 795 |  |  |  | (525 | ) |  |  | 270 |  |  |  | 557 |  |  |  | (241 | ) |  |  | 2,811 |  |  |  | 969 |  |  |  | (3,043 | ) |  |  | 737 |  |  |  | 271 |
Clal Holdings Insurance Enterprises (3) |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 199 |  |  |  | 8 |  |  |  | 207 |  |  |  | 124 |  |  |  | 4 |  |  |  | 1,350 |  |  |  | (4,097 | ) |  |  | (659 | ) |  |  | (3,406 | ) |  |  | 47 |
IDBG (4) |  |  |  | (4) |  |  | 117 |  |  |  | 525 |  |  |  | 118 |  |  |  | 33 |  |  |  | 491 |  |  |  | (17 | ) |  |  | 127 |  |  |  | (61 | ) |  |  | (39 | ) |  |  | (100 | ) |  |  | (16 | ) |  |  | 1 |  |  |  | 100 |  |  |  | (27 | ) |  |  | (75 | ) |  |  | (2 | ) |  |  | 1 |
IDB Tourism (5) |  |  | - |  |  |  | 250 |  |  |  | 603 |  |  |  | 711 |  |  |  | 20 |  |  |  | 122 |  |  |  | 30 |  |  |  | 1,090 |  |  |  | - |  |  |  | (12 | ) |  |  | (12 | ) |  |  | 5 |  |  |  | (1 | ) |  |  | 36 |  |  |  | 1 |  |  |  | (29 | ) |  |  | 8 |  |  |  | - |
Other subsidiaries with non-controlling shareholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (5 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4 | ) |  |  | - |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |
Total in the Company’s consolidated financial statements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,687 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 666 |  |  |  | (237 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 319 |
Subsidiaries that are indirectly held by the Company (6) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Elron |  |  | 49.7 |  |  |  | 539 |  |  |  | 265 |  |  |  | 27 |  |  |  | 19 |  |  |  | 758 |  |  |  | 476 |  |  |  | 40 |  |  |  | 42 |  |  |  | (55 | ) |  |  | (13 | ) |  |  | 24 |  |  |  | (37 | ) |  |  | (37 | ) |  |  | (19 | ) |  |  | - |  |  |  | (56 | ) |  |  | - |
PCB |  |  | 23.5 |  |  |  | 3,719 |  |  |  | 10,326 |  |  |  | 2,352 |  |  |  | 9,491 |  |  |  | 2,202 |  |  |  | 1,528 |  |  |  | 1,695 |  |  |  | 155 |  |  |  | (128 | ) |  |  | 27 |  |  |  | 121 |  |  |  | (53 | ) |  |  | 600 |  |  |  | (297 | ) |  |  | (354 | ) |  |  | (51 | ) |  |  | 86 |
Koor Industries |  |  | 31.4 |  |  |  | 3,994 |  |  |  | 3,360 |  |  |  | 1,631 |  |  |  | 3,074 |  |  |  | 2,649 |  |  |  | 1,246 |  |  |  | 429 |  |  |  | 648 |  |  |  | (225 | ) |  |  | 423 |  |  |  | 228 |  |  |  | (89 | ) |  |  | 2 |  |  |  | 2,423 |  |  |  | (1,512 | ) |  |  | (913 | ) |  |  | 4 |
Cellcom (7)(8) |  |  | 58.1 |  |  |  | 3,448 |  |  |  | 5,757 |  |  |  | 2,359 |  |  |  | 4,525 |  |  |  | 2,321 |  |  |  | 916 |  |  |  | 5,086 |  |  |  | 342 |  |  |  | (2 | ) |  |  | 340 |  |  |  | 233 |  |  |  | (1 | ) |  |  | 1,557 |  |  |  | (345 | ) |  |  | (1,569 | ) |  |  | (357 | ) |  |  | 49 |
Shufersal (8) |  |  | 52.9 |  |  |  | 3,391 |  |  |  | 5,359 |  |  |  | 2,397 |  |  |  | 4,092 |  |  |  | 2,261 |  |  |  | 1,197 |  |  |  | 11,971 |  |  |  | 8 |  |  |  | (4 | ) |  |  | 4 |  |  |  | 38 |  |  |  | (3 | ) |  |  | 630 |  |  |  | (802 | ) |  |  | 405 |  |  |  | 233 |  |  |  | 132 |
Discount Investments (Company headquarters and other investments) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (684 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (87 | ) |  |  | (58 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,679 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 557 |  |  |  | (241 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 271 |

Main location of all companies - Israel.

(1) | The data is after the necessary reconciliation to the consolidated statements of the aforementioned companies, for presentation in the consolidated statements of the Company including goodwill and surplus cost attributed to the presented companies.

(2) | Including figures for Koor, which was held directly by the Company and indirectly by Discount Investments.

(3) | The results of Clal Insurance’s activity until the date of cessation of consolidation on August 21, 2013, and include the effect of Clal Insurance’s holdings in the Group’s companies through profit sharing policies. For details on liability assets of Clal Holdings Insurance Enterprises prior the exit from consolidation and its income until the date of cessation of consolidation, see note 3.I below.

(4) | IDB Group USA Investment Inc. – the data relate to the 50% directly held by the Company. An additional 50% is held by Property & Building Corporation, the data relating to which are presented within the data of Discount Investments.

(5) | The Company holds 100% of the share capital of IDB Tourism. The balance of non-controlling shareholders relates to investee companies of IDB Tourism.

(6) | The holding percentages of subsidiaries indirectly held are the holding percentages that are not held by Discount Investments and/or the Company.

(7) | The holding percentage of non-controlling shareholders in Cellcom - 54.7%.

(8) | Although Discount Investments holds less than half of the voting rights in Cellcom and Shufersal, it estimates that it has effective control of them (inter alia, due to the high holding percentage that the Group holds of voting rights, the dispersal of the other voting rights, and in light of the voting patterns in the General meeting of shareholders), and as such, their financial statements were consolidated in the Company’s financial statements.

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

IDB Development Corporation Ltd. Convenience translation
58

Note 3 – Investments (cont.)

E. | Subsidiaries (cont.)

Details of investees whose non-controlling shareholders are material (1) (cont.)

|  | As of December 31, 2014 |  |  | For the year ending December 31, 2014 |
|  | Holding percentage of share capital and voting rights of non-controlling shareholders % |  |  | Current assets |  |  | Non-current assets |  |  | Current liabilities |  |  | Non-current liabilities |  |  | Total assets, net |  |  | Book value of non-controlling shareholders |  |  | Income (8) |  |  | Net profit |  |  | Other comprehensive income (loss) |  |  | Total comprehensive income (loss) |  |  | Profit (loss) attributed to non-controlling shareholders |  |  | Other comprehensive income (loss) attributed to non-controlling shareholders |  |  | Cash flows from current activity |  |  | Cash flows from investing activity |  |  | Cash flows from financing activity |  |  | Increase (decrease) net of cash and cash equivalents |  |  | Dividends distributed to non-controlling shareholders |
|  |  |  |  | NIS Millions |
Subsidiaries that are directly held by the company |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount Investments (2) |  |  | 26.1 |  |  |  | 11,486 |  |  |  | 25,657 |  |  |  | 7,982 |  |  |  | 24,809 |  |  |  | 4,352 |  |  |  | 3,541 |  |  |  | 20,081 |  |  |  | (109 | ) |  |  | 870 |  |  |  | 761 |  |  |  | 225 |  |  |  | 336 |  |  |  | 2,279 |  |  |  | 1,254 |  |  |  | (6,023 | ) |  |  | (2,490 | ) |  |  | 345 |
IDBG (3) |  |  | (3 | ) |  |  | 69 |  |  |  | 624 |  |  |  | 15 |  |  |  | 169 |  |  |  | 509 |  |  |  | (37 | ) |  |  | 57 |  |  |  | (38 | ) |  |  | 57 |  |  |  | 19 |  |  |  | (16 | ) |  |  | (3 | ) |  |  | 36 |  |  |  | (34 | ) |  |  | (14 | ) |  |  | (12 | ) |  |  | - |
IDB Tourism (4) |  |  | - |  |  |  | 241 |  |  |  | 645 |  |  |  | 589 |  |  |  | 29 |  |  |  | 268 |  |  |  | 30 |  |  |  | 1,004 |  |  |  | (14 | ) |  |  | 18 |  |  |  | 4 |  |  |  | 4 |  |  |  | - |  |  |  | 29 |  |  |  | (16 | ) |  |  | (167 | ) |  |  | (154 | ) |  |  | 4 |
Total in the Company’s consolidated financial statements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,534 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 213 |  |  |  | 333 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 349 |
Subsidiaries that are indirectly held by the Company(5): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Elron |  |  | 49.7 |  |  |  | 624 |  |  |  | 145 |  |  |  | 19 |  |  |  | - |  |  |  | 750 |  |  |  | 525 |  |  |  | 630 |  |  |  | 354 |  |  |  | 96 |  |  |  | 450 |  |  |  | 236 |  |  |  | 66 |  |  |  | -38 |  |  |  | 555 |  |  |  | (408 | ) |  |  | 109 |  |  |  | 199 |
Property & Building Corporation |  |  | 23.5 |  |  |  | 2,964 |  |  |  | 11,611 |  |  |  | 1,968 |  |  |  | 9,881 |  |  |  | 2,726 |  |  |  | 1,785 |  |  |  | 1,634 |  |  |  | 245 |  |  |  | 329 |  |  |  | 574 |  |  |  | 166 |  |  |  | 141 |  |  |  | 484 |  |  |  | (359 | ) |  |  | (638 | ) |  |  | (513 | ) |  |  | 54 |
Cellcom (6)(7) |  |  | 58.2 |  |  |  | 3,25 |  |  |  | 5,469 |  |  |  | 2,406 |  |  |  | 3,777 |  |  |  | 2,536 |  |  |  | 1,164 |  |  |  | 4,67 |  |  |  | 188 |  |  |  | 9 |  |  |  | 197 |  |  |  | 219 |  |  |  | 6 |  |  |  | 1,557 |  |  |  | (350 | ) |  |  | (1,106 | ) |  |  | 101 |  |  |  | - |
Shufersal (7) |  |  | 50.4 |  |  |  | 2,938 |  |  |  | 5,127 |  |  |  | 2,879 |  |  |  | 3,425 |  |  |  | 1,761 |  |  |  | 916 |  |  |  | 11,673 |  |  |  | (418 | ) |  |  | (12 | ) |  |  | (430 | ) |  |  | (205 | ) |  |  | (8 | ) |  |  | 331 |  |  |  | (247 | ) |  |  | (426 | ) |  |  | (342 | ) |  |  | 37 |
Discount Investments (Company headquarters and other investments) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (849 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (191 | ) |  |  | 131 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 55 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,541 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 225 |  |  |  | 336 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 345 |

Main location of all companies - Israel.

(1) | The data is after the necessary reconciliation to the consolidated statements of the aforementioned companies, for presentation in the consolidated statements of the Company including goodwill and surplus cost attributed to the presented companies.

(2) | Including figures for Koor, which was held directly by the Company and indirectly by Discount Investments.

(3) | Clal Insurance’s operating results include an effect in respect of Clal Insurance’s holdings in the Group’s companies through profit sharing policies.

(4) | Mostly IDB Tourism and IDB Group.

(5) | The holding percentages of the indirectly held subsidiaries are the holding rates that are not held by either Discount Investments and/or the Company.

(6) | The holding percentage of non-controlling shareholders in Cellcom - 53%.

(7) | Although Discount Investments holds less than half of the voting rights in Cellcom and Shufersal, it estimates that it has effective control of them (inter alia, due to the high holding percentage that the Group holds of voting rights, the dispersal of the other voting rights, and in light of the voting patterns in the General meeting of shareholders), and as such, their financial statements were consolidated in the Company’s financial statements.

(8) | The holding percentage of non-controlling shareholders in Shufersal – 50.5%. The rate of holding in the equity was calculated as an effective rate, neutralizing shares held by a wholly owned subsidiary of Shufersal.

(9) | The subsidiary’s income as included in the Income group in the Company’s consolidated income statement.

IDB Development Corporation Ltd. Convenience translation
59

Note 3 – Investments (cont.)

F. | Information on marketable investments, held by the Company and Discount Investment:

|  |  | Balance sheet value in the holder's books |  |  |  | Market Value |
|  |  | 31.12.2014 |  |  |  | 31.12.2014 |  |  |  | 26.31.2015 | (2)
|  |  | NIS millions |
Name of the Company |  |  |  |  |  |  |  |  |  |  |  |
Held by the Company |  |  |  |  |  |  |  |  |  |  |  |
Discount Investments (1) (consolidated) |  |  | 894 |  |  |  | 476 |  |  |  | 486 |
Equity accounted partnerships |  |  |  |  |  |  |  |  |  |  |  |
Modiin Energy |  |  | 1 |  |  |  | 1 |  |  |  | 1 |
Consolidated by Discount Investments |  |  |  |  |  |  |  |  |  |  |  |
Elron Electronic Industries Ltd. |  |  | 305 |  |  |  | 239 |  |  |  | 288 |
Cellcom |  |  | 1,843 |  |  |  | 1,427 |  |  |  | 857 |
Properties and Building Company |  |  | 1,218 |  |  |  | 946 |  |  |  | 1,193 |
Shufersal |  |  | 1,140 |  |  |  | 876 |  |  |  | 947 |

| (1) | Including goodwill in an amount of NIS 65 million attributed to companies directly held by Discount Investments: Property and Building – NIS 54 million; Adama– NIS 9 million; Shufersal – NIS 2 million.

| (2) | On the basis of the shares held by the Group companies as at December 31, 2014 (without reconciliation for any dividends that were proposed but not yet distributed during the period).

Each of the Group’s companies assesses, on its own level, the value of the assets that it holds and the allocated and unallocated excess cost included in its financial statements. The investments of the Group in associates are assessed in each holding company, at its overall investment level.

G. | Additional information on investments of the Company and its investee companies

| 1. | The Company and some of its investee companies are subject, in certain cases, to contractual restrictions and restrictions provided in the law with respect to realizing existing investments or lien holdings in investee companies such as Batucha for securing repayment of its liabilities, and restrict their ability with respect to carrying out new investments or increasing existing investments. For information on the restrictions that apply to the Company, including during the execution of new investments, in the realization and lien of holdings by virtue of agreements with the financing entities, see Note 16.E. below. The Company and some of its investee companies are subject, in certain cases, to legal restrictions with respect to business activity and in carrying out new investments or increasing existing investments in investee companies, including the need to receive approvals or permits from various regulators for crossing the holding rate prescribed in the law, such as directives regarding the supervision of insurance business, directives of the Ministry of Communications, directives regarding restrictive practices, directives regulating the oil industry, directives regarding the requirement to hold tenders, directives regarding price control of products and services, directives regarding consumerism and restrictions deriving from benefits or approvals from the tax authorities. For details regarding the letter of the Company and Cellcom to the Ministry of Communications, and Cellcom’s approach for a motion for the approval of the Ministry of Communication for a change in the (indirect) control structure of Cellcom, which also included a request to change the instructions included in Cellcom’s communications licenses, including with regard to the requirement for holdings of Israeli parties, see note 23.B.1 below. In addition, the provisions of certain laws and some of the terms of licenses in the communications sector, which were granted to a number of the Company’s investee companies, include restrictions on cross ownership (which generally means holding means of control in competitors). Furthermore, the Company’s investee companies are affected by, inter alia, changes in the budgets of government offices and bodies and by the government’s policies on various matters (such as the monetary policy). In addition, some of the Company’s investee companies have foreign operations, sell products or services outside of Israel or their securities are traded outside of Israel. These companies are affected by the economic situation including changes in the exchange rates and rate of inflation, the political situation and by legislative and regulatory arrangement in these countries.

IDB Development Corporation Ltd. Convenience translation
60

Note 3 – Investments (cont.)

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

| 2. | The Company and some of its investee companies are affected by “Proper Conduct of Banking Business” directives of the Israeli Supervisor of Banks, which include, inter alia, restrictions on the amount of loans a banking entity in Israel can provide to a “single borrower”, to a single “group of borrowers”, and to the largest borrowers and “groups of borrowers” of a banking entity (as these terms are defined in the aforesaid directives). The Company, its controlling shareholders and part of their investee companies are considered a single “group of borrowers” for this purpose.

These restrictions may limit the ability of the Company and certain of its investee companies to borrow additional amounts from the banks in Israel, their ability to make investments for which they require bank credit, their ability to invest in companies that have taken large amounts of credit from certain banks in Israel, and their ability to make certain business transactions together with groups that have taken such credit. However, during 2013 and 2014 and until the date of publication of the report, there was a decrease in the amount of the utilized credit from the banking system in Israel for the borrowers’ group that includes the Company, including as a result of change of control in it as part of the debt arrangement in IDB Holdings.

| 3. | In December 2013, the official Reshumot published in Israel the Promotion of Competition and Reduction of Centralization Law, 5774-2013 (in this section: “the Law”).

Pursuant to the provisions of the law, a pyramidal structure of control in “reporting entities” (in general –corporations whose securities are held by the public) is limited to 2 layers of reporting entities (with the company in the first layer not including a reporting entity that has no controlling shareholder). For this purpose, on the date of publication of the law in Reshumot (“Date of Publication”), the Company was considered a second-tier company and Discount Investments was considered a third-tier company. According to the law, a third layer or higher tier company may no longer control reporting corporations apart from such corporations that are under its control on the date of publication and of which it will be required to cease controlling in December 2017, at the latest. As long as a reporting entity is considered by the Companies Law to be a second-tier company, it is not entitled to control reporting entities, and if on the Date of Publication it controls reporting entities, it must cease its control of them no later than December 2019. In May 2014, the control of the Company changed as part of the completion of a creditors arrangement in IDB Holdings, subsequent to which the Company and Discount Investments are no longer considered as second and third-tier companies, respectively, and as at the date of the approval of these financial statements, the Company and Discount Investments are considered as first and second-tier companies, respectively, for the purpose of the aforesaid law. As long as Discount Investments is considered a second-tier company, it is required to cease, in December 2019 at the latest, from controlling reporting corporations under its control. In this context it is noted that in August 2014 the Company’s Board of Directors resolved to appoint an advisory committee to examine various alternatives for the Company to cope with the implications of the law and meet the restrictions set forth in it with regard to control in a pyramid structure, with the intention to enable the continued control of the Company and/or Discount Investments in “other tier companies” (currently held directly by the Discount Investments) also after December 2019.
As at the date of approval of these financial statements, the alternatives examined by the Company include, inter alia:

| a. | Changing either the Company or Discount Investments into a private company which is not a reporting corporation (and as a result not a “tier company”); and

| b. | A merger between the Company and Discount Investments. The Board of Directors of Discount Investments has appointed an advisory committee with a similar function. As at the date of approval of these financial statements, this is an examination only of the specified alternatives, and there is no certainty regarding the implementation of any of the specified structural changes. The implementation of an alternative that would be adopted is likely to take several years.

IDB Development Corporation Ltd. Convenience translation
61

Note 3 – Investments (cont.)

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

3. (cont.)
Based on an analysis made by the Company and Discount Investments, the Company estimates that it is more likely than not that the completion of one of the specified alternatives will be successful and constitute a solution for contending with the restriction on the pyramidal structure of the holdings, while allowing the Company to continue to control Discount Investments, and Discount Investments to continue to control Shufersal and Cellcom even after December 2019. Accordingly, the recoverable amount of the operations of Shufersal and Cellcom as of December 31, 2014, was calculated using the value in use method, as stated in note 10.D below.
Property & Building, which on the date of publishing the report is a third-tier company, controls reporting corporations (Gav-Yam, Ispro and Mehadrin), is examining the implications of the law over its said holdings, with a view to maintaining its control over them and it estimates that it will maintain control over them, and therefore the aforesaid law has no implications over its financial statements as of December 31, 2014.
The Company, as a first-tier company, and Discount Investments, as a second-tier company, as stated above, do not have an obligation to include independent directors on their Board of Directors or a minimal number of outside directors as stated in the aforesaid law in relation to third-tier companies onwards.
Pursuant to the law, the boards of directors of Cellcom, Property & Building, Elron, Gav-Yam, Ispro and Mehadrin include a majority of independent directors and the number of outside directors serving on their boards is at least half of the number of board members, reduced by one, rounded upwards. In addition, in June 2014, the Promotion of Competition and Reduction of Centralization (Classification of a Company as a Tier Company) Regulations, 5774-2014, came into effect, within the framework of which concessions were provided for certain corporations, which are considered as a “third-tier company”, from the updating of the composition of their board of directors to adapt it to the requirements of the Centralization Law. In October 2014, Koor received clarification letters from the Israel Securities Authority, on the opinion of the Ministry of Justice, according to which the Securities Authority will not intervene in the position, according to which with regard to the composition of Adama’s Board of Directors, the aforesaid regulations apply to Adama.
Pursuant to the law and the Promotion of Competition and Reduction of Centralization (Concessions Regarding the Number of Outside directors) Regulations, 5774-2014, and in view of the number of directors whose identity requires the consent of the Bronfman-Fisher Group according to the shareholders’ agreement between it and Discount Investments with regard to their holding of Shufersal shares as stated below, the Board of Directors of Shufersal includes a majority of independent directors and the minimal required number of outside directors on the Board of Directors of Shufersal is at least one third of the total number of directors. In this context it should be noted that in August 2014, Discount Investments entered into an agreement with a corporation of the Bronfman-Fisher Group (“Bronfman-Fisher”), which at the time held approximately 19% of the share capital of Shufersal, in an addendum to the shareholders’ agreement relating to the stipulation in the aforesaid agreement according to which Discount Investments will exercise its influence in Shufersal so that as long as Bronfman-Fisher holds the minimum defined amount of Shufersal shares, the list of directors whose appointment will be submitted for the approval of the shareholders’ meeting of Shufersal will include names of four directors whose identity will be given the consent of Bronfman-Fisher, and determines in this context that of the aforesaid four directors (out of a board of directors of fifteen members) two directors will be considered as outside directors the identity of whom was proposed by Bronfman-Fisher (and their appointment will naturally be subject to the approval of the meeting pursuant to the provisions of the law), whereas Discount Investments is entitled to object to the identity of those candidates (or any of them) on reasonable grounds.
The addendum to the shareholders’ agreement will be in effect as long as the restrictions according to section 25(d) to the Centralization Law apply to Shufersal. Accordingly, Discount Investments (which held on December 31, 2014, approximately 49.6% of Shufersal’s share capital) is effectively able to appoint the majority of the members of Shufersal’s Board of Directors.
62

Note 3 – Investments (cont.)

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

3. (cont.)
Pursuant to the addendum to the shareholders’ agreement, in September 2014 two of the four directors serving on Shufersal’s Board of Directors, whose identity received in the past the consent of Bronfman-Fisher as stated in the shareholders’ agreement, resigned, and additionally in September 2014 a special general meeting of Shufersal’s shareholders approved the appointment of three new outside directors, while the identity of two of those was suggested by Bronfman-Fisher.
With regard to the provisions of the Centralization Law relating to a separation between significant real corporations and significant financial institutions, it should be noted that as long as the Company will be a significant real corporation, after December 11, 2019, the Company will not be able to control Clal Holdings Insurance Enterprises or to hold more than 10% of any means of control in Clal Holdings Insurance Enterprises (or more than 5% of any means of a control in Clal Holdings Insurance Enterprises if Clal Holdings Insurance Enterprises will be regarded as an insurer without a controlling owner). For details regarding the timeframe determined for the sale of control and the company’s holdings in Clal Holdings Insurance Enterprises, see note 3.H.5.c below.
In November 2014, the Company’s Board of Directors had made a resolution to act, subject to the approval of the authorized organs of the companies, to promote a unification of functions at the Company and at Discount Investments, with a view to achieve costs savings.

H. | Development of investments in investee companies

The following are the main changes in investments held in 2014:

| 1. | Cellcom

For information on the examination of impairment and amortization for impairment made by the Group with regard to goodwill attributed to Cellcom as of December 31, 2014, see note 10.D.1 below.

| 2. | Property & Building and Las Vegas projects

| a. | Property & Building held 20% of the shares of TPD Investment Limited (“TPD”), an associate in England, the principle assets of which are a hotel in England. In addition to the holding of Property & Building in TPD, an English partner also held it at a rate of 60% and an additional partner held it at a rate of 20%. The acquisition of the hotel in 2006 was financed by a bank loan, without right of recourse, the balance of which as at December 31, 2013 amounted to £394 million and the date of its repayment was in July 2014 and the remainder of the acquisition was financed by a shareholders loan. In addition, as at December 31, 2013, a debt was recorded in the books of TPD to the lending bank at an amount of 65 million pound sterling, in respect of a SWAP transaction intended to fix the interest rate of the bank loan.

In March 2014, the English partner announced that the loan had been refinanced, as part of which TPD had repaid the bank loan and settled its liabilities to the bank in respect of the swap transaction in the amount of £ 38 million (after the bank waived the balance of the payment in respect of the swap transaction in the amount of £ 36 million). The liabilities were settled through new loans received by TPD: refinancing from financial entities in the amount of £ 400 million, a bridging loan from a financial entity in the amount of £ 20 million and a shareholder’s loan from the English partner in the amount of £ 15 million. The English partner also converted a shareholder’s loan in the amount of £ 10 million into share capital of TPD.
As part of the refinancing, the English partner informed Property & Building and the additional partner that they had the option to keep their holdings (20% each) by performing an additional investment in TPD, through a new shareholder’s loan in the amount of GBP 5 million, and by converting their previous shareholder’s loans, in the amount of GBP 5.6 million each, into share capital of TPD (pro rata to the new shareholder’s loan which it allegedly provided, and to the conversion of its previous shareholder’s loan to capital), or alternatively, to have their shareholdings diluted to a rate of 6.39% each. Property & Building and the additional partner dispute the dilution itself, the calculations prepared by the English partner regarding the dilution of their holdings in TPD, and the amount of the investment required by it. It is noted that the notice submitted by the English partner stated that the dilution had effectively been performed. It is emphasized that the investments of Property & Building and the additional partner in TPD were performed, as stated above, through shareholder’s loans, the balance of which is GBP 19 million each, and which are not affected by the aforementioned dilution.
IDB Development Corporation Ltd. Convenience translation
63

Note 3 – Investments (cont.)

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

| 2. | Property & Building and Las Vegas projects (cont'd)

| a. (cont'd)

Property & Building and the additional partner conducted negotiations with the English partner with the aim of reaching understandings regarding the scope of the additional investment required of them, and regarding the terms to perform the aforementioned investment. These negotiations have not been successful to date, and therefore, Property & Building and the additional partner filed a claim with an English court in April 2014 against the English partner, in which the English partner was required to acquire from Property & Building and from the additional partner their holdings in TPD, according to their market value, as will be determined by the Court, as well as additional remedies pursuant to English law.
The balance of Property & Building’s investment in TPD as at December 31, 2013, amounted to NIS 25 million. In addition, recorded for this investment within the books of Property & Building at that date in respect of the investment in TPD, were negative capital reserves in respect of translation differences in the amount of NIS 52 million and negative capital reserves in the amount of NIS 77 million for hedging of cash flows.
In view of the bank’s waiver of the payment of a part of the SWAP transaction as stated above, Property & Building recorded a profit of NIS 43 million, which increased the equity attributable to the owners of Property & Building by the same amount.
At the same time, following the payment of the SWAP balance as stated above, Property & Building recognized an expense in its Statement of Income, a total of NIS 77 million against the deletion of the capital reserves with respect to cash flow hedging, as specified above. The aforementioned sums, which amounted to a total of NIS 34 million, were recorded in the first quarter of 2014 as an expense in the statement of profit or loss, under the item of the Group’s share of the loss of investee companies treated with the equity method, net.
Additionally, beginning on March 31, 2014, the investment in TPD is treated as a financial asset measured at fair value through profit or loss, and is presented in the amount of NIS 90 million, instead of the previous treatment thereof, until the end of 2013, according to the equity method. As a result of this accounting change, in the first quarter of 2014 the capital reserves from the aforesaid translation differences in an amount of NIS 52 million were written off, an additional expense was recorded in the Statement of Income in an amount of NIS 30 million in the “Loss from realization, impairment and writing-down of investments and assets” item, and the investment in TPD increased by NIS 22 million. Therefore, the equity attributable to the owners of Property & Building increased by NIS 22 million.
The share in the losses recorded by Property & Building attributable to the owners of the Company, as stated above, amounted to a loss of NIS 36 million. The equity attributable to the owners of the Company increased by NIS 37 million, with respect to the amounts recorded by Property & Building, as stated above.
In March 2015, the English partner and TPD filed a motion for a protective injunction against Property & Building and the additional partner, according to which Property & Building and the additional partner shall refrain from any action wit h regard to selling the hotels, as well as the receipt of compensation in an amount of more than £100 thousand. Property & Building and the additional partner reject the claims included in the aforesaid motion.

| b. | For details of main realizations and revaluations of investment property made by Property & Building and its subsidiaries in 2014, see note 7.B below.

IDB Development Corporation Ltd. Convenience translation
64

Note 3 – Investments (cont.)

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

| 3. | Shufersal

| a. | In January 2014 Shufersal received a tax arrangement from the Israel Tax Authority, according to which an agreement and a plan to separate Shufersal’s real estate was exempt from income tax and betterment tax, in accordance with the provisions of Part E2 of the Income Tax Ordinance, and subject to the terms set forth therein, and accordingly, the separation entered into force from the effective date (March 31, 2013). According to the aforesaid agreement, Shufersal transferred to Shufersal Real Estate, a wholly owned subsidiary of it (“Shufersal Real Estate”), in effect as of March 31, 2013, in consideration for an allotment of shares, most of its real estate and most of its direct holdings in certain subsidiaries that hold real estate, including that debt that is attributable to the transferred assets, with the transferred debt being on the level of the internal relations between Shufersal and Shufersal Real Estate and there being no change in Shufersal’s liabilities to third parties. The purpose of the split is management focusing, development and enhancement of real estate as an additional business area of Shufersal, and exposing value for Shufersal and its shareholders. See also note 32.I below.

| b. | In June 2014, the Board of Directors of Shufersal approved an updated business plan for Shufersal, which is intended to create a growth-oriented commercial and operational infrastructure for the years to come, to reinforce its competitive ability, to improve value offered to customers, including discounting the purchasing basket and improving service.

The main components of the plan include a broad reduction of prices in the formats “Shufersal Deal”, “My Shufersal”, and “Shufersal Express”, and continued reduction of prices in the format “Yesh”; reduction of price gaps between the neighborhood branches group (“My Shufersal” and “Shufersal Express”) and the discount branches group (“Shufersal Deal” and “Yesh”); expanding and strengthening of Shufersal’s private brand; issuing a new and uniform “Gold Card”, without reducing the nominal value specified therein, and at the same time, reducing the discount rate given when purchasing the card, as well as reducing discounts for customer clubs - processes which will contribute to the reduction of product prices for the entire customer public; accelerating the development of Shufersal’s digital platforms; evaluating the development and promotion of new/supplementary activities to Shufersal’s currently existing areas of activity, including activities in the institutional market, wholesale sales, and sales of non-food products through Shufersal’s digital platform; implementing increased efficiency, inter alia, by gradually closing approximately 15 branches, with a total area of approximately 40,000 sq. m., reducing branches with a total area of approximately 25,000 sq. m., savings in expenses of branches, in the supply chain and in Shufersal headquarters, and the voluntary retirement program (at the same time, Shufersal continues pursuing its plan to work towards opening new branches at a planned opening rate of 15,000 sq. m. per year).
IDB Development Corporation Ltd. Convenience translation
65

Note 3 – Investments (cont.)

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

| 3. | Shufersal (cont.)

| b. | (cont.)

In the second and third quarters of 2014, the following non-recurring operating expenses were included in respect of the effect of the aforementioned plan:

| Details |  | Non-recurring expenses |
|  |  | (NIS millions) |
|  |  | Total |
Closure of branches – impairment losses | (1) |  |  | (39 | )
Closure of branches – non-recurring operating expenses | (1) |  |  | (101 | )
Reduction of branches – impairment losses | (2) |  |  | (15 | )
Voluntary retirement plan for employees | (3) |  |  | (29 | )
Total non-recurring expenses recorded by Shufersal |  |  |  | (184 | )
Total non-recurring expenses after attributing taxes recorded by Shufersal |  |  |  | (144 | )
Total non-recurring expenses after attributing taxes in the Company’s consolidated income statement (adding amortization of excess cost attributed in Discount Investments to the relevant assets) |  |  |  | (197 | )
The share of the Company’s owners in the specified costs after attributing taxes |  |  |  | (69 | )

| (1) | Non-recurring operating expenses with respect to the closure of branches - as stated in note 2.M.2 above, for the purpose of the impairment test, Shufersal branches are combined into geographical regions which constitute separate cash generating units (hereinafter, in this section: “Cash Generating Unit” or “Region”). According to Shufersal’s strategy, the closure of a losing branch in an area that includes additional branches may result in a reduction of the profitability of other branches which are located in the same geographical area, in other words, there is a dependence between the cash flows of branches in the same geographical area. In light of the foregoing, the impairment test for retail activity is performed on the level of the region, and the recoverable amount is calculated for the cash generating unit.

Following the trend of deceleration in the food market, Shufersal performed a renewed evaluation of branches with operational and cash flow losses in the geographical regions, and reached the conclusion that 15 branches out of all evaluated branches (which are mainly leased through operational leases, as specified below) no longer contribute, either in operational and/or strategic terms, to the geographical region (the cash generating unit) with which they are associated. Due to the foregoing, Shufersal evaluated impairment for these branches separately from the cash generating unit to which they were associated, and calculated the recoverable amount for each branch on its own. Regarding the aforementioned 15 branches, Shufersal performed an evaluation of the recoverable amount of the retail activity assets, in accordance with the provisions of IAS 36. The recoverable amount of branches that are intended for closure was measured independently, primarily based on fair value, less realization costs. The fair value measurements are classified on level 3 of the fair value hierarchy (for the definition of the various levels on the hierarchy, see note 1.E.3.b above, regarding financial instruments).
The key assumption used in calculating the recoverable amount of the branches as stated is that these branches will not generate economic benefits until their closure, and therefore equipment and leasehold improvements estimated unsealable, have been fully depreciated, whilst the remainder of the assets were examined based on Shufersal’s expectation regarding the economic benefits which will be produced from them in other branches. The recoverable amount of the branches intended for closure is lower than their book value and therefore Shufersal recognized under the item “sales and marketing expenses” an impairment loss amounting to NIS 39 million, before taxes, in respect of equipment and leasehold improvements which exist in these branches. The recoverable amount as at December 31, 2014 in respect of equipment is NIS 6 million.
It should be noted that the recoverable amount of the other cash generating units attributed to Shufersal’s retail activity is higher than the book value of the units’ assets in Shufersal’s financial statements and therefore Shufersal did not recognize an impairment in their respect.
IDB Development Corporation Ltd. Convenience translation
66

Note 3 – Investments (cont.)

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

| 3. | Shufersal (cont.)

| b. | (cont.)

| (1) | Non-recurring operating expenses with respect to the closure of branches (cont'd)

In respect of two of the specified cash generating units the Company recognized an impairment loss amounting to NIS 15 million (of this amount, the share attributable to the owners of the Company amounted to NIS 5 million) in respect of excess cost attributed in the Company’s financial statements to the branches of the complex.
The recoverable amount of the remaining cash generating units attributed to Shufersal’s retail activity was calculated using the discounted cash flows (DCF) method. The main real assumptions used in the calculation of the recoverable amount are a real discount rate after tax of 7.0% (a real discount rate before tax of 9.0%), and a real long term growth rate of 1.0%. The cash flow was estimated based on the actual operating results for 2014, Shufersal’s budget for 2015 and additional assumptions. The cash flow was estimated for a period of 5 years, after which an exit value was estimated based on the long term cash flow growth assumption. The cash flow does not take into account future expansion and efficiency plans, the investments in respect of which have not been made yet. In addition, in preparing the cash flow no effects of new activities, which may contribute to the value, were included. In respect of the calculation of the recoverable amount for owned branches, Shufersal included in the cash flows from retail activity actual rent paid to Shufersal Real Estate, and measured the real estate under separate ownership according to fair value in order to express the different price of capital of the retail operations, which is different from that of the real estate. The retail cash flow added to the cash flow from the real estate was examined against the depreciated cost of the branch assets.
Of the 15 branches which are expected to close, 12 branches are leased by Shufersal under operational lease. These lease contracts are non-cancellable until the exit point specified in the contracts, which are between the years 2014 and 2023. Shufersal intends to exit the lease contracts on the earliest possible date, in accordance with an arrangement which will be reached with the property owners, or non-renewal of the extension option in the contract. In cases where it is not possible to immediately exit the lease agreement, Shufersal intends to close the branch’s activity and to rent the asset, if possible, to a sub-lessee until the end of the lease contract. In accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, Shufersal evaluated whether the engagements regarding these branches include the embodiment of an onerous contract.
In accordance with Shufersal’s assessment, and based on an assessment performed by an external appraiser, due to changes in market conditions, income from subleases are expected to be lower than the rent which is paid with respect to the properties, and therefore, Shufersal recognized a provision in the amount of the unavoidable expenses which are required to fulfil the obligations which are embodied in the lease agreements for the branches, and with respect to the operational losses, until the closure of the branches, in the total amount of NIS 101 million before taxes. This amount is measured using the risk-free interest rate.

| (2) | Reduction of branches - as part of the increased efficiency program, Shufersal intends to reduce the size of branches, and to sublet the remaining areas in the properties. These branches include equipment and leasehold improvements (the “Property”), and in light of the process involving the reduction of the branches’ area, Shufersal evaluated the recoverable amount of the property in these branches, based on fair value less realization costs, and recognized under the item “sales and marketing expenses” impairment losses in the amount of NIS 15 million before tax. The main assumption in determining the aforesaid recoverable amount was that the leasehold improvements in the reduced areas in these branches will not generate economic benefits subsequent to the reduction, and were therefore fully depreciated.

| (3) | Employee benefits - as part of the increased efficiency program, approval was also given for a voluntary retirement program for employees in preferred conditions, and accordingly, Shufersal recorded in 2014 expenses with respect to the dismissal of employees in the amount of NIS 29 million, before tax. Additionally, as part of the increased efficiency program Shufersal recorded actuarial losses amounting to NIS 4 million before attributing taxes (NIS 3 million net after the attribution of taxes), within other comprehensive loss in respect of the voluntary retirement program.

IDB Development Corporation Ltd. Convenience translation
67

Note 3 – Investments (cont.)

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

| 3. | Shufersal (cont.)

| c. | In the fourth quarter of 2014 and the first quarter of 2015, Discount Investments acquired on the stock exchange approximately 2.4% and approximately 0.9% of Shufersal’s share capital, respectively, in considerations which amounted to NIS 45 million and NIS 18 million, respectively. Subsequent to the aforesaid acquisitions, Discount Investments holds approximately 50.5% of the capital and voting rights at Shufersal. As a result of the aforesaid acquisitions, the Company recorded in 2014 its share of a negative capital reserve amounting to NIS 11 million from a transaction with the non-controlling shareholders, and is expected to record in the first quarter of 2015 its share of a negative capital fund amounting to NIS 5 million from a transaction with the non-controlling shareholders. In this context it is noted that in January 2015 Discount Investments received a notification of a merger between it and Shufersal by the Antitrust Commissioner permitting it to hold Shufersal at a rate greater than 50%.

| d. | In March 2014, the Promotion of Competition in the Food Sector Law, 5774-2014, was published in Reshumot (“the Food Law”). The Food Law includes three sets of provisions:

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

| b. | Provisions regarding geographical competition between retailers; and

| c. | Provisions regulating price transparency.

The Food Law also includes a chapter on the subject of enforcement, penalties and financial sanctions.
In September 2014, a notice was received from the Antitrust Authority regarding the demand areas of Shufersal’s large stores.

| Shufersal is operating in accordance with the Food Law, all provisions of which commenced application in January 2015. In Shufersal’s estimate, the Food Law may have an adverse effect on its business results, and proximate to the approval date of these financial statements, Shufersal is unable to estimate the degree to which the above will affect its business operations. Additionally, the provisions of the Food Law with regard to geographic competition of retailers may affect Shufersal’s ability to expand by opening new branches in certain areas, and under certain circumstances Shufersal may be required to close some of its active branches.

| e. | In the fourth quarter of 2014, Shufersal recorded a profit in a sum of NIS 26 million from the reversal of an impairment that it recorded in the past for its investment in Lev Hamifratz Ltd., an included company that is held by it at a rate of 37% (“Lev Hamifratz”), in view of an improvement in the results of Lev Hamifratz, improved finance terms that were approved for it and negotiations that Shufersal held for the sale of its holding in Lev Hamifratz or for increasing its holding in it. The aforesaid profit was included in these financial statements in the Group’s share of the loss of investee companies that are treated under the equity, net. The Company’s share in the aforesaid profit amounted to NIS 9 million. As of the date of approval of these financial statements, Shufersal is holding negotiations with one of the partners in Lev Hamifratz for the acquisition of its share therein in an amount of 37% and in shareholders’ loans that it gave to Lev Hamifratz. There is no certainty that the aforesaid negotiations will result in a transaction.

| f. | For information on the testing of impairment and amortization for impairment made by the Group with regard to goodwill attributed to Shufersal as at December 31, 2014, see note 10.D.2 below.

| g. | For details regarding a voluntary retirement plan for Shufersal’s employees and regarding an actuarial estimate of a liability with respect to a defined benefit plan performed by Shufersal as part of the increased efficiency plan, see note 18.C below.

IDB Development Corporation Ltd. Convenience translation
68

Note 3 – Investments (cont.)

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

| 4. | Koor

| a. | In October 2014, Adama entered into an agreement with China National Agrochemical Corporation, which holds Adama at a rate of 60% (hereinafter: “ChemChina”), in which, at the completion date of the transaction, and subject to compliance with conditioned terms specified in the agreement, Adama will acquire, through a wholly owned subsidiary (in this section, the “Buyer”), from a wholly owned subsidiary of ChemChina (in this section, the “Seller”), as a single unit, 100% of the issued and paid-up share capital of a private holding company incorporated in China, whose main holding is class A shares, which constitutes approximately 20.15% of the issued share capital of Hubei Sanonda Co., Ltd. (hereinafter: “Sanonda”), a public company whose shares are traded on the stock exchange in Shenzhen, China, in which Adama held, prior to the aforementioned transaction, class B shares which constitute 10.6% of the issued and paid-up capital of Sanonda, as well as the entire issued and paid-up share capital of three private companies – (1) Jiangsu Anpon Electrochemical Co.; (2) Jiangsu Maidao Agrochemical Co.; and (3) Jiangsu Huaihe Chemical Co. (together with Sanonda, “the Chinese Companies”). The engagement in the agreement was approved by the audit committee and board of directors of Adama, after receiving a recommendation from the special committee of the board of directors, and from the meeting of Adama’s shareholders.

The consideration in the transaction, in the amount of CNY 1,987 million, which as of the date of approval of these financial statements is USD 320 million, which will be paid in cash on the completion date in so far as the transaction shall take place. The final consideration amount in USD will be determined in accordance with the exchange rate on the completion date. See also note 35.E.3. below.
The agreement sets forth various arrangements for indemnification between the parties, including a restriction on indemnification in certain cases. The completion of the transaction is subject to the compliance with conditioned terms, which primarily include:

- | The correctness of the presentations made by the buyer and the seller, and compliance with their undertakings as of the completion date, in all material respects.

- | Receipt of the required governmental approvals: (1) receipt of an exemption from the China Securities Regulatory Commission (CSRC), according to which the acquisition of Sanonda shares within the framework of the transaction (indirectly, through the acquisition of the shares of the aforementioned private holding company) does not require the performance of a tender offer; (2) approval from the Ministry of Commerce of the People’s Republic of China, or an approved local representation thereof, for the transaction and the issuance of appropriate certificates for the companies in China; (3) issuance of new business licenses to the companies in China by the Industry and Trade Administration of China (hereinafter in this section: the “Governmental Approvals”).

- | Receipt of approval from the General Director of the Antitrust Authority in Israel for the making of the transaction, insofar as such approval may be required by law.

- | Receipt of approvals from certain banks who have provided loans to the Chinese companies.

- | Sanonda’s fulfillment of its liabilities in the interim period and non-performance of actions which it has been prohibited to perform under the agreement, although non-fulfillment of its liabilities, or the performance of such actions, will constitute grounds for non-completion of the merger only if they have a significant negative impact on Sanonda, as this term was defined in the agreement.

- | Insofar as Adama will not complete an initial public offering of its shares on the New York Stock Exchange by March 31, 2015, the buyers undertaking to complete the transaction will be subject to: (A) Approval of the audit committee and board of directors of Adama, that the performance of the transaction is not reasonably expected to harm Adama’s ability to fulfill its existing and projected liabilities in the ordinary course of business, or its expected cash flow requirements, while taking into account the interests of the bondholders and the lenders, and maximizing value for Adama’s shareholders; (B) Receipt of written approval from Koor,

IDB Development Corporation Ltd. Convenience translation
69

Note 3 – Investments (cont.)

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

| 4. | Koor (cont.)

| a. | (cont.)

1. | confirming that the financing of the agreement is not reasonably expected to have a negative impact on the value or financial position of Adama, provided that Koor exercises its right of approval in an acceptable commercial manner, and in good faith, and does not withhold approval for reasons associated with assets acquired in the transaction only (assuming that the value of these assets on the completion date of the transaction will not be significantly different than their value on the signing date of the agreement). In this context, it is noted that Koor and ChemChina have amended the shareholders agreement between them, in connection with their holding of Adama, such that, insofar as Adama will not complete the aforementioned public offering by March 31, 2015, and the transaction will be duly approved by the audit committee and the board of directors of Adama, as stated above, but will not be completed as a result of its non-approval by Koor, the commencement of the non-competition period specified in the shareholders agreement will be postponed by 24 months from September 30, 2014, and ChemChina will be entitled to postpone it by an additional six months.

2. | Subject to compliance with all conditioned terms for the completion of the transaction (or a waiver of the existence of any particular conditioned terms, by a party which is entitled to do so under the terms of the agreement), the completion date of the transaction will fall on the later of either: the fourth business day after the issuance of a new business license for each of the target companies; or the fifteenth business day that occurs after the earlier of either: (a) the date of completion of the Adama IPO; or (b) the date on which the buyer notifies the seller of the completion of the last of the conditioned terms described above, provided that, in any case, the completion date does not occur before January 1, 2015. The parties will invest their best efforts to complete the transaction as soon as possible, after the completion of the IPO of Adama shares, and the receipt of all other authorizations required for the completion of the transaction. Insofar as the transaction will not be completed by March 31, 2015, the parties will invest their best efforts to hold a discussion in good faith regarding available alternatives for the completion of the transaction, Adama and its shareholders are examining various possibilities with regard to the performance of the business combination between Adama and the Chinese companies, either by way of completing the transaction or by other ways.

3. | It should be noted, that the transaction is further to understandings which were included in the shareholders agreement, and that, subject to the compliance with the terms and conditions of the purchase agreement (including approval from Koor, which will be required insofar as the IPO will not be performed by March 31, 2015, as stated above), Koor provided its consent for the transaction, which was required by virtue of provisions of the shareholders agreement.

| b. | Further to Discount Investments’ engagement with Koor in 2013 in a merger agreement (“The Merger Agreement”), in which Koor would become a private company whose issued and paid-up share capital (except for the deferred shares in Koor’s equity) would be held by Discount Investments (“The Merger Transaction”). In March 2014, the merger transaction was completed.

Upon completion of the merger transaction, all of the ordinary shares of Koor held by the shareholders from the public and the Company were transferred to Discount Investments in consideration for a cash payment of NIS 1,140 million, based on an amount of NIS 73.59 per share, as determined according to the value of Koor, as agreed. Pursuant to the merger agreement, during the completion of the merger transaction Koor distributed to Discount Investments NIS 987 million in cash, after Koor received approval in February 2014 from the court to carry out a distribution that does not satisfy the profit test pursuant to section 303 of the Companies Law. The amount received by the Company from the consideration for the merger is NIS 40.5 million. Subsequent to the completion of the merger transaction, Koor’s shares were delisted from the stock exchange, and Koor became a private company, wholly owned by Discount Investments.
For details regarding letters of indemnification that Discount Investments provided to the other directors and offers at Koor during the completion of the merger transaction, see note 33.B.5.d below.
70

Note 3 – Investments (cont.)

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

| 4. | Koor (cont.)

| b. | (cont.)

Subsequent to the completion of the merger transaction, and in accordance with the approval by Koor’s bondholders meeting in September 2013, Koor redeemed in March 2014, in early redemption, all of its bonds in a payment of an amount of NIS 1,173 million, twhich was higher than the liability value (pari) of said bonds. For said gap, Koor recorded in 2013 and in the first quarter of 2014 expenses in the amount of NIS 39 million and NIS 35 million, respectively.
The Company’s share in the aforesaid expenses amounted to NIS 19 million and NIS 18 million, respectively.
After the completion of the merger transaction and the redemption of Koor’s aforesaid bonds, Koor was left with liquid means in an amount of NIS 261 million.
Based on the consideration of the merger in the amount of NIS 1,140 million, the Company recorded as a result of the completion of the merger transaction its share of a negative capital reserve in respect of a transaction with the non-controlling shareholders, and as a result a decrease was recorded in the amount of NIS 289 million in the equity attributable to the owners of the Company, including a reclassification of reserves originating from other comprehensive income (loss) attributed in the past to the non-controlling shareholders.
In January 2014, the court and the general meeting of the shareholders of Discount Investments approved a settlement between the parties in a legal proceeding that took place with regards to the merger transaction, in which, subsequent to the completion of the merger transaction, Discount Investments offered anyone who on the date of completion of the merger transaction were among Koor’s ordinary shareholders (with the exception of the Company and Discount Investments) the option of paying Discount Investments for every Koor share they owned as specified a sum of NIS 14.64, equivalent to that share of the value of the Koor share attributable to Adama based on the valuation of Koor shares that was used by Koor in the merger transaction, and in consideration, receive from Discount Investments a non-negotiable certificate of contractual liability (K series bonds) that entitles the holder to a right to future consideration that will be paid by Discount Investments in one of the three following circumstances, whichever is the earlier (“the supplementary arrangement”):

| - | In the event that Adama shares are issued to the public - the sum of the future consideration for a Koor share will be calculated based on the value of Koor holdings in Adama shares at the price of an Adama share on the stock exchange after the closing date for the look up period if any applies to the sale of this holding following the aforesaid issue, less certain expenses as stated below, and this sum shall be paid within 120 days of the date on which the aforesaid look up period ends.

| - | In the event of an actual sale of an aggregate amount of over 40% of Koor holdings in Adama shares to an unrelated third party – the sum of the future consideration per Koor share will be calculated based on the value of Koor’s holding of Adama shares at the price per Adama share set forth in the sales transaction, less said certain expenses, and this sum will be paid within 120 days from the date of completion of the sales transaction.

| - | If by October 17, 2018, no issue is made to the public, and said sales transaction is not executed as previously mentioned - the sum of the future consideration per Koor share will be calculated based on the fair value of Koor’s holding in Adama shares on that day, as to be determined by the court-appointed appraiser, less said certain expenses, and this sum will be paid within 120 days after the date of receipt of aforesaid valuation.

IDB Development Corporation Ltd. Convenience translation
71

Note 3 – Investments (cont.)

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

| 4. | Koor (cont.)

| b. | (cont.)

The amounts that will be deducted from the value of Koor’s holdings in Adama shares in each of the aforesaid instances mainly involve a loan in the amount of US$ 960 million secured by Adama shares, plus interest and any other related liability and expense attributed to the public issuing, sales transaction or valuation as specified above.
In accordance with the supplementary arrangement and as part of a shelf offering report published by Discount Investments in March 2014, by virtue of its shelf prospectus from June 2013, as amended, Discount Investments issued, in March 2014, approximately NIS 1.045 million par value of bonds (Series K), for a total consideration of NIS 15 million. The bonds (Series K) are measured in the financial statements by fair value through profit or loss.

| c. | In January 2014, Koor sold its entire balance of its holdings in Credit Suisse shares, for a total consideration of CHF 312 million (NIS 1,202 million). In respect of these realizations, Koor recorded, in the first quarter of 2014, net profit of NIS 64 million. The Company’s share in the aforementioned profit is NIS 32 million. The comparative figures for the first nine months and the third quarter of 2013 were restated in the consolidated statement of income and in the consolidated statement of cash flows, in order to present the discontinued operation separately from the continuing operation. For details, see note 3.I.1 below.

| d. | In November 2014, Adama published a document to register its shares for trade in the U.S.A (“The Registration Document”), as part of which Adama intended to issue shares to the public at the NYSE stock exchange at a price range of USD 16 to USD 18 per share. Due to the current capital market conditions, Adama decided not to pursue the aforesaid issue and it intends to consider the timing of the issue according to developments in market conditions.

| In view of the postponement of the issue as aforesaid, the Company performed an impairment review with respect to its investment in Adama in its financial statements as of September 30, 2014.

| In addition, as in every period, in its financial statements as of December 31, 2014, the Company updated the value of the hybrid financial instrument for a non-recourse loan that Koor received (for details regarding the financial treatment of the aforesaid financial instrument, see note 16.F.1.d below), based on an opinion given by an independent appraiser which is attached to these financial statements pursuant to regulation 8B of the Reporting Regulations, and the value of the (K series) bonds as stated in section b above.

| The aforesaid impairment review (as of September 30, 2014) and the base asset that was used to measure the hybrid financial instrument and the (K series) bonds (as of December 31, 2014) are based on a fair value in an amount of approximately USD 14.6 and approximately USD 14.7, respectively, per Adama share according to the value per share reflected in the lower range published as part of the aforementioned registration document (USD 16 per Adama share), after deducting the shares’ non-negotiable component at rates of approximately 8.9% and approximately 8.2%, respectively.

| As a result of all of the aforementioned, in 2014 the Company recorded a net loss in an amount of NIS 351 million, which is made up its share in the impairment of the investment in Adama in an amount of NIS 354 million and its share of finance income, net, in a sum of NIS 3 million for updating the value of the hybrid financial instrument and the (K series) bonds.

| For details regarding the components of the hybrid financial instrument in respect of the non-recourse loan as specified and its value on the books, see note 16.F.1.d below.

IDB Development Corporation Ltd. Convenience translation
72

Note 3 – Investments (cont.)

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

| 4. | Koor (cont.)

| e. | Permit to control Koor Tadiran Gemel Ltd.

| On May 8, 2014, the controlling shareholders of the Company, Messrs. Mordechai Ben-Moshe and Eduardo Elsztain, through corporations controlled by them, received a letter from the Commissioner with regard to Koor’s control over Koor-Tadiran Gemel Ltd. (a management company wholly owned by Koor) (“Koor-Tadiran”). The letter stated, inter alia: that a control permit for Koor-Tadiran is held by Koor and not by the controlling shareholders thereof as required, and that the Commissioner is prepared to consider not regarding the transfer of control in the Company to them as an unlawful transfer and also allowing Koor to retain the control permit over Koor-Tadiran provided that no directors who are employed or who have been employed by the companies controlling Koor or who are or were related to the controlling shareholders in the Company will hold office in Koor-Tadiran, on the conditions stated in the letter, and on the condition that the amount of the holding of the means of control in the corporations controlled by the Company and the persons that directly and indirectly hold means of control in Koor will exceed 50% and Koor’s means of control in Koor-Tadiran will not be pledged, all of which until the examination of the application for a control in Koor-Tadiran is completed, or until July 30, 2014, whichever is the earlier.

| On July 31, 2014, the controlling shareholders of the Company, Messrs. Mordechai Ben-Moshe and Eduardo Elsztain, received, through corporations controlled by them, a control permit to hold means of control and joint control in Koor-Tadiran through the Company, Discount Investments and Koor (together: “the holding companies”), which replaces the previous permit of May 8, 2014. This control permit states, inter alia, certain provisions with regard to the amount of the holdings in the holding companies and the making of issues of means of control in them, and it also provides that at least 50% of the means of control that the Company holds in Discount Investments will be unencumbered and free of charges. On March 16, 2015 a revised control permit was received from the Commissioner, in which the requirement included in the permit, which stipulated that at least 50% of the means of control that the Company holds in Discount Investments will be unencumbered and free of charges, was cancelled, with effect from March 15, 2015.

5. Clal Holdings Insurance Enterprises

| a. | Expiration of an agreement to sell the shares of Clal Holdings Insurance Enterprises held by the Company

On August 20, 2013, an agreement was signed between the Company and JT Capital Fund Pte Ltd. (“JT”), a company incorporated in Hong Kong and fully held indirectly by Mr. Li Haifeng, according to which the Company will sell 32% of its shares in Clal Holdings Insurance Enterprises (according to a company valuation of Clal Holdings Insurance Enterprises in a sum of NIS 4.6 billion), for a total consideration of NIS 1.472 billion (linked to the CPI up to the date of completion of the transaction). According to the amendment to the agreement, as of May 6, 2014 it has been determined that the consideration for the sale of approximately 32% of the shares of Clal Holdings Insurance Enterprises within the framework of the completion of the transaction will amount to NIS 1.536 billion (meaning, according to a company valuation of Clal Holdings Insurance Enterprises in a sum of NIS 4.8 billion rather than NIS 4.6 billion, linked to the CPI, according to the original agreement). At the end of May 29, 2014 and in view of the failure to obtain the regulatory permits required to complete the transaction by that date, the aforesaid agreement expired.
IDB Development Corporation Ltd. Convenience translation
73

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

| b. | The appointment of a trustee for the holdings of the controlling shareholders in the shares of Clal Holdings Insurance Enterprises

On August 21 2013, in accordance with the requirement by the Commissioner, the Company gave an irrevocable power of attorney to Mr. Moshe Tery (“Mr. Tery” or “the trustee”), who was appointed by the Commissioner as trustee for 51% of the issued share capital and voting rights of Clal Holdings Insurance Enterprises held by the Company (“means of control”). In addition it transferred the shares to a trust account, in the trustee’s name, for the purpose of exercising the powers granted by the means of control in accordance with the provisions of the trust deed, and in order to separate Clal Holdings Insurance Enterprises and the financial institutions in the Clal Group (“the Clal Group”) from any possible influence of the control struggles in the IDB Group.
In accordance with the signed trust deed, Mr. Tery will exercise all of the powers given to him by virtue of the means of control for the good of the Company and in accordance with the Commissioner’s instructions, insofar as any will be given to him from time to time, in order to ensure the proper operation of Clal Insurance Company, Clal Credit Insurance Ltd. and Clal Pension and Provident Ltd. (hereinafter, jointly: “the Clal institutions”) and to protect the interests of the policyholders and savers, including with regard to the raising of equity for the benefit of the Clal institutions in any manner that he thinks fit. The transfer of the means of control to the trustee will not affect the Company’s right to receive dividends from Clal Holdings Insurance Enterprises, insofar as a decision is made to distribute any.
If and insofar as dividends are distributed for the Means of control, they will be the property of the Company and will be transferred to the Company by the trustee. In the event of any sale, transfer or charging of the means of control, the trustee will act in accordance with the Company’s instructions on condition that he receives the Commissioner’s prior written approval to do so. The trust will be terminated on the date that all of the means of control are actually transferred from the Trustee or after approval is given by the Commissioner.
On November 27, 2013 a letter was received from the Commissioner which was addressed to the expert and observer appointed for the Company by the court, in which it was emphasized that direct or indirect control of an insurer or a management company requires the obtaining of a control permit from the Commissioner, that the trust arrangement is an interim solution and cannot become a permanent arrangement and that the transfer of means of control in IDB Holdings or in the Company within the framework of the debt arrangement in IDB Holdings will not be regarded as a transfer that contravenes the provisions of the law, provided that certain conditions and restrictions are satisfied, including:

| 1. | The offeror (and insofar as a group of proposers is concerned – all of the constituents of the group) whose proposal is submitted for the court’s approval (“the successful offeror”) will confirm in advance that it is aware that the transfer of the means of control in the Company or in IDB Holdings to it does not constitute approval of the Commissioner of the transfer of means of control in the Company and does not constitute the granting of a control permit / a permit to hold means of control in the Clal Group.

| 2. | The successful offeror shall confirm that it agrees to the appointment of a trustee chosen by the Commissioner, whether the current trustee (as stated above) or another (in this section: “the trustee”), and that it is aware that the powers given to the Trustee will be in accordance with an irrevocable trust deed attached to the letter. In addition, as long as the transaction to sell the shares of Clal Holdings Insurance Enterprises to JT (see section a above with regard to the expiration of the aforesaid transaction) has not been completed, the successful offeror confirms that it agrees that certain provisions stated in the Commissioner’s letter will apply irrevocably, including:

IDB Development Corporation Ltd. Convenience translation
74

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

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

| 2. | (cont.)

| a. | The Trustee will continue to hold office as long as the Commissioner has not granted a control permit to a controlling shareholder in the Clal Group, or alternately a mechanism of an insurer without a controlling shareholder is implemented (as stated in the draft Promotion of Competition and Reduction of Centralization Law, 5772-2012 (following which the Promotion of Competition and the Reduction of Centralization Law, 5774-2013, was published on December 11, 2013) (“the draft Centralization Law”);

| b. | During the trustee’s tenure, the successful offeror will waive the exercise of the voting rights attached to the means of control in Clal Holdings Insurance Enterprises and the financial institutions of the Clal Group, and will irrevocably agree to refrain from any action that amounts, directly or indirectly, to the direction of their operations, including by way of holding office as an officer in them, and that during the period of the trustee’s holding of office, the appointment of directors in the company and in the financial institutions of the Clal Group will be in accordance with the mechanism provided in the draft Concentration Law (and insofar as this cannot be done – by a committee that will be appointed by the Minister of Finance or the Commissioner) (see below with regard to clarifications that were received from the Commissioner on this matter);

| c. | The letter further stated that within 30 days of the occurrence of a “Cessation Event” (as defined within that letter, which includes the non-compliance with the conditional terms in respect of the transaction to sell the shares of Clal Holdings Insurance Enterprises to JT (see section A. above)) the successful offeror will be permitted to file an application to receive a control permit or announce its intention of acting to sell the means of control in the Clal Group to third parties. The successful offeror will be given the opportunity of obtaining a control permit or a possibility of submitting to the Commissioner an agreement to sell the means of control in the Clal Group until December 31, 2014, and if the successful offeror is not granted a control permit or does not produce a sale agreement by that date, the trustee will act to realize the means of control in the Company at his sole discretion and subject to the Commissioner’s instructions, including by way of sale of the shares on the stock exchange, with the proceeds of the aforesaid sale being transferred to the Company. For an update on this matter, see below.

| d. | As a condition for the Commissioner’s consent as stated above, the successful offeror will be required to give his prior written consent to the aforesaid conditions and will be required to act in order to obtain from the court a decision that these conditions form part of the terms of his offer for a debt arrangement in the Company. On November 28, 2013, the entities of the Elsztain-Extra Group notified the Commissioner of their consent and the giving of their undertaking as required by the Commissioner and the expert.

In addition to the aforementioned, as of January 2014 none of the directors that holds office in other corporations of the IDB Group also holds office as an officer of Clal Holdings Insurance Enterprises.
In May 2014 the attorneys of the controlling shareholders of the Company received a letter from the Commissioner with regard to the control of Clal Holdings Insurance Enterprises, in which it was stated, inter alia, that despite her aforesaid instruction in her letter of November 27, 2013, the Commissioner would be willing to consider not implementing the aforesaid instruction with regard to the appointment of directors in the Clal Group in accordance with the mechanism determined in the draft Centralization Law (and insofar as it would not be possible to do so – by a committee that would be appointed by the Minister of Finance or the Commissioner) in the event of a further term of office of an outside director in Clal Holdings Insurance Enterprises and in Clal Insurance Company.
IDB Development Corporation Ltd. Convenience translation
75

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

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

| 2. | (cont.)

| d. | (cont.)

In addition, the Commissioner would be willing to consider not implementing the aforesaid instruction with respect to the appointment of directors in other financial institutions in the Clal Group and in Clal Agency Holdings Ltd., on the condition that directors that are or were employed in the companies controlling Clal Holdings Insurance Enterprises or that are or were related to the controlling shareholders in the Company will not hold office in these bodies, all of which on the terms stated in the letter. Pursuant to the Commissioner’s demand after the transfer of control, on May 21, 2014, the Company and the trustee signed an amended letter of appointment for the trustee for its holdings in Clal Holdings Insurance Enterprises. In September 2014, the Commissioner clarified that it was possible to extend the annual term of office of directors that held office in Clal Holdings Insurance Enterprises and in Clal Insurance Company, by voting at the general meeting of each of the aforesaid companies, and the trustee would be entitled to vote at the general meeting of Clal Holdings Insurance Enterprises by virtue of the trust deed.

| c. | The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises

On June 29, 2014, the controlling shareholders in the Company, Dolphin and CAA (which are controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively), notified the Company that Messrs. Elsztain and Ben-Moshe filed an application with the Commissioner to receive a control permit in the Clal Group. On September 29, 2014 the Company was notified by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, inter alia, as follows: the Commissioner’s office notified Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe of its position as of that date, according to which significant gaps existed between the control structure and data submitted to the Commissioner and the requirements of a controlling shareholder, as stated in the Control of Financial Services (Insurance) Law, 5741-1981, and in a policy document regarding control of a financial institution that was published by the Commissioner in February 2014 (“the Control Policy Document”), and that as of the aforesaid date less than half of the information and documents required for examining the application had been received. The Commissioner’s office also gave notice that in view of the significant gaps (which it claimed as aforesaid), it was of the opinion that even after receipt of all of the required information, it would not be possible to approve the application of Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe to receive a joint control permit in the Clal Holdings Insurance Enterprises Group.
On December 30, 2014 a letter was received from the Commissioner, addressed to Mr. Eduardo Elsztain, Mr. Mordechai Ben-Moshe and the Company, which included, inter alia, a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises, as well as instructions relating to the continued tenure of the trustee. As stated in the letter, the examination of the application of the controlling shareholders of the Company for joint control of Clal Holdings Insurance Enterprises through the Company would no longer be reviewed, mainly in view of the fact that the Company did not comply with the criteria determined in the Control Policy Document.
IDB Development Corporation Ltd. Convenience translation
76

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

| c. | The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)

The sale outline stated in the Commissioner’s letter includes the participation of the Company and the trustee in the sale process, the principles of which are as follows:

| 1. | The Company will act to sell the control in Clal Holdings Insurance Enterprises, so that it is no longer a part of the chain of control in Clal Holdings Insurance Enterprises. In accordance with the Control Policy Document it was determined that the minimal holding rate for control over Clal Holdings Insurance Enterprises, at the date of the specified letter, is 30% of the total means of control. The sale of control as specified will be done under the conditions and dates detailed below:

| a. | The Company will engage with a recognized investment bank (Israeli or foreign) the identity of which will be confirmed by the trustee, to formulate an action outline to sell the control. The Company’s Board of Directors and the trustee will approve the outline, until and no later than June 30, 2015.

| b. | The Company will sign an agreement to sell the control to a potential buyer for a price and commercial terms as it sees fit, until and no later than December 31, 2015.

| c. | Should an agreement be signed as specified in section (B) above on the date, the possibility to complete the procedure to receive a control permit from the Commissioner will be given to the potential buyer, this until and no later than June 30, 2016.

| 2. | During the period until December 31, 2015 the Company will be entitled to sell some of the means of control in Clal Holdings Insurance Enterprises, so long as this will not impact the Company’s commitment to act to sell the control, as specified in section 1 above.

| 3. | Should any of the conditions stated in section 1 above is not complied with, on the dates stipulated alongside them, or if the control is sold to a potential buyer, and the Company retains means of control (“a terminating event”), then in each of these cases the Company will act to sell all of the means of control in Clal Holdings Insurance Enterprises that it owns, apart from the amount that it is permitted by law to hold in an insurer without a permit from the Commissioner, including by way of selling the means of control on the stock exchange or in off-exchange transactions, pursuant to the outline set out below and no later than the following dates:

| a. | During a period of four months, starting from the occurrence of a terminating event, the Company shall sell at least 5% of the means of control in Clal Holdings Insurance Enterprises.

| b. | During each of the subsequent periods of four months each, the Company shall sell in each period at least an additional 5% of the means of control in Clal Holdings Insurance Enterprises.

| c. | If, in any four month period, more than 5% of the means of control in Clal Holdings Insurance Enterprises are sold, then in such a case the amount of the means of control sold in excess of the aforesaid amount will be offset against the required amount in the following period.

| 4. | Should the Company not fulfill its obligation as set forth in section (3) above, then the trustee will be entitled to act in the specified outline in its place, in accordance with all of the authorities vested in it under the stipulations of the trusteeship letter provided to it. The consideration for the sale as specified will be transferred to the Company. Expenses in respect of executing the sale of means of control will be borne solely by the Company.

IDB Development Corporation Ltd. Convenience translation
77

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

| c. | The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)

| 5. | Notwithstanding what is stated in sections (1) to (3) above, insofar as the control is sold to a potential buyer that received a control permit from the Commissioner, and the Company retains means of control in Clal Holdings Insurance Enterprises in an amount that requires a holding permit by law, the Company may file an application to receive a holding permit for the means of control that it holds, but what is stated in this section shall not constitute prior approval for the receipt of such a permit. If the Company does not receive a holding permit as aforesaid within six months of the date on which the permit control is given to the potential buyer, this date will be regarded as a terminating event and the provisions of sections 3 and 4 above will apply, mutatis mutandis.

| 6. | At the end of each quarter, or upon a request of the Commissioner or the trustee, the Company shall deliver to the Commissioner or to the trustee, as applicable, a status report regarding the progress in the sale outline.

| 7. | It was further stated in the letter that prima facie the Commissioner did not see any reason why the Company should not sell the control also to its controlling shareholders, or to any of them (alone, or jointly with another third party), however the letter has emphasized that any request to receive a control permit, including a request by one of the controlling shareholders in the Company, will be examined, inter alia, also in light of the stipulations of the Centralization Law, and that that stated in the Commissioner’s letter does not constitute an approval that it is possible to perform the sale as specified in accordance with the stipulations of the Centralization Law.

| 8. | The Commissioner’s letter clarified that there is no practical possibility as far as the Commissioner is concerned, to examine a number of requests for control permits in the Clal Group simultaneously, and insofar as requests requiring such examination are submitted in the future, the examination of these requests will not be done simultaneously.

| 9. | As required by the Commissioner’s letter, the Company signed an amended trusteeship letter (in the format attached to the Commissioner’s letter). Additionally, it has been clarified in the letter that as long as no other instruction was given by the Commissioner, the following instructions will apply irrevocably:

| a. | The trustee will continue to serve in his role as long as the Company holds means of control in Clal Holdings Insurance Enterprises, without a permit, in an amount that requires a permit by law, without holding such a permit, or alternatively the Commissioner instructs in writing of the termination of the trustee’s service.

| b. | During the trustee’s term of service, the Company and its controlling shareholders will not activate the voting rights attached to the means of control in Clal Holdings Insurance Enterprises and the corporations of the Clal Group listed in the Commissioner’s letter, including Clal Insurance Company (“Clal Group Companies”), and refrain from taking any action which may, directly or indirectly, constitute the direction of the business of Clal Holdings Insurance Enterprises or the Clal Group Companies, including by way of serving as a senior officer in Clal Holdings Insurance Enterprises or in Clal Group Companies.

| c. | During the term of service of the trustee, appointment of directors in Clal Holdings Insurance Enterprises and in the Clal Group Companies will be done in accordance with the mechanisms stated in the Commissioner’s letter of May 8, 2014 (as stated in note 3.H.5.b above). In this regard, it has been clarified that appointment of directors in Clal Holdings Insurance Enterprises and in Clal Insurance Company will be made by the Committee for the Appointment of Directors in Insurers with no Controlling Owner, according to the meaning thereof in the Control of Financial Services (Insurance) Law, 5741-1981. Insofar as it is not possible to appoint directors by the committee as specified, the appointment of directors in these companies will be done by a different committee appointed by the Minister of Finance or by the Commissioner, or by any other way instructed by the Commissioner.

78

Note 3 – Investments (cont.)

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

| 5. | Clal Holdings Insurance Enterprises (cont.)

| c. | The filing of an application to receive a new control permit and to cancel the old control permit, and determining a timeframe for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises (cont.)

| 10. Subject to compliance with the conditions and restrictions stated in sections (1) to (6) above and in section (9) above, and subject to the receipt of the consent in writing by the Company to all of the conditions stated in the specified letter, the Commissioner shall not view the continued holding of the means of control in the Company and in the Clal Group Companies, as an unlawful holding.

Accordingly, on December 31, 2014 the Company’s Board of Directors approved the provision of the Company’s consent to all of the conditions included in the Commissioner’s letter and the Company’s signature on an amended trusteeship letter which entrenches the terms of the specified letter. An amended trusteeship letter was signed by the Company and the trustee on January 6, 2015.
On March 2, 2015, the Company received a letter from the Commissioner regarding a clarification of the relationship between the Company and its controlling shareholders and Clal Holdings Insurance Enterprises and the bodies under its control, in which it was stated, inter alia, that the Company and its controlling shareholders should refrain from any action that might directly or indirectly constitute directing the businesses of Clal Holdings Insurance Enterprises or the representatives of the financial institutions and agents of the corporation owned by Clal Holdings Insurance Enterprises. In addition, the Commissioner stated that there was no reason why the process of selling the control in Clal Holdings Insurance Enterprises should not take place in the normal manner, and the Clal Group was also expected to furnish the Company with all of the information required for the sale, subject to conditions as stated in the Commissioner’s letter.
Further to the Commissioner’s letter of December 30, 2014, and the outline for the sale of control in Clal Holdings Insurance Enterprises as stated therein as aforesaid, the Company requested Clal Holdings Insurance Enterprises to begin collecting and preparing relevant documents for the purpose of setting up an information room about the Clal Group in connection with this outline.
In view of the aforementioned, there is uncertainty regarding the completion of a sale transaction within a year, and the investment in Clal Holdings Insurance Enterprises was therefore classified in the Statement of Financial Position as of December 31, 2014, as a non-current asset in the “Other Investments, including derivatives” in the Statement of Financial Position as at December 31, 2014, and the changes in fair value (market value) for the Company’s investment in Clal Holdings Insurance Enterprises for 2014 were reclassified in the Statements of Income from discontinued operations to continuing operations, including comparative figures for past periods.

| d. | The stock exchange value of the shares of Clal Holdings Insurance Enterprises held by the Company as of December 31, 2014 was NIS 1,696 million.

| The difference between the value of the shares of Clal Holdings Insurance Enterprises that the Company held shortly before the date of the approval of these financial statements, which stood at NIS 1,878 million, and the value of the shares as of December 31, 2014, is positive and amounts to NIS 182 million.

| e. | Cancellation of the previous control permit

| For details regarding the cancellation of the previous control permit for the financial institutions in the Group, see section 3.K.4 below.

| f. | In March 2015, the Company wrote to the trustee, Mr. Moshe Tery, asking him to act, by virtue of his position as trustee for the company and within the framework of the powers granted to him, in order that Clal Holdings Insurance Enterprises, subject to the distribution tests provided in the law, would distribute a dividend to its shareholders, on the earliest possible date.

IDB Development Corporation Ltd. Convenience translation
79

Note 3 – Investments (cont.)

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

| 6. | Other

| a. | Further to a binding agreement signed by Given in December 2013 with a corporation from the Covidien Group, which is a leading global company in the field of health products (“Covidien”), for carrying out a transaction in which Covidien will acquire all of Given’s share capital for 30 dollars per share and in cash by way of a triple reverse merger transaction, in January 2014, the transaction was approved by a special majority of the general meeting of Given shareholders, and after receipt of the necessary regulatory requirements, the transaction was completed in February 2014. As a result of completion of the transaction, Discount Investments, Elron and RDC Rafael Development Corporation Ltd. (which held Given at the date of signing of the specified agreement in rates of approximately 14.7%, approximately 21.2% and approximately 8.3%, respectively) received in consideration of their holdings in Given shares amounts of 142 million dollars, 204 million dollars and 80 million dollars (61 million dollars less deduction of taxes), respectively, and the Company recorded in the first quarter of 2014, its share in the net profit (after tax) in an amount of NIS 324 million, and also the realization of the Company’s share in negative capital reserves in an amount of NIS 18 million, and as a result, the equity attributed to the owners of the Company increased by NIS 342 million.

As of the date of the sale, the Company ceased to consolidate Given’s financial statements in its financial statements.
For details regarding Given, the consolidation of which was discontinued in February 2014, see Note 3.I below.

| b. | On February 17, 2015, after the date of the Statement of Financial Position, an agreement was signed between IDB Tourism and a number of its subsidiaries and a third party, to sell the operations of Diesenhaus Ltd. (“Diesenhaus”) in the outgoing tourism and internal tourism sector and the shares of certain subsidiaries of Diesenhaus (“The Subsidiaries”) in consideration for a total amount of up to approximately USD 13.8 million which shall be paid in a number of stages and a part of which is subject to meeting certain conditions. Within the framework of the transaction, the subsidiaries will repay their debt to Diesenhaus and these amounts will be used to reduce Diesenhaus’s credit facilities which were placed for the working capital funding needs of the subsidiaries. At the date of completion of the transaction, the Company is expected to record its share in the profit, which is estimated at an amount of NIS 12 million.

The completion of the transaction is uncertain as it is subject to suspensory conditions, including the completion of a due diligence by the buyer, the approval of the General Director of the Antitrust Authority and the approvals of third parties.

| c. | In March 2015, after the date of the Statement of Financial Position, IDB Tourism and the Company approved the making of a settlement (“the agreement”) with S.H. Sky Investments (T.R.T.) Limited Partnership (“Sky Fund”), according to which, subject to the completion of the transaction to sell Diesenhaus’s operations (as specified in section B. above), in consideration of between USD 12.0-13.5 million, an amount of between NIS 17.4 million and NIS 19.4 million will be paid to Sky Fund out of the consideration for the Diesenhaus transaction (depending on the amount of the Diesenhaus transaction) as a success fee for the years in which Sky Fund managed the IDB Tourism group and for initiating the Diesenhaus transaction, and additionally an amount of NIS 0.6 million in respect of interest for funds deposited by the Company for Sky Fund in the trusteeship account of the trustee appointed by the Court (as stated in note 16.C.4 below) (it should be noted that this amount reflects the same conditions according to which the remaining creditors of the Company were paid in respect of amounts deposited with the observer in accordance with a settlement with the same creditors that was proposed by the observer and approved by the court).

| The payment of the aforesaid amounts will constitute full and final payment of all of the liabilities of the IDB Tourism Group and the Company to Sky Fund. Should the Diesenhaus transaction not be completed by June 30, 2015, the agreement will be cancelled and the parties have agreed to negotiate a new settlement between them.

IDB Development Corporation Ltd. Convenience translation
80

Note 3 – Investments (cont.)

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

| 6. | Other (cont.)

| d. | In October 2014, Curetech Ltd. (“Curetech”), a company that is held in an amount of approximately 29% by Clal Venture Capital Limited Partnership (“CVC”), which is held by the Company in an amount of approximately 33%, entered into a license agreement and into a supply and production services agreement (jointly: “the agreements”), according to which Curetech will grant the buyer an exclusive global license to develop and trade the Pidilizumab drug (“the drug”) that Curetech is developing. The consideration paid to Curetech will include an immediate payment in a sum of up to $5 million, future payments that are conditional upon reaching milestones up to a total amount of $85 million, future payments that are conditional on certain annual sales’ turnovers of the drug and royalties based on sales in variable amounts, in accordance with the annual sales’ turnover.

Following the aforesaid transaction, in the fourth quarter of 2014 the Company recognized a loss in a sum of approximately NIS 32 million as a result of an amortization of surplus cost, which was attributed in CVC’s books to a license. As a result of the aforesaid amortization, the balance of the Company’s investment in CVC was set as zero. It should be noted that the aforesaid loss does not affect the cash flow of CVC or the Company.

| 7. | Dividends

| a. | In November 2014 Discount Investments distributed a cash dividend at an amount of NIS 200 million. The Company’s share in the stated dividend is NIS 148 million.

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

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

| d. | Details regarding dividends received by the Company from directly held investees:

|  | For the year ending |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
From Discount Investments |  |  | 148 |  |  |  | - |  |  |  | - |
From Clal Holdings Insurance Enterprises |  |  | - |  |  |  | 66 |  |  |  | 236 |
From Clal Industries |  |  | - |  |  |  | - |  |  |  | 194 |
|  |  | 148 |  |  |  | 66 |  |  |  | 430 |

| e. | For details regarding the Company’s letter to the trustee requesting that Clal Holdings Insurance Enterprises will distribute a dividend to its shareholders, see note 3.H.5.f above.

f. Balance of distributable profits

| As at December 31, 2014, the companies that are directly held by the Company, Discount Investment and IDB Tourism, had a negative balance of profits suitable for distribution and were unable to distribute dividends.

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

| 1. | Discontinued operations

In July 2012, the sale of Clal Industries to Access Industries was completed; in August 2013 the means of control in the shares of Clal Holdings Insurance Enterprises to the trustee, which entails accounting loss of control (as set forth in Note 3.H.5.b. above); in September and October 2013 Koor realized part of its holdings and in January 2014 realized the balance of its holdings in Credit Suisse, in accordance with a resolution by its board of directors from August 2013 (as specified in Note 3.H.4.c. above). As a result, the activity of Clal Industries, Clal Holdings Insurance Enterprises (until the date of loss of control as aforesaid in August 2013) and Credit Suisse are presented as discontinued operations.
As stated, following the Commissioner of the Capital Market’s outline for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises, as stated in note 3.H.5.c above, there is an uncertainty with regard to the completion of a sale transaction within a year and accordingly the investment in Clal Holdings Insurance Enterprises was classified in the Statement of Financial Position as of December 31, 2014, in non-current assets under the “Other investments, including derivatives” item, and the changes in fair value (market value) with respect to the investment in Clal Holdings Insurance Enterprises for 2014 were reclassified in the Statements of Income from discontinued operations to continuing operations, including comparative figures for past periods.
IDB Development Corporation Ltd. Convenience translation
81

Note 3 – Investments (cont.)

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

| 1. | Discontinued operations (cont.)

The following are details regarding the results of discontinued activities:

|  | For the year ended December 31 2014 |  |  | For the year ended December 31 2013 |  |  | For the year ended December 31 2012 |
|  | Credit Suisse |  |  | Clal Holding Insurance Enterprises Ltd. |  |  | Credit Suisse |  |  | Total |  |  | Clal Holding Insurance Enterprises Ltd. |  |  | Clal Indistries |  |  | Credit Suisse |  |  | Total |
|  | NIS millions |
Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales and services |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,328 |  |  |  | - |  |  |  | 2,328 |
Income from insurance and finance businesses |  |  | - |  |  |  | 11,244 |  |  |  | - |  |  |  | 11,244 |  |  |  | 18,571 |  |  |  | 22 |  |  |  | - |  |  |  | 18,593 |
Company share of the net income of investees treated using the equity accounting method, net |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 1 |  |  |  | 7 |  |  |  | 27 |  |  |  | - |  |  |  | 34 |
Profit from discontinued operations |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 322 |  |  |  | - |  |  |  | 322 |
Earnings from the disposal and increase in value of investments and assets |  |  | 64 |  |  |  | 43 |  |  |  | 637 | (4) |  |  | 680 |  |  |  | 26 |  |  |  | 60 |  |  |  | 159 |  |  |  | 245 |
Increase in fair value of investment property |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 21 |  |  |  | - |  |  |  | - |  |  |  | 21 |
Other income |  |  | - |  |  |  | 7 |  |  |  | - |  |  |  | 7 |  |  |  | 2 |  |  |  | 10 |  |  |  | - |  |  |  | 12 |
Financial income |  |  | - |  |  |  | 7 |  |  |  | 4 |  |  |  | 11 |  |  |  | 16 |  |  |  | 39 |  |  |  | 3 |  |  |  | 58 |
|  |  | 64 |  |  |  | 11,302 |  |  |  | 641 |  |  |  | 11,943 |  |  |  | 18,643 |  |  |  | 2,808 |  |  |  | 162 |  |  |  | 21,613 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales and services |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,770 |  |  |  | - |  |  |  | 1,770 |
Cost of insurance businesses |  |  | - |  |  |  | 8,933 |  |  |  | - |  |  |  | 8,933 |  |  |  | 14,759 |  |  |  | - |  |  |  | - |  |  |  | 14,759 |
Costs and expenses in connection with insurance businesses and financial services |  |  | - |  |  |  | 1,693 |  |  |  | - |  |  |  | 1,693 |  |  |  | 3,077 |  |  |  | - |  |  |  | - |  |  |  | 3,077 |
Research and development expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 28 |  |  |  | - |  |  |  | 28 |
Sales and marketing expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 253 |  |  |  | - |  |  |  | 253 |
General and administrative expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 127 |  |  |  | - |  |  |  | 127 |
Loss from the realization and impairment of investments and assets |  |  | - |  |  |  | 189 | (2)(3) |  |  | - |  |  |  | 189 |  |  |  | 426 |  |  |  | 32 |  |  |  | - |  |  |  | 458 |
Other expenses |  |  | - |  |  |  | 24 |  |  |  | - |  |  |  | 24 |  |  |  | 1 |  |  |  | 20 |  |  |  | - |  |  |  | 21 |
Financing expenses |  |  | - |  |  |  | 183 |  |  |  | - |  |  |  | 183 |  |  |  | 327 |  |  |  | 163 |  |  |  | (9 | ) |  |  | 481 |
|  |  | - |  |  |  | 11,022 |  |  |  | - |  |  |  | 11,022 |  |  |  | 18,590 |  |  |  | 2,393 |  |  |  | (9 | ) |  |  | 20,974 |
Income before taxes on income |  |  | 64 |  |  |  | 280 |  |  |  | 641 |  |  |  | 921 |  |  |  | 53 |  |  |  | 415 |  |  |  | 171 |  |  |  | 639 |
Taxes on Income |  |  | - |  |  |  | (164 | ) |  |  | 6 |  |  |  | (158 | ) |  |  | (133 | ) |  |  | (43 | ) |  |  | - |  |  |  | (176 | )
Income (loss) for the period from discontinued activities |  |  | 64 |  |  |  | 116 |  |  |  | 647 |  |  |  | 763 |  |  |  | (80 | ) |  |  | 372 |  |  |  | 171 |  |  |  | 463 |
Net income (loss) from discontinued activities attributed to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Company owners |  |  | 33 |  |  |  | (11 | ) |  |  | 414 |  |  |  | 403 |  |  |  | 62 |  |  |  | 359 |  |  |  | 112 |  |  |  | 533 |
Non-controlling rights |  |  | 31 |  |  |  | 127 |  |  |  | 233 |  |  |  | 360 |  |  |  | (142 | ) |  |  | 13 |  |  |  | 59 |  |  |  | (70 | )
|  |  | 64 |  |  |  | 116 |  |  |  | 647 |  |  |  | 763 |  |  |  | (80 | ) |  |  | 372 |  |  |  | 171 |  |  |  | 463 |

| (1) | Relates to the period between January 1, 2013 and August 21, 2013

| (2) | Including an amortization of NIS 169 million in respect of setting the balance of the investment in Clal Holdings Insurance Enterprises according to the market value at August 21, 2013 (due to the expiration of the agreement to sell the Company’s holdings in Clal Holdings Insurance Enterprises, the increase in the fair value of the investment in Clal Holdings Insurance Enterprises for the period from August 21, 2013 until the end of 2013, in an amount of approximately NIS 83 million was reclassified from discontinued operations to continuing operations in the item “Loss from realization, impairment and amortization of investments and assets”). In addition, it includes expenses in a sum of NIS 2 million for the sale transaction.

| (3) | See note 3.H.5.a above.

| (4) | Includes NIS 12 million in respect of a distribution made by Credit Suisse in May 2013.

IDB Development Corporation Ltd. Convenience translation
82

Note 3 – Investments (cont.)

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

| 2. | Assets, realization groups and held-for-sale liabilities

Further to what is stated in notes 3.H.5.a, 3.H.6.a and 3.H.4.c above, regarding the transaction for the sale of Clal Holdings Insurance Enterprises, the sale of Given via a reverse merger transaction and the sale of the holdings in Credit Suisse by Koor, respectively in the Consolidated Statement of Financial Position as at December 31 2013, the investments in Clal Holdings Insurance Enterprises and Credit Suisse and in the assets of Given, in the realization groups assets item and in the other assets classified as for sale, are presented within the framework of current assets, and the liabilities of Given are presented in the liabilities of the realization group and in other held-for-sale liabilities, within the framework of current liabilities.
Following the outline of the Commissioner of the Capital Market for the sale of the Company’s holdings in Clal Insurance, as stated in note 3.H.5.b above, there is uncertainty regarding the completion of a sale transaction within a year, and accordingly the investment in Clal Holdings Insurance Enterprises was classified in the Statement of Financial Position as at December 31, 2014 within non-current assets, in the item “Other investments, including derivatives”.
The following is the composition of the assets and liabilities held for sale for the above companies and others:

|  | As at December 31, 2013 |
|  | NIS Millions |
Assets of realization groups and other assets classified as held-for-sale |  |  |
Investment in Clal Holdings Insurance Enterprises Ltd. |  |  | 2,055 |
Investment in Credit Suisse |  |  | 1,138 |
Fixed assets(1) |  |  | 37 |
Investment property |  |  | 187 |
Intangible assets(1) |  |  | 481 | (2)
Loans, deposits and investments(1) |  |  | 431 |
Trade receivables(1) |  |  | 115 |
Inventory(1) |  |  | 107 |
Cash and cash equivalents(1) |  |  | 153 |
Other assets |  |  | 75 |
|  |  | 4,779 |
Assets of realization groups and other assets classified as held-for-sale(1) |  |  |  |
Other payables and credit balances |  |  | 88 |
Trade payables |  |  | 37 |
Other liabilities |  |  | 40 |
|  |  | 165 |

| (1) | Relates to amounts in respect of Given.

| (2) | Reclassified.

IDB Development Corporation Ltd. Convenience translation
83

Note 3 – Investments (cont.)

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

| 3. | a. Details regarding Given, whose consolidation was ended in February 2014:

The following is a summary of the balances and the effect of the deconsolidation of the financial statements of Given on the date of ending the consolidation:

|  | At the consolidation cessation date |
|  | NIS Millions |
Effect of the sale of the holding in Given on the financial position, as at the date of deconsolidation |  |  |
Assets classified as held for sale |  |  | 1,332 |
Liabilities classified as held for sale |  |  | 201 |
Cash flow arising from the sale for the Group |  |  |  |
Consideration received from the sale less cash spent within the deconsolidation |  |  | 1,323 |
|  | For the period from January 1, 2014 until the date of deconsolidation |
|  | NIS millions |
Given’s effect on the Group’s results until the date of deconsolidation in February 2014 |  |  |  |
Sales and services |  |  | 86 |
Loss attributable to the owners of the Company |  |  | (70 | )
Loss attributable to non-controlling shareholders |  |  | (81 | )

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

| 1. | The following are companies whose consolidation was ended

Investee Company name | Deconsolidation date
Maxima Air Separation Center Ltd. | June 2012
Clal Industries | July 2012
Ham-Let (Israel Canada) Ltd. | August 2012
Guard | August 2012
Ma’ariv Holdings Ltd. | September 2012
Titanium | December 2012
Clal Holdings Insurance Enterprises Ltd. (see also a. above and sections H.5.a and I.1 in this Note) | August 2013
Given (see also Note 3.H.6.a. below) | February 2014

| 2. | Company consolidated for the first time

The financial statements of Given were consolidated in the Company’s financial statements from January 1, 2013, until the date of the sale as stated in note 3.H.6.a above.
IDB Development Corporation Ltd. Convenience translation
84

Note 3 – Investments (cont.)

J. | The following are details regarding the liquid resources, gross debt and significant restrictions upon the transfer of resources between entities within the Group, relating mainly to a restriction upon the transfer of cash as of December 31, 2014, and after the date of the Statement of Financial Position (in NIS millions):

Name of the company |  | Amount of the restricted/ charged asset |  |  | Amount of the liability in the Statement of Financial Position (principal only) |  | Restriction | Note
The Company and directly and indirectly consolidated companies of the Company |  |  |  |  |  |  | Restriction on distribution of dividend Distributable profits – dividends distribution | 15.D 3.H.7 3.K and L
Cellcom |  |  |  |  |  | 1,353 |  | Financial covenants: - Early repayment cause (cross default or cessation of rating) - Cash dividend - Non-creation of pledges over Cellcom’s and Netvision’s assets | 16.F.2 and 22.G
Property & Building and asset companies wholly owned by it |  |  | 2,967 |  |  |  | 1,271 1,556 |  | Financial covenants relating to bonds: -Early repayment cause including due to cross default, cessation of rating and lowering rating; - Restrictions on dividend distribution Financial covenants with regard to a bank loan: - Mortgage on HSBC Building and pledges on rental agreements and rental fees from the building etc.; - Early repayment causes | 16.F.3 and 22.I
Shufersal |  |  |  |  |  |  | 863 |  | Financial covenants: - Early repayment causes including due to cross default - Meeting shareholders capital - Non-creation of a floating pledge on all of its assets - Restrictions on dividend distribution | 16.F.4 and 22.H
Discount Investments |  |  | 3,051 |  |  |  | 521 4,557 4,487 | (**) | Financial covenants with regard to a bank loan: - Early repayment causes including due to cross default or in events of change in control; - Refraining from giving charges to others. Obligation towards bondholders Pledge over Adama shares -Pledge to secure a loan provided to Koor from a Chinese bank as part of the Adama and ChemChina merger. | 16.F.1.b and 22.E 16.F.1.f
Adama (*) |  |  |  |  |  |  |  |  | Financial covenants: - Early repayment causes - Meeting shareholders capital - Meeting a retained earnings balance | 16.F.5.b and c

(*) | Upon the completion of the merger transaction with ChemChina, the profit distribution determined in the shareholders agreement and Adama’s articles of association entered into effect, according to which subject to the stipulations of the articles of association and the instructions of the Companies Law, the board of directors of Adama will be entitled from time to time to declare and cause Adama to pay dividends in respect of any financial periods, as the board of directors of Adama shall see fit justifiably considering Adama’s profits. Subject to any law and the reasonable cash flow liquidity requirements applying to Adama, Adama will declare an annual dividend at an amount of no less than 40% of its profits for that year. Since the first offering of Adama’s shares to the public was not completed within three years of the date of completing the merger transaction with ChemChina (i.e., by October 17, 2014), then, starting from the first financial year after the third anniversary of the closing of the merger transaction with ChemChina (i.e., 2015), subject to any law and the reasonable cash flow liquidity requirements applying to Adama, Adama will declare an annual dividend in an amount of no less than 80% of its profits for that year.

(**) The loan principal and accrued interest.
For additional details regarding guarantees and pledges, see note 22 below.
85

Note 3 – Investments (cont.)

K. | Capital requirements for insurance companies in Israel

Below are details relating to capital requirements according to the Control of Insurance Business (Minimum Equity Capital Required of an Insurer) Regulations, 5758-1998, including the amendments thereto (“the Capital Regulations”), and the Commissioner’s guidelines that apply to consolidated companies that are insurance companies in Israel.

|  | As at December 31 |  |  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | Insurance companies |  |  | Insurance companies |
|  | Clal Insurance |  |  | Clal Credit |  |  | Clal Insurance |  |  | Clal Credit |
|  | NIS millions |
Minimum equity: |  |  |  |  |  |  |  |  |  |  |  |
Amount required pursuant to the amended Capital Regulations |  |  | 4,569 |  |  |  | 35 |  |  |  | 4,477 |  |  |  | 34 |
Current amount as calculated pursuant to the Capital Regulations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic tier 1 capital |  |  | 4,147 |  |  |  | 172 |  |  |  | 3,766 |  |  |  | 146 |
Tier 2 subordinated capital (see section 3.b) |  |  | 432 |  |  |  | - |  |  |  | 621 |  |  |  | - |
Tier 2 hybrid capital (see section 3.b) |  |  | 2,081 |  |  |  | - |  |  |  | 1,566 |  |  |  | - |
Total Tier 2 capital |  |  | 2,513 |  |  |  | - |  |  |  | 2,187 |  |  |  | - |
Total current capital, calculated according to the Capital Regulations |  |  | 6,660 |  |  |  | 172 |  |  |  | 5,953 |  |  |  | 146 |
Surplus |  |  | 2,091 |  |  |  | 137 |  |  |  | 1,476 |  |  |  | 112 |
Capital operations which took place after the reporting date: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reduction of subordinated Tier 2 capital |  |  | (15 | ) |  |  | - |  |  |  | 29 |  |  |  | - |
Surplus taking into account Events Subsequent to the statements Date |  |  | 2,076 |  |  |  | 137 |  |  |  | 1,447 |  |  |  | - |
The investment amount to be provided against surplus capital, in accordance with directives of the Commissioner, or which is actually held against surplus capital, and which therefore constitutes non-distributable retained earnings |  |  | 25 |  |  |  | - |  |  |  | 27 |  |  |  | - |
*) Total required amount, capital requirements in respect of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-life insurance activities / required Tier 1 capital |  |  | 628 |  |  |  | 30 |  |  |  | 655 |  |  |  | 30 |
Activities in long-term care insurance |  |  | 104 |  |  |  | - |  |  |  | 101 |  |  |  | - |
Extraordinary risks in life insurance |  |  | 411 |  |  |  | - |  |  |  | 400 |  |  |  | - |
Deferred acquisition costs in life insurance and disease and hospitalization insurance |  |  | 1,248 |  |  |  | - |  |  |  | 1,233 |  |  |  | - |
Requirements in respect of guaranteed yield plans |  |  | 5 |  |  |  | - |  |  |  | 10 |  |  |  | - |
Non-recognized assets, as defined in the Capital Regulations |  |  | 78 |  |  |  | 1 |  |  |  | 64 |  |  |  | - |
Investment in consolidated insurance and management companies (including acquired management activities) |  |  | 551 |  |  |  | - |  |  |  | 548 |  |  |  | - |
Equity required in respect of investments |  |  | 1,024 |  |  |  | 2 |  |  |  | 963 |  |  |  | 2 |
Catastrophe risks in non-life insurance |  |  | 134 |  |  |  | - |  |  |  | 115 |  |  |  | - |
Operational risks |  |  | 285 |  |  |  | 2 |  |  |  | 287 |  |  |  | 2 |
Guarantees |  |  | 101 |  |  |  | - |  |  |  | 101 |  |  |  | - |
Total required capital |  |  | 4,569 |  |  |  | 35 |  |  |  | 4,477 |  |  |  | 34 |
**Reduction of capital required in respect of the original difference (see section 3.f.) |  |  | 208 |  |  |  | - |  |  |  | 211 |  |  |  | - |
Tax reserve in respect of provident fund acquisition (see section 3.f.) |  |  | 76 |  |  |  | - |  |  |  | 54 |  |  |  | - |

IDB Development Corporation Ltd. Convenience translation
86

Note 3 – Investments (cont.)

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

| 1. | The Board of Directors of Clal Holdings Insurance Enterprises supervises the yield on capital, which the Clal Holdings Insurance Enterprises group defines as comprehensive income (loss) for the period, which is attributed to its shareholders divided by the equity attributed to the shareholders of the Company. The Board of Directors of Clal Holdings Insurance Enterprises decides upon the amounts of the dividends for the shareholders. The Board of Directors of Clal Insurance determined the target capital at approximately 12% above the minimum equity required by law (herein: the “target equity”). It is hereby clarified that the above is not a binding equity requirement, but rather an equity level which Clal Insurance will strive to maintain, and no certainty exists that Clal Insurance will meet this target at all times. As of December 31, 2014, Clal Insurance complied with the target equity. The policy of the management of Clal Holdings Insurance Enterprises is to hold a strong capital basis in order to retain its ability to continue its operations so that it can produce a return for its shareholders, and in order to comply with external equity requirements to which it is subject by virtue of its holding in Clal Insurance, and in order to support the equity needs of its consolidated companies, some of which are subject to external equity requirements, as stated in this section and in section L below, and future business development.

| 2. | In addition to the general requirements and the Companies Law, dividend distributions performed out of capital surplus in an insurance company are also subject to liquidity requirements, and to compliance with the terms of the Investment Regulations and additional directive published by the Commissioner of Capital Markets from time to time.

| 3. | a. Minimum capital –

The Capital Regulations set forth the minimum capital required of insurance companies, and the method used to calculate them. The activity in insurance businesses is conditional upon the existence of required minimum capital. The capital required for the purpose of the stated insurance activity is composed of a first layer, which is the higher of minimum (floor) capital or the derived capital from total activities in Non-Life insurance, according to the higher of a calculation based on premiums and a calculation based on pending claims, as well as additional capital requirement components, as described above. Non-compliance with the Capital Regulations will require the insurer to increase its equity capital up to the amount stipulated in the Capital Regulations, or to reduce the scope of its business accordingly, as relevant, until the publication date of the report, except in exceptional circumstances approved by the Commissioner, in which case the capital supplement will be postponed.

| b. | Composition of insurer’s capital

The following are the main components and instruments included in the three layers of equity of consolidated insurance companies, their rates and conditions in accordance with the Commissioner’s Circular from August 2011 (the “Circular”). This framework will be used to determine the composition of an insurer’s equity, with the implementation of the Solvency II Directive ("Directive" or “Solvency Regime”) in Israel, as amended and updated (for details, see section d below).

| 1. | Tier 1 capital - including Basic Tier 1capital (at the level of equity attributed to shareholders). The overall rate of the Tier 1 capital must not be less than 60% of the insurer’s equity.

| 2. | Tier 2 capital - Including Tier 2 hybrid capital instruments (excluding periodic accrued interest payments), Tier 2 subordinated capital instruments (as defined in the Circular), and any other component or instrument approved by the Commissioner. A Tier 2 hybrid capital instrument is subordinate to any other debt, excluding Tier 1 capital, and includes financial instruments which are available to absorb the insurer’s losses by postponing principal and interest payments. The first repayment date for Tier 2 capital instruments will be after the end of a period reflecting the weighted average of the periods for repayment of the insurance liabilities plus two years, or 20 years, whichever is earlier, but no earlier than 8 years from the issue date. In the event that a Tier 2 hybrid capital instrument includes an early redemption incentive, the first date of the early redemption incentive may be no earlier than 5 years from the instrument’s issue date.

IDB Development Corporation Ltd. Convenience translation
87

Note 3 – Investments (cont.)

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

| 3. (cont.)

| b. | Composition of insurer’s capital (cont.)

| 3. | Tier 3 capital - including Tier 3 hybrid capital instruments (excluding periodic accrued interest payments) and another component or instrument approved by the Commissioner. Tier 3 capital instruments are subordinate to all other instrument, excluding Tier 1 and Tier 2 capital, and includes financial instruments which are available to absorb the insurer’s losses by postponing only principal payments. It can be stipulated that Tier 3 capital will not come before Tier 2 capital, and will be equivalent to it in the order of credit. The first repayment date of Tier 3 capital instruments is no earlier than 5 years from their issue date. In the event that a Tier 3 hybrid capital instrument includes an early redemption incentive, the first date of the early redemption incentive may be no earlier than 3 years from the instrument’s issue date. The overall amount of Tier 3 capital must not exceed 15% of the insurer’s total equity.

For this purpose, insurance liabilities include non-investment-linked liabilities, without the liability component that is fully backed by a HETZ bond, and less the share of reinsurers.
The Commissioner’s approval is required to include a hybrid capital instrument (Tier 1, Tier 2 or Tier 3) in equity.
It is noted that the Circular contains transition conditions, as follows:

| 1. | Tier 2 subordinated capital issued up to December 31, 2009 will be recognized until its final repayment date, under the conditions in which it was recognized until the publication of the Circular.

| 2. | Tier 2 subordinated capital which was issued beginning on January 1, 2010 and thereafter will not be recognized upon the application of the directive in Israel, or beginning on January 31, 2013, whichever is earlier.

| 3. | Hybrid tier 1, hybrid tier 2 and hybrid tier 3 instruments issued on January 1, 2010 or thereafter, and which were approved by the Commissioner, will be recognized until their final payment date, under the conditions under which they were issued, and in accordance with the rate restrictions applicable to the various tiers.

| 4. | Hybrid tier 1, hybrid tier 2 and hybrid tier 3 instruments will be issued beginning on the date the Circular comes into force, according to the conditions specified therein, will be fully recognized upon the application of the directive in Israel, until their repayment dates. |

Its second part provides interim provisions with regard to the composition of insurer’s shareholders’ equity, (temporary provisions) which would apply through the application of the Directive in Israel, at a date to be announced by the Commissioner. The Temporary Order defines, inter alia, the Tier 2 capital issued according to the Capital Regulations, prior to their amendment, as Tier 2 subordinate capital, and restricts its scope to 50% of basic equity.
Deferred liability notes issued by Clal Insurance and Clalbit Finance prior to December 31, 2009, are recognized as subordinate Tier 2 equity.
Deferred liability notes issued by Clalbit Finance beginning in 2010 are recognized as Tier 2 hybrid capital.

| c. | In accordance with the Commissioner’s letter, the Commissioner will not approve a dividend distribution unless, after carrying out the distribution, the insurer has a ratio of recognized equity to required equity of at least 105% and all of the following documents are submitted to the Commissioner:

| 1. | The insurance company’s annual earnings projection, for the two years following the dividend distribution date.

| 2. | Submission of an updated debt service plan approved by the Board of Directors of the insurance company.

| 3. | Submission of a capital make-up action plan approved by the Board of Directors of the insurance company.

| 4. | Minutes of the meeting of the Board of Directors of the insurance company at which the dividend distribution was approved.

IDB Development Corporation Ltd. Convenience translation
88

Note 3 – Investments (cont.)

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

| 3. (cont.)

| c. | Composition of insurer’s capital (cont.)

It should be noted that, notwithstanding the above, advance approval from the Commissioner is not required in the event that the total equity of the Insurance Company, as defined in the Minimum Capital Regulations, following the dividend distribution, is higher than 115% of the minimum equity required in accordance with the Capital Regulations (See also Section f. below), and provided that the insurance company delivered the documents specified above to the Commissioner.
The following dividends were declared and paid by Clal Insurance:

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Amount for distributing dividends (in NIS millions) |  |  | - |  |  |  | 100 |  |  |  | 200 |
Total NIS per share |  |  | - |  |  |  | 0.84 |  |  |  | 1.69 |
Prior Commissioner approval required |  |  | - |  |  | No |  |  | Yes |

| d. | In November 2014, the Commissioner published a letter to the managers of the Insurance companies (“The Letter”) regarding an outline for implementation of a solvency regime based on Solvency II in Israel. In the letter the Commissioner noted that the European parliament resolved that the implementation of the Directive in Europe will be at the start of 2016, and schedules were set forth to implement the final instructions. In light of the intention to publish final instructions in Europe until June 2015, the Commissioner intends, during 2016, to publish instructions regarding the adjustment of the first pillar of the Directive to the local market which will replace the current instructions and that the insurance companies will be required to meet these instructions as of the annual financial statements for 2016. For a period to be determined, insurance companies will be required to meet the capital requirements both according to the existing instructions and according to the final instructions to be determined. Until the final implementation, the Commissioner intends to publish instructions for the performance of quantitative evaluation surveys (IQIS) for 2014 and 2015 and determine a quarterly reporting format according to the new outline.

Additionally, the Commissioner intends to publish instructions regarding capital management and determining an internal capital target, with respect to a gap survey which the companies will need to perform with regard to their risk management, controls and corporate governance layout and a consultation paper for the promotion of a process for self-assessment of risks and solvency (ORSA).

| The implementation of the Solvency II Directive, according to the IQIS model derived from the Commission’s instruction to perform quantitative evaluation surveys, may reduce the capital ratio (existing capital compared to required capital) of the insurance companies at the Group. The model is structurally sensitive to changes in market and other variables and therefore the capital requirements reflected from it may be more volatile.

Since the calibration and adaptation of the model to the local market have yet to be determined, at this point there is uncertainty regarding the timing and details of the model, insofar as determined by the Commission’s regarding capital requirements, and accordingly it is not possible to evaluate the implications that will derive from it.

| e. | The capital requirements under the Capital Regulations will continue to be based on solo financial statements. In order to calculate recognized capital in accordance with the Capital Regulations, an insurance company’s investment in an insurance company or in a controlled managing company, as well as in other investees, will be calculated on an equity basis using the ultimate holding rate for them.

IDB Development Corporation Ltd. Convenience translation
89

Note 3 – Investments (cont.)

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

| 3. (cont.)

| f. | The minimum equity required of Clal Insurance was reduced, with the Commissioner’s approval, in respect of the original difference attributed to the managing companies and to the provident funds which are under its control, at a rate of 35% of the balance of the original aforementioned difference. When calculating the amount permitted for dividend distribution, this reduction will be added to each capital level required (see details in Section 3c above). In September 2013, Clal Insurance received a letter from the Commissioner stipulating that the amount of the reduction that will be added to the minimum required capital, in calculating the amount permitted for distribution as a dividend, will be after deduction of the accumulated tax reserve at Clal Insurance in view of the acquisition of provident fund activity. It is also noted that this authorization will be revoked upon the entry into validity of the capital requirements set forth in the first layer of the Directive (see section d. above) that will replace the Capital Requirements, and does not reflect the control policy for implementation of the above requirements.

| g. | In March 2013, Clal Insurance received a letter from the Commissioner according to which, concerning the instructions of the law on credit rating, the rating determined according to the internal credit rating model of Clal Insurance will be considered a rating which corresponds, in terms of risk, to the rating of a rating company, according to the conditions and for the branches determined. In accordance with the Commissioner’s approval, Clal Insurance is permitted to allocate equity in respect of matching loans, which are rated according to the internal model according to the percentages set forth in the Capital Regulations. If a loan exists with an external rating, the allocation of equity will be according to the lower of the ratings. The letter stipulates that Clal Insurance is required to file immediate and periodical reports as detailed in the annex to the letter. Likewise, by March 2 2014, the supplements required by the Commissioner regarding validation and control were provided. Clal Insurance implemented the aforementioned instructions, and, as a result, the capital requirements decreased by NIS 3 million, correct as at the end of the report period.

| 4. | Permit given by the Commissioner to the previous controlling shareholders of IDB Holdings, to hold control of Clal Holdings Insurance Enterprises and financial institutions

As the Company was notified on May 8, 2014, the previous controlling shareholders of the Company (Ganden Group, Manor and Livnat) received a notification from the Commissioner that further to the creditors arrangement at IDB Holdings and since they have ceased controlling financial institutions from the Clal Group, the control permits in the aforesaid financial institutions that were given to them were cancelled, including, inter alia, in Clal Insurance Company, Clal Credit Insurance and Clal Pension and Provident Funds Ltd. (“the financial institutions”) (“the previous permit”). It should be clarified that the previous permit included instructions according to which, inter alia: (a) IDB Holdings undertook to supplement (or to cause the companies under its direct or indirect control to supplement) the equity required of the Insurers according to the Capital Regulations or any other regulation or law which may replace them, provided that the maximum undertaking limit does not exceed 50% of the capital required of the Insurer, and also that the undertaking will be realized only when the Insurer’s equity is negative, in the amount of the negative equity, provided that the supplemental amount does not exceed the aforementioned undertaking limit; and (b) IDB Holdings undertook to complete (or it would act so that companies directly or indirectly controlled by it would complete) the equity of Clal Pension and Provident Funds up to the amount stipulated in the Provident Fund Regulations as these will be in force from time to time, or any other regulation or law which may replace them, while the aforesaid undertaking (with regard to the financial institutions) would remain in force as long as IDB Holdings would be the controlling shareholder of the financial institutions.
It should also be clarified that the previous permit stipulated conditions and restrictions concerning holdings and pledges in the control chain of the financial institutions in the Clal Group, and the previous controlling shareholders were required to maintain the capital requirements of Clal Holdings Insurance Enterprises, so long as there are liens on their holdings in the means of control of IDB Holdings, such that the equity of the Company will be no less, at any time, than the amount of Clal Holdings Insurance Enterprises’ holding in Clal Insurance Company multiplied by 140% of the minimum equity required of Clal Insurance Company, pursuant to the Capital Regulations, on September 30, 2005, as these were at that time, linked to the CPI for September 2005.
90

Note 3 – Investments (cont.)

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

| 4. | Permit given by the Commissioner to the previous controlling shareholders of IDB Holdings, to hold control of Clal Holdings Insurance Enterprises and financial institutions (cont'd)

As the Company was informed, as of the end of the report period, the minimum equity required of Clal Insurance Enterprise Holdings, as stated above, amounted to approximately NIS 2.9 billion, while as of the end of the reporting period, Clal Holdings Insurance Enterprises’ equity was higher than this requirement. The Company was also informed that the capital requirement is examined de facto in accordance with the reviewed or audited financial statements of Clal Holdings Insurance Enterprises. The Company was also informed, with regard to equity management, that Clal Insurance Enterprise Holdings also examined the need to hold an additional cushion, in view of negative developments that might impact the equity and the equity requirements.
In view of the cancellation of the previous permit, there is uncertainty with regard to whether the capital requirements applying to Clal Holdings Insurance Enterprises pursuant thereto are still in force. The Company was informed by the Commissioner’s representatives that clarifications with respect to this notice of the Commissioner of May 8, 2014, will be given later.
For details regarding the cancellation of the control permit, see note 3.H.5.c. above.
For details regarding the appointment of Mr. Moshe Tery as trustee for the main holdings of Clal Holdings Insurance Enterprises, regarding the Commissioner’s letters of November 27, 2013, and May 8, 2014, regarding control of the Company, and also regarding the undertakings that were given to the Commissioner regarding control of the Company by the Dolphin-Extra group in connection with the IDB Holdings debt arrangement, see note 3.H.5.b. above.
For details regarding the IDB Holdings debt arrangement and also regarding the transfer of (indirect) control over the Company to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, see note 16.G.2 below.

| 5. | Clal Insurance is required to supplement the equity required of Clal Credit Insurance according to the Capital Regulations up to 50% of the required capital, only in the event that the equity of Clal Credit Insurance is negative, and will be valid so long as Clal Insurance is the controlling shareholder of Clal Credit Insurance.

| 6. | Clal Insurance is required supplement, at any time, the shareholders capital of Clal Pension and Provident, to the amount stipulated in the Income Tax Regulations (Regulations for Approval and Management of Provident Funds), 5724-1964. This undertaking will remain in force so long as Clal Insurance controls Clal Pension and Provident Funds, either directly or indirectly.

L. | Capital requirements in companies that manage pension funds and provident funds

| 1. | In February 2012, the Supervision of Financial Services Regulations (Provident Funds) (Minimum Equity Capital Required of a Managing Company of a Provident Fund or Pension Fund) Regulations, 5772-2012, and Income Tax Regulations (Rules for Approval and Management of Provident Funds) (hereinafter: the “New Regulations”) were published. Pursuant to the New Regulations, the capital requirements of managing companies were expanded, and they include capital requirements in accordance with the extent of the assets under management and the annual expenses, but not less than an initial capital of NIS 10 million.

A managing company will be permitted to distribute dividends only if its equity is at least the minimum equity required of it according to these Regulations. A managing company will also be required to provide additional capital in respect of controlled managing companies.
As of the end of the reporting period, Clal Insurance and the managing companies under its control have a capital surplus with respect to the minimum capital required in the capital regulations regarding the managing companies.
IDB Development Corporation Ltd. Convenience translation
91

Note 3 – Investments (cont.)

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

| 2. | In view of the publication of the capital regulations for managing companies and for the purpose of financing investing activities and operating activities, which include, inter alia, investment in development of a system to manage member rights in the pension funds, investment in the development of a system to manage member rights in provident funds, as well as repayment of agent commissions (which are charged to deferred acquisition costs (DAC)) to Clal Insurance, the boards of directors of Clal Insurance and Clal Pension and Provident approved the creation of a credit facility from Clal Insurance to Clal Pension and Provident Funds, up to a cumulative total of NIS 150 million, which was used up in its entirety by the end of 2013. The amounts that were withdrawn as part of the updated credit facility, will bear interest until their repayment date at an annual rate of 4.7%.

On February 5 2014, after a decision was taken to convert the updated credit facility into a capital note, Clal Pension and Provident issued a non-tradable capital note to Clal Insurance, at the level of Clal Pension and Provident’s obligation towards Clal Insurance as at December 31 2013, in a total amount of NIS 156.4 million (“Capital Note”). In accordance with its terms, the Capital Note is unlinked and does not bear interest of any kind; the Capital Note is not secured by any sureties and no liens and/or other sureties of any kind will be recorded securing repayment of the Capital Note; Clal Insurance is not entitled to repayment of the Capital Note except in case of the liquidation of Clal Pensions and Provident and after repayment of its debts to its creditors. As part of the signing of the capital note, Clal Pension and Provident’s obligation as part of the updated credit was discharged and it will not be required to any amount to Clal Insurance.
On April 22, 2014 Clal Insurance converted the capital note, so that the par value of the capital note in the amount of NIS 156.4 million, would be considered as additional investment in the books of Clal Pension and Provident Funds as share premium, without additional Clal Pension and Provident Funds shares being allocated in respect of the conversion.
In November 2014 Clal Insurance injected a total of NIS 80 million against the allocation of Clal Pension and Provident Funds shares according to its value, in accordance with the approval by the Board dated October 26, 2014 to finance operating activities and investment activities of Clal Pension and Provident Funds and the existence of future liquidity.
Note 4 – Other investments, including derivatives

A. | Non-current investments

|  | As of December 31 |
|  | 2014 |  |  | 2014 |
|  | NIS millions |
Financial assets presented by fair value through profit or loss: |  |  |  |  |  |
Shares registered for trade (1) |  |  | 1,700 |  |  |  | 4 |
Shares not registered for trade (2) |  |  | 266 |  |  |  | 291 |
Deposits |  |  | 49 |  |  |  | 47 |
Derivatives not used for accounting hedging |  |  | 4 |  |  |  | 6 |
Others |  |  | 102 |  |  |  | 4 |
|  |  | 2,121 |  |  |  | 352 |
Financial assets designated at fair value through other comprehensive income: |  |  |  |  |  |  |  |
Shares listed for trading |  |  | 1 |  |  |  | 3 |
Total non-current uncharged investments |  |  | 2,122 |  |  |  | 355 |

| (1) | Including an investment in Clal Holdings Insurance Enterprises shares in a sum of NIS 1,696 million.

| (2) | With regard to the valuation of the fair value of the Group’s investments in a number of private companies, see note 21.G.2 below.

IDB Development Corporation Ltd. Convenience translation
92

Note 4 – Other investments, including derivatives (cont'd)

B. | Current investments

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Financial assets at fair value through profit or loss: |  |  |  |  |  |
Government bonds and short-term treasury bills |  |  | 1,469 |  |  |  | 1,489 |
Mutual fund participation certificates |  |  | 887 |  |  |  | 536 |
Non-convertible corporate bonds |  |  | 651 |  |  |  | 672 |
Exchange traded notes |  |  | 288 |  |  |  | 257 |
Shares |  |  | 19 |  |  |  | 21 |
Derivatives not for hedging purposes |  |  | 2 |  |  |  | 5 |
Other |  |  | 1 |  |  |  | 2 |
|  |  | 3,317 |  |  |  | 2,982 |

Note 5 – Loans, deposits, charged deposits and debit balances

A. | Non-current loans, charged deposits and debit balances

|  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS Millions |
Composition |  |  |  |  |  |
Short-term loans and deposits |  |  | 179 |  |  |  | 29 |
Charged deposits(1) |  |  | 18 |  |  |  | 52 |
Deposits in trust |  |  | - |  |  |  | 11 |
Long-term debit balances |  |  | 114 |  |  |  | 12 |
|  |  | 311 |  |  |  | 104 |
Less current maturities of loans and deposits |  |  | (156 | ) |  |  | (11 | )
Less current maturities of debit balances |  |  | (4 | ) |  |  | - |
|  |  | 151 |  |  |  | 93 |

| (1) | In respect of a deposit that was pledged by the Company for a financial institution in respect of a loan which was received. For details, see note 16.C.2.

B. | Current loans, deposits and charged deposits

|  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS Millions |
Composition |  |  |  |  |  |
Deposits at banks |  |  | 213 |  |  |  | 43 |
Charged deposits |  |  | 143 |  |  |  | 612 |
Other deposits and loans |  |  | 2 |  |  |  | 1 |
Current maturities of non-current loans and deposits |  |  | 156 |  |  |  | 11 |
|  |  | 514 |  |  |  | 667 |

IDB Development Corporation Ltd. Convenience translation
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Note 6 – Fixed Assets

A. | Composition and movement

|  |  | Buildings |  |  |  | Machinery, plant & equipment |  |  |  | Communications network |  |  |  | Airplanes |  |  |  | Computer, office furniture, equipment and other |  |  |  | Installations and leasehold improvements |  |  |  | Total |
|  |  | NIS millions |
Cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2013 |  |  | 2,566 |  |  |  | 2,555 |  |  |  | 5,628 |  |  |  | 487 |  |  |  | 1,484 |  |  |  | 1,689 |  |  |  | 14,409 |
Transfer from assets held for sale |  |  | 108 |  |  |  | 42 |  |  |  | - |  |  |  | - |  |  |  | 5 |  |  |  | - |  |  |  | 155 |
Acquisitions through business combination |  |  | - |  |  |  | 82 |  |  |  | - |  |  |  | - |  |  |  | 61 |  |  |  | 24 |  |  |  | 167 |
Additions |  |  | 115 |  |  |  | 141 |  |  |  | 213 |  |  |  | 3 |  |  |  | 59 |  |  |  | 106 |  |  |  | 637 |
Disposals(1) |  |  | (10 | ) |  |  | (8 | ) |  |  | (346 | ) |  |  | - |  |  |  | (410 | ) |  |  | (42 | ) |  |  | (816 | )
Disposals following discontinuance of consolidation |  |  | (145 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (489 | ) |  |  | (107 | ) |  |  | (741 | )
Transfer from investment property under construction |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6 |
Transfer to investment property |  |  | (4 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4 | )
Transfer to assets held for sale |  |  | (116 | ) |  |  | (77 | ) |  |  | - |  |  |  | - |  |  |  | (111 | ) |  |  | (46 | ) |  |  | (350 | )
Effect of changes in exchange rates |  |  | - |  |  |  | (7 | ) |  |  | - |  |  |  | (35 | ) |  |  | (7 | ) |  |  | (4 | ) |  |  | (53 | )
Balance as at December 31, 2013 |  |  | 2,520 |  |  |  | 2,728 |  |  |  | 5,495 |  |  |  | 455 |  |  |  | 592 |  |  |  | 1,620 |  |  |  | 13,410 |
Additions |  |  | 113 |  |  |  | 176 |  |  |  | 340 |  |  |  | 9 |  |  |  | 59 |  |  |  | 142 |  |  |  | 839 |
Disposals(1) |  |  | (29 | ) |  |  | (145 | ) |  |  | (161 | ) |  |  | - |  |  |  | (138 | ) |  |  | (122 | ) |  |  | (595 | )
Revaluation of assets transferred to investment property |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6 |
Transfer from investment property |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |
Transfer to investment property |  |  | (46 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (46 | )
Effect of changes in exchange rates |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | 55 |  |  |  | 4 |  |  |  | 2 |  |  |  | 63 |
Balance as at December 31, 2014 |  |  | 2,565 |  |  |  | 2,761 |  |  |  | 5,674 |  |  |  | 519 |  |  |  | 517 |  |  |  | 1,642 |  |  |  | 13,678 |

| (1) | The Group derecognizes assets that were fully depreciated and are not used by the Group.

IDB Development Corporation Ltd. Convenience translation
94

Note 6 – Fixed Assets (cont.)

A. | Composition and movement (cont.)

|  | Buildings |  |  | Machinery, plant & equipment |  |  | Communications network |  |  | Airplanes |  |  | Computers, office furniture, equipment and other |  |  | Installations and leasehold improvements |  |  | Total |
|  | NIS millions |
Accumulated depreciation and impairment losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2013 |  |  | 544 |  |  |  | 1,897 |  |  |  | 3,902 |  |  |  | 44 |  |  |  | 1,133 |  |  |  | 1,027 |  |  |  | 8,547 |
Transfer from assets held for sale |  |  | 56 |  |  |  | 30 |  |  |  | - |  |  |  | - |  |  |  | 4 |  |  |  | - |  |  |  | 90 |
Acquisitions through business combination |  |  | - |  |  |  | 56 |  |  |  | - |  |  |  | - |  |  |  | 51 |  |  |  | 14 |  |  |  | 121 |
Depreciation for the year |  |  | 48 |  |  |  | 151 |  |  |  | 340 |  |  |  | 21 |  |  |  | 108 |  |  |  | 106 |  |  |  | 774 |
Reversal of impairment loss |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2 | ) |  |  | (3 | )
Disposals(1) |  |  | (2 | ) |  |  | (8 | ) |  |  | (341 | ) |  |  | - |  |  |  | (397 | ) |  |  | (42 | ) |  |  | (790 | )
Disposals following discontinuance of consolidation |  |  | (58 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (422 | ) |  |  | (74 | ) |  |  | (554 | )
Transfer to investment property |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1 | )
Transfer to assets held for sale |  |  | (49 | ) |  |  | (56 | ) |  |  | - |  |  |  | - |  |  |  | (101 | ) |  |  | (38 | ) |  |  | (244 | )
Effect of changes in exchange rates |  |  | - |  |  |  | (5 | ) |  |  | - |  |  |  | (4 | ) |  |  | (7 | ) |  |  | (2 | ) |  |  | (18 | )
Balance as of December 31, 2013 |  |  | 537 |  |  |  | 2,065 |  |  |  | 3,901 |  |  |  | 61 |  |  |  | 369 |  |  |  | 989 |  |  |  | 7,922 |
Depreciation for the year |  |  | 44 |  |  |  | 157 |  |  |  | 330 |  |  |  | 22 |  |  |  | 60 |  |  |  | 126 |  |  |  | 739 |
Impairment loss(2) |  |  | 19 |  |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 22 |
Reversal of impairment loss |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1 | ) |  |  | (2 | )
Disposals(1) |  |  | (16 | ) |  |  | (142 | ) |  |  | (156 | ) |  |  | - |  |  |  | (131 | ) |  |  | (122 | ) |  |  | (567 | )
Transfer to investment property |  |  | (11 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (11 | )
Effect of changes in exchange rates |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | 9 |  |  |  | 3 |  |  |  | 2 |  |  |  | 16 |
Balance as of December 31, 2014 |  |  | 572 |  |  |  | 2,085 |  |  |  | 4,075 |  |  |  | 92 |  |  |  | 301 |  |  |  | 994 |  |  |  | 8,119 |
Net carrying amount |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As at January 1, 2013 |  |  | 2,022 |  |  |  | 658 |  |  |  | 1,726 |  |  |  | 443 |  |  |  | 351 |  |  |  | 662 |  |  |  | 5,862 |
As at December 31, 2013 |  |  | 1,983 |  |  |  | 663 |  |  |  | 1,594 |  |  |  | 394 |  |  |  | 223 |  |  |  | 631 |  |  |  | 5,488 |
As at December 31, 2014 |  |  | 1,993 |  |  |  | 676 |  |  |  | 1,599 |  |  |  | 427 |  |  |  | 216 |  |  |  | 648 |  |  |  | 5,559 |

(1) | The Group derecognizes assets that were fully depreciated and are not used by the Group.

(2) | For details regarding non-recurring expenses recorded in respect of an updated business plan in Shufersal, see Note 3.H.3.b. above.

IDB Development Corporation Ltd. Convenience translation
95

Note 6 – Fixed Assets (cont.)

B. | Additional information

| 1. | The balance of borrowing costs capitalized into fixed assets as at December 31, 2014 amounts to NIS 35 million (as at December 31, 2013 – NIS 28 million). It is noted, that Shufersal acquired land with the intention of constructing a logistic center on it, which will be used for fixed assets. Costs invested in the land and equipment during 2014 amounted to NIS131 million, and included borrowing costs which were capitalized to the fixed asset which is under construction totaling NIS 7 million. The nominal discount rate used to determine the capitalized borrowing costs is 4.42%. Shufersal has no specific borrowing costs.

| 2. | The cost of fixed assets as at December 31, 2014 and December 31, 2013 is presented after the deduction of investment grants received totaling NIS 39 million.

| 3. | During the ordinary course of business, the Group acquires fixed assets using credit. The cost amounts, which have not yet been paid as at December 31, 2014 are NIS 203 million (as at December 31, 2013 – NIS 99 million).

| 4. | Fixed assets under construction amounts as at December 31, 2014 to NIS 291 million (as at December 31, 2013 – NIS 167 million).

| 5. | The fair value of fixed assets, recognized as part of a business combination is based on an estimate of the amount for which the fixed assets could have been replaced on the day of the valuation with a different asset of similar characteristics of use, in a transaction between a willing seller and a willing buyer, acting rationally in a transaction unaffected by a special relationship between the parties. Accordingly:

· | The market value of land and buildings was valued by a real estate appraiser.

· | The market value of leasehold improvements and equipment, facilities and vehicles in the branches was valued according to their depreciated cost on Shufersal’s books, which is a close approximation of their fair value, in light of the reasonable depreciation rates applied to them.

· | The market value of items located in the factories, equipment and fixtures, as well as facilities, is based on the quoted market values of similar items, insofar as such are available, and replacement costs when such quotes as specified are unavailable. The estimate of reduced replacement costs takes into account adjustments in respect of physical erosion and functional and economical obsolescence of the fixed asset item.

| 6. | With regard to pledges – see note 22 below.

IDB Development Corporation Ltd. Convenience translation
96

Note 7 – Investment Property

A. | Composition and changes in the carrying amount of investment property

|  | Investment property measured at fair value at level 3* |  |  |  |
|  | Available land |  |  | Rental buildings |  |  | Buildings under construction |  |  | Total |
|  | NIS millions |
2014 |  |  | 525 |  |  |  | 8,532 |  |  |  | 770 |  |  |  | 9,827 |
Balance as at January 1, 2014
Movement in the year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Acquisitions and investments in existing properties |  |  | 3 |  |  |  | 51 |  |  |  | 448 |  |  |  | 502 |
Transfer from fixed assets |  |  | - |  |  |  | 35 |  |  |  | - |  |  |  | 35 |
Transfer from investment property under construction |  |  | - |  |  |  | 454 |  |  |  | (454 | ) |  |  | - |
Capitalized costs and expenses |  |  | - |  |  |  | 1 |  |  |  | - |  |  |  | 1 |
Disposals |  |  | - |  |  |  | - |  |  |  | (4 | ) |  |  | (4 | )
Transfer to fixed assets |  |  | - |  |  |  | (1 | ) |  |  | - |  |  |  | (1 | )
Classification to assets held-for-sale |  |  | - |  |  |  | (3 | ) |  |  | - |  |  |  | (3 | )
Transfer to investment property under construction |  |  | (42 | ) |  |  | - |  |  |  | 42 |  |  |  | - |
Increase in fair value, net |  |  | 12 |  |  |  | 372 |  |  |  | 29 |  |  |  | 413 |
Translation differences, net resulting from translation of financial statements of foreign operations |  |  | 9 |  |  |  | 359 |  |  |  | 37 |  |  |  | 405 |
Balance as at December 31, 2014 |  |  | 507 |  |  |  | 9,800 |  |  |  | 868 |  |  |  | 11,175 |

|  |  | Investment property measured at fair value at level 3* |  |  |  |  |
|  |  | Available land |  |  |  | Rental buildings |  |  |  | Buildings under construction |  |  |  | Total |
|  |  | NIS millions |
2013 |  |  | 614 |  |  |  | 10,898 |  |  |  | 512 |  |  |  | 12,115 |
Balance as at January 1, 2013(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Movement in the year |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Acquisitions and investments in existing properties |  |  | 4 |  |  |  | 341 |  |  |  | 377 |  |  |  | 722 |
Transfer from fixed assets |  |  | - |  |  |  | 12 |  |  |  | - |  |  |  | 12 |
Transfer from investment property under construction |  |  | - |  |  |  | 113 |  |  |  | (113 | ) |  |  | - |
Transfer from land |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | 17 |
Sales |  |  | - |  |  |  | (547 | ) |  |  | (3 | ) |  |  | (550 | )
Reduction due to deconsolidation of company |  |  | - |  |  |  | (2,242 | ) |  |  | - |  |  |  | (2,242 | )
Transfer to fixed assets |  |  | - |  |  |  | - |  |  |  | (6 | ) |  |  | (6 | )
Classification to assets held-for-sale |  |  | (106 | ) |  |  | (126 | ) |  |  | - |  |  |  | (232 | )
Transfer to investment property under construction |  |  | (17 | ) |  |  | - |  |  |  | 17 |  |  |  | - |
Changes in capitalized costs and expenses |  |  | - |  |  |  | (2 | ) |  |  | (3 | ) |  |  | (5 | )
Classification from liability for construction services |  |  | - |  |  |  | - |  |  |  | (70 | ) |  |  | (70 | )
Increase in fair value, net |  |  | 36 |  |  |  | 244 |  |  |  | 55 |  |  |  | 335 |
Translation differences, net resulting from translation of financial statements of foreign operations |  |  | (6 | ) |  |  | (250 | ) |  |  | (13 | ) |  |  | (269 | )
Balance as at December 31, 2013 |  |  | 525 |  |  |  | 8,532 |  |  |  | 770 |  |  |  | 9,827 |

(1) | Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.

* For a definition of the different levels in the fair value hierarchy, see note 1.E.3.b above.
IDB Development Corporation Ltd. Convenience translation
97

Note 7 – Investment Property (cont.)

B. | Update of fair value

| 1. | On December 31, 2014 the fair value of the HSBC Building in New York City was updated to an amount of USD 763 million, according to a valuation prepared by an independent appraiser in U.S.A. The previous valuation of this property was prepared for March 31, 2014 and amounted to USD 715 million. Subsequent to that, these financial statements include income totaling NIS 272 million, from an increase in fair value of investment property, a provision for payment of consultation services totalling NIS 45 million to a former interested party (included in these financial statements under the item “General and administrative expenses”) and deferred tax expenses totalling NIS 85 million.

| The net profit arising for Property & Building from the update of value of the HSBC Building amounted to NIS 142 million and the Company’s share in this profit amounted to NIS 81 million.

For details regarding the valuation techniques to determine the fair value of investment property, see section C of this note below.

| 2. | On June 30, 2014, Property & Building updated the fair value estimates for all of its investment property in Israel as a year had elapsed since the previous estimate. The change in the fair value was primarily due to a significant change in the cash flow which is expected to arise from its properties, due to the fact that they are leased through CPI-linked contracts (which increased at a rate of approximately 1% from the date of the last update of the fair value estimates of all of Property & Building’s investment property in Israel, which was performed in June 2013), and due to the real increase in rent charged for Property & Building’s revenue-generating properties in Israel.

Additionally, in the second half of 2014, the fair value of revenue generating properties under construction, and of a number of available lands owned by Property & Building, was updated.
The valuations were performed by external independent appraisers who possess the appropriate skills. For details of the valuation techniques used to determine the fair value of investment property, see section C of this note below. As a result of the aforementioned updates to fair value valuations, the Company’s consolidated statements of income include income in an amount of NIS 153 million.

| 3. | The valuation of the Tivoli project in Las Vegas was updated to September 30, 2014 to an amount of USD 278 million. As a result, the Company and Property & Building each recognized an impairment of approx. NIS 11 million. The Company’s share in this impairment in the consolidated financial statements amounted to NIS 17 million.

Pursuant to regulation 49(a) of the Reporting Regulations, the economic valuation on the matter that was attached to the financial statements of Property & Building as at September 30, 2014, which were submitted by it to the Israel Securities Authority and published on November 16, 2014 (ref. no: 2014-01-195366) is attached to these financial statements by way of reference.
IDB Development Corporation Ltd. Convenience translation
98

Note 7 - Investment Property (cont.)

C. | Determination of fair value

| 1. | Data concerning fair value measurement of level-3 investment property

Asset class | Valuation techniques for determining fair value | Significant unobservable data |  |
|  | Cash flows discount rate (% for the year) |  | Interaction between significant unobservable data and fair value management
|  |  |  |  |  | 2014 |  |  | 2013 |  |
|  |  |  |  |  | Range |  |  | Weighted average |  |  | Range |  |  | Weighted average |  |
Rental properties | Fair value is estimated using revenue discount techniques*: the valuation model is based on the present value of the estimated NOI (Net Operating Income) arising from the property. The valuation of real estate is based on net annual cash flows, discounted by a discount rate that reflects the specific risks embodied therein, and, as generally accepted, in comparable assets. Actual lease agreements in respect of which payments differ from appropriate rental, if any, are subject to adjustments in order to reflect actual lease payments in the period of the agreement. Valuations take into account the type of lessees actually occupying the leased property, or responsible for settling the liabilities resulting from the lease terms, or lessees that might occupy the property following the lease of a vacant property, including a general assessment of their credit worthiness; the distribution of responsibility between the Group and the lessee in respect of the maintenance and insurance of the property; the physical condition and the remaining economic life of the property, wherever these parameters are relevant. | Revenue generating assets in Israel |  | Office use |  |  | 7.5%-8.25 | % |  |  | 8.2 | % |  |  | 7.5 | %- |  |  | 7.9 |  | Estimated fair value will increase if:
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | 9 | % |  |  |  |  | • The market value of the lease payments increases.
|  |  |  | Commercial use |  |  | 7.25%-12 | % |  |  | 8.1 | % |  |  | 7.25 | %- |  |  | 8.2 | % | • The cash flows capitalization rate decreases.
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | 12 | % |  |  |  |  | There is no internal interaction between significant unobservable data.
|  |  |  | Industrial use |  |  | 8%-9.5 | % |  |  | 8.5 | % |  |  | 8.0 | %- |  |  | 8.6 | % |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | 10.5 | % |  |  |  |  |
|  | Revenue generating assets in U.S.A | HSBC Building | Office use |  |  | 5.25%-6.75 | % |  |  | 6.0 | % |  |  | 5.25 | %- |  |  | 6.1 | % |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  | 7.0 | % |  |  |  |  |
|  |  | GW Project | Commercial and office use |  |  | 9 | % |  |  | 9 | % |  |  | 9 | % |  |  | 9 | % |
|  |  |  | Value of rental fees (NIS per sq. meter per month) |  |
|  | Revenue generating assets in Israel |  | Office use |  | NIS 41- |  |  | NIS 61 |  |  | NIS 13- |  |  | NIS 61 |  |
|  |  |  |  |  | NIS 104 |  |  |  |  |  |  | NIS 112 |  |  |  |  |  |
|  |  |  | Commercial use |  | NIS 10- |  |  | NIS 88 |  |  | NIS 9- |  |  | NIS 88 |  |
|  |  |  |  |  | NIS 500 |  |  |  |  |  |  | NIS 450 |  |  |  |  |  |
|  |  |  | Industrial use |  | NIS 7- |  |  | NIS 32 |  |  | NIS 7- |  |  | NIS 30 |  |
|  |  |  |  |  | NIS 56 |  |  |  |  |  |  | NIS 78 |  |  |  |  |  |
|  | Revenue generating assets in U.S.A | HSBC Building | Office use |  | NIS 297- |  |  | NIS 386 |  |  | NIS 271- NIS 489 |  |  | NIS 320 |  |
|  |  |  |  |  | NIS 526 |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | GW Project | Office use |  | NIS 447 |  |  | NIS 447 |  |  | NIS 399 |  |  | NIS 399 |  |
|  |  | GW Project | Commercial and office use |  | NIS 510 |  |  | NIS 510 |  |  | NIS 512 |  |  | NIS 512 |  |
|  |  | Construction costs per sq. meter |  |
Investment property under construction | The valuation is based on the estimated fair value of investment property after the completion of the construction thereof, less the present value of the estimated construction costs expected to be incurred in order to complete the construction, while taking into account a capitalization rate adjusted for the risks and characteristics relevant to the property. | Assets under construction in Israel |  |  |  | NIS 4,000- |  |  | NIS 5,452 |  |  | NIS 4,000- |  |  | NIS 5,100 |  | Estimated fair value will increase if:
|  |  |  |  |  | NIS 6,100, depending on location |  |  |  |  |  |  | NIS 6,000, depending on location |  |  |  |  |  | • Construction costs per sq.m. decrease.
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | • The cash flows capitalization rate decreases.
|  | Assets under construction in U.S.A – GW Project |  |  |  | NIS 5,308 |  |  | NIS 5,308 |  |  | NIS 3,997 |  |  | NIS 3,997 |  | There is no internal interaction between significant unobservable data.
|  |  | Annual discount rate of the cash flows |  |
|  | Assets under construction in Israel |  |  |  |  | 7.75 | %- |  |  | 8.6 | % |  |  | 7 | %- |  |  | 9.2 | % |
|  |  |  |  |  |  | 9 | % |  |  |  |  |  |  | 10 | % |  |  |  |  |
|  | Assets under construction in U.S.A – GW Project |  |  |  |  | 9 | % |  |  | 9 | % |  |  | 9 | % |  |  | 9 | % |
Available land | The fair value is determined while using a comparison technique. The technique is based on the sq.m. value of comparable assets resulting from transactions observable in the market, after various adjustments, such as for dimensions, location, etc. |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Estimated fair value will increase if the sq.m. value of comparable assets increases.

* The valuation also takes into account negative cash flows, relating to betterment levies in respect of unrealized rights, in accordance with the Planning and Construction Law, 5725-1965, and the addendum to this law.
IDB Development Corporation Ltd. Convenience translation
99

Note 7 - Investment Property (cont.)

C. | Determination of fair value (cont.)

| 2. | Valuation processes implemented in the Group

The fair value of investment property is determined periodically by independent and external appraisers having the appropriate skills and experience relevant to the type and location of the property under valuation. External valuations are conducted at least once a year or whenever there are indications of changes in value (the earliest). All the valuations are examined by the management of the Group companies, and are subsequently reported to their Balance Sheet Committees.
The main data that are unobservable in the market refer to the following factors:

· | Capitalization rates, which are based on professional publications in the relevant markets, if any, and on comparison with similar transactions, after the necessary adjustments.

· | Market rent, which is based on professional publications in the relevant markets and on comparison with similar transactions, after the necessary adjustments.

· | Construction costs per sq.m. that are based on agreements with performance contractors and detailed budgets for each project.

| 3. | Adjustments to book value

Following are details of significant adjustments to the valuation received for purposes of presenting the investment property in the financial statements.

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Fair value as provided by external appraisers |  |  | 11,278 |  |  |  |  | (1) 9,911
Less amounts attributed to revenues receivable for rental, based on the straight-line method |  |  | (103 | ) |  |  | (84 | )
Fair value, as presented in the financial statements |  |  | 11,175 |  |  |  | 9,827 |

| (1) Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.

D. | Amounts that were recognized in the Statement of Income

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Amounts recognized as rent |  |  | 780 |  |  |  | 772 |  |  |  | 976 |
Direct operating expenses deriving from investment property (1) |  |  | 181 |  |  |  | 176 |  |  |  | 199 |
Increase in fair value of investment property |  |  | 439 |  |  |  | 417 |  |  |  | 540 |
Decrease in fair value of investment property |  |  | 26 |  |  |  | 97 |  |  |  | - |

| (1) | Including expenses in insignificant amounts in respect of investment property that did not produce rental revenue.

IDB Development Corporation Ltd. Convenience translation
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Note 7 - Investment Property (cont.)

D. | Amounts that were recognized in the Statement of Income (cont.)

Gains (losses) from revaluations of fair value classified at level 3

|  |  | For the year ended December 31, 2014 |
|  |  | Available lands |  |  |  | Rental buildings |  |  |  | Buildings under construction |  |  |  | Total |
|  |  | NIS millioins |
Net changes in fair value attributed to investment property, not yet realized |  |  | 12 |  |  |  | 372 |  |  |  | 29 |  |  |  | 413 |

|  | For the year ended December 31, 2013 |
|  | Available lands |  |  | Rental buildings |  |  | Buildings under construction |  |  | Total |
|  | NIS millions |
Net changes in fair value attributed to investment property, not yet realized |  |  | 15 | * |  |  | 246 |  |  |  | 55 |  |  |  | 316 |
Net changes in fair value attributed to investment property, realized |  |  | 21 |  |  |  | 1 |  |  |  | - |  |  |  | 22 |
|  |  | 36 |  |  |  | 247 |  |  |  | 55 |  |  |  | 338 |

| * Retrospective application of IFRIC 21 – Levies, see note 1.E.6.a above.

E. | Rental agreements

The following are the future minimum rentals receivable from rental agreements in force as of the date of the Statement of Financial Position:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Up to one year |  |  | 754 |  |  |  | 702 |
From one year up to five years |  |  | 2,179 |  |  |  | 1,870 |
Exceeding five years |  |  | 1,523 |  |  |  | 1,346 |
|  |  | 4,456 |  |  |  | 3,918 |

IDB Development Corporation Ltd. Convenience translation
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Note 8 - Trade Receivables

A. Long-term trade receivables

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Long term trade receivables |  |  | 1,142 |  |  |  | 1,462 |
Less - |  |  |  |  |  |  |  |
Current maturities |  |  | (606 | ) |  |  | (878 | )
Deferred interest income |  |  | (52 | ) |  |  | (65 | )
Provision for doubtful debts |  |  | (8 | ) |  |  | (7 | )
|  |  | 476 |  |  |  | 512 |

| The balance of long term trade receivables in respect of sales of equipment in payments made by Cellcom (mainly in 36 payments) and their present values as of December 31, 2014, and December 31, 2013, were calculated based on discount rates of 3.9% and 5.2%, respectively.

B. Current trade receivables

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Outstanding debts |  |  | 967 |  |  |  | 1,115 |
Checks receivable |  |  | 186 |  |  |  | 66 |
Credit card companies |  |  | 1,212 |  |  |  | 1,303 |
Current maturities of long term trade receivables |  |  | 606 |  |  |  | 878 |
|  |  | 2,971 |  |  |  | 3,362 |
Less - provision for doubtful debts |  |  | (259 | ) |  |  | (303 | )
|  |  | 2,712 |  |  |  | 3,059 |

Note 9 - Inventory

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Inventory of purchased goods (mainly in respect of retail activities of Shufersal) (1) |  |  | 748 |  |  |  | 710 |
Phones and other communication equipment (in respect of cellular and internet activities of Cellcom) (2) |  |  | 79 |  |  |  | 75 |
Inventory of manufactured products and inventory of spare parts |  |  | 24 |  |  |  | 24 |
|  |  | 851 |  |  |  | 809 |

(1) | The inventory of purchased goods is presented net of provisions for impairment of NIS 22 million (2013 - NIS 27 million).

(2) | The inventory of phones and other communication equipment is presented net of a provision for impairment and an inventory write-off of NIS 6 million (2013 - NIS 7 million).

IDB Development Corporation Ltd. Convenience translation
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Note 10 - Intangible Assets
A. Composition and changes

|  | Goodwill |  |  | Brands and trade names |  |  | Technology, development in process and concessions |  |  | Licenses |  |  | Customer relations |  |  | Information systems and software |  |  | Expenses due to the acquisition of life and general insurance portfolios |  |  | Other |  |  | Total |
|  | NIS millions |
Cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2013 |  |  | 5,103 | (1) |  |  | 1,063 |  |  |  | 9 | (2) |  |  | 539 |  |  |  | 1,461 |  |  |  | 2,105 |  |  |  | 635 |  |  |  | 688 |  |  |  | 11,603 |
Transfer from assets held for sale |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4 |  |  |  | 5 |
Acquisitions as part of a business combination |  |  | 242 |  |  |  | 106 |  |  |  | 373 |  |  |  | - |  |  |  | 20 |  |  |  | 2 |  |  |  | - |  |  |  | 10 |  |  |  | 753 |
Acquisitions and additions |  |  | - |  |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 235 |  |  |  | - |  |  |  | 2 |  |  |  | 240 |
Assets classified as held for sale |  |  | (279 | )(1) |  |  | (100 | ) |  |  | (347 | ) |  |  | - |  |  |  | (18 | ) |  |  | (2 | ) |  |  | - |  |  |  | (9 | ) |  |  | (755 | )
Derecognitions |  |  | (6 | ) |  |  | (10 | ) |  |  | - |  |  |  | (7 | ) |  |  | (357 | ) |  |  | (117 | ) |  |  | - |  |  |  | (14 | ) |  |  | (511 | )
Consolidation discontinuance |  |  | (833 | ) |  |  | (30 | ) |  |  | (4 | ) |  |  | - |  |  |  | - |  |  |  | (1,469 | ) |  |  | (635 | ) |  |  | (293 | ) |  |  | (3,264 | )
Adjustments to goodwill in respect of a put option to holders of non-controlling interests in a subsidiary |  |  | 7 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7 |
Withdrawal of profits by partners in a partnership |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12 |
Effect of changes in exchange rates |  |  | (19 | ) |  |  | (9 | ) |  |  | (26 | ) |  |  | - |  |  |  | (3 | ) |  |  | (1 | ) |  |  | - |  |  |  | (4 | ) |  |  | (62 | )
Balance as at December 31, 2013 |  |  | 4,228 |  |  |  | 1,023 |  |  |  | 5 |  |  |  | 532 |  |  |  | 1,103 |  |  |  | 753 |  |  |  | - |  |  |  | 384 |  |  |  | 8,028 |
Acquisitions as part of a business combination |  |  | 4 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2 |  |  |  | 6 |
Acquisitions and additions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 125 |  |  |  | - |  |  |  | - |  |  |  | 125 |
Derecognitions (2) |  |  | - |  |  |  | (31 | ) |  |  | - |  |  |  | - |  |  |  | (19 | ) |  |  | (96 | ) |  |  | - |  |  |  | (35 | ) |  |  | (181 | )
Consolidation discontinuance |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (17 | ) |  |  | (17 | )
Adjustments to goodwill in respect of a put option to holders of non-controlling interests in a subsidiary |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2 |
Withdrawal of profits by partners in a partnership |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12 |
Effect of changes in exchange rates |  |  | 6 |  |  |  | 2 |  |  |  | 1 |  |  |  | - |  |  |  | 2 |  |  |  | 3 |  |  |  | - |  |  |  | 2 |  |  |  | 16 |
Balance as at December 31, 2014 |  |  | 4,252 |  |  |  | 994 |  |  |  | 6 |  |  |  | 532 |  |  |  | 1,086 |  |  |  | 785 |  |  |  | - |  |  |  | 336 |  |  |  | 7,991 |

(1) | Reclassified, see note 1.F above.

(2) | Reclassified against amortizations and losses from impairment of intangible assets.

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Note 10 - Intangible Assets (cont.)
A. Composition and changes (cont.)

|  | Goodwill |  |  | Brands and trade names |  |  | Technology, development in process and concessions |  |  | Licenses |  |  | Customer relations |  |  | Information systems and software |  |  | Expenses due to the acquisition of life and general insurance portfolios |  |  | Other |  |  | Total |
|  | NIS millions |
Amortizations and impairment losses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as at January 1, 2013 |  |  | 751 | (1) |  |  | 164 |  |  |  |  | (2) 1 |  |  | 270 |  |  |  | 1,021 |  |  |  | 1,231 |  |  |  | 609 |  |  |  | 393 |  |  |  | 4,440 |
Transfer from assets held for sale |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1 |
Amortization for the year |  |  | - |  |  |  | 47 |  |  |  | 29 |  |  |  | 29 |  |  |  | 130 |  |  |  | 208 |  |  |  | 7 |  |  |  | 33 |  |  |  | 483 |
Derecognitions |  |  | - |  |  |  | (9 | ) |  |  | - |  |  |  | (7 | ) |  |  | (357 | ) |  |  | (117 | ) |  |  | - |  |  |  | (13 | ) |  |  | (503 | )
Acquisitions as part of a business combination |  |  | - |  |  |  | 38 |  |  |  | 191 |  |  |  | - |  |  |  | 10 |  |  |  | 2 |  |  |  | - |  |  |  | 8 |  |  |  | 249 |
Impairment loss |  |  | 91 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 95 |
Assets classified as held for sale |  |  | - |  |  |  | (44 | ) |  |  | (207 | ) |  |  | - |  |  |  | (10 | ) |  |  | (2 | ) |  |  | - |  |  |  | (8 | ) |  |  | (271 | )
Consolidation discontinuance |  |  | (116 | ) |  |  | (30 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (839 | ) |  |  | (616 | ) |  |  | (236 | ) |  |  | (1,837 | )
Effect of changes in exchange rates |  |  | (1 | ) |  |  | (3 | ) |  |  | (14 | ) |  |  | - |  |  |  | (1 | ) |  |  | (1 | ) |  |  | - |  |  |  | (3 | ) |  |  | (23 | )
Balance as at December 31, 2013 |  |  | 725 |  |  |  | 165 |  |  |  | - |  |  |  | 292 |  |  |  | 793 |  |  |  | 484 |  |  |  | - |  |  |  | 175 |  |  |  | 2,634 |
Amortization for the year |  |  | - |  |  |  | 37 |  |  |  | 1 |  |  |  | 29 |  |  |  | 104 |  |  |  | 108 |  |  |  | - |  |  |  | 20 |  |  |  | 299 |
Derecognitions |  |  | - |  |  |  | (31 | ) |  |  | - |  |  |  | - |  |  |  | (19 | ) |  |  | (96 | ) |  |  | - |  |  |  | (35 | ) |  |  | (181 | )
Impairment loss (3) |  |  | 396 | (4) |  |  | 37 |  |  |  | 3 |  |  |  | - |  |  |  | 9 |  |  |  | - |  |  |  | - |  |  |  | 25 |  |  |  | 470 |
Consolidation discontinuance |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (17 | ) |  |  | (17 | )
Effect of changes in exchange rates |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | 4 |
Balance as at December 31, 2014 |  |  | 1,122 |  |  |  | 208 |  |  |  | 4 |  |  |  | 321 |  |  |  | 887 |  |  |  | 499 |  |  |  | - |  |  |  | 168 |  |  |  | 3,209 |
Carrying amount |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As at January 1, 2013 |  |  | 4,352 |  |  |  | 899 |  |  |  | 8 |  |  |  | 269 |  |  |  | 440 |  |  |  | 874 |  |  |  | 26 |  |  |  | 295 |  |  |  | 7,163 |
As at December 31, 2013 |  |  | 3,503 |  |  |  | 858 |  |  |  | 5 |  |  |  | 240 |  |  |  | 310 |  |  |  | 269 |  |  |  | - |  |  |  | 209 |  |  |  | 5,394 |
As at December 31, 2014 |  |  | 3,130 |  |  |  | 786 |  |  |  | 2 |  |  |  | 211 |  |  |  | 199 |  |  |  | 286 |  |  |  | - |  |  |  | 168 |  |  |  | 4,782 |

(1) | Reclassified, see note 1.F. above.

(2) | Reclassified against the cost of intangible assets.

(3) | For details regarding non-recurring expenses recorded in respect of an updated business plan in Shufersal, see note 3.H.3.b above.

(4) | With regard to the impairment of goodwill with respect to the Group’s investments in Cellcom and Shufersal, see section D. below.

IDB Development Corporation Ltd. Convenience translation
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Note 10 - Intangible Assets (cont.)

B. | The fair value of intangible assets acquired in various business combinations was determined on the date of each business combination, as follows:

Customer relations
The fair value was determined in accordance with the revenues approach, by the capitalized value of the cash flows expected to be derived from the existing customers on the date of the business combination, after deducting the fair return on the other assets that participate in the generation of the related cash flow. In the Shufersal business combination, the customer base was defined as the members of Shufersal’s customer club who visited branches of Shufersal at least 24 times during 2009, and the revenues from them in that year constituted 59% of total revenues.

| Brands and trade names

The fair value was determined by the relief from royalty approach, according to which the fair value of the asset is determined by estimating the royalties that theoretically would have been paid to a third party for the use of the asset. The economic value of the brand derives from the fact that the ownership of the asset releases the owner from the need to pay royalties as aforementioned to a third party for the use of the asset. The percentage of royalties that was used to determine the fair value of the brands is 0.2%-2% (mainly 1%-1.5%) of the expected revenues.

| Rental agreements

The fair value was determined by comparing the actual rent paid by branches of Shufersal to the estimated fair amount of rent for such assets, based on the opinion of a real estate appraiser, which is based mainly on comparison to similar commercial assets in the geographical location of each branch, while making necessary adjustments with respect to the size of the areas, their location, physical condition, etc. Options for extending the lease agreements were also taken into consideration. The fair value was determined according to the capitalized value of the differences between fair rent payments and actual rent payments.

| Licenses

Rights to use cellular frequencies in Israel are assessed according to their amortized costs in the books of the acquired company on the date of the business combination, since there is no market for such rights in Israel.

C. | Additional details on principal cash-generating units that include goodwill or an intangible asset with an indefinite useful life

| 1. | As at December 31, 2014, goodwill and a brand with an indefinite useful life attributable to Cellcom amount to NIS 2.135 billion and NIS 0.231 billion, respectively.

The recoverable amount of Cellcom’s activity as at December 31, 2014 was assessed by an external appraiser on the basis of the value-in-use thereof, as detailed in section D.1 below.

| 2. | As at December 31, 2014, goodwill attributable to Shufersal’s retail activity amounts to NIS 755 million. The recoverable amount of Shufersal’s activity as at December 31, 2014, was assessed by an external appraiser on the basis of its value in use, as detailed in section D.2 below.

| 3. | The Group has a number of consolidated companies, the operations of which have been attributed goodwill in an amount that is immaterial compared to the balance of goodwill in the Company’s consolidated financial statements. The value of Property & Building’s operations, which is based on Property & Building’s stock exchange value as at December 31, 2014 (and in the required adjustments in respect of the fair value of Property & Building’s financial liabilities) which is higher than the value of the specified operations in these financial statements. The recoverable amount of the operations of other companies was determined on the basis of examinations for impairment performed, including economic studies, performed by external appraisers using the value in use method. The recoverable amount of the specified operations is higher than their value in the financial statements. In those cases where the recoverable amount was found to be lower than the carrying amount, impairment reductions of immaterial amounts were recorded.

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Note 10 - Intangible Assets (cont.)

D. | Examination for impairment in investee companies in 2014

| 1. | In view of a decline in Cellcom’s market value and the intensifying competition in the cellular market in Israel, which led to a decline in Cellcom’s profitability, Discount Investments performed an examination for impairment of the goodwill attributed to Cellcom as at December 31, 2014. Further to that stated in note 3.G.3 above with regard to the structural changes being examined, the recoverable amount of Cellcom’s operations as at December 31, 2014 was calculated using the value in use method. In accordance with Regulation 8.b of the Reporting Regulations, an economic report concerning this subject is attached to these financial statements by way of reference, which was attached to the financial statements of Discount Investments as at June 30, 2014, which were submitted by it to the Securities Authority and released on March 25, 2015 (reference no. 2015-01-061831).

The value of the assets attributable to Cellcom’s operations less the liabilities attributable to Cellcom’s operations in the financial statements of the Company as at December 31, 2014 (including deferred tax balances attributable to excess costs created upon the acquisition of Cellcom, against which Discount Investments recorded goodwill) (hereunder “The value of Cellcom’s operations in the financial statements”), is higher than the middle of the range specified in the aforesaid economic report for the recoverable amount of Cellcom’s operations as at that date. Accordingly, the Company recorded its share in the impairment amounting to NIS 158 million in respect of the impairment of the aforesaid goodwill based on the middle of the range of the valuation of the recoverable amount as at December 31, 2014, as determined in the aforesaid economic report.
A real after-tax capitalization rate and a long-term growth rate of 8.75% and 1.75%, respectively, were used in the aforesaid economic report for determining the upper threshold of the recoverable amount. A real after-tax capitalization rate and a long-term growth rate of 9.25% and 1.25%, respectively, were used in the aforesaid economic report for determining the lower threshold of the recoverable amount.

| 2. | Discount Investments carried out an examination for impairment of the goodwill attributable to Shufersal as at December 31, 2014. Further to that stated in Note 3.G.3 above with regard to the examined structural changes, the recoverable amount of Shufersal’s operations as at December 31, 2014 was calculated using the value in use method. In accordance with Regulation 8.b of the Reporting Regulations, an economic report concerning this subject at the specified date is attached to these financial statements by way of reference, which was attached to the financial statements of Discount Investments as at December 31, 2014, which were submitted by it to the Securities Authority and released on March 25, 2015 (reference no. 2015-01-061831).

| The value of the assets attributable to Shufersal’s activity less the liabilities attributable to its activity in the financial statements of the Company as at December 31, 2014 (including deferred tax balances attributable to excess costs created upon the acquisition of Shufersal, against which goodwill was recorded by Discount Investments) (“The value of Shufersal’s operations in the financial statements”), is higher than the middle of the range specified in the aforesaid economic paper for the recoverable amount of Shufersal’s activity at that date. Therefore, the Company recorded its share in an impairment in an amount if NIS 130 million with respect to the impairment of the aforesaid goodwill, based on the middle of the range of the valuation of the recoverable amount as at December 31, 2014, as determined in the specified economic paper.

The nominal discount rate after tax and the long term growth rate used in the specified economic paper to determine the middle of the range determined within it for the recoverable amount, are 8.5% and 2.3%, respectively.

E. | During the ordinary course of business, Cellcom acquires intangible assets using credit.

The acquisition amount which has not yet been paid as at December 31, 2014, amounted to NIS 34 million (as at December 31, 2013 – NIS 10 million).
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Note 11 - Accounts Receivable and Debit Balances

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Revenues receivable |  |  | 41 |  |  |  | 112 |
Prepaid expenses |  |  | 116 |  |  |  | 110 |
Advances to suppliers |  |  | 94 |  |  |  | 76 |
Institutions |  |  | 20 |  |  |  | 43 |
Deposits in trust |  |  | 7 |  |  |  | 12 |
Other |  |  | 106 |  |  |  | 102 |
|  |  | 384 |  |  |  | 455 |

Note 12 - Inventory of buildings for sale

A. | Composition

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Costs incurred: |  |  |  |  |  |
Land |  |  | 253 |  |  |  | 332 |
Construction and other |  |  | 336 |  |  |  | 374 |
|  |  | 589 |  |  |  | 706 |
Inventory of finished buildings |  |  | 102 |  |  |  | 143 |
|  |  | 691 |  |  |  | 849 |

B. Changes in inventory of buildings for sale:

|  | For the year ended December 31, |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Balance at the start of the year |  |  | 849 |  |  |  | 1,144 |
Additions |  |  | 154 |  |  |  | 141 |
Disposals |  |  | (329 | ) |  |  | (452 | )
Translation differences from the translation of financial statements of foreign operations |  |  | 10 |  |  |  | (17 | )
Transfer from inventory of land |  |  | 26 |  |  |  | 40 |
Less - Provision for loss |  |  | (19 | ) |  |  | (7 | )
Balance at the end of the year |  |  | 691 |  |  |  | 849 |

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Note 13 - Assets and liabilities of realization groups and other assets and liabilities classified as held-for-sale

| Assets

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Investment in Clal Holdings Insurance Enterprises Ltd. – see note 3.H.5.a above. |  |  | - |  |  |  | 2,055 |
Investment in Credit Suisse - See note 3.H.4.c. above. |  |  | - |  |  |  | 1,138 |
Other assets of realization groups (1) |  |  | 5 |  |  |  | 1,586 | (2)
|  |  | 5 |  |  |  | 4,779 |

Liabilities

Liabilities of realization groups (1) |  |  | - |  |  |  | 165 |

(1) | For further details on the composition of assets and liabilities held-for-sale as at December 31, 2013, see note 3.I.2 above.

(2) | Reclassified, see note 1.F above.

Note 14 - Cash and Cash Equivalents

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Composition: |  |  |  |  |  |
Balances at banks |  |  | 454 |  |  |  | 872 |
Call deposits |  |  | 3,124 |  |  |  | 5,441 |
|  |  | 3,578 |  |  |  | 6,313 |

For details on restrictions and financial covenants applying to the Company and investee companies of the Company, see notes 16.E and F below.
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Note 15 – Equity and Reserves

A. | The Company’s registered and issued share capital

The Company’s registered share capital as at December 31, 2014, amounted to 500,000,000 ordinary shares with no nominal value each (“ordinary shares”). The issued and paid up capital as at December 31, 2014 amounted to 296,298,657 ordinary shares. All of the ordinary shares are traded on the Tel-Aviv Stock Exchange and are registered to name. Each ordinary share grants the right to participate and vote in the Company’s general meetings, with one vote per share, and the right to participate in the distribution of dividends. In addition, as at December 31, 2014, 44,515,359 Series 2 share options and 44,515,359 Series 3 share options were traded, with each option being convertible to one ordinary share (see below in section B.3 of this note for details regarding the terms of each share option).

| The Company’s registered share capital as at December 31, 2013, consisted of 100 million ordinary “A” class shares with a nominal value of NIS 1 each, and the issued share capital amounted to NIS 57,587,883, of which a total of 11,336,914 ordinary A shares were dormant shares (as defined in section 308 of the Companies Law) (“Dormant Shares”), which did not grant voting rights/ any rights. The remaining shares (46,250,969 ordinary A shares) were held by IDB Holdings.

| In January 2014, as a result of the approval of the debt arrangement at IDB Holdings as detailed in Note 16.G.2.a below, the dormant shares were transferred to the trustees for the arrangement, for the purpose of fulfilling such arrangement.

| On May 1, 2014, the Company decided, in accordance with the stipulations of the debt arrangement at IDB Holdings, to cancel the dormant shares and to cancel the Company’s entire registered unallocated capital of Type A shares, to unify the registered, issued and paid-up capital of the Company, in a manner whereby all of the Company’s 46,250,969 issued shares (the issued and paid-up capital less the dormant shares) will be unified into a single ordinary share, and to cancel the nominal value of the aforementioned ordinary share (“The consolidation of capital”), in a manner whereby, after the capital consolidation, the Company’s issued capital included one ordinary share with no nominal value. The aforesaid ordinary share without nominal value was split to 200 million ordinary shares with no nominal value (“ordinary shares”), and the Company’s registered capital amounted to 500 million ordinary shares.

On May 12, 2014, following the completion of the creditors’ arrangement at IDB Holdings, the Company’s shares commenced to be traded on the Tel-Aviv stock exchange. For details regarding the increase of the registered share capital and the performance of a rights issue in January-February 2015, subsequent to the date of the Statement of Financial Position, see section B.5 of this note below.

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report

| The following are the amounts of the investment made in the Company’s capital during 2014 and until the date of publication of this report:

Method of investment |  | Amount in NIS millions |  | Date | Details in section
Conversion of convertible loans into capital |  |  | 170 |  | May 2014 | (1)
Injection of capital by the controlling shareholders |  |  | 480 |  | May 2014 | (1)
Rights issue |  |  | 321 |  | July 2014 | (3)
Exercise of options by the controlling shareholders |  |  | 176 |  | November 2014 | (4)
Total in 2014 |  |  | 1,147 |  |  |
Rights issue subsequent to the date of the Statement of Financial Position |  |  | 417 |  | January-February 2015 | (5)
Total investments in capital |  |  | 1,564 |  |  |

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Note 15 – Equity and Reserves (cont.)

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)

1. Investments in the Company’s capital within the framework of the debt arrangement at IDB Holdings
Upon the completion of the first stage of the debt arrangement at IDB Holdings (“The Arrangement”), in May 2014, on May 12, 2014, the Company’s shares were listed for trade on the Tel-Aviv Stock Exchange and the Company became a public company. In addition, the bridging loan which the Company received in March 2014 from Dolphin Fund and Extra was repaid, in a manner by which a total of NIS 150 million of the loan principal was converted to an investment by the corporations holding the Company’s capital and the balance of the bridging loan amounting to NIS 20 million was converted to a loan in the same amount, which will be considered as part of the “Clal loans”, as defined within the arrangement’s stipulations (for details regarding the aforesaid bridging loan, see note 16.C.3 below).
On May 29, 2014 the transaction to sell the Company’s holdings in Clal Holdings Insurance Enterprises Ltd. to JT expired (see note 3.H.5.a above). In light of this, and in accordance with the stipulations of the arrangement, on June 3, 2014 an amount of NIS 480 million was provided to the Company out of the arrangement guarantee funds as an investment in the Company’s capital. Additionally, the specified bridging loan in the amount of NIS 20 million was converted to capital. Upon the provision of the specified amounts, a funds injection of a total amount of NIS 650 million was completed as an investment in the Company’s capital within the framework of the execution of the arrangement.
2. Publication of a shelf prospectus
On May 29, 2014 the Company published a shelf prospectus, which includes the possibility for the Company to offer securities by virtue thereof, including shares, share options and bonds which are convertible to shares and bonds, within the framework of shelf offering reports, including by way of a rights offer.
3. Performance of a rights issue in June-July 2014
On June 9, 2014, the Company published a shelf offering report for an issue by way of rights to shareholders of the Company, in which the Company offered 65 million ordinary shares in the Company, 45 million share options (Series 1), exercisable into 45 million ordinary shares in the Company until November 1, 2014, against the payment in cash of the exercise price of NIS 5.50 (unlinked) for each share option (Series 1), 45 million share options (Series 2), exercisable into 45 million ordinary shares in the Company until May 1, 2015, against the payment in cash of the exercise price of NIS 6 (unlinked) for each share option (Series 2), 45 million share options (Series 3), exercisable into 45 million ordinary shares in the Company until December 1, 2015, against the payment in cash of the exercise price of NIS 6.5 (unlinked) for each share option (Series 3). Pursuant to the offering report, the Company offered 5 million rights units at a price of NIS 65 per rights unit (the rights unit included 13 ordinary shares, 9 share options (Series 1), 9 share options (Series 2) and 9 share options (Series 3); the share options were offered without consideration. Until the last date to exercise the rights, right exercise notices were received for the exercise of rights to acquire 4,946,151 rights units, by virtue of which the Company allocated a total of 64,299,963 ordinary shares, 44,515,359 share options (Series 1), 44,515,359 share options (Series 2) and 44,515,359 share options (Series 3). The immediate (gross) consideration from the issue amounted to a total of approximately NIS 321 million, of which a total of approximately NIS 231 million was with respect to the exercise of the rights by the controlling shareholders in the Company, Dolphin Netherlands B.V (“Dolphin Netherlands”), and CAA Extra Holdings Ltd. (“CAA”) in equal shares.
It should be noted that Dolphin Netherlands and CAA exercised all of the rights with respect to the shares provided to them within the framework of the arrangement (26.65% each). Additionally, Dolphin Netherlands and CAA acquired additional rights units from the trustees for the arrangement, with respect to shares which constituted, at the time, approximately 8.04% of the Company’s share capital, and also acquired rights units during routine trading on the stock exchange, which constituted 9.76% of the rights units. Dolphin Netherlands and CAA also exercised the additional rights units which they purchased, as stated above, and as a result increased their investment in the Company, and their rate of holding in the Company’s shares and share options.
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Note 15 – Equity and Reserves (cont.)

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)

4. Exercising of share options (Series 1) by the controlling shareholder
On November 2, 2014, Dolphin Netherlands and CAA each exercised all of the share options (Series 1) which were held by them. It is noted that Dolphin Netherlands held 15,998,787 share options (Series 1) and CAA held 15,998,778 share options (Series 1).1 The total consideration to the Company with respect to the aforementioned exercises by Dolphin Netherlands and CAA amounted to NIS 176 million. In addition to the exercise of the share options by Dolphin Netherlands and CAA, the public exercised 1,130 share options (Series 1), for a negligible consideration. The remaining share options (Series 1) which were not exercised by the final exercise date (November 2, 2014) expired. Subsequent to the exercise of their rights and rights issue and subsequent to the exercise of the share options (Series 1), as stated above, the rate of holding of Dolphin Netherlands and CAA in the Company’s share capital increased to a rate of approximately 31.26% each (32.38% with full dilution).
The future (gross) consideration which may be received by the Company, if and insofar as all of the share options (Series 2) and share options (Series 3) issued as above will be exercised, will amount to a (gross) total of NIS 556 million. As at the publication date of the financial statements, the Company’s stock price, which stands at NIS 1.37, is significantly lower than the exercise prices of the share options (Series 2 and Series 3).
5. Increasing the registered capital and performing a rights issue in January-February 2015
On January 5, 2015 and January 20, 2015, the special general meeting of the Company, following the receipt of approvals from the Audit Committee and the Company’s Board of Directors, approved the increase of the Company’s registered capital by 800 million ordinary shares and 700 million ordinary shares, respectively, in a manner by which the total registered share capital of the Company subsequent to its increase as stated amounts to 2,000 million (2 billion) ordinary shares.
On January 19, 2015 the Company published a shelf offering report by way of a rights issue to the Company’s shareholders, within the framework of which the Company offered 533,337,615 ordinary shares of the Company, 237,038,940 share options (Series 4) which are exercisable for 237,038,940 ordinary shares of the Company until February 10, 2016, against cash consideration of an exercise price amounting to NIS 1.663 (unlinked) for each share option (Series 4), 225,186,993 share options (Series 5) exercisable to 225,186,993 ordinary shares of the Company until February 12, 2017 against cash consideration of an exercise price amounting to NIS 1.814 (unlinked) for each share option (Series 5), 201,483,099 share options (Series 6) exercisable to 201,483,099 ordinary shares of the Company until February 12, 2018 against cash consideration of an exercise price amounting to NIS 1.966 (unlinked) for each share option (Series 6).
According to the offer report, the Company offered 11,851,947 rights units at a price of NIS 68.04 per rights unit (the rights unit included 45 ordinary shares, 20 share options (Series 4), 19 share options (Series 5) and 17 share options (Series 6)); the share options were offered without consideration. It should be noted, that the rights issue from January-February 2015 was performed in accordance with an outline of an irrevocable offer, received by Dolphin Netherlands on December 29, 2014, for the purpose of raising capital for the Company, as part of which additional funds may be injected as an investment in the Company’s capital. For details regarding the specified irrevocable offer, see note 16.G.2.j below.
Until the last date for exercising the rights, notifications were received for the exercise of rights to purchase 6,125,230 right units, by virtue of which the Company allocated 275,635,353 ordinary shares, 122,504,601 share options (Series 4), 116,379,371 share options (Series 5) and 104,128,911 share options (Series 6).
The immediate consideration from the issue (gross) amounted to approximately NIS 417 million, of which an amount of NIS 391.5 million is due to the exercising of rights by Dolphin Netherlands and Dolphin Fund.

1 | The Company was given a notification regarding the exercise of the entire share options (Series 1) held by CAA prior to exercising them; in fact, one option expired without being exercised.

IDB Development Corporation Ltd. Convenience translation
111

Note 15 – Equity and Reserves (cont.)

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report (cont.)

5. Increasing the registered capital and performing a rights issue in January-February 2015 (cont.)
It should be noted that Dolphin Netherlands and Dolphin Fund exercised the full rights in respect of 31.27% of the issued share capital in their possession at that time, and Dolphin Netherlands also acquired additional right units within the ordinary trade on the stock exchange, which constituted approximately 17.28% of the right units, and exercised the additional right units it acquired as specified and as a result increased its investment in the Company, and the percentage of its holdings in the Company’s shares (together with Dolphin Fund) to approximately 61.48% (approximately 70.33% with full dilution). In light of CAA not participating in the rights issue, CAA’s rate of holding in the Company was diluted to a rate of approximately 16.20% (approximately 12.43% in full dilution). The future consideration, which may be received by the Company, insofar as all of the share options (Series 4), share options (Series 5) and share options (Series 6) which were issued as specified are exercised, will amount to a total of approximately NIS 620 million.
Prior to the publication of the shelf offering dated January 19, 2015, the Company, Mr. Eduardo Elsztain and corporations under his control, including Dolphin Netherlands, submitted to the Antitrust Commissioner, in the interest of caution, a request to exempt them of the duty to file a merger notice, insofar as such as required, in case that as a result of the rights issue in accordance with the aforesaid shelf offer report, the rate of holding by corporations under Mr. Elsztain’s control in the issued share capital of the Company exceeds 50%, and that at the date of publication of the specified shelf offer report the Antitrust Commission’s reply was received, the meaning of which is that the Company and corporations under Mr. Elsztain’s control as specified, are exempt from the duty to file a merger notice in circumstances as specified, insofar as this arises, and this only until January 15, 2016 and so long as Mr. Elsztain has no business activity in Israel, apart from the Company’s operations. Mr. Elsztain and Dolphin Netherlands notified the Company that they meet the specified condition for the exemption and commit to continue and fulfil it.

| 6. | The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA”

The changes in the amounts of the holdings in the Company following the rights issue of January-February 2015 may lead to changes in its control structure and the composition of its Board of Directors. In correspondence between corporations under the control of Mr. Eduardo Elsztain, which hold the Company’s shares (“Dolphin companies”), and CAA from February and March 2015, the Dolphin companies demanded of the Elsztain Group, subsequent to the rights issue and with regard to the shareholders agreement between the parties, among other things, changes in the composition of the Company’s Board of Directors such that Dolphin Group Companies will be the dominant controlling shareholders in the Company. CAA, which has claims regarding the rights issue and the shareholders agreement between the parties, rejected these claims and demanded to purchase securities of the Company from the Dolphin Group companies, which were purchased as part of the rights issue and subsequent to it (in a manner by which should the acquisition be made, CAA will be the dominant controlling shareholder in the Company). This demand was rejected by the Dolphin Group companies. On February 25, 2015 the Dolphin Group companies notified that they temporarily delay their demand for changes in the composition of the Board of Directors. The parties exchanged offers to hold an arbitration proceeding to settle the disputes between them. In a letter of the Dolphin companies to CAA dated March 23, 2015 the Dolphin companies claimed, that since CAA is delaying the procedure to select an arbiter between the parties, their consent to delay their demand to replace directors appointed by CAA as aforementioned, is no longer in effect, and the Dolphin companies will take measures as they will see fit in order to protect their rights and interests.
Moreover, with regard to a general meeting that was convened by the Company for March 26, 2015, at which the agenda contained the appointment of an outside director, the Dolphin companies notified CAA that they were in favor of the aforesaid appointment and that according to the provisions of the shareholders’ agreement, in view of the ratio between the holdings of the Dolphin companies and CAA of the Company’s shares, CAA was required to vote by virtue of all of its voting rights in accordance with the position of the Dolphin companies.
IDB Development Corporation Ltd. Convenience translation
112

Note 15 – Equity and Reserves (cont.)

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report

| 6. | The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA” (cont.)

In a letter of reply from CAA that was sent to the Company, CAA reiterated its position that the holdings of the Dolphin companies in the shares of the Company did not give it any preference in a vote at general meetings of the shareholders of the Company. In an additional letter of CAA to the Dolphin companies, CAA proposed a mechanism whereby the Dolphin companies would choose an arbitrator from among the arbitrators mentioned in the letter.
Following the aforesaid rights issue, on March 10, 2015, a decision of the Committee for Monitoring the Implementation of the Company’s Finance Program, which was established on December 30, 2014 (“the Monitoring Committee”) was delivered to the Company, in which it was stated that after the Monitoring Committee received an opinion regarding CAA’s commitment to inject to the Company an amount of NIS 196.5 million and Dolphin’s commitment to inject the aforesaid amount separately and together with CAA, the Monitoring Committee members decided to adopt the aforesaid opinion, according to which the Company has reasonable cause for claim against CAA for the injection of NIS 196.5 million in a rights issue, and against Dolphin by virtue of its commitment separately and together with CAA therefore, the Monitoring Committee decided that it should cause the Company to claim, and if the Company does not oblige, to claim from the controlling shareholders and primarily from CAA to immediately inject an amount of NIS 196.5 million to the Company as part of a rights issue.
The Monitoring Committee notified the controlling shareholders of the aforesaid decision, required of them, and primarily from CAA, that they will inform their willingness to inject the aforesaid amount to the Company by participating in a rights issue, and notified them that insofar as they do not inform within ten days that they intend to inject the aforesaid amount in a rights issue immediately, it intends to turn to the Company’s Board of Directors with a decision suggestion to file a legal procedure to require the controlling shareholders to perform the injection as specified. On March 22, 2015, a copy of a letter was sent to the Company, in which CAA notifies the chairman of the Monitoring Committee that, among other things, it rejects the claim that it was obliged to participate in the rights issue performed in January-February 2015, among other things, since the Company cannot have an expectation to receive additional amounts from its controlling shareholders based on the debt settlement. CAA further noted, that it does not rule out the possibility that it will participate in rights issues made by the Company in the future or that it will inject funds into the Company in a different manner. On March 29, 2015, CAA sent the Company a letter in which it claimed, inter alia, that the filing of proceedings against it by the Company would constitute a procedure that prejudices its rights and it also raised various claims with regard to the decision-making process on the issue by the organs of the company. In addition, on March 24, 2015, Dolphin Netherlands replied to the chairman of the Monitoring Committee, inter alia, that it rejected the conclusion of the Monitoring Committee with regard to its obligation to inject additional money into the Company in accordance with the terms of the debt arrangement in IDB Holdings, that if in the Company’s opinion CAA is the one that has not carried out its obligations to the Company pursuant to the debt arrangement, the Company should, in accordance with its opinion, act to exhaust all of its rights in this regard vis-à-vis CAA, and that in view of CAA’s willingness to investment money in the purchase of securities from the Dolphin companies (even though there is no basis for this), CAA should rightly invest this money in the Company.
On March 24, 2015, a letter of the trustees of the debt arrangement in IDB Holdings was sent to the Company, and in this the trustees of the arrangement addressed the issue of Dolphin Netherlands’ notice to the Company that it would take advantage (personally or through another entity controlled by Mr. Eduardo Elsztain) of the whole quantity of rights units offered to it pursuant to the shelf offer report, and Dolphin Netherlands’ notice that if and insofar as Dolphin Netherlands’ undertaking to inject money into the Company within the framework of the rights issue would be carried out (in full or in part) by another entity controlled by Mr. Eduardo Elsztain (“an Elsztain corporation”), then the Elsztain corporation would agree to give an undertaking, jointly and severally with Dolphin Netherlands,to carry out all of the undertakings of Dolphin Netherlands pursuant to the debt arrangement (see note 16.G.2.j below).
IDB Development Corporation Ltd. Convenience translation
113

Note 15 – Equity and Reserves (cont.)

B. | Investments in the Company’s capital during 2014 and until the date of publication of this report

| 6. | The claims of the controlling shareholders of the Company with regard to the rights issue; the Company’s position with regard to the participation of the controlling shareholders in the rights issue; and the position of the trustees of the arrangement with regard to Inversiones Financieras Del Sur S.A. – “IFISA” (cont.)

The trustees of the arrangement state that since some of the Company’s shares that were held by Dolphin Netherlands were sold by it to a corporation that according to Dolphin Netherlands’ statement is controlled (indirectly) by Mr. Eduardo Elsztain, IFISA, the undertaking of Dolphin Netherlands to participate in the rights issue was carried out in part by IFISA, and therefore they demand to receive the approval and undertaking of IFISA to comply with the whole of Dolphin Netherlands’ undertaking, jointly and severally with it, pursuant to the provisions of the debt arrangement, in accordance with the aforesaid undertakings and statements. The trustees of the arrangement also asked to receive notice from IFISA that it is not entitled to the rights stipulated in the debt arrangement with regard to the tender offers that CAA and Dolphin Netherlands undertook to carry out as part of the debt arrangement.
In response to the letter of the trustees of the arrangement, Dolphin Netherlands, Dolphin Fund IFISA replied that they reject the demands of the trustees of the arrangement with regard to IFISA’s confirmation and undertaking to carry out the whole undertaking of Dolphin Netherlands, jointly and severally with it, pursuant to the provisions of the debt arrangement, since Dolphin Netherlands is the one that injected the money in the rights issue, and no other corporation controlled by Elsztain participated in the aforesaid injection, and therefore the notice with regard to the “Elsztain corporation” was irrelevant and had expired, and de facto Dolphin’s undertaking was not carried out by IFISA. The letter of reply also stated that Dolphin Netherlands sold the shares to IFISA shortly after the injection of the money into the Company was made by Dolphin Netherlands at a market price and for full and fair consideration (which did not prejudice the rights of the public shareholders of the Company). With regard to the demand that IFISA would give notice that it was not entitled to rights with regard to the tender offers, the Dolphin companies stated that IFISA was not required to provide confirmations or clarifications with regard to the tender offers.

C. | Equity management

The Company does not manage the shareholders’ equity (shareholders deficit).
The equity (deficiency) attributed to the shareholders of the Company constituted and might constitute in the future, among other things, a parameter of the financial covenants vis-a-vis banks (see note 16.E. below), in respect of regulatory permits and dividend distributions. Said equity is exposed to volatility, due to, among other things, the fluctuations in the value of financial assets measured at fair value and changes in exchange rates, and translation differences from foreign operations.
Equity is affected, among other things, by the accounting policies of the Company. Equity may also be affected, in the future, by actions taken with regard to acquisitions or sales of shares of investee companies in accordance with International Accounting Standards (see note 2.A above), and by the implications of the debt arrangement in IDB Holdings, including the injection of amounts of funds to the Company in accordance with the terms of the arrangement, and the irrevocable offer by Dolphin Netherlands as specified in note 16.G.2.j. below). There is no certainty that all of the specified transactions will be carried out. The Board of Directors of the Company and the boards of directors of its subsidiaries monitor the amounts of the dividends distributed to their shareholders by, among other things, assessing their ability to meet their existing and projected liabilities when they become due.

D. | As part of the creditors’ arrangement at IDB Holdings, the Dolphinand Extra groups gave an undertaking that they will exercise their powers and rights so that the Company will not distribute a dividend before December 31, 2015.

IDB Development Corporation Ltd. Convenience translation
114

Note 15 – Equity and Reserves (cont.)

E. | Changes in comprehensive income (loss)

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | Total equity attributed to the owners of the Company |  |  | Non-controlling rights |  |  | Total equity |  |  | Total equity attributed to the owners of the Company |  |  | Non-controlling rights |  |  | Total equity |  |  | Total equity attributed to the owners of the Company |  |  | Non-controlling rights |  |  | Total equity |
|  | NIS millions |
Income (loss) for the year |  |  | (999 | ) |  |  | 213 |  |  |  | (786 | ) |  |  | (153 | ) |  |  | 666 |  |  |  | 513 |  |  |  | (733 | ) |  |  | 240 |  |  |  | (493 | )
Other components of comprehensive income (loss), net of tax |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation differences from foreign operations |  |  | 237 |  |  |  | 111 |  |  |  | 348 |  |  |  | (165 | ) |  |  | (98 | ) |  |  | (263 | ) |  |  | (37 | ) |  |  | 14 |  |  |  | (23 | )
Net change in fair value of cash flow hedge, that was recognized in profit or loss |  |  | 4 |  |  |  | 6 |  |  |  | 10 |  |  |  | 4 |  |  |  | 7 |  |  |  | 11 |  |  |  | (5 | ) |  |  | (10 | ) |  |  | (15 | )
Revaluation of fixed assets that were transferred to investment property |  |  | 1 |  |  |  | 4 |  |  |  | 5 |  |  |  | 3 |  |  |  | 4 |  |  |  | 7 |  |  |  | 33 |  |  |  | 47 |  |  |  | 80 |
Group’s share in other comprehensive income (loss) of investee companies accounted for by the equity method |  |  | 359 |  |  |  | 216 |  |  |  | 575 |  |  |  | (176 | ) |  |  | (139 | ) |  |  | (315 | ) |  |  | (57 | ) |  |  | (54 | ) |  |  | (111 | )
Other components of other comprehensive income (loss) |  |  | 13 |  |  |  | (4 | ) |  |  | 9 |  |  |  | - |  |  |  | (11 | ) |  |  | (11 | ) |  |  | (5 | ) |  |  | (23 | ) |  |  | (28 | )
Other comprehensive income (loss) for the year, net of tax |  |  | 614 |  |  |  | 333 |  |  |  | 947 |  |  |  | (334 | ) |  |  | (237 | ) |  |  | (571 | ) |  |  | (71 | ) |  |  | (26 | ) |  |  | (97 | )
Total comprehensive income (loss) for the year |  |  | (385 | ) |  |  | 546 |  |  |  | 161 |  |  |  | (487 | ) |  |  | 429 |  |  |  | (58 | ) |  |  | (804 | ) |  |  | 214 |  |  |  | (590 | )

IDB Development Corporation Ltd. Convenience translation
115

Note 15 – Equity and Reserves (cont.)

F. | Earnings (losses) per share

| The profit (loss) per share data were retrospectively adjusted for all of the presented periods according to the changes in the Company’s issued share capital, including for the benefit component in the rights issue after the date of the Statement of Financial Position, as stated in section B.5 above.

| The profit (loss) per share data are based on the following data:

1. Income (loss) attributed to the holders of ordinary shares (basic)

|  | For the year ended December 31 |
|  |  | 2014 |  |  |  | 2013 |  |  |  | 2012 |
|  |  | NIS millions |
Loss for the year from continuing operations |  |  | (1,032 | ) |  |  | (553 | ) |  |  | (1,266 | )
Difference from the Company’s share in losses of investee companies |  |  | (1 | ) |  |  | - |  |  |  | (5 | )
Loss attributed to the holders of ordinary shares from continuing operations |  |  | (1,033 | ) |  |  | (553 | ) |  |  | (1,271 | )

Net income for the year from discontinued operations |  |  | 33 |  |  |  | 400 |  |  |  | 533 |
Difference from the Company’s share in losses of investee companies |  |  | - |  |  |  | (1 | ) |  |  | - |
Profit attributed to the holders of ordinary shares from discontinued operations |  |  | 33 |  |  |  | 399 |  |  |  | 533 |

| 2. | Income (loss) attributed to the holders of Ordinary Shares (diluted)

|  |  | For the year ended December 31 |
|  |  | 2014 |  |  |  | 2013 |  |  |  | 2012 |
|  |  | NIS millions |
Loss for the year from continuing operations |  |  | (1,032 | ) |  |  | (553 | ) |  |  | (1,266 | )
Difference from the Company’s share in losses of investee companies |  |  | (1 | ) |  |  | - |  |  |  | (5 | )
Loss attributed to the holders of ordinary shares from continuing operations |  |  | (1,033 | ) |  |  | (553 | ) |  |  | (1,271 | )

Net income for the year from discontinued operations |  |  | 33 |  |  |  | 400 |  |  |  | 533 |
Difference from the Company’s share in losses of investee companies |  |  | - |  |  |  | (1 | ) |  |  | (1 | )
Profit attributed to the holders of ordinary shares from discontinued operations |  |  | 33 |  |  |  | 399 |  |  |  | 532 |

| 3. | Weighted average number of ordinary shares – basic and diluted

|  |  | For the year ended December 31, |
|  |  | 2014 |  |  |  | 2013 |  |  |  | 2012 |
|  |  | Shares in Thousands |
Weighted average number of ordinary shares used for the calculation of basic and diluted earnings (losses) per share |  |  | 252,077 |  |  |  | 219,475 |  |  |  | 219,475 |

IDB Development Corporation Ltd. Convenience translation
116

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost

A. | Non-Current Liabilities

1. Bonds

|  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Bonds |  |  | 22,024 |  |  |  | 24,119 |
Less current maturities |  |  | (3,303 | ) |  |  | (3,447 | )
|  |  | 18,721 |  |  |  | 20,672 |

|  |  |  |  |  |  |  |  |  | As at December 31, 2014 |
|  | Linkage basis |  | Nominal interest |  |  | Principal payment date |  |  | Nominal value |  |  | Book value |
| Series |  | % |  |  | NIS millions |
The Company (see also sections D and G below) | Series G | CPI |  |  | 4.50 |  |  |  | 2012-2018 |  |  |  | 1,070 |  |  |  | 1,313 |
| Series I | CPI |  |  | 4.95 |  |  |  | 2020-2025 |  |  |  | 874 |  |  |  | 1,067 |
| Series J | Unlinked |  |  | 6.60 |  |  |  | 2012-2018 |  |  |  | 412 |  |  |  | 409 |
|  |  |  |  |  |  |  |  |  |  |  |  | 2,356 |  |  |  | 2,789 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 433 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,356 |
Discount Investment (see also section F.1. below) | Series D(a) | CPI |  |  | 5.00 |  |  |  | 2012-2016 |  |  |  | 255 |  |  |  | 317 |
| Series F(a) | CPI |  |  | 4.95 |  |  |  | 2017-2025 |  |  |  | 2,772 |  |  |  | 3,222 |
| Series G | Unlinked |  |  | 6.35 |  |  |  | 2012-2016 |  |  |  | 16 |  |  |  | 16 |
| Series I | Unlinked |  |  | 6.70 |  |  |  | 2010-2018 |  |  |  | 813 |  |  |  | 814 |
| Seies H and other bonds | CPI |  |  | 4.45-5.50 |  |  |  | 1997-2019 |  |  |  | 170 |  |  |  | 205 |
|  |  |  |  |  |  |  |  |  |  |  |  | 4,026 |  |  |  | 4,574 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 353 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,221 |
Property & Building (see also section F.3. below) | Property Series F(b) | CPI |  |  | 4.95 |  |  |  | 2015-2023 |  |  |  | 743 |  |  |  | 781 |
| Property Series C | CPI |  |  | 5.00 |  |  |  | 2009-2017 |  |  |  | 825 |  |  |  | 1,014 |
| Property Series D | CPI |  |  | 4.95 |  |  |  | 2020-2025 |  |  |  | 1,114 |  |  |  | 1,355 |
| Property Series G (b) | Unlinked |  |  | 7.05 |  |  |  | 2012-2025 |  |  |  | 450 |  |  |  | 490 |
| Gav-Yam Series E | CPI |  |  | 4.55 |  |  |  | 2014-2018 |  |  |  | 566 |  |  |  | 687 |
| Gav-Yam Series F (c) | CPI |  |  | 4.75 |  |  |  | 2021-2026 |  |  |  | 1,226 |  |  |  | 1,518 |
| Gav-Yam Series G | Unlinked |  |  | 6.41 |  |  |  | 2013-2017 |  |  |  | 322 |  |  |  | 322 |
| Ispro Series B | CPI |  |  | 5.40 |  |  |  | 2007-2021 |  |  |  | 357 |  |  |  | 446 |
|  |  |  |  |  |  |  |  |  |  |  |  | 5,603 |  |  |  | 6,613 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 810 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5,803 |

IDB Development Corporation Ltd. Convenience translation
117

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

A. | Non-Current Liabilities (cont.)

| 1. | Bonds (cont.)

|  |  |  |  |  |  |  |  |  | As at December 31, 2014 |
|  | Linkage |  | Stated interest |  |  | Principal payment date |  |  | Nominal value |  |  | Book value |
| Series | basis |  | % |  |  | NIS millions |
Cellcom (see also section F.2 below) | Series B | CPI |  |  | 5.30 |  |  |  | 2013-2017 |  |  |  | 555 |  |  |  | 668 |
| Series D | CPI |  |  | 5.19 |  |  |  | 2013-2017 |  |  |  | 1,454 |  |  |  | 1,722 |
| Series E | Unlinked |  |  | 6.25 |  |  |  | 2013-2017 |  |  |  | 899 |  |  |  | 897 |
| Series F | CPI |  |  | 4.60 |  |  |  | 2017-2020 |  |  |  | 715 |  |  |  | 741 |
| Series G | Unlinked |  |  | 6.99 |  |  |  | 2017-2019 |  |  |  | 285 |  |  |  | 286 |
| Series H(d) | CPI |  |  | 1.98 |  |  |  | 2018-2024 |  |  |  | 106 |  |  |  | 105 |
| Series I(d) | Unlinked |  |  | 4.14 |  |  |  | 2018-2025 |  |  |  | 223 |  |  |  | 221 |
|  |  |  |  |  |  |  |  |  |  |  |  | 4,237 |  |  |  | 4,640 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,092 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,548 |
Shufersal (see also section F.4. below) | Series B | CPI |  |  | 5.20 |  |  |  | 2015-2019 |  |  |  | 1,706 |  |  |  | 2,210 |
| Series C | Unlinked |  |  | 5.45 |  |  |  | 2010-2017 |  |  |  | 341 |  |  |  | 343 |
| Series D | CPI |  |  | 2.99 |  |  |  | 2014-2029 |  |  |  | 443 |  |  |  | 439 |
| Series E | Unlinked |  |  | 5.09 |  |  |  | 2014-2029 |  |  |  | 420 |  |  |  | 416 |
|  |  |  |  |  |  |  |  |  |  |  |  | 2,910 |  |  |  | 3,408 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 615 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,793 |

| (a) | For details regarding an exchange acquisition offer of Series D bonds of Discount Investments, for Series F bonds was completed in January 2014, see section F.1 below.

| (b) | In September 2014, Property & Building bonds issued to the public a total nominal value of NIS 86 million of its existing Series F, at a price that reflects an effective interest rate of 2.13% per annum, linked to the Consumer Price Index, and for a total consideration of NIS 102 million and also bonds at total nominal value of NIS 276 million of its existing Series G, at a price reflecting an effective interest rate of 4.01% per annum, which is unlinked to the CPI or to any currency, and for a total consideration of NIS 326 million.

| (c) | In April 2014, Gav-Yam Land Corporation Ltd. (“Gav-Yam”), a subsidiary of Property & Building, issued bonds to the public at a total nominal value of NIS 221 million of its existing Series F, at a price reflecting an effective interest rate of 3.13% per annum which is linked to the CPI, and in total consideration for NIS 306 million.

| (d) | In July 2014, Cellcom issued bonds to the public at a total nominal value of NIS 106 million of its Series H (new series), which carries interest at a rate of 1.98% per annum, and is linked to the Consumer Price Index, for total consideration of NIS 105 million and also bonds at a total nominal value of NIS 223 million of its Series I (new series), which carries interest at a rate of 4.14% per annum, unlinked to the CPI or any currency, and for a total consideration of NIS 221 million.

IDB Development Corporation Ltd. Convenience translation
118

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

A. | Non-Current Liabilities (cont.)

| 1. | Bonds (cont.)

|  |  |  |  |  |  |  |  |  | As at December 31, 2013 |
|  | Linkage basis |  | Nominal interest |  |  | Principal payment date |  |  | Nominal value |  |  | Book value |
| Series |  | % |  |  | NIS millions |
The Company | Series C | CPI |  |  | 5.90 |  |  |  | 2013 |  |  |  | 5 |  |  |  | 7 |
| Series G | CPI |  |  | 4.50 |  |  |  | 2012-2018 |  |  |  | 1,431 |  |  |  | 1,757 |
| Series H | CPI |  |  | 4.10 |  |  |  | 2013 |  |  |  | 14 |  |  |  | 17 |
| Series I | CPI |  |  | 4.95 |  |  |  | 2020-2025 |  |  |  | 874 |  |  |  | 1,069 |
| Series J | Unlinked |  |  | 6.60 |  |  |  | 2012-2018 |  |  |  | 551 |  |  |  | 547 |
|  |  |  |  |  |  |  |  |  |  |  |  | 2,875 |  |  |  | 3,397 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 609 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2,788 |
Discount Investments | Series D | CPI |  |  | 5.00 |  |  |  | 2012-2016 |  |  |  | 1,187 |  |  |  | 1,473 |
| Series F | CPI |  |  | 4.95 |  |  |  | 2017-2025 |  |  |  | 1,884 |  |  |  | 2,179 |
| Series G | Unlinked |  |  | 6.35 |  |  |  | 2012-2016 |  |  |  | 24 |  |  |  | 24 |
| Series I | Unlinked |  |  | 6.70 |  |  |  | 2010-2018 |  |  |  | 961 |  |  |  | 962 |
| Other bonds | CPI |  |  | 4.45-5.50 |  |  |  | 1997-2019 |  |  |  | 222 |  |  |  | 271 |
|  |  |  |  |  |  |  |  |  |  |  |  | 4,278 |  |  |  | 4,909 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 698 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,211 |
Property & Building | Property Series F | CPI |  |  | 4.95 |  |  |  | 2009-2023 |  |  |  | 657 |  |  |  | 686 |
| Property Series C | CPI |  |  | 5.00 |  |  |  | 2009-2017 |  |  |  | 1,110 |  |  |  | 1,358 |
| Property Series D | CPI |  |  | 4.95 |  |  |  | 2020-2025 |  |  |  | 1,119 |  |  |  | 1,358 |
| Property Series E and G | Unlinked |  |  | 5.70-7.05 |  |  |  | 2012-2025 |  |  |  | 341 |  |  |  | 343 |
| Gav-Yam Series E | CPI |  |  | 4.55 |  |  |  | 2014-2018 |  |  |  | 707 |  |  |  | 859 |
| Gav-Yam Series F | CPI |  |  | 4.75 |  |  |  | 2021-2026 |  |  |  | 1,005 |  |  |  | 1,218 |
| Gav-Yam Series G | Unlinked |  |  | 6.41 |  |  |  | 2013-2017 |  |  |  | 429 |  |  |  | 429 |
| Ispro Series B | CPI |  |  | 5.40 |  |  |  | 2007-2012 |  |  |  | 408 |  |  |  | 513 |
|  |  |  |  |  |  |  |  |  |  |  |  | 5,776 |  |  |  | 6,764 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 848 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5,916 |
Cellcom | Series B | CPI |  |  | 5.30 |  |  |  | 2013-2017 |  |  |  | 740 |  |  |  | 893 |
| Series D | CPI |  |  | 5.19 |  |  |  | 2013-2017 |  |  |  | 1,939 |  |  |  | 2,305 |
| Series E | Unlinked |  |  | 6.25 |  |  |  | 2013-2017 |  |  |  | 1,199 |  |  |  | 1,197 |
| Series F | CPI |  |  | 4.60 |  |  |  | 2017-2020 |  |  |  | 715 |  |  |  | 744 |
| Series G | Unlinked |  |  | 6.99 |  |  |  | 2017-2019 |  |  |  | 285 |  |  |  | 286 |
|  |  |  |  |  |  |  |  |  |  |  |  | 4,878 |  |  |  | 5,425 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1,093 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,332 |
Shufersal | Series B | CPI |  |  | 5.20 |  |  |  | 2015-2019 |  |  |  | 1,706 |  |  |  | 2,252 |
| Series C | Unlinked |  |  | 5.45 |  |  |  | 2010-2017 |  |  |  | 455 |  |  |  | 460 |
| Series D | CPI |  |  | 2.99 |  |  |  | 2014-2029 |  |  |  | 472 |  |  |  | 468 |
| Series E | Unlinked |  |  | 5.09 |  |  |  | 2014-2029 |  |  |  | 448 |  |  |  | 444 |
|  |  |  |  |  |  |  |  |  |  |  |  | 3,081 |  |  |  | 3,624 |
| Current maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 199 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,425 |

IDB Development Corporation Ltd. Convenience translation
119

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

A. | Non-Current Liabilities (cont.)

| 2. | Bank loans and other financial liabilities

|  | December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Loans from banks (see details in subsection (a) below) |  |  | 4,437 |  |  |  | 5,352 |
Loans from others |  |  | 582 |  |  |  | 450 |
|  |  | 5,019 |  |  |  | 5,802 |
Less current maturities |  |  | (1,491 | ) |  |  | (1,735 | )
|  |  | 3,528 |  |  |  | 4,067 |
Liabilities in respect of construction (1) |  |  | 103 |  |  |  | 132 |
Other liabilities (2) |  |  | 125 |  |  |  | 125 |
|  |  | 228 |  |  |  | 257 |
Less current maturities |  |  | (92 | ) |  |  | (128 | )
|  |  | 136 |  |  |  | 129 |
|  |  | 3,664 |  |  |  | 4,196 |

| (1) | The liabilities are or will be paid in construction services or in cash, at a certain percentage of the sales receipts of the project.

| (2) | Including a liability in connection with a partnership agreement signed in August 2006 among Shufersal, Leumi Card Ltd. (“Leumi Card”) and Paz Oil Company Ltd. (“Paz”), for the founding of a limited partnership (“the partnership”) by the abovementioned parties, to concentrate the ongoing administrative activity of credit cards of the Shufersal chain. The partners’ share in the partnership is as follows: Shufersal – 64%, Leumi Card Ltd. – 16% and Paz – 20%.

The profits to be earned from the joint activity will be divided among the partners, based on the aforementioned percentages. The partnership agreement is valid for 10 years, from August 31, 2006, and includes an optional extension. As part of the partnership agreement, arrangements were set up among the partners regarding their holdings in the partnership, including the granting of a Call option to Shufersal to purchase the holdings of Leumi Card and Paz and the granting of a Put option to Leumi Card and Paz to sell their holdings to Shufersal, all in accordance with the terms set out in the agreement. As at December 31, 2014, the Group recorded a liability for the purchase of the shares of Leumi Card and Paz in the partnership in an amount of NIS 108 million (2013 - NIS 99 million). The increase in the liability in 2014 was allocated to goodwill in an amount of NIS 2 million and to financing expenses in an amount of NIS 7 million.
The estimated amount of the liability was measured in accordance with the present value of the option, which is based on the cash flows of the actual results of operation for 2014, and on the basis of the forecasted future cash flows of the partnership. The estimated growth rate for 2016 is 2.5%, and beginning in 2017, is 1.2%. The pre-tax discount rate in real terms is 10.64% (after-tax – 9.8%).
IDB Development Corporation Ltd. Convenience translation
120

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

A. | Non-Current Liabilities (cont.)

2. Bank loans and other financial liabilities (cont.)
a.Bank loans

|  |  |  | Book value as at December 31 |
| Linkage | Interest |  | 2014 |  |  | 2013 |
| basis | % |  | NIS millions |
The Company (see also section C.(1) below) | Unlinked | 6.49-7.55 |  |  | 190 |  |  |  | 549 |
| Unlinked | Prime + 1.0-1.95 |  |  | 633 |  |  |  | 696 |
| USD | LIBOR +3.38% |  |  | - |  |  |  | 195 |
|  |  |  |  | 823 |  |  |  | 1,440 |
Discount Investments (see also section F.1.b below) | Unlinked | 5.39-5.90 |  |  | 214 |  |  |  | 281 |
| Unlinked | Prime + 0.52-0.6 |  |  | 307 |  |  |  | 379 |
|  |  |  |  | 521 |  |  |  | 660 |
Cellcom | Unlinked | 6.0 |  |  | - |  |  |  | 12 |
Shufersal | Unlinked | 3.70-4.90 |  |  | - |  |  |  | 3 |
| CPI | 3.25-4.95 (2013: 4.4-7.40) |  |  | 6 |  |  |  | 6 |
|  |  |  |  | 6 |  |  |  | 9 |
Property & Building (see also section F.3.a below) | Unlinked | 6.4 |  |  | 35 |  |  |  | 192 |
| CPI | 4.3 |  |  | 1,041 |  |  |  | 1,102 |
| USD | 5.0 |  |  | 1,524 |  |  |  | 1,356 |
|  |  |  |  | 2,600 |  |  |  | 2,650 |
Elron | USD | WSJ+0.75% |  |  | - |  |  |  | 14 |
Bartan | Unlinked | 4.8 |  |  | 11 |  |  |  | 15 |
IDB Tourism | Unlinked | 4.7 |  |  | 9 |  |  |  | 2 |
| USD | 5.1-5.65 |  |  | 239 |  |  |  | 346 |
|  |  |  |  | 248 |  |  |  | 348 |
IDB Group (see also section F.3.c below) | USD | LIBOR + 5 |  |  | 228 |  |  |  | 204 |
Total loans |  |  |  |  | 4,437 |  |  |  | 5,352 |

| 3. | Net liability for non-recourse loan (1)

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Host contract of a hybrid financial instrument in respect of non-recourse loan |  |  | 3,162 |  |  |  | 3,664 |
Less the embedded derivative |  |  | (72 | ) |  |  | (607 | )
Hybrid financial instrument in respect of non-recourse loans (1) |  |  | 3,090 |  |  |  | 3,057 |

| For details of the linkage terms, see note 21.D.

(1) | See section F.1.d below.

IDB Development Corporation Ltd. Convenience translation
121

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

B. | Current Liabilities

| Credit from banking corporations and current maturities of loans from banks and others

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Current maturities of other liabilities |  |  | 181 |  |  |  | 215 |
Current maturities of loans from banks |  |  | 1,402 |  |  |  | 1,648 |
Short-term loans from banks |  |  | 266 |  |  |  | 601 | (1)
Short-term loans |  |  | 14 |  |  |  | 18 |
|  |  | 1,863 |  |  |  | 2,482 |

| (1) | For details regarding the repayment of the entire balances of the Morgan Stanley credit and the Citigroup credit in January 2014, see section F.1.e below.

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position

| 1. | In December 2010, the Company signed an agreement with a banking institution that previously provided it with a loan of NIS 750 million. As part of the agreement, each of the (equal semi-annual) principal payments of the loan will be deferred for three years, so that instead of the payments being executed semi-annually commencing from March 2011 through March 2015, they will be executed semi-annually commencing from March 2014 through March 2018. In addition, each of the principal payments will bear, commencing from their initial dates of payment until the new dates of payment (i.e., for a three-year period), interest on the basis of the Prime rate plus a margin of 1.3% instead of the fixed interest that was paid until the original repayment dates. In accordance with the aforementioned consent, additional refinancing of current principal payments in respect of this loan were also performed in March and September of 2014, and a final refinance was made in March 2015. For information pertaining to financial restrictions and covenants in connection with the aforementioned loan and additional loans of the Company, see note 16.E. below.

| 2. | Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”))

In May 2012, the Company engaged with financial entities from the Menorah Group in an agreement to receive a loan secured by charge in the amount of NIS 150 million.
The loan is linked to the CPI and bears CPI-linked interest at an annual rate of 6.9%, payable quarterly. The loan principal will be paid in two portions: in 2017 – an amount of NIS 50 million will be paid, and in 2018 – an amount of NIS 100 million will be paid. As part of the aforesaid loan, the Company granted to the lender options to purchase shares of Discount Investment that are held by the Company (constituting approximately 1.7% of the issued share capital of Discount Investment as at the date of this report) at an exercise price of NIS 25 per share, limited to a benefit ceiling of NIS 21 per option (the benefit ceiling reflects a share price of NIS 46). The aforesaid options will be exercisable (fully or partly, in one or more portions, at the lender’s discretion) until May 2016. The actual exercise of the options will be executed, at the Company’s discretion, in cash (without a transfer of shares) or in shares of Discount Investment, according to the value of the benefit component on the exercise date. According to the loan agreement, the loan was secured by a lien on the Company’s shares in Discount Investment, Clal Industries Ltd. and Clal Holdings Insurance Enterprises, with the initial mix of these shares being as determined at an initial ratio of 150% between the value of the charged shares to the outstanding balance of the loan according to stock exchange closing prices. In July 2012 (subsequent to the completion of the transaction involving the sale of shares of Clal Industries Ltd. which were held by the Company), according to the provisions of the loan agreement, 2.2 million shares of Clal Industries that were previously charged were released from the charge, against the deposit of a cash amount of NIS approx. 51 million.
According to the loan agreement, in the event that the ratio between the value of the charged shares and the outstanding balance of the loan falls below 150% during the loan period, the Company will provide the lender additional collateral by providing a charged monetary deposit and/or additional shares of Discount Investment and/or Clal Holdings Insurance Enterprises (at the Company’s discretion) so that the cover ratio will be 167% according to the stock exchange closing prices. Furthermore, various thresholds were provided, which may be higher, for releasing shares from the aforesaid lien and for releasing dividend receipts in respect of the charged shares.
IDB Development Corporation Ltd. Convenience translation
122

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 2. | Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)

A condition for the aforesaid shares being qualified to serve as collateral is, inter alia, no change in the Company’s control over the aforesaid companies. A change in control as aforesaid will require providing a lien and monetary deposit in advance, as provided in the agreement.
The Company will be able to repay the loan in early repayment, under conditions which were agreed and subject to the payment of an early repayment fee, which amounts according to the Company’s calculations, as at March 2015, in an amount of approximately NIS 35 million. The circumstances upon which the loan may be put up for immediate repayment include, in addition to circumstances customary in these types of loans, inter alia, another loan of the Company being put up for immediate repayment, a transfer of control in the Company, a decision being made to merge the Company, Discount Investment and Clal Holdings Insurance Enterprises (prior to the completion of the merger transaction between Koor and Discount Investments, as stated in note 3.H.4.b above, this condition related to Koor as well), except for a merger in which the relevant company is the absorbing company.
Additionally, the agreement sets forth a right to place the loan for immediate repayment in case of a decision being made to perform a merger between Discount Investment and Koor, without the lender’s consent, if the Company does not deposit and charge, in favor of the lender, a monetary deposit in an amount equal to all of the deposited and charged shares of the company which was merged into the absorbing company. In light of this, in March 2014, within the framework of the completion of the transaction for the merger of Discount Investment with Koor Industries, the amount the Company received out of the consideration for the aforementioned merger (approx. NIS 40 million) was charged in favor of the secured lender, in place of the shares of Koor which had been charged to the same lender.
The following are details regarding the liens on the Company’s assets provided in favor of the aforesaid secured lender as at December 31, 2014 and proximate to the date of publication of the report:

The pledged asset |  | As of December 31, 2014 |  |  | Shortly before the publication of this report |
|  | Amount |  |  | Rate of pledged holdings |  |  | Amount |  |  | Rate of pledged holdings |
|  | NIS millions nominal value |  |  | % |  |  | NIS millions nominal value |  |  | % |
Discount Investments |  |  | 13.5 |  |  |  | 15.8 |  |  |  | 20.4 |  |  |  | 23.9 |
Clal Holdings Insurance Enterprises |  |  | 2.2 |  |  |  | 4 |  |  |  | 2.2 |  |  |  | 4 |
Cash (NIS millions) |  |  | 18 | 2 |  |  |  |  |  |  |  | 2 18 |  |  |  |

2According to the provisions of the loan agreement, the dividend paid by Discount Investments on November 18, 2014, in respect of the Discount Investments shares pledged in favor of the loan at an amount of NIS 18 million, was deposited upon its payment in an account which is pledged in favor of the secured creditor.
IDB Development Corporation Ltd. Convenience translation
123

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 2. | Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)

The following are details regarding the ratios of the value of the security to the net balance of the loan of the secured lender:

|  | Value of marketable shares pledged in favor of the lender (“security value”) |  |  | Balance of the loan, net 3 |  |  | Ratio of security value to balance of the loan, net in percentages (“cover ratio”) |  |  | Minimal cover ratio required by the lender |
|  | NIS millions |  |  | % |
As of December 31, 2014 |  |  | 225 |  |  |  | 136 |  |  |  | 165 | % |  |  | 150 | %
As of March 26, 2015 |  |  | 194 |  |  |  | 134 |  |  |  | 220 | % |  |  | 150 | %

The following are brief details of main developments that occurred in 2014 and up to the date of publication of this report, with regard to the loan to the aforementioned secured lender, including with regard to the release and addition of collateral:
On April 30, 2014, after receiving approval from the Board of Directors, the Company contracted the trustee with whom were deposited the cash and the pledged shares to secure the loan from Menorah (the “trustee”), with a request to release surplus collateral in the amount of approximately NIS 92.4 million, as well as shares of Discount Investment which constitute approximately 13.2% of its issued and paid-up capital, this in accordance with the provisions of the loan agreement with regard to release of surplus collateral. In response to the Company’s request, Menorah responded on April 30, 2014, inter alia, that it had grounds for requiring the immediate repayment of the loan balance, due to the fact that the Ganden Group ceased being the controlling shareholder in the Company subsequent to the approval of the debt arrangement at IDB Holdings, and additional alleged grounds set forth in the loan agreement. Menorah also notified the Company on the same date regarding its demand for the immediate repayment of the outstanding balance of the loan, with the addition of an early repayment fee and expenses in the amount of approximately NIS 197.4 million as at April 29, 2014.
At the same time, Menorah notified the trustee regarding its objection to the release of the collateral, as requested by the Company. The Company categorically rejected that stated in Menorah’s notification.
On May 11, 2014, the Company filed a motion with the Court, in which the Court was requested to determine, inter alia, that: the demand for immediate repayment was performed without grounds, that it contravenes the Court’s decisions and absolutely contravenes the purpose underlying the creditors’ settlement in IDB Holding; and alternatively - even if Menorah does have grounds for immediate repayment, the exercise of this right, at the time when it was made, and in light of the circumstances, constitutes the exercise of a contractual right in breach of good faith and in an unreasonable manner, and that Menorah is not entitled to receive the payment of a fine or early repayment fee; and that Menorah must release surplus collateral given by the Company with respect to the loan.
On May 15, 2014, a letter was received in the Company’s offices from Menorah, according to which insofar as the Company does not pay the entire debt by May 20, 2014, Menorah will instruct the trustee (with whom the collateral was deposited) to pay to it the entire funds held by the trustee, and to act to realize the balance of the collateral held by it, and to pay to Menorah the balance of the Company’s debt.
On May 18, 2014, the Company filed an urgent motion to issue an temporary injunction in the presence of one party, directed to the trustee and to Menorah, as part of which the Court was requested to order the trustee and Menorah not to perform disposition of the funds and of the securities which are deposited with them, with the purpose of securing the Company’s debts towards Menorah, until the issuance of a final ruling regarding the Company’s motion.

3Less a pledged deposit amounting to NIS 18 million.
IDB Development Corporation Ltd. Convenience translation
124

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 2. | Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)

On the same date, the Court’s decision was given to issue a temporary injunction, as stated above, until another decision has been reached. On May 26, 2014, Menorah’s response to the motion for an injunction was filed with the Court, in
which the Court was requested to dismiss the Company’s motion for an injection, and to order the cancellation of the temporary injunction which was given in the presence of one party.
On June 23, 2014, Menorah filed its response to the Company’s motion dated May 11, 2014, in which the Court was requested to reject the Company’s motion. On July 1, 2014, the position of the Official Receiver was filed with the court, in which it was stated, inter alia, that Menorah’s demand for immediate repayment should not be granted and that the court should order the release of the surplus collateral in accordance with the Company’s motion. On July 8, 2014, a hearing was held in the Tel-Aviv District Court, after which Menorah requested of the Court, with the Company’s consent, that it would postpone giving its decision on the proceeding by one day in order to allow the parties to end the dispute between them consensually. Since no agreements were reached within the defined period, Menorah gave notice to the Court that it withdraws its motion for immediate repayment and withdraws its opposition to the release of the surplus collateral in accordance with the Company’s motion of April 2014, and requested the court to order the closing of the motion without costs. On July 10, 2014, the court granted Menorah’s motion and part of the collateral that had been deposited by the Company in favor of Menorah was released, in an amount of approximately NIS 92.3 million in cash, and also approximately 13.2% of the share capital of Discount Investments, in accordance with the Company’s motion from April 2014.
As a result of the decline in the market value of the collateral provided by the Company for the loan, and a decline in the cover ratio between the value of the collaterals and the balance of the loan, below the rate of approximately 150%, and in order to company with the coverage ratio specified in the loan agreement for such a case (approximately 167%), the Company pledged, on November 13, 2014, 2,229,000 additional shares of Discount Investments, in the value of approximately NIS 30.9 million (as at the date of the pledging), so that subsequent to the aforesaid pledging, approximately 11.7% of Discount Investments shares and approximately 4% of Clal Holdings Insurance Enterprises shares were pledged in favor of the repayment of the loan. In accordance with the stipulations of the loan agreement with Menorah, dividend paid in respect of the pledged shares, is directly transferred upon its distribution to an account pledged in favor of Menorah. Accordingly, the dividend paid by Discount Investments on November 18, 2014 in respect of the Discount Investments shares which are pledged in favor of the loan in the amount of approximately NIS 18.2 million (out of the total NIS 148 million, the Company’s share in the dividend) was deposited upon its payment into a pledged account. According to the loan agreement, the Company is entitled to demand the release of the dividend amounts from the pledged account immediately subsequent to its distribution or at any interest payment date, under the condition that the release would not decrease the cover ratio to under approximately 167%, a condition which is satisfied as at the date of publication of the report.
In light of the continued decline in the market value of the collateral provided by the Company in favor of the loan, and a decline in the cover ratio between the value of the collateral and the net balance of the loan (less the pledged dividend at an amount of approximately NIS 18 million), and in order to meet the required cover ratio in such case (approximately 167%, as stated above), the Company pledged, on December 21, 2014 and on January 18, 2015, 3,500,000 and 6,878,000 additional shares of Discount Investments, at values of approximately NIS 28 million and approximately NIS 42 million, as at the date of each pledge as stated above, respectively, in a way that subsequent to the stated addition of collateral, the balance of the loan (principal and interest), which at the date of publication of this report amounts to approximately NIS 152 million, is secured by a pledge of approximately 23.9% of the issued and paid-up share capital of Discount Investments and approximately 4% of the issued and paid-up share capital of Clal Holdings Insurance Enterprises and by a cash deposit in a sum of approximately NIS 18.2 million, and the ratio of the collateral to the net balance of the loan (i.e., the balance of the loan less the pledged cash deposit as aforesaid) is as stated in the table above.
IDB Development Corporation Ltd. Convenience translation
125

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 2. | Loan from a guaranteed creditor of the Company (entities from the Menorah Group (“Menorah”)) (cont.)

On the basis of the ratio between the value of the collateral for the loan on the date of the report and the balance of the loan, and taking into account mechanisms for the release of collateral and/or cash in the loan agreement, the Company estimates that it can release the cash that is charged in the deposit in favor of Menorah, and it intends to act to release it.
In this context, with regard to the restriction included in the Company’s financing agreements with its lending corporations, with regard to the pledging limit of additional assets for additional collateral to the lenders, it is noted that the Company updated in advance its lending Corporations, the agreements with which include the stated restriction (without any of them voicing objection), as follows: (a) that the Company intends to increase the collateral in favor of the repayment of the Menorah loan; and (b) that according to the Company’s position, subsequent to the release of the collaterals in favor of the Menorah loan in July 2014 as stated above, the cumulative total of pledged assets is less than at the date of application of the additional pledges limit (June 2012). According to the Company’s position, the total cumulative amount available to it before the utilization of the full pledges limit as at December 31, 2014 and shortly before the date of publication of the report, is NIS 116 million and NIS 73 million, respectively.

| 3. | Advancing a bridging loan to the Company and converting it into capital – On March 10, 2014, the Company signed an agreement with Dolphin Fund Limited and E.T.H M.B.M Extra Holdings Ltd. (companies under the control of Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively (jointly and severally: “the investors”)); Adv. Hagai Olman and Mr. Eyal Gabbay (the trustees for the creditors’ arrangement in IDB Holding (“the trustees for the arrangement”); and IDB Holding (through the trustees for the arrangement), regarding the provision of a bridging loan to the Company in the amount of NIS 170 million (“the loan”). The stated bridging loan was given in accordance with the provisions of the debt arrangement in IDB Holding, as specified in note 16.G below. For details of the conversion of the bridging loan into the Company’s capital and additional investments in the Company’s capital in accordance with the provisions of the debt arrangement as aforesaid, see note 15.B.1 above.

It should be noted that in the period in which the investors provided the Company a bridging loan on account of the capital injections, the Company paid on June 30, 2014 interest totaling approximately NIS 1.25 million.

| 4. | Payment of interest to the Company’s creditors in respect of amounts deposited in the observer’s trusteeship account

| In accordance with the decision by the District Court in Tel-Aviv-Jaffa dated June 9, 2013 (as part of the legal proceeding as specified in Note 16.G below), the Company regularly transferred the amounts to its financial creditors in accordance with their payment schedules, to a designated trusteeship account held by the Court appointed observer. In accordance with the Court’s decision from October 17, 2013, 65% of the aforementioned funds were released in favor of the creditors to which they were due, including the income accumulated in the deposit account in respect of these amounts, and as of that date the Company was required to continue to pay its payments to its financial creditors, so that 65% of them will be transferred to the creditors to which they are due, and 35% will continue to be transferred to the aforesaid trusteeship account. During January 2014, the full balance of these funds was released by the observer, in accordance with the Court’s decision dated January 15, 2014. As of the date of release of the balance of funds, the Company transferred and is transferring to its financial creditors, the full payments to which they are due, in accordance with the payment schedules of their loans.

| During 2013 the Company received letters from its lending corporations according to which their position is that the Company has violated the loan agreement with them and that they are entitled, inter alia, to arrears interest payment with respect to any payment which unpaid and/or will not be paid to them at its due date.

| During 2013 the Company received letters from its lending corporations according to which their position is that the Company has violated the loan agreement with them and that they are entitled, inter alia, to arrears interest payment with respect to any payment which unpaid and/or will not be paid to them at its due date.

126

| Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 4. | Payment of interest to the Company’s creditors in respect of amounts deposited in the observer’s trusteeship account (cont.)

| As part of a motion filed with the Court in November 2013 by a bank creditor of the Company (whose loan was finally repaid according to its payment schedule in January 2014), the Company was required to pay all of the interest payments (including excess interest) to which the aforesaid bank creditor is entitled according to the loan agreement in respect of the funds held in trusteeship by the observer as stated above. The Company’s position is that payment transfers made to the observer, in accordance with the Court’s decision, constitute full repayment of its liabilities, and accordingly the relevant creditors are not entitled to arrears interest payment in respect of them and the Company has claims also with regard to the non-entitlement to interest and linkage beyond the interest on the deposit which was held by the observer. On March 27, 2014, the observer filed, following the Official Receiver’s offer to authorize the observer to manage the negotiations between the parties, a settlement proposal, subject to the consent of the Company and the creditors, according to which the Company will bear approximately one third of the difference between the contractual interest (which does not include arrears interest) and the interest on the deposit accumulated on the observer’s account, meaning in total the Company will pay of approximately NIS 7 million to its creditors, beyond the interest on the deposit which has been paid to them. On September 21, 2014, a hearing was held on the aforementioned motion, in which the Court instructed that it would be appropriate for the parties to reach a settlement. The parties were requested to notify the representative of the parent company whether they accepted the aforementioned proposal by the observer. On September 30, 2014, the trustees for the Company’s bonds Series G, I and J announced, in light of the Court’s position, as expressed in the hearing dated September 21, 2014, their intention to notify the Court on October 7, 2014 of their agreement for the Court to determine the matter of the interest payment by way of a settlement.

| Additionally, in a meeting of the holders of the Company’s Series C bonds, which was held on October 1, 2014, a decision was reached to instruct the trustee for the series C bonds to agree to the observer’s settlement proposal. Further to the creditor’s aforementioned notices, on October 20, 2014, the Company’s Board of Directors resolved to accept the settlement proposal, with respect to the creditors who had agreed to it. In light of the above, the Company requested the Court to approve the settlement proposal with those of the Company’s creditors who have agreed to it (Bank Hapoalim, Israel Discount Bank, Bank Mizrahi Tefahot, HSBC bank, BNP bank, Harel Insurance Company, and the holders of the series C, G, H, I & J bonds) in a manner whereby they will be paid a total of NIS 6.4 million, in accordance with the proportion of the distribution between the creditors, as set forth in the observer’s settlement proposal, while determining in its decision that the Company’s consent does not derogate from its rights and claims regarding any entities which have not agreed to the settlement – Sky Fund. On October 26, 2014, a ruling was given on the settlement by the Court, with respect to the dispute between the Company and all of the parties, excluding Sky Fund. The Court stated that the proposal weighed, in a balanced manner, all of the risks and rewards of each of the parties to the request, and ordered payment to the creditors (excluding Sky Fund) in the total amount of NIS 6.4 million, by December 1, 2014.

| It is noted that this amount was paid in full by the Company during November 2014, and accordingly, the Company reversed, in the fourth quarter of 2014, a provision in an amount of NIS 15 million.

| With respect to Sky Fund, due to the fact that it has not filed a motion with the Court on the matter, the Court determined that its claims should not be heard, and insofar as it will file a motion with the authorized Court, such claims will be heard. As at the date of publication date of the report, a motion by Sky Fund has not been filed on the subject. The balance of the provision on the books as at December 31, 2014 in respect of the interest for the period in which payments for the creditors were deposited into the trust account, amounts to a total of NIS 1.5 million. For details of the settlement between IDB Tourism, the Company and Sky Fund regarding, inter alia, the payment of interest for the money that was deposited in the observer’s trust account, see note 3.H.6.c above.

IDB Development Corporation Ltd. Convenience translation
127

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

C. | Developments in the Company’s Liabilities in 2014 and After the Date of the Statement of Financial Position (cont.)

| 5. | Offsetting the expenses of trustees to the arrangement

| In connection with the funds which were deposited in the observer’s account and which were released in accordance with the Court’s decisions dated October 17, 2013 and January 15, 2014, as stated above, it is noted that the trustees for the Company’s bonds Series G, I and J offset, from the payments which had been released and transferred to them, as stated above, amounts for the purpose of covering the expenses of the relevant trustee and his agents, and covering additional expenses, which according to the specified trustees, it was the Company’s duty to bear. During the reporting period, the Company reached agreements with the trustees to the bonds, and paid a total of NIS 890 thousand, net, in respect of the trustee’s expenses, as stated above. On September 17, 2014, each of the trustees for the aforementioned bonds announced that, following negotiations between the trustee’s service providers, the trustee and the Company, agreements had been reached regarding the reduction of the payments to the service providers, and payment of their fees by the Company, and that such agreements allowed repayment, to the aforementioned bond holders, some of the amounts which had been offset, as stated above. In light of the above, on September 30, 2014, the trustees for the aforementioned bonds repaid to the holders of the aforementioned series of bonds, who held the bonds on the relevant specified dates (with respect to Series G and I - July 4, 2014 and with respect to Series J – November 28, 2013), NIS 1,280 thousand out of the amounts that had been offset by the trustees to cover the aforementioned expenses.

| 6. | In connection with the convertible bonds issued by IDB Tourism to Sky Fund, the repayment of which was secured by a guarantee from the Company, on August 11, 2013, the repayment date of the aforementioned bonds, the Company repaid to Sky Fund, by virtue of the aforementioned guarantee, the balance of the bonds in the amount of approx. NIS 70 million (by depositing the payment with the Observer, whereby, in accordance with the Court’s decisions, all of the aforementioned funds which had been deposited with the observer were released, as specified in note 16.C.4 above).

| 7. | With regard to a guarantee which was provided by the Company in favor of IDB Tourism (2009) Ltd. (“IDB Tourism”), a wholly owned subsidiary of the Company, in respect of a loan in the amount of USD 39 million which was received in the past by IDB Tourism from a banking corporation, and regarding a letter received from the banking corporation in which it was demanded that the Company repay the loan, by virtue of the guarantee that it provided, on April 1, 2014, the Company paid to the aforementioned banking corporation a total of USD 39 million (NIS 135.7 million). On July 6. 2014, approval was received from the banking corporation for the cancellation of the Company’s guarantee in favor of IDB Tourism.

In addition, in May 2014, the Company converted capital notes and a bond which IDB Tourism had issued in favor of the Company, into deferred capital notes amounting to NIS 158 million. Additionally, deferred capital notes were issued to the Company in an amount of NIS 209 million (in respect of guarantees which the Company paid for the benefit of IDB Tourism).
IDB Development Corporation Ltd. Convenience translation
128

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

D. | Current Rating of the Company’s Bonds

On July 6, 2014, Maalot announced a rating of BB for the Company and for the Company’s bonds Series G, I and J (as compared with the previous rating of D), with a negative rating outlook. As part of the main considerations involved in the determination of the rating, Maalot noted, inter alia, that following the transfer of control and the capital injections which were performed to the Company’s account, the Company’s capital structure and its level of liquidity had significantly improved, however, the Company still faces many challenges, which primarily include the leveraging of approximately 83% (LTV), which is not sustainable in the medium and long term, in Maalot’s assessment. Maalot noted that the Company’s liquidity profile continues to be defined as “weak” according to the criteria of Maalot, as reflected in a significant gap which still exists between the Company’s sources and its uses in 2015. On January 20, 2015 Maalot notified that there is no change in the Company’s rating following its intentions to issue rights to purchase shares.
On March 1, 2015, Maalot announced the lowering of the Company’s rating, and the ratings of its bonds, to a rating of B, with a negative outlook. As part of the main considerations involved in the determination of the rating, Maalot noted, inter alia, that the lowering of the rating is due to a continued increase in the leverage ratio in recent months and significant liquidity challenges in the short term.
E. Financial Restrictions and Covenants
Financial restrictions and covenants - In connection with the Company’s loans from its lending corporations, where the balance of its debt to them as at December 31, 2014, amounts to approx. NIS 0.9 billion (“the lending corporations”), the Company has undertaken, inter alia, to company with financial covenants. On June 29, 2012, agreements were reached (materially similar agreements were reached vis-a-vis each lending corporation separately),4 which include, inter alia, updates to previous financial covenants, which will apply and will be calculated with respect to the end of a reported quarter, in force as at June 29, 2012. Certain updates were made to these agreements from August 2012, and certain updates were performed in March 2013 (as specified in section L below). The following is a description of the principal aforementioned financial covenants:

| a. | Net debt of the Company (solo) and of its wholly owned designated subsidiaries (directly or indirectly), will not exceed a limit of NIS 6.7 billion, net of an amount equal to the total cash receipt which will be actually received by the Company (after the deduction of taxes, levies and any other payments required with respect to the sale) with respect to the sale or transfer of the holdings of the Company (or of a subsidiary wholly owned by the Company5) in corporations in which the Company is an interested party.

| b. | The balance of cash and marketable securities will not fall below the amount of the forecasted current maturities for the two quarters following the reporting quarter (“the liquidity covenant”) (no change was made to this covenant as part of the understandings of June 2012). See section L below for details regarding consent to suspend this covenant.

| c. | Value of holdings in the relevant companies - the average aggregate market value (in accordance with the stock exchange closing price) of the Company’s holdings (concatenated, with full dilution) in Clal Holdings Insurance Enterprises, Shufersal and Cellcom, on the last day of the reporting quarter, together with the 19 consecutive trading days which preceded it, with the addition of the Company’s relative share (in consideration to its chain holding rates) of the cash dividend amounts distributed by the aforementioned companies beginning on June 29, 20126 (“the value of holdings in the relevant companies” and “the relevant companies”, respectively), will be no less than NIS 1,692 million. The Company will not be considered as breaching this condition if, during the ten consecutive trading days after the last day of the reported quarter, the average value of the holdings in the relevant companies exceeds the aforementioned amount.7

4 | In case of differences in the wording of the agreements vis-a-vis the lending corporations, the more stringent and restrictive wording is provided hereunder.

5 | Excluding IDB Tourism.

6 | And subject to the condition that as at the date of the examination, the addition with respect to the dividends distributed by Cellcom and Shufersal, and the addition with respect to the dividends distributed by Clal Holdings Insurance Enterprises, will be restricted by the cash amounts held by Discount Investment and the Company, respectively.

7 | Except in the event that, during the 12 business days after the last date of the reported quarter, a suspension of trading of three or more days occurred.

IDB Development Corporation Ltd. Convenience translation
129

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| c. | Value of holdings in the relevant companies (cont'd)

Additionally, the value of the holdings in the relevant companies (including with the addition of the cash dividend amounts distributed by the relevant companies, as stated above), with it being divided into the Company’s debit balance towards each relevant lending corporation, as at the last day of the reported quarter (“the debit balance at the end of the quarter”), will not fall below 2.81. The Company will not be considered as having breached this condition if, during the ten consecutive trading days after the last day of the reported quarter, the average value of the holdings in the relevant companies, divided by the balance at the end of the quarter of the debt towards the relevant lending corporation, exceeds 2.81.7
The Company will be considered as having breached the covenants specified above in this section including if the trading of the shares of any of the relevant companies is suspended or stopped for at least 10 trading days within the period which includes the last day of the reported quarter and the 28 business days which preceded it.
In the event that the Company has given to any financier an undertaking to fulfill a covenant involving the average value of the holdings to debt and/or another similar covenant, and the financier has provided debts towards it, partly or fully, for immediate repayment due to the breach of the same covenant in its favor, the above will be considered a breach of the aforementioned covenant, also towards the other financiers which have received from the Company an undertaking to fulfill such covenant (Cross Default).
The aforementioned covenant with respect to the value of the holdings in the relevant companies (which occurred, as stated above, on June 29, 2012) replaced a covenant which is calculated based on “economic capital”. The calculation of economic capital was based on the total value of the Company’s share in corporations held by it, independently or through holding companies under its control (i.e., Discount Investments, and at that time also Koor and Clal Industries) (hereinafter, jointly, in this section: “the headquarter companies”), (in accordance with the Company’s actual concatenated rate of holding of the same held corporation), not including the value of its holdings in the headquarter companies themselves, less the total net financial debt of the Company and of each of the headquarter companies (according to the Company’s actual rate of holding of the headquarter companies).
As part of the economic capital covenant, the Company undertook that the Company’s economic capital will not fall below NIS 2 billion. the Company will be considered as having fulfilled the aforementioned covenant, even if at the end of the reported quarter the economic capital was lower than NIS 2 billion, but higher than NIS 1.5 billion, until the three quarters subsequent to the reported quarter have passed, where in each one of such quarters, economic capital did not surpass NIS 2 billion. Even in the event that, in any financial report published by the Company, the Company’s economic capital is lower than NIS 1.5 billion, the Company will not be considered as having breached its undertaking, if during the period which passed from the date of the date of the aforementioned financial report and the date of its publication, the Group (the “Group” - the Company, including its consolidated companies (including partially consolidated companies) and associates) took action where, if the foregoing had been reflected in the published financial report, the economic capital would not have fallen below NIS 1.5 billion.

| d. | The loan agreements with some of the lending corporations include provisions which require their advance consent in the event that assets of the Company are charged, where the total value of the above exceeds 25% of the total value of all assets (including cash) (“value of all assets”), in the event of the sale of major holdings (on this matter, the shares of Discount Investment and Clal Holdings Insurance Enterprises which are held by the Company, and, until the aforementioned understandings were reached with lending corporations in June 2012, also the shares of Clal Industries) to third parties, where the cumulative value of the major holdings sold as aforesaid will be 20% or more of the total value of all assets, and also in the event that the cumulative value of major holdings sold together with the cumulative value of the Company’s charged assets is 25% or more of the value of all assets.8

8 | Regarding the specified instructions: the rate of value of the Company’s pledged assets and/or main holdings, will be determined at the date of creation of each pledge and/or at the date of each sale according to the matter; the value of each asset will be calculated according to the higher of market value or the value presented within the Company’s (unconsolidated) financial statements, unless the book value as stated is higher by 25% or more than the market value consecutively in two subsequent quarters, in which case the “value” will be determined according to market value, as long as the aforesaid gap continues.

130

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)
d. (cont.)
It was agreed with the lending corporations that the performance of the Clal Industries transaction (which was completed in July 2012) will not be considered a breach of the aforementioned restrictions regarding the creation of charges and the sale of assets. it was also agreed that the sale of the remaining holding of Clal Industries shares, at a rate of approx. 10.64% (which was performed in March 2013), will not require obtaining the consent of the lending corporation (subject to the condition that the consideration will be in cash, and will be used for permitted purposes as defined) and will not be included in the total of the amount of sale of the principal holdings (as defined in subsection (3) below).
In the understandings reached with the lending corporations in 2012, as specified above, it was agreed that along with the aforementioned restrictions and covenants, the Company will not be entitled to create charges and to sell assets, other than in accordance with the following provisions: 9

| 1. | The Company will be entitled to perform additional charges on holdings in investee companies, beginning on June 29, 2012, without approval from the lending corporations, insofar as an addition of collateral is required for existing secured lenders only, up to a value of collateral of NIS 100 million (less repayments to secured creditors, as specified below), where towards some of the lending corporations, the aforementioned limit will be calculated in accordance with the market value of the assets as at June 29, 2012, and for the other part, according to the market value of the assets on the date of the charge (“the charges bank” or “the restriction on additional charges”).

Additionally, the Company will be entitled to charge in favor of the secured creditors, additional charges, in place of any of the currently charged assets, provided that the value of the alternative assets does not exceed the value of the replaced asset, according to the agreed-upon terms. The aforementioned alternative charges will not reduce the series of charges. For details regarding a monetary charge in favor of secured lender of the Company of the Menorah Group, in place of Koor shares which were charged in its favor, see note 16.C.2 above.

| 2. | The Company will be entitled to schedule earlier repayments to secured creditors on account of the principal of existing debts, subject to the provision of an update to the lending corporations. However, the performance of such payments (beyond the required repayments which were performed in connection with the Clal Industries transaction) will reduce the amount of the series of charges specified above by half of the amount whose payment date was rescheduled for an earlier date, as aforesaid.

In this regard, early repayments to secured creditor that were made by the Company in August and September of 2012 reduced the series of additional charges in a manner whereby, the charges bank was empty after these repayments. However, the Company’s position is that following the release in July 2014 of surplus collateral provided in favor of the secured lender from the Menorah Group, as stated in note 16.C.2 above, the cumulative total of the charged assets is lower than at the date of application of the additional charge restriction in June 2012, and accordingly, the cumulative total available to the Company until full utilization of the additional charge limit proximate to the date of publication of this report, is NIS 73 million.

| 3. | The Company will be entitled to sell, beginning on June 29, 2012, holdings in Clal Holdings Insurance Enterprises and in Discount Investment Corporation (“major holdings”), without the approval of the lending corporation, subject to the following conditions: (a) The cumulative market value of the major holdings sold after June 29, 2012 must not exceed a total of NIS 100 million, where for some of the lending corporations, the aforementioned limit will be calculated according to the market value of the assets as at June 29, 2012, and for the other part, in accordance with the market value as at the date of the sale (“restriction regarding the sale amount of the major holdings”); (b)The Company will not discontinue its holdings of control (at least 50.01% of issued and paid-up capital, with full dilution) of any of the aforementioned companies; and (c)The consideration with respect to the sale of the aforementioned holdings will be in cash only, and will be entirely used only for the agreed and permitted uses, as these are defined in section E below. |

9 | Where regarding some of the lending corporations, the restrictions applicable to charges and sales (as specified in subsections 1 to 3 below) will apply with respect to charges and sales which are beyond the rates permitted as specified in section D.

131

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| e. | The balance of the Company’s liquid resources, from any source whatsoever, will only be used for the agreed-upon purposes, including repayment of existing debts according to their amortization schedules, early repayment of existing debts which are secured by charges, for the purpose of fulfilling financial ratios by virtue of existing debts towards the aforementioned financiers, for the purpose of financing current expenses in the ordinary course of business, and for the purpose of performing permitted investments, as defined below (hereinafter, jointly: “permitted uses”).

“Permitted investments” - existing investments which have been specified in the agreements with the lending corporations (including in the petroleum sector, projects in Las Vegas, IDB Tourism10 and other investments in a cumulative total of up to NIS 2 million), according to the scope of the forecasted cash flows published by the Company in its report for the first quarter of 2012, in a total amount which will not cumulatively exceed NIS 239 million, where out of the total aforementioned sum, up to NIS 100 million could have been invested in the Plaza project in Las Vegas.11 Since the Company no longer holds the Plaza project in Las Vegas, the amount of permitted investments amounts to a total that shall not cumulatively exceed NIS 139 million. A breach event performed by the Company and still in effect, the performance of any investment will require advance approval from the lending corporations.12

| f. | The Company will not perform changes to the terms of the unsecured loans which have been provided to it, which will improve the condition of the relevant creditor, unless it will reach an understanding with the other lending corporations (where the loan agreements with whom include the financial covenants specified above) regarding an identical improvement of their condition, including changes to the original amortization schedule of its existing credit, in a manner which will involve the earlier scheduling of any repayment date, except for an early repayment initiated by the Company in favor of secured creditors, and an improvement of the interest terms to a certain lender, including an undertaking according to which, in the event that the Company agrees to increase the interest rate with respect to any of its unsecured debts, the increased interest rate will apply at the same ratio also towards the other lending corporations.

| g. | The Company will not perform (directly and/or through a wholly owned subsidiary) a buy-back, redemption or repayment of any bonds whatsoever which have been issued and/or will be issued by it, and will not finance any of the aforementioned activities. It is clarified that the foregoing does not apply to current repayments, in accordance with currently existing amortization schedules.

| h. | The understandings with the lending corporations also stipulated that the report of forecasted cash flows published by the Company in the first quarter of 2012 does not assume a dividend distribution by the Company during the period included therein, due to the negative amount of the Company’s distributable surplus. However, the Company undertook to provide notice 21 days before reaching a decision regarding a dividend distribution. On this matter, “dividend” means: including transaction with related parties and other companies in the Group. See also section e. above that by virtue of the undertaking included in it, the Company is prevented from distributing dividends.

| i. | The Company has undertaken not to provide any loans to a shareholder or to any entity related to a shareholder, excluding as part of the permitted investments, as defined in section e above, and not to make repayment in any manner, to any entity in the group of existing and/or future shareholders, except as agreed. For details regarding a bridging loan given to the Company by the Dolphin Group and Extra, which was converted into the Company’s share capital, see notes 16.C.3 and 15.B.1 above.

| j. | The Company has undertaken not to pay management fees to a shareholder or to a related party to a shareholder, without the advance written consent of the lending corporations, except as agreed.

10 | It should be noted that during January 2014, the Company notified its lending corporations in connection with an investment which it performed in IDB Tourism, in the amount of NIS 10 million.

11 | See also section l below regarding the Company’s obligation towards two of its lenders, not to invest additional funds in the Plaza project.

12 | The trustees for the bonds of the Company and IDB Holdings demanded that the Company does not make any additional investments without their consent. The Company updates, in certain cases, the trustees to the bonds with regards to making investments.

IDB Development Corporation Ltd. Convenience translation
132

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| k. | In the event that an undertaking to fulfill certain financial covenants has been given to a certain lending corporation, which includes various and/or additional terms in addition to the terms specified in the letters of undertaking given to the other lending corporations (“the additional terms”), notice will be given to the other lending corporations, and at the request of any of the foregoing, the Company will agree to the application of the additional terms also with respect to it.

| l. | Negotiations to arrange the financial covenants

As part of the specified agreements from 2012 it was further agreed that until March 31, 2013, the parties will act towards formulating an arrangement to replace the aforesaid, and that would be initially examined on July 10, 2013 with respect to the data of the second quarter of 2013. In case the parties do not reach an agreement by March 30, 2013, the covenant with regard to the economic capital will be re-applied as of July 10, 2013, with respect to the data of the second quarter of 2013, and additionally the adjustment periods included within the economic capital will apply (as specified in section (C) above). In addition, the covenants with regard to cash balance and marketable securities and the covenant with regard to the net debt limit (in a formula to be amended). The amendments to the restrictions and to the covenants made on June 29, 2012 (as amended in August 2012) (apart from the amendments stated in sections c and d.1 to d.3 above), will continue to apply even in case no such agreement is reached as stated.
In view of the foregoing, in March 2013 the Company reached an understanding with its lending corporations, according to whi ch the covenants described above will continue to apply on all matters pertaining to the evaluation of the results for all four quarters of 2013, and the results of the first quarter of 2014, while adding the following updates:

| 1. | Until the end of April 2014, the parties will work to formulate an arrangement which will replace the existing financial covenants and apply for the first time to the results of the second quarter of 2014 (ending on June 30, 2014). If the parties do not reach an understanding, the financial covenants from before the understandings of June 29, 2012 will come into effect again (and particularly the “economic capital” mechanism, including the mending periods included in it).

| 2. | The covenant involving the balance of cash and marketable securities (see section (B) above) has been suspended beginning in the second quarter of 2013, and it was agreed that it will be re-applied, unless otherwise agreed, with respect to the results for the second quarter of 2014 and thereafter;

In June, September and December 2014, the Company reached additional agreements with its lending corporations, according to which the financial covenants arrangements existing in the loan agreements were extended from time to time, and in total, until March 31, 2015, in such a way so that the results of the second, third and fourth quarters of 2014 were/ will be examined according to them, including agreements regarding the continued suspension of the covenant with regard to the balance of cash and marketable securities. Within the framework of the aforesaid agreements, the parties will act to formulate an arrangement to replace the existing covenant arrangements, that will apply as of April 1, 2015, with respect to the results of the first quarter of 2015 and thereafter.
In March 2015, after the date of the Statement of Financial Position, the Company reached additional agreements with the relevant lending corporations (apart from one corporation), according to which the existing financial covenant arrangements in the loan agreements were extended once again in such a way that the results for the first and second quarters of 2015 will be examined on their basis, including consents with regard to the continued suspension of the liquidity covenant in relation to those quarterly results. Another banking corporation (“the bank”) gave the Company approval to extend the existing financial covenant arrangements as aforesaid in relation to the results for the first quarter of 2015 only. The Company intends to act in order to obtain the bank’s consent to extend the covenants also in relation to the results of the second quarter of 2015. As long as consent with the bank as aforesaid is not obtained, the financial covenants that exist with regard to all of the relevant banking lenders will apply de facto only with respect to the results of the first quarter of 2015.
IDB Development Corporation Ltd. Convenience translation
133

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)
l. Negotiations to arrange the financial covenants (cont.)
If the Company reaches consent with the bank to extend the financial covenants also with respect to the second quarter of 2015, the parties will act to formulate an arrangement that will replace the existing covenant arrangements with regard to the results of the third quarter of 2015 and thereafter, and if no such arrangement is reached, the previous financial covenants will apply once again (and especially the liquidity covenant and the “economic capital” mechanism, including the remedy periods included in it). As of the date of the report, the Company estimates that it will not be able to meet the levels that were determined in the past as part of the covenants regarding the economic capital and the liquidity covenant, if they are reapplied as aforesaid. The Company is continuing to act in order to reach consents with the relevant financing corporations in order to arrange the calculated financial covenants that were determined in the provisions of its loan agreements as stated above, and additional contractual issues that exist in the loan agreements.
It should be noted that concurrently with the stated agreements with the lending corporations from March 2013, the Company committed to each of its lending corporations, that an agreed resolution mechanism will apply with respect to any dispute with the aforesaid lender with regard to the question whether there was cause entitling the lender to a right for immediate repayment, in case an event occurred which may adversely impact the Company’s financial ability. According to the stated mechanism, if the lender notifies the Company that they believe an event occurred which may adversely impact the Company’s financial ability, and the Company disputes that, the lender may notify the Company that the dispute will be resolved by two arbitrators (whose identity was agreed by the parties, a representative of the lender and a representative of the Company) and their ruling will bind the Company. In case the arbitrators cannot reach a decision, the arbitrator, who is the lender’s representative, may appoint an additional arbitrator whose ruling will be binding. Additionally, the Company has undertaken towards two of its additional lending corporations, that it will not perform any investments whatsoever in the Plaza project in Las Vegas; the Company has also undertaken towards one of the aforementioned lending corporations that no additional investment will remain in the gas sector activity, without the advance approval of the aforementioned lender (except for payments with respect to liabilities which have been given in the past at a scope of which will not exceed NIS 4 million).
In addition, the Company has notified the aforementioned lending corporations that should corporation the convent arrangements with one lending corporation include a provision which his not included in the arrangements with another lending corporation, the other lending corporation will be entitled to request an update to the covenants established with it, such that these will include the aforementioned provision.
As of December 31, 2014 and shortly before the date of publication of this report, the Company is in compliance with the calculated financial covenants by which it was bound as of December 31, 2014.
As of December 31, 2014, loans of the Company, which are subject to the specified financial covenants, totaling NIS 573 million, are classified within current liabilities, in accordance with International Accounting Standards and with note to the fact that the Company had reached agreements with those relevant lending corporations, as part of which the financial covenant arrangements existing within the loan agreements were extended only until March 31, 2015, meaning to a period of less than 12 months.
IDB Development Corporation Ltd. Convenience translation
134

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| m. | Additional grounds for immediate repayment

In addition to the aforementioned financial restrictions and covenants, in agreements with banks and financial entities (subject to certain provisions and to the various relevant definitions provided in each agreement) and in certain bonds issued by the Company, there are customary provisions regarding the right to require immediate repayment, including, inter alia, the following circumstances (in whole or in part, as applicable): provisions which grant the banks and the financial entities thee right to demand early repayment in certain cases involving a change in control (with regard to this cause see below); provisions which grant the right to demand immediate repayment of the loans, in the event that another debt of the Company has been repaid through an early repayment or immediate repayment, or through any repayment which is not in accordance with the original amortization schedule, at the demand of the creditor (cross acceleration) or due to the existence of grounds for requiring immediate repayment of another debt of the Company (cross default) (with respect to the bonds (Series G) of the Company - in the event that immediate repayment is required of another series of the Company’s bonds); Reaching of a decision to liquidate and/or submission of a petition for liquidation or for the appointment of a provisional liquidator against the Company, and the filing of a motion to suspend proceedings against the Company or the filing of a motion to issue an assets receivership order or to initiate rehabilitation proceedings, a creditors’ settlement / arrangement or convention or scheduling of creditors’ meetings in connection with an arrangement / insolvency or the filing of a motion for an arrangement or settlement, all in the event that the aforementioned motions have not been canceled / withdrawn within a certain period of time (according to the provisions of each agreement and/or trust deed); Notice given by the Company to its creditors for receipt of an extension or settlement; negotiations or a declaration stating that the Company intends to conduct negotiations for the purpose of formulating an arrangement / settlement proposal between the Company and its creditors or shareholders, or approval of such an arrangement or settlement proposal; filing of a motion for assets receivership regarding all or part of the Company’s property, appointment of a temporary, permanent, or other liquidator, special manager, trustee, or temporary, permanent or other assets receiver, realization of charges, imposition of foreclosures or taking of similar enforcement actions, all in the event that the motions / actions have not been canceled within a certain period of time (in accordance with the provisions of each agreement and/or trust deed); the reaching of a decision or intention with respect to the performance of a structural change (such as a merger); discontinuance of the payment of debts or arrears in payment; announcement by the Company that it intends to stop paying its debts; the existence of a reasonable concern or material concern that the Company will not be able to repay its debts, or will stop payments; a situation wherein the Company will cease, or where it is reasonable to believe that it will cease, conducting its business affairs; an event which may harm the Company’s financial ability or an event which has a significantly negative influence on the Company or on its business condition; an event which causes material harm or which may cause material harm to the rights of the holders of bonds; the filing of a claim or initiation of regulatory or other proceedings or investigations in which the Company is involved, and where it is reasonable to believe that the foregoing will pose a material risk to its ability to fulfill its obligations; cancellation / suspension / expiration / restriction of approval / permit / license / exemption issued by a governmental authority, which are required by the Company in order to fulfill its obligations, in a manner which may have a materially adverse effect on the Company’s ability to fulfill its obligations; etc.; and all in certain circumstances as set forth in the agreements or in the debentures, as applicable.
IDB Development Corporation Ltd. Convenience translation
135

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| n. | Change of control in the Company

Upon the completion of the creditors’ settlement at IDB Holdings in May 2014, Mr. Elsztain and Mr. Ben-Moshe (through companies controlled by them) became controlling shareholders in the Company. With respect to this change in control, the Company received in June-July 2014 the consent from the relevant lending corporations, regarding the stipulation that the transfer of control to Messrs. Elsztain and Ben-Moshe will not constitute grounds for requiring immediate repayment and some of the foregoing made their consent contingent upon the receipt of similar understandings from all of the Company’s relevant lending corporations (apart from the secured lender). It is noted that one lender stipulated its consent upon the condition that if any of the controlling shareholders specified above (directly or indirectly, including through corporations under their control) no longer holds at least 26.65% of the Company’s issued capital (with full dilution), including no longer holding all of the rights associated with the shares, as these were in effect on the date of consent (July 3, 2014), the foregoing will constitute grounds for requiring the immediate repayment of the credit. The Company notified the other relevant lending corporations that so long as the aforementioned stipulation vis-à-vis this lender was in force, the Company would consider the credit agreements which were signed vis-à-vis the aforementioned lenders as including a similar stipulation. It is noted that the Company’s secured creditor of the Menorah Group has not granted its consent for the change in the control of the Company (the Company has not contacted them on the matter).
The Company’s position, based, inter alia, on legal advice that it received, as of December 31, 2014, its financial creditors do not have grounds to demand immediate repayment of the Company’s debt because of an event of change of control that occurred in the Company in May 2014. In addition, in view of the fact that Menorah withdrew its motion to demand immediate repayment of the Company’s debt (a motion that was based, inter alia, on the change of control that occurred in the Company in May 2014), and withdrew its objection to the release of the surplus collateral as requested by the Company and in view of the circumstances that led Menorah to act in this manner, the Company estimates, based on its legal advisors, that the likelihood of success of a motion by any of the Company’s financial creditors (whether a secured creditor or not) to demand immediate repayment of the Company’s debt to them as a result of the change of control in the Company arising from the approval and completion of the arrangement in IDB Holdings or on other grounds is small. It should be emphasized that apart from Menorah’s demand for immediate repayment of the debt to it, a motion that it withdrew, no other creditors demanded the immediate repayment of the debt to them in connection with the aforesaid. For additional information regarding the Menorah loan, see note 16.C.2.
As stated in note 15.B.5 above, within the framework of the rights issue to the Company’s shareholders which took place in January-February 2015, the cumulative holding rate of Mr. Elsztain and Mr. Ben Moshe (through corporations under their control) has increased from approximately 62.5% (31.27% each) to approximately 77.7% of the Company’s issued capital, however the holding rate of Mr. Ben Moshe on his own (through a corporation under his control) decreased to approximately 16.2% of the Company’s issued capital. In light of this, the Company notes (without derogating from any claim or right it is entitled to) that five of its lending corporations (banks and a financial entity) may claim that they have cause to place the loans provided by them to the Company for immediate repayment. The Company contacted the lending corporation (which was given, as stated above, a right to place the loan for immediate repayment in case one of the controlling shareholders ceases to hold on their own at least 26.65% of the Company’s issued capital) and requested its consent to that as long as Mr. Elsztain and Mr. Ben Moshe hold over 53.3% of the Company’s issued capital cumulatively, changes in their holding rate at the Company resulting from the rights issue will not constitute a breach of the provision in the agreement with regard to a change in control, and alternatively that the effect of the aforesaid provision in the agreement will be suspended until June 30, 2015 (while in this period the bank and the Company will discuss the revision of the current provisions relating to the composition of the control group at the Company).
In addition, the Company updated the other relevant lending corporations with regard to its request to the aforesaid lending corporation. As of the date of this report, the Company has not yet reached consents with the aforesaid lending corporation and there is no certainty that its consent to the Company’s aforesaid request will be obtained. With regard to a similar control covenant included in loans given to Discount Investments, see note 16.F.1.b below.
136

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

E. Financial Restrictions and Covenants (cont.)

| o. | Cancellation of the transaction for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises to JT

On January 27, 2014, the Company contacted the relevant lending corporations towards which the Company has undertaken the financial covenants described above, for the purpose of obtaining their approval that the completion of the transaction involving the sale of the Company’s holdings in Clal Holdings Insurance Enterprises to JT (as stated in note 3.H.5.a. above), including the performance of any of the actions accompanying the transaction will not constitute, at the time of the performance of the transaction and at any subsequent date, a breach of any of the Company’s undertakings as included in the financing agreements with those lending corporations.
The Company received consent from all of the lending corporations to complete the aforesaid transaction, as well as their consent that if the transaction materializes, adjustments will be made to various financial covenants.
As stated in note 3.H.5.a above, on May 29, 2014, the aforesaid agreement with JT expired and was cancelled. Therefore, the adjustments to the covenants which were approved and signed by the relevant financing entities for the purposes of the aforesaid transaction (including their approval of the transaction, as stated above), did not come into effect.
For details regarding a letter from the Capital Market Commissioner dated December 30, 2014 which includes a timeline for the sale of the Company’s control and holdings in Clal Holdings Insurance Enterprises, see note 3.H.5.c above.

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies

| 1. | Discount Investment Corporation

| a. | In January 2014, Discount Investment Corporation issued to the public, according to its shelf offer report of January 2014, which was published pursuant to its shelf prospectus of December 2013 (which amended its shelf prospectus of June 2013), series F linked bonds with a nominal value of NIS 898 million, by way of an expansion of the series, in return for the acquisition of series D linked bonds with a nominal value of NIS 794 million.

| The series F bonds issued as aforesaid were listed on the stock exchange and the series D bonds that were acquired by Discount Investments as aforesaid expired and were delisted from the stock exchange.

| b. | In July 2014, two banking corporations that provided loans to Discount Investments, the principal balances of which as at December 31, 2014 are NIS 271 million and NIS 250 million, with regard to their right to place the stated loans for immediate repayment in case of a change in control, agreed that the change of control as part of the completion of the debt arrangement of IDB Holdings, as stated in note 16.G.2 below, shall not constitute grounds for demanding immediate repayment of their loan to Discount Investments if all of the following conditions are satisfied: (a) Messrs. Eduardo Elsztain and Mordechai Ben-Moshe, who hold the controlling interests (indirectly and in equal shares) in the Company, shall each hold, directly and/or indirectly through Companies controlled by them, at least 26.65% of the issued and paid up share capital of the Company (on a fully diluted basis) and the rights attached to the aforesaid shares; (b) the Company shall itself control Discount Investments directly and/or indirectly (on a fully diluted basis). It should be noted, that each of the stated lenders is entitled to place its loan for immediate repayment in case another creditor of Discount Investments places for immediate repayment a debt of Discount Investments towards it. As stated in note 15.B.5 above, in February 2015 rights issued by the Company were exercised, and subsequently the rate of holding by Mr. Mordechai Ben Moshe in the issued capital of the Company fell below a rate of 26.65%, a change which may constitute grounds for any of the banking corporations mentioned above to place its loan for immediate repayment. Discount Investments contacted each of the banking corporations and requested their consent that changes in the percentage holdings of the control group of the Company as a result of the rights issue will not constitute grounds for to place its loan for immediate repayment, as long as Messrs.

IDB Development Corporation Ltd. Convenience translation
137

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 1. | Discount Investment Corporation (cont.)

| b. (cont'd)

| Elsztain and Ben-Moshe continue to hold cumulatively (directly or indirectly through corporations that they control) more than 53.3% of the Company’s issued capital, and alternatively that non-holding by a controlling shareholder of the minimum stated threshold of 26.65% of the Company’s issued capital shall not constitute grounds to place the loan for immediate repayment during the period until June 30, 2015, and in this period the banking corporation and Discount Investments will discuss the revision of the provisions of the loan agreement with respect to the composition of the Company’s control group. As at the date of approval of this report, the banking corporations have not yet responded to Discount Investments’ request and there is no certainty that agreements will be achieved with the banking corporations or any of them on this matter.

| c. | In December 2014, the Board of Directors of Discount Investments approved a plan for repurchase of its bonds, as they are in outstanding from time to time, by Discount Investments or a wholly owned subsidiary, in a total scope of NIS 200 million during a period of 12 months. The acquisitions will be made from time to time on the stock exchange and/or off of the stock exchange, directly and/or by a third party, in different scopes and prices, according to the discretion of the management of Discount Investments and with note, inter alia, to the market conditions and to the price of its bonds on the stock exchange, and only so long as no acquisition will cause a loss to Discount Investments at the time of its performance. In December 2014, a wholly owned subsidiary of Discount Investments acquired its bonds in an immaterial amount and after the date of the Statement of Financial Position, the aforesaid subsidiary acquired on the stock exchange series D bonds of Discount Investments with a nominal value of NIS 44 million, series F bonds with a nominal value of NIS 53 million and series I bonds with a nominal value of NIS 5 million, for a total consideration of NIS 106 million. The aforesaid bonds will not be delisted from trade on the stock exchange. As a result of the aforesaid acquisitions, the Company will record in the first quarter of 2015, its share in the profit in an amount of NIS 19 million.

| d. | As part of completion the merger agreement between Adama and ChemChina in October 2011, Koor was given, through a Chinese bank (‘the Chinese bank’) a non-recourse loan in a sum of $960 million, secured by a charge on Adama’s shares held by Koor immediately after the completion of the merger transaction (hereafter in this section, ‘the charged shares’ and ‘the non-recourse loan’), which is repayable by means of Adama shares as stated below. The non-recourse loan was given to Koor and its wholly owned subsidiary, and was divided between Koor and the aforesaid subsidiary in proportion to the number of charged shares held by each one of them.

In December 2013, the aforesaid subsidiary was merged with Koor and liquidated without winding-up, and from that date the loan agreement has been with Koor only. As part of the non-recourse loan agreement, it was held, inter alia, that the voting rights for the charged shares belong to Koor, except in a case of a ‘breach event’ (see below), in which case the Chinese bank will be entitled to the voting rights by virtue of the charged shares. Koor is entitled to transfer the charged shares (subject to restrictions in the agreement between the shareholders of Adama), in whole or in part, provided that in the case of a transfer to an unrelated third party, the consideration that it will receive will be used first to repay the proportional share of the loan (according to the number of charged shares that are transferred). In a case of a breach event (as defined below), the Chinese bank will be entitled to demand immediate repayment of the loan, and to realize the charge, unless Koor pays the loan within five working days of the date on which its immediate repayment is demanded. As a rule (apart from in exceptional cases), there is no repair period for breach events.
IDB Development Corporation Ltd. Convenience translation
138

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 1. | Discount Investment Corporation (cont.)

| d. (cont'd)

| The following are details regarding the main terms of the non-recourse loan:

· | Payment of principal and interest: the principal of the non-recourse loan will be paid in full at the end of seven years from the date on which the loan is given. In the first four years from the date on which the non-recourse loan is given (hereafter ‘the period of the first four years’), the interest is not paid (apart from dividends received on the charged shares) but is added to the principal every three months and will be paid with the principal at the end of the seventh year. After the period of the first four years, the current interest will be paid in case at the end of each interest period (the interest period is every three months on fixed dates).

Koor was given the right, starting from one year after the date of giving the non-recourse loan, to make early repayment of the non-recourse loan, in whole or in part, (in which case a proportional part of the charged shares would be released in accordance with the proportional part of the loan that was repaid) or by way of a transfer of the charged shares (in accordance with the proportional part of the loan that was repaid early) to ChemChina or the Chinese bank.

· | Interest: the non-recourse loan bears interest at a rate that does not exceed the finance cost that ChemChina will take for the purpose pf paying the overall merger consideration, and in any case will not exceed the Libor rate (for six months) plus 4.5% per annum that will be fixed for each two consecutive quarters in advance. (Taking into account the Libor rate shortly before the date of approval of these financial statements, the effective interest (after grossing up the deduction of taxes insofar as any will be payable and before commissions) is estimated at approximately 5.3%). Insofar as there will be a liability to deduct tax at source in Israel for the interest payments, Koor will pay these payments and will gross up the full tax. In addition, Koor undertook to indemnify ChemChina for business taxes that ChemChina will be liable to pay pursuant to the law in China for such interest payments (insofar as there will be no exemption for such taxes) up to an amount of 5% of the interest (plus grossing-up, insofar as it applies). It should be noted that the payment of the business tax in China is likely to be charged also during the period when the interest is accumulated (i.e., during the period of the first four years).

· | ‘Breach event’: the non-payment of the loan principal or interest; Koor’s liquidation or insolvency, suspension of proceedings or creditors’ arrangements, or the filing of proceedings for liquidation, insolvency, a suspension of proceedings or creditors’ arrangements that are not cancelled within the stated period; an incorrect declaration on a material aspect or a material breach of the terms of the loan agreement; if the performance of Koor’s undertakings pursuant to the loan agreement will become unlawful.

· | The charged shares: realization of the charge on the charged shares will be the only remedy available to the Chinese bank for the purpose of repaying the loan and securing the liabilities pursuant to the loan, except in certain cases where the validity of the charge in favor of the Chinese is prejudiced during the period of 90 days from the date of transfer of Adama’s shares to an authorized transferee, insofar as they will be transferred, pursuant to agreements with ChemChina, in which case the loan will become a recourse loan (with a right of recourse against Koor for the lower of the balance of the debt for the loan or the value of the charged shares), but only as long as the defect is not remedied. Should the loan become a recourse loan, such a defect will constitute grounds for the Chinese bank to demand immediate repayment of the loan, if the defect is not remedied within the period of time determined.

The charge also applies to dividends and other distributions that will be received for the charged shares, except for dividends surpluses that were defined as dividends and other distributions that will be distributed for the charged shares in a calendar year in excess of the interest accrued and not paid or that accrued in that year (including the interest that will be added to the principal). The dividends and other distributions (apart from dividend surpluses) will be deposited in an account controlled by the Chinese bank and will be used for the purpose of making early repayment of the loan, and the release of dividend surpluses to Koor as stated above, and during the period of the first four years also for the payment of interest as aforesaid.
IDB Development Corporation Ltd. Convenience translation
139

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 1. | Discount Investment Corporation (cont.)

d. (cont.)
The non-recourse loan does not include covenants or stipulations with regard to the ratio of the collateral to the debt, but it does include several prohibitions relating to the charged shares themselves (such as a prohibition of an additional charge, a transfer of the charged shares that is not in accordance with the provisions of the agreement, and so on).
The following are the components of the hybrid financial instrument for the aforesaid non-recourse loan:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Host contract in the hybrid financial instrument for the non-recourse loan |  |  | 3,170 |  |  |  | 3,676 |
Embedded derivative |  |  | (72 | ) |  |  | (607 | )
|  |  | 3,098 |  |  |  | 3,069 |
Less deferred expenses |  |  | (8 | ) |  |  | (12 | )
Hybrid financial instrument for the non-recourse loan |  |  | 3,090 |  |  |  | 3,057 |

The book value of the host contract was determined on the basis of the future value of Adama’s shares, discounted at the effective interest rate that was determined on the initial date of separation (the completion of the Adama-ChemChina transaction).
The future value of Adama’s shares was estimated as follows:

· | As of December 31, 2014 – the future value of Adama shares was calculated by discounting the base asset value (less the non-marketability component of the shares) until the date of delivery of the shares (and alternatively the date of repayment of the loan) at the rate of return on capital as at December 31, 2014. Based on the findings of a binomial model it was estimated that the date of delivery of the shares (and alternatively the date of repayment of the loan) is approximately one year after the date of the estimate.

· | As at December 31, 2013 – the value of Adama’s shares expected at the end of loan term was calculated based on the rate of return on the capital as of December 31, 2013, which was used in estimating the value of Adama’s shares. The value of Adama’s shares, which was estimated in accordance with a capitalization of Adama’s operating cash flow forecast for the aforesaid date, is capitalized with Adama’s weighted cost of capital, less Adama’s net financial liabilities.

The fair value of the embedded derivative is determined according to the binomial options pricing model, which is derived from the Black & Scholes formula, in consideration of estimates and parameters which are based on unobservable data used by the valuation model, such as the valuation of the base asset (as stated above), standard deviation and non-marketability discount, whilst using variables based on observable market data.
IDB Development Corporation Ltd. Convenience translation
140

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 1. | Discount Investment Corporation (cont.)

d. (cont.)
The main estimates that were used by the appraiser during the relevant periods in determining the fair value of the embedded derivative and the book value of the host contract in the hybrid instrument for the non-recourse loan:

| As of December 31, 2014 | As of December 31, 2013
Standard deviation | 33.05% | 39.3%
Non-marketability discount * | For the purpose of estimating the discount rate for non-marketability until the date of registration for trade or the making liquid of the base asset, a put option model was used (Average Put Option). Accordingly, a fixed discount rate was estimated at 8.2%. | For the purpose of estimating the discount rate for non-negotiability, the average put option model was used for various possible listing dates (see above). The discount rate was reduced to its minimum value throughout the model in accordance with the various probabilities for negotiability of the shares on future dates. The weighted amount of the discount as of the date of the estimate stood at 8.1%.
Control premium | Not relevant.** | 3.3%-6.6% and on average 4.95% of the value of the base asset***.
Rate of return on the capital | 12.54% | 12.11%

* | The estimates regarding the date of a future issuance or the making liquid of the shares were changed at the date of valuation as at December 31, 2014 subsequent to the postponement of the issuance as aforesaid. In the valuation as at December 31, 2013, the non-marketability discount that decreases until the expected listing date is consistent with the valuation methodology that was used with regard to scenario method valuation and is consistent with the treatment for the host contract, whose value was based inter alia on the main scenario of listing by the end of the option period, and therefore a non-marketability discount was not deducted in that scenario.

** | The valuation as at December 31, 2014 was based on the value per share reflected in the lower range published within the registration document as aforesaid and as the aforesaid value does not reflect a control value, no control premium deduction was required at this date.

*** | The control premium inherent in the value of the benefit as of the date of completion of the Adama-ChemChina transaction is estimated at a sum of $169 million. In May 2011 a decision was made by the court in a legal proceeding against Koor and Adama with regard to the aforesaid transaction, according to which the value of the surplus benefit should be divided between all of the shareholders of Adama, and the settlement in the aforesaid legal proceeding in which Koor paid $45 million to the other shareholders of Adam was given the force of a final judgment.

The host contract in the hybrid financial instrument for the aforesaid loan embodies an effective rate of return of approximately 12%.
Regarding the total finance expenses for the aforesaid financial instrument, which were recorded in these financial statements, see note 28.b below.
IDB Development Corporation Ltd. Convenience translation
141

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 1. | Discount Investment Corporation (cont.)

| e. | Until January 15, 2014, Koor and private headquarter companies wholly owned by it, were engaged with a corporation from the Morgan Stanley Group and with a corporation from Citigroup (“the lending corporations”) in credit facility arrangements without right of recourse, which were secured by Credit Suisse shares (“Morgan Stanley Credit” and “Citigroup Credit,” jointly: the “Credit Arrangements with the Lending Corporations”).

As part of the realization of the entire balance of Koor’s holdings in Credit Suisse shares in January 2014, as stated above, Koor repaid the entire balance of the Morgan Stanley credit and the Citigroup credit, out of the consideration from the realization of Credit Suisse shares, as stated above, and as at the approval date of these financial statements, Koor has no liabilities in respect of the credit arrangements with the lending corporations.

| f. | In March 2015, the Board of Directors of Discount Investments approved, at the request of the trustees to its series B, D, F, G, H & I bondholders, the provision of a commitment by Discount Investments according to that specified below, and this until September 15, 2015 (“the commitment period”):

- | Discount Investments will not distribute any dividend of any type to its shareholders.

- | Discount Investments will not pledge directly or through a headquarter company under its full ownership, the control core in any of the companies held by it, unless it delivers prior written notice to the trustees of its bonds 21 days in advance.

- | Discount Investments will not receive a new loan at an amount exceeding NIS 50 million which is secured by charges over its assets or that includes financial covenants towards the lender, unless it delivers to the trustees of the bonds prior written notice 21 days in advance.

- | Discount Investments will not repay in early repayments, payments to a single financial creditor at a total amount exceeding NIS 50 million during the commitment period, unless it provides prior written notice to the trustees 21 days in advance.

- | Discount Investments will not change for any of its financial creditors: (1) the interest rates; (2) the financial covenants; and (3) the collaterals provided to them according to the existing credit and financing agreements, unless it provides prior written notice of 21 days to the trustees.

- | Discount Investments will deliver notice to the trustees and any of its financial creditors, the debt towards which is over NIS 10 million, will give written notice of the placing of its debt for immediate repayment.

It should be noted that Discount Investments will be entitled to give, at any time, 30 days’ written notice that it wishes to terminate its aforesaid commitments.
In addition, Discount Investments’ commitments will be cancelled immediately insofar as legal proceedings of any kind will be taken by the trustees to the bonds (or some of them) against Discount Investments or insofar as a meeting of the bond holders (of all series or some of them) is convened, the agenda of which will include, inter alia, the appointment of advisors (economic and others), appointing representatives on behalf of the bond holders, taking legal proceedings of any kind against Discount Investments, placing its debt for immediate repayment or any issue similar in essence to the above issues.
IDB Development Corporation Ltd. Convenience translation
142

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

2. Cellcom

| a. | Cellcom undertook to comply with financial covenants and other restrictions with regard to the series F and series G bonds that it issued to the public in Israel in March 2012, including:

· | A debt to EBITDA13 ratio exceeding 5, or exceeding 4.5 over four consecutive quarters, shall be regarded as grounds for demanding immediate repayment of the aforesaid bonds. As of December 31, 2014, this ratio stood at 2.3.

· | An undertaking not to distribute more than 95% of the profits that may be distributed pursuant to the Companies Law (‘the profits’), provided that if the debt to EBITDA ratio13 exceeds 3.5, Cellcom shall not distribute more than 85% of the profits, and if the debt to EBITDA ratio13 exceeds 4, Cellcom shall not distribute more than 70% of the profits. A failure to comply with this criterion will be regarded as grounds for demanding immediate repayment of the aforesaid bonds.

· | A demand for immediate repayment of another debt of Cellcom (cross-default), except for immediate repayment of a debt in an amount of NIS 150 million or less, shall be regarded as grounds for demanding immediate repayment of the bonds.

· | An undertaking not to create charges, subject to certain exceptions. A failure to comply with this undertaking shall be regarded as a ground for demanding immediate repayment of the bonds.

· | An undertaking to pay additional interest of 0.25% per annum on the aforesaid bonds for a decrease of two ratings in their rating in comparison to the ratio given to the aforesaid bonds prior to their issue, and an undertaking to pay additional interest of 0.25% per annum on the aforesaid bonds for every additional rating up to a maximum addition of 1% per annum. In June 2013, Maalot revised the rating of Cellcom’s bonds traded on the Tel-Aviv Stock Exchange from a rating of AA- with a negative rating forecast to a rating of A+ with a stable rating forecast.

As a result of the aforesaid revision of the rating, and since it led to a decrease of two ratings in the rating of the aforesaid bonds in relation to their rating on their date of issue, the annual rate of interest that Cellcom will pay for the aforesaid series F and series G bonds was increased as of July 5, 2013, by 0.25% to 4.60% and 6.99%, respectively.

· | Where the aforesaid bonds stop being rated for a period exceeding 60 days, this shall constitute grounds for demanding immediate repayment.

As of December 31, 2014, and shortly before o the date of approval of these financial statements, Cellcom complied with the covenants that were determined.

13 | Debt to EBITDA ratio – the ratio between Cellcom’s net debt and its EBITDA, neutralizing non-recurring effects. For this matter, net debt - credit and loans from banking corporations and from others and liabilities for bonds, less cash and cash equivalents and current investments in negotiable securities; EBITDA – profit before depreciation and reductions, other expenses/income, net, finance expenses/income, net, and taxes of income, for the period of the 12 months that preceded the date of Cellcom’s last consolidated financial statements.

IDB Development Corporation Ltd. Convenience translation
143

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

2. Cellcom (cont.)

| b. | In connection with the issuance of series H and I bonds of Cellcom to the public in Israel, which took place in July 2014, Cellcom undertook, pursuant to a new trust deed (“the new trust deed”), to comply with financial covenants and other additional covenants, beyond the obligations which it accepted as part of a trust deed in connection with the issuance of its bonds (Series F and G) (“the existing trust deed”) as specified in section a. above, including: (1) in addition to the financial covenant which Cellcom undertook in the past, in the existing trust deed, according to which, if the net debt to EBITDA ratio exceeds 5, or exceeds 4.5 for four consecutive quarters, the foregoing will constitute grounds for requiring the immediate repayment of the bonds, the aforementioned financial covenant, in accordance with the new trust deed, will also constitute a condition for distributing a dividend; and (2) compliance with the financial covenants will constitute a condition for the issuance of additional bonds from either of the two new series.

| The new trust deed includes grounds for requiring the immediate repayment of the bonds, are mostly similar to the grounds for requiring immediate repayment specified in the existing trust deed, excluding certain new grounds for requiring immediate repayment which are not included in the existing trust deed, and certain changes to the grounds for requiring immediate repayment which are in the existing trust deed, including: (1) breach of the aforementioned restriction regarding dividend distribution; (2) requiring the immediate repayment of another debt of Cellcom (cross default), in a minimum amount of NIS 150 million, which constitutes grounds for requiring the immediate repayment of Cellcom’s bonds. In accordance with the existing trust deed, the foregoing will not apply to any cross default which has been caused by another series of Cellcom bonds; (3) the existence of a real concern that Cellcom will not fulfill its material obligations towards the bond holders; (4) the inclusion of a warning in Cellcom’s financial statements of a concern regarding the continued existence of Cellcom as a going concern, for a period of two consecutive quarters; and (5) a breach of Cellcom’s undertakings regarding the issuance of new bonds.

| As at December 31, 2014, and shortly before the approval of these financial statements, Cellcom was in compliance with the covenants that were determined.

| 3. | Property & Building

| a. | In June 2012, a corporation that is wholly owned by Property & Building, which directly holds the HSBC building (“the building corporation”) and a special purpose American corporation that directly holds all of the rights in the building corporation (“the additional corporation,” and jointly, “the property companies”) entered into loan agreements (jointly, in this section: “the agreement”) with the American bank, J.P. Morgan Chase Bank, N.A. (“Morgan Bank”), in which Morgan Bank gave the property companies a loan in a total amount of $400 million for a period of ten years. The loan is comprised of a main loan in an amount of $300 million, which was given to the building corporation (‘the main loan’), and a secondary loan in an amount of $100 million, which was given to the additional corporation (“the secondary loan,” and jointly with the main loan hereafter in this section, “the loan”). The following are details of the main terms of the loan:

· | The balance of the loan as of December 31, 2014: $400 million (NIS 1,556 million).

· | The date of repaying the principal: the principal of the main loan is repayable starting from the sixth year after it was given in accordance with a thirty year payment schedule, in monthly payments. The balance of the principal of the loan (including the secondary loan) is repayable in one payment at the end of the loan period in July 2022.

· | The rate of interest: fixed annual interest in an average amount of 5.04% (calculated on the basis of 360 days per annum – reflects an effective interest rate of 5.23% per annum). The interest is paid each month.

· | The loan currency: US dollar.

IDB Development Corporation Ltd. Convenience translation
144

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

3. Property & Building (cont.)
a. (cont.)

· | Collateral: as collateral for the repayment of the main loan (in a sum of $300 million), a first degree mortgage was registered on the HSBC building and the land on which it is constructed, and additional charges as customary on the lease agreements and rent accruing from the property, on the bank accounts involved in operating the property, a change on insurance receipts, rights to tax returns with regard to the asset and so on. As collateral for the repayment of the secondary loan (in a sum of $100 million), a first degree charge was registered on all of the rights in the building corporation.

· | A right of recourse against Property & Building and/or the property companies: the loan is without any right of recourse against Property & Building and/or the property companies. A wholly owned subsidiary of Property & Building, which indirectly owns the property in its entirety (in this section “the subsidiary”), gave a carve-out guarantee for an unlimited amount for the payment of all of the losses that may be caused to Morgan Bank as a result of special defined cases only, which are customary cases in agreements of this kind (such as fraud, false representation, and so on). In addition, Property & Building gave a limited carve-out guarantee up to an amount of $125 million. Moreover, each of the property companies and the subsidiary undertook to indemnify Morgan Bank for any loss that it may suffer, for an unlimited amount, as a result of cases concerning hazardous substances and environmental protection.

· | Cross-default mechanism: a breach of the main loan constitutes a breach of the secondary loan, but not vice versa.

· | Additional restrictions:

1. | All of the money received from operating the HSBC building are deposited in designated accounts that are charged to Morgan Bank (as of December 31, 2013 – a sum of NIS 40 million). This money is transferred during the lifetime of the loan to the building corporation after the current payment of the loan principal and interest thereon. In the following cases, the money received will be held in the designated accounts until the incident is repaired or terminated:

§ | A breach of the agreement that constitutes a ground for demanding immediate repayment of the loan.

§ | The existence of insolvency and/or bankruptcy proceedings of Property & Building.

§ | When the quarterly debt service cover ratio (the ratio between the net operating income for the period and the total payments of principal and interest for the loan during that period) is less than 1.05.

§ | In a case of non-renewal of the lease agreement by HSBC Bank (the main tenant of the HSBC building) or the vacating of the premises by it before the end of the lease agreement without it being replaced by another tenant in accordance with the terms stipulated in the agreement.

2. | The taking loans and additional debts by the property companies requires approval of Morgan Bank, but it is possible to receive additional finance by complying with certain criteria that are stipulated in the agreement.

3. | It is not possible to create additional charges on the HSBC building or with regard thereto.

4. | The ownership rights in the HSBC building and the ancillary rights may be transferred subject to an assignment of the loan and Morgan Bank’s consent. Morgan Bank’s consent will not be required in a case of a transfer of rights insofar as Property & Building (directly or indirectly) will continue to hold at least 25% of the HSBC building and the rights ancillary rights thereto and it will continue to retain control of the building corporation. There are no restrictions on a change of the holdings in Property & Building as long as Property & Building is a public company.

IDB Development Corporation Ltd. Convenience translation
145

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

3. Property & Building (cont.)
a. (cont.)

5. | Transactions with major tenants, related parties or with regard to main parts of the HSBC building are subject to the approval of Morgan Bank.

6. | It is not possible to sell, transfer, charge or issue securities of Property & Building, except as stated above and in other permitted transfers.

7. | It is not possible to change the type of incorporation of the property companies and they undertook to act in a single field of activity as the property corporation and not to change the field of activity.

· | Grounds for demanding immediate repayment of the credit: in a case of a breach of the aforesaid restrictions with regard to the change on the HSBC building or a transfer of the rights therein without the prior consent of Morgan Bank, and if customary grounds in agreements of this kind arise, Morgan Bank may demand immediate repayment of the loan, make use of money deposited in the aforesaid designated accounts, take control of the building and manage it, and act to realize the collateral. The property company is in compliance with all of the aforesaid restrictions.

| b. | The following are details of main terms relating to the series F and G bonds that Property & Building issued to the public in 2012:

· | Collateral: Property & Building’s aforesaid bonds from series F and G are not secured by charges, but Property & Building undertook not to charge its assets (apart from certain exceptions stated in the Trust Deed), in addition to charges existing on the date of issuing the aforesaid bonds. Property & Building will be entitled to cancel its undertaking not to create charges, subject to creating collateral in favor of the trustee of the bonds as stated in the Trust Deed.

· | Financial covenants: with regard to the series F and G bonds, Property & Building undertook to comply with the following financial covenants:

Description of the covenant |  | Covenant |  |  | As of December 31, 2014 |
Minimal equity attributed to the shareholders of Property & Building |  | NIS 700 million |  |  | NIS 1,529 million |
The maximum ratio between the net financial debt and the net consolidated assets of Property & Building |  |  | 75 | % |  |  | 61.8 | %
The maximum ratio between the net financial debt and the annual EBIDTA of Property & Building consolidated |  |  | 17 |  |  |  | 13.9 |

The financial covenants are examined each calendar quarter, on the basis of the audited consolidated financial statements of Property & Building. As of December 31, 2014, Property & Building complied with the aforesaid financial covenants and to the best of its knowledge it also complied with them shortly before the date of approval of these financial statements.
IDB Development Corporation Ltd. Convenience translation
146

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

3. Property & Building (cont.)
b. (cont.)

· | Additional restrictions: Property & Building undertook not to make a distribution, if as a result thereof the net financial debt ratio to the net amount of consolidated assets exceeds 70% or if the equity attributed to its shareholders will be less than NIS 900 million. In addition, if the rating of the bonds of Property & Building will decrease by two ratings in comparison to their rating on the date of the aforesaid issue, the rate of interest for the bonds from the aforesaid issue will increase by 0.5%. For each decrease in rating by a further rating, the interest rate for the bonds of the aforesaid issue will increase by an additional 0.25%, but not more than 1% in aggregate.

· | Grounds for demanding immediate repayment of the bonds from the aforesaid issue: in addition to standard grounds for immediate repayment (including, inter alia, insolvency events and various enforcement operations against Property & Building, a significant deterioration in its business and a real concern of non-payment, delisting, a merger subject to exceptions, a change in its field of operations, and so on), immediate payment of the aforesaid bonds may be demanded in the following cases:

Non-compliance with the aforesaid financial covenants in two consecutive quarters.

· | Cross-default – if immediate payment is demanded for another series of Property & Building’s bonds or a bank loan in an amount of more than NIS 300 million.

A decrease in the credit rating of Property & Building below Baa2 or the rating company stops rating its bonds.

| c. | In the third quarter of 2014, Great Wash Park, LLC, which is an investee company held by IDB Group USA Investments Inc. (hereinafter: “IDBG”), a company under the joint control and the joint ownership of Property & Building and IDB Development, and which is building a commercial and office project in Las Vegas, USA, extended the repayment date of a bank loan in the amount of USD 59 million, until December 2016, without changing the other loan terms.

| 4. | Shufersal

The following are details of the main terms relating to the series D and E bonds (jointly in this section, ‘the bonds’) that Shufersal issued to the public in October 2013:

· | A mechanism that adjusts the interest rate as a result of a change in the rating of the bonds: the bonds were rated by Maalot with an A+ rating. In the event that the bond rating will be two ratings lower than an A+ rating (or a corresponding rating), the annual interest will increase by an amount of 0.25%. In any case of an additional decrease in the rating, the annual interest rate will increase by an additional 0.25% for each additional rating as aforesaid. In any case, the additional annual interest for the reduction in the rating as aforesaid shall not exceed 1% in addition to the annual interest determined on the date of issuing the bonds. If the bonds are rated lower than (BBB-) (or any corresponding rating) and the rating is not increased within 60 days to above the aforesaid level, it shall constitute a ground for demanding immediate repayment.

· | Right to early repayment: from October 2014, Shufersal will be entitled to opt to carry out an early redemption of its bonds, in whole or in part.

· | Financial covenants which Shufersal undertook to comply with (Shufersal will be regarded as in breach of its liabilities stated below only if it does not comply with the relevant financial covenants during two consecutive calendar quarters).

· | The ratio between Shufersal’s net debt and its total balance sheet on the date when each calendar quarter ends, as these figures appear in its consolidated reviewed or audited financial statements, as applicable, for the relevant calendar quarter, shall not exceed 60%. For this purpose, “net debt” – the cumulative amount of the following balance sheet items: current maturities of long-term loans, current maturities of bonds, long-term liabilities to banking corporations and others, and long-term liabilities for bonds, less cash and cash equivalents, short-term deposit and negotiable collateral.

IDB Development Corporation Ltd. Convenience translation
147

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 4. | Shufersal (cont.)

· | Shufersal’s total equity (including rights that do not grant control) on the last day of each calendar quarter, as this figure appears in the consolidated reviewed or audited financial statements, as applicable, for the relevant calendar quarter, shall not be less than NIS 550 million.

· | An undertaking not to create a current charge: Shufersal undertook not to create a current charge on all of its assets in favor of any third party, unless it receives approval of a meeting of the bondholders to do so.

· | Cross-default: grounds for demanding immediate repayment of the bonds was determined in a case where immediate repayment of another debt that Shufersal took from a banking corporation or a financial institution was demanded (except for a debt where there is no right of recourse against Shufersal), provided that the total amount of the demand for immediate repayment as aforesaid exceeds NIS 300 million; or immediate repayment is demanded (not on Shufersal’s initiative) for another series of bonds that was issued by Shufersal and which is in circulation, provided that the total amount for which the demand for immediate repayment was made exceeds NIS 40 million.

· | The need for the consent of the bondholders for certain operations: as part of the grounds for demanding immediate repayment of the bonds, the trust deeds of the bonds also determined the following grounds: [a] the implementation of a merger (as defined in the Companies Law) between Shufersal and another company, with certain exceptions determined in the trust deeds, without obtaining approval of the bondholders, unless the acquiring company gives notice that there is no reasonable concern that as a result of the merger the acquiring company will not be able to carry out all of the liabilities for the bonds on time; [b] a sale by Shufersal to another (except a sale to corporations controlled by it) of all or most of its assets (as the term is defined in the trust deeds) without receiving approval of the bondholders, with certain exceptions that are stipulated in the trust deeds. Shufersal undertook not to expand the series of bonds, insofar as an expansion of a series as aforesaid will prejudice its existing rating at that time.

· | Restrictions on distributing dividends: Shufersal undertook not to make a distribution of dividends to its shareholders and/or a self-purchase of its shares and/or any other distribution as defined in the Companies Law: (1) insofar as the result of a distribution as aforesaid is that Shufersal’s total capital (including rights that do not grant control), according to its consolidated financial statements, will fall below NIS 750 million; (a) insofar as in consequence of such a distribution, the ratio between Shufersal’s net debt (as defined above), calculated in accordance with Shufersal’s most recent audited or reviewed (as applicable) consolidated financial statements prior to the date of the distribution and its annual EBITDA (as defined below), taking into account such a distribution, will exceed 7.

| For this purpose, ‘annual EBITDA’ means the cumulative amount during a period of twelve calendar months of Shufersal’s operating profit (before expenses and other income), plus depreciation and amortization, calculated in accordance with the figures as stated in Shufersal’s audited or reviewed (as applicable) consolidated financial statements for the last four quarters that preceded the date of the distribution.

As of December 31, 2014, Shufersal was in compliance with the financial covenants determined for it, as stated above.
IDB Development Corporation Ltd. Convenience translation
148

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 5. | Adama

| a. | In February 2014, Adama performed a private offering of bonds with a total nominal value of NIS 488 million, from its existing Series D, which were offered at a price which reflected an effective interest rate of 2.64% per year, unlinked to the CPI or to any currency. The total consideration received by Adama with respect to these bonds amounted to NIS 527 million.

| b. | Adama has an obligation to various banks to comply with financial covenants by virtue of the financial documents that regulate the long-term bank credit of Adama and its consolidated companies (“the finance documents”), of which the main ones, as of December 31, 2014, are as follows:

1. | The ratio between Adama’s interest-bearing financial liabilities and its equity shall not exceed 1.25. As of December 31, 2014, this ratio stood de facto at 0.7.

2. | The ratio between the Adama’s interest-bearing financial undertakings and its earnings before interest, taxes, depreciation and amortization (EBITDA) shall not exceed 4. As of December 31, 2014, this ratio stood at 2.5.

3. | Adama’s equity shall not be less than $1.22 billion. As of December 31, 2014, the equity amounted to a sum of $1.598 billion.

4. | The finance documents of one of the banks stipulate further that the amount of Adama’s surplus balance or profit balance according to its financial statements as of any date shall not be less than a sum of $700 million. As of December 31, 2014, Adama’s surplus balance amounted to a sum of $1.114 billion.

Pursuant to what was agreed between Adama and the bank with which it entered into the securitization agreement mentioned in section c below, and with the banks to which Adama has an obligation to comply with financial covenants by virtue of the finance documents, the balance of the debt is not included within the framework of the securitization agreement as a part of the financial liabilities for the purpose of examining the financial covenants.
In addition, the finance documents contain sections that provide that a change of control (according to the definition of this term in the relevant finance documents) in Adama and/or in its subsidiaries –Adama Makhteshim and Adama Agan – which will be done without the prior written consent of the relevant banks, will constitute a ground to demand immediate repayment of all of the relevant liabilities. Adama obtained the consents of the relevant banks for the transfer of control, pursuant to the transaction of its merger with a company from the ChemChina group that was completed in October 2011.

| c. | The securitization agreement for the book debts of Adama and its consolidated companies (including the updates to it) includes liabilities of Adama to comply with financial ratios, of which the main ones are as follows:

| 1. | The ratio between Adama’s net debt and its equity shall not exceed 1.25. As of December 31, 2014, this ratio stood at 0.7.

| 2. | The ratio between Adama’s net debt and its EBITDA shall not exceed 4. As of December 31, 2014, this ratio stood at 2.5.

| 3. | Adama’s equity shall not be less than US$1 billion. As of December 31, 2014, the equity amounted to US$ 1.598 billion.

IDB Development Corporation Ltd. Convenience translation
149

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

F. | Main changes in 2014 in long-term liabilities and financial covenants of the corporation’s held companies (cont.)

| 5. | Adama (cont.)

| c. | (cont.)

I n the securitization agreement and in the agreements with the banks, there are cross-default clauses according to which the party with which Adama entered into an agreement will be entitled to demand immediate repayment of the debts to it, in circumstances where an event has occurred that entitles another financer to demand immediate repayment of Adama’s debts or those of its consolidated companies, in whole or in part, to that other financer, all of which provided that the amount of Adama’s debts and liabilities and those of its consolidated companies to that other financer exceeds a minimum amount as determined in the various finance agreements.
In addition to the aforesaid, Adama undertook as part of letters of consent to the financers, to comply with additional standard terms, which in Adama’s estimation, shortly before the date of approval of these financial statements, are not capable of materially restricting its operations.
As of December 31, 2014, Adama was in compliance with the financial covenants determined by the financing banks as part of the finance agreements and it also complied during the reporting period with all of the financial covenants and restrictions applying to it that were determined in the finance agreements and in the aforesaid securitization agreement.

| 6. | Other consolidated companies

| 1. | Israir took a loan from a banking corporation, whose balance, as of the date of the Statement of Financial Position, is aproximately NIS 235 million, for the purpose of financing the purchase of airplanes. For this debt, the company gave a comfort letter as stated in note 22.C below. During the period, Israir reached non-bonding agreements with the bank with regard to the deferral of the repayment of the loan. As of the date of the report, the bank is extending the repayment of the loan every two weeks. Moreover, contacts are taking place with various financing institutions to refinance the loan in return for a charge on the airplanes as stated in section 2 below, in such a way that will also allow Israir to complete the purchase of an additional airplane, for which Israel paid a prepayment in a sum of approximately $8 million.

| 2. | On March 3, 2015, IDB Tourism and Israir, two wholly owned subsidiaries of the Company (directly and indirectly) engaged with a foreign banking corporation with a letter of commitment (“letter of commitment”) according to which the foreign banking corporation will act to arrange finance at an estimated scope of US$90 million (“the credit”) in favor of Israir, which will be secured by a charge on four aircraft owned by Israir (the finance, if received, is intended in part to repay existing credit secured by the same four aircraft) as well as a charge on a new, fifth aircraft which is planned to be delivered to Israir during the first quarter of 2016. Within the commitment letter, the foreign banking corporation was provided an agreed exclusivity period to place and arrange the credit as stated. The commitment letter does not bind the foreign banking corporation to provide the credit. At this date, there is no certainty that a binding financing agreement will be signed with the foreign banking corporation or that the credit will be provided to Israir as stated.

| 3. | As part of the financial covenants that were determined in loan agreements of the IDB Tourism group with banks, the balance of which as of December 31, 2014, stands at a sum of approximately NIS 250 million, it was determined that in the event of a change of control in the Company, directly or indirectly, the aforesaid banks have the right to demand immediate repayment of the loans that were given to IDB Tourism and/or to companies controlled by it.

| IDB Tourism and companies of the group are in continuous contact with the aforesaid banking corporations. In the opinion of the management of IDB Tourism, even in a case of a change of control, IDB Tourism will not be required to pay the aforesaid loans immediately.

| 4. | Additional consolidated companies are a party to loan agreements in which financial covenants were determined. As of the date of the Statement of Financial Position, the aforesaid companies were in compliance with the criteria determined as aforesaid.

IDB Development Corporation Ltd. Convenience translation
150

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto

1. Legal proceeding regarding the Company’s financial position
The following are main updates with regard to legal proceeding regarding the Company’s financial position, with regard to a motion for an involuntary debt arrangement filed in April 2013, inter alia, against the Company.
It should be noted that the Company has regularly published and is publishing on MAGNA court papers and decisions regarding the proceedings described below.

| a. | On April 21, 2013, a “Motion for the Recovery of IDB Development Corporation Ltd.” (“the involuntary arrangement motion”) was filed pursuant to section 350 of the Companies Law, in the Tel-Aviv-Jaffa District Court, by Hermetic Trust (1975) Ltd., as trustee for the Company’s series G and I bonds and by Strauss Lazar Trust Company (1992) Ltd., as trustee for the Company’s series J bonds (jointly “the applicants”), against the Company and inter alia against IDB Holdings, the lending banks and the Company’s unsecured and secured financial creditors, the trustees for the Company’s series C and H bonds, and S.H. Sky Investments (T.R.) Limited Partnership. In the aforesaid motion it was claimed that the Company is in a state of insolvency without any practical possibility of raising capital and without any ability to comply with all of its future liabilities, and therefore the court was requested to order the convening of meetings in order to approve a creditors’ arrangement. At the same time, the applicants filed an urgent motion for temporary remedies in which the court was requested to appoint an officer of the court who would be authorized to supervise the management of the Company and whose consent would be required for carrying out certain operations and to instruct that the payments to the Company’s financial creditors will be deposited in a trust account opened by the officeholder. Accordingly, on April 30, 2013, the Court ordered the appointment of Attorney Hagai Olman as an officeholder who was given powers of an observer (“the observer”) and Mr. Eyal Gabbay as economic expert. On June 9, 2013 the Court order, inter alia, that the amounts intended for paying the Company’s creditors should be deposited with the observer. On October 17, 2014, the Court ordered the release of 65% of the funds deposited in the observer’s account to the creditors entitled to them and the continued making of payments to the creditors at the aforesaid percentage. On January 7, 2014 a motion was filed with the Court by the trustees for the Company’s bonds (series G, I and J) to order the release of the funds deposited in the observer’s trust account.

| b. | On January 8, 2014 a notice was filed to the Court by the trustees to the aforesaid bonds, according to which in light of the approval of the creditors’ arrangement at IDB Holdings, as suggested on behalf of Dolphin Group and on behalf of Extra Group, the trustees to the aforesaid bonds agree to the deletion of the motion for an involuntary debt arrangement. On January 14, 2014 the observer’s response and the Official Receiver’s response to the deletion motion were filed to the Court.

| Both of the aforesaid responses expressed, inter alia, the position that it would be right to close the case on the involuntary debt arrangement motion against the corporation only after implementation of the arrangement in IDB Holdings and that all of the money deposited with the observer should be released to the corporation’s creditors, and an order should be made that the payments should continue to be made to the creditors by the corporation according to schedule. On the same date, the expert also filed his position, according to which, in view of the approval of the debt arrangement in IDB Holdings and the change in circumstances, it was possible to transfer the payments from the observer’s account to the creditors.

| Moreover, it was stated that there might be a basis for concluding both proceedings, in IDB Holdings and in the corporation, at the same time. On January 15, 2014, the Court ruled on the striking-out motion and held that, as at that date, the proceeding relating to the involuntary debt arrangement motion would remain as it was, in order, inter alia, to complete the creditors’ arrangement in IDB Holdings, which was also relevant to the corporation, and in order to allow the observer to supervise what was being done in the corporation. With regard to the motions to release the money, the court ordered the observer to transfer the balance of the money that was deposited in the trust account to the corporation’s creditors, according to their proportional shares.

IDB Development Corporation Ltd. Convenience translation
151

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

1. Legal proceeding regarding the Company’s financial position (cont.)

| b. (cont'd)

| For additional details regarding the funds in the observer’s account which were released to the Company’s financial creditors, and regarding a ruling on a settlement between the Company and its creditors (excluding Sky Fund which objected to the settlement offer) given in October 2014 by the Court, which ratifies a settlement offer by the observer on the matter of interest payments to the Company’s creditors in respect of the funds deposited with the observer as stated, see NoteC.4 above.

c. | For details regarding the Company’s motion to the Court with respect to Menorah’s demand for immediate repayment of the debt towards it, and regarding further developments with regard to the loan from Menorah, including the release of some of the collateral provided to Menorah in July 2014 and the pledging of additional collateral in November and December 2014 and January 2015, see Note C.2 above.

d. | For details regarding the ratification of the creditors’ arrangement at IDB Holdings and its implementation, see Note G.2 below.

e. | On May 15, 2014, the trustees for the Company’s (series G and J) bonds gave notice that after the completion of the creditors’ arrangement at IDB Holdings, the activity of the representatives of the Company’s bond holders has ended.

In the opinion of the Company’s legal advisers as at the date of publishing the report, the involuntary arrangement motion, which was filed as part of the aforesaid proceeding, is no longer relevant, and there are no additional legal proceedings being discussed.

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto

The following are main updates with regard to the creditors’ arrangement at IDB Holdings and the legal proceedings with respect to it, which occurred mainly during 2014 and up to the date of publishing the report, whilst focusing on matters relating to the Company.
It should be noted that the Company regularly published and publishes on Magna the motions, Court notices and rulings that are relevant to it with regard to the matters specified below.
a. The ratification of the debt arrangement at IDB Holdings
On December 17, 2013, a judgment was given and on January 5, 2014, a supplementary judgment was given by the Tel-Aviv-Jaffa District Court, in which it approved a creditors’ arrangement in IDB Holdings, in accordance with a creditors’ arrangement outline that was filed with the aforesaid court on November 26, 2013, by Mr. Eduardo Elsztain and a corporation under his control, Dolphin Fund Limited (“Dolphin Fund”) together with E.T.H. M.B.M Extra Holdings Ltd. (“Extra”) (under the control of Mr. Ben-Moshe), and as a result control of IDB Holdings and the Company was taken away from the previous controlling shareholders. In the supplementary judgment, the court appointed Mr. Eyal Gabbay and Adv. Hagai Olman as trustees for implementing the creditors’ arrangement in IDB Holdings (“the trustees,” or “the trustees for the arrangement”), and it authorized them to carry out the operations necessary to implement and execute the creditors’ arrangement as aforesaid, including, inter alia: examining the debt claims of the creditors of IDB Holdings; seizing all of the assets of IDB Holdings and registering the trustees as the holders of the assets in trust in any register (including the seizing and registration of the shares that IDB Holdings held in the Company), and to ensure the registration of the shares in the name of those entitled to them pursuant to the provisions of the creditors’ arrangement. It was also determined that from the date of the supplementary judgment, the term of office of the directors of IDB Holdings and the term of office of the directors on behalf of IDB Holdings in the Company.
On January 22, 2014, the shares of the Company, which had been held until that date by IDB Holdings directly, were transferred to IDB Holdings through the trustees for the arrangement.
As stated below, in May 2014 the first stage of the debt arrangement at IDB Holdings was completed, as part of which, inter alia, the shares of the Company were transferred in May 2014, which constituted 53.3% of the Company’s issued and paid-up capital, to Dolphin Netherlands B.V.
IDB Development Corporation Ltd. Convenience translation
152

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

a. The ratification of the debt arrangement at IDB Holdings (cont'd)
(“Dolphin Netherlands”), a company incorporated in the Netherlands, which is controlled (indirectly) by Dolphin Fund and Mr. Eduardo Elsztain, and to CAA Extra Holdings, Ltd. (“CAA”), a company wholly owned by Mr. Mordechai Ben Moshe, in equal shares, and the (indirect) control of the Company was transferred to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe through Dolphin Netherlands and CAA, respectively.
The remaining shares in the Company transferred to the trustees to the arrangement and to the beneficiaries of the arrangement.

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Dolphin and Extra Group

The following are the main points of the offer for the debt arrangement that were filed with the court on November 26, 2013, by the Dolphin and Extra Group (hereinafter “the investors” pursuant to the arrangement offer)14,15 and which was approved by the court as specified in January 2014, as the Company was informed by the parties to the arrangement:
The arrangement offer included provisions regarding the injection of money into the Company by the Dolphin and Extra Group, the amount of which would be determined depending upon whether the Clal Holdings Insurance Enterprises transaction would be completed by September 30, 2014 (“the last date for completing the Clal Holdings Insurance Enterprises transaction”) (as the Clal Holdings Insurance Enterprises transaction expired in May 2014 without being completed, as specified in note 3.H.5.a above, therefore the arrangement alternative that was implemented was the alternative of the non-completion of the Clal Holdings Insurance Enterprises transaction, and therefore the description below will include the main provisions of the arrangement offer with regard to the aforesaid alternative actually implemented), as follows:

| 1. | As part of the arrangement and as of the first completion date,16 the issued capital of the Company will be set at 200,000,000 ordinary shares (without a nominal value) and its registered capital with be determined as 500,000,000 (as specified below, the Company’s registered capital was changed on May 1, 2014).

| 2. | As part of the arrangement, the creditors of IDB Holdings will be entitled to receive all of the following amounts of the consideration (“the consideration for the arrangement”), on the dates and in the manner stated in subsections 4 to 6 below:

| a. | The amounts of cash in the account of IDB Holdings less an amount that was set aside for the benefit of anticipated future expenses;17

| b. | Shares of the Company;

14 | As part of the creditors’ arrangement offer, ExtraHolding GmbH and ExtraEnergie GmbH, German companies controlled indirectly by Mr. Mordechai Ben-Moshe, undertook to those entitled per the arrangement (i.e., the creditors of IDB Holdings) to provide Extra the funds that it is liable to pay pursuant to the creditors’ arrangement offer, so that Extra would comply with its financial undertakings pursuant to the creditors’ arrangement. However, see note 16.G.e below, with regard to the agreements letter signed by the parties on April 8, 2014 arranging the identity of the investor at the debt arrangement, according to which Extra, ExtraHolding GmbH and ExtraEnergie GmbH are not bound by any commitment with regard to the arrangement.

15 | According to the provisions of the arrangement, the Dolphin and Extra Group were able to inform, until the date of implementation of the arrangement, that the investment will be made by a special-purpose limited company, set up for the purpose of the implementation of the arrangement and which is owned by the Dolphin and Extra Group. With regard to the agreements letter signed by the parties on April 8, 2014 arranging the identity of the investor, see note 16.G.(e) below.

16 | ‘The first completion date’ – a date that will occur at least seven days after the conditions precedent of the arrangement will be satisfied. As stated in note 16.G.1 below, the first completion date occurred on May 7-12, 2014.

17 | On the first completion date, an amount of NIS 150 million was distributed to those entitled per the arrangement, out of the cash balance of IDB Holdings, and an amount of NIS 39 million was allocated in favor of future expenses.

IDB Development Corporation Ltd. Convenience translation
153

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

| 2. | (cont.)

| c. | A sum of NIS 300 or NIS 800 million, which will be paid to the beneficiaries of the arrangement18 by the investors in return for the shares of the Company, which the investors will buy from the beneficiaries of the arrangement (‘the consideration for the acquired shares of IDB Development’).

It should be emphasized that the amounts of cash as stated in this subsection c and the amount of the shares of IDB Development that the beneficiaries of the arrangement will receive as stated in subsection b above, will vary depending upon the completion or non-completion of the Clal Holdings Insurance Enterprises transaction by the last date for completion of the Clal Holdings Insurance Enterprises transaction. As specified below, as the Clal Holdings Insurance Enterprises transaction expired without having been completed, the arrangement alternative, by which the beneficiaries to the arrangement will hold a total of 46.7% of the Company’s issued and paid-up capital, and the consideration for the acquired IDB Development shares will amount to NIS 300 million19, was implemented.

| d. | The net proceeds, in a sum of approximately NIS 48 million, for a settlement with the Manor family and the Livnat family (former controlling shareholders of the Company), which was approved by the court on October 31, 2013, in a claim for the return of amounts of dividends that were distributed to them by IDB Holdings in the years 2008-2010 (“the dividend settlement”).

| e. | Receipts from the claims that will be accepted by IDB Holdings in the future, after completion of the arrangement (less the fees and expenses involved in conducting the legal proceedings), which the court-appointed expert for examining the debt arrangement estimated before the date of approval of the debt arrangement at approximately NIS 200 million (the aforesaid amount includes the receipts from the dividend settlement (“the receipts from the claims”).20

It should be emphasized that only a part of the consideration for the arrangement has been received on the date of implementing the arrangement, as stated below. A part of the consideration for the arrangement will be received at later stages than the date of implementing the arrangement (thus, for example, the receipts of the claims that may be received even in another few year) and some of the consideration is also conditional and dependent and may not even be received (“future receipts”).21

18 | “The beneficiaries of the arrangement” – creditors of IDB Holdings, whose debt will be subject to the arrangement, pursuant to the provisions of the arrangement offer.

19 | It is noted that in accordance with the provisions of the arrangement, had Clal Insurance Enterprise Holdings transaction been completed before the last date for completion of the Clal Insurance Enterprise Holdings transaction, the beneficiaries of the arrangement would have held, subsequent to the completion of the arrangement, a total of 29.95% of the Company’s issued and paid-up capital, and the consideration for the acquired IDB Development shares would have been NIS 800 million.

20 | Subject to the instructions of the court, all of the rights of claim in the name of and on behalf of IDB Holdings only will be assigned to the trustees for the arrangement, in such a way that will ensure that the rights of claim of IDB Holdings against third parties (shareholders, officers and so on) (hereafter: ‘the claims’) will be exhausted, and the receipts from the claims, net, after covering all of the fees and expenses involved in the various legal proceedings, will be allocated to persons who were beneficiaries of the arrangement and will be paid to the beneficiaries of the arrangement shortly after they are received.

21 | It is noted that within the arrangement considerations, a conditional consideration was included (which was not fulfilled), according to which an amount of NIS 100 million was to be paid to the beneficiaries of the arrangement insofar as Clal Insurance Enterprise Holdings transaction is not completed until the last date to complete the Clal Insurance Enterprise Holdings transaction, however in place of that an alternative transaction would be signed to sell the holdings in Clal Insurance Enterprise Holdings, until December 31, 2014 (according to a company valuation of Clal Insurance Enterprise Holdings in the amount of NIS 4.2 billion at least), the consideration of which at an amount of at least NIS 1.344 billion (gross) would be received by the Company until June 30, 2015.

IDB Development Corporation Ltd. Convenience translation
154

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

| 3. | Pursuant to the provisions of the arrangement, the investors gave their consent that insofar as the first completion date will not occur by March 15, 2014, and insofar as it will be necessary in order to provide the cash flow needs of the Company, the Company will be given, no later than March 15, 2014, a bridging loan in a sum of at least NIS 100 million out of a sum of NIS 950 million that was made available for the purpose of implementing the arrangement offer (‘the money for the arrangement’). For details regarding an agreement to provide a bridging loan to the Company, in a sum of NIS 170 million, signed on March 10, 2014, see note 16.C.3 above. Upon the completion of the arrangement in May 2014, an amount of NIS 150 million out of the loan was converted to the Company’s share capital (see section f of this note below).

| 4. | The arrangement stipulated that if on the first completion date it will not yet be known whether the Clal Holdings Insurance Enterprises transaction will be completed or not, then the following provisions shall apply:22

| a. | A sum of NIS 650 million out of the money for the arrangement will be deposited in trust with the trustees for the arrangement (‘the trust amount’) until an event terminating the Clal Holdings Insurance Enterprises transaction occurs or until September 30, 2014, whichever is the earlier.

| b. | A sum of NIS 150 million out of the money for the arrangement will be invested by the investors in the Company, as stated in Note 16.G.(2). (f) below, a sum of NIS 150 million out of the amount of the bridging loan was converted into an investment in the capital of the Company and a sum of NIS 20 million out of the bridging loan became a part of the Clal loans and in June 2014 this amount was also converted into an investment in the Company’s capital.

| c. | Moreover, according to this alternative it was determined in the arrangement offer that the investors will buy shares of the Company from the beneficiaries of the arrangement. The purchase of the shares will be done by means of a payment in cash in a sum of NIS 150 million to the arrangement trustees, which will be transferred by them to the trustees of the arrangement on the first completion date. After the first completion date, the shares of the Company in the possession of the investors will amount to 53.3% of the issued and paid-up capital of the Company.

| d. | It was determined that the shares of the Company that constitute 20.75% of the issued and paid up capital of the Company after the first completion date (‘the Clal alternative shares’) will be deposited with the arrangement trustees in trust for the investors. The investors and the arrangement trustees will act with regard to the Clal alternative shares in accordance with the instructions of the investors for all intents and purposes.

| e. | It was determined that the shares of the Company that constitute 25.95% of the issued and paid-up capital of the Company after the first completion date will be distributed among the beneficiaries of the arrangement.

| f. | It was determined that the receipts of the dividend settlement that were transferred prior to the first completion date and the net amounts of cash in the account of IDB Holdings, as stated in Note 16.G.2.b.(2) above, will also be distributed to the beneficiaries of the arrangement.

22 | It is noted that as at the first completion date of the debt arrangement (May 7, 2014) it was not yet known whether the Clal Insurance Enterprise Holdings transaction would be completed, so in reality the initial provisions were implemented on the first completion date.

IDB Development Corporation Ltd. Convenience translation
155

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

4. | (cont'd)

| g. | It has further been determined that on the first completion date, all of the bonds of IDB Holdings (including the unpaid debt balance and including entitlement to interest) and all of the finance agreements of IDB Holdings with the lending banks were cancelled, with all of their annexes and the documents ancillary to them. After completing the distribution of the consideration received as part of the arrangement (i.e., the consideration on the first completion date and on the second completion date, as defined below), the arrangement trustees shall give notice of the amount regarded as paid on account of the liabilities of IDB Holdings to its creditors, as these liabilities are reflected in the debt determinations. The balance of the debt of IDB Holdings that has not yet been paid to its creditors shall not bear any interest or linkage differentials whatsoever and shall be paid, if at all, out of additional future receipts that will be received within the framework of the arrangement, if any.

5. |  | September 30, 2014 – the last date for completion of the Clal Holdings Insurance Enterprises transaction

As stated above, after the first completion date, the creditors of IDB Holdings were still entitled to receive additional consideration within the framework of the arrangement, where the type and scope of consideration depends upon the question of the completion or the non-completion of the Clal Holdings Insurance Enterprises transaction by the last date for the completion of the Clal Holdings Insurance Enterprises transaction. Details will be given below of the manner of implementing the second stage of delivering the consideration of the arrangement to the beneficiaries of the arrangement (the aforesaid second stage – ‘the second completion date’), according to the scenario by which the Clal Holdings Insurance Enterprises transaction expired without having been completed:
In the settlement offer, it was determined that insofar as the Clal Holdings Insurance Enterprises transaction will not be completed by the last date for completion of the Clal Holdings Insurance Enterprises transaction, then the following operations will be carried out on the second completion date:

| a. | A sum of NIS 500 million out of the trust amount will be invested in the Company. Insofar as the aforesaid sum, in whole or in part, was given to the Company as the Clal loan, that amount will be converted into capital in the Company (for details regarding the provision of an amount of NIS 480 million to the Company and the conversion of the balance of the bridging loan amounting to NIS 20 million to the Company’s capital, see note 16.G.f below);

| b. | The Clal alternative shares will be distributed in full to the beneficiaries of the arrangement;

| c. | An amount of NIS 150 million out of the trust amount will be distributed to the beneficiaries of the arrangement.

IDB Development Corporation Ltd. Convenience translation
156

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

6. Undertakings for a future purchase of shares of the Company
As part of the arrangement, the investors undertook to offer to buy shares of the Company from its shareholders from among the public, within the framework of (one or more) secured tender offers,23 as stated below:
According to the arrangement offer, in case Clal Holdings Insurance Enterprises transaction is not completed before the last date for completion of the Clal Holdings Insurance Enterprises transaction, then, (one or more) tender offers will be made on a total scale of approximately NIS 512 million:

| a. | Tender offers up to December 31, 2015, for shares of the Company held by the shareholders from among the public, with a share value according to the arrangement (as defined below), in return for a sum of at least NIS 249.8 million.

| b | Tender offers up to December 31, 2016, for additional shares of the Company held by the shareholders from among the public, with a share value according to the arrangement plus 5%, on an overall scale that, together with the amount in the tender offers up to December 31, 2015, will amount to at least NIS 512.09 million.

“Value of the share according to the arrangement” – for the purpose of this subsection (6), the result obtained from dividing (a) a sum of NIS 1,133 million, plus the amounts that will be injected into the Company pursuant to subsections (4)[b] and (5) above, by (b) the number of shares in the issued and paid-up shares of the Company immediately after the second completion date (and after the injection of the investment amount in the Company as stated in the arrangement plan), subject to adjustments, as stated in the arrangement plan, subject to adjustments as stated in the arrangement plan.

| 7. | Extra and Dolphin Fund will participate, each according to its share, in issues of rights that the Company will carry out, insofar as it will decide to carry them out, to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively. In the clarification document of November 28, 2013, to the joint offer of November 26, 2013, it was clarified as follows: “It will be further clarified that section 12 of the joint offer regarding an undertaking on the part of Extra Israel and Dolphin Fund Limited to participate, each according to his share, in issues of rights that will be made by the Company, insofar as the Board of Directors of the Company will decide to make them, in order to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively, constitutes a valid and complete undertaking on the part of the investor within the framework of the joint offer, including to the creditors of IDB Holdings in favor of the Company.”

23 | As collateral for carrying out the undertaking to make tender offers, the investors will charge, on the first completion date in favor of the trustees for the arrangement, a number of shares of IDB Development equal to half the number of the shares that the investors undertook to offer to buy as part of the tender offers, and the following provisions will apply: (1) the trustees of the arrangement will release from the change, prior to the implementation of each tender offer as aforesaid, half of the number of the shares for which the investors will give notice that they are about to make a tender offer in that tender offer, in return for or for the purpose of depositing collateral that the investors will deposit for the implementation of that tender offer; (2) at any time, the trustees of the arrangement or the investors can demand a change on additional shares or a release of shares from the charge so that half of the shares, for which the investors remain liable to make a tender offer pursuant to the above provisions, will be charged at any time in favor of the trustees of the arrangement, subject to what is stated in subsection (1). Within the framework of the Letter of Consent of April 8, 2014, as stated in note 16.G.e below, it was resolved to increase the number of shares to ensure the making of the tender orders as aforesaid for all of the shares that the investors undertook to acquire within the framework of the tender offers (instead of half).

IDB Development Corporation Ltd. Convenience translation
157

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

| 8. | In the event that the investors do not comply with the undertaking to make the payments that the investors are liable to make on the date of completion of the arrangement, the beneficiaries of the arrangement will be able to choose, as they wish, one of the following two alternatives for agreed compensation: (1) All of the stages of implementing the arrangement will take place except that instead of the shares that are supposed to be issued to the investors, the Company shall issue to the investors shares in a reduced amount as stated in the arrangement offer; or (2) receiving agreed compensation in an amount of NIS 100 million (NIS 50 million from each of the items of collateral provided by the Dolphin and Extra Group); and with regard to the two alternatives, the aforesaid compensation (as applicable) will constitute an absolute, final and exhaustive remedy against the investors, the Dolphin and Extra Group.

| 9. | Corporate governance provisions

The arrangement includes various provisions regarding the composition of the Company’s Board of Directors and other corporate governance matters, both with respect to the period from the date of approval of the arrangement and until its implementation (“The interim period”) and with respect to the period from the date of its implementation (while with respect to this period, the majority of them are entrenched within the Company’s articles of association).
IDB Development Corporation Ltd. Convenience translation
158

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

| 10. The following table summarizes the main commercial terms stated above, according to the scenario in which the Clal Holdings Insurance Enterprises transaction was not completed:

| Main commercial terms of the debt arrangement according to the scenario where the Clal Holdings Insurance Enterprises transaction was not completed (in NIS millions)
Value of the company before the money | 1,133
Injection into the Company | 650
Cash for the beneficiaries of the arrangement (part of which will be distributed on the first completion date and part on the second completion date) | 150 on the first completion date 150 on the second completion date Total as part of the arrangement: 300
Shares of the Company that will be received by the beneficiaries of the arrangement as part of the arrangement | 46.7%
Shares of the Company held by the investors | 53.3%
Undertaking to buy shares of the Company through tender offers (backed up by a charge on the Company’s shares, as specified in Note 16.G.2.b.6 above and Note 16.G.2.e below) | Tender offers will be made in a total amount of approximately NIS 512 million, as follows: a.Tender offers up to December 31, 2015, for shares of the Company held by the shareholders from among the public, with a share value according to the arrangement (as defined below), in return for a sum of at least NIS 249.8 million. b.Tender offers up to December 31, 2016, for additional shares of the Company held by the shareholders from among the public, with a share value according to the arrangement plus 5%, on an overall scale that, together with the amount in the tender offers up to December 31, 2015, will amount to at least NIS 512.09 million. ‘Share value according to the arrangement’ – as stated in Note 16.G.2.b.6 above.
Additions | The arrangement offer provided that until the completion of the arrangement, the Company will be given a bridging loan in an amount of at least NIS 100 million, in return for a charge of the shares of the Company or the cash in the account of IDB Holdings, according the choice of the beneficiaries of the arrangement.24 Extra and Dolphin Fund will participate, each according to its share, in issues of rights that the Company will carry out, insofar as it will decide to carry them out, to raise capital in order to implement its business plans in 2014 and 2015, in amounts that will not be less than the following: in 2014, not less than NIS 300 million, and in 2015, not less than NIS 500 million, respectively. In addition, clarifications were given as stated in Note 16.G.2.b.7 above.
Cash held by IDB Holdings and receipts from claims, insofar as any are received (to the best of the Company’s knowledge, as of the date of publication of the report, the amount of cash in IDB Holdings’ account is approximately NIS 27 million). | Will be transferred to the beneficiaries of the arrangement, after deducting expenses.

24In March 2014, a bridging loan was granted to the Company, at an amount of NIS 170 million out of the collateral funds of the debt arrangement, as specified in Note 16.C.3 above.
IDB Development Corporation Ltd. Convenience translation
159

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| b. | Provisions of the creditors’ arrangement at IDB Holdings pursuant to the arrangement offer of the Elsztain and Extra Group (cont.)

| 11. The preliminary approvals from the Tax Authority (VAT and Income Tax), which were received by IDB Holdings on March 18 and 20, 2014, respectively, determine the tax arrangements that arise from the debt arrangement on the level of IDB Holdings and on the level of deduction of tax at source for the beneficiaries of the arrangement.

| 12. On April 6, 2014, Cellcom received approval of the Ministry of Communications for the transfer of indirect control in the Cellcom Group to Eduardo Elsztain and Mordechai Ben-Moshe, through corporations controlled by them, as a result of the implementation of the debt arrangement in IDB Holdings. In the report filed by the trustees for the settlement with the Court on April 6, 2014, the trustees stated, inter alia, that upon the receipt of the aforementioned approval from the Ministry of Communication, all of the conditional terms for the completion of the creditors’ settlement had been fulfilled; however, following the request by the investors to establish a designated corporation under their control, which will constitute the investor in accordance with the provisions of the creditors’ settlement, changes were required to some of the permits which had already been received, in order to complete the settlement. For developments on this matter, see notes 16.G.2.e and f below.

| c. | On January 22, 2014, a ‘Motion for cancellation of a decision, reconsideration and giving instructions’ was filed by Mr. Nochi Dankner and Ganden Holdings Ltd. (former controlling shareholders of the Company and of IDB Holdings, “the Dankner Group”), in which the court was requested to cancel the supplementary judgment that was given on January 5, 2014, or alternatively to reconsider this decision (“the Motion to Reconsider”). On April 8, 2014 the Court dismissed the Motion to Reconsider.

During February 2014, appeal notices were filed to the Supreme Court on behalf of Nochi Dankner and Ganden Holdings, on the judgement dated December 17, 2013, and on the supplementary judgment dated January 5, 2014. The appeals were filed by counsel for Mr. Nochi Danker and not by IDB Holdings and/or its counsel. On May 14, 2014 the Court dismissed the aforesaid appeals.

| d. | On March 25, 2014, a letter was sent by the trustees for the implementation of the arrangement to Mr. Eduardo Elsztain, further to his notice that the investor on behalf of the Dolphin Group would be a special-purpose corporation wholly owned and controlled by Dolphin Fund, directly or through another foreign corporation wholly owned and controlled by Dolphin Fund (‘the special-purpose company’). In their letter, the trustees emphasized that the founding of the special-purpose company for the purpose of implementing the arrangements did not derogate from the liabilities of Mr. Elsztain and Dolphin Fund pursuant to the provisions of the arrangement, including future liabilities, and including the tender offers and rights issue.

| e. | On April 8, 2014, a letter of understanding was signed between all of the aforementioned entities (“the Letter of Understanding” or “the updated arrangement outline”), according to which Dolphin Fund, Mr. Eduardo Elsztain and Extra notified the trustees of the arrangement, in accordance with the provisions of the arrangement, that:

IDB Development Corporation Ltd. Convenience translation
160

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

e. | (cont.)

| a. | The “Investor”, as defined in the settlement, will be a designated limited liability company, with the name of “D.H. the Investor in the Settlement Ltd.” (“the designated company”), which is owned (in equal parts) by Dolphin Fund and by Extra.

| b. | The trustees for the settlement were notified of the designated company’s decision and announcement that the Company’s shares to which it is entitled under the settlement (including on the first completion date, according to the meaning thereof in note 16.G.2 above) should be transferred to the two corporations specified below (“the holding corporations”):

| 1. | Half of the shares to Dolphin Netherlands BV (“Dolphin”), which is (indirectly) wholly owned by Dolphin Fund.

| 2. | Half of the shares to CAA, which is wholly owned by Mr. Mordechai Ben-Moshe.

| c. | In accordance with the provisions of the settlement, the entities which are obligated by the provisions of the settlement, jointly and severally, are only the designated company, due to its status as the “Investor,” as defined in the settlement, and the holding corporations,25 and for the avoidance of doubt, Extra, ExtraHolding GmbH, ExtraEnergie GmbH, Dolphin Fund and Eduardo Elsztain are not bound by any obligation whatsoever under the settlement including all documents comprising the settlement, as well as all annexes or clarifications submitted with respect thereto or by virtue thereof.

| The Letter of Understanding included, inter alia, the following undertakings:

| a. | Increasing the number of the Company’s shares that will serve as collateral for the purpose of the undertakings to publish and perform the tender offers in accordance with the settlement, in a manner whereby the Holding Corporations will pledge, on the first completion date, in favor of the trustees for the settlement, Company shares in a number equal to the total number of shares which the Holding Corporations undertook to offer to purchase within the framework of the tender offers, and not half, as originally determined.

b. | In the event of a rights issue performed by the Company prior to the distribution of the “Clal alternate shares” (see note 16.G.2.b.4.d. above), then a mechanism will be agreed between the trustees for the settlement, and the Holding Corporations and the Designated Company, to secure the entitlement of the Holding Corporations or the entitlement of the beneficiaries of the settlement (as applicable) to rights which were due to them on the date of the rights issue, with respect to Clal alternate shares, in a manner which will not prevent the beneficiaries of the settlement, if entitled to receive the Clal alternate shares, or from the Holding Corporations, if entitled to receive the Clal alternate shares, from purchasing rights, in accordance with their share, or in any other manner which will be agreed upon with the Holding Corporations and the trustees for the settlement.

| On April 8, 2014, the trustees for the settlement filed a report with the Court, in which they requested approval for the Letter of Understanding (“the report of the trustees for the settlement”), and on the same date, the Court approved the Letter of Understanding, in accordance with the contents of the report of the trustees for the settlement. In accordance with the Court’s decision, the trustees for the settlement signed the Letter of Understandings, and accordingly, confirmed that in light of the foregoing, the entities obligated under the provisions of the settlement are only the designated company, due to its status as the “Investor,” as defined in the settlement, and the holding corporations. Moreover, the trustees for the settlement confirmed that E.T.H M.B.M Extra Holdings Ltd., ExtraHolding GmbH, ExtraEnergie GmbH, Dolphin Fund and Eduardo Elsztain are not obligated by any obligation whatsoever under the settlement (including all documents comprising the settlement, as well as all annexes or clarifications submitted with respect thereto) or by virtue thereof.

25 | It is hereby clarified that the designated company and the holding corporations were established upon the conclusion of the Letter of Understanding, and that they did not take upon themselves any undertakings whatsoever beyond those specified in the settlement, and as specified in this section.

IDB Development Corporation Ltd. Convenience translation
161

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| e. (cont.)

| b. | (cont.)

| On April 13, 2014, the trustees for the bonds of IDB Holdings filed a motion with the Court to clarify that the rights and claims of the bond holders are reserved to them, as specified in the motion, with respect to that stated in the report of the trustees for the settlement dated April 8, 2014, and the Court approved the foregoing request on the same date.

| The designated company, Dolphin Netherlands and CAA (together: “the undertaking companies”) have confirmed and notified the Israel Securities Authority and the Company as follows: CAA and Dolphin Netherlands have each confirmed that by the end of 2016: (a) the sole and exclusive activity of each of them is and will be the holding of the Company’s shares, and no other activity whatsoever is being or will be conducted by them, of any type or kind, save such holding of the Company’s shares; and (b) that none of them have or will have any undertaking, of any kind whatsoever, save their undertakings in accordance with the creditors’ settlement. The designated company has confirmed that by the end of 2016 it does not have and will not have any activity or undertaking, of any kind whatsoever, save its undertakings in accordance with the creditors’ settlement. Before the performance of any change in the circumstances described above in any of the undertaking companies, by the end of 2016, the undertaking companies regarding which the aforementioned change will apply, as the case may be, will reach an understanding with the staff of the Israel Securities Authority regarding an agreed-upon outline for disclosure of the financial statements of the undertaking companies, to which the foregoing change applies, or any other agreed-upon alternative.

| f. | Performance of the creditor’s arrangement in IDB Holdings and the distribution of the consideration for the arrangement. On April 29, 2014, all of the conditions precedent for completion of the arrangement were fulfilled. Between May 7 and May 12, 2014, the creditors’ arrangement at IDB Holdings was completed. Inter alia, on May 8, 2014, Company shares constituting 53.3% of the Company’s issued and paid-in share capital were transferred to Dolphin Netherlands and to CAA in equal parts, and (indirect) control of the Company was transferred to Mr. Eduardo Elsztain and to Mr. Mordechai Ben-Moshe, such that IDB Holdings no longer holds any Company shares; NIS 150 million out of the bridging loan provided to the Company in March 2013 (as specified in Notes 16.G.2.b.3 and 16.G.3 above) was converted into Company capital and NIS 20 million out of the bridging loan was repaid upon the completion of the arrangement on May 7, 2014 and became part of the Clal loans; as of May 12, 2014, Company shares were listed for trading on the stock exchange and the Company became a public company; in conjunction with the completion of the arrangement, the beneficiaries of the arrangement received NIS 150 million out of the cash balance at IDB Holdings and NIS 39 million was allocated for future expenses.

At the end of May 29, 2014, the Clal Holdings Insurance Enterprises transaction expired having not been completed, as specified in Note 3.H.5.a above. In view of the aforesaid and in line with the provisions of the creditor’s arrangement at IDB Holdings, on June 3, 2014 the Company received NIS 480 million out of collateral funds of the arrangement, as investment in Company’s capital. Furthermore, the balance of the bridging loan (extended to the Company in March 2014), amounting to NIS 20 million, was converted into capital.
Upon provision of the aforementioned amounts, the total fund injection amounting to NIS 650 million as investment in Company capital, in conjunction with execution of the arrangement.
On June 5, 2014, a motion was filed by the creditor’s arrangement Trustees with the Tel Aviv-Jaffa District Court, petitioning the Court to allow the Trustees to execute the second stage of the creditor’s arrangement at IDB Holdings and to immediately distribute the balance of arrangement proceeds held by the Trustees (NIS 150 million as well as 20.75% of Company shares, namely “the Clal alternative shares”) to the arrangement beneficiaries, leaving in Trust the maximum amount which may be due with respect to contingent debt claims filed with the Trustees in conjunction with the agreement (according to the Trustees’ request, the maximum proceeds which may be due, according to the creditor’s arrangement, with respect to contingent debt claims, amount to 16,085,076 Company shares and NIS 77.5 million).
162

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

f. (cont.)
The aforementioned contingent debt claims have been filed by the Company and by former Board members and officers of the Company, with respect to derivative claims for reimbursement of dividends distributed by the Company to IDB Holdings (as stated in note 23.C.1.d below).
On June 9, 2014, the Company filed its response to the motion by the arrangement Trustees for distribution of outstanding proceeds of the arrangement, in which the Company noted that it had no objection to the motion by the arrangement Trustees for distribution of shares, however they petitioned the Court to dismiss the motion by the Trustees, with regard to distribution of the funds held with them.
On June 11, 2014, the Court granted the motion of the trustees to the arrangement for the distribution of the shares to the beneficiaries of the arrangement (apart from those claiming the contingent debt claims) in light of the agreement between the parties.
Further to the aforementioned resolution by the Court, on June 15, 2014 the arrangement Trustees distributed to the arrangement beneficiaries 25,173,481.26 Company shares held by the arrangement Trustees, which are part of the Clal alternative shares, which as of said date accounted for 12.59% of the Company’s issued share capital. The trustees noted, in the aforementioned notice, that they kept 16,085,076 Company shares (which as of said date accounted for 8.04% of the Company’s share capital), pending resolution of the contingent debt claims and also kept NIS 150 million, pending a resolution by the Court.
On June 26, 2014, the arrangement Trustees filed their response to the comments filed to the Trustees’ motion for distribution of outstanding proceeds of the arrangement. The Trustees in their response, petitioned the Court to reject the requests made in the comments (to retain and not distribute all cash on hand held by the Trustees) and to approve the cash distribution due to creditors of IDB Holdings in conjunction with Stage II of the creditors’ arrangement, while retaining the maximum amount which may be due with respect to contingent debt claims to be held in Trust at this stage (as stated above, this amount is NIS 77.5 million).
On July 30, 2014, a notice and mutually agreed motion was filed with the Court with regard to the motion by the Trustees for distribution of outstanding proceeds of the arrangement, which noted that the Trustees and respondents to the motion have reached agreement with regard to distribution of cash proceeds in Stage II of the creditors’ agreement in IDB Holdings, whereby NIS 72.5 million of cash amounts payable to the agreement beneficiaries in Stage II of the agreement, which is held in trust by the Trustees, would by distributed by the Trustees to creditors of the Company, with the Trustees retaining in trust 16,085,077 Company shares and NIS 77.5 million, which is the maximum proceeds which may be due pursuant to the creditors’ arrangement with respect to the contingent debt claims.
The aforementioned cash and shares would be held in trust by the Trustees to secure payment of the contingent debt claims, would not be distributed to creditors of IDB Holdings and would not be otherwise used, pending fulfillment of one of the conditions set forth in the aforementioned mutually agreed motion. On August 6, 2014, the Court granted the motion by the Trustees for distribution of outstanding proceeds as requested. In view of the foregoing, on August 25 and August 31, 2014, NIS 72.5 million was distributed to the beneficiaries of the arrangement, such that as of the report issue date, the Trustees retain 16,085,077 shares of the Company (which as of the report issue date and after the rights issue by the Company, as set forth above, constitute approximately 2.81% of the Company’s share capital (1.60% with full dilution) and also retain approximately NIS 77.5 million, pending resolution of the contingent debt claims filed with the Trustees as part of the arrangement, or a decision of the Court.
IDB Development Corporation Ltd. Convenience translation
163

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

f. (cont.)
Further to the shelf offering report issued by the Company on June 9, 2014, regarding the implementation of a rights issue (as stated in note 15.B.3 above), on June 15, 2014 a mutually agreed urgent motion was filed with the Court, seeking approval of an agreed arrangement (“the agreed arrangement”), reached by the arrangement Trustees, Dolphin and CAA, whereby Dolphin and CAA would acquire the rights conferred pursuant to the Company’s shelf offering report on the arrangement Trustees, with respect to 16,085,077 ordinary shares of the Company (which as of the aforesaid date constituted approximately 8.04% of the Company’s share capital), which are held by the Trustees.
In the motion, it was stated that the Trustees were of the opinion that the amounts to be received by the Trust upon exercise of the agreed arrangement would reflect the loss which may be incurred by creditors of IDB Holdings, due to their being unable to take part in the rights issuance with regard to shares held in trust by the Trustees.
As part of the agreed arrangement, it was clarified that amounts paid by Dolphin Netherlands and CAA to the Company in respect of utilization of rights and exercising of share options (which they will receive and purchase) arising from the rights issue, will be set against their undertakings to participate in rights issues in 2014 and 2015.
This agreed arrangement concluded all disputes between the Trustees and the holding corporations with regard to the Company shares held in trust by the Trustees, with regard to the rights issuance conducted by the Company in June-July 2014. The motion was granted by the Court on the same date.

| g. | On January 18, 2015 the Company received a letter from the trustees to the arrangement, in which they raised claims against the rights issue the Company performed in accordance with a shelf offer report dated January 19, 2015 (as specified in note 15.B.5 above), which included claims that the rights issue of the Company does not reflect the value of control of the Company, rather the value of the interest of the minority shareholders derived from the obligation of the Company’s controlling shareholders to perform tender offers on the Company’s shares in accordance with the provisions of the debt arrangement at IDB Holdings and that the interest of the minority shareholders will be diluted if minority shareholders participate in the rights issue; and that dilution of the entitlement of the minority shareholders to participate in the tender offers and the increase of the Company’s issued share capital amount to an interested parties’ transaction that benefits the controlling owners and requires the approval of the general meeting. The trustees of the arrangement asked the Company to act to carry out only a private placement of rights, with the approval of the shareholders’ meeting, in accordance with the Company’s liquidity needs, and they requested that the controlling owners would undertake to refrain from trading their shares until the date of realizing their whole undertaking to carry out tender offers or until the end of 2016, whichever is the earlier. Alternatively, the Company was requested to examine a possibility of separating the entitlement to participate in the tender offers from the Company’s shares prior to the rights issue, so that the right to participate in the tender offers would be given solely to the existing minority shareholders in the Company. Moreover, the Company was requested to give notice of its consent to release the shares deposited in trust with the trustees of the arrangement, unconditionally.

| On January 22, 2015, the Company responded to the trustees of the arrangement in a letter in which it rejected all of their claims against the rights issue, and it stated in the letter, inter alia, that: while the need to raise capital for the Company immediately could not be in dispute, the other possibilities that the trustees of the arrangement proposed (such as making a private placement or separating the entitlement to participate in the tender offers from the Company’s shares prior to the rights issue so that the right to participate in the tender offers would belong only to the minority shareholders that existed prior to the rights issue) are not within the Company’s ability, are not within its exclusive control and were not proposed to the Company by its controlling shareholders;

IDB Development Corporation Ltd. Convenience translation
164

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| g. | (cont.)

| that the beneficiaries of the arrangement were not given protection that the undertakings to make tender offers would be solely to them, but from the outset it was clear that the right would belong to all of the minority shareholders on the date of making the offers; that the rights issue is beneficial and it by nature treats the shareholders equally and is not an interested parties’ transaction; to the request of the trustees of the arrangement that the Company would agree unconditionally to release the shares deposited with them in trust, the Company replied that it already gave its conditional consent to the release of these shares, there is no reason why the trustees of the arrangement should not agree to the Company’s offer and that the trustees of the arrangement are fully liable for the release of the shares deposited with them to the beneficiaries of the arrangement and they will be liable for all of the damage that will be caused to them, if any, as a result thereof. The Company emphasized that if the trustees of the arrangement would apply to the court with regard to the rights issue, they should take into account the huge damage that might be caused as a result thereof to the Company and the derivative liability for that.

| In addition, on January 26, 2015, a motion was filed with the court by the Organization for Protection of the Public’s Savings and Mr. Ohad Aloni, in which the court was requested to approve the publication of a specification of an ordinary/ involuntary tender offer for the purchase of ordinary shares with no nominal value of the Company, issued to the minority shareholders of the Company in accordance with the shelf offer report published by the Company on January 19, 2015, in order to protect the aforesaid minority shareholders from the dilution of their entitlement to participate in the tender offers which Dolphin Netherlands and CAA undertook to perform in accordance with the provisions of the debt arrangement at IDB Holdings (as specified in note 16.G.b.6 above) (“the Motion to Publish a Tender Offer”). On January 28, 2015, the Court approved the motion by Hermetic Trust (1975) Ltd., in its role as a trustee for the bond holders (Series G and I) of the Company, an urgent motion to join the procedure in light of the expected implications of the motion to publish a tender offer on the rights of the bond holders of the Company and on the Company’s ability to serve its debt. On January 29, 2015 the Israeli Securities Authority filed its position on the motion to publish a tender offer, in which the Authority gave notice that the petitioners’ motion is not legally possible. At the same date the Company filed its response to the motion to publish a tender offer, as part of which it was claimed that the motion is bound to be rejected both due to lack of authority by the Court to discuss the motion as well as the fact that the motion contradicts the Companies Law. It was also claimed, that the motion adversely impacts the Company’s ability to raise capital.

On February 1, 2015, the trustees to the arrangement filed their response to the motion to publish a tender offer, according to which the petitioners’ motion is inapplicable and entails significant disadvantages. as part of this response, the trustees of the arrangement proposed an alternative solution, according to which Dolphin Netherlands would buy from the trustees of the arrangement the rights that would be issued for the shares held by them in trust and it would acquire additional rights from the minority public shareholders that would choose to transfer their rights to the trustees of the arrangement for the purpose of selling them, and they asked the Court to approve the agreed arrangement as aforesaid.
On February 3, 2015, the trustees filed a motion to allow them not to trade the rights issued within the rights issue at the Company in respect of the Company’s shares held in trust by them, and cause their expiry, since the alternative solution proposed by the trustees of the arrangement as stated above had turned out to be not implementable.
On February 3, 2015, the response by Hermetic Trust (1975) Ltd. was filed to the Court, in its role as a trustee to the bond holders (Series G and I) of the Company, as part of which it was noted that it objects to any motion which may prevent the trade in the rights and cause their expiry, as this would reduce the potential injection of capital into the Company.
IDB Development Corporation Ltd. Convenience translation
165

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| g. | (cont.)

On February 4, 2015, a discussion was held at the Court on the matter as part of which The Organization for Protection of the Public’s Savings and Mr. Ohad Aloni accepted the Court’s offer not to insist on their motion to publish a tender offer. In addition the Court noted that it is aware of the impact on the minority shareholders at the Company which was pointed out by the aforesaid petitioners and the trustees to the arrangement with regard to the intended issue, however this is not sufficient to prevent the performance of the issue. Additionally, the Court instructed the trustees to act according to their understanding and judgement with regard to their motion not to trade the rights in respect of the shares held by them in trust.
Accordingly, the trustees to the arrangement did not trade the issued rights as stated and caused their expiry.

| h. | On February 9, 2015, the trustees to the arrangement filed to the Court a motion to instruct the distribution of considerations to the beneficiaries to the arrangement, despite the Company’s objection and the granting of a warrant preventing the Company from objecting to the settlement agreement with regard to the derived claims against IDB Holdings (for details regarding the aforesaid derived claims and the settlement agreement as specified, see note 23.C.1.d below). as part of the aforesaid motion, the Court was requested to approve the distribution of the remaining consideration to which the beneficiaries of the arrangement are entitled in accordance with the debt arrangement at IDB Holdings and which have not been distributed yet and are currently held in trust by the trustees to the arrangement (apart from the amounts paid in accordance with the settlement agreement with regard to the specified derived claims, subsequent to its approval, at an amount of NIS 7 million to the Company).

In accordance with the agreement between the parties and the Court’s ruling, the Company will file its position with regard to the aforesaid motion by March 10, 2015. On February 23, 2015, a motion was filed to the Court by the Organization for the Protection of the Public’s Savings, Ltd. to grant right to respond to the motion by the trustees to the arrangement to provide instructions to distribute considerations to the beneficiaries to the arrangement despite the Company’s objection, as stated above.
In accordance with the Court’s decision of March 1, 2015, the Court would consider the motion upon receipt of the Company’s response. On March 10, 2015, the Company’s response to the aforesaid motion was filed, as part of which the Court was requested to dismiss the aforesaid motion, since according to it the provisions of the arrangement do not contain a provision that prevents the Company from submitting a debt claim to the trustees and there is no provision that prejudices the rights of the Company or that releases IDB Holdings from a claim of the Company against it. In a decision of the court of that date, the trustees were requested to reply to the Company’s response by April 5, 2015.
The Company objects to the settlement offer regarding the derivative claims against IDB Holdings, as as part of the aforesaid settlement the Company was required to waiver claims against IDB Holdings and against IDB Holdings’ directors, even in case an additional claim is filed against the Company with respect to a motion to approve a derivative claim against the Company filed in the matter of Discount Investments in respect of performing distributions of dividend by Discount Investments (see note 23.C.1.h below), and therefore the settlement does not merely benefit the Company but also binds it to waive rights.
On March 26, 2015, the trustees of the arrangement filed a reply to the response of IDB Development, in which the trustees of the arrangement reiterated what was stated in the motion and rejected the Company’s opposition, mainly for the reason that it conflicts with the provisions of the creditors’ arrangement in IDB Holdings.
IDB Development Corporation Ltd. Convenience translation
166

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| i. | A motion to provide an injunction to copy the IT materials of IDB Holdings – further to the motion by the trustees to the arrangement, a legal adviser was appointed to conduct investigations and represent the trustees to the arrangement in legal proceedings of IDB Holdings (the legal firm Naor-Gersht) (‘the legal adviser” or “the investigators”). On January 21, 2015, a motion was filed with the Court to grant an injunction for the copying of IDB Holdings’ computer material by the aforesaid legal adviser, as part of which the Court was requested to grant an injunction ex parte, which allows the aforesaid legal adviser or anyone on his behalf to copy, through a skilled professional, all of the magnetic media relating to IDB Holdings saved on the computer servers at the offices of IDB Holdings, and this, inter alia, because of the mixed use of the servers of the Company and IDB Holdings. On February 1, 2015, the Court granted the motion as requested. Pursuant to a decision of the Company’s Audit Committee and Board of Directors, on February 4, 2015, the Company filed with the Court an urgent motion to clarify the Court’s decision with regard to the copying of IDB Holdings’ IT material with regard to the manner of its application, in light of that in order to fulfil the Court’s decision and to transfer to copy all of the material belonging to IDB Holdings, screening and filtering work must first be done between the material belonging to IDB Holdings and the material belonging to the Company (which, in the Company’s opinion, the aforesaid legal adviser is not entitled to receive).

On the same day, an initial response was filed with the Court on behalf of the aforesaid legal adviser, with regard to the Company’s urgent motion to clarify the Court’s decision as stated, as part of which the Court was requested to allow the legal adviser to file its response to the Company’s motion within several days, whilst committing that the files copied from the Company’s and IDB Holdings’ servers will not be opened and will be kept in a safe at the office of the trustee Adv. Hagai Olman until the Court’s ruling. Additionally, on February 4, 2015, the legal adviser filed an urgent motion to provide an injunction according to the Contempt of the Court Ordnance, according to which the Court was requested to provide an injunction binding the Company’s management to provide to the aforesaid legal adviser immediately the computer drives to which the information was copied, which are stored at IDB Holdings’ safe, when there is no prevention that until the Court’s ruling the drives will first be transferred to the offices of the trustees to the arrangement. On February 4, 2015, a notice was filed to the Court regarding a procedural agreement with regard to the copying of the computer materials, according to which it was agreed, inter alia, that the computer drives of the legal adviser, kept in the IDB Holdings safe and the information copied onto them, will be transferred at this point, as is, to a trustee who will be determined with the parties’ consent, who will keep the computer drives sealed in his office without any one being granted permission to view them and who will transfer them to either of the parties pursuant to the Court’s decision or pursuant to written consent delivered to him by the trustees of the arrangement and the Company. It was further agreed that the motion to grant orders pursuant to the Contempt of Court Ordinance would be struck out without any order for costs, with each party reserving its claims. In the Court’s decision of February 5, 2015, the aforesaid consent of the parties was given the effect of a court decision.
On March 8, 2015 a notice was filed to the Court with regard to the reaching of an agreed settlement and a motion to grant it the effect of a decision, as part of which the parties reached an agreement with regard to the delivery of the material on the magnetic media, and according to which all of the documents on the magnetic media which relate to IDB Holdings will be transferred as is to the aforesaid legal adviser and all of the documents on the magnetic media which relate to the Company only, will not be transferred at this point to the legal adviser, and this without derogating from any claim either of the parties may have with regard to this.
IDB Development Corporation Ltd. Convenience translation
167

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| i. | (cont.)

The Company will deliver to the legal adviser, documents that belong to it according to the requests of the legal adviser on specific issues, and this unless it can provide reasonable justification no to do so, in which case in the lack of agreement between the parties a ruling will be made by the Court. All of the documents on the magnetic media belonging to the two companies or whose ownership is questionable will be delivered to the legal adviser. It was further agreed that at the first stage the information and the documents to which such separation is done as stated and which will be delivered to the legal adviser will relate to the years 2007-2013 only and later on documents will be delivered to the legal adviser with respect to the other years according to the demand by the legal adviser, if he believes there is a need to do so.
On March 11, 2015, an urgent motion was filed with the Court to grant a right of response to a “notice of reaching an agreed arrangement and a motion to grant it the effect of a decision” as stated above on behalf of former directors and shareholders at IDB Holdings (“the former directors and shareholders”). The former directors and shareholders were sued by IDB Holdings in a proceeding relating to a distribution of dividends by IDB Holdings in the years 2008-2010 and the trustees to the arrangement are conducting the claim against the former directors and shareholders, through the aforesaid legal adviser (Naor-Gersht legal firm).
Since the motion to approve the aforesaid arrangement raises a concern that documents that are subject to attorney-client confidentiality will be revealed to the trustees and the legal adviser, the Court was requested to allow the former directors and shareholders to give brief reasons for their claims against the motion to approve the agreed arrangement as stated above. On March 12, 2015, the court approved the motion to grant the force of a decision to the agreed arrangement that the parties reached with regard to the delivery of the material on the magnetic media as stated above. On the same day, the former directors and shareholders of IDB Holdings filed with the court an urgent motion to stay its decision of March 12, 2015, in order to allow them to apply to the Supreme Court in an appeal against the decision. On March 13, 2015, the court decided to stay the performance of its decision of March 12, 2015, and it ordered the trustees of the arrangement and the investigators to file their position on the motion. On March 19, 2015, the investigators’ response was filed; in it, they stated that the trustees of the arrangement and the investigators as aforesaid agree that insofar as as part of the documents that were seized any document would be found that was exchanged between the former directors and shareholders and their attorneys, which contained legal advice that was given solely to a former officer (as opposed to a document that also includes advice that was given to the Company), those documents would not be transferred to the investigators at this stage, and all of the parties would reserve all of their claims. In its decision of March 20, 2015, the court ordered the former directors and shareholders to submit their reply to the aforesaid response of the investigators by March 29, 2015.

| j. | Irrevocable offer received from Dolphin Netherlands to raise capital for the Company – on January 1, 2015, after having received the recommendations of the independent committee on this matter, the Company’s Board of Directors resolved, on the basis of Dolphin Netherlands’ offer (which was in effect until that date), to raise capital, which has been received at the Company on December 29, 2014, that the Company will act to raise capital by way of a rights issue in accordance with the outline of the offer. For details regarding a rights issue performed by the Company in January-February 2015, in accordance with the outline of the stated offer, see note 15.B.(5) above. Following are the principles of the irrevocable offer received by the Company from Dolphin Netherlands for the raising of significant capital for the Company and the strengthening of its capital structure:

| 1. | The Company will immediately perform a rights issue of scope of approximately NIS 800 million (including the public’s share) (“the maximum immediate consideration”).

168

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| J. | (cont.)

| 2. | As part of the rights issue, the following will be issued to the existing shareholders of the Company: (a) shares of the Company (“the rights offer shares”) and (b) share options (issued for no consideration) exercisable for shares of the Company (“the share options”). The maximum future consideration for the Company from the exercising of all of the share options will be approximately NIS 1.2 billion (including the public’s share).

| 3. | The price per share (“PPS”) of the rights offer shares will be according to accepted market conditions and following consultation with capital market experts.

| 4. | The share options will be divided into three series as follows:

| a. | First series exercisable for a period of one year from the date of the rights offer at an exercise price equal to 110% of the PPS.

| b. | Second series exercisable for a period of two years from the date of the rights offer at an exercise price equal to 120% of the PPS.

| c. | Third series exercisable for a period of three years from the date of the rights offer at an exercise price equal to 130% of the PPS.

| 5. | Dolphin Netherlands’ undertaking to inject funds –

Subject to a resolution by the Company’s Board of Directors to perform the rights issue stated above, Dolphin Netherlands undertakes as follows:

| 1. | Dolphin Netherlands (or another entity controlled by Mr. Eduardo Elsztain) undertakes to inject funds into the Company in an amount of not less than NIS 256 million and up to NIS 400 million, as follows:

| a. | NIS 256 million, to be injected by exercising all of the rights relating to the rights offer shares issued to Dolphin in the rights issue.

| b. | An additional investment (“the additional investment”) at an amount equaling – (a) the maximum immediate consideration less (b) the amounts actually received by the Company in the rights offer, apart from share options exercising, so long as the additional investment does not exceed an amount of NIS 144 million.

| c. | The additional investment will be performed by acquiring additional rights in the rights issue and in case Dolphin Netherlands (or another entity controlled by Mr. Eduardo Elsztain) does not purchase additional rights to cover the full additional investment by acquiring additional rights in the rights offer, the amount remaining will be invested by participating at an additional rights issue performed by the Company, at a scope of no more than NIS 460 million.

| 2. | According to the Company’s request, Dolphin Netherlands will exercise share options from the first series in total consideration for the Company of up to NIS 150 million, under the condition that such a request is made within six months and twelve months from the date of the rights issue.

| 3. | Dolphin Netherlands will exercise all of the share options it receives in the rights offer, subject to fulfilling the following two cumulative conditions:

| a. | The Company and its relevant lenders reach an agreement regarding the changing of covenants to which the Company is obligated with respect to these lenders.

| b. | A control permit is obtained from the Commissioner of the Capital Market, Insurance and Savings for control of Clal Insurance Company Ltd., a subsidiary of Clal Holdings Insurance Enterprises (“Clal Insurance Company”), while Clal is controlled by the Company (with regards to the matter of the control of Clal Insurance Company, see also note 3.H.5.c. above).

| 4. | Any amount injected by Dolphin Netherlands into the Company in accordance with this subsection (5), will be on account of the amounts to which “the investor” has undertaken as part of the undertaking to participate in a rights offer by the Company in accordance with the debt arrangement at IDB Holdings.

IDB Development Corporation Ltd. Convenience translation
169

Note 16 – Bank Loans and other Financial Liabilities at Amortized Cost (cont.)

G. | Legal proceeding regarding the Company’s financial position; the creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

| 2. | The creditors’ arrangement in IDB Holdings and additional proceedings relating thereto (cont.)

j. (cont.)

| It should be further noted that prior to the making of the rights issue that was completed in February 2015, Dolphin Netherlands gave notice that insofar as the undertaking of Dolphin Netherlands to inject money into the Company as part of the terms of Dolphin’s offer would be performed (in full or in part) by another entity controlled by Mr. Eduardo Elsztain (“Elsztain corporation”) as stated above in the offer of Dolphin Netherlands, then the Elsztain corporation would agree to undertake, jointly and severally with Dolphin Netherlands, to perform all of the undertakings of Dolphin Netherlands pursuant to the debt arrangement in IDB Holdings and that any amount that would be injected by Dolphin Netherlands and/or the Elsztain corporation into the Company as part of the rights issue would be account of the amounts that the “investor” undertook as a party of the undertaking to participate in rights issues of the Company pursuant to the debt arrangement in IDB Holdings.

Note 17 - Provisions

A. | Composition

|  | Site dismantling and remediation (B) |  |  | Legal claims (C) |  |  | Contractual obligations and onerous contracts (D) |  |  | Provision for warranty and other provisions |  |  | Total |
|  | NIS millions |
Balance as at January 1, 2014 |  |  | 21 |  |  |  | 83 | (1) |  |  | 207 |  |  |  | 28 | (1) |  |  | 339 |
Provisions made during the year |  |  | 1 |  |  |  | 35 |  |  |  | 162 | (2) |  |  | - |  |  |  | 198 |
Provisions utilized during the year |  |  | - |  |  |  | (2 | ) |  |  | (23 | ) |  |  | - |  |  |  | (25 | )
Provisions reversed during the year |  |  | (1 | ) |  |  | (44 | ) |  |  | (75 | ) |  |  | (8 | ) |  |  | (128 | )
Changes from exchange rate differences |  |  | - |  |  |  | - |  |  |  | 11 |  |  |  | - |  |  |  | 11 |
Balance as at December 31, 2014 |  |  | 21 |  |  |  | 72 |  |  |  | 282 |  |  |  | 20 |  |  |  | 395 |
Non-current portion |  |  | 21 |  |  |  | - |  |  |  | 196 |  |  |  | 18 |  |  |  | 235 |
Current portion |  |  | - |  |  |  | 72 |  |  |  | 86 |  |  |  | 2 |  |  |  | 160 |
Balances as at December 31, 2014: |  |  | 21 |  |  |  | 72 |  |  |  | 282 |  |  |  | 20 |  |  |  | 395 |
Non-current portion |  |  | 21 |  |  |  | 2 |  |  |  | 87 |  |  |  | 22 | (1) |  |  | 132 |
Current portion |  |  | - |  |  |  | 81 | (1) |  |  | 120 |  |  |  | 6 |  |  |  | 207 |
Balances as at December 31, 2013: |  |  | 21 |  |  |  | 83 |  |  |  | 207 |  |  |  | 28 |  |  |  | 339 |

(1) | Reclassified, see note 1.F.1 above.

(2) | For details regarding a provision recorded by Shufersal as part of an updated business plan with respect to onerous rental contracts, for the leasing of commerce areas, which are not cancellable, see note 3.H.3.b above.

B. | Site dismantling and remediation - The Group companies are required to recognize certain costs of removal of assets and remediation of sites on which the assets were located. The aforesaid expenses are calculated based on the dismantling value in the current year, while taking into consideration the best assessment of future changes in price, inflation, etc., and are capitalized at a risk-free interest rate. The forecasts regarding the volume of the removed or constructed assets are updated according to expected changes in regulations and technological requirements.

IDB Development Corporation Ltd. Convenience translation
170

Note 17 – Provisions (cont.)

C. | Legal claims - Legal claims are filed against Group companies in the ordinary course of business, and regarding part of the claims, motions are filed for approving them as class actions. Where provisions were necessary to cover the exposure resulting from said claims, provisions were included, which are adequate in the opinion of the managements of the Group companies, based on, inter alia, legal opinions regarding the chances of such claims. For details on claims, see note 23.C, and for details on contingent liabilities, see note 23.A.

D. | Other contractual obligations - Provisions for other contractual obligations include a number of obligations arising from a contractual liability or legislation, in respect of which there is a high component of uncertainty in terms of the timing and the amounts required in order to settle the liability.

Note 18 - Employee benefits
Employee benefits include post-employment benefits, other long-term benefits, termination benefits, short-term benefits and share-based payments The Group’s liability for employee severance benefits in respect of its Israeli employees is calculated in accordance with the Israeli severance pay law.
As regards post-employment benefits, the Group companies have defined benefit plans for which they make contributions to central severance pay funds and insurance policies. The Group companies also have defined contribution plans for some of their employees who are subject to section 14 of the Severance Pay Law, 5723-1963. Regarding share-based payments in a main investee company, see Annex II of the Financial Statements.
A. Composition:

|  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS Millions |
Employee benefits presented as non-current liabilities |  |  |  |  |  |
Present value of unfunded obligations |  |  | 104 |  |  |  | 75 |
Present value of funded obligations |  |  | 449 |  |  |  | 422 |
Total present value of defined benefit obligations (post-employment) |  |  | 553 |  |  |  | 497 |
Fair value of plan assets |  |  | 392 |  |  |  | 366 |
Recognized liability for defined benefit obligations |  |  | 161 |  |  |  | 131 |
Liability for grants |  |  | 20 |  |  |  | 21 |
Liability for other long-term benefits |  |  | 12 |  |  |  | 12 |
Liability for vacation and remuneration of employees |  |  | 52 |  |  |  | 53 |
Total |  |  | 245 |  |  |  | 217 |
* Plan assets comprise: |  |  |  |  |  |  |  |
Equity instruments |  |  | 72 |  |  |  | 64 |
Government bonds |  |  | 146 |  |  |  | 147 |
Corporate bonds |  |  | 100 |  |  |  | 100 |
Cash and other |  |  | 74 |  |  |  | 55 |
Total |  |  | 392 |  |  |  | 366 |
Total employee benefits presented in the following sections: |  |  |  |  |  |  |  |
Assets designed for payment of benefits for employees |  |  | 1 |  |  |  | 1 |
Accounts payable and credit balances |  |  | 72 |  |  |  | 74 |
Long-term employee benefits |  |  | 174 |  |  |  | 144 |

IDB Development Corporation Ltd. Convenience translation
171

Note 18 - Employee benefits (cont.)

B. | In November 2014 The Israel Securities Authority published accounting staff position document number 21-1 relating to the existence of a deep market in high quality corporate bonds in Israel, for the determination of the discount rate of obligations for defined benefit denominated in NIS in accordance with IAS 19, Employee Benefits. According to the aforesaid position document, the proper implementation manner for transition from use of the rate of return of government bonds to a rate of return of high quality corporate bonds is on a prospective basis. As a result of the specified change in the discount rate, Adama recorded actuarial gains under other comprehensive income, amounting to USD 10 million. The Company’s share in the aforesaid actuarial gains recorded by Adama amounts to NIS 11 million.

C. | Significant changes to employee benefits at a consolidated company – Shufersal

In 2014 Shufersal made a number of changes to its estimates with regard to its liability with respect to a defined benefit plan, and among other things the following changes were made (which were recorded under actuarial differences within other comprehensive income (loss)):

| 1. | Change to measurement according to a discount rate derived from the returns on corporate bonds – as a result from the change in the discount rate as specified in section B. above. As a result of the specified change, a decrease occurred in the liability (gross) of Shufersal with respect to a defined benefit plan totaling NIS 29 million (the Company’s share in the aforesaid amount is NIS 10 million).

The gap between the corporate discount rate and the government discount rate as of December 31, 2014, according to which the liability was calculated at Shufersal is approximately 0.85% on average.

| 2. | The increasing of the minimum wage in Israel – in January 2015 an amendment to the Minimum Wage Law was approved, according to which the minimum wage will be increased to NIS 5,000 per month in three stages: on April 1, 2015 the minimum wage will be increased to NIS 4,650, on August 1, 2016 the minimum wage will be increased to NIS 4,825 and on January 1, 2017 the minimum wage will be increased to NIS 5,000. As of April 2016 the minimum wage will be 47.5% of the average wage in the market at April in each relevant year. Shufersal estimates, that the increase of the minimum wage as stated may have an adverse effect on its business results and cause an addition to its payroll expenses. As a result of the aforesaid increase in the minimum wage, in increase occurred in the liability (gross) of Shufersal with respect to a defined benefit in the amount of NIS 4 million (the Company’s share in the aforesaid amount was NIS 1 million).

| 3. | Update of employee turnover rate – in 2014 Shufersal updated the turnover rate, including the expected rate of employees leaving in a manner that entitles them to severance supplements by law. As a result, an increase occurred in the liability (gross) of Shufersal with respect to a defined benefit plan, at an amount of NIS 18 million (the Company’s share in the stated amount is NIS 7 million).

D. | Voluntary retirement plan in Cellcom

In June 2014 Cellcom offered its employees a voluntary retirement plan, which included a non-recurring grant to each employee who chose to participate in the plan. Cellcom recorded a non-recurring expense amounting to NIS 39 million with respect to the total grants for the employees who chose to join this plan. The Company’s share in the stated expense amounted to NIS 12 million.
IDB Development Corporation Ltd. Convenience translation
172

Note 19 - Accounts Payable and Credit Balances

|  | December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Accrued expenses - interest |  |  | 491 |  |  |  | 765 |
Accrued expenses - other |  |  | 131 |  |  |  | 124 | (1)
Liabilities to employees |  |  | 344 |  |  |  | 349 |
Institutions |  |  | 62 |  |  |  | 58 |
Advances from purchasers of apartments |  |  | 204 |  |  |  | 311 |
Provisions for expenses |  |  | 90 |  |  |  | 68 |
Advance payments from customers |  |  | 367 |  |  |  | 318 |
Advanced revenues |  |  | 77 |  |  |  | 84 |
Other accounts payable and credit balances |  |  | 146 |  |  |  | 281 |
|  |  | 1,912 |  |  |  | 2,358 |

(1) Reclassified; see note 1.F.1 above.

Note 20 - Trade Payables

|  | December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Outstanding debts |  |  | 2,166 |  |  |  | 1,982 |
Post-dated checks |  |  | 338 |  |  |  | 309 |
|  |  | 2,504 |  |  |  | 2,291 |

Shufersal purchases from a main supplier amount to approximately NIS 1.2 billion in 2014 and 2013.
Note 21 - Financial Instruments

A. | Management of financial risks

The Group is exposed to the following risks, which arise from the use of financial instruments:

| - | Credit risks

| - | Market risks (comprised of index risk, currency risk, interest risk and other price risk)

| - | Liquidity risks

| - | Operating risks

The Company does not determine the risk management policy of its investee companies.
The person responsible for the management of financial risks in the Company is the chief financial officer.
The direct handling of the Company’s financial exposures, the formulation of hedging strategies, the supervision of their implementation and the provision of an immediate response, if possible – taking note of the various restrictions that apply to the Company (see note 16.E above), to unusual developments in the various markets that have a direct impact on the Company’s risks, if they are relevant to the Company, is in the hands of the person responsible for the management of risks in the Company, who is assisted by a team, and all such matters are discussed and examined by the Company’s audit committee and Board of Directors.
As at the reporting date, the principal risk that the Company faces is the liquidity risk (see below).
IDB Development Corporation Ltd. Convenience translation
173

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

Exposure to fluctuations in the market value of investee companies
Most of the assets of the Company are direct investments in two companies, the shares of which are traded on the stock exchange: Discount Investments and Clal Holdings Insurance Enterprises. The investment in Discount Investments is usually a long-term investment and is not presented in the Statement of Financial Position at fair value. The investment in Clal Holdings Insurance Enterprises is measured at fair value through profit and loss (see notes 3.H.5.a-d). Changes in the prices of the securities of these companies and of companies held by them can affect, directly or indirectly, the reported business results, capital, cash flows, the value of the Company and/or the equity value; they can also have an impact on the possibilities and terms of realization of these assets, that are and can be used as collateral to secure credit, on the rating of the Company’s bonds, on the degree to which the Company complies with the financial covenants of lenders and supervisory agencies, on the ability to distribute a dividend, on the availability of credit and financing and the terms thereof. In this respect, a negative change in prices, may result, among other things, in a decrease in the consideration and/or the equity (directly in equity or through capital gains – pursuant to generally accepted accounting principles) of the Company and of the investment companies held by it, a decrease in the profitability of the investee companies and reductions recorded by the Company and investee companies thereof in their investments in investee companies.
The Company does not usually use hedge instruments against these risks.
The security and economic situation in Israel and around the world may also have a negative impact on the business results of the investee companies, and accordingly, on the business results, equity, cash flows and value of the Company.
The Company is indirectly exposed, mainly through its major investments and their investee companies, to changes in the prices of raw materials, the prices of securities, other prices and other economic indices, which may have a material impact on the assets and liabilities of the companies, including the liabilities of the companies to vendors, customer debts to the companies, the value of inventories held by the companies and of other assets and liabilities. In addition, the Company is exposed to inflation, interest and exchange rate risks.
The major companies impacting on the market risks of the Company are the direct investee companies – Discount Investments and Clal Holdings Insurance Enterprises (“Clal Insurance”), and a number of their investees: Cellcom, Koor, Adama, Shufersal and Property & Building.

| 1. | Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism)

| Market risks - The Company is directly exposed to market risks as a result of changes in the tradable value of its holdings, changes in the consumer price index, and changes in interest rates, which may affect its assets and liabilities and impair the business results, shareholders’ equity, cash balances and cash flows, and the value of the Company. Considering the situation of the Company and the restrictions applying to it, the ability of the Company to manage market risks has significantly decreased, since as at the reporting date the Company is not able to engage in new hedge contracts.

| The Company is exposed to the various market risks, also indirectly, due to the impact thereof on its investee companies.

Direct exposure of the Company’s liabilities to the CPI increase – As at the reporting date, the Company has CPI-linked liabilities totaling NIS 2.6 billion with a duration of 3.7 years, compared with CPI-linked liabilities totaling NIS 3 billion with a duration of 3.8 years as at December 31, 2013. These index-linked liabilities constitute 66% and 59% of the Company’s debt as at December 31, 2014 and 2013, respectively.
In the past, the Company partially hedged this exposure by acquiring CPI forward contracts. As at the reporting date, 2 such contracts were held which amounted to NIS 78 million, for a (weighted) average remaining period of 2.5 months, and hedge against an average increase in the CPI of 2.5%. These contracts expired shortly before the date of Statement of Financial Position. As at December 31, 2013, the contracts held amounted to NIS 313 million, for a (weighted) average remaining period of 7.5 months.
In addition, the Company entered into a swap transaction for the exchange of a CPI-linked liability for a nominal liability over a specific series of bonds, the balance of which as at the date of the Statement of Financial Position is NIS 29 million nominal value.
IDB Development Corporation Ltd. Convenience translation
174

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

| 1. | Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism) (cont.)

It is noted, that the value of contracts of the stated type is measured in the statement of financial position according to fair value, and it is effected not only from the actual increase in CPI, but also and primarily from the expectations reflected in the market with regard to the remaining period (and which may change from one period to the next). This causes the economic hedge by the contracts not to reduce the volatility of the accounting expense, and sometimes even increase it.
Exposure to variances in the market value of the Company’s assets and the effect of market variables on these values – as a general rule, the Company does not perform hedging transactions against these exposures, mainly because these assets are held, usually, for an extended period. However, in some cases in the future such hedges may be performed as said.
Effects of NIS exchange rates - The Company is exposed to the effect of exchange rates on the fair value of investee companies which operate abroad and/or mostly in foreign currency.
Liquidity risks
For details regarding the Company’s financial position and plans, see note 1.B above.
The Company included in the Board of Directors’ Report as at December 31, 2014, a projected statement of cash flows of the Company and its wholly-owned administrative companies (except for IDB Tourism), which contains a breakdown of the financial liabilities and the financial sources from which the Company expects to repay them in the two-year period commencing on the date of the Statement of Financial Position.
The Company’s activity (repayment of debts, general and administrative expenses and in the past also investments and dividends) is financed mainly by proceeds from the sale of assets, and in the past, generally, by dividends received from investee companies, issuances of bonds and loans from financial corporations, including from banks. Since the completion of the debt arrangement at IDB Holdings, the Company’s payments include primarily repayments of debts and general and administrative expenses and they are financed by raising capital, in which the controlling shareholders take a significant part. As at December 31, 2014, the liquid means held by the Company totaled NIS 296 million (of which NIS 198 million were an investment in a tradable portfolio), compared with liquid means of NIS 747 million (of which NIS 396 million were deposited in favor of the creditors of the Company in accordance with the instructions of the court and NIS 16 million were investments in a tradable portfolio) as at December 31, 2013. The Company manages liquidity risks in order to ensure a sufficient degree of liquidity for meeting its obligations and expected payments on time, to the extent possible without damaging the assets value as stated. For this purpose the Company recently performed raisings of capital, including by way of rights issue to its shareholders. Among other methods, the Company uses cash flow forecasts, to the extent possible given the nature of its businesses, in order to monitor cash flow requirements. The duration of the gross outstanding debts of the Company, which as at December 31, 2014 amounted to NIS 3.9 billion, is 3.03 years (compared to 2.95 years as at December 31, 2013).
The Company has bank loans of NIS 822 million and a loan from a financial institution of NIS 75 million as at December 31, 2014, in respect of which the Company undertook to meet financial covenants. For details on the financial covenants and causes for immediate repayment, including due to change of control, and agreements reached with regards thereto, see note 16.E above.
For details on a secured loan from a financial institution, against which the Company pledged a deposit and part of its investments, including additional charges subsequent to the date of the Statement of Financial Position, see note 16.C.2 above.
The Company is exposed to a liquidity risk deriving also from it being part of one of the major borrower groups in the Israeli economy and as such – it is subject to the restriction of a sole borrower in Israeli banks.
For details on guarantees and comfort letters furnished by the Company to a subsidiary, see note 26.C-D.1 below.
As at the reporting date, the bonds of the Company were rated BB with a negative outlook. In March 2015, after the date of the Statement of Financial Position, Maalot lowered the rating of the Company’s bonds, see note 16.D above.
IDB Development Corporation Ltd. Convenience translation
175

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

| 1. | Risk management policy of the Company and its wholly-owned companies (excluding IDB Tourism) (cont.)

Exposure to changes in interest rates – As noted, the Company holds some of its liquid means in an NIS trust fund, which is measured at fair value which is slightly sensitive to changes in interest rates. As at December 31, 2014, the amount of investment in the aforesaid fund totaled NIS 198 million. In addition, the Company has NIS-denominated liabilities at variable interest rates, to banks and a financial institution, at a total amount of NIS 708 million. Therefore, an increase in the interest rate will cause an increase in the Company’s future interest payments.
Credit risks – In accordance with the policy of the Board of Directors, the Company’s management invests liquidity surpluses mainly in deposits in local banks, which are not creditors of the Company, with the aim of maintaining the liquid balances at low risk. As at December 31, 2014, the Company’s total liquid balances amounted to NIS 296 million, of which an amount of NIS 198 million was invested in an NIS trust fund and the balance is kept as aforementioned in deposits, mainly with banks which are not creditors of the Company.
The Company’s policy with regard to risk management, as specified above, is only performed for the Company itself and wholly owned subsidiaries, apart from IDB Tourism.
The Company does not set policy and does not manage the risks of the investee companies thereof. The policy of the investee companies is set directly by the companies themselves. Furthermore, the Company does not engage in activities designed to hedge market risks deriving from the operations of its investees, or from the operations of companies held by them. Moreover, the Company does not manage the aggregate risks of the investee companies and/or the companies held by them.

| 2. | Risk management policy of subsidiaries

| a. | Discount Investments

Market risks - Discount Investments is directly exposed to market risks resulting from changes in exchange rates and in the rate of inflation in Israel, as well as from market variables that affect the markets on which its holdings are traded and accordingly the value of such. Discount Investments is also exposed indirectly to various market risks that affect the performance of its investee companies.
Approximately 74% of Discount Investments’ debt as at December 31, 2014, is in CPI-linked NIS-denominated bonds, and the rest of the debt is in unlinked NIS-denominated loans and bonds. The bonds bear fixed interest, and their fair value is affected from time to time by changes in the market interest rate.
Direct effects of the NIS exchange rates – As at December 31, 2014, Discount Investments held an insignificant part of its cash balances in dollars. Occasionally, Discount Investments sells or purchases holdings, the consideration of which is denominated in foreign currency, usually the dollar. The exposure in these transactions is present in the period before the closing of the transaction.
Discount Investments is also exposed to the effect of exchange rates on the NIS market value of its investee companies that operate abroad and/or mainly in foreign currency.
In addition, the non-recourse loan specified in Note 16.F.1.d. above, which Koor received as part of the completion of the merger transaction of Adama with ChemChina, is exposed to changes in the exchange rate of the U.S. Dollar.
Direct exposure to the increase in the CPI – As at December 31, 2014, Discount Investments has debt in respect of CPI-linked bonds in an amount of NIS 3.9 billion, with a duration of approximately 5 years.
Discount Investments partially hedges this exposure by acquiring CPI forward contracts for periods between 1-3 years. As at December 31, 2014, the contracts held amounted to NIS 1.75 billion, for an average remaining period of 7 months.
It should be noted that these kind of contracts are measured for accounting purposes at fair value, which is affected not only by the actual increase in the CPI until the date of measurement, but also by the market’s anticipations for the rest of the period (and which may change from one date of measurement to the other). The effect of the aforementioned is that the economic hedge obtained by using these contracts may not reduce the fluctuations in the accounting result, and sometimes may even increase it.
IDB Development Corporation Ltd. Convenience translation
176

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

2. Risk management policy of subsidiaries (cont.)

| a. | Discount Investments (cont.)

Exposure to fluctuations in the market values of Discount Investments’ assets and to the effect of market variables on these values – Discount Investments does not hedge against such exposures.
Exposure to changes in interest rates – Bonds issued by Discount Investments and bank loans received by it, amounting on the date of the statement of financial position as at December 31, 2014, to NIS 4.7 billion and NIS 214 million, respectively, bear fixed interest, and are therefore not exposed to cash flow fluctuations from changes in interest rates. Bank loans received by Discount Investments, totaling NIS 306 million at December 31, 2014, and have variable interest rate, are exposed to changes in the prime interest rate. In addition, the non-recourse loan specified in Note 16.F.1.d above received by Koor as part of the completion of the merger transaction of Adama with ChemChina, is exposed to changes in the LIBOR interest rate of the US Dollar for 6 months (this interest rate moved in 2014 between 0.4% and 0.3%, and proximate to the date of approval of these financial statements, is approximately 0.395%). As at the date of approval of these financial statements, Discount Investments does not hedge this risk. In the past, Discount Investments did not engage in hedges against the value exposure deriving from the fixed interest rates of its bonds, and that was the situation also as at the date of approval of these financial statements.
Credit risks - In accordance with the policy of the Board of Directors of Discount Investments, the management of Discount Investments invests its surplus liquidity so as to obtain a fair return on it, while maintaining a suitable return-risk ratio, in solid channels – mainly short-term shekel deposits in a number of major Israeli financial institutions, and it also invests in liquid securities, which include mainly trust funds, exchange traded funds, government and corporate bonds with a rating of at least A+. In addition, the maximum percentage of securities of a single issuer, which Discount Investments holds in its portfolio does not exceed 10% of the value of the investment portfolio. Discount Investments carries out transactions in derivative financial instruments only through banking corporations and entities that are required to maintain collateral levels in accordance with scenarios. Except for the above, Discount Investments has no other material financial assets that are exposed to credit risks.
Liquidity risk – The policy of Discount Investments is to act so that it has sufficient liquid resources to meet its liabilities when due. Within this framework, Discount Investments aspires to maintain an appropriate cash balance. It is noted, that as at the date of approval of these financial statements, Discount Investments has a liquid resources balance of NIS 1,262 million, whilst the total repayments of principal and interest with respect to the debt of Discount Investments until the end of the first quarter of 2016 (approximately one year subsequent to the date of approval of these financial statements) amounts to approximately NIS 891 million.
Discount Investments conducts continuous examinations of the future cash flow projections and the various sources available to it, which include, among others, the following:

· | Expected dividends from investee companies - in such respect, Discount Investments monitors the profitability of the investee companies, the available cash flows thereof and their ability to distribute dividend.

· | Sale of holdings in investee companies - it should be noted, that Discount Investments controls major public companies, leading their fields of operation, whose shares are highly tradable, and the holdings of Discount Investments therein are not pledged under specific pledge. Discount Investments is able to realize limited percentages of the share capital of investee companies thereof, and is also able to realize all or most of its holding in the shares of one of the investee companies.

IDB Development Corporation Ltd. Convenience translation
177

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

2. Risk management policy of subsidiaries (cont.)

| a. | Discount Investments (cont.)

Liquidity risk (cont'd)

· | Debt recycling - Discount Investments examines periodically the possibility of enlarging an existing bonds series, replacing existing bonds series of short duration with existing bonds series of longer duration (similar to the replacement carried out in January 2014, as detailed in Note 16.F.1.a. above), or issuing a new bonds series. In addition and if necessary, Discount Investments will act in order to raise loans from financial institutions. Recently the market value of Discount Investments main assets has declined (mainly as a result of the competitive environment in which they operate) and as a result the leverage level of Discount Investments and the yields to maturity on its bonds have increased, which may limit its ability to refinance its debt as stated.

| b. | Cellcom

Credit risk – The management of Cellcom monitors the exposure to credit risk on an ongoing basis. Cellcom conducts credit assessments on customer accounts exceeding a certain amount, and requires collateral against them. The management of Cellcom regularly monitors outstanding customer debts.
Cellcom’s cash and cash equivalents are deposited in major banking institutions in Israel. Cellcom invests only in highly liquid bonds and only when the counterparty has a credit rating of at least AA- granted by Maalot. Cellcom actively monitors credit ratings, and in view of these high credit ratings, Cellcom’s management does not anticipate that the counterparties will not meet their obligations.
As at December 31, 2014, Cellcom does not have a substantial concentration of credit risks. Financial instruments that could potentially subject Cellcom to credit risk consist mainly of trade receivables balances. Credit risk from trade receivables balances is limited due to the composition of the customer base, which includes a large number of individual customers and businesses.
Liquidity risk – Cellcom invests surplus cash not required for funding its current operations in interest-bearing investment channels, such as short-term deposits and bonds. Such investment channels are selected according to forecasts of Cellcom’s future cash needs for meeting its obligations. Cellcom examines current forecasts of its liquidity needs, in order to ensure that cash balances are sufficient to cover its operating needs. The company verifies the availability of unutilized credit lines, in order to avoid exceeding the determined credit limits and deviating from financial covenants that it must meet. Said forecasts take into account factors such as Cellcom’s plans to use debt for funding its operations, meeting binding financial covenants, and meeting also external prescriptions, e.g. laws or regulation.
Market risk - Cellcom purchases and sells derivatives in the regular course of business, and also undertakes financial liabilities for the purpose of managing market risks, in accordance with the policy determined by Cellcom’s board of directors.
Interest and CPI risk – Cellcom is exposed to fluctuations in the interest rate, including changes in the CPI, since the majority of its borrowings are linked to the CPI. As part of the risk management policy, Cellcom has entered into forward contracts that partially hedge its exposure to changes in the CPI.
Currency risk – Cellcom’s operating income and cash flows are exposed to currency risk, mainly due to handset and network- related acquisitions and its international roaming services activity. Cellcom also has bank accounts that are denominated in foreign currencies other than its principal currency, primarily in USD and Euro. In the framework of its financial exposures hedging policy, Cellcom uses forward and option transactions to partially hedge its exposure to fluctuations in foreign exchange rates.
IDB Development Corporation Ltd. Convenience translation
178

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

2. Risk management policy of subsidiaries (cont.)

| c. | Property & Building

The operations of Property & Building are financed mainly by CPI-linked long-term shekel loans. The revenues of Property & Building in Israel are all linked to the CPI and any surplus cash is invested for short periods, mainly in shekel deposits and marketable securities. Property & Building’s foreign operations are financed, to the extent possible, with credit in the operating currency of the local market in which the operations are carried out.
Market risks - The nature of its business exposes Property & Building to market risks deriving from changes in external factors, such as the level of activity of the real estate sector in the economy, changes in the consumer price index, changes in the Construction Inputs Index, and changes in market interest rates. Property & Building is also exposed to changes in foreign currency exchange rates in its investments abroad. Such exposure derives from both the current operations of the investee companies thereof abroad and the methods of financing the investments.
Property & Building hedges the financial exposures to the risks described above that derive from its operation in Israel by matching the linkage bases of the expenses to those of its revenues, and also by diversifying its financing sources and types of credit. Accordingly, Property & Building regularly examines the credit conditions in the various alternatives and the assessments regarding changes in forecasted inflation rates and market interest rates.
According to the degree of the current exposure, Property & Building assessed that there is no room for the use of derivative financial instruments for purposes of hedging against market risks.
Regarding the exposure to changes in foreign currency exchange rates in its investments abroad, Property & Building acts to reduce the exposure by investing in companies whose operating currency is the foreign currency of the target countries, and also by matching the linkage basis of these investments to those of the revenues and sources of financing.
Interest rate risk - Property & Building’s interest rate risk primarily arises from long-term liabilities (bonds and loans), most of them at fixed interest.
Credit risks – Regarding surplus cash, the policy of Property & Building is to invest it for short periods of time, mainly in deposits and marketable securities (mainly bonds). The deposits are held in a number of financial institutions of the highest level in Israel.

| d. | Shufersal

Credit risks – Shufersal does not have significant concentrations of credit risk, since its policy ensures that retail sales are for the most part transacted in cash or credit cards. In addition, the wide spread of its customers significantly reduces credit risk.
Shufersal has a procedure for granting credit to customers. According to the procedure, the customer provides identifying documents, the details of those authorized to make purchases, and collateral, such as post-dated security checks and bank guarantees, personal guarantees or promissory notes. Obligo approval authority according to credit amounts is conferred to credit managers, finance manager and up to the deputy CEO and CFO, according to the credit amounts. In addition, an aging report of the customers’ credit debt is monitored on a monthly basis.
Shufersal limits its exposure from investments of liquid means thereof, by investing in rated securities only, with a rating of at least A by Maalot and at least “aa” by Midroog.
The opposing parties to the derivatives currently held by Shufersal, are banks rated between AA and AAA with a stable outlook based on Maalot’s rating.
Market risk - Shufersal purchases and sells derivatives in the regular course of business, and also undertakes financial liabilities for the purpose of managing market risks.
Currency risk – Most of Shufersal’s activity is carried out in Israeli currency. Shufersal manages the currency exposure that arises from fluctuations in exchange rates, in respect of liabilities and cash flows denominated in foreign currency due to the import of products denominated in dollars. Shufersal has taken measures to reduce the currency exposure by purchasing futures contracts.
CPI risk – Shufersal occasionally applies a policy of hedging the risks deriving from CPI-linked rental contracts and its CPI-linked bonds, by executing hedging transactions.
IDB Development Corporation Ltd. Convenience translation
179

Note 21 - Financial Instruments (cont.)

A. | Management of financial risks (cont.)

2. Risk management policy of subsidiaries (cont.)

| e. | Elron

Credit risk – Elron holds the majority of its deposits and cash and cash equivalents balances in various financial institutions with a high rating, and disperses its investments among the various institutions.
Currency risk – Elron’s operation currency and that of the majority of its investee companies is the US Dollar. Accordingly, Elron holds a significant amount of its deposits and its balances of cash and cash equivalents in US Dollars.

| 3. | As at December 31, 2013, the investments in Credit Suisse shares and in Clal Holdings Insurance Enterprises were classified as held for sale (in January 2014, the investment in Credit Suisse was realized in full, as stated in note 3.H.4.c above). In addition, the assets and liabilities of Given were classified as a realization group held for sale (the realization of Given was completed in February 2014, as stated in note 3.H.6.a above). Therefore, as at December 31, 2013, the investments in Credit Suisse and in Clal Holdings Insurance Enterprises and Given’s assets and liabilities were not included in this note.

B. | Credit risks

As at December 31, 2014, cash and cash equivalents amounted to NIS 3,578 million, investments in marketable bonds amounting to NIS 2,120 million and short term deposits amounting to NIS 356 million. The deposits are held with banking corporations of the highest rating.
The revenue from sales and services of the consolidated companies are mainly from customers in Israel. The consolidated companies are continually monitoring customer debts, and the financial statements of the aforesaid companies include provisions for doubtful debts which properly reflect, according to the assessment of the consolidated companies, the loss embodied in debts whose collection is doubtful.
The consolidated companies have no significant concentrations of credit risk, in light of the policy in place at the consolidated companies, which ensures that sales are in the majority of cases made in cash or by credit card, and in the real estate sector are secured by the units themselves until their delivery, which is only made when payment for them is completed.

| 1. | The maximum exposure to credit risk on the date of the Statement of Financial Position was as follows:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Non-current assets |  |  |  |  |  |
Other investments* |  |  | 151 |  |  |  | 51 |
Loans, deposits, restricted deposits and debit balances |  |  | 140 |  |  |  | 81 |
Long-term trade receivables |  |  | 476 |  |  |  | 512 |
Current assets |  |  |  |  |  |  |  |
Current investments, excluding derivatives* |  |  | 2,121 |  |  |  | 2,163 |
Short-term loans, deposits and pledged and restricted deposits |  |  | 514 |  |  |  | 667 |
Financial receivables |  |  | 132 |  |  |  | 212 |
Trade receivables |  |  | 2,712 |  |  |  | 3,059 |
Cash and cash equivalents |  |  | 3,578 |  |  |  | 6,313 |
Derivatives |  |  |  |  |  |  |  |
Exchange rate forward contracts |  |  | 1 |  |  |  | 3 |
Index forward contracts |  |  | 5 |  |  |  | 8 |
|  |  | 9,830 |  |  |  | 13,069 |

| * | Excluding shares, participation certificates in trust funds and exchange trade funds.

| ** | In addition, the Group has loans granted to investee companies accounted for by the equity method, amounting to NIS 540 million and NIS 642 million as at December 31, 2014 and 2013, respectively. For additional details regarding loans to affiliated companies, see note 3.A.2.

IDB Development Corporation Ltd. Convenience translation
180

Note 21 - Financial Instruments (cont.)

B. | Credit risks (cont.)

| 2. | The maximum exposure to credit risk due to trade receivables, accounts receivable, loans and other investments, by geographic regions and according to their book value, was as follows:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Israel |  |  | 9,005 |  |  |  | 12,495 |
United States |  |  | 707 |  |  |  | 540 |
United Kingdom |  |  | 106 |  |  |  | 8 |
Other regions |  |  | 12 |  |  |  | 26 |
|  |  | 9,830 |  |  |  | 13,069 |

| 3. | The maximum exposure to credit risk due to trade receivables, accounts receivable, loans and other investments, by counterparties, according to their book value, was as follows:

|  | December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Financial corporations |  |  | 4,117 |  |  |  | 7,041 |
End customers |  |  | 1,703 |  |  |  | 2,078 |
Short term loans and bonds issued by the Israeli government |  |  | 1,469 |  |  |  | 1,483 |
Credit card companies |  |  | 1,039 |  |  |  | 1,095 |
Bonds issued by other corporations* |  |  | 651 |  |  |  | 678 |
Accounts receivable, investments and other loans |  |  | 405 |  |  |  | 296 |
Communication operators |  |  | 206 |  |  |  | 172 |
Retail customers |  |  | 100 |  |  |  | 111 |
Corporations |  |  | 44 |  |  |  | 46 |
Distributors and agents |  |  | 25 |  |  |  | 17 |
Private customers |  |  | 23 |  |  |  | 19 |
Lessees |  |  | 21 |  |  |  | 22 |
Purchase vouchers |  |  | 17 |  |  |  | 10 |
Wholesale customers |  |  | 10 |  |  |  | 1 |
|  |  | 9,830 |  |  |  | 13,069 |

* | As at December 31, 2014 and December 31, 2013, bonds at an amount of NIS 647 million and NIS 668 million, respectively, are rated A- or higher.

IDB Development Corporation Ltd. Convenience translation
181

Note 21 - Financial Instruments (cont.)

B. | Credit risks (cont.)

| 4. | The following is the aging of debts of trade receivables, accounts receivable, loans and other investments:

|  | December 31 |
|  | 2014 |  |  | 2013 |
|  | Gross |  |  | Provision for doubtful debts |  |  | Gross |  |  | Provision for doubtful debts |
|  | NIS millions |
Not past due |  |  | 9,679 |  |  |  | (30 | ) |  |  | 12,883 |  |  |  | (21 | )
0 - 30 days past due |  |  | 34 |  |  |  | (1 | ) |  |  | 33 |  |  |  | (1 | )
31 - 120 days past due |  |  | 16 |  |  |  | (4 | ) |  |  | 18 |  |  |  | (2 | )
Above 120 days past due |  |  | 369 |  |  |  | (233 | ) |  |  | 445 |  |  |  | (286 | )
|  |  | 10,098 |  |  |  | (268 | ) |  |  | 13,379 |  |  |  | (310 | )
Net balance |  |  |  |  |  |  | (9,83 | ) |  |  |  |  |  |  | 13,069 |

| 5. | The following are the changes in the provision for impairment in respect of trade receivables and accounts receivable balances and loans granted during the year:

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Balance at the beginning of the year |  |  | 310 |  |  |  | 426 |
Increase in expenses from doubtful debts |  |  | 37 |  |  |  | 104 |
Bad debts written off |  |  | (79 | ) |  |  | (152 | )
Cessation of consolidation of investee companies, net |  |  | - |  |  |  | (68 | )
Balance at the end of year |  |  | 268 |  |  |  | 310 |

IDB Development Corporation Ltd. Convenience translation
182

Note 21 - Financial Instruments (cont.)
C. Liquidity risks
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding amounts in respect of which netting agreements are in place. Amounts are not capitalized.

|  | As at December 31, 2014 |
|  | Carrying amount (1) |  |  | Forecast cash flow (2) |  |  | First year |  |  | Second year |  |  | Third year |  |  | Forth year |  |  | Fifth year |  |  | Over 5 years |
|  | NIS millions |
Non-derivative financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds(3) |  |  | 22,451 |  |  |  | (27,099 | ) |  |  | (4,400 | ) |  |  | (4,208 | ) |  |  | (4,520 | ) |  |  | (2,866 | ) |  |  | (1,861 | ) |  |  | (9,244 | )
Loans from banks |  |  | 4,462 |  |  |  | (5,301 | ) |  |  | (1,076 | ) |  |  | (1,279 | ) |  |  | (546 | ) |  |  | (398 | ) |  |  | (168 | ) |  |  | (1,834 | )
Host contract in hybrid financial instrument in respect of non-recourse loan(4) |  |  | 3,162 |  |  |  | (5,444 | ) |  |  | (60 | ) |  |  | (264 | ) |  |  | (263 | ) |  |  | (4,857 | ) |  |  | - |  |  |  | - |
Loans from others |  |  | 584 |  |  |  | (652 | ) |  |  | (42 | ) |  |  | (39 | ) |  |  | (87 | ) |  |  | (131 | ) |  |  | (26 | ) |  |  | (327 | )
Liabilities in respect of construction |  |  | 103 |  |  |  | (103 | ) |  |  | (35 | ) |  |  | (7 | ) |  |  | (55 | ) |  |  | (6 | ) |  |  | - |  |  |  | - |
Other liabilities |  |  | 125 |  |  |  | (125 | ) |  |  | - |  |  |  | (113 | ) |  |  | - |  |  |  | - |  |  |  | (4 | ) |  |  | (8 | )
Overdraft |  |  | 80 |  |  |  | (80 | ) |  |  | (80 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Short-term loans from banks |  |  | 266 |  |  |  | (266 | ) |  |  | (266 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Short-term loans from others |  |  | 14 |  |  |  | (14 | ) |  |  | (14 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Financial accounts payable and credit balances |  |  | 635 |  |  |  | (635 | ) |  |  | (635 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Trade payables |  |  | 2,504 |  |  |  | (2,504 | ) |  |  | (2,504 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Financial liabilities - Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CPI forward contracts |  |  | 62 |  |  |  | (62 | ) |  |  | (49 | ) |  |  | (9 | ) |  |  | - |  |  |  | (4 | ) |  |  | - |  |  |  | - |
Other derivatives |  |  | 1 |  |  |  | (1 | ) |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 34,449 |  |  |  | (42,286 | ) |  |  | (9,162 | ) |  |  | (5,919 | ) |  |  | (5,471 | ) |  |  | (8,262 | ) |  |  | (2,059 | ) |  |  | (11,413 | )

(1) | The carrying amount includes current maturities and accrued interest as at December 31, 2014. The forecast cash flow includes all future interest payments.

(2) | The forecast cash flow was calculated based on the known CPI, interest rate and exchange rate as at December 31, 2014. The forecast cash flow does not include expected effects of changes in the CPI, exchange rates and interest rates.

(3) | See note 35.C below regarding the bond exchange made by Cellcom subsequent to date of the Statement of Financial Position.

(4) | Represents the contractual cash flows of the non-recourse loan, which is secured by and repayable through shares of Adama, and includes Koor’s obligations to indemnify ChemChina in respect of business taxes that ChemChina will be charged, in accordance with Chinese law, in respect of interest payments on the aforementioned loan (to the extent that there will be no tax exemption on such taxes), see note 16.F.1.d. above.

IDB Development Company Ltd. Convenience translation
183

Note 21 - Financial Instruments (cont.)
C. Liquidity risks (cont.)
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding amounts in respect of which netting agreements are in place. Amounts are not capitalized (cont.)

|  | As at December 31, 2013 |  |
|  | Carrying amount(1) |  |  | Forecast cash flow (2) |  |  | First year |  |  | Second year |  |  | Third year |  |  | Fourth year |  |  | Fifth year |  |  | Over 5 years |
|  | NIS millions |
Non-derivative financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds(3) |  |  | 25,875 |  |  |  | (30,974 | ) |  |  | (5,904 | ) |  |  | (4,629 | ) |  |  | (4,421 | ) |  |  | (4,272 | ) |  |  | (2,587 | ) |  |  | (9,161 | )
Loans from banks |  |  | 5,410 |  |  |  | (6,312 | ) |  |  | (1,878 | ) |  |  | (808 | ) |  |  | (1,079 | ) |  |  | (512 | ) |  |  | (362 | ) |  |  | (1,673 | )
Liabilities for the transfer of shares of Makhteshim Agan(4) |  |  | 3,664 |  |  |  | (4,871 | ) |  |  | (14 | ) |  |  | (54 | ) |  |  | (235 | ) |  |  | (234 | ) |  |  | (4,334 | ) |  |  | - |
Loans from others |  |  | 460 |  |  |  | (549 | ) |  |  | (114 | ) |  |  | (34 | ) |  |  | (32 | ) |  |  | (80 | ) |  |  | (124 | ) |  |  | (165 | )
Liabilities in respect of construction and investment property |  |  | 132 |  |  |  | (132 | ) |  |  | (53 | ) |  |  | (55 | ) |  |  | (19 | ) |  |  | - |  |  |  | (2 | ) |  |  | (3 | )
Other liabilities |  |  | 125 |  |  |  | (125 | ) |  |  | - |  |  |  | (8 | ) |  |  | (104 | ) |  |  | - |  |  |  | (5 | ) |  |  | (8 | )
Overdraft |  |  | 78 |  |  |  | (78 | ) |  |  | (78 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Short-term loans from banks |  |  | 601 |  |  |  | (601 | ) |  |  | (601 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Short-term loans from others |  |  | 18 |  |  |  | (18 | ) |  |  | (18 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Financial accounts payable and credit balances |  |  | 662 | * |  |  | * | (662) |  |  | * | (662) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Trade payables |  |  | 2,291 |  |  |  | (2,291 | ) |  |  | (2,291 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Financial liabilities - Derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
CPI forward contracts |  |  | 75 |  |  |  | (75 | ) |  |  | (64 | ) |  |  | (10 | ) |  |  | (1 | ) |  |  | - |  |  |  | - |  |  |  | - |
FX Options and forward contracts |  |  | 19 |  |  |  | (19 | ) |  |  | (19 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Non-banking derivative financial instruments |  |  | 18 |  |  |  | (18 | ) |  |  | (18 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total |  |  | 39,428 |  |  |  | (46,725 | ) |  |  | (11,714 | ) |  |  | (5,598 | ) |  |  | (5,891 | ) |  |  | (5,098 | ) |  |  | (7,414 | ) |  |  | (11,010 | )

* | Reclassified.

(1) | The carrying amount includes current maturities and accrued interest as at December 31, 2013. The forecast cash flow includes all interest payments.

(2) | The anticipated cash flow was calculated on the basis of the CPI, interest and exchange rates known as at December 31, 2013. The anticipated flows do not include expected effects of changes in the CPI, exchange rates and interest.

(3) | The cash flow includes the amount of the early redemption of Koor’s bonds, in accordance with the amendment to the trust deeds, as at December 31, 2013, see note 3.H.4.c. above.

(4) | Represents the contractual cash flows of the non-recourse loan, which is secured by and repayable through shares of Adama, and includes Koor’s obligations to indemnify ChemChina in respect of business taxes that ChemChina will be charged, in accordance with Chinese law, in respect of interest payments on the aforementioned loan (to the extent that there will be no tax exemption on such taxes), see note 16.F.1.d. above.

IDB Development Company Ltd. Convenience translation
184

Note 21 - Financial Instruments (cont.)
D. Linkage basis of assets and liabilities in the Statement of Financial Position

|  | As at December 31, 2014 |
|  | CPI- linked |  |  | Dollar- linked |  |  | Other currency- linked |  |  | Unlinked |  |  | Non-monetary items(1) |  |  | Total |
|  | NIS millions |
Assets(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments in investee companies accounted for by the equity method |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,753 | (3) |  |  | 3,753 |
Other investments, including derivatives |  |  | 4 |  |  |  | - |  |  |  | 98 |  |  |  | 53 |  |  |  | 1,967 |  |  |  | 2,122 |
Loans, restricted and pledged deposits and debit balances |  |  | 20 |  |  |  | 262 |  |  |  | - |  |  |  | 18 |  |  |  | 11 |  |  |  | 311 |
Fixed assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,559 |  |  |  | 5,559 |
Investment property |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,175 |  |  |  | 11,175 |
Assets designated for payment of employee benefits |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1 |
Long-term trade receivables and accounts receivable |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,082 |  |  |  | - |  |  |  | 1,082 |
Non-current inventory |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 375 |  |  |  | 375 |
Deferred expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 284 |  |  |  | 284 |
Deferred tax assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 53 |  |  |  | 53 |
Intangible assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,782 |  |  |  | 4,782 |
Current investments, including derivatives |  |  | 858 |  |  |  | 1 |  |  |  | - |  |  |  | 1,264 |  |  |  | 1,194 |  |  |  | 3,317 |
Short-term loans and deposits |  |  | 5 |  |  |  | 245 |  |  |  | - |  |  |  | 108 |  |  |  | - |  |  |  | 358 |
Accounts receivable and debit balances |  |  | 10 |  |  |  | 25 |  |  |  | 3 |  |  |  | 90 |  |  |  | 252 |  |  |  | 380 |
Current tax assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 46 |  |  |  | 46 |
Trade receivables |  |  | - |  |  |  | 179 |  |  |  | 75 |  |  |  | 1,852 |  |  |  | - |  |  |  | 2,106 |
Inventory |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 851 |  |  |  | 851 |
Inventory of buildings for sale |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 691 |  |  |  | 691 |
Assets held for sale |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5 |  |  |  | 5 |
Cash and cash equivalents |  |  | - |  |  |  | 373 |  |  |  | 56 |  |  |  | 3,149 |  |  |  | - |  |  |  | 3,578 |
Total assets |  |  | 897 |  |  |  | 1,085 |  |  |  | 232 |  |  |  | 7,616 |  |  |  | 30,999 |  |  |  | 40,829 |
Liabilities(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds |  |  | 17,810 |  |  |  | - |  |  |  | - |  |  |  | 4,214 |  |  |  | - |  |  |  | 22,024 |
Loans from banks and other financial liabilities |  |  | 1,458 |  |  |  | 2,101 |  |  |  | - |  |  |  | 1,687 |  |  |  | - |  |  |  | 5,246 |
Hybrid financial instrument in respect of non-recourse loan (4) |  |  | - |  |  |  | 3,090 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,090 |
Financial liabilities, presented by fair value |  |  | 61 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 63 |
Other liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3 |  |  |  | 172 |  |  |  | 175 |
Non-current provisions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 235 |  |  |  | 235 |
Deferred tax liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,508 |  |  |  | 1,508 |
Employee benefits |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 174 |  |  |  | 174 |
Current credit from banking corporations and others |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 280 |  |  |  | - |  |  |  | 280 |
Creditors and credit balances |  |  | 362 |  |  |  | 88 |  |  |  | 2 |  |  |  | 637 |  |  |  | 757 |  |  |  | 1,846 |
Trade payables |  |  | - |  |  |  | 310 |  |  |  | 60 |  |  |  | 2,134 |  |  |  | - |  |  |  | 2,504 |
Current tax liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 133 |  |  |  | 133 |
Overdraft |  |  | - |  |  |  | 66 |  |  |  | 14 |  |  |  | - |  |  |  | - |  |  |  | 80 |
Current provisions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 160 |  |  |  | 160 |
Total liabilities |  |  | 19,691 |  |  |  | 5,657 |  |  |  | 76 |  |  |  | 8,955 |  |  |  | 3,139 |  |  |  | 37,518 |
Net balance as at December 31, 2014 |  |  | (18,794 | ) |  |  | (4,572 | ) |  |  | 156 |  |  |  | (1,339 | ) |  |  | 27,860 |  |  |  | 3,311 |

(1) | Including shares, participation certificates in mutual funds, exchange-traded notes and monetary items excluded from the scope of IFRS 7.

(2) | Non-current assets and liabilities in this table include the current maturities in respect thereof.

(3) | Including loans totaling NIS 369 million and NIS 28 million, linked to the exchange rates of the dollar and the euro, respectively.

(4) Regarding the right of Koor and its consolidated company to repay the loan by way of a transfer of shares of Adama, see note 16.F.1.d above.
IDB Development Corporation Ltd. Convenience translation
185

Note 21 - Financial Instruments (cont.)
D. Linkage basis of assets and liabilities in the Statement of Financial Position (cont.)

|  | As at December 31, 2013 |
|  | CPI- linked |  |  | Dollar- linked |  |  | Other currency- linked |  |  | Unlinked |  |  | Non-monetary items(1) |  |  | Total |
|  | NIS millions |
Assets(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments in investee companies accounted for by the equity method |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,749 | (5)(3), |  |  | 3,749 |
Other investments, including derivatives |  |  | 6 |  |  |  | - |  |  |  | - |  |  |  | 51 |  |  |  | 298 |  |  |  | 355 |
Loans and debit balances |  |  | 23 |  |  |  | 14 |  |  |  | - |  |  |  | 55 |  |  |  | 12 |  |  |  | 104 |
Fixed assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,488 |  |  |  | 5,488 |
Investment property |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 9,827 | (6) |  |  | 9,827 |
Assets designated for payment of employee benefits |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1 |
Long-term trade receivables and accounts receivable |  |  | - |  |  |  |  |  |  |  | - |  |  |  | 1,390 |  |  |  | - |  |  |  | 1,390 |
Non-current inventory |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 374 |  |  |  | 374 |
Deferred expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 276 |  |  |  | 276 |
Deferred tax assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 157 |  |  |  | 157 |
Intangible assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,394 | (5) |  |  | 5,394 |
Current investments, including derivatives |  |  | 996 |  |  |  | 3 |  |  |  | - |  |  |  | 1,169 |  |  |  | 814 |  |  |  | 2,982 |
Short-term loans and deposits |  |  | 20 |  |  |  | 118 |  |  |  | - |  |  |  | 518 |  |  |  | - |  |  |  | 656 |
Accounts receivable and debit balances |  |  | 15 |  |  |  | 113 |  |  |  | 3 |  |  |  | 81 |  |  |  | 243 |  |  |  | 455 |
Current tax assets |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 29 |  |  |  | 29 |
Trade receivables |  |  | 4 |  |  |  | 120 |  |  |  | 14 |  |  |  | 2,043 |  |  |  | - |  |  |  | 2,181 |
Inventory |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 809 |  |  |  | 809 |
Inventory of buildings for sale |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 849 |  |  |  | 849 |
Assets held for sale |  |  | - |  |  |  | 605 |  |  |  | 95 |  |  |  | 18 |  |  |  | 4,061 | (5) |  |  | 4,779 |
Cash and cash equivalents |  |  | - |  |  |  | 1,078 |  |  |  | 27 |  |  |  | 5,208 |  |  |  | - |  |  |  | 6,313 |
Total assets |  |  | 1,064 |  |  |  | 2,051 |  |  |  | 139 |  |  |  | 10,533 |  |  |  | 32,381 |  |  |  | 46,168 |
Liabilities(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds |  |  | 19,418 |  |  |  | - |  |  |  | - |  |  |  | 4,701 |  |  |  | - |  |  |  | 24,119 |
Loans from banks and other financial liabilities |  |  | 1,352 |  |  |  | 2,198 |  |  |  | - |  |  |  | 2,509 |  |  |  | - |  |  |  | 6,059 |
Hybrid financial instrument in respect of non-recourse loan (4) |  |  | - |  |  |  | 3,057 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,057 |
Financial liabilities, presented by fair value |  |  | 11 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11 |
Other liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  | (5),(6)206 |  |  | 206 |
Non-current provisions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  | (5)132 |  |  | 132 |
Deferred tax liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,456 |  |  |  | 1,456 |
Employee benefits |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 144 |  |  |  | 144 |
Current credit from banking corporations and others |  |  | 742 |  |  |  | 18 |  |  |  | 431 |  |  |  | 508 |  |  |  | - |  |  |  | 1,699 |
Financial liabilities presented at fair value |  |  | 64 |  |  |  | 24 |  |  |  | - |  |  |  | - |  |  |  | 13 |  |  |  | 101 |
Creditors and credit balances |  |  | 630 |  |  |  |  | (5) 67 |  |  | 4 |  |  |  | 704 |  |  |  |  | (5) 868 |  |  | 2,273 |
Trade payables |  |  | - |  |  |  | 219 |  |  |  | 25 |  |  |  | 2,047 |  |  |  | - |  |  |  | 2,291 |
Current tax liabilities |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 155 |  |  |  | 155 |
Overdraft |  |  | - |  |  |  | 59 |  |  |  | 17 |  |  |  | 2 |  |  |  | - |  |  |  | 78 |
Current provisions |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  |  | (5) 207 |  |  | 207 |
Liabilities of disposal groups and other liabilities classified as held for sale |  |  | - |  |  |  | 58 |  |  |  | 23 |  |  |  | 42 |  |  |  | 42 |  |  |  | 165 |
Total liabilities |  |  | 22,217 |  |  |  | 5,700 |  |  |  | 500 |  |  |  | 10,513 |  |  |  | 3,223 |  |  |  | 42,153 |
Net balance as at December 31, 2014 |  |  | (21,153 | ) |  |  | (3,649 | ) |  |  | (361 | ) |  |  | 20 |  |  |  | 29,158 |  |  |  | 4,015 |

(1) | Including shares, participation certificates in mutual funds, exchange-traded notes and monetary items excluded from the scope of IFRS 7.

(2) | Non-current assets in this table include the current maturities in respect thereof.

(3) | Including loans totaling NIS 314 million, NIS 122 million and NIS 64 million, linked to the exchange rates of the dollar, the pound sterling and the euro, respectively.

(4) | Regarding the right of Koor and its consolidated company to repay the loan by way of a transfer of shares of Adama, see note 16.F.1.d above.

(5) | Reclassified; see note 1.F.1 above.

(6) | Retrospective implementation of IFRIC 21, Levies – see notes 1.E.6.a and 1.F.1 above.

IDB Development Corporation Ltd. Convenience translation
186

Note 21 - Financial Instruments (cont.)
E. CPI and foreign currency risks

| 1. | Sensitivity analysis

A change in the exchange rates of the following currencies as at December 31, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis was performed assuming that all other variables, particularly the interest rates, remained constant.

|  |  |  |  | As at December 31, 2014 |
|  |  |  |  | Effect on profit and loss |  |  | Effect on equity |
|  | Rate of change |  |  | Effect on total profit (loss) |  |  | Effect on profit attributed to the shareholders |  |  | Effect on total equity |  |  | Effect on equity attributed to the shareholders |
|  | % |  |  | NIS millions |
CPI |  |  | 1 |  |  |  | (144 | ) |  |  | (90 | ) |  |  | (144 | ) |  |  | (90 | )
Dollar |  |  | 5 |  |  |  | (155 | ) |  |  | (111 | ) |  |  | (155 | ) |  |  | (111 | )
CPI |  |  | 2 |  |  |  | (290 | ) |  |  | (181 | ) |  |  | (290 | ) |  |  | (181 | )
Dollar |  |  | 10 |  |  |  | (310 | ) |  |  | (221 | ) |  |  | (310 | ) |  |  | (221 | )
CPI |  |  | (1 | ) |  |  | 144 |  |  |  | 90 |  |  |  | 144 |  |  |  | 90 |
Dollar |  |  | (5 | ) |  |  | 155 |  |  |  | 111 |  |  |  | 155 |  |  |  | 111 |
CPI |  |  | (2 | ) |  |  | 290 |  |  |  | 181 |  |  |  | 290 |  |  |  | 181 |
Dollar |  |  | (10 | ) |  |  | 310 |  |  |  | 221 |  |  |  | 310 |  |  |  | 221 |

|  |  |  |  | As at December 31, 2013 |
|  |  |  |  | Effect on profit and loss |  |  | Effect on equity |
|  | Rate of change |  |  | Effect on total profit (loss) |  |  | Effect on profit attributed to the shareholders |  |  | Effect on total equity |  |  | Effect on equity attributed to the shareholders |
|  | % |  |  | NIS millions |
CPI |  |  | 1 |  |  |  | (172 | ) |  |  | (102 | ) |  |  | (172 | ) |  |  | (102 | )
Dollar |  |  | 5 |  |  |  | (131 | ) |  |  | (71 | ) |  |  | (131 | ) |  |  | (71 | )
Swiss Franc |  |  | 5 |  |  |  | (21 | ) |  |  | (10 | ) |  |  | (21 | ) |  |  | (10 | )
CPI |  |  | 2 |  |  |  | (345 | ) |  |  | (203 | ) |  |  | (345 | ) |  |  | (203 | )
Dollar |  |  | 10 |  |  |  | (266 | ) |  |  | (143 | ) |  |  | (266 | ) |  |  | (143 | )
Swiss Franc |  |  | 10 |  |  |  | (43 | ) |  |  | (21 | ) |  |  | (43 | ) |  |  | (21 | )
CPI |  |  | (1 | ) |  |  | 172 |  |  |  | 102 |  |  |  | 172 |  |  |  | 102 |
Dollar |  |  | (5 | ) |  |  | 133 |  |  |  | 71 |  |  |  | 133 |  |  |  | 71 |
Swiss Franc |  |  | (5 | ) |  |  | 21 |  |  |  | 10 |  |  |  | 21 |  |  |  | 10 |
CPI |  |  | (2 | ) |  |  | 345 |  |  |  | 203 |  |  |  | 345 |  |  |  | 203 |
Dollar |  |  | (10 | ) |  |  | 268 |  |  |  | 143 |  |  |  | 268 |  |  |  | 143 |
Swiss Franc |  |  | (10 | ) |  |  | 43 |  |  |  | 21 |  |  |  | 43 |  |  |  | 21 |

| Notes to the above sensitive analysis:

(1) | The analysis was performed in respect of monetary financial instruments only. Shares, participation certificates in mutual funds and exchange-traded notes were excluded from this sensitivity analysis.

(2) | The analysis including effects of financial derivatives.

(3) | Changes in exchange rates of other currencies did not have a material effect on equity and profit or loss.

IDB Development Corporation Ltd. Convenience translation
187

Note 21 - Financial Instruments (cont.)
E. CPI and foreign currency risks (cont.)

| 2. | Positions in derivatives

| a. | As at December 31, 2014, in NIS millions:

|  | CPI / NIS |
|  | Nominal value |  |  | Fair value |  |  | Nominal value |  |  | Fair value |
|  | Up to one year |  |  | More than one year |
|  | Long |
1. Future contracts for hedging purposes* – not eligible for hedge accounting |  |  | 3,053 |  |  |  | (49 | ) |  |  | 700 |  |  |  | (14 | )
Future contract - SWAP** |  |  | 7 |  |  |  | 1 |  |  |  | 22 |  |  |  | 4 |

* | These contracts are designed to hedge CPI-linked liabilities, so that if the CPI actually increases by more than the index stipulated in the contract, the Group will receive the difference; in the opposite case, the Group will pay the difference.

** | This future contract swaps the CPI-linked liability cash flow for a nominal Shekel cash flow at fixed interest.

|  | USD / NIS |
|  | Nominal value |  |  | Fair value |
|  | LONG |  |  | SHORT |  |  | LONG |  |  | SHORT |
2. Derivatives for hedging purposes – not eligible for hedge accounting |  |  |  |  |  |  |  |  |  |  |  |
Up to one year |  |  |  |  |  |  |  |  |  |  |  |
Future purchases of dollars |  |  | 18 |  |  |  | - |  |  |  | - |  |  |  | - |
CALL options |  |  | 25 |  |  |  | - |  |  |  | 1 |  |  |  | - |

| b. | As at December 31, 2013, in NIS millions

|  | CPI / NIS |
|  | Nominal value |  |  | Fair value |  |  | Nominal value |  |  | Fair value |
|  | Up to one year |  |  | More than one year |
|  | LONG |
1. Future contracts for hedging purposes* – not eligible for hedge accounting |  |  | 2,615 |  |  |  | (64 | ) |  |  | 653 |  |  |  | (11 | )
Future contract - SWAP** |  |  | 7 |  |  |  | 1 |  |  |  | 29 |  |  |  | 6 |

* | These contracts are designed to hedge CPI-linked liabilities, so that if the CPI actually increases by more than the index stipulated in the contract, the Group will receive the difference; in the opposite case, the Group will pay the difference.

** | This future contract swaps the CPI-linked liability cash flow for a nominal Shekel cash flow at fixed interest.

|  | USD / NIS |
|  | Nominal value |  |  | Fair value |
|  | LONG |  |  | SHORT |  |  | LONG |  |  | SHORT |
2. Derivatives for hedging purposes – not eligible for hedge accounting |  |  |  |  |  |  |  |  |  |  |  |
Future purchases of dollars |  |  | 92 |  |  |  | - |  |  |  | (1 | ) |  |  | - |
CALL options |  |  | 231 |  |  |  | - |  |  |  | 1 |  |  |  | - |
Cross Currency Swap |  |  | 145 |  |  |  | - |  |  |  | (12 | ) |  |  | - |
Derivatives for hedging purposes – eligible for hedge accounting |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Future purchases of dollars |  |  | 90 |  |  |  | - |  |  |  | (6 | ) |  |  | - |

| Euro / NIS
| Up to one year
| Nominal value | Fair value
| LONG | SHORT | LONG | SHORT
3. Derivatives for hedging purposes: |  |  |  |
Future purchases of Euro– not eligible for hedge accounting | 4 | - | - | -

IDB Development Corporation Ltd. Convenience translation
188

Note 21 - Financial Instruments (cont.)
F. Interest rates risks
1. Type of interest
The Group’s interest rate risk primarily arises from effects of changes in the interest rate on the value of long-term liabilities (bonds and loans), most of them at fixed interest. Notwithstanding, some of the long-term loans are at variable interest. In this case, the Group is exposed to a cash flow risk in respect of a change in interest.
Following are details on the type of interest of the Group’s interest-bearing financial instruments and according to their book value:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Instruments at fixed interest |  |  |  |  |  |
Financial assets* |  |  | 5,919 |  |  |  | 8,403 |
Financial liabilities |  |  | (25,799 | ) |  |  | (28,127 | )
|  |  | (19,880 | ) |  |  | (19,724 | )
Instruments at variable interest |  |  |  |  |  |  |  |
Financial assets |  |  | 106 |  |  |  | 115 |
Financial liabilities** |  |  | (1,617 | ) |  |  | (3,563 | )
|  |  | (1,511 | ) |  |  | (3,448 | )

* Mostly deposits included within cash and cash equivalents.

** | Not including the non-recourse loan provided to Koor by a Chinese bank, which is repayable with Adama shares – see note 16.F.1.d above.

| 2. | Sensitivity analysis of the annual anticipated cash flow for instruments at variable interest rates

An absolute changes of 1% in interest rates at the reporting date would have increased or decreased total equity and total annual profit or loss by the amounts shown below. This analysis was performed assuming that the other variables, particularly the foreign currency rates, remain constant.

|  | As at December 31 |
|  | 2014 |  |  | 2013 |
|  | Profit (loss) |  |  | Equity |  |  | Profit (loss) |  |  | Equity |
|  | Increase |  |  | Decrease |  |  | Increase |  |  | Decrease |  |  | Increase |  |  | Decrease |  |  | Increase |  |  | Decrease |
Instruments at variable rate – sensitivity of cash flow, net |  |  | (16 | ) |  |  | 16 |  |  |  | (16 | ) |  |  | 16 |  |  |  | (9 | ) |  |  | 16 |  |  |  | (9 | ) |  |  | 16 |

| * | Not including the effect of the change in interest rate on the non-recourse loan Koor received from a Chinese bank, which is repayable with Adama shares – see note 16.F.1.d above.

| 3. | Following are the effects of changes in interest rates on equity, for fixed interest rate instruments measured at fair value

| December 31,
| 2014 | 2013
| Effect on total equity and total profit or loss | Effect on share of shareholders | Effect on total equity and total profit or loss | Effect on share of share holders
| NIS millions
Absolute Increase of 1% in the interest rate | (106) | (54) | (87) | (40)

IDB Development Corporation Ltd. Convenience translation
189

Note 21 - Financial Instruments (cont.)
G. 1. Fair value of financial instruments
The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, trade receivables, accounts receivable and debit balances, short-term loans and deposits, other investments, derivatives, overdraft from banking corporations, short-term loans and credit, liabilities in respect of investment property, other liabilities, accounts payable and credit balances and trade payables, are identical or proximate to their fair value.
The fair value of the other financial assets and liabilities and the carrying amounts as shown in the Statement of Financial Position, are as follows:

|  | 2014
|  |  |  |  | Fair value(5) |  |
|  | Carrying amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  | Capitalization interest rate used in the calculation of fair value
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term trade receivables(1) |  |  | 476 |  |  |  | - |  |  |  | - |  |  |  | 476 |  |  |  | 476 |  | 5.20
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds(2),(3) |  |  | (22,451 | ) |  |  | (22,214 | ) |  |  | (19 | ) |  |  | - |  |  |  | (22,230 | ) | 1.09-17.93
Long-term loans from banks(2),(3) |  |  | (4,462 | ) |  |  | - |  |  |  | (4,259 | ) |  |  | (18 | ) |  |  | (4,277 | ) | 1.90-110.27
Host contract in compound financial instrument in respect of non-recourse loans(4) |  |  | (3,162 | ) |  |  | - |  |  |  | - |  |  |  | (3,150 | ) |  |  | (3,150 | ) | 12.54
Loans from others |  |  | (584 | ) |  |  | - |  |  |  | (525 | ) |  |  | - |  |  |  | (525 | ) | 2.59-15.96
|  |  | (30,659 | ) |  |  | (22,214 | ) |  |  | (4,803 | ) |  |  | (3,168 | ) |  |  | (30,190 | ) |

|  | 2013 |
|  |  |  |  | Fair value(5) |  |  |  |
|  | Carrying amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |  |  | Capitalization interest rate used in the calculation of fair value |
Financial Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term trade receivables(1) |  |  | 512 |  |  |  | - |  |  |  | - |  |  |  | 512 |  |  |  | 512 |  |  |  | 5.20 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bonds(2),(3) |  |  | (25,875 | ) |  |  | (26,648 | ) |  |  | (58 | ) |  |  | - |  |  |  | (26,710 | ) |  |  | 0.53-12.85 |
Long-term loans from banks(2),(3) |  |  | (5,410 | ) |  |  | - |  |  |  | (5,252 | ) |  |  | (50 | ) |  |  | (5,302 | ) |  |  | 0.8-424.82 |
Host contract in compound financial instrument in respect of non-recourse loans(4) |  |  | (3,664 | ) |  |  | - |  |  |  | - |  |  |  | (3,360 | ) |  |  | (3,360 | ) |  |  | 12.1 |
`Loans from others |  |  | (460 | ) |  |  | - |  |  |  | (322 | ) |  |  | - |  |  |  | (322 | ) |  |  | 1-35.24 |
|  |  | (35,409 | ) |  |  | (26,648 | ) |  |  | (5,632 | ) |  |  | (3,410 | ) |  |  | (35,690 | ) |  |  |  |

| (1) | The fair value of long-term trade receivables was determined on the basis of the present value of the future cash flows, discounted by the market interest rate as at measuring date.

| (2) | The carrying amount includes current maturities and accrued interest. The fair value as at the date of the report includes principal and interest that were paid in January of the subsequent year, and in respect of which the Ex Day fell before the date of the report.

| (3) | The fair value of bonds which are traded on the stock exchange was assessed based on their quoted price, and the related interest rate reflects the yield-to-maturity embodied in such quoted price. The fair value of bonds which are not traded on the stock exchange and of long-term loans from banks was estimated using the future cash flows discounting technique, in respect of the principal and interest component, discounted by the market interest rate as at the measurement date.

| (4) | The fair value of the host contract in the compound financial instrument related to the non-recourse loan was determined by an external appraiser based on the value of the shares of Adama, see note 16.F.1.d. above.

| (5) | For details on the different levels in the fair value hierarchy, see note 1.E.3.b above.

IDB Development Corporation Ltd. Convenience translation
190

Note 21 - Financial Instruments (cont.)

G. | (cont.)

| 2. | Fair value hierarchy of financial instruments measured by fair value

For details on the different levels in the fair value hierarchy, see note 1.E.3.b above.
The fair value of financial assets measured by fair value is determined with reference to the quoted closing bid price at the date of the Statement of Financial Position, and in lack of such quoted price – by other accepted valuation methods, whilst giving maximal consideration to observable market data (such as use of an interest curve).
As at December 31, 2014 and 2013, the Group has financial assets amounting to NIS 55 million and NIS 61 million, respectively, and financial liabilities amounting to NIS 62 million and NIS 107 million, respectively, which are measured at fair value at level 2.
The financial instruments measured at fair value at level 2 include, among others:

· | Forward contracts, the fair value of which is estimated based on quotes by banks/ brokers or based on the discounting of the difference between the forward price, as denominated in the contract, and the current forward price for the remaining period of the contract until redemption, using appropriate market interest rates for similar instruments, including adjustments required due to credit risks of the parties, when appropriate.

· | Foreign currency options, the fair value of which is determined according to Black & Scholes model, and the Garman-Kohlhagen model.

The reasonableness of the quotes is examined by discounting an estimate of future cash flows based on the terms and length of period until the settlement of each contract and whilst using market interest rates of similar instruments as at the date of the measurement.
IDB Development Corporation Ltd. Convenience translation
191

Note 21 - Financial Instruments (cont.)

G. | (cont.)

The rest of the Group’s financial instruments, which are presented at fair value, are measured at fair value at level 1, excluding that detailed in the tables below:

| 2. | Fair value hierarchy of financial instruments measured by fair value

| Financial instruments measured at fair value at level 3

|  | For the year ended December 31, 2014 |
|  | Financial assets |  |  | Financial liabilities |
|  | Financial assets measured at fair value through profit and loss |  |  | Embedded derivative in non-recourse loan and other |
|  | NIS millions |
Balance as at January 1, 2014 |  |  | 296 |  |  |  | 602 | (2)
Total income (losses) recognized: |  |  |  |  |  |  | - |
In Statement of Income |  |  | 15 | ** |  |  | (535 | )
In other comprehensive income (in the ‘Reserves from translation differences’ item) |  |  | 12 |  |  |  | - |
Amounts paid or accrued |  |  | - |  |  |  | 19 |
Acquisitions |  |  | 3 |  |  |  | - |
Sales |  |  | (44 | ) |  |  | - |
Redemptions |  |  | (2 | ) |  |  | - |
Issue of series T bonds in Discount Investments |  |  | - |  |  |  | (15 | )
Initial recognition in fair value*** |  |  | 90 |  |  |  | - |
Balance as at December 31, 2014 |  |  | 370 | (1) |  |  | 71 | (2)
*The total profits (losses) for the period that were included in the Statement of Income for assets and liabilities held as of December 31, 2014: |
Net income (loss) from realization and increase in value (impairment) of investments and assets |  |  | (10 | ) |  |  | (535 | )

**Not including income from dividends in a sum of NIS 24 million. *** A financial asset measured at fair value in the Statement of Income as a result of a decrease in the amount of the holding and the loss of material influence – see note 3.H.2.a below.

(1) | The Group holds several private companies, and the fair value of the Group’s investments therein was assessed by using the following assessment methods:

· | The cash flow discount method was implemented where the companies under assessment are capable to estimate the future cash flows thereof.

· | The transactions method - according to this method, the value of the Group’s investments in the companies under assessment was assessed on the basis of the price determined in other transactions involving the securities thereof, while carrying out the relevant adjustments.

· | Option Pricing Model - An option pricing model based on the Black & Scholes model or on the binomial model. This method is based on the assumption that the securities of an entity may be considered as call options on the value of such entity as a whole.

· | The value of investments in venture capital funds which are not registered for trade is determined on the basis of the Group’s share in the funds’ equity based on the financial statements thereof, which are based on fair value or valuations of the investments thereof.

(2) | Including an embedded derivative in respect of a non-recourse loan received by Koor as stated in note 20.F.4.b above.

The fair value estimate of the embedded derivative will increase following an increase in the standard deviation and the underlying asset, and also following a decrease in the non-tradability discount rate.
IDB Development Corporation Ltd. Convenience translation
192

Note 21 - Financial Instruments (cont.)

G. | (cont.)

| 2. | Fair value hierarchy (cont.)

| Financial instruments measured at fair value at level 3 (cont.)

|  | For the year ended December 31, 2013 |
|  | Financial assets |  |  | Financial liabilities |
|  | Financial assets measured at fair value through profit and loss |  |  | Financial assets designated to fair value through other comprehensive income |  |  | Total |  |  | Embedded derivative in non-recourse loan and other |
|  | NIS millions |
Balance as at January 1, 2013 |  |  | 931 |  |  |  | 4 |  |  |  | 935 |  |  |  | 653 |
Total gains (losses) recognized: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
In profit and loss |  |  | 37 | ** |  |  | - |  |  |  | 37 |  |  |  | (85 | )
In other comprehensive income (in the ‘Reserves from translation differences’ item) |  |  | (6 | ) |  |  | (4 | ) |  |  | (10 | ) |  |  | - |
Amounts paid or accrued |  |  | (2 | ) |  |  | - |  |  |  | (2 | ) |  |  | 13 |
Acquisitions |  |  | 59 |  |  |  | - |  |  |  | 59 |  |  |  | - |
Sales |  |  | (92 | ) |  |  | - |  |  |  | (92 | ) |  |  | - |
Business combination |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4 | )
Redemptions |  |  | (5 | ) |  |  | - |  |  |  | (5 | ) |  |  | - |
Settlements |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 21 |
Financial instruments of realization groups classified as held-for-sale |  |  | (2 | ) |  |  | - |  |  |  | (2 | ) |  |  | 4 |
Cessation of consolidation |  |  | (624 | ) |  |  | - |  |  |  | (624 | ) |  |  | - |
Balance as at December 31, 2013 |  |  | 296 |  |  |  | - |  |  |  | 296 | (1) |  |  | 602 | (2)
*The total income (losses) for the period that were included in the Statement of Income for assets and liabilities held as of December 31, 2013: |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | (85 | )

**Excluding dividend income in a sum of NIS 9 million.

(1) | The Group holds several private companies, and the fair value of the Group’s investments therein was assessed by using the following assessment methods:

· | The cash flow discount method was implemented where the companies under assessment are capable to estimate the future cash flows thereof.

· | The transactions method - according to this method, the value of the Group’s investments in the companies under assessment was assessed on the basis of the price determined in other transactions involving the securities thereof, while carrying out the relevant adjustments.

· | Option Pricing Model - An option pricing model based on the Black & Scholes model or on the binomial model. This method is based on the assumption that the securities of an entity may be considered as call options on the value of such entity as a whole.

· | The value of investments in venture capital funds which are not registered for trade is determined on the basis of the Group’s share in the funds’ equity based on the financial statements thereof, which are based on fair value or valuations of the investments thereof.

(2) | Including an embedded derivative in respect of a non-recourse loan received by Koor as detailed in note 20.F.4.b above.

The fair value estimate of the embedded derivative will increase following an increase in the standard deviation and the underlying asset, and also following a decrease in the non-tradability discount rate.
IDB Development Corporation Ltd. Convenience translation
193

Note 21 - Financial Instruments (cont.)

G. | (cont.)

| 2. | Fair value hierarchy (cont.)

Fair value sensitivity analysis with respect to financial instruments measured by Level 3 fair value
Although the Group believes the fair value amounts determined for measurement and/or disclosure are appropriate, using different assumptions or measurement methods may change the fair value amounts.
With respect to the measurement of the fair value of the embedded derivative in the non-recourse loan, a possible and reasonable change in any of the following unobservable data would have increased (decreased) the profit or loss and the equity as follows (after tax):

|  | As at December 31, 2014 |
|  | Effect on total equity |  |  | Effect on the profit or loss |
Unobservable data |  | Increase in the parameter of |  |  | Decrease in the parameter of |  |  | Increase in the parameter of |  |  | Decrease in the parameter of |
|  | NIS millions |
Change of 5% in the standard deviation of Adama shares |  |  | 29 |  |  |  | (27 | ) |  |  | 29 |  |  |  | (27 | )
Change of 2.5% in the discount rate in respect of the non-marketability of Adama shares |  |  | (21 | ) |  |  | 24 |  |  |  | (21 | ) |  |  | 24 |
Change of 5% in Adama’s value |  |  | 45 |  |  |  | (38 | ) |  |  | 45 |  |  |  | (38 | )

|  | As at December 31, 2013 |
|  | Effect on total equity |  |  | Effect on the profit or loss |
Unobservable data |  | Increase in the parameter of |  |  | Decrease in the parameter of |  |  | Increase in the parameter of |  |  | Decrease in the parameter of |
|  | NIS millions |
Change of 5% in the standard deviation of Adama shares |  |  | 48 |  |  |  | (50 | ) |  |  | 48 |  |  |  | (50 | )
Change of 2.5% in the discount rate in respect of the non-marketability of Adama shares |  |  | (6 | ) |  |  | 4 |  |  |  | (6 | ) |  |  | 4 |
Change of 5% in Adama’s value |  |  | 104 |  |  |  | (100 | ) |  |  | 104 |  |  |  | (100 | )

With respect to the other financial instruments classified as Level 3 in the fair value hierarchy, the possible effect as a result of a reasonable change in unobservable data is not material.
IDB Development Corporation Ltd. Convenience translation
194

Note 21 – Financial Instruments (cont.)
H. Price risk – sensitivity analysis

| 1. | Change in the fair value of securities measured by fair value through profit or loss would have affected the profit or loss by the following amounts (after tax):

|  | For the year ending December 31 |
|  | 2014 |  |  | 2013 |
|  | Effect on the profit or loss |  |  | Effect on the shareholders share |  |  | Effect on the profit or loss |  |  | Effect on the shareholders share |
|  | NIS millions |
Increase of 5% |  |  | 250 |  |  |  | 175 |  |  |  | 148 |  |  |  | 67 |
Increase of 10% |  |  | 498 |  |  |  | 348 |  |  |  | 296 |  |  |  | 136 |
Decrease of 5% |  |  | (250 | ) |  |  | (175 | ) |  |  | (148 | ) |  |  | (67 | )
Decrease of 10% |  |  | (498 | ) |  |  | (348 | ) |  |  | (296 | ) |  |  | (136 | )

| 2. | A change in the fair value of financial assets measured by fair value through other comprehensive income would have affected the equity in immaterial amounts.

I. Offsetting financial assets and financial liabilities
The following are details of the book value of financial instruments recognized, which were offset in the statements of financial position:

|  | As at December 31, 2014 |  |  | As at December 31, 2013 |
|  | Gross amounts of financial assets (liabilities) recognized |  |  | Gross amounts of financial assets (liabilities) recognized and offset in the Statement of Financial Position |  |  | Net amounts of financial assets (liabilities) presented in the Statement of Financial Position |  |  | Gross amounts of financial assets (liabilities) recognized |  |  | Gross amounts of financial assets (liabilities) recognized and offset in the Statement of Financial Position |  |  | Net amounts of financial assets (liabilities) presented in the Statement of Financial Position |
|  | NIS millions |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade receivables |  |  | 342 |  |  |  | (238 | ) |  |  | 104 |  |  |  | 340 |  |  |  | (264 | ) |  |  | 76 |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trade payables and accrued expenses |  |  | (264 | ) |  |  | 238 |  |  |  | (26 | ) |  |  | (316 | ) |  |  | 264 |  |  |  | (52 | )

See also note 16.F.1.d above with regard to the embedded derivative presented offset by the host contract in a hybrid financial instrument in respect of a non-recourse loan received by Koor.
IDB Development Corporation Ltd. Convenience translation
195

Note 22 – Charges and Guarantees

A. | The Company and several consolidated companies registered fixed and/or floating liens on their assets (including shares, real estate assets, investment property and fixed assets) to secure repayment of the liabilities. In addition, certain consolidated companies have undertaken not to register liens on their assets in favor of third parties without prior written consent from the lenders (negative pledge). In certain events, creation or realization of liens is subject to regulatory permits, including pursuant to the terms of various permits and/or licenses. See note 16.E.d.1 and 2 above for information pertaining to the provisions that were set out in agreements between the Company and banks, which determine, inter alia, a limit on charging additional assets in order to give additional collateral to secured lenders.

B. | With respect to a loan that was received by the Company from a financial institution, the book value of which as of December 31, 2014, is NIS 148 million, the Company charged shares of Discount Investments and shares of Clal Holdings Insurance Enterprises, as well as an amount of cash of NIS 18 million. For details, see also note 16.C.2 above.

C. | The Company gave a bank a comfort letter with respect to its holdings in Israir, by which, inter alia, it will make all efforts to help Israir obtain financial means to meet its liabilities to the bank, and if necessary will act to sell the airplanes so that the sale proceeds may serve to repay the debt. The comfort letter states that it does not create of an undertaking to repay the credit and/or security and/or guarantee. In the comfort letter, the Company undertook to retain control of IDB Tourism and/or its subsidiary (see also note 23.B.10 and 11 below).

IDB Development Corporation Ltd. Convenience translation
196

Note 22 – Charges and Guarantees (cont.)
D. Guarantees

| 1. | Guarantees for loans received from banking corporations

The Guarantor | Details |  | Sum of the guarantee as at December 31, 2014 |
|  |  | NIS Millions |
The Company | Guarantee to wholly owned consolidated company of the Company for a loan from a banking corporation |  |  | 7 |
Shufersal and its consolidated company | Guarantee for the associate’s debt to the banking corporation |  |  | 25 |
Property & Building | Guarantees to wholly owned consolidated company of the Company for loans from banking corporations |  |  | 457 |
Property & Building | Guarantees for associates and joint transactions for their loans from banking corporations |  |  | 360 |
IDB Tourism (2009) | Guarantee to a consolidated company for a loan from a banking corporation |  |  | 235 |
Andim Tourism and Aviation Ltd. | Guarantee for consolidated companies to banking corporations |  | For an unlimited amount * |

| * | The balance of the debt to the banking corporation as at 31 December, 2014, is NIS 22 million.

| 2. | Other guarantees

The Guarantor | Details |  | Sum of the guarantee as at December 31, 2014 |
|  |  | NIS Millions |
Consolidated companies of Property & Building | Guarantees and insurance policies that were provided by banks and insurance companies at the request of consolidated companies of Property & Building to secure the money of the purchasers of the apartments, in accordance with the Sales (Apartments)(Assurances of Investments of Purchasers of Apartments) Law 5735-1974. |  |  | 310 |
Property & Building and its consolidated companies | Bank guarantees for institutions, service providers, land owners and others during the ordinary course of their business. |  |  | 166 |
Koor | Guarantee to Bezeq with regards to a service provision agreement for products sold to it by a Koor subsidiary. |  |  | 165 |
Cellcom and its consolidated companies | Bank guarantees on behalf of the Israeli government to assure implementation of the terms of the licenses. |  |  | 83 |
Cellcom and its consolidated companies | Bank guarantees on behalf of suppliers, government institutions and others |  |  | 49 |
Shufersal | Various guarantees |  |  | 4 |
Diesenhaus Ltd. | Bank and other guarantees to consolidated companies to secure credit from suppliers and lessees and performing tenders |  |  | 3 |
Diesenhaus Travel and Tourism (1979) Ltd. | Bank and other guarantees to consolidated companies to secure credit from suppliers and lessees and performing tenders |  |  | 2 |
Open Sky Ltd. | Bank guarantees in favor of airlines |  |  | 5 |
Israir Flight and Tourism Ltd. | Bank guarantees in favor of suppliers |  |  | 5 |
IDB Tourism (2009) | Guarantee in favor of a supplier of a consolidated company |  |  | 10 |

IDB Development Corporation Ltd. Convenience translation
197

Note 22 – Charges and Guarantees (cont.)

E. | Discount Investments undertook to two banks that provided it loans whose balance as at December 31, 2014, amounted to NIS 521 million to avoid granting liens on behalf of others, subject to certain exceptions set forth in the aforesaid loan agreements (these exceptions include with regards to the two said banks an instance of a fixed pledge on an asset on behalf of a third party that financed its purchase, in order to secure credit for the purchase of said asset only, and with regards to one of the aforesaid banks - even in the case of a fixed pledge on behalf of a third party, when simultaneously said asset will be charged with an identical charge on behalf of said bank to secure Discount Investments’ loans from it).

F. | Ÿ | Adama shares owned by Koor are charged to secure the loan received by Koor from a Chinese bank, as stated in note 16.F.1.d.

| Ÿ | To secure the undertakings of the other consolidated companies and their subsidiaries to banks and others, in the total amount of NIS 3,130 million, and to secure bank guarantees amounting to NIS 476 million, these companies pledged various assets, including the share capital of investee companies and property rights (sum of said undertaking also includes loans from Morgan Bank, as stated in note 16.F.3.a above, some of which was also registered as a first class mortgage as specified in said note).

G. | As part of the issuance of Cellcom bonds (see also Note 16.f.2. above), Cellcom undertook to not register liens on its assets, with the exception of certain unusual cases.

H. | As part of the issuance of Shufersal bonds from Series D and E (see note 16.F.4 above), Shufersal undertook to not register a fixed lien on all of its assets to any third party, unless it obtained approval of the meeting of holders of bonds.

I. | As part of the issuance of Cellcom bonds of Series F and G (see note 16.F.3.b above), Property & Building undertook to not register liens on its assets, with the exception of certain exceptions listed in the trust deed, in addition to existing liens on the date of issuance of said bonds.

J. | To secure the undertakings of the other consolidated companies and their subsidiaries to banks and others, in the total amount of NIS 355 million, and to secure bank guarantees amounting to NIS 12 million, these companies pledged various assets, including their share capital and investee companies and property rights, planes, insurance rights of property and land rights.

IDB Development Corporation Ltd. Convenience translation
198

Note 23 – Contingent Liabilities, Commitments and Lawsuits

| A. | Contingent Liabilities

| 1. | The Group has issued certain officers and employees in the Group, as well as to certain officers in a number of investee companies, advance letters of undertaking to indemnify those officers on account of their responsibility and liability for acts in the course of their duties, same being subject to certain terms and conditions and pertaining to certain pecuniary liabilities, applied to them in the setting of their said responsibilities and which, pursuant to law, indemnification is permitted on which account. See also note 33.B.5 below.

| 2. | In the preparation of economic papers, economic opinion and actuary declarations prepared for the Company and investee companies, by external experts, the Company and its investee companies gave said experts undertakings to indemnify them on account of damages that are caused to them as a result of third party actions against them pertaining to those economic papers, economic opinion and actuary declarations.

| 3. | In relation to the implications of legislation to promote competition and minimize market concentration, on the Company’s ability to control reporting corporations, see note 3.G.3 above.

B. | Commitments:

| 1. | Cellcom has undertakings relating to the license granted to it in 1994, the principal ones of which are:

Not to mortgage any asset that serves to perform the license without the Ministry of Communication’s prior consent, and the joint equity of all of Cellcom’s shareholders, together with Cellcom’s equity, will be no less than 200 million USD. In this regard, a shareholder who holds less than 10% of the capital rights in Cellcom will not be taken into consideration.
In Cellcom’s estimation, it is in compliance with the aforesaid obligations.
As a result of exercising rights issued by the Company as stated in note 15.B.5 above, in February 2015 a change occurred in its control structure, as a result of which the control structure in Cellcom also changed which will require a permit from the Ministry of Communication, including due to the Israeli holding requirement included in Cellcom’s licenses. Cellcom contacted the Ministry of Communication and intends to file a formal request to approve the specified changes, which may include a request to change the communications licenses of Cellcom, including with regard to the Israeli holding requirement pursuant to the aforesaid licenses. As at the date of approval of these financial statements, one of the controlling shareholders disputes the aforesaid changes.

| 2. | As of December 31, 2014, Cellcom and companies held by it have obligations to purchase equipment for the communication network, cellular telephone equipment and software and system maintenance, in a sum of approximately NIS 995 million.

| 3. | During 2003-2013, Netvision entered into several agreements with Mediterranean Nautilus Ltd. and Mediterranean Nautilus (Israel) Ltd. (hereinafter jointly: “Med Nautilus”). Under the agreements with Med Nautilus, Netvision acquired IRUs in certain communication capacities on Med Nautilus’ communication lines, as well as maintenance and operation services in connection with the aforesaid communication lines. The 2013 agreement contains an option, according to which Netvision is entitled to purchase additional capacity. The duration of the agreement pertaining to part of the capacity purchased from Med Nautilus is until May 2032. Netvision has the option to terminate the agreements pertaining to certain portions of the capacity in 2022 and 2027. The balance of Netvision’s liabilities to Med Nautilus on account of the IRUs of international communication lines under all the agreements extant as of December 31, 2014, is NIS 343 million.

| 4. | In March 2012 and May 2013, Cellcom entered into agreements with Apple Sales International to purchase and distribute iPad Tablets and iPhone devices, respectively, in Israel. In accordance with the terms and conditions of the agreements, Cellcom undertook to purchase, over a period of 3 years, a minimum number of such devices, which is expected to constitute a significant share of the aggregate expected total sum of acquisitions of tablets and cellular phones by Cellcom over such period. The aggregate sum of purchases will be dependent on the iPad and iPhone prices, respectively, at the date of purchase thereof.

IDB Development Corporation Ltd. Convenience translation
199

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
B. Commitments (cont.)

| 5. | In 2013 Cellcom renewed its agreement with Amdocs on account of operation, maintenance, management and development services for Cellcom and Netvision’s billing system and customer system. The agreement is until February 2024, and Cellcom is entitled to terminate it, commencing on August 2016, subject to payment of compensation on account of the early termination. Moreover, Cellcom entered into a new agreement with Amdocs to develop a new version of the billing system that would serve Cellcom and Netvision. In March 2014, Cellcom engaged in an additional agreement with Amdocs to supply a customer relations management system which will replace Cellcom’s and Netvision’s existing customer relations management systems and serve both companies. As part of the agreement, Cellcom has undertaken to purchase maintenance services for a period of one year from the launch date of the system, subsequent to which it has an option to purchase maintenance services for seven additional years. As at December 31, 2014 Cellcom’s total liabilities with regard to these agreements amount to NIS 108 million.

| 6. | The following are details of Cellcom’s engagements in agreements for sharing networks and sites:

| a. | In December 2013 Cellcom engaged with Golan Telecom Ltd. (“Golan”), as part of which Cellcom granted Golan an Indefeasible Right of Use with respect to its second and third generation network, which will replace the intra-national roaming agreement extant between Golan and Cellcom, Golan will continue to operate its own network center.

In May 2014, after the Ministry of Communication published a networks sharing policy, Cellcom engaged in a network sharing agreement with Golan, to construct and operate a shared fourth generation radio network. Both Golan and Cellcom will provide the frequencies required to operate the fourth generation radio network and each of the parties will acquire and operate its own network center.
Both of the aforesaid agreements were updated in September 2014 subsequent to the publication of additional requirements with respect to network sharing by the Ministry of Communication, and are, as a rule, for a period of 10 years at least. The fourth generation network agreement includes conditions with regard to ownership and a mutual indefeasible usage right in the fourth generation radio equipment, as well as the setting up of a joint venture for a joint operation of the fourth generation radio network. Upon the termination of the fourth generation sharing agreement, each party will be entitled to acquire indefeasible usage rights in the passive infrastructure of the other party.
The entering of all of the agreements into effect is subject to the granting of regulatory approvals and there is no certainty such approvals will be granted. If these agreements are approved, Cellcom anticipates its revenue from Golan to be at a similar annual level to its revenue from Golan in 2013-2014, for the period of the agreements.

| b. | In September 2014, Cellcom engaged with Pelephone Communication Ltd. (“Pelephone”) in a cooperation agreement with regard to maintenance services for passive components at cellular sites, including the merging of passive components and reducing costs, through a joint contractor. The selected contractor through a process of obtaining quotes will engage in separate agreements with each of Cellcom and Pelephone, as a rule, for a period of 5 years at least. The agreement is subject to regulatory approvals and there is no certainty such approvals will be granted.

| 7. | In June 2014, the Board of Directors of Cellcom resolved to implement Cellcom’s entry into the TV Over IP services sector. In advance of its launch of the aforementioned services, Cellcom engaged in purchasing agreements for equipment, content and associated services. Entry into a new and saturated market will require significant investments and additional operating expenses.

| 8. | There are engagements entered into by Properties and Building and by consolidated subsidiaries of its in Israel, principally pertaining to the acquisition of land, residential construction and development and erection of buildings, which are estimated, as of December 31, 2014, at an aggregate sum of NIS 328 million.

| 9. | A consolidated subsidiary of Property and Building engages in the ordinary course of its business in combination transactions with land owners (including “demolition and construction” projects) according to which, in consideration of the purchase of the land, the vendors will receive a share of the proceeds of the project and/or some of the units to be built. The transactions are partly conditional on approval of a city building plan allowing residential building on the land.

IDB Development Corporation Ltd. Convenience translation
200

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)
B. Commitments (cont.)

| 10. In April 2007 Israir entered into a contract with Airbus to purchase three airplanes. Two of the airplanes were received during 2010, and the third airplane, on account of which Israir has paid an advance of approximately $8 million, has not yet been received. Pursuant to the terms and conditions of the agreement, Israir was supposed to transfer an additional sum of advance on account of the third airplane by the end of the first half of 2012. In light of the failure to meet the payment stipulation in the agreement, Israir and Airbus decided that the delivery date for the plane, which was expected to be August 2013, will be postponed to 2016.

It should be noted that despite the delay in the payments per the terms and conditions of the agreement and the postponement of receipt of the plane, Israir expects to transfer to Airbus the remainder of the payments on account of the plane by the date it is received. In light of the foregoing, no depreciation in value was recognized on account of the advance paid.

| 11. For details regarding an agreement of IDB Tourism with a foreign banking corporation in a letter of commitment, which will be secured by a charge on four aircrafts owned by Israir and a charge on a new fifth aircraft, see note 16.F.6.2.

| 12. As of December 31, 2014 the Company and its consolidated subsidiaries had liabilities to pay rent as follows:

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

C. | Lawsuits

The Company and other Group companies are party to lawsuits. The cost which may be incurred due to these lawsuits is provided for on the Company’s financial statements, or those of relevant Group companies, as the case may be, only if it is more likely than not (i.e. a probability higher than 50%) that a liability may arise due to past events and the liability amount may be reasonably quantified or estimated. The amounts of provisions made are based on estimated by relevant Group companies with regard to the risk associated with each lawsuit (except for some lawsuits, for which – due to the early stage of handling these lawsuits - the likelihood of success cannot be estimated). Note, on this matter, that events that take place during litigation may require re-assessment of such risk. Estimates by relevant Group companies with regard to such risk are based on the opinion of their legal counsel and on estimates by these relevant Group companies with regard to amounts of reasonable settlement agreements which these companies are likely to incur should both parties agree on such settlement agreements.
Below is a concise overview of lawsuits pending against the Company and other Group companies, categorized by groups with similar features. The amounts of the following lawsuits are presented as of their filing date, unless otherwise indicated.

| 1. | Lawsuits against the Company

| a. | In May 2009, a lawsuit was filed with the Tel Aviv District Court (“the Court”) against the Company, seeking cancellation of the Company’s full buy-back offer issued by the Company in January 2009, with the share buy-back pursuant to this offer completed in March 2009 (“the tender offer”) and, alternatively, an assessment relief, pursuant to Section 338 of the Companies Law, 1999 (“The Companies Law”), along with a motion for class action status for this lawsuit. The class which plaintiffs seek to represent includes all offerees in this tender offer.

On March 12, 2014, the Court rejected the motion for class action status due to absence of cause, and consequently also rejected the lawsuit itself. The Court charged the plaintiffs with payment of legal and other expenses incurred by the Company in this litigation, as determined by the Registrar.
On June 30, 2014, the Company filed a motion for a costs assessment, in which the Court was requested to find the plaintiffs liable for costs incurred by the Company in regard to its defense, amounting to approximately NIS 1.3 million (as of the date of filing the motion). On March 2, 2015, the Court found the plaintiffs liable to pay the Company’s costs in an amount of approximately NIS 1.1 million, plus linkage differentials and interest.
IDB Development Corporation Ltd. Convenience translation
201

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| a. (cont'd)

On March 9, 2015, the plaintiffs filed a motion for a review of the decision in the motion for the costs assessment and the Company filed its response on March 26, 2015. On March 24, 2015, the plaintiffs filed a Notice of Appeal on the decision of the registrar in the motion for the costs assessment. The hearing of the appeal on the decision in the motion for the costs assessment was set down for April 29, 2015.
On May 4, 2014, the plaintiffs appealed the verdict to the Supreme Court, seeking to appeal the Court decision dated December 29, 2013 whereby the Court ordered deletion of part of the plaintiffs’ summation; to have the verdict annulled; and to grant class action status. Concurrently, the appellants filed a bond to secure the respondent’s expenses in this appeal, in conformity with statutory provisions. The appeal claims, inter alia, that the Court was wrong in its verdict and reasoning, since – according to the appellants – it has been proven that the consideration paid to offerees in conjunction with the tender offer did not reflect the fair value of Company shares; that the decision to go ahead with the tender offer was wrongly made; that most Board members were interested parties and in conflict of interest; and therefore such decision was subject to special approval, in conformity with Section 275 of the Companies Law; that the price in the tender offer should have been determined in conformity with a regular tender offer made by the Company in July 2008; that the appropriate way to value the Company was using the NAV model and not the DCF method; and that evidence presented by the appellants was sufficient to prove fulfillment of required conditions for grant of class action status to their lawsuit.
The parties files their summations and on March 25, 2015, the appellants filed their summations in reply. A hearing of the appeal is scheduled for April 26, 2015.
It should be noted that according to the opinion of legal counsel and considering the claims made in the statement of appeal, the Company believes it has good defense claims and therefore it is not likely (i.e. the probability is lower than 50%) that the Supreme Court would accept the appeal and grant class action status to the revised additional claim.

| b. | In October 2010, a lawsuit was filed with the Central District Court by Alpha Capital Anstalt (“Alpha”) and by Ness Energy of Israel Inc. (“Ness Israel”) (jointly: “the plaintiffs”) against the Company, Noya Oil and Gas Exploration Ltd. (which owns a 75% controlling stake in the Modi’in General Partner) (“Noya”) and Du-Tzach Ltd., a company controlled by Mr. Yitzhak Sultan (“Du-Tzach”) (jointly: “the defendants”). In this lawsuit, the plaintiffs seek declarative injunction against the share allocation (“the allocation”) made by Noya to Du-Tzach, which resulted in Du-Tzach becoming a 95% owner of Noya’s issued share capital and against sale of half of Du-Tzach’s holding stake in Noya to the Company.

The plaintiffs also seek a declaratory injunction stating that Ness Israel (which held all of Noya’s share capital prior to the allocation) holds all of Noya’s share capital. The plaintiffs’ major claims in this lawsuit are, inter alia, that the allocation was made unbeknownst to the plaintiffs and therefore without their consent and with no consideration received by the plaintiffs. The plaintiffs allege that the allocation constitutes theft of Noya from the plaintiffs, is unlawful, was made in breach of the plaintiffs’ right of first refusal and in breach of the fiduciary duty and duty of care by officers of Noya towards shareholders thereof. Due to the foregoing, the plaintiffs allege that the allocation to Du-Tzach and the sale to the Company should be annulled.
Another company added to this lawsuit as co-defendant is Viceroy LLC (“Viceroy”), which claims that Viceroy and not Alpha is the sole owner of Ness Israel and also claims that the allocation to Du-Tzach and the sale to the Company should be annulled, for similar reasons.
The defendants reject the alleged claims against them, claiming inter alia that the allocation was made lawfully and that Alpha and Viceroy are not entitled to receive the Noya shares. The Court proposed that the parties should reach a settlement whereby Ness Israel would receive 5% of Noya shares to conclude the proceeding - the defendants agreed to this proposed settlement but the plaintiffs refused it. As further background, note that the Company has learned that in November 2010, Alpha filed a claim against Viceroy in a Court in Oklahoma, seeking a declaration by the Court about Alpha’s ownership interest in Ness Israel.
IDB Development Corporation Ltd. Convenience translation
202

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| b. (cont'd)

In conjunction with a decision on Alpha’s motion for interim relief, the Court in Oklahoma determined that the Ness Israel shares were transferred to Alpha but no decision has been given to date with regard to Alpha’s motion for a declaration that it was entitled to hold all Ness Israel shares.
On July 29, 2014, the plaintiffs filed a notice with regard to a settlement agreement reached between Alpha and Viceroy, in which the parties agreed that Alpha owned Ness Israel and all other claims with regard to the proceeding in Oklahoma were rejected. As of the report date, the parties have filed their summations. On August 19, 2014, the Court decided that the defendants would file their comments on this notice after filing the response summations.
Based on the opinion of legal counsel - which was based on information provided there to during this proceeding, on the manner of testimony by witnesses of the parties and on the aforementioned proposed settlement by the Court - the Company believes that the likelihood of the claim against the Company being rejected is higher than the likelihood of it prevailing.

| c. | In September 2012, a motion for approval of a derivative claim was filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to be a shareholder of IDB Holdings (“the plaintiff”). The motion was filed against controlling shareholders of IDB Holdings, officers of the Company and of IDB Holdings (in this section c., jointly: “the companies”) who served on the relevant dates (jointly: “the defendants”) as well as against the Company and IDB Holdings as pro-forma defendants. The motion concerns decisions by the companies with regard to a transaction involving acquisition shares of Ganden Tourism and Aviation Ltd. (currently named Andim Tourism and Aviation Ltd.) (“Ganden Tourism”) by the Company, which closed in October 2009.

The plaintiff claims, inter alia, that this transaction was devoid of any economic reason for the companies, that it was not in their best interest and that it was expected to cause them to incur significant damage; the acquisition transaction benefitted controlling shareholders of the companies by releasing them of guarantees they had provided to secure debt of Ganden Tourism and from the need to further finance its operations; and that the external value engaged in order to determine the fair price for acquisition of the shares and the consulting company which advised that institutional investors support the approval of this transaction at the General Meeting of shareholders were in conflict of interest with regard to the aforesaid transaction.
The plaintiff claims that the officers preferred the interest of the controlling shareholders of the companies over the interest of the companies, thereby being in breach of their fiduciary duty and duty of care to which they are subject; that the controlling shareholders acted other than in good faith and were in breach of their duty of fairness and care towards the companies; and finally, that releasing the controlling shareholders of the companies from their guarantees to secure Ganden Tourism’s debt and anticipated further investment of owners’ loans to finance Ganden Tourism’s operations and the transfer of the burden of said guarantees and further investment to the Company constitutes unjust enrichment.
The plaintiff petitioned for a motion instructing the controlling shareholders of the companies and officer thereof to compensate the companies or to reimburse to the companies, jointly and severally, an amount equal to the damage incurred as alleged in the motion, amounting to NIS 480 million, or at least NIS 212 million, which is the amount of damage allegedly incurred by the companies due to assuming the guarantees for Ganden Tourism’s debt from the controlling shareholders of the companies.
In January 2013, the defendants and the companies filed their responses to the motion for approval of derivative claim, in which they objected to the motion due, inter alia, to it being unfounded, the approval of said transactions being lawful, with special care to the best, proper corporate governance rules and to all rules applicable to interested party transactions and that the aforementioned claim and litigation thereof is not in the best interest of the companies.
On October 19, 2014, the Court rejected the motion to reject out of hand, filed by all defendants in this proceeding (other than the companies). The main reason for this being that the plaintiff, after the creditors’ arrangement at IDB Holdings, directly holds Company shares and although, after the creditors’ arrangement, the plaintiff has no status to make claims on behalf of IDB Holdings.
203

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| c. | (cont.)

The Court thus ordered that the motion for approval would be eliminated with regard to those who only served as Board members of IDB Holdings and that for the time being, IDB Holdings would remain as defendant in this proceeding but, should the motion be granted, IDB Holdings would be eliminated from the proceeding as defendant. The Court added that the Company’s objection to approval of the derivative claim would be taken into considerations by the Court in determining the outcome of the motion for approval.
As of the report date, the parties have filed their summations and the plaintiff has filed their response summation. Based on the opinion of legal counsel, the Company believes that the motion is more likely to be rejected than granted.
To the best of the Company’s knowledge, negotiations are taking place between the applicant and the insurance company of the former officers of the companies, with regard to a possibility of settling the proceeding consensually with regard to the causes of action against the former officers of the companies (as opposed to the causes of action against the former controlling shareholders of the companies). If these negotiations mature into a settlement, the Company may receive an immaterial amount from the insurance company. The Company is not a party to these negotiations, and it cannot estimate the likelihood that a settlement will be reached. In any case, the Company is not expected to be exposure to any liability as a result of these negotiations.
It should be noted that since this is an application for approval of a derivative claim, even should the motion be granted, the Company is expected to be a potential beneficiary of this proceeding and not a potential liable party thereof.

| d. | In April 2013, a motion for approval of derivative claim and a statement of derivative claim were filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to hold Company bonds, in the name of the Company, against IDB Holdings and against members of the Board of Directors of the Company in the relevant period. This motion alleges that the dividend distributed by the Company in November 2011, amounting to NIS 64 million, constitutes a forbidden distribution pursuant to Section 302 of the Companies Law and that the decision to distribute this dividend was made unlawfully. The motion alleges that, according to the plaintiff, the earnings test in conformity with the Companies Law was not performed, since upon the date of decision on this distribution, it was expected that the Company’s next (future) financial statements would indicate negative retained earnings.

The relief sought from IDB Holdings is reimbursement of the aforementioned dividend payment, in conformity with section 310 of the Companies Law; the relief sought from the aforementioned Board members is compensatory damages to be paid to the Company for the damage incurred by the Company due to breach of their fiduciary duty and duty of care towards the Company, equal to the distribution amount.
On November 6, 2013, the District Court allowed the motion and approved the filing of a derivative claim for reimbursement of NIS 64 million to the Company, for cause of conducting a forbidden distribution, since the earnings test was not fulfilled upon the relevant dates for this distribution.
In December 2013, the Company filed a motion for an additional hearing of the Court decision to approve the derivative claim (“the additional hearing”), to be heard by three judges of the Economic Section of the Tel Aviv-Yafo District Court. Due to negotiations between the parties (see below), the hearing was postponed.
Contingent settlement agreement –
On March 9, 2014, the applicant in this proceeding, the applicant in the motion for another derivative claim filed against the Company, which is described in section C.1.e below in this note (in this subsection, “the other derivative actions”) and IDB Holdings filed, through the trustees of the debt arrangement, a motion for approval of a contingent settlement agreement they have reached, whereby all claims and events subject to the two motions for derivative claim would be completely and finally removed against IDB Holdings only, such that the proceedings would continue in regular fashion with regard to the other defendants, including the Company,
IDB Development Corporation Ltd. Convenience translation
204

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| d. | (cont.)

for payment of NIS 7 million to be paid to the Company by the Trustees for the debt restructuring out of cash payable to eligible parties of this debt arrangement, on the date when the eligible parties of this debt arrangement would receive the cash payment pursuant to the creditors’ arrangement, and for an additional payment of NIS 16 million to be paid to the Company by the Trustees for the debt restructuring, in cash - but only from any receipts to be received in future by IDB Holdings, if any, in conjunction with motions and derivative claims filed against the controlling shareholders and Board members of IDB Holdings, on behalf of IDB Holdings, or any future claims to be filed in lieu thereof (“the contingent settlement agreement”). The settlement agreement is contingent on the fulfilment of conditions precedent, including Court approval of the debt restructuring, approval by the Court hearing the derivative claims being settled, approval by IDB Holdings creditors; and approval by the other defendants on the two motions, officers and the Company) and alternatively, approval by the Court which approved this debt restructuring, allowing the trustees of the debt arrangement to distribute to the beneficiaries of the debt arrangement that are not respondents in the motions the proceeds payable to them, in full, pursuant to the creditors’ arrangement on the date of implementation of the arrangement, and that the Trustees of the debt arrangement are not required, in view of the settlement, to keep back any amounts or assets whatsoever as collateral for the debt claims filed with them.
On March 12, 2014, Board members and officers of IDB Holdings filed with the Court their objection to the motion for approval of the contingent settlement agreement. On March 18, 2014, the Company Board of Directors resolved to approve the contingent settlement, subject to certain conditions – primarily subject to rejecting the claim by Discount Investments with regard to the Company (see note 23.C.1.h below) (“the Discount Investments claim”). On March 20, 2014, the Trustees for the debt restructuring filed their response with the Court, whereby they propose, with the Company’s consent, a litigation arrangement which would allow the creditor’s arrangement at IDB Holdings to be carried out, while fully preserving the rights of all parties, including those opposed to approval of the contingent settlement agreement. This arrangement was approved by the Court hearing the creditors’ arrangement in its decision of March 24, 2014, and again on May 1, 2014, following the notice of the trustees of the arrangement that agreement had also been reached with regard to the procedural arrangement with the directors and officers who objected to the contingent settlement.
On May 5, 2014, the Company gave notice to the Court of its position of approving the contingent settlement, as well as its consent to the procedural arrangement (subject to fulfillment of conditions set forth in each one of these); the Company’s response clarified, inter alia, that the Company gave its approval and consent with due attention to the fact that the Company’s position has been and remains that there was no ground for claims underlying the legal proceedings in this claim and in the other derivative claim, and that the dividend distributions subject to each of these proceedings were conducted lawfully. The Court resolved to give its decision on the motion for approval of the contingent settlement agreement after the decision of the Court that is hearing the creditors’ arrangement with regard to that arrangement, which was also filed for its approval.
It should be noted that in view of the filing of the motion for approval of a settlement in both of the aforementioned legal proceedings (see below), as of the date of the report the contingent settlement is suspended.
Settlement agreement –
In July 2014, the parties presented to the Court a (non-final) general outline for another settlement agreement. The Court resolved that, should such final outline not be achieved and/or should it not be approved by the Court, a hearing of the motion for an additional hearing would be scheduled and the proceeding would continue as usual.
IDB Development Corporation Ltd. Convenience translation
205

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| d. | (cont.)

On September 15, 2014, the parties (other than the Company) to this claim and to the other derivative claim filed a motion for approval of a comprehensive settlement, the main points of which are as follows:

1. | The settlement agreement would become effective contingent on fulfillment of all of the following conditions precedent: (a) Approval of the settlement agreement as a final, conclusive verdict - both in this claim and in the other derived claim; (b) Final, conclusive approval of the settlement agreement by the Court hearing the IDB Holdings debt restructuring.

2. | This derived claim and in the other derived claim would be accepted, meaning that amounts paid pursuant there to would be paid in conformity with the outline set forth in the settlement agreement.

| 3. | The maximum amount which the Company may receive pursuant to the settlement agreement (subject to fulfillment of the conditions precedent) is NIS 50.6 million, partly paid by IDB Holdings and partly paid by the other defendants in this claim and in the other derivative claim (through the insurance company), as set forth below: (a) NIS 34.6 million would be paid to the Company as follows: NIS 7 million would be paid by IDB Holdings in cash; another NIS 27.6 million would be paid by the other defendants in this claim and in the other derivative claim (through the insurance company). (b) NIS 16 million would be paid to the Company by IDB Holdings out of future receipts by IDB Holdings, if any, in conjunction with motions for approval of derivative claims and/or derivative claims by IDB Holdings against the controlling shareholders and officers thereof.

| 4. | The award to plaintiffs in this claim and in the other derivative claim and their legal fees would be paid out of the aforementioned amounts, as percentage, as determined by the Court.

| 5. | Payment of the aforementioned amounts would be made against final and absolute discharge of all claims by the Company against any party, at present or in future, with regard to the dividends distributed by the Company in 2010-2011 and the Company would be prevented by Court action from making any claims with regard to said distributions (“the estoppel clauses”).

O n October 21, 2014, the Company filed its response to approval of the settlement in the outline described above, according to which it objects to its approval insofar as it includes the estoppel clauses. The Company said, inter alia, that it cannot accept a situation whereby it would be forced, by the settlement agreement, to be exposed to a substantial claim (the Discount Investments claim), while negating its rights of recourse, claim or indemnification. The Company position was, inter alia, that it was necessary to wait for the decision of the Court hearing the IDB Holdings creditors’ arrangement, in which a motion for summary dismissal of the Discount Investments claim had been filed (see below). The Company gave notice in its response that it would be willing to consent to the settlement agreement if it is determined that the Company’s waiver in conformity with the estoppel clauses only refers to this claim and to the other derivative claim and does not refer to any other proceedings, and especially the Discount Investments claim, whereas the trustees gave notice that they agree to the comprehensive settlement as it stands.
In December 2014, responses to the Company’s position were filed. On December 25, 2014, the Court held a hearing at which the Court expressed its position (off the record) that the settlement agreement should not be approved with the current estoppel clauses as currently worded and insisted that it could only approve the settlement agreement if the estoppel clauses would be modified so as to clarify that they only apply to the causes of action that are the subject of this claim and the other derivative claim, and do not apply to other proceedings and other causes of action, such as the Discount Investments claim. At this hearing, a hearing of the final settlement agreement was scheduled; since then, several postponements have been requested due to attempted negotiations to reach a revised settlement as stated below (as of this date – April 19, 2015), and afterwards 15 additional days will be given to the Company to respond to the amended settlement.
IDB Development Corporation Ltd. Convenience translation
206

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| d. | (cont.)

On December 29, 2014, the Court hearing the creditors’ arrangement issued a blocking order with regard to the Discount Investments claim, according to which the filing of a motion for certification of a derivative claim on behalf of Discount Investments against the Company was prohibited (see section C.1.h below in this note.) Despite this, on January 6, 2015, the Company filed a notice with the Court whereby the Company indicated that the Court resolution with regard to the blocking order does not change the Company’s general position, as elaborated in its response dated October 21, 2014 (see above), since this resolution is expected to be appealed. Note that on February 12, 2015, the blocking order was appealed to the Supreme Court.
On February 9, 2015, the trustees for the debt arrangement filed a motion with the Court hearing the creditors’ arrangement, to determine and order that the Company is not entitled to object to the settlement; on March 10, 2015, the Company filed its response to the trustees’ motion, according to which the Company opposes the Trustees’ motion and what is claimed therein, and it asked the Court to dismiss the Trustees’ motion summarily and/or on its merits. On March 26, 2015, the trustees of the debt arrangement filed an additional motion with the court, which was requested to reject the Company’s response and accept the previous motion.
As of the date of the report, the parties to this derivative claim and to the other derivative claim (see section C.1.e below in this note) are holding negotiations to reach an amended settlement between them, according to which, if the Discount Investments claim is successful, the Company will reserve the right to file a lawsuit against directors and officers of the Company and against IDB Holdings for a cause of action arising from this claim, if it pays the insurance company (before the filing of such a claim) NIS 7.5 million (linked to the Consumer Price Index), and also assigns to the insurance company a right to receive 7.5/16 of the amount to be paid to the Company pursuant to the settlement agreement by IDB Holdings out of future proceeds to be received by IDB Holdings, if any, in conjunction with motions for approval of derivative claims and/or derivative claims by IDB Holdings against the controlling shareholders and officers thereof.
In March 2015, the Company’s Audit Committee and Board of Directors approved the key amendments to the aforementioned settlement agreement which would be filed with the Court, should its wording be completed and agreed by the other parties.
In accordance with the opinion of legal counsel, given the innovative decisions by the Court in the primary proceeding and questions arising from this proceeding, and given the unique procedures for handling derivative claims and to appeal the approval for filing a derivative claim - the Company is currently unable to estimate the outcome of these proceedings. Note that since this is a derivative claim, even should the primary proceeding be heard, the Company is expected to be a potential beneficiary in the proceeding and not a potential debtor.

| e. | On August 1, 2013, a motion for approval of a derivative claim was filed with the Economic Section of the Tel Aviv-Yafo District Court by a plaintiff who claims to be a holder of Company bonds, in the name of the Company, against IDB holdings and officers that currently hold office in the Company or held office in it in the past.

This motion alleges that the four dividends distributed by the Company in 2010-2011 in a total amount of NIS 442 million were forbidden distributions and that the decisions to make the distributions were made unlawfully, since the distributions did not pass the earnings test and the solvency test, as set forth in Section 302 of the Companies Law. IDB Holdings is required to reimburse to the Company the dividends distributed, pursuant to Section 310 of the Companies Law, while the other defendants – officers of the Company – are required to compensate the Company for damage allegedly incurred by the Company due to the alleged breach of duty by the officers, in the amount of the distributions.
It is the Company’s position that all of the aforementioned dividend distributions were made lawfully, based on resolutions lawfully passed by the Company’s competent organs and in conformity with all statutory tests and that they are not forbidden distributions. The Company filed its response to the motion, as well as a motion to reject the motion out of hand or, alternatively, to replace the plaintiff and/or its attorneys in conjunction with a preliminary motion.
IDB Development Corporation Ltd. Convenience translation
207

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| e. | (cont.)

As of the report date, the plaintiff has yet to file replies to the Company’s response to the motion for certification, and its response to the motion for summary dismissal of the motion has not yet been filed, because of negotiations held by the parties to reach a comprehensive settlement. For details of a contingent settlement and a settlement in this claim and another derivative claim, see section C.1.d above in this note.
Based on the opinion of legal counsel, which is based on information provided there to by the Company and subject to the precedential nature of questions being reviewed in this proceedings, the Company currently believes that the aforementioned motion is more likely to be rejected than to be granted.
Also note that since this is an application for approval of a derivative claim, even should the motion be granted, the Company is expected to be a potential beneficiary of this proceeding and not a potential liable party thereof.

| f. | For more information on a “Motion for the Recovery of IDB Development Corporation Ltd.” (the motion for an involuntary arrangement) pursuant to section 350 of the Companies Law, which was filed with the Tel Aviv-Jaffa District Court on April 21, 2013, and on the legal proceeding with regard to the Company’s financial position, including the opinion of the Company’s legal counsel, see note 16.G.1 above.

| g. | On November 28, 2013, the Company received final warning letters prior to taking legal action, from attorneys of the Trustees for IDB Holdings bonds (Series A, B, C, D and E). These warning letters are addressed to Board members and management of the Company and of IDB Holdings alleging, inter alia, that IDB Holdings “captains”, including its officers, are directly liable for the alleged heavy damage incurred by IDB Holdings, its shareholders and creditors.

| These letters list a string of alleged deeds and omissions in the affairs of IDB Holdings and/or the Company and/or investees (present or past) thereof, which the aforementioned Trustees allege were made or caused by officers of IDB Holdings and which the Trustees allege are partly concerning the conduct of IDB Group at times, other than in the best interest of Group companies (and in particular, the Company and IDB Holdings) - but rather in the best interest of controlling shareholders thereof. The letters further allege that the aforementioned Trustees intend to have launched appropriate legal proceedings, whether by IDB Holdings, by an officer or by any other party (including by the Trustees) in order to ensure full payment for damage allegedly caused by the events listed in the letters.

| h. | In December 2013, a motion for approval of a derivative claim was filed with the Central District Court, by a plaintiff who claims to be a shareholder of Discount Investments, against Discount Investments, against Board members of Discount Investments in 2010-2011 and against the Company (“the Rosenfeld motion”) with regard to dividend distributions declared by Discount Investments, for being forbidden distributions due to failing the earnings test.

In January 2014, a motion for approval of a derivative claim was filed with the Tel Aviv-Yafo District Court, by a plaintiff who claims to be a shareholder of Discount Investments, against Discount Investments, against Board members and two other officers of Discount Investments in 2010-2011, the Company and certain other shareholders of Discount Investments, affiliated with the Company or with the controlling shareholders of the Company at that time, including Clal Holdings Insurance Business Ltd. and Clal Finance Ltd. as well as the Independent Auditors of Discount Investments (“the defendants”, “the Height motion”). The Court was asked to approve a derivative claim against the defendants with regard to a tender offer by Discount Investments for Shufersal shares, made in February 2010, which increased the holding stake of Discount Investments in Shufersal from 42.2% to 50.3% (“the tender offer”) and with regard to dividend distributions declared thereafter by Discount Investments, from May 2010 through March 2011.
IDB Development Corporation Ltd. Convenience translation
208

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

| h. | (cont.)

On March 18, 2014, the Extra-Elsztain Group filed a motion (“the Extra-Elsztain motion”) with the Court hearing the IDB Holdings debt arrangement, against the aforementioned plaintiffs and against the other parties to the motions, seeking to forbid them from filing or managing any derived claim proceedings on behalf of Discount Investments nor any other proceeding against the Company with respect to said dividend distributions and seeking the motions to be rejected or delayed or, alternatively, to forbid them from filing or managing such proceedings due, inter alia, to delay, lack of good faith and estoppel created against them by approval of the IDB Holdings debt arrangement. On March 23, 2014, a consolidated motion for approval of derived claim was filed with the Central District Court, in conjunction with the Rosenfeld motion, by the two plaintiffs (“the consolidated motion”), which consolidates and combines the Rosenfeld motion and the Height motion and which supersedes the Rosenfeld motion; concurrently, the plaintiffs asked to withdraw the Height motion. The Court approved the withdrawal of the Height motion and unification of both proceedings into a single motion.
The consolidated motion is essentially similar to the Height motion, as follows: (1) In terms of the parties; (2) in terms of the issues - the tender offer and dividend distributions on the same dates; (3) in terms of the alleged claims against the plaintiffs alleging, inter alia, that the tender offer was made needlessly and not in the best interest of Discount Investments, that gain recognized by Discount Investments due to the tender offer was a notional revaluation gain, which was in contravention of accounting principles - since there was no change in effective or formal control by Discount Investments over Shufersal due to the share purchase in this tender offer and therefore, there was not control achieved and therefore no revaluation and recognition of notional gain possible as a result thereof, and that the dividends distributed by Discount Investments, amounting in total to NIS 1.25 billion, were forbidden distributions due to failing the earnings test, as stipulated by the Companies Law; (4) in terms of the relief sought - to require the defendants to reimburse Discount Investments for the dividends thus distributed, the amount invested in purchase of Shufersal shares in conjunction with the tender offer (NIS 423 million) with interest on these amounts - for a total of NIS 1.988 billion, such that some defendants would be charged for the full said amount and other defendants would be charged for part thereof.
It should be noted that with regard to the Company, the Court is asked to instruct the Company to repay NIS 1.082 billion to Discount Investments for dividends distributed by Discount Investments to the Company, pursuant to section 310 of the Companies Law.
Further to the motion that was filed on March 18, 2014, as stated above, on December 29, 2014, the Court handed down its decision, granting the Extra-Elsztain motion by issuing a blocking order, forbidding the plaintiffs from filing a motion for approval of derivative claim on behalf of Discount Investments against the Company and against the other defendants, nor managing a claim for approval of derived claim on behalf of Discount Investments against the Company with respect to dividends distributed by Discount Investments in 2010-2011. The Court noted in the decision that the foregoing would not prevent the plaintiffs from filing a motion for approval of derivative claim against the other defendants (i.e. not against the Company) for a different cause for which no blocking order was requested by the controlling shareholders of the Company (i.e. with regard to the tender offer).
On February 12, 2015, the plaintiffs filed a motion of appeal regarding the aforementioned Court decision and on February 24, 2015, the Court hearing the proceeding ordered a delay of proceeding pending a decision on.
Based on the opinion of legal counsel, the Company believes that given the precedential nature of the decision by the Court hearing the debt restructuring, it is difficult to assess the probability of success of this appeal. On the one hand, this is a precedential decision which blocks and prevents filing a claim against a company not included in a creditors’ arrangement; on the other hand, the Company is a key to the IDB Holdings debt restructuring and exposing it to such derivative claim is very likely to cause the debt arrangement to collapse.
IDB Development Corporation Ltd. Convenience translation
209

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

h. (cont.)
Given the Company’s key role in the debt restructuring, the Appellate Court may resolve that under the unique circumstances of the appeal subject, it should not interfere in the decision by the Court hearing the debt restructuring, despite its precedential nature, and that in this unique case, the Insolvency Court is authorized to issue a blocking order to prevent the collapse of the complex debt restructuring approved by the Court. However, the claims made in this appeal are significant and it is difficult to assess the probability of success of this appeal. Furthermore, based on information provided to the Company’s legal counsel and based on formulating a (detailed) first draft response, it would appear that the motion against the Company is more likely to be rejected than to be granted (i.e. a probability lower than 50%). In addition, there is the fact that a blocking order has been issued and the likelihood of the appeal being rejected, leaving the blocking order in place and causing the claim against the Company to be rejected out of hand. Note that even should the appeal of the decision to issue a blocking order prevail and should the blocking order be cancelled for “lack of authority”, the incisive determinations by the Court hearing the debt restructuringof IDB Holdings, with regard to lack of good faith, delay and prevention of the plaintiffs would stand and would reinforce the reasons for denying the motion for approval of derivative claim.

| i. | On June 29, 2014, the Campaign for Government Quality in Israel, NGO (“the petitioner”) filed a petition with the Supreme Court in Jerusalem, sitting as the High Court of Justice (“the petition” and “the High Court of Justice”, respectively) against the Supervisor of Banks, the Governor of the Bank of Israel, former controlling shareholders of the Company, the Company, IDB Holdings and four banks.

In this petition, the High Court of Justice was petitioned to grant the following orders nisi: (1) An order nisi ordering the Supervisor of Banks to justify why they have yet to respond to the petitioner’s requests with regard to exercising the Supervisor of Banks’ authority with regard to debt restructuring in general and in particular with IDB Group, in conformity with provisions of the Administrative Proceedings Amendment Act (Decisions and Justifications), 5719-1958; (2) an order nisi ordering the Supervisor of Banks to justify why they should not conduct a comprehensive, systematic inquiry into the conduct of the banking system in extending credit to IDB Group; reach conclusions and publish such conclusions; and act in conformity with their authority to correct any faults identified, including by requiring the banks to fully back IDB Group debt; (3) an order nisi ordering the Governor of the Bank of Israel to instruct the Supervisor of Banks to act as stipulated in the order nisi (2) above, or to assume the authority to act in this way in conformity with the Banking Ordinance.
The petitioner claims that the financial conduct of IDB Group was patently irresponsible, in addition to its business conduct which strived to maximize risk which did not always make business sense.
On August 11, 2014, the former controlling shareholders of the Company filed their response to the petition. On August 14, 2014, IDB Holdings, through the trustees for the debt arrangement, filed its response to the motion, asking the Supreme Court of Justice to exempt IDB Holdings from filing any further documents and from attending the hearings in this proceeding, since given the circumstances of IDB Holdings and its creditors’ arrangement, it cannot be impacted in any way by the orders petitioned for and the Trustees for the debt restructuring see no reason to take a position with regard to this petition.
On October 6, 2014, the Company filed its response to the petition, in which the Company claimed, inter alia, that the bank credit extended to the Company was extended under clear terms and conditions and subject to clear restrictions, as is customary for similar agreements and for similar corporations and that the Company has been and is in compliance with all its obligations towards the banks which have extended credit to the Company, so that there is no cause nor justification to intervene in their relationship, in terms and conditions of credit extended and repaid on time and definitely no cause to instruct such debt to be collected other than when due. The banks and the Supervisor of Banks have also filed their responses to the petition.
IDB Development Corporation Ltd. Convenience translation
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Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 1. | Lawsuits against the Company (cont.)

i. (cont.)
On November 4, 2014, the Supreme Court of Justice resolved that based on reasons cited by IDB Holdings and in absence of response to IDB Holdings’ motion, IDB Holdings is exempt from attending the hearings and from filing documents with regard to the petition. The Court further resolved that the petition would be scheduled for a hearing by three judges on November 9, 2015.
Based on the opinion of legal counsel, the Company believes, in this early stage of the proceeding when the petition has yet to be heard, that it is not possible to assess the likelihood of success of this petition. However, note that the orders applied for in the petition are against the Supervisor of Banks and the Governor of the Bank of Israel - rather than against the Company.

| j. | For more information about a proceeding concerning a motion filed by the Company with the Court in May 2014 with regard to a demand from Menorah for immediate repayment of the Company’s debt there to, which has been concluded, see note 16.c(2) below.

| k. | On January 21, 2015, a motion was filed with the Court, seeking a Court order for copying computer content of IDB Holdings by the Legal Counsel for Inquiries and Representation of the Trustees of the debt restructuring in legal proceedings, whereby the Court was asked to issue an order in presence of one party, allowing the aforementioned Legal Counsel to copy all magnetic media concerning IDB Holdings, which is stored in computer servers at IDB Holdings offices due, inter alia, to the mix of servers of the Company and of IDB Holdings. For further details and for additional motions and decisions on this matter, see note 16.G.2.i above.

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group

Investee companies of Clal Holdings Insurance Enterprises are involved in claims, including lawsuits that are not in the normal course of business (lawsuits not in the normal course of business are referred to as “lawsuits”).
Further to what is stated at the beginning of section C of this note, it should be noted that in light of the costs which could arise from the lawsuits, provisions are made in the financial reports of the relevant subsidiary companies, only if it more likely than not (meaning a probability of more than 50%) that a liability for payment shall be created as a result of pat events, and that the amount of the liability can be quantified or estimated within a reasonable margin of error. The provisions that were made are based on the estimated risk in each of the lawsuit, as of a date close to the publication date of this statement (except for several of the lawsuits which were filed during the last two quarters, and that their success rates cannot be estimated since they are in their preliminary stage). In this matter, please note that events occurring during the litigation may necessitate a reevaluation of this risk.
The assessments of the investee companies of Clal Holdings Insurance Enterprises Group regarding the risk are based on both the opinions of their legal counsels and on the estimates of the relevant companies as to the amounts of the settlement agreements that the managements of these companies predict that more probably than not they will have to bear. We would like to emphasize that in the opinion of the legal counsels regarding most of the motions to certify the claim as a class action, for which no provisions were made, the assessment of the attorney relates to the chances of the motion to certify the claim as a class action and does not relate to the chances of success of the claim itself, if it is certified as a class action. This is due to, among other things, the fact that the scope and content of the hearing on the claim itself, after it has been certified as a class action, will be influenced by the decision of the court to recognize the claim as a class action, which usually relates to the causes of the claim that were either approved and those that were not approved, to the remedies that were approved and those that were not approved, etc.
In addition to the legal proceedings mentioned below, there is also a potential exposure, which at present is impossible to assess or quantify, that additional class action suits will be filed against companies of the Clal Holdings Insurance Enterprises group due to the complexity of the insurance products of these companies, together with the complexity of the regulatory environment that applies to the operations of the companies in the Clal Holdings Insurance Enterprises group, which may result in a dispute with a customer regarding the interpretation of a provision of law or agreement, or the manner of implementation of a provision of law or agreement, which are applicable to the relationships between companies of the Clal Holdings Insurance Enterprises group and the customer.
IDB Development Corporation Ltd. Convenience translation
211

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

This exposure is especially high in the areas of long-term savings and long-term health insurance in which Clal Insurance operates, inter alia in view of the fact that in these areas the policies were issued decades ago, while at present, after significant changes in the regulatory environment and against the background of developments in legal precedent and the Commissioner’s position, the same policies may be interpreted differently, after the fact. Moreover, in these areas the policies are valid for dozens of years and, therefore, there is a risk that in those cases in which a customer’s claim is accepted and a new interpretation is given to the policy, the future profitability of the company in respect of the existing policy portfolio will be affected. This is in addition to the possible compensation that could be given to the customers due to past activity.
Alongside these aspects, in December 2014, an amendment to the Control of Financial Services (Insurance) Law, 5741-1981, was published, which reflects a significant reform in the field of approving an insurance program, and in addition, in July 2014, a position paper was published on the subject of principles for drafting insurance policies, which includes a list of practices that should be included in an insurance policy and a list of practices that ought not to be included in an insurance policy because they are prejudicial (‘the insurance policy reform’). The insurance policy reform allows the Commissioner, in certain conditions, to order the insurer to stop introducing an insurance policy or to order an insurer to make a change to an insurance policy, even with regard to policies that have already been marketed by the insurer. It is not possible to foresee to what extent insurers are exposed to claims in connection with the provisions of the policy, the manner of implementing the Commissioner’s powers pursuant to the insurance policy reform and its implications, which may be raised, inter alia, by means of the procedural mechanism provided in the Class Actions Law.
In addition, there is a risk, which at present cannot be assessed or quantified, of problems in the manner in which products in the areas of long-term savings and health are operated, which are characterized, as mentioned above, by a very long life span and are subject to significant, complex and frequent changes, including changes in regulatory and tax provisions.
The complexity of these changes and their implementation over a large number of years creates a greater operating risk, also in view of the many automation systems in the financial institutions in the Clal Holdings Insurance Enterprises group and their limitations, in light of additions/changes to the basic wording of the products and in light of many and frequent changes made over the life span of the product, including by employees and/or employers and/or someone on their behalf, in relation to the insurance coverage and/or in relation to savings deposits.
This complexity and these changes relate to, among other things, the volume and rates of deposits, the different components of the product, the manner in which funds are classified to employees, products and their components, the dates on which they are recorded, the identification of arrears in making deposits and the handling of such arrears, and to the employment, personal and underwriting status of the customers. This complexity becomes even stronger in light of the multiplicity of the parties operating against the investee companies of Clal Holdings Insurance Enterprises Group in managing and operating the products, including regarding conflicting instructions that come from them or from people acting on their behalf.

| The financial institutions in the group are involved on a regular basis in learning, identification and handling of issues which may derive from the aforementioned complexities, both in relation to individual cases and in relation to types of customers and/or products. In addition, further to the provisions of the Commissioner’s directive regarding the cleansing of data regarding the rights of members of financial institutions, the investee companies of Clal Holdings Insurance Enterprises Group have been making preparations to carry out a comprehensive process of data cleansing in the systems dealing with long-term savings and opposite customers in connection with product data and customer data. The financial institutions in the group made certain provisions in their financial statements as needed, but at this stage the companies of the group cannot estimate the full scope and costs of the treatment and cleansing processes and the full consequences thereof, including in relation to their past activity. In addition, it is impossible to even predict the types of claims that will arise in connection with the above and/or the exposure that derives from them in connection with the activities in these areas which could arise through, among other ways, the procedural mechanism of the class action suit and/or wide-ranging decisions made by the Commissioner.

212

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

The exposure to claims that have not yet been filed against the companies of the group is brought to the attention of the companies in several ways. This is done, among other ways, by customers, employees or suppliers contacting people in the aforementioned investee companies and especially to the public complaint officers at the aforementioned investee companies, through complaints of customers to the public complaint unit of the Commissioner’s office and through suits (that are not class actions) filed with the courts and through the Commissioner’s position papers. Please note that to the extent that we are dealing with customer complaints submitted to the Public Complaints Unit of the Commissioner’s office, in addition to the risk that a customer will choose to raise his claims also as part of a class action suit, the investee companies of Clal Holdings Insurance Enterprises Group are also exposed to the risk that the Commissioner will issue a ruling that will apply to a broad group of customers. In recent years, there has been an increase in the exposure to this risk, due to the increased involvement shown by the Commissioner in relation to complaints of customers coming to his door and in the inclination of the Commissioner to take a principled stand by making a broad ranged decision. For additional details regarding wide-ranging decisions, see section D below.
The investee companies of Clal Holdings Insurance Enterprises Group cannot predict whether the claim of costomer that was brought to the attention of the companies will lead to the filing of a class action suit, even in those cases in which a customer threatens to do so. In addition, these investee companies cannot assess the size of the potential exposure that may be generated in the event such a class action suit is filed.
The provision included in the financial statements of Clal Holdings Insurance Enterprises as at December 31, 2014, for all of the lawsuits not in the normal course of business against the investee companies of Clal Holdings Insurance Enterprises Group amounted to NIS 92 million.
The amount of the lawsuits not in the normal course of business against the investee companies of Clal Holdings Insurance Enterprises Group is a total of NIS 11,697 million (the “total amount”) (this amount includes: lawsuits in which the amount being sued is attributed to the investee companies of Clal Holdings Insurance Enterprises Group; suits in which the amount of the claim noted in the suit is not attributed only to the investee companies of Clal Holdings Insurance Enterprises Group, but also to other defendants as well; a suit in which the amount noted in the claim is an annual amount (and accordingly, the total amount is dependent upon the period); and claims filed after the date of the Statement of Financial Position. In addition, this amount does not include claims in which the amount of the claim was not noted).
The following is a concise and general summary of the lawsuits pending against the investees of Clal Holdings Insurance Enterprises Group, classified according to groups with similar characteristics:

| a. | Consumer claims and derivative actions

Against the investee companies of Clal Holdings Insurance Enterprises Group there are pending claims filed by customers of the investee companies. Among these claims, there are claims that have been recognized as class action suits, claims for which there are pending motions to have them certified as class action suits, and other claims which are immaterial. These claims include mainly claims of improper actions, not in accordance with laws, licenses or breaches of agreements with customers or performance of tort damages toward customers (especially misleading a customer, or a negligent misrepresentation), causing damage, either monetary or non-monetary, to customers. A significant amount of these claims also include claims of charging excessive premiums and payment of lower than called for insurance compensation (“consumer claims”). In addition, there are three pending motions to have claims certified as derivative actions.
Of the total amount, as at December 31, 2014, the amount being sued which is attributed to the investee companies of Clal Holdings Insurance Enterprises Group in respect of consumer claims (of which six claims in a total amount of NIS 574 million are at a preliminary stage and therefore the relevant investees are unable to estimate the likelihood of their success) is NIS 4,190 million (of which an amount of NIS 76 million is claimed in an action that was certified as a class action and an amount of NIS 4,114 million is claimed in motions to certify claims as class actions).
In addition, an amount of NIS 107 million which is being sued for is an annual amount and, accordingly, the total amount is dependent upon the period.
IDB Development Corporation Ltd. Convenience translation
213

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont'd)

In addition, other consumer claims have been filed against the investee companies of Clal Holdings Insurance Enterprises Group together with other defendants (of which there is one claim in an amount of NIS 45 million that is at a preliminary stage and therefore the relevant investees cannot estimate the likelihood of it succeeding), in a total amount of NIS 2,039 million (the amount being sued for in motions to certify the claims as class actions), in which the plaintiffs have not detailed the amount attributed to the investee companies of Clal Holdings Insurance Enterprises Group, out of the total amount being claimed from all of the defendants.
Claims have been made against Clal Insurance Enterprises Holdings group (of which there are two claims in which no amount of the claim is stated, which are at a preliminary stage and therefore the relevant investees are unable to estimate the likelihood of their success) in which the amount of the claim was not stipulated, and an additional consumer claim, which has been certified as a class action, in which the plaintiff appraised the amount of the claim to be approximately “hundreds of millions of shekels”. These claims generate an additional exposure of the investee companies of Clal Holdings Insurance Enterprises Group, beyond the amounts set out above.
In addition, three derivative actions were filed for a total amount of approximately NIS 5,276 million.
Moreover, during the reporting year and until the date of publishing the report, a settlement was approved by the court in one consumer action that was filed against investees of Clal Holdings Insurance Enterprises, where the amount claimed was in an amount of NIS 882 million,
In addition, two claims that were filed against investees of Clal Holdings Insurance Enterprises, for a total amount of approximately NIS 515 million, were withdrawn.
IDB Development Corporation Ltd. Convenience translation
214

Note 23 – Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions

The following are details of the consumer class actions and derivative actions, classified according to the amount of claim:

Amount of claim | Type of claim | Number of claims
1.Claims that stipulate the amount referring to the company |  |
a.Up to NIS 100 million | Claims certified as class action Motions to certify class action | 1 14
b. Between NIS 100-500 million | Motions to certify class action | 8
c. Between NIS 500 million and 1 billion | Motions to certify class action | 1
d.Above NIS 1 billion | Motions to certify class action | 1
e.Annual amount stated (and accordingly the total amount is dependent upon the period) | Motions to certify class action | 1
2.Claims that stipulate a comprehensive for all of the defendants, without attributing a specific amount to each defendant |  |
a. Up to NIS 100 million | Motions to certify class action | 4
| Motions to certify derivative action | 1
b. Between NIS 100-500 million | Motions to certify class action | 1
c.Between NIS 500 million and 1 billion | Motions to certify class action | 2
d. Above NIS 1 billion | Motions to certify derivative action | 2
3. Claims that did not stipulate an amount | Claims certified as class actions | 126
Motions to certify class actions | 4

The following are details of the pending consumer claims, in which the amount claimed exceeds 5% of the recognized equity for the purpose of the Clal Insurance’s equity requirements:

| 1. | In April 2008 Clal Insurance received a monetary claim that was filed with the Jerusalem Labor Court (“the claim”) as well as a motion to certify the claim as a class action (“the motion”).

The plaintiff contends that Clal Insurance determined in an “Executive Pension Plan” insurance policy that the pension coefficient according to which insured women will be paid the insurance proceeds, when they reach retirement age, will be lower than that of insured men, because of the longer life expectancy of women. And yet Clal Insurance collected and continues to collect from insured women risk premiums identical to those it charges men, despite the fact that the women’s mortality rates are much lower than those of men. According to the plaintiff, in 2001 or close thereto, Clal Insurance modified the policies, but only in respect of new policies.
The principal remedy sought from the court is to rule that:

| a. | The discrimination practiced by the respondent contravenes any law and any provision and/or action based on this discrimination be declared null and void.

26The amount of the claim is estimated as “hundreds of millions.”
IDB Development Corporation Ltd. Convenience translation
215

Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

1. (cont.)

| b. | The plaintiff and other members of the class it seeks to represent (“the class”) are entitled to select between the following alternatives: (1) to equalize the pension coefficient for an insured woman and an insured man and to rule that in the event of a lump sum payment instead of a pension, the lump sum payment shall be increased to the insured woman, in the ratio existing between the pension coefficient of an insured man and the pension coefficient of an insured woman at the relevant age; (2) to reduce both retroactively and prospectively the amount of risk premium charged to the insured women and to set them at the appropriate risk amounts, according to the plaintiff, for an insured woman, whereby the reduced amounts shall be added to the accumulated amount of savings.

| c. | To issue appropriate rulings in respect of the other members of the class who have not been located or have not exercised their right to select between these choices.

The causes of action in this claim are, inter alia, violation of the principle of equality and discriminatory behavior, discriminatory terms in a standard contract, lack of good faith and unjust enrichment.
The class that the plaintiff seeks to represent is all women who purchased “Executive Pension Plan” insurance policies from the respondent in which a distinction between men and women in respect of pension payments is made, whereas no distinctions were made between the sexes with regards to the risk premium.
The plaintiff does not stipulate the amount of damage caused to her and in the absence of the required data to assess the exact monetary amount, she estimates the overall amount of damage to the members of the class at hundreds of millions of shekels.
Three other claims, based on the same grounds and against other insurance companies, were filed with the Jerusalem Labor Court. In April 2008, together with motions to certify the claims as class actions, the President of the National Labor Court decided to consolidate the proceedings in respect of the various claims and hold them in the Jerusalem Regional Court.
In August 2014, the Jerusalem Regional Labor Court certified the Motion for Certification of a Class Action, while determining that the elements required for accepting the motion at this preliminary stage of the hearing, such as the existence of joint questions of fact or law, were satisfied. The Labor Court emphasized that at this stage it was not considering the action on its merits, and it was sufficient from its viewpoint that it was not a ‘frivolous claim’ in order to certify the motion.
The Labor Court determined that the cause of the action is a failure to distinguish between women and men when calculating the risk premium in executive insurance policies.
The class that was approved for the purpose of the action is women that have insurance policies with the respondents in whose risk policies no distinction was made between rates for women and rates for men.
Pursuant to the decision of the Labor Court, it was held that the court was not necessarily bound by the remedy sought, and that the question of the remedy that would be granted if the class action was accepted would be considered as part of the hearing of the action on its merits. The court ordered the publication of notices to members of the class and payment of legal expenses in a negligible amount.
In December 2014, Clal Insurance filed a Motion for Leave to Appeal the decision to certify the action as a class action, and the National Labour Court decided that the Motion for Leave to Appeal required a response and ordered the respondents to file their response.
IDB Development Corporation Ltd. Convenience translation
216

Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

| 2. | In April 2010 a monetary claim against Clal Insurance and three other insurance companies (“the respondents”) was filed with the Central District Court (“the claim”), together with a motion to certify the claim as a class action (“the motion”).

The plaintiff – the Israeli Consumer Council – contends that the respondents violate the commitments imposed on them and do not actively seek to locate insured customers and beneficiaries in order to return funds they hold, without any demand being made. The plaintiff contends that the respondents are obligated to locate the owners of the rights and notify them of their rights, but do not make any attempt to locate them and provide them with the information, do not consult the Population Registry, do not report to the administrator general, do not manage unclaimed funds separately from other funds, and do not transfer the funds to the administrator general when the time to do so arrives. The plaintiff contends that as a result of this negligence on the part of the respondents, owners of rights do not receive their funds and, in addition, the respondents benefit from management fees exceeding the permitted rate, and from other fees and yields produced by the unclaimed assets.
The class which the plaintiff seeks to represent is all holders of rights to assets which are in the possession, under the responsibility, or under the control of the respondents, which were not notified by the respondents to the fact that they have rights to assets which are in the possession of the defendant, in accordance with the obligations imposed on the respondents.
The plaintiff requests a remedy which will require the respondents to transfer the funds to the rights holders and to perform all the required actions, as determined by the provisions set forth by the Commissioner. In addition, the plaintiff requests an injunction which will instruct the respondents to compensate the members of the class and return their money to them, with added linkage and interest as required by law, together with the management fees which were collected as a result of these funds. In addition, the plaintiff requests that an officer be appointed as a receiver, or as a different officer, in order to enforce the injunctions issued by the court, as the court deems necessary, or, alternatively, to instruct any other form of remedy for the benefit of the class and the public.
Clal Insurance responded to the motion.
In January 2012 the court ordered the Attorney General to present his opinion on the matter, especially with regards to the status of new regulatory procedures in this matter. In September 2012 the position of the Attorney General was filed, in which he clarifies that on January 30, 2012, the Regulations for Supervision of Financial Services (Provident Funds) (Locating Members and Beneficiaries), 2012, were listed, and were entering into effect on January 1, 2013, and that at the same time was listed a directive for financial institutions, dealing with the procedure for locating members and beneficiaries, which also enters into effect in the aforementioned date (“the new regulation”). Accordingly, the Commissioner made it clear that in light of the new regulation and the time of it coming into effect, the previous directive on the matter was cancelled (“the old directive”). In addition, he also noted that accordingly, the remedy requested by the plaintiff, according to which the court shall instruct the respondents to create a separate fund for unclaimed funds, contradicts the provisions of the new regulation, according to which the designated fund, which was created for the unclaimed funds in accordance with the old directive, shall be dissolved.
In December 2012 the plaintiff announced that in light of the position expressed by the Attorney General, as mentioned above, it requests to amend the motion to certify the claim as a class action with regards to the requested remedies.
In April 2013 the parties notified the court of their agreement to begin a process of mediation before a mediator. The mediation processes are ongoing.

| 3. | In January 2008 Clal Insurance received a claim filed against it with the Tel Aviv-Jaffa District Court (“the claim”) together with a motion to certify the claim as a class action (“the motion”). The claim was filed by several plaintiffs and against other respondents, all of which are insurance companies.

IDB Development Corporation Ltd. Convenience translation
217

Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

| 3. (cont'd)

The lawsuit deals with a payment referred to as “sub-annual”, which is a payment that is collected in life insurance policies in which the premium is set as an annual amount, while the payment is made in several installments (“sub-annual”). The plaintiff argues that Clal Insurance collected sub-annual payments in an amount exceeding the allowed rate, and the plaintiff contends that it does this in several ways: collecting sub-annual payments relative to the “policy factor,” collection of sub-annual payments at a rate exceeding the allowed rate in accordance with the insurance control directives, collection of sub-annual payments relative to the savings element in life insurance policies and collection of sub-annual payments relative to policies that do not refer to life insurance.
The requested remedies are the refunding of all the amounts that the respondents illegally collected, as well as an injunction instructing the respondents to change their mode of operation with regards to the matters specified in the claim.
If the claim is certified as a class action, the amount claimed from all the respondents is estimated by the plaintiffs to be NIS 2.3 billion, of which the amount claimed from Clal Insurance is NIS 543 million.
In February 2010, the parties reached a procedural arrangement according to which the plaintiff’s claims that Clal Insurance collected sub-annual payments in a higher rate than permitted in respect of insurance policies issued prior to 1992, and that Clal Insurance collected the maximum sub-annual payments allowed even when the number of payments were less than twelve payments, shall be erased from the motion and claim. Accordingly, the amount being demanded from Clal Insurance was amended to NIS 398 million.
The Commissioner presented his position on the matter, in which he accepted the position of the insurance companies.
In February 2014, the court ordered the applicants to give notice within thirty days of whether they intended to withdraw the motion. In April 2014, the applicants gave notice that they are not withdrawing the Motion for Certification.

| 4. | In March 2010, a monetary claim was filed against Clal Insurance with the Central District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The class which the plaintiff seeks to represent includes any person who held, both a fixed-payment policy of Clal Insurance and a capital-based policy (either of Clal Insurance or of another insurance company), prior to the entry into effect of Amendment No. 3 to the Supervision of Financial Services (Provident Funds) act, 2008 (“amendment No. 3”), and to whom, following the above legal Amendment, a pension conversion factor27 was not guaranteed, or to whom a pension conversion factor was guaranteed which was worse than the pension conversion factor set forth in their fixed-payment policy.
According to the plaintiff, Clal Insurance unlawfully and inappropriately used Amendment No. 3, which states that funds deposited in provident funds beginning in 2008 will be withdrawable as pension payments only, and not as a capital withdrawal (withdrawal of a one-time amount). According to the plaintiff, when policy holders converted their capital-based policies to non-fixed-payment policies prior to Amendment No. 3, Clal Insurance was required to apply to a policy the pension conversion factor guaranteed to a policy holder for the fixed-payment policy which they owned, whereas Clal Insurance effectively chose to apply, to converted capital-based policies, a new pension conversion factor, according to the life expectancy as at 2009, and by so doing caused a reduction in the monthly pension payment which it will be required to pay to policy holders at retirement age. According to the plaintiff, Clal Insurance changed its policy after filing the class action.

27 | A pension conversion factor is the coefficient that reflects the life expectancy and which is used by the insurer at the retirement age for purposes of converting the amount of the accumulated savings into a monthly allowance.

IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

4. (cont.)
According to the plaintiff, this constitutes grave and unlawful action on part of Clal Insurance, which acted intentionally to obfuscate and conceal the changes it had made to the capital-based policies of its policy holders, and the damages it had caused to the pension rights of its policy holders, while collecting profits at the expense of its policy holders and acting in breach of the law’s intent.
The plaintiff is requesting, on his own behalf and on behalf of the class members, that Clal Insurance be ordered to attach to the capital-based policies of its policy holders the same pension conversion factor that they would have had in a fixed-payment policy prior to amendment No. 3. Alternatively, the plaintiff is requesting that Clal Insurance be ordered to enable him and the remaining class members to provide the total pension savings amount, retroactively beginning on the date on which amendment No. 3 came into effect and thereafter, to a fixed-payment policy with the preferable pension conversion factor. Alternatively, the plaintiff requests that Clal Insurance be ordered to compensate the plaintiff and the remaining class members in the amount of the damages caused by the allegedly unlawful policy towards the pension rights of the class members, or in the amount of its enrichment at the expense of the class members, as a result of its allegedly unlawful policy.
The plaintiff is also requesting that the Court order special compensation to the plaintiff, and the repayment of his counsel’s legal fees.
The plaintiff estimates the total number of class members at approximately 37,752 members, and the corresponding financial compensation to the class members at approximately NIS 107 million for each year.
In June 2011, the Commissioner’s position was filed with the court, through the Attorney-General of Israel, according to which an insurance company is not required to apply pension conversion factors which were determined in the past, or to transfer policy holders’ funds to a fixed-payment policy which they had previously owned. It was further stated, with regard to the question of whether the amount used to calculate provisions up to the salary amount can be changed, tit was determined that the matter depends on the particular terms of each policy, and that the plaintiff’s policy includes no term which would require Clal Insurance to change the amount of provisions, or the rates of deposit.

| 5. | In May 2011, a claim was received by Clal Insurance which was filed with the Central District Court (“the claim”), against it and against other insurance companies (jointly: “the defendants”) along with a motion to certify the claim as a class action (“the motion”).

The plaintiffs contend that the respondents collect, without any foundation in policy terms, and without consent, sums which amount in some instances to a significant proportion of the premiums paid by the policy holders, and referred to as the “policy factor” and/or “other management fees” (“policy factor”). The plaintiffs contend that collection of the policy factor is illegal, even though in principle the respondents were permitted by the Commissioner’s circulars, to collect a policy factor in life insurance policies, subject to a number of restrictions. The plaintiffs also argue that the Commissioner’s approval of collection of a policy factor is a necessary but insufficient condition, since for the purpose of the collection of a policy factor according to the Commissioner’s directives, a suitable contractual provision is also required, and a notice or disclosure of the collection of this payment to the policy holder is not sufficient.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

5. (cont.)
The plaintiffs note that in April 2011, the Court with which the current Claim was filed approved a motion to recognize a claim against another insurance company (“the other claim”), identical to this claim, as a class action. It should be noted that the other insurance company filed a motion for leave to appeal this ruling with the Supreme Court, which ruled in September 2012 that the motion for leave to appeal, and the appeal itself, were accepted on the grounds that the District Court had not heard a material issue which was raised before it, which involves the question of whether the policy factor was collected from the savings component of from the risk component, and therefore, the District Court’s decision to approve the claim as a class action was revoked, and the hearing of the other motion for approval would be returned to the District Court for a new hearing.
The class which the plaintiffs seek to represent includes any current or past policy holders of any of the plaintiffs, or any from whom any amount was collected as a policy factor.
The plaintiffs request, on their own behalf and on behalf of the class members, for remedies by way of payment of an amount in compensation/repayment of the policy factor amount which was actually collected from the class members, with the addition of the yield which they failed to receive in respect of this amount, as a result of the amount having been deducted from the premium as a policy factor not being invested for them. The plaintiffs also request an injunction ordering the respondents to alter their mode of operation with relation to the collection of the policy factor, and to pay remuneration to the plaintiffs and legal fees for their counsel. The plaintiffs’ claim is in respect of the policy factor collected from them between the years 2004 and 2010, inclusive. According to various estimates and assumptions made by the plaintiffs in respect of the policy factor collected by the respondents over the past seven years, and the relevant annual yields, the amount claimed by the class members against all of the respondents is estimated by the plaintiffs as a nominal amount of NIS 2,325 million. Of this amount, the amount attributed to Clal Insurance according to its alleged share of the market is NIS 662 million.
In November 2012 the Commissioner, through the Attorney-General of Israel, submitted his position on the case.
In December 2012, a pre-trial hearing was held. Following the hearing, the respondents were required to submit to the Commissioner information regarding the question of the possible impact of an approval of the claim as a class action on the stability of the respondents, in accordance with section 8(b)(2) of the Class Actions Law, 5766-2006.

| 6. | In July 2011, a claim was filed against Clal Insurance, with the Central District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The class which the plaintiff seeks to represent includes all policy holders and/or beneficiaries which were insured by the defendant in insurance policies of the general insurance branches, and which paid the defendant excess credit fees and/or collection fees and/or payment arrangement fees, in breach of the provisions of the law and/or in breach of the interest rates presented to the holders of those policies, beginning on May 1, 1984.
The claim deals with allegedly illegal over collection of credit fees by the respondent from its policy holders, and with a violation of the provisions of the law, in deception of its policy holders.
The total claim amount in the class action is estimated by the plaintiff at NIS 882 million.
In May 2014, a motion was filed with the court for approval of a settlement in the action, together with the settlement itself. The validity of the settlement is conditional upon the court’s approval.
The settlement provides, inter alia, that Clal Insurance will give the beneficiaries of ‘personal insurance’ and ‘other insurance,’ as defined in the settlement (‘the beneficiaries’) a discount in an agreed amount on the credit fees that an insured who is one of the beneficiaries will be charged for a general insurance policy that he will buy at Clal Insurance. In July 2014, the court gave a judgment approving the settlement and determining guidelines for its implementation.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

| 7. | In May 2012, a claim was filed against Clal Insurance, Clal Health, and against an additional insurance company and three HMOs (“the respondents”) with the District Court of Jerusalem (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The claim and the motion deal with collective long-term nursing care insurance which the members of the various HMOs are entitled to join, in accordance with the established terms of the policies. The plaintiffs contend that the defendants, in absolute breach of the law, refuse to insure the plaintiffs with long-term care insurance (or alternatively, establish terms which are impossible for them), and by so doing impair the class members’ rights to equality and dignity.
The claim and the motion were field against Clal Health, which is the insurer in the collective policy for the members of Maccabi Health Services, and in the collective policy for the members of the Leumit Health Fund, and against Clal Insurance, since, according to the plaintiffs’ claim, a reasonable person would not distinguish between the two companies, but would classify them as a single entity, and has no way of knowing that they are separate entities.
The class which the plaintiff seeks to represent includes all persons with disabilities (according to the definition of “person with disability” in the Equality Act) who were customers of the defendants, but with whom the defendants canceled the nursing care insurance contract, as well as all persons with disabilities who wanted to be insured by long-term nursing care insurance but were refused insurance by the defendants, and all persons with disabilities who wanted to be insured by long-term nursing care insurance but did not contact the defendants with the knowledge that they would have refused to insure them.
The plaintiffs demand that the Court rule and declare that the defendants have violated the provisions of the aforementioned laws. The plaintiffs further request that the Court require the following of the respondents: to stop discriminating against the class members, to establish clear policies with regard to treatment in an individual, specified, egalitarian manner, with no bias whatsoever towards persons with disabilities; to present an orderly policy on all matters relating to refusal of insurance, and specifically with regard to persons with disabilities, which will include a notice regarding the rights of individuals who are refused insurance, to grant retroactive coverage to those class members who are found qualified to receive insurance after an egalitarian underwriting procedure and/or to class members who were policy holders and who were removed from the insurance by the insurance companies.
The Court is further requested to require the defendants to compensate all of the class members in respect of the damage caused to them, both by the violation of the Equality Act, and by the injury caused to their dignity and to the equality, in the amount of NIS 660 million.
Mediation proceedings are taking place between the parties.

| 8. | In May 2012, a claim was filed against Clal Insurance, Clal Health, Toren Insurance Agencies Ltd., and against additional insurance companies (“the defendants”) with the District Court of Jerusalem (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The claim and the motion deal with discrimination, as alleged by the plaintiffs, against persons with disabilities, and with the respondents’ refusal to insure the above in individual insurance policies such as health, travel, pension, personal accident, life, long-term nursing care and loss of working capacity insurance (“the Individual Insurances”).
The class on whose behalf the plaintiffs are requesting class action approval for the claim, which is estimated by them as including approximately 700,000 people, includes all individuals who approached the respondents for insurance during the determining period, and whom the respondents refused to insure with one of the Individual Insurances, due to a disease or disability which they have, as well as persons with disabilities (as defined in the Equality Law) who did not approach, or will not approach the respondents in the future due to the knowledge that the respondents would refuse to insure them in light of their disability.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

8. (cont.)
The plaintiff demand that the Court rule and declare that the respondents have violated the aforementioned provisions of the law. The plaintiff further demand that the Court require the defendants to perform the following: to discontinue their discrimination against the class members, and to establish clear policies with regard to individual, specific and egalitarian treatment, without bias towards persons with disabilities; to present an orderly policy on all matters relating to the refusal to grant insurance and the granting of insurance coverage to persons with disabilities; and to grant retroactive coverage to those class members who are found qualified to receive insurance following an egalitarian underwriting process.
The Court has also been requested to order the respondents to compensate all of the class members for the damage which was caused to them, both by injury to their dignity and feelings, and by injury to the right of equality and injury to autonomy, as well as monetary damages in respect of lost time and hassle, in an amount equal to NIS 934 million.
Mediation proceedings are taking place between the parties.

| 9. | In May 2013 a claim was filed against Clal Insurance with the Tel Aviv district Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The claim deals with Clal Insurance’s alleged violation of its obligation to add linked interest and linkage differentials as determined by law in respect of the insurance benefits it pays. The plaintiff contends that the interest and linkage differentials should be calculated starting from the time the insurance incident occurred and until the actual time of payment. Alternatively, the plaintiff contends that the insurers must pay linkage differentials starting from the time of the occurrence of the insurance incident and until the time of the actual payment, and interest starting from 30 days after the time the insurance claim was filed and until the time the insurance benefits are actually paid. Allegedly, Clal Insurance does not do so.
The class the plaintiff seeks to represent is: a. the first class – any person who received during the 7 years prior to the filing of the claim and/or any person who shall receive before a ruling is given in the matter of the claim, insurance benefits from Clal Insurance, without the interest required by law being added to the insurance benefits; b. the second class – any person who received during the 7 years prior to the filing of the claim and/or any person who will receive before a ruling is given in the matter of the claim insurance benefits from Clal Insurance, without the linkage differentials required by law being added to the insurance benefits.
The plaintiff estimates the total amount for the first class at NIS 518 million (in case it is ruled that interest must be calculated starting from the occurrence of the insurance incident), and at NIS 210 million (in case it is ruled that the interest must be calculated starting from 30 days after the time the claim is filed with the insurance company).
The plaintiff estimates the total amount for the second class, with regards to linkage differentials, at an additional sum of NIS 490 million.
The remedies requested by the plaintiff are that Clal Insurance be ordered to pay members of the first class linked interest as required by law, that Clal Insurance be ordered to pay members of the second class linkage differentials as required by law, that Clal Insurance be ordered to pay members of both classes linkage and interest differentials with respect to the missing payment paid, starting from the time of underpayment of insurance benefits until the time the difference is actually paid to members of both classes. In addition and/or alternatively, in case it is determined that compensating members of the group is unpractical due to the specific circumstances of the matter at hand, the Court is asked to instruct to compensate the public as it sees fit. In addition, it is requested that Clal Insurance is ordered to pay special compensation to the plaintiff, and the repayment of his counsel’s legal fees.
It is noted that other similar claims have been filed against other insurance companies. In May 2013, Clal Insurance was presented with the applicants’ motion for a joint hearing in the matter of the claims.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

10. | In June 2013 a claim was filed against Clal Insurance with the Tel-Aviv-Jaffa District Court (“the claim”), along with a motion to certify the claim as a class action (“the motion”).

The claim and the motion deal with the plaintiff (“the insured”), who was insured under a collective long-term nursing insurance policy through the Makefet pension fund, and was recognized by Clal Insurance during 2010 as requiring nursing, contending that Clal Insurance pays its insured insurance benefits which are reduced and lacking in a manner that does not include the addition of linkage and interest differentials.
The class that the plaintiff seeks to represent is any person who received during the 7 years prior to the filing of the claim and/or any person who will receive, before a ruling is given in the matter of the claim, insurance benefits from Clal Insurance, without the interest and linkage differentials required by law being added to those insurance benefits.
The plaintiff petitions the Court to issue a declaratory ruling ordering Clal Insurance to pay insurance benefits to its insured with the added interest and linkage differentials required by law, starting for the time the insurance incident occurred and until the time of actual payment, as is ordered by article 28 of the Insurance Contract Law– 1981; to instruct Clal Insurance to pay the interest and linkage differentials which were reduced from the insurance benefits paid to the individuals comprising the class the plaintiff seeks to represent, if those individuals wish to receive such payment; to instruct Clal Insurance to correct its negligence from that time and thereafter by paying the individuals comprising the class the plaintiff seeks to represent insurance benefits which include the interest and linkage differentials required by law; to instruct the payment of adequate legal fees to the insured’s legal counsels; to instruct that Clal Insurance pay special compensation to the insured in respect of his capacity as a plaintiff in a class action.
The amount of the class action is approximately NIS 474 million.

11. | In July 2013 a claim was filed against Clal Insurance with the Central District Court (“the claim”), together with a motion to certify the claim as a class action (“the motion”). Both the motion and the claim were filed against a medical expert and a medical service company which provide services to Clal Insurance.

The claim deals with the allegation that Clal Insurance, in the manner in which it phrases the insurance policy, denies students who are insured by a Student personal accident policy the right to compensation for permanent aesthetic disabilities, and that Clal Insurance operates in a systematic manner, in cooperation with experts operating on its behalf, in contradiction of the policy – which, despite the qualifications regarding aesthetic disability, allows an exceptions committee to determine that aesthetic scarring shall award the injured party disability status – in a manner which prevents, and indirectly denies, any chance to receive compensation due to aesthetic disability through the aforementioned exceptions committee.
The class the plaintiffs seek to represent are any students who are and have been studying in an educational institution of a local authority and/or educational institutions who have announced their intention to join the insurance arrangement, who have not turned 21 yet and suffered an aesthetic disability only and/or an aesthetic disability accompanying another disability (including their entitled parents), and that in the past 18 years suffered a disability awarding them (or their parents) the right to determine a permanent disability due to aesthetic scarring of any kind. The amount of the claim, including the class action, was estimated by the plaintiff at a sum of NIS 500 million.
In August 2014, the plaintiffs filed a consensual motion to withdraw the motion (“the withdrawal motion”), without either party admitting the claims of the other party or waiving its claims.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

11. (cont.)
as part of the Motion to Withdraw, Clal Insurance undertook to send guidelines to its physicians and workers in which clarifications would be given with regard to the manner of resolving the claim in a case of aesthetic scarring, and it undertook to pay the plaintiffs and the attorney remuneration and attorneys’ fees in a negligible amount. The Motion to Withdraw is subject to the approval of the court, and it is not certain that this will be given. In November 2014, further to the motion of the court, the Attorney-General filed his response to the Motion to Withdraw, according to which he has no objection to approval of the motion and he leaves the decision on the matter to the discretion of the court.
In February 2015, a judgment was given, in which the Motion to Withdraw as aforesaid was granted, the motion was struck out and personal claims of the applicants were dismissed.

12. | In February 2014 a motion to certify a derivative action and a derivative action (derivative action case no. 9167-01-14) were filed with the District Court (Financial Department) in Tel-Aviv against Clal Insurance, four other insurance companies and Clalit Health Services (“Clalit”).

In March 2014, a Motion for Certification of a Derivative Action and a derivative action were filed (Derivative Action 46222-03-14) were filed with the District Court (Economic Department) against Clal Insurance, four additional insurance companies and Maccabi Health Services (“Maccabi”). The subject-matter of the motion and the claims raised in it are similar to the action described in this section above (jointly, “the motions” and “the claims”).
In April and October 2014, decisions were given by the court, ordering a consolidation of the cases and the filing of consolidated written pleadings in the motions and the claims.
The motion and the claim concern the allegation that the health funds are not exhausting and exercising the participation right that they have prima facie pursuant to law in respect of the insurance companies for expenses it incurred through the complementary insurance plans with regards to those cases in which there exists, allegedly, an overlapping of liability between the complementary insurance plan and the commercial health insurance policies sold by the insurance companies.
The plaintiffs contend that the overlap exists mainly in respect of performing medical procedures and choosing a surgeon in Israel, and in respect of medical consultation.
It is further contended that the insurance companies allegedly encourage their policyholders to activate the complementary insurance plans at the HMOs and to avoid activating the commercial insurance policy, by awarding the insured a monetary reward, all this in order to avoid absorbing the materialization of the risk of an insurance incident on their own, while rolling the risk over to the HMOs, and thus, allegedly, gaining unjust enrichment.
The plaintiffs contend that health funds’ participation right in relation to the insurance companies is a result of the overlapping of liabilities between the complementary insurance plans and the commercial health insurance policies sold by the insurance companies, and it stems from a general principle which has a wide legal application, which is common to all the branches of the liability laws and pursuant to the provisions of sections 56 and 59 of the Contracts (General Part) Law, 5733-1973, enrichment laws, and judicial precedents.
The main remedy requested in the exercise of the health funds’ participation right in relation to the insurance companies while ordering each one of the insurance companies to pay the health funds at least half of the monetary expenses incurred by the health funds due to the complementary insurance plans, both for the component of medical procedures and the ability to choose a surgeon in Israel, and for the component of medical consultation, for a period of seven years prior to the time the motion was filed, and in cases in which those insured by the health funds also possessed a commercial health insurance, providing coverage for both components.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

12. (cont.)
The motion was filed after the health funds rejected the applicant’s request to exhaust the participation right as mentioned above in relation to the insurance companies, on the grounds that in terms of the provisions made by law and other grounds there is no cause for the aforementioned request, for as long as the provisions of the existing laws haven’t been changed, including administrative measures.
Regarding Clalit’s claim, the plaintiffs estimate the amount of the claim against all of the insurance companies at an amount of approximately NIS 3.5 billion, with added interest and linkage. The plaintiff does not allocate a specific part of the sum to Clal Insurance, but does mentioned that according to the data provided by the Capital Markets, Insurance and Savings Division at the Ministry of Finance, as of the end of 2011, the market share of Clal Insurance is 14% of the overall market share of insurance companies in this field, when the overall market share of the respondent insurance companies is 98%.
Regarding the Maccabi claim, the plaintiffs estimate the amount of the action against all of the insurance companies in an amount of approximately NIS 1.7 billion, together with interest and linkage. The plaintiff does not attribute a part of the amount of his claim to Clal Insurance, but he states that according to the figures of the Capital Market, Insurance and Savings Department at the Ministry of Finance, as of 2011 and 2012, Clal Insurance’s market share is 14% of the total market of the insurance companies in the sector, and the total market share of the insurance companies that were sued is 98%.

13. | In July 2014, a claim (“the claim”) and a Motion to Certify the Action as a Class Action (“the motion”) were filed with the Central District Court in Lod against Clal Pension and Provident Ltd. and against four additional pension fund management companies (“the defendants”).

The claim and the motion were filed by two Amutot (non-profit corporations) that claim that their goal is to help the elderly population (“the plaintiffs”). The plaintiffs claim that they are entitled to file a class action pursuant to section 4(a)(3) of the Class Actions Law, in view of the public purposes that they are promoting, despite the fact that neither of the defendants was harmed personally and directly, and despite the fact that the plaintiffs’ efforts to find a class plaintiff were unsuccessful.
The claim relates to the raising of the management fees charged to pensioners in pension funds managed by the defendants. According to the plaintiffs, at the stage of receiving the pension, the defendants in bad faith abuse their contractual right according to the provisions of the pension rules to raise the management fees, and they sweepingly raise the management fees paid by pensioners to the management company to the maximum permitted management fees that they are permitted to charge pursuant to the law (0.5% of the accumulated balance), while taking advantage of the fact that the pensioners are a “captive audience” that is prevented from moving what they have accumulated to other pension funds, while active members pay on average significantly lower management fees (approximately 0.3% of the accumulated balance and approximately 2% of their current deposits). It was further claimed that the defendants do not disclose to their members that immediately after they become pensioners, the management fees that they will pay the defendants will be raised to the maximum management fees.
The group that the plaintiffs wish to representative in the action is anyone who is a member of a comprehensive new pension fund managed by one of the defendants, and who is entitled to an old age pension and/or will be entitled to receive an old age pension in the future.
The plaintiffs wish to compel the defendants to return the excessive management fees that were charged to the members of the class unlawfully together with interest and linkage; to compel the defendants to reduce the management fees charged to the pensioners, so that they do not exceed the management fees charged before each one them becomes a pensioner; to prohibit the defendants from raising the management fees for the members shortly before they become pensioners; to award special compensation to the plaintiffs and attorneys’ fees to the class attorneys.
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

13. (cont.)
In the plaintiffs’ estimation, according to an actuarial opinion attached to the motion, the management fees that the defendants collect from the accumulated assets for the pension funds amount to approximately 5% of the pension paid to the members, of which the overcharging in their estimation amounts to a sum of approximately 2% of the pension paid each month to the pensioner and which will be paid in the future to members who will become pensioners, if the overcharging is allowed to continue. In the plaintiffs’ estimation, the management fees that are unlawfully charged by the defendants to existing pensioners are estimated at a sum of NIS 48 million, the management fees that will be unlawfully charged in the future by the defendants to existing pensioners are estimated at a sum of NIS 152 million, and the management fees that will be unlawfully charged in the future by the defendants to future pensioners for the amounts accumulated to date are estimated at a sum of NIS 2,800 million. The aforesaid amounts are alleged with respect to all of the defendants.

14. | In November 2014, a claim (“the claim”) and a Motion for Certification of the Claim as a Class Action (“the motion”) were filed in the Tel-Aviv District Court (Economic Division) against Jerusalem Bank (“Jerusalem Bank”) and against several additional defendants that held office as directors of Clal Finance Batucha Investment Management Ltd. (“Clal Batucha”) in the years 2007 until the sale of Clal Batucha to Jerusalem Bank in December 2013 (“the defendants”).

| The subject-matter of the case is the plaintiff’s claims that Clal Batucha, in its capacity as a portfolio manager, carried out transactions with securities of companies in the IDB group, while preferring its own interests and those of various companies in the IDB group over the interests of its customers.

| According to the plaintiff, Clal Batucha violated provisions of the law, including provisions of the Regulation of the Occupation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 5755-1995 (“the Investment Regulation Law”), which concern the duty of faith of Clal Batucha to its customers, its duty to notify its customers with regard to conflicts of interests that it has in carrying out such transactions, and its failure to obtain their prior consent before carrying out any transaction that involves a conflict of interests, and a prohibition of preferring financial assets of Clal Batucha or a corporation related to it.

According to the plaintiff, he was involved in an agreement for the management of investments with Clal Batucha, which bought for his portfolio securities of companies in the IDB group, and by its actions Clal Batucha caused him significant losses.
The plaintiff claims that the defendant directors breached the duty of care they owed to the members of the class.
The class that the plaintiff wishes to represent is anyone that received from Clal Batucha Investment Management Services, and as part thereof securities were bought for him, which were issued by companies in the ‘IDB concern,’ without obtaining his prior approval with regard to each transaction and as a result of the acquisition as aforesaid, he was caused damage. In this regard, the plaintiff includes in the ‘IDB concern’ all of the corporations that were held or controlled (directly or indirectly) by IDB Holdings and the corporation.
The plaintiff is petitioning the court (a) to grant an order against Clal Batucha and against the other defendants to deliver particulars and details with regard to the damage that was caused (according to him) to each of the members of the class; (b) to find the defendants liable to compensate the members of the class for their full damage, or alternatively to determine another remedy in favor of the members of the class, in whole or in part. In addition, the court is requested to determine remuneration for the class plaintiff and attorneys’ fees for the class plaintiff’s attorney.
The amount of the plaintiff’s personal claim stands at a sum of approximately NIS 18,624. According to the Statement of Claim, the alleged damage to all of the members of the class cannot be estimated at this stage.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| a. | Consumer claims and derivative actions (cont.)

14. (cont.)
Clal Finances Ltd. (‘Clal Finances’) is not a party to the claim, but it received a notice regarding the filing of the claim from Jerusalem Bank pursuant to the agreement for the sale of Clal Batucha to Jerusalem Bank, according to which Clal Finances has an indemnification undertaking.
The aforesaid indemnification undertaking may be operated if and insofar as Jerusalem Bank will be found legally liable in connection with the claim as aforesaid and subject to the terms of the agreement between the parties.
In addition, some of the directors that held office in Clal Batucha during the period when it was controlled by Clal Holdings Insurance Enterprises and are being sued as part of the claim have letters of indemnification from Clal Holdings Insurance Enterprises and/or Clal Finances and Clal Batucha.

15. | In December 2014, an action (‘the claim’) and a motion to certify it as a class action (‘the motion’) were filed in the Jerusalem District Court against Clal Insurance.

The plaintiff’s claim in the action and the motion is that Clal Insurance should link the pensions for loss of work capacity to the profits index of a certain investment basket to which the policy is linked, whereas in practice Clal Insurance prima facie does not link the pensions to the profits index of the investment basket but prima facie pays significantly lower pensions than it should, while offsetting and deducting from the profits index, unlawfully and contrary to the provisions of the policy and the Commissioner’s instructions, annual interest in an amount of 2.5%.
The class that the plaintiffs wish to represent is all of the holders of Clal Insurance’s profit-participating policy for loss of work capacity, to whom Clal Insurance paid loss of work capacity pensions, without full linkage to the profits index provided in the policy and/or it did not pay them bonuses as determined in the policy.
The remedies requested by the plaintiff are: (1) to order Clal Insurance to pay retroactively the represented class the amounts that Clal Insurance should have paid the members of the class if it had linked the pensions that it paid to the members of the class to the profits index, to which Clal Insurance should have linked the pension payments according to the policy and according to every law, as claimed in the motion; (2) not to impose a prescriptive limit on the aforesaid retrospective liability that the court is requested to impose on Clal Insurance; (3) to find Clal Insurance liable to return to the members of the class all of the amounts that Clal Insurance paid them and which it later offset; (4) to find Clal Insurance liable to return to the members of the class premiums that were not returned to them and/or were not returned in full; (5) to find Clal Insurance liable to pay the insured bonuses in accordance with the terms of the policy; (6) to find Clal Insurance liable to add to the repayment amounts default interest pursuant to regulation 41Q1 of the Income Tax (Rules for Approval of Provident Funds) Regulations, 5724-1954, and/or linked interest and additional punitive interest pursuant to sections 28 and 28A of the Insurance Contract Law, 5741-1981; (7) to grant temporary remedies insofar as it will be necessary to do so. In addition, the plaintiff requests that Clal Insurance is found liable to pay attorneys’ fees to the plaintiff’s attorney and remuneration to the plaintiff.

| The comprehensive alleged damage to all the members of the class is not estimated by the plaintiff for the reason that she claims that she does not know the number of policyholders that are entitled to restitution. The plaintiff’s alleged personal damage amounts to a sum of NIS 800 thousand.

IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| b. | Insurance agency claims

Out of the total sum, there is one pending lawsuit pending against investee companies of Clal Holdings Insurance Enterprises Group filed by insurance agencies and/or shareholders thereof which include, mainly, claims of violations of provisions of law, and/or a breach of agreements and/or claims for damages.
As at December 31, 2014, the amount being claimed from the investee companies of Clal Holdings Insurance Enterprises Group in respect of these claim amounted to NIS 20 million.
Please note that this amount was set for the purpose of the court fee in an amount of NIS 20 million. However, according to the plaintiff, the amount of the damages caused to him is NIS 237 million. In February 2013, a settlement agreement was signed between the parties, to mutually withdraw the claims against one another, as part of which it was stipulated that the appeal filed by the plaintiffs would be erased, so that the decision of the District Court rejecting the claim would become absolute. As part of the compromise, Clal waived payment of a loan debt owed by the plaintiff and it paid the attorney fees of the plaintiff. All of the amounts involved were immaterial.
In April 2013, the Supreme Court ruled that in light of the settlement agreement signed by the parties, and the motion to erase the appeal against Clal Insurance and officers of Clal Insurance (the respondents), the respondents shall be classified as formal respondents and be exempt from the need to present summary arguments and appear for the hearing.

| c. | Between January 2004 and June 2013, Clal Insurance entered into a renewable annual agreement with the Hadassah Medical organization (“Hadassah”) for second tier professional liability insurance, providing insurance coverage from claims in an amount higher than the sum provided by the self-insurance provided by Hadassah (“the first tier”).

The liability limit provided by Clal Insurance as part of the second tier changed throughout the years in which the insurance coverage was provided, when the insurance liability during the last insurance period, starting from January 2012 and ending in June 2013, was for claims higher than approximately NIS 8.8 million but no higher than approximately NIS 18 million per case, and no higher than a total of approximately NIS 36 million for all those insured throughout the insurance period (the aforementioned sums are linked to the consumer price index of January 1, 2012). In February 2014 Hadassah filed with the District Court of Jerusalem a motion for issuing a stay of proceedings order and for the appointment of a trustee for the purpose of formulating a recovery plan and a creditor’s arrangement in accordance with articles 350B(d)(1) and 350(d) of the Companies Law (“the motion”). During the proceedings conducted as part of the motion, various claims were heard, according to which the insurance companies that insured Hadassah with professional liability insurance, including Clal Insurance, are supposed to pay the financial costs that may be imposed on the first tier, beyond the amount of the designated deposit that Hadassah deposited for this purpose, in case Hadassah would not pay the claims itself. Clal Insurance clarified to the trustee that its position is different, and that it is liability for the second tier only. In May 2014, a motion to approve a recovery program was filed with the court. This includes one-time assistance of the State for Hadassah in an amount of NIS 140 million, and ongoing support, which together are supposed to supplement the accumulated fund at Hadassah up to the amount of the Hadassah actuarial liabilities for contingent claims in the first tier for the period up to December 31, 2013. To the best of Clal Insurance’s knowledge, on May 22, 2014, the recovery program was approved by the court and the suspension of proceedings was cancelled.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| d. | Moreover and in general, in addition to the general exposure that the institutional bodies of the Clal Holdings Insurance Enterprises group have with respect to future actions, from time to time, including as a result of complaints of policyholders, audits and requests to receive information, there is also an exposure for warnings regarding the Commissioner’s intention to impose on those bodies financial sanctions and/or instructions of the Commissioner regarding an amendment and/or restitution and/or the implementation of certain operations with regard to operations that were carried out by institutional bodies in the group in the past, with regard to a policyholder or group of policyholders and/or exposure for wide-ranging decisions that the Commissioner publishes as part of his authority pursuant to the Control of Financial Services (Insurance) Law, 5741-1981, in which framework the Commissioner can also order the making of restitution to customers for the defects addressed by the warnings or the decisions and/or position papers published by supervisory bodies whose status and degree of influence are uncertain. Moreover, from time to time the financial institutions are subject to hearings and/or discussions with the Commissioner of Insurance’s office with regard to the aforesaid warnings and/or decisions and no final decision has yet been made in those matters. In the reporting year, financial statements in the group received several warnings with regard to an intention to impose financial sanctions on them. Each warning in itself is not in a material amount and the financial institutions are examining the need to make provisions in the financial statements with regard to the aforesaid warnings on the basis of an opinion of their legal advisers and/or are in the process of studying the warnings, as applicable.

The following are details regarding the Commissioner’s position or fundamental decisions that have or may have an effect on the Clal Holdings Insurance Enterprises group, as aforesaid:

| 1. | In August 2013, the Commissioner published a fundamental decision with regard to raising management fees without giving notice and on December 17, 2014, an amendment to the decision was published, postponing the dates for completing its implementation (‘the decision’).

| Pursuant to the provisions of the decision, management companies are required to examine all of the accounts in which management fees were raised in the period between January 1, 2006, and December 31, 2009 (hereinafter: ‘the restitution period’) and to return to each member, who was charged management fees during that period other than pursuant to the provisions of regulation 53B(a) of the Income Tax Regulations, the amounts that he was overcharged, unless an examination exception and/or a restitution exception applies to that member, as stated below. The amounts standing to the member’s credit according to the decision will bear annual interest at a rate of 5.1%, starting from the date on which the management fees were overcharged until the date of making the payments pursuant to the provisions of the decision.

| The decision determined cases in which an exemption will be given with regard to the examination and restitution of money, and other cases in which an exemption will be given with regard to the restitution of money only. Moreover, various provisions were determined with regard to the manner of carrying out the restitution, documentation of the restitution, giving notice to members and reporting to the Commissioner with regard to the implementation of the restitution instructions.

| Pursuant to the provisions of the decision, by August 31, 2005, management companies are required to complete the making of the examination and the restitution, and by December 31, 2015, the companies are required to send the Commissioner a summary report of the internal auditor of the companies, confirming the implementation of the provisions of the decision. Clal Pension and Provident is acting to make the restitution.

IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| d. | (cont.)

| 2. | In December 2014, a fundamental draft decision was published with regard to joining group life insurance (‘the draft decision’). The draft decision was published as a result of wide-ranging on the subjects of collective life insurances that the Commissioner carried out in the insurance companies, in which cases were found in which policyholders were included in collective life insurance policies with obtaining their prior, written and express consent, even though the policyholders paid the cost of the insurance (in full or in part) (“the policyholders”).

| Pursuant to the provisions of the draft decision, an insurance company needs to have the ability to present a written consent of a policyholder to join such collective life insurance. It was also determined that with regard to existing collective life insurance policies with regard to which an insurance company cannot present a written consent, the insurance company should verify the existence of written consent of those policyholders to joining the aforesaid policies, no later than the forthcoming renewal date of the policies or within eight months of the date of publication, whichever is the earlier (“the renewal date”). If the insurance company does not obtain the consent of a certain policyholder in such policies by the renewal date, the insurance shall not be renewed for that policyholder in the group of policyholders, and notice of this shall be sent to the policyholder (while the policy continues for the other policyholders). The aforesaid shall not apply to a group of policyholders for which the Commissioner gave approval to exempt the insurance company from the duty of maintaining a list of policyholders.

| The company is studying the draft decision. At this stage, before the final wording is published, there is no certainty with regard to its provisions, as well as the manner of implementation that will be required and the expected ramifications of the draft decision, insofar as one will be published. It should be noted that the insurance companies are holding discussions with the Commissioner with regard to the draft decision.

| 3. | In February 2015, a fundamental decision was published with regard to the Equal Rights for Persons with Disabilities Law, 5758-1998 (“the Equal Rights Law”). as part of the decision, it is clarified, inter alia, that the insurance company is liable to deliver to a policyholder with disabilities that is given different treatment, as defined in the law, or a person with disabilities who was refused insurance, a reasoned notice in writing that will state that the insurance company’s decision derived from the fact that in its estimation the particular insurance risk as a result of the disability is greater in comparison to the insurance risk of persons who do not have that disability. The aforesaid notice shall also include a synopsis of at least one of the following matters: the actuarial figures, statistical figures, medical information or other information regarding the increase of the specific insurance risk, which formed the basis for the aforesaid decision of the insurance company, and a summary of the information on which it relied with respect to that person (such as: a reference to professional articles or a reference to a reinsurer’s guidelines, with regard to the underwriting terms on which the company relief for the purpose of its decision). With regard to a class action being managed against Clal Insurance in this regard, see section C.2.a.7 and C.2.a.8 above in this note. The decision gives the Commissioner authority with regard to the implementation of the provisions of the law.

| In September 2014, the draft Equal Rights for Persons with Disabilities (Insurer’s Notice regarding Different Treatment of a Person or a Refusal to Insure him) Regulations, 5774-2014 (‘the draft regulations’), which state, inter alia, the wording of the notice that should be given to the insured pursuant to the Equal Rights Law, with regard to the right of a person whom an insurer has refused to insure or who received different treatment from the insurer as stated in the Equal Rights Law to file a complaint with the Commissioner and with the Complaints Committee or to file a claim with the court. The regulations will come into effect 30 days after they are published. The companies are holding discussions with the Commissioner with regard to the draft regulations.

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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| d. | (cont.)

| 4. | In March 2015, the Commissioner published a draft of a fundamental decision regarding the payment of VAT and impairment of an automobile that was not repaired. Pursuant to the draft decision, it was determined that in a case where an insured or a third party claims his direct damage for the repair of the automobile and the insurer does not reject his claim, he is liable to pay him an insurance payout that includes, inter alia, the impairment of the automobile and the VAT (provided that he is not entitled to deduct input tax), even if he did not repair the car de facto. The company is studying the draft decision. At this stage, before the final wording of the decision is published, there is no certainty with regard to its provisions, as well as the manner of implementation that will be required and the expected ramifications of the draft decision, insofar as it will be published as a binding decision.

| 5. | Moreover, Clal Insurance is holding discussions with the Commissioner as part of a draft decision concerning one-time deposits of policyholders in policies that guarantee a yield (‘the policies’). Pursuant to the draft, Clal Insurance is required to carry out certain operations with regard to policyholders where the actual yield of the one-time deposits, which bore the yield of a profit-participating portfolio, was equal to or exceeded the guarantees yield in the policies, and certain operations with regard to policyholder where the actual yield on the one-time deposits was lower than the guaranteed yield. Clal Insurance is holding discussions with the Commissioner with regard to the draft decision. Therefore, at this stage, in view of the fact that it is not known that the final wording of the decision will be, if and insofar as one will be made, Clal Insurance is unable to estimate the ramifications and the extent of its impact on Clal Insurance, if and insofar as it will be published.

| 6. | In January 2015, the “Commissioner’s Position – Definition of the Insurance Event in Nursing Insurance” was published, with the purpose of clarifying the Commissioner’s interpretation of the definition of a nursing insurance event that appears in the Nursing Circular. Pursuant to the position paper, when resolving claims, an insurance company is required to examine whether a policyholder is capable of carrying out by himself a material part of the action, so that the examination will be made in accordance with the purposive interpretation described as part of the position paper. The company is studying the ramifications of the Commissioner’s position with regard to the manner of resolving nursing insurance claims. At this stage, before an up-to-date practice has been formulated for the implementation of the provision of the circular, and in view of the manner of implementing the circular to the best of the company’s understanding, the Company’s estimates that no material change will occur in the manner in which it implements the circular. However, the manner in which the circular will be interpreted by the Commissioner and the courts after the publication of the Commissioner’s position may have an impact on the scope of the change that will result from the Commissioner’s aforesaid position.

| 7. | In addition, in January 2015, before the final wording of the Commissions Regulations was published as stated above, the Commissioner published a wide-ranging position of the Commissioner with regard to the payment of a financial institution to a licensee (‘the position paper’). Pursuant to the position paper, the Commissioner objects to financial institutions paying licensees commissions that are based on the management fees paid by the member or the policyholder, according to which the commissions that will be paid to the licensee will be higher insofar as the management fees that will be paid by the customer will be higher. The insurance companies contacted the Commissioner with regard to the status and legality of the position paper. In March 2015, the Commissioner notified the financial institutions, inter alia, that the position paper does not constitute a new positive regulation of the manner in which the commissions should be calculated, that the Commissioner did not intend to exercise the enforcement power given to him pursuant to the provisions of the law in this regard with respect to the customers that joined before the publication of the position paper, and even in the period shortly thereafter, and that the Commissioner intended to publish clarifications with regard to the position paper.

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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 2. | Lawsuits against Clal Holdings Insurance Enterprises Group (cont.)

| d. | (cont.)

| 7. | (cont.)

The financial institutions in the group are studying the implications of the position paper, inter alia with regard to its legality, its effect on agreements with agents and marketers, including the need to construct a new remuneration model and the ability to create a connection between income and expenses in these marketing channels. According to the Commissioner’s position, there may be implications for the field of pension savings in general, on the amount of the management fees that will be charged to the customers and on the financial institutions in the group. The company is unable to estimate, at this stage, all of these implications.

| e. | In addition to the lawsuits set out in sections A, B and C above, the total amount of the pending immaterial lawsuits against investee companies of Clal Holdings Insurance Enterprises Group is NIS 66 million.

| 3. | Lawsuits against Discount Investments

| a. | In September 2012, a motion to certify the filing of a derivative action in an amount of NIS 370 million in the name of Discount Investments against its directors was filed with the Tel-Aviv-Jaffa District Court (in this section, “the Motion for Certification”), by applicants claiming to be minority shareholders of Discount Investments (hereinafter in this section, “the applicants”). Together with the motion for approval, a draft of the derivative claim was also filed with the Court.

The Motion for Certification relates to investments made by Discount Investments in Maariv at both the initial stage that Discount Investments invested in acquiring control of Maariv and at various later stages, and it alleges, inter alia, that the directors named in the motion acted negligently and recklessly, and breached their duty of skill and caution towards Discount Investments with regard to their care and/or involvement in those investments, and therefore they should compensate the company for the damage it incurred, which according to the plaintiffs, on the basis of an expert opinion on their behalf, is estimated at NIS 370 million.

| b. | In July 2014, a claim was filed with the court against Koor with regard to a claim of a breach of an agreement for the payment of a finder’s commission for the sale of Adama to ChemChina, in a total amount of NIS 32 million.

| c. | For information on motions for certifying the filing of derivative actions that were filed by the Petitioners who are claiming to be shareholders of Discount Investments, with regards to dividends distributed by Discount Investments in 2010-2011, and that were filed, as applicable, against Discount Investments, against directors and two officers of Discount Investments during the relevant period, against the Company, against Clal Holdings Insurance Enterprises, against Clal Finance and against other parties, see section C.1.h above in this note.

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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 4. | Lawsuits against Cellcom and its subsidiaries

In the normal course of business, Cellcom and its subsidiaries are involved in various lawsuits filed against them. The provision included in Cellcom’s financial statement of December 31, 2014, for all of the lawsuits against it, amounts to approximately NIS 47 million.
Presented hereunder are the details of pending claims against Cellcom, classified into groups having similar characteristics. The amounts indicated hereunder are correct for the dates on which the claims were filed.
a. Consumer Claims
In the normal course of business, claims have been filed against Cellcom by its customers. These are mostly motions for approval of class actions, primarily concerning allegations of illegal collection of funds, unlawful conduct or breach of license, or a breach of agreements with customers, causing monetary and non-monetary damage to them. As at December 31, 2014, the amounts claimed from Cellcom in consumer claims, amount to NIS 2,761 million (this amount includes a claim that was certified as a class action, as stated below).
In addition, there are additional consumer claims against Cellcom in which the amount claimed was not stipulated if they become certified as class actions, and in their respect Cellcom has an additional exposure to that mentioned above.
In addition, there are consumer claims against Cellcom jointly with other defendants which amount to NIS 958 million and additional consumer claims against Cellcom and additional defendants for which the amount of the claim insofar as they will be certified as class actions was not stated, for which Cellcom has additional exposure beyond the aforesaid.
Moreover, an appeal was filed with regard to the dismissal of a claim against Cellcom and a motion to certify it as a class action, in a total amount of at least several hundreds of millions of sheqels.
In November 2013, the Central District Court granted a motion that was filed in September 2011 to certify a claim filed against Cellcom in September 2011 as a class action, with regard to an allegation that Cellcom breached its agreements with its clients by failing to give them the full amount of the refunds to which they are entitled according to the agreements. The total amount of this claim was estimated by the plaintiff at NIS 15 million.
Among all of the claims against Cellcom and the motions to certify them as class actions, there are motions to certify class actions amounting to NIS 780 million, and an additional claim for which the amount of the claim, insofar as it will be certified as a class action, was not stated. At the preliminary stage that they have reached, Cellcom is unable to estimate the likelihood of their success.
Out of all of the claims against Cellcom and the motions to certify them as class actions, settlements or withdrawal arrangements have been filed with the court in five motions for certification of class actions against Cellcom for a total amount that has been estimated by the plaintiffs at NIS 253 million, in a motion to certify a class action against Cellcom and another defendant for an amount of NIS 28 million without stating the amount of the claim attributed separately to Cellcom, and an additional motion for certification of a class action where the amount clamed was not stated, but the proceedings have not yet ended.
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 4. | Lawsuits against Cellcom and its subsidiaries (cont.)

a. Consumer Claims (cont.)
The following are details of the number and total amounts of claims that have been certified as class actions, and claims where there is a motion to certify them as consumer class actions, which are pending against Cellcom as at December 31, 2014, classified according to the amount of the claim:

Amount of the claim |  | Number of claims |  |  | Amount of the claims (millions of NIS) |
Up to NIS 100 million |  |  | 34 |  |  |  | 885 |
NIS 100 million to NIS 500 million |  |  | 7 |  |  |  | 1,263 |
NIS 500 million to NIS 1 billion |  |  | 1 |  |  |  | 606 |
Claims in which no amount was stated |  |  | 8 |  |  |  | - |
Claims against Cellcom and additional defendants jointly |  |  | 7 |  |  |  | 958 |
Claims against Cellcom and additional defendants in which no amount was stated |  |  | 4 |  |  |  | - |

After the date of the Statement of Financial Position, two additional claims and a motion to certify them as class actions were filed with the court against Cellcom for a total amount of NIS 16 million and an additional claim and motion to certify it as a class action against Cellcom for an amount of NIS 15 billion (as stated below); because of the preliminary stage they have reached, Cellcom cannot assess their chances of success; six class actions against Cellcom for a total amount of approximately NIS 178 million, a class action against Cellcom, which did not state the amount of the claim, and two class actions against Cellcom and additional defendants for a cumulative amount of NIS 130 million without them stating separately the amount claimed against Cellcom ended (by being struck out or dismissed); a settlement has been filed in a class action against Cellcom in which the amount of the claim is not stated, but the proceedings have not yet ended; an appeal has been filed with regard to the striking out of an action against Cellcom and a motion to certify it as a class action, for an amount of NIS 220 million, and at this stage Cellcom cannot estimate the likelihood of the success of the aforesaid appeal.
The following are details of a claim and motion to certify it as a class action against Cellcom, which was filed after the date of the Statement of Financial Position, where the amount claimed is more than NIS 1 billion:
In March 2015, a claim and motion to certify it as a class action were filed with the court against Cellcom, by two plaintiffs who claim that they are customers of Cellcom. The plaintiffs claim in their action that Cellcom unlawfully invaded the privacy of its customers and they are claiming as a result compensation for non-pecuniary loss. If the claim is certified as a class action, the amount claimed in it was estimated by the plaintiffs in a total sum of NIS 15 billion. At this preliminary stage, Cellcom is unable to estimate the likelihood of success of the aforesaid claim and motion.
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 4. | Lawsuits against Cellcom and its subsidiaries (cont.)

| b. | Environmental claims

In the normal course of business, claims have been filed against Cellcom in issues related to the environment, including claims regarding non-ionizing radiation from cellular handsets and claims in respect of sites belonging to Cellcom. These are mostly motions for approval of class actions, relating to allegations of unlawful conduct or breach of license causing monetary and non-monetary damage (including claims for future damages). As of December 31, 2014, two claims were pending against Cellcom; motions to certify these as class actions were originally filed, for a total amount of NIS 4.7 billion.
In 2014, the court dismissed the motions for certification of the aforesaid two claims as class actions, except with regard to certain causes of action which it decided to hear on the basis of settlements in similar class actions against other cellular operators (Pelephone Communications Ltd. and Partner Communications Ltd.) that were approved by the court, which Cellcom was also prepared to adopt. The aforesaid settlements include undertakings of the cellular operators to provide certain information with regard to non-ionizing radiation, to sell certain accessories at a discount and to carry out certain examinations of devices in certain circumstances, where the cost of carrying out these undertakings is estimated by Cellcom in amounts that are not material for it. The plaintiffs filed an appeal against the judgment approving the settlements with Pelephone and Partner, inter alia, with regard to the type of examinations that will be made as aforesaid.
c. Other claims
In the normal course of business, various lawsuits have been filed against Cellcom by employees, subcontractors, suppliers, authorities and others which deal mostly in claims of breach of provisions of the law governing termination of employment and obligatory payments to employees, claims for breach of agreements, copyright infringements, patent infringement and compulsory payments to authorities.
As at December 31, 2014, the total amount of these claims against Cellcom amount to NIS 85 million. In addition, a lawsuit against Cellcom and two other cellular operators was filed requesting non-financial remedies for an alleged infringement of a patent in iPhone devices.

| 5. | Lawsuits against Koor and its subsidiaries

In the Normal course of business, Adama is involved in various legal claims. The provisions included in its financial statements as of December 31, 2014, for the costs that may arise from these claims are in a total sum of US $13.2 million.
Presented hereunder are details of claims pending against Adama, that were not fully provided for in its financial statements, and their chances of success were not considered to be remote by the legal counsel of Adama and its subsidiaries, classified into groups having similar characteristics. The amounts indicated hereunder are correct for the dates on which the claims were filed.
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 5. | Lawsuits against Koor and its subsidiaries (cont.)

| a. | Environmental claims

In the ordinary course of business, legal claims have been filed with the courts against subsidiaries of Adama on issues relating to the environment and on issues relating to their sites. The claims (including a claim and motion to certify it as a class action) mainly involve allegations regarding emissions, odors and noise, which cause pecuniary damages and non-financial loss (including claims for future damages).
As of December 31, 2014, the amounts that are claimed from the consolidated companies of Adama under the aforesaid claims amounts to a total of US $20 million. In some of the aforesaid claims, additional remedies are requested.
The following are details of the number and amounts of the environmental claims that are pending against the consolidated companies of Adama on their own as of December 31, 2014, in which the amount claimed was stipulated, classified according to the amount of the claim:

Amount of the claim |  | Number of claims |  |  | Amount of the claim (Millions of NIS) |
Up to NIS 100 million |  |  | 1 |  |  |  | 78 |

Moreover, in February 2014 plaintiffs in a claim and a motion to certify it as a class action for an amount of NIS 642 million filed an appeal with the Supreme Court after it was dismissed in December 2013 by the Beer-Sheba District Court.

| b. | Claims of employees, subcontractors, suppliers, authorities and others

In the normal course of business, various claims were filed against Adama by employees, subcontractors, suppliers, authorities and others which concern, inter alia, claims for breaches of provisions of the law regarding termination of employment and obligatory payments to employees, claims for breach of contract and patent infringement, and compulsory payments to authorities.
As of December 31, 2014, the total amount claimed from Adama for the aforesaid claims amounted to $39 million.

| 6. | Lawsuits against Shufersal

In the ordinary course of business, Shufersal is involved in several legal claims against it. The provision included in its financial statements as of December 31, 2014, for all of the claims against it amounts to NIS 9 million.
The following are details of the claims pending against Shufersal, classified into groups with similar characteristics.
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 6. | Lawsuits against Shufersal (cont.)

a. Consumer claims
In the normal course of business, legal claims were filed against Shufersal by its customers. These are mostly motions for certification of class actions, which mainly concern claims of charging money unlawfully, acting contrary to the law or a license, or a breach of the agreements with customers, causing financial and non-financial loss to them.
As at December 31, 2014, the total amount claimed from Shufersal for consumer claims was NIS 518 million. Regarding several of these claims, for a total amount of NIS 65 million, their likelihood of success cannot be estimated by Shufersal because of the preliminary stage that they have reached.
In addition, consumer claims and motions to certify them as class actions were filed against Shufersal and additional defendants, where the total amount attributed to Shufersal amounts of NIS 157 million. Moreover, consumer claims and motions to certify them as class actions were filed against Shufersal and additional defendants, where the amount claims therein amounts to NIS 78 million, without any stipulation of the amount of the claim attributed separately to Shufersal. Of these, there are several claims for a total amount of NIS 50 million, where because of the preliminary stage that they have reached, Shufersal is unable to estimate their likelihood of success.
The following are details of the number and amounts of the claims where there is a motion to certify them as consumer class actions, which were pending against Shufersal as of December 31, 2014:

Amount of the claim |  | Number of claims |  |  | Amount of the claims (in millions of NIS) |
Up to NIS 100 million |  |  | 34 |  |  |  | 620 |
Between NIS 100 and 500 million |  |  | 1 |  |  |  | 133 |

After the date of the Statement of Financial Position, five consumer claims and motions to certify them as class actions were filed against Shufersal for a total amount of NIS 295 million. At the preliminary stage that these have reached, Shufersal cannot estimate the likelihood of their success.
After the date of the Statement of Financial Position, nine motions to certify class actions against Shufersal, for a total amount of NIS 460 million, which were included in the breakdown of claims above, ended with the plaintiffs withdrawing with the court’s approval (one of the claims that were dismissed as aforesaid, for an amount of NIS 182 million, was included among the claims that were filed after the date of the Statement of Financial Position).
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 6. | Lawsuits against Shufersal (cont.)

| b. | Claims of employees, subcontractors, suppliers, authorities and other claims

In the normal course of business, legal claims were filed with the courts against Shufersal by employees, subcontractors, suppliers, authorities and others, which relate mainly to claims of breaches of the provisions of the law in relation to the termination of workers’ employment and compulsory payments to employees, claims of breaches of contract and compulsory payments to authorities. As of December 31, 2014, the total amount for which Shufersal was being sued for these claims was NIS 19 million. In 2014, an indictment was filed against Shufersal, the Vice-President of Operations and a Shufersal’s supply chain, and four additional executives in Shufersal (who are not officers). The indictment alleged offenses against the provisions of the Hours of Work and Rest Law, 5711-1951, with regard to the employment of workers for overtime in excess of what is permitted in the aforesaid law. In Shufersal’s estimation, on the basis of the opinion of its legal advisers, if and insofar as at the end of the aforesaid proceeding Shufersal will be found guilty of the charges that will be claimed against it, Shufersal will be exposed to the payment of a fine that is not material.
In February 2010, an indictment was filed with the Jerusalem District Court against Shufersal, its former President and CEO and its former Vice-President of Commerce and Marketing (in this section: “former officers of Shufersal”), which attributed to the defendants offenses against the Restrictive Trade Practices Law and the Penal Law with respect to allegations regarding non-compliance with the instructions in the approval of the merger between Clubmarket Marketing Chains Ltd. (“Clubmarket”) and Shufersal, and an attempt to perform a restrictive arrangement.
In December 2013 the Court convicted Shufersal and the former officers of Shufersal in two offenses of non-compliance with the provisions stated in the approval of the merger and four offenses of an attempt to perform a restrictive arrangement, and acquitted them of an additional indictment of non-compliance with the instructions in the approval of the merger.
In July 2014, the court handed down a sentence in the aforesaid criminal proceeding, in which Shufersal was ordered to pay a fine of NIS 3 million, and to give an undertaking in a sum of NIS 5 million, for a period of three years, not to commit an offense pursuant to the Restrictive Trade Practices Law, and the two former officers of Shufersal were sentenced to imprisonment, including actual imprisonment for periods of two months and one month, respectively (which have been stayed until proceedings have ended in the Supreme Court), fines in sums of between NIS 250 thousand and NIS 450 thousand, and additional sanctions. In September 2014, Shufersal filed with the Supreme Court an appeal against its aforesaid conviction and against the sentences that were consequently imposed on it, as stated above. The two former officers of Shufersal also filed appeals of their own.

| 7. | Lawsuits against Elron

Elron’s financial statements for December 31, 2014, include a provision in an amount immaterial to it in respect of all the claims against it.
As at December 31, 2014, three claims and motions to certify them as class actions are pending in the court against Elron and other defendants, alleging non-compliance with provisions of company laws and securities laws with regard to the same set of facts.
The remedy requested in one of the claims is monetary compensation without stipulating the amount claimed, although it does contain various arguments regarding the method of determining the damages caused to the plaintiffs, which depends, inter alia, on clarifying certain circumstances and the nature of each alleged damage. The Court rejected the motion to certify the aforementioned claim as a class action, but the plaintiffs filed an appeal, and in May 2012 the Supreme Court handed down a ruling in which it partly accepted the aforesaid appeal. The aforesaid ruling states, inter alia, that the motion to approve the class action is accepted with certain changes from that requested in said motion, while also providing certain instructions as to the holding of the proceeding, and stating that the proceeding is being remanded to the District Court so that it will hear it as a class action against the defendants specified in it, including against Elron and its former officers. Elron denies the claim’s allegations against it.
IDB Development Corporation Ltd. Convenience translation
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Note 23 - Contingent Liabilities, Commitments and Lawsuits (cont.)

C. | Lawsuits (cont.)

| 7. | Lawsuits against Elron (cont.)

Elron recorded in its financial statements a provision in an amount immaterial to it in respect of the aforesaid claim, which in the opinion ofElron’s management, based on, inter alia, the opinion of its legal counsel, sufficiently covers the economic resources that may be required from it to settle this claim, if any.
The two additional claims along with motions to certify the claims as class actions were submitted against the same defendants and on the basis of the same main facts of the claim described above. The amount being claimed was not stated in these additional claims. The Court decided that at this stage the defendants are not required to reply to these additional claims.

| 8. | Lawsuits against the IDB Tourism Group

There are various pending claims against IDB Tourism and its investee companies including, inter alia, claims filed by employees and/or subcontractors and/or suppliers and/or authorities, mainly in respect of claims of breach of provisions of law in connection with employment of employees and obligatory payments to employees, claims for breach of contract and compulsory payments to authorities, and consumer claims that were filed by customers, mainly for claims regarding dealings contrary to law and a breach of the provisions of the law, discrimination and misrepresentation, while causing financial damage. As at December 31, 2014, the total amount being claimed from IDB Tourism and its investees with respect to these claims was NIS 22 million (not including provisions for tax claims).
Moreover, a motion to certify a class action was filed against a subsidiary of IDB Tourism, with regard to a failure to provide basic hotel services that are expected of the level of hotel that the subsidiary undertook to provide. The causes of action in the claim are, primarily, breach of contract, or, secondarily, unjust enrichment, breach of the duty of care, disclosure and good faith imposed in the sale of a service, or, thirdly, misrepresentation and breach of a duty of disclosure to the consumer in a total amount of NIS 18 million. In the subsidiary’s estimation, based on that of its legal advisers, it is more likely than not that the motion for certification of the class action, in its current format, will be denied.
For the aforesaid claims, IDB Tourism and its investees have recorded provisions for legal claims in a sum of NIS 10 million, mainly for a decision of the Supreme Court in Portugal in October 2014, which held that damage had been caused to the company Euro Atlantic (a Portuguese airline company) for breach of a lease contract.
In addition, the financial reports include a provision in a sum of NIS 10 million for tax assessments that were issued for Israir for the years 2005-2010, after a judgment was given in an appeal by the Supreme Court, which held that Israir is not a resident of the Eilat area, as this term is defined in the Free Trade Area Law, and for a National Insurance assessment that was issued for Israir.
In January 2015, after the date of the Statement of Financial Position, the court granted a motion to certify a class action against Israir, as well as Arkia, El Al and the Airports Authority, in which the court was requested to determine that the plaintiff class would include persons with hearing disabilities and users of a hearing aid that made use or could have made use of the respondents’ aviation services in the last seven years. The remedies sought as part of the class action are personal compensation in a sum of NIS 500 and compensation for the whole class in a sum of NIS 84 million (and that the respondents should be liable to pay remuneration to the applicants and attorneys’ fees pursuant to the Class Actions Law).
Motions were filed with the court (by the applicants’ attorney) to certify similar class actions against Israel Railways and the bus companies Egged, Dan and Nativ Express, in which the hearing has been consolidated and a pretrial hearing is set down for May 10, 2015. The applicants have said that they will agree to the same panel hearing the case and that the hearing will also be consolidated with this case. Israir is at a preliminary stage of examining the claim and therefore it is not able to estimate the amount of the exposure, if there is any, and therefore no provision has been included in Israir’s financial statements.
IDB Development Corporation Ltd. Convenience translation
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Note 24 – Sales and services

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
From the sale of purchased products |  |  | 11,532 |  |  |  | 11,843 |  |  |  | 11,540 |
From the performance of works and services, primarily communications services |  |  | 3,608 |  |  |  | 4,024 |  |  |  | 4,621 |
Tourism services |  |  | 1,001 |  |  |  | 1,059 |  |  |  | 1,223 |
From the sale of communications equipment |  |  | 1,005 |  |  |  | 942 |  |  |  | 1,356 |
From the rental of buildings and from storage services |  |  | 829 |  |  |  | 822 |  |  |  | 833 |
From the sale of products that have been manufactured |  |  | 129 |  |  |  | 716 |  |  |  | 285 |
From the sale of apartments and land (1) |  |  | 396 |  |  |  | 534 |  |  |  | 379 |
From management fees and consultancy fees of an investments house |  |  | 46 |  |  |  | 45 |  |  |  | 45 |
From the sale of newspapers, advertising space and printing works |  |  | - |  |  |  | - |  |  |  | 180 |
Total |  |  | 18,546 |  |  |  | 19,985 |  |  |  | 20,462 |

Note 25 – The Group's share of the profits (losses) of investee companies that are treated under the equity method of accounting, net

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Profit (loss) under the equity method of accounting |  |  |  |  |  |  |  |  |
The Group's share of the net profit (loss) of investee companies treated under the equity method of accounting |  |  | 30 |  |  |  | 112 |  |  |  | (777 | )
Amortization of surplus cost for included companies |  |  | (40 | ) |  |  | (51 | ) |  |  | (97 | )
Loss on impairment in the value of investments |  |  | (490 | )(1) |  |  | - |  |  |  | (58 | )
Total net profit (loss) on the equity method basis |  |  | (500 | ) |  |  | 61 |  |  |  | (932 | )

(1) For details regarding the amortization of the investment in Adama, see note 3.h.4.d above.
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Note 26 – Profit (loss) on disposal and the writing down of investments, assets and dividends

| A. | Profit on disposal and increase in the value of investments and assets, dividends and profit as a result of an increase to control

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Gain from the disposal of investments in investee companies |  |  |  | (1) 873 |  |  | 18 |  |  |  | 149 |
Gain on increase in the value of investments that are measured at fair value through the statement of income |  |  | 54 |  |  |  |  | (2) 126 |  |  | 25 |
Dividend income and cash distributions from financial assets that are measured at fair value through profit and loss |  |  | 24 |  |  |  | 9 |  |  |  | 22 |
Cancellation of provision for impairment of assets |  |  | 7 |  |  |  | 13 |  |  |  | 2 |
Gain on the loss of control in a subsidiary and from the loss of significant influence in an affiliated company, including re-measurement to fair value of the equity rights that remain in the company being sold |  |  | - |  |  |  | 10 |  |  |  | 26 |
Gain on the issuance of equity of investee companies to a third party |  |  | - |  |  |  | 1 |  |  |  | 5 |
Gain on the re-measurement to fair value of equity rights in a company that has been acquired, which were held prior to the acquisition of control |  |  | - |  |  |  | 2 |  |  |  | - |
Gain from disposal of assets |  |  | - |  |  |  | - |  |  |  | 12 |
|  |  | 958 |  |  |  | 179 |  |  |  | 241 |

(1) | For details of the disposal of the investment in Given – see note 3.H.6.a above.

(2) | Restated, including a sum of NIS 83 million for the increase in value of Insurance Enterprise Holdings, which were presented as part of the discontinued activity, as stated in note 3.I.1 above.

| B. | Loss on disposal, decrease in value and the writing down of investments and assets

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Impairment in the value of assets and investments |  |  |  | (1) 405 |  |  | 89 |  |  |  | 385 |
Impairment loss on investments measured at fair value through the statement of income |  |  |  | (2) 399 |  |  | 22 |  |  |  | 45 |
Loss from loss of control in a subsidiary and from the loss of material influence in an included company, including a remeasurement for fair value of residual capital rights that remain in the sold company |  |  |  | (3) 32 |  |  | - |  |  |  | - |
Loss on the disposal of assets |  |  | 8 |  |  |  | 27 |  |  |  | 6 |
Loss from the sale of investments in investee companies |  |  | - |  |  |  | - |  |  |  | 14 |
|  |  | 844 |  |  |  | 138 |  |  |  | 450 |

(1) | For details regarding the amortization of goodwill for the corporation’s investments in Cellcom and Shufersal – see notes 10.d.1 and 10.d.2, respectively, above.

(2) | Including a loss from impairment of the investment in Clal Holdings Insurance Enterprises in a sum of NIS 360 million.

(3) | For details regarding the accounting treatment of TPD – see note 3.h.2.a above.

IDB Development Corporation Ltd. Convenience translation
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Note 27 – Changes in the fair value of investment property

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
A. Increase in the fair value of investment property |  |  |  |  |  |  |  |  |
Revaluation of the HSBC Building and the building in Chicago (see also note 7.b.(1) above) |  |  | 272 |  |  |  | 175 |  |  |  | 354 |
Revaluation of investment property in Israel (see also Note 7.b.(2) above) |  |  | 167 |  |  |  | 242 |  |  |  | 186 |
|  |  | 439 |  |  |  | 417 |  |  |  | 540 |
B. Impairment in the fair value of investment real estate |  |  |  |  |  |  |  |  |  |  |  |
Decrease in value of a commercial and office project in Las Vegas (GW) (see note 7.b.(3) above) |  |  | 26 |  |  |  | 79 |  |  |  | - |
Decrease in value of a building in Chicago |  |  | - |  |  |  | 18 |  |  |  | - |
|  |  | 26 |  |  |  | 97 |  |  |  | - |

Note 28 – | Financing income and expenses

| A. | Financing income

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Financial assets and financial liabilities at fair value through the statement of income |  |  |  |  |  |  |  |  |
Net change in the fair value of financial assets |  |  | 55 |  |  |  | 84 |  |  |  | 103 |
Dividend income |  |  | - |  |  |  | - |  |  |  | 7 |
Loans, receivables and financial instruments at amortized cost |  |  |  |  |  |  |  |  |  |  |  |
Income from interest in deposits in banks |  |  | 63 |  |  |  | 87 |  |  |  | 128 |
Income from interest on loans, deposits and receivables* |  |  | 12 |  |  |  | 14 |  |  |  | 29 |
Financing income on sale transactions in payments* |  |  | 71 |  |  |  | 95 |  |  |  | 101 |
Income from the self-purchase of bonds |  |  | - |  |  |  | - |  |  |  | 33 |
Income from other financial instruments |  |  |  |  |  |  |  |  |  |  |  |
Change in value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor (1) |  |  | 928 |  |  |  | - |  |  |  | - |
Other |  |  |  |  |  |  |  |  |  |  |  |
Net gain on changes in foreign currency exchange rates (3) |  |  | - |  |  |  | 323 |  |  |  | 60 |
Financing income on assets designated for the payment of employee benefits |  |  | 10 |  |  |  | 9 |  |  |  | 12 |
Income from interest from investee companies that are treated under the equity method of accounting |  |  | 33 |  |  |  | 25 |  |  |  | 316 |
Others |  |  | 28 |  |  |  | 28 |  |  |  | 35 |
Total financing income |  |  | 1,200 |  |  |  | 665 |  |  |  | 824 |

| * Including index-linkage differentials.

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Note 28 – Financing income and expenses (cont.)

| B. | Financing expenses

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Financial liabilities measured at amortized cost |  |  |  |  |  |  |  |  |
Interest expenses and linkage differentials on financial liabilities |  |  | 1,389 |  |  |  | 2,045 |  |  |  | 2,062 |
Change in the value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor (1) |  |  | - |  |  |  | 181 |  |  |  | 161 |
Financial assets and financial liabilities at fair value through the statement of income |  |  |  |  |  |  |  |  |  |  |  |
Change in the fair value of conditional consideration in respect of a business combination |  |  | 7 |  |  |  | 6 |  |  |  | 7 |
Interest expenses on financial liabilities |  |  | 5 |  |  |  | 2 |  |  |  | 2 |
Net negative change in the fair value of derivative financial instruments including instruments for hedging cash flows that have been transferred from equity (2) |  |  | 592 |  |  |  | 176 |  |  |  | 19 |
Other |  |  |  |  |  |  |  |  |  |  |  |
Net loss on changes in foreign currency exchange rates (3) |  |  | 431 |  |  |  | - |  |  |  | - |
Financing expenses on employee benefit liabilities (the discounting component) |  |  | 14 |  |  |  | 13 |  |  |  | 18 |
Other financing expenses on financial liabilities |  |  | - |  |  |  | 1 |  |  |  | 5 |
Commissions |  |  | 11 |  |  |  | 13 |  |  |  | 9 |
Other financing expenses |  |  | 45 |  |  |  | 24 |  |  |  | 30 |
Total financing expenses |  |  | 2,494 |  |  |  | 2,461 |  |  |  | 2,313 |
Less capitalized credit costs |  |  | (19 | ) |  |  | (15 | ) |  |  | (16 | )
Total financing expenses reflected in the statement of income |  |  | 2,475 |  |  |  | 2,446 |  |  |  | 2,297 |

(1) | For details regarding the book value of the host contract in a hybrid financial instrument for a non-recourse loan of Koor, see note 16.A.3 above.

(2) | In 2013 and 2014, Koor recorded expenses of NIS 553 and NIS 85 million, respectively, for a change in the value of the embedded derivative in the hybrid financial instrument for the non-recourse loan. In 2012, Koor recorded income in a sum of NIS 17 million for a change in the value of the embedded derivative in the hybrid financial instrument for the non-recourse loan. The aforesaid amounts are included in the net negative change in the fair value of derivative financial assets.

(3) | Including an expense in a sum of NIS 426 million in 2014 and income in a sum of NIS 270 million and NIS 84 million in 2013 and 2012, respectively, for exchange rate differentials that were recorded for the host contract in the hybrid financial instrument for a non-recourse loan.

| C. | Financing income and expenses, net, include the following amounts, relating to financial assets (liabilities), which are not presented at fair value through the statement of income:

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Total interest income |  |  | 147 | * |  |  | 202 |  |  |  | 259 |
Total interest expenses |  |  | 1,389 |  |  |  | 2,045 |  |  |  | 2,062 |

| * | Not including a change in the value of a host contract in a hybrid financial instrument for a non-recourse loan of Koor.

IDB Development Corporation Ltd. Convenience translation
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Note 29 – Cost of sales and services

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Sales of products that have been manufactured: |  |  |  |  |  |  |  |  |
Materials |  |  | 34 |  |  |  | 85 |  |  |  | 124 |
Depreciation and amortization |  |  | 4 |  |  |  | 12 |  |  |  | 37 |
Salaries and social benefits |  |  | 7 |  |  |  | 30 |  |  |  | 122 |
External work |  |  | 4 |  |  |  | 5 |  |  |  | 14 |
Purchase of finished goods |  |  | - |  |  |  | - |  |  |  | 11 |
Other manufacturing expenses (primarily energy expenses) |  |  | 14 |  |  |  | 64 |  |  |  | 82 |
Changes in inventory, work in progress and finished goods |  |  | (4 | ) |  |  | (7 | ) |  |  | (4 | )
|  |  | 59 |  |  |  | 189 |  |  |  | 386 |
Construction: |  |  |  |  |  |  |  |  |  |  |  |
Construction costs |  |  | 189 |  |  |  |  | (1) 375 |  |  | 128 |
Land |  |  | 108 |  |  |  | 57 |  |  |  | 79 |
Provision for a loss |  |  | 19 |  |  |  |  | (1) 7 |  |  | - |
Other costs |  |  | 58 |  |  |  | 61 |  |  |  | 44 |
|  |  | 374 |  |  |  | 500 |  |  |  | 251 |
Works and services: |  |  |  |  |  |  |  |  |  |  |  |
Rental of buildings and storage services |  |  | 145 |  |  |  | 147 |  |  |  | 142 |
Rental fees and ancillary expenses |  |  | 339 |  |  |  | 391 |  |  |  | 394 |
Performance of works and services, primarily communications services |  |  | 905 |  |  |  | 1,099 |  |  |  | 1,188 |
Salaries |  |  | 652 |  |  |  | 658 |  |  |  | 657 |
Depreciation and amortization |  |  | 518 |  |  |  | 576 |  |  |  | 614 |
Inventory written down |  |  | 292 |  |  |  | 282 |  |  |  | 284 |
Cost of tourism services and other services |  |  | 768 |  |  |  | 793 |  |  |  | 940 |
Sale of purchased products |  |  | 8,318 |  |  |  |  | (2) 8,390 |  |  |  | (2) 8,207
Sale of communications equipment |  |  | 738 |  |  |  | 719 |  |  |  | 1,013 |
|  |  | 12,675 |  |  |  | 13,055 |  |  |  | 13,439 |
Others: |  |  |  |  |  |  |  |  |  |  |  |
Provision for impairment in value |  |  | 9 |  |  |  | - |  |  |  | 3 |
Royalties and levies |  |  | 98 |  |  |  | 91 |  |  |  | 129 |
Total others |  |  | 107 |  |  |  | 91 |  |  |  | 132 |
Total |  |  | 13,215 |  |  |  | 13,835 |  |  |  | 14,208 |

(1) Reclassified.
(2) Reclassified – see note 1.f.2 above.
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Note 30 – Sales and marketing expenses*

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Wages, salaries and social benefits (1) |  |  | 1,333 |  |  |  | 1,442 |  |  |  | 1,353 |
Advertising |  |  | 229 |  |  |  | 265 |  |  |  | 254 |
Depreciation and amortization |  |  | 350 | (3) |  |  | 299 |  |  |  | 318 |
Rent, building maintenance and municipal taxes |  |  | 979 | (3) |  |  | 883 |  |  |  | 891 |
Commissions and royalties |  |  | 217 |  |  |  | 206 |  |  |  | 214 |
Packaging and delivery expenses |  |  | - |  |  |  | - | (2) |  |  | 20 | (2)
Others |  |  | 395 |  |  |  | 406 |  |  |  | 377 |
|  |  | 3,503 |  |  |  | 3,501 |  |  |  | 3,427 |
(1)Including share based payments. |  |  | 2 |  |  |  | 7 |  |  |  | 2 |
*Less participation of suppliers. |  |  | 46 |  |  |  | 48 |  |  |  | 50 |
(2)Reclassified – see note 1.f.(2) above |  |  |  |  |  |  |  |  |  |  |  |
(3)For details regarding one-time expenses that were recorded for a current business program in Shufersal, see note 3.H.3.b. above. |  |  |  |  |  |  |  |  |  |  |  |

Note 31 – Research and development expenses

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Wages and salaries (1) |  |  | 357 |  |  |  | 388 |  |  |  | 362 |
Depreciation and amortization |  |  | 163 |  |  |  | 199 |  |  |  | 246 |
Rent and building maintenance |  |  | 97 |  |  |  | 117 |  |  |  | 122 |
Consulting and legal (2) |  |  | 182 |  |  |  | 138 |  |  |  | 128 |
Provision for doubtful and bad debts |  |  | 33 |  |  |  | 83 |  |  |  | 79 |
Others |  |  | 202 |  |  |  | 214 |  |  |  | 254 |
|  |  | 1,034 |  |  |  | 1,139 |  |  |  | 1,191 |
(1)Including share based payments. |  |  | 2 |  |  |  | 10 |  |  |  | 11 |
(2)Including consulting services relating to the purchase of real estate assets abroad. |  |  | 50 |  |  |  | 4 |  |  |  | 13 |

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Note 32 – Taxes on income

| A. | Tax expense components

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Current tax expenses |  |  |  |  |  |  |  |  |
Taxes for current period (1) |  |  | 244 |  |  |  | 396 |  |  |  | 503 |
Net adjustments for previous years |  |  | (13 | ) |  |  | (6 | ) |  |  | (42 | )
Total current tax expenses |  |  | 231 |  |  |  | 390 |  |  |  | 461 |
Deferred tax expenses (income) |  |  |  |  |  |  |  |  |  |  |  |
Change in deferred taxes for temporary provisions (1) |  |  | 128 |  |  |  | (9 | ) |  |  | 165 |
Change in deferred taxes as a result of a change in the tax rates |  |  | - |  |  |  | 81 |  |  |  | 2 |
Total deferred tax expenses |  |  | 128 |  |  |  | 72 |  |  |  | 167 |
Total tax es on income (including tax for discontinued operations) |  |  | 359 |  |  |  | 462 |  |  |  | 628 |
After neutralization of taxes for discontinued operations |  |  | - |  |  |  | (158 | ) |  |  | (176 | )
Taxes on income expenses from continuing operations |  |  | 359 |  |  |  | 304 |  |  |  | 452 |

| (1) | Takes into account losses, tax benefits and temporary provisions from previous years, for which deferred taxes were not recorded as stated in section I below.

| B. | The tax rates that apply to the income of the companies in the Group

· | The following are the relevant tax rates in Israel in the years 2012-2014:

2012 – 25%.
2013 – 25%.
2014 – 26.5%.
Companies tax applies to the income of the Company and investee companies, which are not overseas investee companies and which are not insurance companies.

· | In August 2013, the Knesset passed legislation, increasing the tax rate for companies to 26.5% (an increase of 1.5%) from January 1, 2014, and also amending the Law for the Encouragement of Capital Investments such that as from that date, the tax that will apply to a preferred company in Development Area A will stand at 9% and the tax rate that will apply to companies in the rest of the country will stand at 16%. The current taxes for the reported periods are calculated in accordance with the tax rates presented above.

- As a result of the said change in the tax rates, the deferred tax balances have been updated, and as a result of this a non-recurring expense of NIS 71 million was recorded under taxes on income and an expense of NIS 3 million under the Group's share of the loss of investee companies that are treated under the equity method of accounting, net in the third quarter of 2013 (NIS 27 million of these amounts has been attributed to the shareholders in the Company).

| C. | The non-application of International Financial Reporting Standards (IFRS) for tax purposes

In February 2010, January 2012 and July 2014, legislation was published to amend the Income Tax Ordinance, as part of which it was determined that Israeli Accounting Standard No. 29 on the subject of the adoption of the International Financial Reporting Standards (IFRS) would not apply for the purposes of the determination of the chargeable income for the years 2007 to 2013. The said legislation does not have a significant impact on the Company's financial
statements, in relation to the determination of the chargeable income for the aforesaid years.
IDB Development Corporation Ltd. Convenience translation
246

Note 32 – | Taxes on income (cont.)

| D. | Reconciliation between the amount of the theoretical tax on the income (loss) before taxes on income and the tax expenses

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Loss before taxation, as reported in the statement of income |  |  | (491 | ) |  |  |  | (1) 54 |  |  | (504 | )
The Group's principal tax rate |  |  | 26.5 | % |  |  | 25 | % |  |  | 25 | %
Tax (tax saving) calculated in accordance with the Group's principal tax rate |  |  | (130 | ) |  |  | 14 |  |  |  | (126 | )
Tax (tax saving) in respect of: |  |  |  |  |  |  |  |  |  |  |  |
The Group's share of the (profits) losses after tax on (profits of) disposal and write-downs of investee companies that are exempt from taxation, net |  |  | 230 |  |  |  |  | (1) (110) |  |  | 271 |
Adjustments in respect of different tax rates in subsidiary companies that operate overseas |  |  | 24 |  |  |  | 30 |  |  |  | 53 |
Change in timing differences in respect of which deferred taxes have not been recognized |  |  | 127 |  |  |  | 185 |  |  |  | 52 |
Losses, tax benefits and timing differences from previous years in respect of which deferred taxes have not been recorded |  |  | (150 | ) |  |  | (541 | ) |  |  | (23 | )
Reduction of deferred tax assets that were recognized in previous years for losses carried forward |  |  | - |  |  |  | 10 |  |  |  | 32 |
Losses and current benefits for tax purposes in respect of which a deferred tax asset has not been recognized and credits for which a tax benefit has not been recognized |  |  | 259 |  |  |  | 687 |  |  |  | 216 |
The impact of changes in the tax rates |  |  | - |  |  |  | 71 |  |  |  | - |
Disallowed expenses |  |  | 25 |  |  |  | 18 |  |  |  | 31 |
Income that is exempt from taxation |  |  | (8 | ) |  |  | (42 | ) |  |  | (25 | )
Prior year taxation |  |  | (21 | ) |  |  | - |  |  |  | (2 | )
Other differences |  |  | 3 |  |  |  | (18 | ) |  |  | (27 | )
Taxes on income |  |  | 359 |  |  |  | 304 |  |  |  | 452 |

| (1) | Restated – See Note 3.i.1 above on the subject of discontinued operations.

IDB Development Corporation Ltd. Convenience translation
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Note 32 – Taxes on income (cont.)

| E. | Final tax assessments

The Company and consolidated companies have final tax assessments for the following periods:

| 1. | The Company – up to and including the 2012 tax year.

| 2. | For companies in the Group – up to and including the tax years 1996-2013.

| F. | Losses and deductions for tax purposes that are available to be transferred to the coming years:

The estimated business losses and capital losses for tax purposes that are available to be carried forward to the coming years are as follows:

| 1. | As of December 31, 2014, the Company has capital losses of NIS 4.1 billion and business losses of NIS 1.7 billion, which are available to be carried forward. Deferred taxes have not been recorded in respect of these losses since there is no certainty that they will be exploited in the foreseeable future.

| 2. | The balance of the losses for tax purposes of consolidated companies amounts to approximately NIS 13.2 billion as of December 31, 2014, and deferred taxes have not been recorded in respect of NIS 11.2 billion of these losses since there is no certainty that they will be utilized in the foreseeable future.

| G. | In 2013, the Group recognized a deferred tax asset in an amount of NIS 108 million and a deferred tax liability in an amount of NIS 15 million, in respect of timing differences relating to Given and in respect of unexploited tax losses, which are expected to be exploited at the time of the completion of the transaction that is mentioned in note 3.H.6.a above. As a result, in 2013 the Group recorded net deferred tax income of NIS 100 million (the Company's share of the aforesaid income amounted to NIS 23 million) and a capital reserve on translation differences of NIS 5 million, which is attributed to the Company. In 2014, the Group recorded a reversal of the amounts of the aforesaid deferred taxes on the date of the actual disposal of Given.

| H. | Further to what is stated in note 3.H.3.a above with regard to a program for the split of Shufersal’s real estate, the spin-off was made as a split exempt from Income Tax and Land Appreciation Tax pursuant to the provisions of part E2 of the Income Tax Ordinance and subject to the terms provided therein. The main restrictions that were imposed on Shufersal Real Estate and Shufersal as a result of the spin-off, which mostly end on March 31, 2015, mainly concern the issue of the shares of the Shufersal Real Estate Company and the sale of assets by Shufersal Real Estate, and reduced Income Tax and an exemption from real estate taxation for real estate for which construction has not yet begun or real estate/branches whose construction is in progress and where the utilized building rights, prior to the spin-off, were less than 30% of the building rights that can be utilized.

IDB Development Corporation Ltd. Convenience translation
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Note 32 – Taxes on income (cont.)

| I. | Deferred tax assets and liabilities

1. Deferred tax assets and liabilities that have been recognized
The deferred taxes in respect of companies in Israel have been calculated in accordance with the tax rate that is expected to apply at the time of the reversal, as detailed above. Deferred taxes in respect of the subsidiary companies that operate outside of Israel have been calculated in accordance with the tax rates that are relevant in each state.

|  | Fixed assets |  |  | Employee benefits |  |  | Financial instruments |  |  | Deductions and losses carried forward for tax purposes |  |  | Intangible assets |  |  | Investment property |  |  | Others |  |  | Total |
|  | NIS millions |
Movement in deferred tax assets (liabilities): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance as of January 1, 2013 |  |  | (437 | ) |  |  | 84 |  |  |  | (179 | ) |  |  | 475 |  |  |  | (659 | ) |  |  | (866 | ) |  |  | 79 |  |  |  | (1,503 | )
Changes reflected in the statement of income |  |  | 20 |  |  |  | 9 |  |  |  | 125 |  |  |  | 208 |  |  |  | 18 |  |  |  | (330 | ) |  |  | (41 | ) |  |  | 9 |
Changes reflected in the statement of other comprehensive income |  |  | 6 |  |  |  | (4 | ) |  |  | 1 |  |  |  | (7 | ) |  |  | - |  |  |  | 7 |  |  |  | 9 |  |  |  | 12 |
Business combinations |  |  | - |  |  |  | - |  |  |  | (1 | ) |  |  | 10 |  |  |  | (3 | ) |  |  | - |  |  |  | 1 |  |  |  | 7 |
Changes as a result of a change in the tax rates |  |  | (25 | ) |  |  | 3 |  |  |  | (1 | ) |  |  | 11 |  |  |  | (32 | ) |  |  | (45 | ) |  |  | 8 |  |  |  | (81 | )
Discontinuation of consolidation and disposal groups that are held for sale, net |  |  | (4 | ) |  |  | (39 | ) |  |  | 62 |  |  |  | (121 | ) |  |  | 335 |  |  |  | 23 |  |  |  | 1 |  |  |  | 257 |
Balance as of December 31, 2013 |  |  | (440 | ) |  |  | 53 |  |  |  | 7 |  |  |  | 576 |  |  |  | (341 | ) |  |  | (1,211 | ) |  |  | 57 |  |  |  | *(1,299 | )
Changes reflected in the statement of income |  |  | (16 | ) |  |  | 7 |  |  |  | (109 | ) |  |  | 134 |  |  |  | 48 |  |  |  | (199 | ) |  |  | 7 |  |  |  | (128 | )
Changes reflected in the statement of other comprehensive income |  |  | (11 | ) |  |  | 7 |  |  |  | (4 | ) |  |  | 40 |  |  |  | - |  |  |  | (52 | ) |  |  | (8 | ) |  |  | (28 | )
Balance as of December 31, 2014 |  |  | (467 | ) |  |  | 67 |  |  |  | (106 | ) |  |  | 750 |  |  |  | (293 | ) |  |  | (1,462 | ) |  |  | 56 |  |  |  | *(1,455 | )

IDB Development Corporation Ltd. Convenience translation
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Note 32 – Taxes on income (cont.)

| I. | Deferred tax assets and liabilities (cont.)

| 1. | Deferred tax assets and liabilities that have been recognized (cont.)

|  | As of December 31, 2014 |
|  | Fixed assets |  |  | Employee benefits |  |  | Financial instruments |  |  | Deductions and losses carried forward for tax purposes |  |  | Intangible assets |  |  | Investment property |  |  | Others |  |  | Total |
|  | NIS millions |
Deferred tax assets |  |  | 40 |  |  |  | 70 |  |  |  | 19 |  |  |  | 750 |  |  |  | 5 |  |  |  | - |  |  |  | 99 |  |  |  | 983 |
Deferred tax liabilities |  |  | (507 | ) |  |  | (3 | ) |  |  | (125 | ) |  |  | - |  |  |  | (298 | ) |  |  | (1,462 | ) |  |  | (43 | ) |  |  | (2,438 | )
Total |  |  | (467 | ) |  |  | 67 |  |  |  | (106 | ) |  |  | 750 |  |  |  | (293 | ) |  |  | (1,462 | ) |  |  | 56 |  |  |  | (1,455 | )*

| * | Presented in the Statement of Financial Position.

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Deferred tax assets |  |  | 53 |  |  |  | 157 |
Deferred tax liabilities |  |  | (1,508 | ) |  |  | (1,456 | )
|  |  | (1,455 | ) |  |  | (1,299 | )

IDB Development Corporation Ltd. Convenience translation
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Note 32 – Taxes on income (cont.)

| I. | Deferred tax assets and liabilities (cont.)

| 2. | Timing differences for which deferred taxes have not been recognized

Deferred tax assets have not been recognized in respect of the following timing differences:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Deductible timing differences |  |  | 11,472 |  |  |  | 11,698 |
Losses for tax purposes |  |  | 17,084 |  |  |  | 19,334 |
|  |  | 28,556 |  |  |  | 31,032 |

Deferred tax assets have not been recognized in respect of these timing differences, since it is not expected (less than 50%) that the timing difference will reverse in the foreseeable future and nor will there be chargeable income in the foreseeable future, against which it will be possible to exploit the tax benefits.
No deferred tax liability has been recognized in respect of timing differences in an amount of NIS 776 million (2013 – NIS 1,557 million), relating to investments in investee companies, since the decision as to whether to sell those companies lies in the Group's hands and the Group intends not to dispose of them in the foreseeable future or where the assessment is that the chances of disposing of them are less than 50%. The said timing differences do not include timing differences relating to subsidiary companies of the Company and in respect of which the Group has the ability to control the manner of their reversal.
The said amounts have been calculated on the basis of the difference between the cost of each investment for tax purposes and the value of that investment as recorded in the accounting records – all of which has been calculated at the level of the investor company, without adjustments to the level of the Company as a result of balances of goodwill and surplus costs, which relate to the Company's investment in Discount Investments and which relate to the operations of Cellcom, Shufersal, Property and Building, and Adama, as stated in note 3.F above.
IDB Development Corporation Ltd. Convenience translation
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Note 33 - Related and Interested Parties2 9

Before the approval of the IDB Holdings debt arrangement, the Company was fully owned by IDB Holdings. On January 22, 2014, the shares of the Company, which had been held until that time by IDB Holdings directly, were transferred such that they were held by IDB Holdings through the trustees of the debt arrangement. On May 7, 2014, the first stage of the debt arrangement in IDB Holdings was completed, and in it, inter alia, on May 8, 2014, shares of the Company that constituted 53.3% of the issued and paid-up share capital of the Company were transferred to Dolphin Netherlands B.V., which is (indirectly) controlled by Dolphin Fund Limited (a corporation controlled by Mr. Eduardo Elsztain) and Mr. Eduardo Elsztain, and to CAA Extra Holdings Ltd., a Company fully owned by Mr. Mordechai Ben-Moshe, in equal shares, and the (indirect) control of the Company passed to Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe. At the same time, the trustees of the debt arrangement began to be regarded as interested parties in the Company by virtue of their holdings in shares of the Company, which constitutes at that time 20.75% of the issued capital of the Company, in trust. As of the date of publishing the report, the trustees of the arrangement are no longer interested parties by virtue of holdings.

A. | Insignificant transactions that are not extraordinary

| 1. | The Audit Committee (and in previous years, the Company’s Board of Directors) determined guidelines and rules for classifying a transaction of the Company or of its subsidiary with an interested party as an insignificant transaction as provided in regulation 41(a3)(1) of the Securities Regulations (Annual Financial Statements) 5770 - 2010 (“the Financial Statements Regulations”). These rules and guidelines are used to examine the scope of the disclosure required in a periodic report and in the prospectus (including in shelf prospectus reports) with respect to a transaction of the Company, an entity controlled by it and a related company with a controlling shareholder or in which the controlling shareholder has an interest in the approval of the aforementioned transaction, as specified in regulation 22 of the Securities Regulations (Periodic and Immediate Reports), 5730 - 1970 (“the Periodic Reports Regulations”) and in regulation 54 of the Securities Regulations (Details of a Prospectus and Draft of a Prospectus – Structure and Shape), 5729 - 1969 (hereunder – “the Prospectus Details Regulations”), for examining the need to provide an immediate report on the said transaction of the Company as specified in regulation 37A(6) of the Periodic Reports Regulations, for the purpose of approving transactions with a controlling owner or in which the controlling owner has a personal interest, which are not extraordinary and are not negligible, pursuant to the provisions of section 117(2a) of the Companies Law and for the purpose of approving negligible transactions with an interested party or in which an interested party has a personal interest (all of which as stated in section 126 of the company’s Articles).3 0 (The types of transactions specified in the aforementioned Financial Statement Regulations, Periodic Reports Regulations and Prospectus Details Regulations are hereafter referred to as “interested party transactions”).

These rules are used in connection with transactions between the Company and related parties and between related parties inter se. The aforementioned rules and guidelines were updated in March 2010 and May 2010.
252

| Note 33 - Related and Interested Parties (cont.)

A. | Insignificant transactions that are not extraordinary (cont.)

| 2. | To the best of the Company’s knowledge, the Company and its subsidiaries conduct or conducted insignificant transactions that are not extraordinary with interested parties of the Company, such transactions between the Company and related parties of the Company, including among themselves (including joint transactions between companies in the Group), and they have commitments to conduct such transactions of the following types and characteristics:

(a) Transactions involving the receipt of banking and financial services from banks and financial institutions (including provident fund, pension fund and study fund management services); (b) insurance by insurers in the Clal Holdings Insurance Enterprises Group in all insurance branches (including employee loyalty insurance, insurance of assets, property and liabilities, executive insurance policies, professional liability insurance, etc.), and including insurance policies shared by the Company and/or IDB Holdings and/or additional companies of the Clal Holdings Insurance Enterprises Group and/or of the IDB Group. It is clarified that generally, when the exposure is not insignificant, most of the exposure is covered by reinsurance and/or is shared with independent third parties, and as a result, the payment of claims in respect of the aforementioned policies is mostly performed by those parties; (c) purchase and sale transactions of products, services and raw materials (such as communication products and services, call center services, computing and software services, food products, office supplies, paper and cardboard products, clothing, textile, transportation, hygiene products and supplemental cleaning and kitchen products, chemicals and plant protection products, including commissions in respect of such transactions and services); (d) sales and purchases of gifts and coupons (and/or the provision of subsidies for such transactions); (e) transactions for the purchase and/or rent and/or operating lease of motor vehicles; (f) transactions for the purchase and/or rental of commercial motor vehicles, trucks and generators; (g) transactions for the purchase of travel and tourism services in Israel and abroad and event production services; (h) transactions relating to the provision of legal services by a legal firm in which an interested party was a partner; (i) lease transactions for real estate assets and property management services; (j) computing and organizational consultation transactions; (k) management of provisions made in respect of employees; (l) garage services; (m) delivery and consignment services, packing and export services; (n) archive, warehouse management and logistics, transportation and lifting services; (o) administrative services; (p) garbage treatment, shredding, collection and recycling services; (q) irrigation and extermination services; (r) lease of advertisement areas; (s) supplying and/or distributing envelopes, newspapers, magazines and journals; (t) acquisition of subscribers to newspapers and magazines and for newspaper advertisements; (u) earthwork; (v) agency services with respect to insurance business performed by insurance agencies.
Some of the types of transactions mentioned above are relevant to previous years, relate to transactions with parties related to the former controlling shareholders of the Company and therefore are no longer relevant in 2014 and thereafter, as stated in the first footnote of this note. Since January 2014 (when control was taken from the former controlling owners of the Company), the vast majority of the transactions that are not extraordinary to which these rules are applied are transactions between the Company and parties related to the Company and inter se (including joint transactions between companies in the Group), and undertakings to carry out such transactions.

29 | It should be noted that (a) as part of the approval of the creditors’ arrangement in IDB Holding Corporation Ltd. By the court on January 5, 2014 (in accordance with the outline of Mr. Eduardo Elsztain and a corporation controlled by him (Dolphin Fund Limited) together with E.T.H. M.R.M. Extra Holdings Ltd. (which is controlled by Mr. Mordechai Ben-Moshe)), the control of IDB Holdings (and indirectly also the Company) was taken from the previous owners, Nochi Dankner, Shelly Bergman, Ruth and Isaac Manor and Avraham Livnat (including parties related to any of the above) (“the previous controlling shareholders”). Consequently, starting from the aforesaid date, the Company no longer regards transactions in which the previous controlling shareholders have or had a personal interest as transactions in which a current controlling shareholder in the Company has a personal interest or as transactions with related parties; (b) Until July 5, 2012, the date of completion of the sale of most of the Company's holdings in Clal

| Industries Ltd. (“Clal Industries”), Clal Industries was a (consolidated) subsidiary under the control of the Company. As from the aforesaid date and in respect of 2012 and 2013, and until March 6, 2013, Clal Industries, for the sake of caution and for the purpose of this note, is considered a related party of the Company. On March 6, 2013, IDB Development sold the rest of its holdings (approx. 10.6%) in Clal Industries. For the sake of caution, from March 6, 2013 until the end of 2013, transactions of the Company and/or of companies under its control with companies in the Clal Industries Group may have been considered transactions in which the controlling shareholder in the Company during the relevant periods (Mr. Avraham Livnat) might have a personal interest due to business ties of companies controlled by him with a company controlled by Clal Industries; and (c) as a result the appointment of a trustee for the Company’s holdings in Clal Holdings Insurance Enterprises, as described in note 3.H.5.b. above, the Company discontinued the consolidation of the financial statements of Clal Holdings Insurance Enterprises in the Company’s financial statements for the third quarter of 2013, and therefore, this note includes transactions of the Clal Holdings Insurance Enterprises Group with the Company and with its related parties in respect of 2013 and 2014.

30 | In this regard, the Audit Committee determined in March 2014 that transactions as aforesaid in which the controlling shareholder has a personal interest, which are not extraordinary or negligible, shall be approved by the Audit Committee, and in March 2015, the Audit Committee determined that transactions with an interested party or in which an interested party has a personal interest (all of which as stated in article 126 of the company’s Articles), which are negligible transactions, do not require approval of the Audit Committee and will be approved pursuant to the provisions of the law and the Articles. A banking corporation (Union Bank of Israel Ltd.) is considered, for the purpose of this note, an interested party of the Company as well as a related party to the Company and other companies in the IDB Group until 2013 (due to the fact that it is a corporation under the control of Mrs. Ruth Manor, who was one of the former controlling shareholders of the Company); Clal Finance Batucha, Epsilon Investment House Ltd. (“Epsilon”) and Clal Insurance Enterprises are considered interested parties of companies of the IDB Group and related parties of the Company and companies of the IDB Group during the periods relevant to this note.

IDB Development Corporation Ltd. Convenience translation
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Note 33 - Related and Interested Parties (cont.)

A. | Insignificant transactions that are not extraordinary (cont.)

| 2. | (cont.)

The Company and/or companies of IDB Group, as well as interested parties of the Company, received and/or receive, from time to time banking, financial and/or economic services (including handling and management of issuances and purchase/sale offers, issuance rating and underwriting services, credit agreements and credit facilities, purchasing of rights in funds, distribution and brokerage, portfolio management, investment consultation, economic and business consultation, hedge funds, management of deposits made in respect of employees, stock exchange member company services, index products, investment banking services, factoring, financing and mortgages, etc.) from the aforementioned banking corporation and/or from any of the aforementioned financial institutions, and from companies held by them.
Furthermore, from time to time, the Company, IDB Group companies and/or interested parties in the Company held and/or hold participation units in mutual funds managed by related parties and that were managed and/or that manage securities deposits and deposited and/or are depositing OTC deposits with Clal Finance Batucha and/or Epsilon and/or companies held by them.

| 3. | According to the covenants and guidelines, if no special qualitative considerations arise from the overall circumstances of the matter, an interested party transaction that is not an extraordinary transaction (i.e., it is executed in the ordinary course of business, at market terms and is not supposed to have a material effect on the profitability, assets or liabilities of the Company) will be considered insignificant if the relevant ratio calculated for the transaction is less than 0.5% and the amount of the transaction does not exceed NIS 8 million (with this amount being adjusted from time to time according to the rate of increase in the Consumer Price Index from the index known at the beginning of 2010). As of December 31, 2014, this amount stands at NIS 8.7 million (‘the amount of the negligibility ceiling”). In every interested party transaction that is being examined for insignificance, one or more of the ratios relevant to the specific transaction will be calculated on the basis of the most recent audited or reviewed consolidated financial statements of the Company: (a) for purchases of fixed assets (“non-current asset”) – the amount of the transaction compared to total assets in the statement of financial position that is included in the most recent consolidated financial statements of the Company; (b) for sales of fixed assets (“non-current asset”) – the gain/loss from the transaction compared to the average annual profit (meaning for four quarters) in the last 12 quarters for which audited or reviewed consolidated financial statements of the Company were published.

For this purpose, the gain/loss from the transaction and the profit/loss of each quarter are to be taken into consideration at their absolute value; (c) for financial liabilities – the volume of the transaction compared to total liabilities in the statement of financial position included in the most recent consolidated financial statements; (d) for purchases/sales of products (other than fixed assets) or services – the volume of the transaction compared to revenues from sales and services in the last four quarters for which audited or reviewed consolidated financial statements of the Company were issued. With respect to multi-year transactions, the scope of the transaction will be calculated for the purpose of evaluating the insignificance on an annual basis. For example, in a multi-year insurance transaction, the annual paid premiums will be calculated according to the scope of the transaction. In cases where the Company believes that all the aforementioned quantitative ratios are irrelevant to the insignificance examination of the interested party transaction, the transaction will be considered insignificant on the basis of some other relevant ratio to be determined by the Company, providing that the relevant ratio calculated for the transaction is less than 0.5%, and the amount of the transaction does not the amount of the negligibility ceiling. The qualitative examination of an interested party transaction may lead to classification of the transaction as a transaction that is not insignificant, notwithstanding the foregoing. Thus for example, an interested party transaction is usually not considered insignificant if it is perceived by management of the Company as being a significant event and is a basis for making management decisions, or if interested parties are expected to receive from the interested party transaction benefits that it is important they be reported to the public. Separate interested party transactions that are inter-dependent, so that they are in fact a part of the same engagement (such as concentrated negotiations regarding all the transactions) shall be examined as one transaction.
IDB Development Corporation Ltd. Convenience translation
254

Note 33 - Related and Interested Parties (cont.)

A. | Insignificant transactions that are not extraordinary (cont.)

| 3. | (cont.)

An interested party transaction that was classified as insignificant by an investee company of the Company will also be considered insignificant at the level of the Company.
Each year, the Company’s Audit Committee shall review the implementation of the instructions of these covenants and guidelines by the Company, and shall conduct a sample examination of transactions in which the Company is a direct party and which were classified as insignificant transactions according to the instructions of the procedure. As part of the sample assessment of such transactions, the Audit Committee shall review, among other things, the manner in which the prices and other terms of the transactions were determined, under the circumstances of the matter, and shall assess the impact of the transaction on the financial position and results of operations of the Company. The actions of the Audit Committee as set out in this paragraph, including the aforementioned sample assessment, the manner in which the assessment was made and a summary of the results and conclusions of such assessment shall be disclosed in the periodic report of the Company. Accordingly, the sample assessment was presented before the Company's Audit Committee in March 2015, together with the method by which it was performed and a summary of its results and conclusions, as follows: a list was presented of transactions that the Company executed itself (solo) with related companies in 2014, during the relevant periods, including the name of the related party, the nature of the engagement and the amount of the transaction in the aforesaid year. A sample of such transactions was also analyzed and compared with price proposals that were received from third parties at the time of examining the transactions in question. The Audit Committee of the Company will examine the need to update the aforementioned procedure from time to time, taking into account the interested party transactions that the company makes and changes in the relevant provisions of the law, and it will require the approval of the Audit Committee at least once a year.

| 4. | The classification of a transaction as insignificant was made on the basis of the aforementioned covenants and guidelines that were valid on the date of the transaction, as relevant.

In this note, for the purpose of identifying interested parties and identifying transactions with related parties or transactions in which interested parties have a personal interest, as a rule transactions with third parties were not taken into account because of the fact that securities of those third parties are held by financial institutions that are directly or indirectly controlling by the Company as part of holdings that are not nostro holdings (such as provident funds, trust funds), and therefore this note also does not include details of transactions and balances with third parties as aforesaid. Furthermore, this note does not provide disclosure of transactions with subsidiaries that are not reflected in these consolidated financial statements (other than extraordinary transactions that occurred in 2014 or are ongoing).
IDB Development Corporation Ltd. Convenience translation
255

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date

| 1. | Until 2014 (inclusive), the Company and IDB Holdings shared manpower that served in both companies (except for employees who were employed in IDB Holdings itself (the former Chairman of the Board and the former Executive VP’s of IDB Holdings), in accordance with an arrangement which was approved by the general meeting of the Company’s shareholders in January 2004, after approval by its Audit Committee and Board of Directors (“the manpower arrangement”), regarding the distribution of the payroll expenses paid to the shared manpower. In accordance with the manpower arrangement, the Company is the employer of the relevant employees, and IDB Holdings participated in their manpower expenses at the rate of 20% from the said expenses, up to an annual maximum amount which amounted, as of May 2014, to NIS 23.4 million. The manpower arrangement also stipulated that it did not apply to any payments paid by the Company to the Chairman of the Board of the Company and/or his deputies, and it provides, after an amendment to the manpower arrangement was approved in March 2011 by the Board of Directors of the Company, after having been approved by the Company's Audit Committee, that when Mr. Haim Gavrieli begins to serve as the Company’s CEO on April 1, 2011, the manpower arrangement would also apply to amounts paid by the Company to the Company’s CEO as from that date.

It should be noted that the Company did not charge IDB Holdings as part of the aforementioned arrangement with respect to the employment of the Company’s CFO, whose employment in the Company began in January 2014, and who does not serve as an officer in IDB Holdings.

| For the period from January 1, 2014, until May 2014 (inclusive), the Company paid expenses for joint manpower in a sum of NIS 4.6 million; IDB Holdings contributed to these expenses in an amount of 20%, i.e., a sum of NIS 0.92 million. In addition, IDB Holdings paid the Company a sum of NIS 410 thousand, which constitutes 20% of the amounts of provisions for the termination of employment relations, vacation and holiday pay for the joint manpower, which were recorded in the Company’s books.

In the years 2013 and 2012, the Company paid expenses for the joint manpower in a sum of NIS 16.28 million and NIS 18.96 million, respectively, and IDB Holdings paid NIS 3.26 million and NIS 3.79 million of those amounts, respectively.

| According to understandings reached between the Company and IDB Holdings, since June 2014 the aforesaid agreement and the arrangement stated in subsections (2) and (3) below no longer apply, and new consents apply between the Company and IDB Holdings, according to which IDB Holdings pays from that time fixed monthly amounts for management services that are provided by the Company to IDB Holdings. For the period from June 1, 2014, until December 31, 2014, IDB Holdings paid the Company a sum of NIS 850 thousand for the management services. On March 30, 2015, the Audit Committee and the Board of Directors of the Company approved the Company’s transaction with IDB Holdings (through the trustees of the arrangement) in the agreement (in this section b – “the Management Services Agreement”), according to which management services will be provided to IDB Holdings by the Company or someone acting on its behalf (“the service providers”), from January 1, 2015, until August 31, 2015 (or earlier, insofar as the sale of the shelf corporation of IDB Holdings will be completed before that date). as part of the Management Services Agreement, there are provisions, inter alia, with regard to granting a release from liability, pursuant to the law, to the service providers for any damage resulting from a breach of a duty of care in an act done in gone faith when providing the services, starting from January 2014. The Management Services Agreement is subject to the approval of the court. For providing the services pursuant to the Management Services Agreement, IDB Holdings shall pay the Company for the first quarter of 2015 a fixed monthly sum of NIS 80 thousand (plus VAT) and for the remainder of the months until the agreement ends, a fixed monthly sum of NIS 65 thousand (plus VAT).

IDB Development Corporation Ltd. Convenience translation
256

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 2. | Until May 2014 (inclusive), the Company and IDB Holdings had arrangements that were approved by the general meeting of the Company’s shareholders in January 2004, after having been approved by the Company's Audit Committee and Board of Directors, as follows:

| a. | The Company paid the office expenses, property insurance, employers liability, third party responsibility and employees fidelity, refreshment and entertainment expenses and related expenses (“the additional expenses”), and IDB Holdings participated in these expenses at the rate of 20% (up to an annual maximum amount of NIS 310 thousand, linked to the CPI, with the addition of 20% per annum of this amount beginning from January 1, 2004; as of May 31, 2014, the aforesaid maximum amount was NIS 2.59 million). In 2014 (up to and including May 2014), the Company and IDB Holdings paid the additional expenses in a total amount of NIS 0.68 million, of which the Company’s share was NIS 0.55 million (in 2013 and 2012, the total amount of the additional expenses stood at NIS 1.72 million and NIS 1.99 million, respectively, of which the Company’s share was NIS 1.38 million and NIS 1.59 million, respectively).

| b. | The Company paid IDB Holdings, for each year (up to and including May 2014), 80% of the annual depreciation of the furniture and equipment (“the furniture and equipment”) owned by IDB Holdings which serve both companies at the Azrieli Center in Tel Aviv (up to an annual maximum of NIS 640 thousand, linked to the CPI, that increases each year by 20%, as from January 1, 2004; as of May 31, 2014, the aforesaid maximum amount was NIS 5.3 million). For this purpose, it should be noted, that the annual amount of the depreciation on the furniture and equipment, based on figures in the books of IDB Holdings as of May 31, 2014, amounted to NIS 8.6 thousand (in 2013 and 2012, the amount stood at NIS 23.3 thousand and NIS 29.7 thousand, respectively). The Company and IDB Holdings split the amount so that the Company paid 80% and IDB Holdings paid 20%.

| As stated in subsection 1 above, according to the understandings reached between the Company and IDB Holdings, starting from June 2014, the aforesaid arrangements no longer apply, and new consents apply between the Company and IDB Holdings according to which IDB Holdings pays from that date fixed monthly amounts for management services that are provided by the Company to IDB Holdings.

| 3. | a. | In August 2004 the Company entered into an agreement with Clal Industries (through a wholly-owned subsidiary)3 1, as well as with DIC and Property & Building, regarding the division of the use of the space leased by the Company at the Azrieli Center in Tel Aviv that includes offices, parking spaces and storage space, which is used by the said companies as well as the Company (“the leasehold”), and regarding the breakdown of the rental and related fees in respect of the leasehold as from May 1, 2004 (“the expense breakdown agreement”). The Company’s undertaking in the Expense Breakdown Agreement was approved by the general meeting of the Company’s shareholders in September 2004, after it was approved by its Audit Committee and Board of Directors. The Expense Breakdown Agreement provides, inter alia, that additional companies of the IDB Group may request to join the arrangements between the parties, following which, at the terms provided in it. In July 2005, K.B.A. Townbuilders Group Ltd. (a company which was controlled by Clal Industries and was held by Property & Building) joined the Expense Breakdown Agreement;3 2 as of September 2006, Koor joined the Expense Breakdown Agreement; and as of May 2010, Modiin – Energy Management (1992) Ltd., a company controlled (indirectly) by the Company, joined the agreement3 3 (the aforesaid companies together with the Company, Clal Industries, DIC and Property & Building are hereinafter called: “the participating companies”).

31 | As at January 1, 2014, this agreement was assigned to Clal Industries Ltd., with the consent of the parties to the agreement.

32 | It is noted that in August 2013, Property & Building sold its holdings in this company, and as from September 30, 2013, this company does not make use of the leasehold, and accordingly, does not participate in the distribution of expenses.

33 | After the date of the Statement of Financial Position, the Company and Modiin – Energy Management (1992) Ltd. reached understandings with regard to a past debt of Modiin that was in dispute with regard to this agreement.

IDB Development Corporation Ltd. Convenience translation
257

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

3. | a. | (cont'd)

| Under the Expense Breakdown Agreement, the Company places parts of the leasehold at the disposal of the participating companies and each one of the participating companies bears the relative share of the rental and related expenses pertaining to the leasehold, on the basis of the ratio of the number of employees employed by that company in the leasehold’s premises, to the total number of employees employed by all of the participating companies in the office space, without taking into consideration the operating staff that serves all the participating companies in the leasehold’s premises and the payment for parking spaces and storage space included in the leasehold, which is based on the space actually used by each company.

The Expense Breakdown Agreement stipulated, inter alia, that for purposes of its directives, employees of IDB Holdings would be considered as if they were employees of the Company (other than two former joint CEOs of Clal Industries who were employees of IDB Holdings who were considered employees of Clal Industries for this purpose; as at the reporting date, there are no employees employed by IDB Holdings). It should be noted that IDB Holdings participated in the Company’s expenses up to and including May 2014, in accordance with the arrangement that existed between it and the Company as described in subsection b below.
The first lease period of the leasehold ended on March 31, 2011. In February 2011, after approval by the Company’s Audit Committee and Board of Directors, the Company’s general meeting of shareholders approved extending the lease period for an additional period of 60 months ending on March 31, 2016 at lower lease payments, and in accordance with the Expense Breakdown Agreement it was approved to extend it for the same period too. The other participating companies have also provided their approval, based on decisions of their competent organs and as relevant. Furthermore following the provisions of Amendment 16 of the Companies Law (“Amendment 16”), in November 2011 the Audit Committee of each of Clal Industries, Discount Investments and Property & Building decided that the period of the Expense Breakdown Agreement, as was extended as aforementioned, is reasonable in the circumstances of the matter.
In respect of each of the years 2014, 2013 and 2012, the Company’s share of the rent and ancillary payments as stated above amounted to NIS 3.1 million, NIS 4.1 million and NIS 4.5 million, respectively, and after the participation of IDB Holdings as described in section (b) below for the period up to May 2014 (inclusive), the Company paid a sum of NIS 2.8 million, NIS 3.3 million and NIS 3.6 million, respectively, out of the aforesaid payments.

| b. | In January 2004, after receiving the approval of the Company’s Audit Committee and Board of Directors, the general meeting of the Company’s shareholders approved arrangements between the Company and IDB Holdings regarding the breakdown of the rental and related payments in respect of certain areas the Company leases at the Azrieli Center in Tel Aviv (as described in section (a) above). In accordance with these arrangements, commencing on January 1, 2004, the Company paid 80% of the rental and related payments that were payable by it in accordance with the arrangements described in subsection a above, while IDB Holdings paid 20% of the said amounts, until May 2014 (inclusive). Since June 2014, new consents have come into effect between the Company and IDB Holdings (through the trustees of the arrangement), according to which IDB Holdings pays fixed monthly amounts (for further details, see subsection 1 above).

IDB Development Corporation Ltd. Convenience translation
258

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 4. | In December 2005, after receiving the approval of its Audit Committee and Board of Directors, the Company’s general meeting approved the registration of the Company and of a wholly owned subsidiary as a “single dealer” together with IDB Holdings in accordance with the Value Added Tax Law, 5736 - 1975. The registration as a single dealer is not supposed to change the overall tax liability of the consolidated dealers. Nevertheless, such a registration creates a partnership for VAT purposes that can create a joint obligation of the single dealer for all the debts accumulated in the consolidation period by each one of the dealers included in the dealers’ consolidation. The Company and IDB Holdings have undertaken towards each other (“the other company”) to indemnify the other company for any amount the other company is required to pay (if at all) by the tax authorities, which is due to a debt not relating to a transaction executed by the other company, and therefore the other company is not required to pay VAT on it at source. In June 2014, the registration of the Company and IDB Holdings as one dealer as aforesaid was separated, and each of the companies was registered as a separate dealer. As of the date of separating the registration as aforesaid and as of the date of publishing the report, there were no liabilities between the Company and IDB Holdings. However, in view of the state of IDB Holdings, it is possible that the Company will have an exposure in an immaterial amount for the aforesaid.

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors

| a. | Officers’ liability insurance:

| The liability of the officers of the Company, IDB Holdings and some of their investee companies, including officers who and/or whose relatives are controlling shareholders of the Company, was and is insured by several insurance policies as stated in this note below:

| The July 2013 decisions – In July 2013, the general shareholders’ meeting of the Company approved (after approval was given by of the Company’s Remuneration Committee and Board of Directors) entering into transactions, from time to time, of the Company, IDB Holdings and most of the private corporations held by them (not through public companies) (“the IDB Holdings Division”) in insurance policy/policies, which will be shared by the companies of the IDB Holdings Division, or which will be separate for any of them, for a number of insurance periods which will not cumulatively exceed three years, beginning on August 1, 2013, which will include officers’ liability insurance, including officers and/or relatives of such officers who are controlling shareholders in the Company, in which the controlling shareholder of the Company have a personal interest in their service / employment, as these will be from time to time during those periods, whereby such engagements may also be made by way of extending, from time to time, existing policies, in whole or in part, including by changing the terms of the policies which will be extended, as aforesaid, and/or by ways of purchasing insurance cover for a period of up to two years after the end of the policy which ended with respect to claims which will be filed for the first time after the end of that policy, in respect of actions which were performed before the end of the policy period (meaning, the purchase of a “disclosure period” for a period of up to two years), in the event of non-renewal or cancellation of an existing policy - in accordance with the principal terms of the agreement specified in the decisions of July 2013, including, inter alia, a total maximum liability limit of up to $ 140 million, per claim and cumulatively for the insurance period, as well as a limit applicable to the annual premiums for any insurance year which will not exceed $ 1 million for the policy shared by the companies of the IDB Holdings Division, with the addition of 20% per year (whereby, out of the above amount, the share of each one among IDB Holdings and the Company (along with the rest of the shared companies) will not exceed half of the relevant amount per year), or a total of $ 800 thousand per policy in case of a separate policy for each IDB Holdings and the Company (with or without additional private headquarter companies) for a given insurance year, with an increase of 20% per year. Moreover, such insurance policies can be issued by insurers controlled by Clal Insurance Enterprise Holdings, including its subsidiary Clal Insurance Company Ltd.

IDB Development Corporation Ltd. Convenience translation
259

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| a. | Officers’ liability insurance: (cont.)

| (“Clal Insurance”), and in such a case (as long as Clal Holdings Insurance Enterprises is controlled by the Company), the insurer will not be involved in determining the insurance premium for those policies by the reinsurers, and the amount of the handling fees that will be paid to the insurer shall not deviate from what is accepted in the insurance market for transactions of such a type and scope as of the date of the transaction, and shall not exceed 10% of the premiums paid for the aforesaid policies.

“A run-off type policy” – in November 2013, the general meeting of the Company (after approval of its Remuneration Committee and Board of Directors) approved the purchase of insurance cover whereby, starting from the end of the insurance period of the officers’ liability insurance policies that existed at that time, i.e., from December 1, 2013 (“the effective date”), policies that were valid until that date will be expanded so that they will provide insurance cover for an additional period of six years (“the extended discovery period”) with regard to claims that will be filed for the first time during the aforesaid period only for acts that were done before the effective date – i.e., converting the policies into run-off type policies for a period of six years from the effective date. The total insurance premium paid by the companies of the IDB Holdings division on a one-time basis for the purchase of the aforesaid insurance cover amounted to a cost of approximately $2.17 million, which includes the fronting fees of the insurer (which is an insurer controlled by Clal Holdings Insurance Enterprises) in an amount of 10%, where the Company paid half of the cost. The liability limits of the existing policies, in a total amount of $140 million, will remain unchanged and will continue to apply also with regard to the extended discovery period.
As the Company has been told, meetings of the bondholders of IDB Holdings that were convened by the trustees for its bondholders in order to adopt a resolution on this matter resolved to agree to the purchase of the aforesaid insurance cover.

| It should be noted that the aforementioned decisions regarding the Company’s engagements in officer’s liability insurance policies were also approved on the dates specified above by the general shareholders’ meeting of IDB Holdings (after approval by its Remuneration Committee and Board of Directors).

| The 2013-2014 policy – According to the decisions of July 2013, companies of the IDB Holdings Division purchased an officers’ liability insurance policy with respect to the period of one year beginning on December 1, 2013, the terms of which are in accordance with the principal terms of the engagement as determined in the resolutions from July 2013, with liability limits of $ 50 million per incident and cumulatively, at a total cost of $990 thousand (the Company paid half of the cost).

| As part of the aforesaid policy, it is stipulated inter alia that the provision regarding “transaction” events (as mentioned below) will not apply with respect to any event which was under the auspices of the Court’s decision. Following the taking out of a kind of “run off” type policy, the coverage under the policy was limited solely to claims that will be filed during the insurance period for acts done after December 1, 2013.

| In this regard, a ‘transaction’ event is one of the following events: (1) a consolidation or merger into another entity or a sale of the main assets to another; (2) a purchase by any person or entity (whether separately or together with others) of more than 50% of the voting rights or the right to appoint directors; (3) becoming a subsidiary of another entity or a change of control; or (4) insolvency, receivership, bankruptcy or liquidation.

IDB Development Corporation Ltd. Convenience translation
260

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| a. | Officers’ liability insurance: (cont.)

| Changes in the 2013-2014 policy – On the date of completing the creditors’ arrangement in IDB Holdings and listing the shares of the Company on the Stock Exchange, the Company ceased to be a subsidiary of IDB Holdings, and in the absence of a change of the aforesaid policy, the policy was not to cover the officers of the Company for acts during the remainder of the insurance policy.

| In view of the aforesaid, the Company and IDB Holdings entered into an agreement on May 7, 2014, with regard to changes in the policy that relate to settling the continued insurance cover of officers in the Company, according to which the cover will continue to apply as it was at the time that the Company was a subsidiary of IDB Holdings during the balance of the insurance period of the policy, provided that liability for the listing of the Company’s shares on the Stick Exchange will be excluded and liability for the expected publication of the shelf prospectus by the Company and the issues of securities pursuant thereto will be excluded (‘the agreement’). This agreement was signed following the Remuneration Committee, the Audit Committee and the Board of Directors of the company gave its approval on May 5, 2014, and the general meeting of the Company gave its approval on May 7, 2014, for the Company to enter into the agreement.

| The main points of the agreement are as follows: (a) the IDB Development Group (the Company and specific subsidiaries stated above, jointly: ‘the IDB Development Group’) will continue to be insured in accordance with the policy even after the Company has stopped being a subsidiary of IDB Holdings; (b) IDB Holdings undertook that throughout the whole insurance period, it would not cancel the policy and/or cause it to be cancelled or change its terms in any way that will derogate from the insurance cover provided by the policy to the IDB Development Group and/or to the officers in the Company. IDB Holdings and the Company undertook, inter alia, that throughout the whole of the insurance period they would not act in a manner that will derogate from the insurance cover that is provided by the policy or in any manner that will prejudice their rights and the rights of the policyholders pursuant to the policy, and that they will assist one another with regard to the realization of their rights as part of the policy, insofar as their involvement is required pursuant to the terms of the policy, and they confirmed that subject to the law and without derogating from any right of the insured pursuant to the policy, they will coordinate between them a request to an insurance company with regard to the policy in the case of a claim that includes claims both against the officers and/or the directors in IDB Holdings and against the officers in the Company; (c) the policy will be changed in such a way that the liability of the insurer with regard to the listing of the Company’s shares on the Stock Exchange or with regard to the expected publication of the shelf prospectus and the issue of securities will pursuant thereto will be excluded by the Company; (d) the Company and IDB Holdings will act to reach an agreement between them, with regard to the insurance cost according to the policy from the date of completing the arrangement, taking into account the significance of the creditors’ arrangement and in it the scope of the assets of the group under the Company as compared with the scope of the activity and the assets of IDB Holdings after the completion of the creditors’ arrangement. Pursuant to the agreement between the Company and IDB Holdings, whereby IDB Holdings paid 1/3 of the premium expenses, while the company paid 2/3 of the premium expenses (as opposed to an equal division between them), for the period starting on the day of completing the first stage of the debt arrangement, namely May 7, 2014, until the end of the insurance period. The consent of the insurers to the changes required in the policy (see sections (a) and (c) in the paragraph above) was received.

IDB Development Corporation Ltd. Convenience translation
261

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| a. | Officers’ liability insurance: (cont.)

| Changes in the 2013-2014 policy (cont.)

The total insurance premiums paid in 2014 by the Company and IDB Holdings in respect of all the aforesaid insurance policies amounted to NIS 5,805 thousand, broken down as follows: the Company – NIS 4,511 thousand, IDB Holdings – NIS 1,294 thousand (the officers’ liability insurance premiums paid in 2013 and 2012 were in accordance with the following distribution: the Company - 80%, and IDB Holdings - 20%, and the amount paid was NIS 9,899 thousand and NIS 1,211 thousand, respectively, of which the Company's share was NIS 5,099 thousand and NIS 825 thousand, respectively).
The handling fees paid to Clal Insurance for the issuance of the policies for 2014, 2013 and 2012 did not exceed 10% of the insurance premiums paid for the aforesaid policies.

| Remuneration policy – insurance – On November 13, 2014, the general meeting of the Company’s shareholders approved the Company’s remuneration policy, after it was approved by the Board of Directors of the Company. According to the remuneration policy, the officers of the Company (including directors) may be entitled, subject to the approval of the competent organs for this purpose in the Company, to officer’s liability insurance, subject to the provisions of every law. The remuneration policy states that the maximum cover for a current insurance policy shall not exceed $150 million and the maximum cover for an insurance policy of the POSI (“Public Offering of Securities Insurance”) type should not exceed $120 million (for details regarding POSI type insurance that was bought by the company in May 2014, see this section below).

It was further determined that in any case and irrespective of the maximum cover, the premiums paid for a current insurance policy would not exceed $1.5 million per annum, and the premiums paid for the POSI policy shall not exceed $1.5 million per annum, that the deductible in all of the policies will be in accordance with what is accepted in the market.
2014-2015 policy – On November 26, 2014, the Company’s Remuneration Committee entered into a directors’ and officers’ liability insurance policy for the Company and for certain private corporations that are held, directly and/or indirectly, by the Company other than through public companies, as part of while the liability of all of the officers in the Company (including the CEO of the Company and the directors and officers that are controlling shareholders in the Company and their relatives or ones where the controlling shareholders of the Company have a personal interest in their terms of office and employment), from time to time, will be insured, pursuant to the provisions of regulation 1.b.1 of the Companies (Concessions in Interest Party Transactions) Regulations, 5760-2000, for a period of a year, starting on December 1, 2014, and its terms are in accordance with the terms determined in the remuneration policy. The liability limits of the policy are a sum of NIS 75 million dollars per claim and cumulatively, and its total cost is approximately $986 thousand (including fronting fees of Clal Insurance at a rate of 10%). The Remuneration Committee determined that policy is in accordance with market terms and will not materially affect the Company’s profits, assets or liabilities. It should be noted in January 2015, the Company received the insurer’s approval that a transfer of control in the Company from the current controlling shareholders of the company to the control of one of them shall not constitute a transaction event pursuant to the definitions of the policy as stated above.
The cover pursuant to the 2013-2014 policy, the 2014-2015 policy and the "run-off type policy” was taken out through Clal Insurance, with the support of reinsurers in an amount of 100%.
IDB Development Corporation Ltd. Convenience translation
262

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| a. | Officers’ liability insurance: (cont.)

POSI type policies – on May 5, 2014, the Remuneration Committee, the Audit Committee and the Board of Directors of the Company gave their approval, and on May 7, 2014, the general meeting of the Company gave its approval, for the purchase of a policy to insure the company with Public Offering of Securities Insurance (POSI) (‘the POSI policy’), from Migdal Insurance Company Ltd., which insures the Company, its directors and officers: (1) with regard to the listing of the Company’s shares as part of the creditors’ arrangement in IDB Holdings; (2) with regard to the publication of a shelf prospectus; (3) and with regard to the issue of future securities by virtue of the shelf prospectus. The policy covers the company, its directors and officers for an insurance period of seven years starting from May 7, 2014, their liability for the listing of the Company’s shares on the Stock Exchange as part of the arrangement, in relation to the publication of the shelf prospectus and in relation to the issues of securities pursuant to the shelf prospectus as aforesaid, with a liability limit of $50 million per claim and cumulatively according to the policy. The POSI policy covers issues pursuant to the shelf prospectus in a total amount of up to NIS 1 billion. For the aforesaid policy the Company paid a one-time sum of $660 thousand.
On January 26, 2015, the Company’s Remuneration Committee (pursuant to the provisions of regulation 1.b.1), and the Board of Directors of the Company approved the purchase of additional insurance cover as part of the POSI policy, so that it will also apply to the rights issue pursuant to the shelf offer report that the Company’s published on January 19, 2015, without changing the existing liability limits (namely, $50 million per claim and cumulatively) and the other terms of the policy. For the aforesaid extension, the Company paid an additional one-time premium in a sum of $227.5 thousand.
b. Indemnification of officers:
The Company adopted resolutions according to which it will indemnify its officers (including former officers) and anyone holding office on its behalf in investees as director, for any amount that they will be liable to pay as part of any legal proceeding that will be filed against them with regard to their acts or omissions as part of carrying out their duties as aforesaid, subject to certain conditions, in any case and insofar as such an indemnification will be for a financial liability and of the type that may be indemnified according to the law from time to time. The Company issued letters of indemnification as aforesaid to several former officers of the company (“the initial letters of indemnification”). During 2000 and thereafter, the Company issued to its officers additional letters of indemnification, pursuant to the Companies Law, according to its wording at that time (without derogating from the initial letters of indemnification), according to which the Company undertook to indemnify them for any liability or expenses that may be indemnified according to law, which will be imposed on them as a result of acts that they did in their capacity as officers of the Company and that relate to one or more of the types of event determined by the Board of Directors and stated in the letters of indemnification.
According to the aforesaid letters of indemnification, the maximum amount of the indemnification that the Company will pay (in addition to the amounts that will be received from an insurance company, if any, as part of insurance that was bought by the Company) for all of the officers in the Company cumulatively, pursuant to the letters of indemnification that will be issued to them by the Company pursuant to the indemnification resolution by virtue of which the aforesaid letters of indemnification were issued, for one or more to the types of event stated in the Addendum to the letters of indemnification, shall not exceed 25% of the equity of the Company on December 31, 1999.
IDB Development Corporation Ltd. Convenience translation
263

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

b. Indemnification of officers: (cont.)
Following the enactment of the Companies Law (Amendment no. 3), 5765-2005 (“Amendment no. 3”), in May 2005 the general meeting of the shareholders of the Company, after the approval of its Audit Committee and Board of Directors, approved the giving of a prospective undertaking to indemnify officers in the Company, including officers from among the controlling shareholders, according to which the Company undertook, insofar as it is permitted to do so pursuant to law, to indemnify them for any liability or expense as stated in the letter of indemnification, that will be imposed on them or that they will incur as a result of acts that they did in their capacity as officers of the Company and/or in their capacity, at the Company’s request, as officers of any other company, which relate to the events stated in the Addendum to the letter of indemnification (“the 2005 letters of indemnification”). According to the 205 letters of indemnification, the maximum amount of the indemnification that the Company will pay for a financial liability that will be imposed on an officer in favor of another person, as stated above, together with the amounts of the indemnification on this ground pursuant to the other letters of indemnification that were or will be given for this purpose to officers in the Company and to employees of the Company that hold or will hold office at the Company’s request as officers of other companies (in addition to the amounts that will be received from an insurance company, if any, as part of insurance that the Company bought), cumulatively, for one or more of the events stated in the Addendum to the letters of indemnification, shall not exceed a cumulative amount that is equal to an amount of 25% of the Company’s equity according to its annual financial statements known before the actual payment of the indemnification.
Accordingly, since 2005, the Company has issued to its officers, including officers that were controlling shareholders of the Company or their relatives, 2005 letters of indemnification as aforesaid. It was also determined that the 2005 letters of indemnification would apply to event that occurred after the date of their approval as aforesaid, and to avoid doubt, it is clarified that the 2005 letters of indemnification do not derogate from letters of indemnification that were lawfully issued previously.
In December 2011, the general meeting of the Company approved an amendment to the Articles of Incorporation of the Company, according to which, inter alia, the Company is entitled to insure the liability of its officers and also to indemnify them, inter alia, pursuant to the provisions of the Streamlining of Enforcement Proceedings in the Israel Securities Authority (Legislative Amendments) Law, 5771-2011, and the Strengthening of Enforcement in the Capital Market (Legislative Amendments) Law, 5771-2011 (jointly, “the Administrative Enforcement Laws”). Moreover, the Company’s general meeting and its Audit Committee and Board of Directors approved the granting of new indemnification letters by the Company to its officers (“the new indemnification letters”), as this term is defined in the wording of the new indemnification letter, who currently hold office and/or will hold office in the Company from time to time, including officers who are directors, and officers who are controlling shareholders in the Company (as these were on the date of the general meeting that took place in December 2011) or their relatives or persons with regard to whom the controlling shareholders in the Company may be considered as having a personal interest in a grant of indemnification letters to them, in respect of their actions taken in their capacity as officers of the Company and their actions taken within their service, at the Company's request, as officers of any other company, in which the Company holds shares (directly or indirectly) or in which the Company has any other interest, in accordance with the provisions of the Companies Law, the Securities Law, the administrative enforcement laws, and the indemnification provisions included in the aforesaid indemnification letter.
IDB Development Corporation Ltd. Convenience translation
264

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

b. Indemnification of officers: (cont.)
In accordance with the new indemnification letters, the indemnification amounts for a monetary indebtedness that is imposed on an officer in favor of another person in a court ruling (including in a court ruling that was handed down in a court-approved compromise or arbitration award, providing that the said indebtedness is related, directly or indirectly, to one or more of the events specified in the new indemnification letter) together with the indemnification amounts for the said indebtedness that are paid to officers in the Company in accordance with indemnification letters drafted as a new indemnification letter, including officers serving presently or in the future as officers in other companies at the request of the Company, will in aggregate not exceed an amount equal to 25% of the equity attributable to the Company’s shareholders according to its most recent financial statements (annual or quarterly) that were issued before the actual date of paying the indemnity, plus the amounts of the insurance benefits the Company may receive from time to time, in the framework of an officers’ liability insurance policy, in respect of one or more of the events specified in an annex to the new indemnification letter. This in addition to the indemnification for reasonable litigation expenses, including attorney's retainer that will be spent or incurred by an officer for proceedings that will be filed against him, as described in the new indemnification letter.

| The new indemnification letter also provides that its provisions supersede any previous commitment or understanding (from before the signing of the new indemnification letters), provided verbally or in writing, between the Company and its officers with respect to the matters indicated in the new indemnification letter, also with respect to events that occurred before the signing of the new indemnification letter. The aforesaid is subject to the stipulation that the previous indemnification letter provided to the officer, if provided, continue to be in effect, subject to any law, with respect to any event that occurred before the signing of the new indemnification letter (even if the indemnification in respect of which was requested from the Company after the signing of the new indemnification letter) if the terms of new indemnification letter impair the terms of indemnification of the said officer with respect to such an event. It should be noted that in November 2011 the competent organs of IDB Holdings approved the grant of new indemnification letters as aforesaid by the Company (further to approvals of the competent organs of the Company) to officers of the Company, those presently serving and those who will serve in it from time to time, who are controlling shareholders in the Company (as these were on the date of the general meeting that took place in November 2011) or their relatives or persons where the controlling shareholders may be regarded as having a personal interest in approving the grant of indemnification letters to them or who are directors in IDB Holdings. Since the date of the meeting, the Company has issued to its officers, including officers that were controlling shareholders of the Company or their relatives, new letters of indemnification. as part of the remuneration policy that was approved as stated in section B.5.a above in this note, it was determined that the officers in the company (including directors) may be entitled, subject to the approval of the competent organs of the Company for this purpose, to a letter of indemnification, subject to the provisions of any law, and that the amount of the indemnification shall not exceed 25% of the Company’s equity (provided that this amount shall not be less than NIS 100 million in total).

IDB Development Corporation Ltd. Convenience translation
265

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

b. Indemnification of officers: (cont.)

| As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the company published an immediate report for convening a special general meeting of the company, at which the agenda will include approval of the granting of letters of indemnification from the company for the officers that hold office in the Company and/or that will hold office in the Company from time to time, and who and/or whose relatives are controlling shareholders in the Company on the date of the report, and also for officers in the Company whose controlling owners in the Company may be regarded as having a personal interest in the approval of granting letters of indemnification to them, who hold office and/or will hold officer in the Company from time to time, for their operations by virtue of their office in the Company and for their operations by virtue of their office, at the request of the company, as officers in another company, in which the Company holds shares (directly or indirectly) or in which the Company has any interest, with the wording and on terms that are identical to the wording of the letter of indemnification used by the Company, which came into effect on May 7, 2014 (the date of completion of the first stage of the debt arrangement in IDB Holdings).

| c. | Release of officers:

The Company issued prospective letters of release to the directors and other officers of the Company, including those that were controlling shareholders or their relatives, from any liability towards the Company, subject to the law, in respect of any damage that was and/or will be caused to the Company following a breach of the duty of care towards it, while acting in good faith in their capacity as officers of the Company, and/or according to its request in any other company, with respect to the events stipulated in the addendum to the release letter. The release letters apply to events that occurred after the date of their approval. The issuance of the release letters, as described above, was approved by the Company’s general shareholders’ meeting on May 5, 2005, after prior approval by its Audit Committee and Board of Directors. In November 2011, after approval by its Audit Committee and Board of Directors, and in light of the provisions of Amendment 16, the general meeting of IDB Holdings reapproved the Company giving an advance release from liability to its officers, those presently serving and those who will serve in it from time to time, who and/or whose relatives are controlling shareholders in the Company (as they were on the date of the general meeting of IDB Holdings that took place as aforesaid in November 2011), subject to the provisions of the law.
Furthermore, in November 2011 the Audit Committee of IDB Holdings decided to limit until November 30, 2020 (meaning for an additional period of nine years from the date of the decision) the period that events occurring during it will be included in the scope of the release from liability letters that were granted and will be granted by the Company from time to time, according to the existing decisions on this matter with respect to officers in the Company who controlling shareholders in the Company may be considered as having a personal interest in providing them a release from liability. as part of the remuneration policy that was approved as stated in section B.5.a above in this note, it was determined that officers in the Company (including directors) may be entitled, subject to approval of the competent organs for this purpose in the Company, to a letter of release, subject to the provisions of any law. As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the Company published an immediate report to convene a special general meeting of the Company at which the agenda will contain approval for granting an exemption from liability by the Company to officers from among the controlling owners (i.e., who and/or whose relatives are controlling owners of the company), who hold office in the Company and/or who will hold office in the Company from time to time, according to the wording of the letter of release used by the Company.
IDB Development Corporation Ltd. Convenience translation
266

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| d. | Interested parties in the Company (including controlling shareholders in it during the relevant periods) and/or their relatives, who serve and/or who served as directors or other officers in subsidiaries and/or related companies of the Company, receive from certain companies, as aforesaid, indemnification and/or release letters, and their liability is insured as accepted in those companies. Without derogating from the generality of the foregoing, it is noted that as part of the completion of the merger transaction of Koor with Discount Investments, as stated in note 3.H.4.b. above, in March 2014, Discount Investments provided the directors and officers of Koor (including those among them who are or were interested parties and/or controlling shareholders in the Company) indemnification letters with respect to their actions by virtue of their service in Koor and with respect to their actions by virtue of their service at the request of Koor as officers in the investee companies of Koor, or in whom Koor has an interest. The maximum indemnification amount pursuant to the aforesaid indemnification letters is identical to the amount of the indemnification in the letters of indemnification given by Discount Investments to its directors and officers.

| e. | Directors’ remuneration:

| 1. | In October 2010, after approval by the Company’s Audit Committee and Board of Directors, the general shareholders’ meeting of the Company resolved to approve the payment of directors’ remuneration for the years 2011 through 2015 (inclusive), including directors who are controlling shareholders of the Company and/or their relatives (“directors who are controlling shareholders”) at the time of the resolution. According to the aforesaid resolution, the directors’ remuneration payable to each director in respect of any given time in the aforementioned period will be at the maximum amounts allowed and according to the director’s aforesaid classification as an expert or non-expert director, and according to the classification of the Company, all as applicable at that time according to the Companies (Rules Concerning Remuneration and Expenses for an Outside Director) Regulations, 5760-2000 (“the Remuneration Regulations”). The directors’ remuneration will not be paid to directors of the Company who receive from the Company or from a company under its control or from IDB Holdings, a salary for responsibilities other than that of a director, for as long as the director is entitled to such a salary. In view of the provisions of Amendment no. 16, the validity of the aforesaid resolution regarding the payment of remuneration to directors from among the controlling shareholders or to directors where the controlling shareholders have a personal interest in the payment of remuneration to them, expired at the end of three years from July 2010, i.e., in July 2013, and from the aforesaid date, the Company has not paid directors’ remuneration to directors from among the controlling shareholders.

| As of the date of the report, the Company published an immediate report regarding the convening of a special general meeting of the Company (‘the meeting report’), at which the agenda contains the approval of payment of remuneration to the directors that hold office in the Company and/or that will hold office in the Company from time to time, and who and/or whose relatives are controlling shareholders of the Company, and to directors of the Company where controlling shareholders of the Company may be regarded as having a personal interest in the approval of the payment of remuneration to them, who hold office and/or who will hold office in the Company from time to time. According to the meeting report, the payment of remuneration to the directors as aforesaid shall be in the maximum possible fixed amounts and in accordance with the classification of each director as aforesaid as an expert director or as a non-expert director and in accordance with the classification of the Company, all of which at that time pursuant to the Remuneration Regulations.

| Directors’ remuneration and related expenses not exceeding accepted amounts, which were paid by the Company to its directors in 2014, 2013 and 2012 (a total of 8 to 12 recipients), amounted to a total of NIS 1,287 thousand, NIS 1,270 thousand and NIS 1,241 thousand, respectively.

267

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 5. | Officers’ liability insurance, letters of indemnity, officers’ letter of release from liability and payment of remuneration to directors (cont.)

| e. | Directors’ remuneration: (cont.)

| 2. | IDB Holdings received directors’ remuneration from investee companies of the Company in respect of the service of officer/s in IDB Holdings (who were also officer/s in the Company), including officer/s who were controlling shareholder/s and/or a relative of a controlling shareholder, as directors in those investee companies. In 2014 (for their holding of office in the fourth quarter of 2013 only), 2013 and 2012, the aforesaid amounted to NIS 0.11 million, NIS 0.64 million and NIS 1.2 million, respectively.

| 3. | Investee companies of the Company received directors' remuneration from other investee companies for the service of interested parties of the Company, including individuals who were controlling shareholders and/or their relatives, as directors in those paying companies.

| 6. | As of the date of the report, after approval of the Remuneration Committee and the Board of Directors of the Company, the Company published an immediate report regarding the convening of a special general meeting of the Company at which the agenda included approval of the payment of expenses and/or a reimbursement of expenses, whether prospectively or retrospectively, to the joint chairmen of the Board of Directors of the Company, for personal expenses that they actually incurred and/or will incur as part of their position in the Company, and including such expenses that they will lay out for anyone acting on their behalf (such as advisors, personal assistants, administrative staff), all of which in return for the production of written receipts, from May 7, 2014 (i.e., the date on which Messrs. Eduardo Elsztain and Mordechai Ben-Moshe began to be controlling owners in the Company) and for three additional years from the date of the approval of the general meeting and subject to its approval, as stated below: reimbursement of expenses in Israel – the payment / reimbursement will be for expenses that were and/or will actually be incurred, as part of carrying out their duties in the company and will include expenses that are required for the Company in order to manage its current business operations; expenses for participating in meetings of the Board of Directors and committees of the Board of Directors of the Company; expenses for promoting the Company’s business and expanding its operations, including expenses involved in business meetings with service providers, etc., including, inter alia, the following expenses (for each of the joint chairmen): meal expenses, including hospitality expenses, suppliers, etc., in an amount that shall not exceed NIS 3,000 per month; travel and parking expenses in a total amount that shall not exceed NIS 1,500 per month (not including car maintenance); communication expenses in a total amount that shall not exceed NIS 500 per month. In addition, the Company will pay expenses for office space that was and/or is being made available to the limited staff of each of the joint chairmen of the Board of Directors at the Company’s existing offices, at a total estimated cost of up to approximately NIS 8,000 per month. The aforesaid total estimated cost is the additional cost that the Company will pay in view of the agreement between the Company and additional parties (including also companies held by the Company) with regard to the division of the use of the areas that the Company rents from a third party in the Azrieli Center in Tel-Aviv (for details regarding this agreement, see section B.3.a above in this note). In the period that passed from May 7, 2014, to December 31, 2014, the cumulative reimbursement of expenses for the two joint chairmen together amounts to approximately NIS 93 thousand. If the matter is not approved by the general meeting of the Company, the joint chairmen shall pay the aforesaid expenses and return to the Company the amounts it paid for them.

| It is clarified that nothing stated above shall prevent the Company from paying directly any costs and expenses of the Company that derive from foreign business trips of the joint chairman on behalf of the Company, and the Company shall pay the costs of foreign business trips on behalf of the Company (or private companies that it controls) made by the chairmen, including expenses in reasonable amounts for flight tickets, car rental/taxis abroad, hotel accommodation and subsistence expenses, provided that the purpose of the trip is business on behalf of the Company as aforesaid.

IDB Development Corporation Ltd. Convenience translation
268

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 6. | (Cont'd)

| The chairmen shall pay themselves any additional cost of a foreign trip that derives for an extension of the duration of the stay abroad for their own private purposes and/or as a result of the use of that trip also for private purposes. The aforesaid provisions for the reimbursement of expenses shall apply whether additional terms of office and employment have and/or will be approved for the chairmen by the Company or not. The Company’s internal auditor and Remuneration Committee will make a check each quarter and monitor the reimbursement of expenses, with regard to the reasonableness of the components and amount of the quarterly expenses, as well as the manner of making the reimbursement pursuant to the Company’s instructions and procedures.

| 7. | Other transactions

| a. | On July 31, 2006 the Company’s Board of Directors resolved that the Company’s annual budget for charitable donations would be determined each year by the Company's Board of Directors and would be up to 1.5% of net income according to its annual audited consolidated financial statements for the prior year. Furthermore, on the same date, after receiving the approval of the Company’s Audit Committee, the Company's Board of Directors resolved, with respect to donations given by the Company to not-for-profit associations that are certified as public institutions under Section 46 of the Income Tax Ordinance, to approve the granting of donations by the Company to IDB Community Fund (RA) (“the Fund”), which has the necessary certificate. Donations by the Company to the Fund in each calendar year will be up to 100% of the overall donations budget for that year but not more than 1.5% of the annual net income of the Company according to its audited consolidated financial statements for the prior year (“Fund Donations Account”). Full or partial use of the Fund Donations Account will be made pursuant to resolutions passed from time to time by the Board of Directors of the Company.

Mr. Nochi Dankner, who was a controlling shareholder in the Company during the relevant period, could have been considered as having a personal interest in the aforesaid resolution, due to his service as Chairman of the Fund and Chairman of the Fund’s Board and due to the service of his wife, Mrs. Orly Dankner, as a member of the Fund’s Board.

| The decision regarding approval of a fixed annual Fund Donations Framework for the Company was approved by the Company’s general meeting of shareholders in September 2006, after it was approved by its Audit Committee and Board of Directors. It is noted that also subsidiaries of the Company have approved a donations framework for the Fund, as aforesaid, and from time to time, have provided donations to the Fund accordingly.

| In accordance with the provisions of Amendment 16, in November 2011 the Audit Committee of IDB Holdings decided to limit the period of the aforesaid decision of the Company’s general meeting of shareholders to a period beginning on the date of the said general meeting and ending on November 30, 2017, meaning an additional approx. six years from the date of the aforementioned decision. Similar decisions were made also by subsidiaries of the Company that had also approved a donation framework for the aforementioned Fund, and are public companies.

| In 2014, 2013 and 2012, the Company did not pass any resolutions regarding the contribution to the aforementioned Fund. In 2012, the Company gave a sum of NIS 1 million as a donation to the Fund and in 2013 and 2014 no donations were given by the Company to the Fund. It should be noted that, as of the reporting date, Mr. Haim Gavrieli, the CEO of the Company, holds office as chairman of the board of the Fund and a board member in the Fund.

IDB Development Corporation Ltd. Convenience translation
269

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 7. | Other transactions (cont.)

| b. | In June 2013, the District Court in Jerusalem approved a settlement in connection with the claim and the motion to approve it as a class action against Discount Investments and against the directors and the CEO of Koor, that was filed in March 2009 concerning claims of non-compliance with the provisions of the Companies Law and Securities laws and whose total amount of monetary remedies that were claimed amounted to NIS 272 million.

| Pursuant to the settlement that was approved, Discount Investments will make four annual payments in the amount of NIS 4.5 million each, beginning in August 2013 as remuneration to the Group that will be composed of Koor shareholders (with the exception of the Company) that did not use the rights they received from Koor to purchase shares as part of a rights issue which was performed by Koor in November 2008. If some of the aforementioned some of remuneration remains and is unclaimed, it will be donated to a public cause. In addition, Discount Investments paid a sum of NIS 3.6 million, some of which as compensation to the Plaintiff in the legal proceedings and the majority as retainer to the attorney. The legal proceedings against the directors and general manager of Koor were denied. In August 2013, Discount Investments received from the officers’ liability policy insurers about half of the sums to be borne by Discount Investments, as specified above. The said settlement was approved in April 2013 by the general assembly of shareholders of Discount Investments, including the Company and IDB Holdings, and some of their officers (including controlling shareholders during the relevant period) may be considered as having a personal interest in Discount Investments’ entering into the said settlement.

| c. | Further to the notice of the trustees of the debt arrangement of IDB Holdings, in which the creditors of IDB Holdings were invited to submit debt claims to the Arrangement Trustees by March 6, 2014, which would set out the debt of IDB Holdings to them, on March 5, 2014, the Board of Directors of the Company decided, after the approval of the Audit Committee, to approve the filing of a debt claim against IDB Holdings, in a sum of NIS 442 million, with regard to distributions of dividends that were made by the Company in the years 2010 and 2011, and motions and derivative claims with regard to the distributions of dividends, which are described in notes 23.C.1.d and 23.C.1.e above (in this subsection – “the derivative claims”).

| d. | For information about an agreement signed on March 10, 2014, for the advancing of a bridging loan to the Company in a sum of NIS 170 million between the Company and Dolphin Fund Limited and E.T.H. M.B.M Extra Holdings Ltd. (companies controlled by Mr. Eduardo Elsztain and Mr. Mordechai Ben-Moshe, respectively), jointly and severally; Adv. Hagai Olman and Mr. Eyal Gabbay (trustees of the debt arrangement); and IDB Holdings (through the trustees of the debt arrangement), out of the funds secured for creditors arrangement in IDB Holdings, and with regard to the advancing of the aforesaid bridging loan, see note 16.C.3 above. The Company's entering into the aforesaid bridging loan agreement was approved by the Audit Committee and the Board of Directors of the Company on the aforesaid date.

| e. | In May 2014, the Board of Directors of the Company resolved, after it received approvals of the Audit Committee of the Company, to make short extensions of an agreement between the Company and JT Capital Fund Pte. Ltd. (“JT”) for the sale of the Company’s holdings in Clal Holdings Insurance Enterprises(“the Clal Insurance agreement”). On May 5, 2014, the Board of Directors of the Company resolved, after receiving the approval of the Audit Committee of the Company for this, to enter into an amendment to the Clal Insurance agreement, as stated in note 3.H.5.a above (it should be noted that at the end of May 29, 2014, the Clal Insurance agreement expired without the transaction being completed).

IDB Development Corporation Ltd. Convenience translation
270

Note 33 - Related and Interested Parties (cont.)

B. | Transactions with controlling shareholders or in which controlling shareholders have a personal interest, which are listed in section 270(4) and/or 270(4a) of the Companies Law, that were entered into in 2014 or on a date between the end of the reporting year and the date of filing the report or that are in effect on the reporting date (cont.)

| 7. | Other transactions (cont.)

f. | On May 20, 2014, the Board of Directors of the Company resolved, after receiving the approval of the Audit Committee of the Company for this purpose, to approve a transaction of entering into a loan agreement between the Company and the trustees of the debt arrangement in IDB Holdings, in a total amount of NIS 500 million (principal) (including a supplementary loan in a sum of NIS 20 million (principal), which had already been advanced de facto to the Company as part of the bridging loan agreement that was signed on March 10, 2014 (see subsection d. above) (‘the loan agreement’)). It should be noted that, pursuant to the terms of the loan agreement, since before the credit was advanced to the Company a terminating event for the Clal Insurance transaction occurred (see note 3.H.5.a above) the loan agreement was cancelled.

C. | Other employment and remuneration transactions

| 1. | In 2014, the cost in the Company’s books of employing Mr. Haim Gavrieli as CEO of the Company amounted to an amount of NIS 2,011 thousand and a sum of NIS 976 thousand, which is equal to a retirement bonus that will be paid on the date of retirement (in an amount of the cost of six months’ employment, as approved by the general meeting of the Company in November 2014) (in 2013 and 2012, approximately NIS 1.8 million and approximately NIS 2 million, respectively). According to the agreement that existed between the Company and IDB Holdings with regard to the use of joint manpower (see section B.1 of this note above), IDB Holdings contributed 20% of the cost of employing Mr. Gavrieli until May 2014 (inclusive). Since June 2014, there is a new agreement between the Company and IDB Holdings (through the arrangement trustees) according to which IDB Holdings pays fixed monthly amounts for management services (for additional details, see section B.1 above in this note).

| 2. | In 2014, 2013 and 2012, the Company received directors’ remuneration from its held companies, for the office of interested parties therein as directors in those companies, in a total amount of NIS 214 thousand, NIS 291 thousand and NIS 316 thousand, respectively (not included directors’ remuneration from Discount Investments; for details of the management agreement with Discount Investments, see section D.1 below).

| 3. | During the years 2014 and 2013, the Company paid fees for the services of each of Messrs. Eyal Gabbay and Hagai Olman, who acted as experts on behalf of the court (Mr. Eyal Gabbay) and as an observer on the Board of Directors of the Company (Adv. Hagai Olman), a sum of NIS 304 thousand and NIS 1,134 thousand, respectively.

D. | Other transactions or payments

| 1. | There was an agreement between the Company and each of Discount Investments and Clal Insurance Enterprise Holdings, according to which the Company provided management services to those companies, which included, inter alia, appointments of employees of the Company, IDB Holdings, or their subsidiaries as directors in those companies, in return for management fees. In view of the provisions of Amendment no. 16, in November 2011 the general meeting of Discount Investments approved once again, and in May 2012 the general meeting of Clal Holdings Insurance Enterprises approved once again, after the approval of the Audit Committees and Boards of Directors of each of them, the making of such an agreement by each of them with the Company.

| In February 2014, after the termination of the office of all of the directors on behalf of the Company in the companies of the Clal Holdings Insurance Enterprises Group, and in view of the restrictions which were imposed on the Company as part of the Commissioner’s letter of November 2013 (see note 3.H.5.b. above), Clal Holdings Insurance Enterprises gave notice to the Company of the suspension of the management agreement between them. Consequently, as of the date of publication of the report, Clal Holdings Insurance Enterprises does not pay management fees to the Company.

IDB Development Corporation Ltd. Convenience translation
271

Note 33 - Related and Interested Parties (cont.)

D. | Other transactions or payments (cont.)

| 1. | (cont.)

| In November 2014, three years expired from the approval of the aforesaid transaction by the general meeting of Discount Investments. Therefore, in view of the provisions of the Companies Law, since December 2014 and as of the date of publication of the report, Discount Investments does not pay management fees to the Company and such a payment is subject to the approval of the competent organs of Discount Investments, including the approval of its general meeting with a special majority.

| It should be noted that from March 2014 until the date of publication of the report, no employees of the Company held office on the Board of Directors of Discount Investments. In the years 2014, 2013 and 2012, the Company received management fees from the aforesaid companies in a total amount of approximately NIS 1 million, NIS 3.85 million and NIS 5.1 million, respectively

2. | In March 2014, the Audit Committee and the Board of Directors of the Company gave their approval that the Company would be liable for half of the costs relating to the implementation of the creditors’ arrangement in IDB Holdings. According to a report of the trustees of the arrangement as filed with the court, these costs include, inter alia, half of the costs of obtaining the various permits required for implementing the arrangement, half of the costs of the examination ordered by the District Court as part of the judgment of December 17, 2013, half of the costs of handling the investment in the Company and advancing the loans to the Company, all of the costs of the Company’s legal advisers with regard to the implementation of the arrangement and half of the costs of listing the Company’s shares, with the exception of fees that the Company will pay in full. In 2014, the Company paid for its share of the costs relating to the implementation of the creditors’ arrangement in the Company a sum of NIS 1.4 million.

3. | On August 4, 2014, the Board of Directors of the Company resolved, after obtaining the approval of the Audit Committee of the Company for this purpose, to approve the Company’s position with regard to a settlement between the parties (not including the Company) in the derivative actions, not to oppose the settlement, except what is stated in the provisions that deprive the Company of the right to take legal action in other actions that also relate to distributions of dividends, which the Company made during the years 2010-2011, on account, inter alia, of Discount Investments’ claims (see note 23.C.1.h above). The resolution was ratified in January 2015. On March 5, 2015, the Board of Directors of the Company resolved, after obtaining the approval of the Audit Committee of the Company for this purpose, to agree to an amendment of the settlement between the parties in the derivative actions, and insofar as its wording is completed and agreed by the other parties, it will be filed with the court hearing the derivative actions. According to the main elements of the aforesaid amendment that is being formulated, if the Discount Investments’ claim is successful, the Company will retain the right of suing the directors and officers of the Company and IDB Holdings for a cause of action arising from that claim, on certain conditions. For further details, see note 23.C.1.d. above.

| 4. | Additional joint transactions between investees and related parties:

| · | In November 2010, Koor and the Clal Insurance Group undertook to invest in equal shares a total sum of $250 million in the EMCO Fund (a private investment fund managed by corporations from the Credit Suisse Group). The period of making the investments in the EMCO Fund ended in November 2012. As of December 31, 2014, and as of the date of this report, the cumulative amount of the investment of Koor in the EMCO fund stood at a sum of approximately NIS 46 million. In addition, Koor and the Clal Insurance Group are liable to make investments in a sum of up to $2 million in the Group, each. Since the beginning of the investment in the ENCO Fund, Koor and Clal Insurance have received from the Fund amounts on a scale of approximately $29 million each.

| · | In January 2014, the Audit Committee and Board of Directors of Discount Investments approved an undertaking of Discount Investments, according to which for a period of three years from the completion of the merger of Adama with ChemChina (October 17, 2011), Discount Investments would not carry out transactions as a result of which it would stop controlling Koor, unless after them Koor would continue to be controlled by another entity from the IDB Group, and after the aforesaid period of three years, Discount Investments would not sell the control in Koor to a competitor of Adama or a competitor of ChemChina. The aforesaid undertaking is valid as long as the provisions of the Shareholders’ Agreement between Koor and ChemChina with regard to Adama, which relate to the control of Koor, will remain valid.

IDB Development Corporation Ltd. Convenience translation
272

Note 33 - Related and Interested Parties (cont.)

D. | Other transactions or payments (cont.)

| 5. | Additional transactions during the course of regular business, which are not exceptional, in amounts that exceed NIS 8.7 million for a single transaction:

· | Shufersal carried out a large number of regular transactions with suppliers that are interested parties and related parties of the Company in a total amount of NIS 17 million, NIS 439 million and NIS 377 million in 2014, 2013 and 2012 respectively. The transactions included the acquisition of food products, toiletries and other products for sale in stores.

· | In 2012, the Hadera Paper Group (from the Clal Industries Group) acquired from Cargal Carton Products in the amount of NIS 45 million.

· | In 2013, Adama received insurance services from Clal Insurance Group in the amount of $4.5 million (in 2012 – $4.5 million).

· | Shufersal is insured by elementary insurance, car insurance and health insurance by Clal Insurance. The total annual premium paid by Shufersal for the insurance policies in 2014 and 2013 amounted to NIS 19 million and NIS 18 million, respectively.

· | Property & Building received interest income for loans it granted to equity accounted investee companies that amounted in 2014 to NIS 34 million (in 2013 – NIS 32 million and in 2012 – the sums were lower than the negligibility threshold for disclosure).

· | Adama sold some of its products in the normal course of its business to the companies Cresud S.A.C.I.F. y A and Futuros y Opciones.Com S.A., companies that operate in Argentina, which are indirectly controlled by Mr. Eduardo Elsztain, one of the controlling owners of the Company. These sales amounted in 2014 and 2015 up to the date of the report to approximately $3.6 million and approximately $260 thousand, respectively.

IDB Development Corporation Ltd. Convenience translation
273

Note 33 - Related and Interested Parties (cont.)

| E. Transactions with related parties and interested parties

| 1. | Balances with related parties and interested parties

|  | Interest |  |  | As at 31 December |
|  | Rate |  |  | 2014 |  |  | 2013 |
|  | % |  |  | NIS Millions |
Long-term loans for investee companies(1) |  |  |  |  |  |  |  |  |
Shekel (linked and unlinked) |  |  | 2.3-9.31 |  |  |  | 143 | (2) |  |  | 142 | (2)
Linked to dollar rate |  |  | 3.6-15.0 |  |  |  | 369 |  |  |  | 314 |
Linked to Euro |  |  | 3.6 |  |  |  | 28 |  |  |  | 64 |
Linked to Pound Sterling |  |  | 6.0 |  |  |  | - |  |  |  | 122 |
Customers, debtors and accounts receivable: |  |  |  |  |  |  |  |  |  |  |  |
Associates and jointly-controlled entities |  |  |  |  |  |  | 14 |  |  |  | 11 |
Other related parties and interested parties |  |  |  |  |  |  | 44 |  |  |  | 27 |
Cash and short-term deposits deposited with the interested party |  |  |  |  |  |  | - |  |  |  | 268 |
Highest balance due in the year of cash in Union Bank of Israel (interested party) |  |  |  |  |  |  | - |  |  |  | 445 |
Accounts payable: |  |  |  |  |  |  |  |  |  |  |  |
Interested parties |  |  |  |  |  |  | - |  |  |  | 3 |
Liability to suppliers and service providers: |  |  |  |  |  |  |  |  |  |  |  |
Associates and jointly-controlled entities |  |  |  |  |  |  | - |  |  |  | 1 |
Other related parties and interested parties |  |  |  |  |  |  | 8 |  |  |  | 68 |
Loans received: |  |  |  |  |  |  |  |  |  |  |  |
Bonds of the Company and of Consolidated Companies held by Interested and Related Parties |  |  |  |  |  |  | 438 |  |  |  | 513 |
Including current maturities |  |  |  |  |  |  | 90 |  |  |  | 123 |
Loans received from interested parties |  |  |  |  |  |  | - |  |  |  | 3 |

| (1) The dates of repayment for the loans have not yet been determined.

| (2) The loans are presented in the consolidated statements after the amortization for impairment in an amount of NIS 39 million and NIS 62 million as of December 31, 2014, and December 31, 2013, respectively.

IDB Development Corporation Ltd. Convenience translation
274

Note 33 - Related and Interested Parties (cont.)

| E. Transactions with related parties and interested parties (cont.)

| 1. | Balances with related parties and interested parties (cont.)

The following are the terms of the bonds held by interested parties:

|  | As at 31 December 2014 |
Linkage Base |  | Sum |  |  | Interest |  |  | Dates of Repayment |
|  | NIS Millions |  |  | % |  |  |  |
Linked |  |  | 396 |  |  |  | 2.99-5.40 |  |  |  | 2016-2029 |
Unlinked |  |  | 42 |  |  |  | 5.45-6.70 |  |  |  | 2015-2018 |
|  |  | 438 |  |  |  |  |  |  |  |  |

|  | As at 31 December 2013 |
Linkage Base |  | Sum |  |  | Interest |  |  | Dates of Repayment |
|  | NIS Millions |  |  | % |  |  |  |
Linked |  |  | 463 |  |  |  | 2.99-5.70 |  |  |  | 2014-2029 |
Unlinked |  |  | 50 |  |  |  | 5.45-6.70 |  |  |  | 2014-2018 |
|  |  | 513 |  |  |  |  |  |  |  |  |

| 2. | Revenue and expenses from related parties and interested parties

|  |  |  |  |  |  |  |  |  |  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |  |  | 2014 |  |  | 2013 |  |  | 2012 |
|  | Number of recipients |  |  | NIS millions |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Participation of the parent company in salary and incidental expenses and other expenses |  |  |  |  |  |  |  |  |  |  |  | 2 | * |  |  | 4 |  |  |  | 6 |
Management fees from investee companies |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | 1 |  |  |  | 23 |
Expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
a. Benefits for employment of key managerial personnel (including directors): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term benefits for key managerial personnel |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | 3 |  |  |  | 2 |  |  |  | 2 |
Short-term benefits for directors |  |  | - |  |  |  | 1 |  |  |  | 3 |  |  |  | - |  |  |  | 5 |  |  |  | 8 |
b. Benefits for employment of relatives of directors and interested parties |  |  | - |  |  |  | 3 |  |  |  | 6 |  |  |  | - |  |  |  | 1 |  |  |  | 3 |
c. Benefits for directors and interested parties who are not employed (salary of directors in the Company and in consolidated companies) |  |  | 7 |  |  |  | 12 |  |  |  | 12 |  |  |  | 1 |  |  |  | 3 |  |  |  | 5 |
d. Other expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Donations to the IDB Community Involvement Fund (RA) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  | - |  |  |  | 1 |

| * | For the period from January 1, 2014, until and including May 2014.

IDB Development Corporation Ltd. Convenience translation
275

Note 33 - Related and Interested Parties (cont.)

| E. Transactions with related parties and interested parties (cont.)

| 3. | The following are transaction with former related parties and interested parties, which were described in the Related Parties and Interested Parties Note in the Company’s financial statements of 2013:

|  |  | For the year ending December 31 |
|  |  | 2013 |  |  | 2012 |
|  |  | Amounts of transactions in NIS millions |
Nature of the transaction | Related party / interested party *
1. Payment for courier services that was paid by a subsidiary (Cellcom) to a company held by Avi Fisher together with his relative. | A company controlled by the Company |  |  | - |  |  |  | 11.3 |
2. Income from flight services that a subsidiary received from held companies and officers in a subsidiary (IDB Development), including officers who or whose relatives are controlling shareholders of the company. | Held companies |  |  | - |  |  |  | 1.4 |
3.Payments that subsidiaries of the company (the Mashav Group) made for services that they received from held companies under the joint control of the Company and a controlling shareholder therein (companies in the Taavura Group). | Held companies |  |  | 16 | ** |  |  | 132 |
4.Income from the provision of services that a held company under joint control of a subsidiary and a controlling shareholder in the Company (a company from the Taavura Group) received from a company held by a controlling shareholder in the Company (Taavura Tifzoret). | A company controlled by a controlling shareholder |  |  | 9 | ** |  |  | 55 |
5.Payments for various services that were paid by companies under joint control (companies from the Taavura Group) to a company held by a controlling shareholder of the Company (Taavura Tifzoret). | A company controlled by a controlling shareholder |  |  | 3 | ** |  |  | 49 |
6.Payments made by subsidiaries (companies from the Mashav Group) for transport services to a company held by a controlling shareholder of the Company (Taavura Tifzoret). | Held company |  |  | 3 | ** |  |  | 25 |
7.Income from providing logistic services received by a held company under joint control (a subsidiary of Maman Cargo and Handling terminals Ltd. (‘Maman’) from a company controlled by a controlling shareholder of the Company (H & O Fashion Ltd.). | Held company |  |  | 2.4 | ** |  |  | 14 |
8.Payments for logistic services paid by a subsidiary (Shufersal) to a jointly controlled held company (a subsidiary of Maman). | Held company |  |  | 20 |  |  |  | 22 |
9.Rent paid by a jointly controlled held company (a subsidiary of Maman) to a company that is jointly controlled by Maman and another subsidiary (Gav Yam Real Estate Ltd.). | Held company |  |  | 9 |  |  |  | 9 |
10.Payments for management and operating services paid by a subsidiary (Cellcom) to a company held by the controlling shareholder together with his relatives (Tikshuvim Business Communications Center Ltd.). | A company controlled by a controlling shareholder |  |  | - |  |  |  | 8 |
11.Income from providing storage services that a jointly controlled held company (Maman) received from a company (indirectly) held by a controlling shareholder of the Company (O.P.S.A. International Shipping Ltd.). | Held company |  |  | 1.7 | ** |  |  | 8.4 |
12.Income from sales, maintenance and ancillary services that a jointly controlled company (a company in the Taavura Group) received from a held company (Yafora Ltd.). | Held company |  |  | - |  |  |  | 10 |
13.Rent that a subsidiary (Shufersal) paid to a company in which a controlling shareholder together with his relatives are interested parties. | A company in which a controlling shareholder has an interest |  |  | 11 |  |  |  | 11 |

IDB Development Corporation Ltd. Convenience translation
276

Note 33 - Related and Interested Parties (cont.)

| E. Transactions with related parties and interested parties (cont.)

| 3. | The following are transaction with former related parties and interested parties, which were described in the Related Parties and Interested Parties Note in the Company’s financial statements of 2013: (cont.)

|  |  | For the year ending December 31 |
|  |  | 2013 |  |  | 2012 |
|  |  | Amounts of transactions in NIS millions |
Nature of the transaction | Related party / interested party *
14.Rent that was paid to a subsidiary (Gav-Yam) by another subsidiary (Hadera Paper). | Companies controlled by the Company |  |  | 26 |  |  |  | 28 |
15.A payment for the purchase of products that was made by a subsidiary (Shufersal) to another subsidiary (Hogla Kimberley). | Companies controlled by the Company |  |  | 210 |  |  |  | - |
16.Payments made by a subsidiary (Shufersal) for the purchase of products for a held company (Yafora Tavori). | Held company |  |  | 147 |  |  |  | - |
17.A payment made by a subsidiary (Shufersal) for leasing services to a company owned by a controlling shareholder who holds it jointly with his relatives (Prime Lease Car Fleet Management Ltd.). | A company controlled by a controlling shareholder |  |  | 7 |  |  |  | 15 |
18.A final payment made by subsidiaries (IDB Development and Discount Investments) to another subsidiary (Clal Finances) for an indemnification undertaking in an agreement for the sale of 50% of the shares of Ilanot Batucha Investment House Ltd. in 2003. | A company controlled by the Company |  |  | - |  |  |  | 5 |
19.A provision with regard to a consulting agreement with an interested party with regard to the purchase of real estate abroad (Rock Real). | Interested party in the Company |  |  | 62 |  |  |  | 77 |

* Related party /interested party – relates to the relevant periods presented in this table.
** Until March 9, 2013.
IDB Development Corporation Ltd. Convenience translation
277

Note 34 – Segments

| A. | General

The Company has implemented IFRS 8 on the subject of operating segments in these financial statements. In accordance with IFRS 8, sectorial information is presented with regard to the Company’s operating segments, based on the Company's management and internal reports ("The management reports").
The Company regards as segments those companies with regard to which the chief operational decision makers have regularly received information, during the relevant reporting years, and which constitute a significant economic component for the group, including for the purpose of the allocation of resources.
The sector results, as stated below, include the Company’s share of the net profits (losses) of a sectorial company, the profit (loss) that the Company generated from the disposal of or the writing down of the investment in a sectorial company, and the profit that the Company derived from dividends that have been received from a sectorial company, which is classified as a financial asset that is measured at fair value through the statement of income and from a profit or loss on a change in value of a sectorial company that is classified as a financial asset that is measured at fair value through the statement of income, in those cases where this information is examined by the chief operating decision makers in the Company for the purpose of the evaluation of sectorial performance and for the making of decisions regarding the allocation of resources.
Information regarding the assets of the companies in a sector, as detailed below, include the amount of the assets of the companies in the sector in accordance with their financial statements and on respect of a company in a sector that is classified as a financial asset that is measured at fair value through the statement of income – the sectorial assets are the Company’s investment in that company in accordance with its market value.
Information regarding the liabilities of the companies in a sector (except in respect of a company in a sector, which is classified in the Company's books as financial asset that is measured at fair value through the statement of income), includes the liabilities of the companies in the sector in accordance with their financial statements, with the addition of loans that have been received, which are reported with the sector. Liabilities in respect of a company in a sector that has been classified in the Group's accounting records with the comparison figures as a financial asset that is measured at fair value through the statement of income, includes liabilities that the Group has taken upon itself and are reported with the sectorial company.
Information regarding the results, assets and liabilities of the Clal Holdings Insurance Enterprises sector, which is classified in the Company’s books as a financial asset that is measured at fair value through the Statement of Income, has since August 2013 included the results, assets and liabilities of Clal Holdings Insurance Enterprises according to its financial statements, after implementing standard IFRS-9.

| B. | The sectorial results

The results of the segments, which are reported below, include the various items in the sectorial companies' statements of income, and less the non-controlling interests' share and constitute the Company’s share of the net income (loss) of the sectorial companies.
In the item on the Group’s share in net profit (loss) of the held corporations that are dealt with using the balance sheet value method, net, in the item of profit from the realization of investments and assets and dividends and in the item on loss from the realization and reduction of investments and assets were also included with the profit or loss, as the case may be, that the Company has generated from the disposal, writing down or impairment in value of its investments in sectorial companies, a profit or loss from a change in value of a sectorial company that is classified as a financial asset that is measured at fair value through the statement of income, is included under gain on disposal and increase in value of investments and assets, dividends, and under loss on disposal, impairments in value and the writing down of investments and assets, respectively. The tax effect, in so far as there may be one, which relates to the said profits (losses) has been recorded under taxes on income.
IDB Development Corporation Ltd. Convenience translation
278

Note 34 – Segments (cont.)

B. The sectorial results (cont.)

For the year 2014 |  | Cellcom |  |  | Property and Buildings and projects in Los Angeles |  |  | Shufersal |  |  | Adama (1) |  |  | Clal Holdings Insurance Enterprises (3) |  |  | Others (4) |  |  | Adjustments (5) |  |  | Consolidated |
|  | NIS millions |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From sales and services |  |  | 4,570 |  |  |  | 1,168 |  |  |  | 11,602 |  |  |  | 11,474 |  |  |  | - |  |  |  | 1,001 |  |  |  | (11,269 | ) |  |  | 18,546 |
Income from insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 15,044 |  |  |  | - |  |  |  | (15,044 | ) |  |  | - |
Gain in the disposal of investments and assets, |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 29 |  |  |  | - |  |  |  | 929 |  |  |  | 958 |
Increase in the fair value of real estate for investment and other properties |  |  | - |  |  |  | 425 |  |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2 |  |  |  | 439 |
Other income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 17 |  |  |  | 2 |  |  |  | - |  |  |  | (18 | ) |  |  | 1 |
Financing income |  |  | 100 |  |  |  | 98 |  |  |  | 85 |  |  |  | 462 |  |  |  | - |  |  |  | 3 |  |  |  | 452 |  |  |  | 1,200 |
Total sectorial income in the year 2014 |  |  | 4,670 |  |  |  | 1,691 |  |  |  | 11,699 |  |  |  | 11,953 |  |  |  | 15,075 |  |  |  | 1,004 |  |  |  | (24,948 | ) |  |  | 21,144 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales and services |  |  | 2,664 |  |  |  | 534 |  |  |  | 9,050 |  |  |  | 7,832 |  |  |  | - |  |  |  | 823 |  |  |  | (7,688 | ) |  |  | 13,215 |
Cost of insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,787 |  |  |  | - |  |  |  | (11,787 | ) |  |  | - |
Costs and expenses in connection with insurance business and financial services |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,556 |  |  |  | - |  |  |  | (2,556 | ) |  |  | - |
Oil exploration expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 78 |  |  |  | (78 | ) |  |  | - |
Research and development expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 120 |  |  |  | - |  |  |  | - |  |  |  | (93 | ) |  |  | 27 |
Selling and marketing expenses |  |  | 672 |  |  |  | 24 |  |  |  | 2,680 |  |  |  | 2,040 |  |  |  | - |  |  |  | 94 |  |  |  | (2,007 | ) |  |  | 3,503 |
Administrative and general expenses |  |  | 463 |  |  |  | 132 |  |  |  | 125 |  |  |  | 400 |  |  |  | - |  |  |  | 83 |  |  |  | (169 | ) |  |  | 1,034 |
Company’s share in net profit (loss) of affiliated companies, net |  |  | - |  |  |  | 78 |  |  |  | - |  |  |  | 591 |  |  |  | (42 | ) |  |  | - |  |  |  | (127 | ) |  |  | 500 |
Loss upon disposal and impairment in value of investment property and other assets |  |  | 217 |  |  |  | 30 |  |  |  | 182 |  |  |  | - |  |  |  | 360 |  |  |  | 2 |  |  |  | 53 |  |  |  | 844 |
Drop in fair value of investment property and other assets |  |  | - |  |  |  | 26 |  |  |  | - |  |  |  | - |  |  |  | 21 |  |  |  | - |  |  |  | (21 | ) |  |  | 26 |
Other expenses |  |  | 39 |  |  |  | - |  |  |  | 1 |  |  |  | 11 |  |  |  | 41 |  |  |  | 13 |  |  |  | (94 | ) |  |  | 11 |
Financing expenses |  |  | 298 |  |  |  | 502 |  |  |  | 158 |  |  |  | 908 |  |  |  | 218 |  |  |  | 19 |  |  |  | 372 |  |  |  | 2,475 |
|  |  | 4,353 |  |  |  | 1,326 |  |  |  | 12,196 |  |  |  | 11,902 |  |  |  | 14,941 |  |  |  | 1,112 |  |  |  | (24,195 | ) |  |  | 21,635 |
Income (loss) before taxes on income |  |  | 317 |  |  |  | 365 |  |  |  | (497 | ) |  |  | 51 |  |  |  | 134 |  |  |  | (108 | ) |  |  | (753 | ) |  |  | (491 | )
Taxes on income |  |  | (129 | ) |  |  | (161 | ) |  |  | 78 |  |  |  | (167 | ) |  |  | (189 | ) |  |  | (1 | ) |  |  | 210 |  |  |  | (359 | )
Non-controlling interests |  |  | (219 | ) |  |  | (147 | ) |  |  | 205 |  |  |  | (141 | ) |  |  | (305 | ) |  |  | 49 |  |  |  | 345 |  |  |  | (213 | )
Discontinued operations after taxation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 64 |  |  |  | - |  |  |  | 64 |
Sectorial results for the year 2014 –attributed to Company shareholders |  |  | (31 | ) |  |  | 57 |  |  |  | (214 | ) |  |  | (257 | ) |  |  | (360 | ) |  |  | 4 |  |  |  | (198 | ) |  |  | (999 | )
Depreciation and amortization included under expenses |  |  | 581 |  |  |  | 9 |  |  |  | 472 |  |  |  | 664 |  |  |  | 203 |  |  |  | 26 |  |  |  |  |  |  |  |  |
Impairment in value included under expenses |  |  | 298 |  |  |  | - |  |  |  | 233 |  |  |  | 354 | (5) |  |  | 21 |  |  |  | - |  |  |  |  |  |  |  |  |
|  |  | 67 |  |  |  | 76 |  |  |  | 54 |  |  |  | 131 |  |  |  | 1,137 |  |  |  | 1 |  |  |  |  |  |  |  |  |
Interest expenses |  |  | 251 |  |  |  | 502 |  |  |  | 168 |  |  |  | 387 |  |  |  | 190 |  |  |  | 13 |  |  |  |  |  |  |  |  |

IDB Development Corporation Ltd. Convenience translation
279

Note 34 – Segments (cont.)

| B. | The sectorial results (cont.)

| (1) | The liabilities of the Adama Sector as of December 31, 2014, which are stated below in this note, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,162 million (the non-recourse loan is repayable by means of Adama shares, as detailed in Note 16.F.1.d above), where the financing income in respect thereof (interest and linkage differences) for the year ended December 31, 2014 amounts to NIS 544 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of the internal reporting format, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.

| In addition, the Adama sector liabilities as of December 31, 2014 include an embedded derivative with a value of NIS 72 million, where the financing expenses in respect of the revaluation of the derivative for the year ended December 31, 2014 amounts to NIS 551 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.

| (2) | The Clal Holdings Insurance Enterprises' results are presented in accordance with Clal Holdings Insurance Enterprises' full operating results for the entire year 2014.

| (3) | Includes the IDB Tourism and Oil and Gas Assets sectors and Credit Suisse.

| (4) | Derives mainly from the elimination of inter-sectorial balances that are recorded in the financial statements based on the balance sheet value as well as companies that do not comply with the definitions for a sector of operations.

| (5) | For details of the impairment recorded for the investment in Adama, see note 3.H.4.d.

IDB Development Corporation Ltd. Convenience translation
280

Note 34 – Segments (cont.)

| B. | The sectorial results (cont.)

For the year 2013 |  | Cellcom |  |  | Property and Buildings and projects in Los Angeles |  |  | Shufersal |  |  | Adama (1) |  |  | Credit Suisse(2) |  |  | Clal Holdings Insurance Enterprises(3) |  |  | Others (4) |  |  | Adjustments (5) |  |  | Consolidated |
|  | NIS Millions |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From sales and services |  |  | 4,927 |  |  |  | 1,306 |  |  |  | 11,909 |  |  |  | 11,130 |  |  |  | - |  |  |  | - |  |  |  | 1,059 |  |  |  | (10,346 | ) |  |  | 19,985 |
Income from insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 18,494 |  |  |  | - |  |  |  | (18,494 | ) |  |  | - |
The Company’s share of the net income (loss) of affiliated companies, net |  |  | - |  |  |  | (10 | ) |  |  | - |  |  |  | (90 | ) |  |  | - |  |  |  | 5 |  |  |  | 3 |  |  |  | 153 |  |  |  | 61 |
Gain in the disposal of investments and assets, dividends and gain on an increase to control |  |  | 3 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 637 |  |  |  | 32 |  |  |  | - |  |  |  | (495 | ) |  |  | (7)179 |
Other income |  |  | - |  |  |  | 16 |  |  |  | - |  |  |  | 46 |  |  |  | - |  |  |  | 5 |  |  |  | 8 |  |  |  | (51 | ) |  |  | 24 |
Increase in the fair value of investment property |  |  | - |  |  |  | 394 |  |  |  | 23 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 417 |
Financing income |  |  | 156 |  |  |  | 104 |  |  |  | 39 |  |  |  | 480 |  |  |  | - |  |  |  | 11 |  |  |  | 21 |  |  |  | (146 | ) |  |  | 665 |
Total sectorial income in the year 2013 |  |  | 5,086 |  |  |  | 1,812 |  |  |  | 11,971 |  |  |  | 11,566 |  |  |  | 637 |  |  |  | 18,547 |  |  |  | 1,091 |  |  |  | (29,379 | ) |  |  | 21,331 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales and services |  |  | 2,910 |  |  |  | 661 |  |  |  | 9,098 | (7) |  |  | 7,746 |  |  |  | - |  |  |  | - |  |  |  | 860 |  |  |  | (7,440 | ) |  |  | 13,835 |
Cost of insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14,568 |  |  |  | - |  |  |  | (14,568 | ) |  |  | - |
Costs and expenses in connection with insurance business and financial services |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,708 |  |  |  | - |  |  |  | (2,708 | ) |  |  | - |
Oil exploration expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 113 |  |  |  | (113 | ) |  |  | - |
Research and development expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 108 |  |  |  | 108 |
Selling and marketing expenses |  |  | 717 |  |  |  | 29 |  |  |  | 2,417 | (7) |  |  | 1,884 |  |  |  | - |  |  |  | - |  |  |  | 105 |  |  |  | (1,651 | ) |  |  | 3,501 |
Administrative and general expenses |  |  | 570 |  |  |  | 82 |  |  |  | 123 |  |  |  | 413 |  |  |  | - |  |  |  | - |  |  |  | 98 |  |  |  | (147 | ) |  |  | 1,139 |
Impairment in value of investment property and other assets |  |  | - |  |  |  | 97 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 21 |  |  |  | - |  |  |  | (21 | ) |  |  | 97 |
Loss on the disposal and writing down of investments and assets |  |  | - |  |  |  | - |  |  |  | 91 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 47 |  |  |  | 138 |
Other expenses |  |  | 2 |  |  |  | - |  |  |  | 12 |  |  |  | 6 |  |  |  | - |  |  |  | 30 |  |  |  | - |  |  |  | (37 | ) |  |  | 13 |
Financing expenses |  |  | 402 |  |  |  | 654 |  |  |  | 168 |  |  |  | 987 |  |  |  | - |  |  |  | 245 |  |  |  | 53 |  |  |  | (63 | ) |  |  | 2,446 |
|  |  | 4,601 |  |  |  | 1,523 |  |  |  | 11,909 |  |  |  | 11,036 |  |  |  | - |  |  |  | 17,572 |  |  |  | 1,229 |  |  |  | (26,593 | ) |  |  | 21,277 |
Income (loss) before taxes on income |  |  | 485 |  |  |  | 289 |  |  |  | 62 |  |  |  | 530 |  |  |  | 637 |  |  |  | 975 |  |  |  | (138 | ) |  |  | (2,786 | ) |  |  | 54 |
Taxes on income |  |  | (142 | ) |  |  | (189 | ) |  |  | (53 | ) |  |  | (162 | ) |  |  | 6 |  |  |  | (390 | ) |  |  | (2 | ) |  |  | 628 |  |  |  | (304 | )
Non-controlling interests |  |  | (234 | ) |  |  | (112 | ) |  |  | (39 | ) |  |  | (283 | ) |  |  | (232 | ) |  |  | (513 | ) |  |  | 119 |  |  |  | 628 |  |  |  | (666 | )
Discontinued operations after taxation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (7)763 |  |  |  | (7)763 |
Sectorial results for the year 2013 –attributed to shareholders in the Company |  |  | 109 |  |  |  | (12 | ) |  |  | (30 | ) |  |  | 85 |  |  |  | 411 |  |  |  | 72 |  |  |  | (21 | ) |  |  | (767 | ) |  |  | (153 | )
Depreciation and amortization included under expenses (6) |  |  | 666 |  |  |  | 10 |  |  |  | 421 |  |  |  | 682 |  |  |  | - |  |  |  | 198 |  |  |  | 25 |  |  |  |  |  |  |  |  |
Impairment in value included under expenses |  |  | 7 |  |  |  | - |  |  |  | 83 |  |  |  | - |  |  |  | - |  |  |  | 21 |  |  |  | - |  |  |  |  |  |  |  |  |
Interest income |  |  | 98 |  |  |  | 69 |  |  |  | 39 |  |  |  | 84 |  |  |  | - |  |  |  | 1,684 |  |  |  | 2 |  |  |  |  |  |  |  |  |
Interest expenses |  |  | 308 |  |  |  | 539 |  |  |  | 151 |  |  |  | 438 |  |  |  | - |  |  |  | 254 |  |  |  | 32 |  |  |  |  |  |  |  |  |

IDB Development Corporation Ltd. Convenience translation
281

Note 34 – Sectors (cont.)

| B. | The sectorial results (cont.)

| (1) | The liabilities of the Adama Segment as of December 31, 2013, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,664 million (the non-recourse loan is repayable by means of Adam shares, as detailed in Note 16.F.1.d above), where the financing income in respect thereof (interest and linkage differences) for the year ended December 31, 2013 amount to NIS 89 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of the internal reporting format, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker.

| In addition, the Adama sector liabilities as of December 31, 2013 include an embedded derivative with a value of NIS 607 million, where the financing expenses in respect of the revaluation of the derivative for the year ended December 31, 2013 amounted to NIS 85 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operating decision maker.

| (2) | The Credit Suisse sector is classified as discontinued operations, as detailed in Note 3.H.4.c above. The liabilities of the Credit Suisse sector as of December 31, 2013, which are detailed further on in this note, include NIS 431 million of loans from foreign banks, where the financing income in respect of them (interest and exchange differences) in the year ended December 31, 2013 amount to NIS 48 million. This financing income is not presented as part of the information in connection with a sector, since it does not form part of the format for the internal reporting, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker. In addition, financing income in respect of liabilities for options on the exchange rate of the Swiss Franc against the Shekel for the year ended December 31, 2013 amount to NIS 4 million. This financing income has been presented as part of the Credit Suisse sector, but separately from the sectorial results (since they form part of the internal reporting sector, under the Credit Suisse sector, which is routinely provided to the Group's chief operating decision maker, but separately from the sectorial results).

| (3) | Clal Holdings Insurance Enterprises' results are presented in accordance with Clal Holdings Insurance Enterprises' full operating results for the entire year 2013, in accordance with the data that the Company’s chief operating decision maker received in 2013.

| (4) | Includes the IDB Tourism and Oil and Gas Assets sectors.

| (5) | Derives primarily from the elimination of inter-sectorial balances that are recorded in the financial statements under the equity method of accounting as well as companies that do not comply with the definitions for a sector of operations.

| (6) | Not including the writing down of investments that are recorded under the Company's share of the net income (loss) of affiliated companies, net under gain on disposal and write-downs of investments and assets.

| (7) | Reclassified, see Note 1.F.2 above.

IDB Development Corporation Ltd. Convenience translation
282

Note 34 – Segments (cont.)

| C. | The sectorial results

For the year 2012 |  | Cellcom |  |  | Property and Buildings and projects in Los Angeles |  |  | Shufersal |  |  | Adama(1) |  |  | Credit Suisse(2) |  |  | Mashav(3) |  |  | Clal Holdings Insurance Enterprises |  |  | Oil and gas Assets (4) |  |  | Tourism(4) |  |  | Adjustments(5) |  |  | Consolidated |
|  | NIS Millions |
Revenues |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
From sales and services |  |  | 5,938 |  |  |  | 1,159 |  |  |  | 11,570 |  |  |  | 10,910 |  |  |  | - |  |  |  | 1,516 |  |  |  | - |  |  |  | - |  |  |  | 1,222 |  |  |  | (11,853 | ) |  |  | 20,462 |
Income from insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 18,571 |  |  |  | - |  |  |  | - |  |  |  | (18,571 | ) |  |  | - |
Gain in the disposal of investments and assets, dividends and gain on an increase to control |  |  | 6 |  |  |  | (2 | ) |  |  | 11 |  |  |  | - |  |  |  | 159 |  |  |  | - |  |  |  | 26 |  |  |  | - |  |  |  | - |  |  |  | 41 |  |  |  | 241 |
Other income |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 15 |  |  |  | - |  |  |  | 21 |  |  |  | 2 |  |  |  | 23 |  |  |  | - |  |  |  | (33 | ) |  |  | 30 |
Increase in the fair value of investment property |  |  | - |  |  |  | 523 |  |  |  | (3 | ) |  |  | - |  |  |  | - |  |  |  | 2 |  |  |  | 21 |  |  |  | - |  |  |  | - |  |  |  | (3 | ) |  |  | 540 |
Financing income |  |  | 181 |  |  |  | 393 |  |  |  | 48 |  |  |  | 469 |  |  |  | - |  |  |  | 17 |  |  |  | 5 |  |  |  | 4 |  |  |  | 2 |  |  |  | (295 | ) |  |  | 824 |
Total sectorial income in the year 2012 |  |  | 6,127 |  |  |  | 2,073 |  |  |  | 11,626 |  |  |  | 11,394 |  |  |  | 159 |  |  |  | 1,556 |  |  |  | 18,625 |  |  |  | 27 |  |  |  | 1,224 |  |  |  | (30,714 | ) |  |  | 22,097 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales and services |  |  | 3,369 |  |  |  | 405 |  |  |  | 8,897 | (7) |  |  | 7,566 |  |  |  | - |  |  |  | 1,202 |  |  |  | - |  |  |  | - |  |  |  | 998 |  |  |  | (8,229 | )(7) |  |  | 14,208 |
Cost of insurance business |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 14,759 |  |  |  | - |  |  |  | - |  |  |  | (14,759 | ) |  |  | - |
Costs and expenses in connection with insurance business and financial services |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,080 |  |  |  | - |  |  |  | - |  |  |  | (3,080 | ) |  |  | - |
Oil exploration expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 63 |  |  |  | - |  |  |  | (63 | ) |  |  | - |
Research and development expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 36 |  |  |  | 36 |
Selling and marketing expenses |  |  | 865 |  |  |  | 26 |  |  |  | 2,385 | (7) |  |  | 1,877 |  |  |  | - |  |  |  | 16 |  |  |  | - |  |  |  | - |  |  |  | 132 |  |  |  | (1,874 | )(7) |  |  | 3,427 |
Administrative and general expenses |  |  | 629 |  |  |  | 89 |  |  |  | 124 |  |  |  | 391 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 33 |  |  |  | 97 |  |  |  | (172 | ) |  |  | 1,191 |
The Company’s share of the net income (loss) of affiliated companies, net |  |  | 2 |  |  |  | 873 |  |  |  | - |  |  |  | 109 |  |  |  | - |  |  |  | 111 |  |  |  | -7 |  |  |  | 124 |  |  |  | (3 | ) |  |  | (277 | ) |  |  | 932 |
Loss on the disposal and writing down of investments and assets |  |  | 2 |  |  |  | - |  |  |  | 188 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 426 |  |  |  | 335 |  |  |  | - |  |  |  | (501 | ) |  |  | 450 |
Other expenses |  |  | - |  |  |  | 6 |  |  |  | - |  |  |  | 12 |  |  |  | - |  |  |  | - |  |  |  | 1 |  |  |  | 1 |  |  |  | 3 |  |  |  | 37 |  |  |  | 60 |
Financing expenses |  |  | 440 |  |  |  | 564 |  |  |  | 148 |  |  |  | 894 |  |  |  | - |  |  |  | 71 |  |  |  | 316 |  |  |  | 1 |  |  |  | 32 |  |  |  | (169 | ) |  |  | 2,297 |
|  |  | 5,307 |  |  |  | 1,963 |  |  |  | 11,742 |  |  |  | 10,849 |  |  |  | - |  |  |  | 1,4 |  |  |  | 18,575 |  |  |  | 557 |  |  |  | 1,259 |  |  |  | (29,051 | ) |  |  | 22,601 |
Income (loss) before taxes on income |  |  | 820 |  |  |  | 110 |  |  |  | (116 | ) |  |  | 545 |  |  |  | 159 |  |  |  | 156 |  |  |  | 50 |  |  |  | (530 | ) |  |  | (35 | ) |  |  | (1,663 | ) |  |  | (504 | )
Taxes on income |  |  | (220 | ) |  |  | (224 | ) |  |  | 5 |  |  |  | (151 | ) |  |  | - |  |  |  | (43 | ) |  |  | (133 | ) |  |  | (3 | ) |  |  | - |  |  |  | 317 |  |  |  | (452 | )
Non-controlling interests |  |  | (407 | ) |  |  | (123 | ) |  |  | (1 | ) |  |  | (327 | ) |  |  | (55 | ) |  |  | (62 | ) |  |  | 145 |  |  |  | 372 |  |  |  | (4 | ) |  |  | 222 |  |  |  | (240 | )
Discontinued operations after taxation |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 463 |  |  |  | 463 |
Sectorial results for the year 2012 –attributed to shareholders in the Company |  |  | 193 |  |  |  | (237 | ) |  |  | (112 | ) |  |  | 67 |  |  |  | 104 |  |  |  | 51 |  |  |  | 62 |  |  |  | (161 | ) |  |  | (39 | ) |  |  | (661 | ) |  |  | (733 | )
Depreciation and amortization included under expenses (6) |  |  | 761 |  |  |  | 12 |  |  |  | 462 |  |  |  | 713 |  |  |  | - |  |  |  | - |  |  |  | 229 |  |  |  | - |  |  |  | 28 |  |  |  |  |  |  |  |  |
Impairment in value included under expenses |  |  | - |  |  |  | - |  |  |  | 188 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 237 |  |  |  | 335 |  |  |  | - |  |  |  |  |  |  |  |  |
Interest income |  |  | 114 |  |  |  | 217 |  |  |  | 43 |  |  |  | 77 |  |  |  | - |  |  |  | - |  |  |  | 1,680 |  |  |  | 2 |  |  |  | 2 |  |  |  |  |  |  |  |  |
Interest expenses |  |  | 346 |  |  |  | 456 |  |  |  | 157 |  |  |  | 429 |  |  |  | - |  |  |  | - |  |  |  | 251 |  |  |  | - |  |  |  | 23 |  |  |  |  |  |  |  |  |

IDB Development Corporation Ltd. Convenience translation
283

Note 34 – Segments (cont.)

| C. | The sectorial results (cont.)

(1) | The liabilities of the Adama Sector as of December 31, 2012, include the host contract on a mixed financial instrument in respect of a non-recourse loan in an amount of NIS 3,753 million (the non-recourse loan is repayable by means of Adama shares, where the financing expenses in respect thereof (interest and linkage differences) for the year ended December 31, 2012 amount to NIS 78 million. This financing income has not been presented as part of the information in respect of a sector, since it does not form part of internal reporting format, as part of the Adama sector, which is routinely provided to the Group's chief operational decision maker.

| In addition, the Adama sector liabilities as of December 31, 2012 include an embedded derivative with a value of NIS 679 million, where the financing income in respect of the revaluation of the derivative for the year ended December 31, 2012 amounted to NIS 17 million. These financing expenses have not been presented as part of the information in respect of a sector, since it does not form part of the format for the internal reporting, as part of the Adama sector, which is routinely provided to the Group's chief operational decision maker.

(2) | The Credit Suisse sector is classified as discontinued operations, as detailed in note 3.H.4.c above. The liabilities of the Credit Suisse sector as of December 31, 2012, which are detailed further on in this note, include NIS 1,240 million of loans from foreign banks, net of charged deposits where the financing expenses in respect of them (interest and exchange differences) in the year ended December 31, 2012, amount to NIS 44 million. This financing income is not presented as part of the information in connection with a sector, since it does not form part of the format for the internal reporting, as part of the Credit Suisse sector, which is routinely provided to the Group's chief operational decision maker. In addition, the liabilities of the Credit Suisse sector as of December 31, 2012, include liabilities for options on the exchange rate of the Swiss Franc against the Shekel in an amount of NIS 14 million, where the financing income in respect thereof for the year ended December 31, 2012 amounted to NIS 12 million. This financing income has been presented as part of the Credit Suisse sector, but separately from the sectorial results (since they form part of the internal reporting sector, under the Credit Suisse sector, which is regularly provided to the Group's chief operational decision maker, but separately from the sectorial results).

(3) | As a result of the sale of the Company’s main holdings in Clal Industries, Mashav ceased to be a reportable sector in the Company's financial statements, as of the third quarter of 2012.

(4) | This sector is not reportable.

(5) | Derives primarily from the elimination of the Adama sector balance that is recorded in the financial statements under the equity method of accounting, from the cancellation of balances in respect of the Clal Insurance Business Holdings presented in the financial statements as a financial asset that is measured at fair value, as well as companies that do not comply with the definitions for an sector of operations.

(6) | Not including the writing down of investments that are recorded under the Company's share of the net income (loss) of affiliated companies, net under gain on disposal and write-downs of investments and assets.

(7) | Reclassified, see Note 1.F.2 above.

IDB Development Corporation Ltd. Convenience translation
284

Note 34 – Segments (cont.)

| D. | The composition of the adjustments to consolidated

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | Sales and services |  |  | Sectorial results – attributed to the shareholders in the Company |  |  | Sales and services |  |  | Sectorial results – attributed to the shareholders in the Company |  |  | Sales and services |  |  | Sectorial results – attributed to the shareholders in the Company |
|  | NIS Millions |
Cancellation of amounts in respect of sectors that are classified in the financial statements as held companies that are treated under the equity method of accounting (1) |  |  | (11,474 | ) |  |  | - |  |  |  | (11,130 | ) |  |  | - |  |  |  | (10,910 | ) |  |  | - |
The inclusion of the expenses of head office companies that are held and which do not meet the definition of a sector |  |  | 226 |  |  |  | (237 | ) |  |  | 733 |  |  |  | (1,522 | ) (2) |  |  | 573 |  |  |  | (1,124 | )
Discontinued operations |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 763 | (2) |  |  | (1,516 | ) |  |  | 463 |
Other adjustments |  |  | (21 | ) |  |  | 39 |  |  |  | 51 |  |  |  | (8 | ) |  |  | - |  |  |  | - |
|  |  | (11,269 | ) |  |  | (198 | ) |  |  | (10,346 | ) |  |  | (767 | ) |  |  | (11,853 | ) |  |  | (661 | )

| (1) | In relation to companies whose financial statements have been initially consolidated in the period – including their sales and services, from the beginning of the year until the time of their initial consolidation.

| (2) | Reclassification; see note 1.F.2 above.

IDB Development Corporation Ltd. Convenience translation
285

Note 34 – Segments (cont.)

| E. | Sectorial balance sheet figures as of December 31, 2014

|  | Cellcom |  |  | Property and Buildings and projects in Los Angeles |  |  | Shufersal |  |  | Adama |  |  | Clal Holdings Insurance Enterprises |  |  | Others (1) |  |  | Adjustments |  |  | Consolidated |
|  | NIS millions |
| 1 | ) | Sectorial assets * |  |  | 7,240 |  |  |  | 15,188 |  |  |  | 7,063 |  |  |  | 18,452 |  |  |  | 91,088 |  |  |  | 886 |  |  |  | (99,088 | ) |  |  | 40,829 |
| * |  | Includes investments in investee companies that are treated with the equity method of accounting |  |  | - |  |  |  | 561 |  |  |  | 51 |  |  |  | 299 |  |  |  | 212 |  |  |  | - |  |  |  | - |  |  |  | - |
| 2 | ) | Sectorial liabilities |  |  | 6,148 |  |  |  | 13,228 |  |  |  | 6,054 |  |  |  | 15,325 |  |  |  | 86,785 |  |  |  | 677 |  |  |  | (90,699 | ) |  |  | 37,518 |
| 3 | ) | Adjustments of fair value, goodwill and surplus cost that are attributed to the sector |  |  | 1,427 |  |  |  | 132 |  |  |  | 752 |  |  |  | 529 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

(1) | Includes the IDB Tourism sector and the Oil and Gas Assets.

IDB Development Corporation Ltd. Convenience translation
286

Note 34 – Segments (cont.)

| F. | Sectorial balance sheet data as of December 31, 2013

|  | Cellcom |  |  | Property and Buildings and projects in Los Angeles |  |  | Shufersal |  |  | Adama |  |  | Credit Suisse |  |  | Clal Holdings Insurance Enterprises |  |  | Others (1) |  |  | Adjustments |  |  | Consolidated |
|  | NIS Millions |
| 1. |  | Sectorial assets * |  |  | 7,579 | (3) |  |  | 14,516 | (3) |  |  | 7,278 |  |  |  | 15,470 |  |  |  | 1,138 |  |  |  | 86,050 |  |  |  | 974 |  |  |  | (86,837 | )(2)(3) |  |  | 46,168 |
| * |  | Includes investments in held companies that are treated under the equity method of accounting |  |  | - |  |  |  | 589 |  |  |  | 25 |  |  |  | 254 |  |  |  | - |  |  |  | 138 |  |  |  | - |  |  |  | - |  |  |  | - |
| 2. |  | Sectorial liabilities |  |  | 6,869 | (3) |  |  | 12,831 | (2) |  |  | 6,080 |  |  |  | 13,653 |  |  |  | 431 |  |  |  | 82,123 |  |  |  | 1,039 |  |  |  | (80,873 | )(2)(3) |  |  | 42,153 |
| 3. |  | Adjustments of fair value, goodwill and surplus cost that are attributed to the sector |  |  | 1,525 | (3) |  |  | 128 |  |  |  | 1,012 |  |  |  | 1,242 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

| (1) | Includes the IDB Tourism sector and the Oil and Gas Assets.

| (2) | Retroactive application of IFRIC 21 - Levies, see note 1.E.6.a above.

| (3) | Reclassified.

IDB Development Corporation Ltd. Convenience translation
287

Note 34 – Sectors (cont.)

| G. | Sectorial assets

| ** The composition of the adjustments to consolidated:

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
The sectorial assets |  |  |  |  |  |
Elimination of amounts in respect of a sector that is classified in the financial statements as a held company that is treated under the equity method of accounting |  |  | (18,452 | ) |  |  | (15,578 | )
Elimination of amounts in respect of a sector that is classified in the financial statements as a financial asset that is measured at fair value |  |  | (91,088 | ) |  |  | (86,050 | )
Inclusion of the amount of the investment in a company that is presented as a financial asset that is measured at fair value |  |  | 1,696 |  |  |  | 3,182 |
Inclusion of the amount of the investment in companies that are recorded under the equity method of accounting, as recorded in the financial statements |  |  | 3,102 |  |  |  | 2,055 |
Inclusion of adjustments to fair value for the assets of held companies and goodwill in respect thereof |  |  | 2,770 |  |  |  | 3,453 | (2)
Inclusion of the assets of head office companies and held companies that do not meet the definition of a sector |  |  | 3,048 |  |  |  | 6,142 | (1)
Other adjustments |  |  | (164 | ) |  |  | (41 | )(1)
|  |  | (99,088 | ) |  |  | (86,837 | )
The sectorial liabilities |  |  |  |  |  |  |  |
Elimination of amounts in respect of a sector that is classified in the financial statements as a held company that is treated under the equity method of accounting |  |  | (15,325 | ) |  |  | (13,669 | )
Elimination of amounts in respect of segments that are classified in the financial statements as a financial asset that is measured at fair value |  |  | (86,785 | ) |  |  | (82,123 | )
Inclusion of the liabilities of head office companies and held companies that do not meet the definition of a sector |  |  | 11,168 |  |  |  | 14,495 | (1)
Inclusion of adjustments to fair value for the liabilities of subsidiary companies |  |  | 392 |  |  |  | 464 | (2)
Other adjustments |  |  | (149 | ) |  |  | (40 | )(1)
|  |  | (90,699 | ) |  |  | (80,873 | )

| (1) | Retroactive application of IFRIC 21 - Levies, see note 1.E.6.a above.

| (2) | Reclassified.

| H. | Investments in equity

|  | Cellcom |  |  | Property and Building and projects in Los Angeles |  |  | Shufersal |  |  | Adama |  |  | Clal Holdings Insurance Enterprises |  |  | Others |
|  | NIS millions |
For 2014 |  |  | 487 |  |  |  | 371 |  |  |  | 458 |  |  |  | 667 |  |  |  | 405 |  |  |  | 17 |
For 2013 |  |  | 365 |  |  |  | 503 |  |  |  | 349 |  |  |  | 753 |  |  |  | 327 |  |  |  | - |

The equity investment for a sector is the amount of the non-current assets that have been added in the sectorial company.
IDB Development Corporation Ltd. Convenience translation
288

Note 34 – Segments (cont.)

| I. | The types of products and services from which the reportable segments generate their revenues:

| - Cellcom – Cellular telephone services, content and added value services, other services and revenues from the sale of end-user equipment in the cellular field, as well as the provision of internet connection services, international telephony and the provision of managed services.

| - Property and Buildings and project in Los Angeles – the rental of income-generating properties and residential buildings.

| - Shufersal – Retail and the rental of income-generating properties.

| - Adama – the sale of agro products and non-agro products.

| - Clal Holdings Insurance Enterprises- operates through subsidiary companies in the fields of insurance, pensions and provident funds, in the field of financial services and in the holding of assets and real businesses.

| - Credit Suisse – Financial services in the private banking field, investment banking and asset management. (Credit Suisse ceased to be a reportable sector in the Company’s financial statements as from 2014.

| - Mashav – include the cement companies, through Nesher, which produces cement and Taavura, which is engaged in the provision of haulage, infrastructure and logistical services, the importing and marketing of trucks, buses, heavy equipment and cranes. (Mashav ceased to be a reportable sector as from the third quarter of 2012.

| J. | Information regarding income from products and services, based on the financial information in the Company’s consolidated financial statements

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Information in respect of sales and services to external customers |  |  |  |  |  |  |  |  |
Cellular - |  |  |  |  |  |  |  |  |  |
| Cellular communications and other services |  |  | 2,621 |  |  |  | 2,937 |  |  |  | 3,445 |
| Landline communications services |  |  | 489 |  |  |  | 559 |  |  |  | 599 |
| Sale of telephone equipment |  |  | 1,005 |  |  |  | 942 |  |  |  | 1,356 |
Internet services - |  |  |  | 451 |  |  |  | 483 |  |  |  | 531 |
Real Estate - |  |  |  |  |  |  |  |  |  |  |  |  |
| Leasing of income-generating properties |  |  | 803 |  |  |  | 795 |  |  |  | 828 |
| Residential construction |  |  | 423 |  |  |  | 560 |  |  |  | 382 |
Retail - |  |  |  | 11,532 |  |  |  | 11,843 |  |  |  | 11,503 |
Tourism - |  |  |  | 1,001 |  |  |  | 1,059 |  |  |  | 1,222 |
Financial - | Other |  |  | 45 |  |  |  | 45 |  |  |  | 45 |
Journalism, advertising space and printing works - |  |  |  | - |  |  |  | - |  |  |  | 180 |
Other products - |  |  |  | 176 |  |  |  | 762 |  |  |  | 371 |
|  |  |  | 18,546 |  |  |  | 19,985 |  |  |  | 20,462 |

IDB Development Corporation Ltd. Convenience translation
289

Note 34 – Segments (cont.)

| K. | Information on the basis of geographical areas

The country of residence of the Company and of some of the sector companies is Israel. The country of residence of some of the sector companies is abroad and some of them produce their revenues in foreign countries.

| 1. | Revenues from sales to external customers on the basis of geographical location, based on the financial information in the Company's consolidated financial statements

|  | For the year ended December 31 |
|  | 2014 |  |  | 2013 |  |  | 2012 |
|  | NIS millions |
Israel |  |  | 17,889 |  |  |  | 18,591 |  |  |  | 19,738 |
USA |  |  | 473 |  |  |  | 955 |  |  |  | 435 |
Europe |  |  | 112 |  |  |  | 273 |  |  |  | 177 |
Asia, except for India and Japan |  |  | 13 |  |  |  | 66 |  |  |  | 56 |
Others |  |  | 59 |  |  |  | 100 |  |  |  | 56 |
|  |  | 18,546 |  |  |  | 19,985 |  |  |  | 20,462 |

| 2. | Non-current assets on a geographical basis*

|  | As of December 31 |
|  | 2014 |  |  | 2013 |
|  | NIS millions |
Israel |  |  | 18,026 |  |  |  | 18,146 |
USA |  |  | 4,105 |  |  |  | 3,328 |
Europe |  |  | 54 |  |  |  | 54 |
|  |  | 22,185 |  |  |  | 21,528 |

| * | Excluding investments in held companies that are treated under the equity method of accounting

Note 35 – Events after the date of the Statement of Financial Position

A. | For details of the rights issue that the Company undertook in January 2015, whose immediate proceeds amounted to a gross total of NIS 417 million; see note 15.B.5 above.

B. | In January 2015, Adama carried out a private issue of 533,330 units of Adama securities, as detailed below:

Item |  | Additional details |  | Quantity for each unit | Total quantity issued
Series B bonds |  |  |  | (1) | NIS 1,000 par value | NIS 533,000,000 par value
Option notes |  |  |  | (2) | 5 option certificates | 2.67 million options

| The total net proceeds from the issue amounted to NIS 690 million.

(1) | Series B bonds were issued by way of expanding the series and are linked to the index with an annual interest rate of 5.15%, and the repayment of principal will be made in 17 equal installments between the years 2020 and 2036.

(2) | Options are not registered for trade on the Stock Exchange and may be exercised by May 10, 2015 (inclusive). Each option may be realized into NIS 100 par value of Adama’s existing Series B bonds against a payment in cash (which is not linked to any basis of linkage whatsoever) totaling NIS 127. The options not exercised by May 10, 2015 shall expire. Should all of the options stated above be exercised in full, then Adama will issue NIS 267 million par value of Series B bonds and will receive in return NIS 339 million.

IDB Development Corporation Ltd. Convenience translation
290

Note 35 – Events after the date of the Statement of Financial Position (cont.)

| C. | In February 2015, Elron invested in Pocared Diagnostics Ltd. (Pocared), an Israeli company that is developing an advanced technological system to automatically and swiftly diagnose infectious diseases using an optical technology, and that was being held by Elron at the rate of 50.3% of its issued share capital and dealt with accordingly using the balance sheet value method, invested a sum of $4.5 million (out of a total investment of $5 million that Elron and other of its shareholders invested in Pocared.

| It should be mentioned that some of Pocared’s shareholders, including Elron, undertook to invest an additional sum in Pocared of up to $10 million subject to Pocared complying with certain milestones. Elron's share in the above additional investment total is $8.9 million.

| As a result of this investment, Elron’s holding in Pocared rose to about 53.3% of its issued share capital and to about 50.1% of its share capital on a full dilution basis, and for the first time Elron has the right to appoint most of Pocared’s board of directors and as from February 2015, Elron will begin to consolidate Pocared’s financial statements into its own. Owing to this change in the accounting records, Elron is expected to declare, during the first quarter of 2015, an estimated profit of $11 million in respect of the new measurement of fair value of Pocared’s shares that Elron was holding prior to the above consolidation (a fair assessment of value totaling $11.7 million less the value in Elron’s books of the previous holding totaling $0.7 million). The Company's share in Elron's profit estimated above amounts to $4 million dollars. The above profit data that Elron will record as a result of the change in the accounting records method, is an estimate only and is subject to the completion of a valuation of Pocared’s assets and liabilities by an external appraiser and also the approval of Elron’s financial statements as of March 31, 2015.

| D. | In February 2015, Cellcom issued shares to the public, pursuant to its shelf offer report of January 2015, which was published pursuant to its shelf prospectus of January 2015 (which amended its shelf prospectus of June 2014) and also through a private issue to institutional investors:

· | NIS 844 million nominal value additional bonds from Cellcom’s existing H series (which are index-linked) by way of expanding the series in return for the purchase of NIS 555 million nominal value of D series bonds (which are index-linked).

· | NIS 335 million nominal value for additional bonds from Cellcom’s existing I series (which are not index-linked), by way of expanding the series in return for the purchase of NIS 272 million nominal value B Series bonds (which are not index-linked).

| The bonds in the H and I Series that were issued as aforesaid were listed on the Stock Exchange, and the D and E series bonds, which were purchased by Cellcom as aforesaid, expired and were delisted from the Stock Exchange.

| E. | In February 2015, Cellcom entered into an engagement through a collective labor agreement with the employees’ representatives and with the New General Federation of Workers for a period of three years (from 2015 until 2017). This agreement applies to Cellcom’s employees and those of 013 Netvision Ltd., a subsidiary of Cellcom, apart from management positions and other particular positions. This agreement relates to policy and hiring conditions involving different aspects, including a minimum wage, an annual increase in salary, incentives, benefits and one-time payments or other annual payments to employees, a welfare budget, as well as regarding the procedures for manning job positions, mobility and dismissal, the authority of Cellcom’s management and that of the employees’ representatives in relation to the above procedures. The agreement includes innovative conditions according to which employees have the right to participate in Cellcom’s operating profit over and above a certain threshold and to enjoy additional payments under certain conditions. According to Cellcom’s estimates, the cost of this agreement to Cellcom over the coming three years is estimated at NIS 200 million before tax.

| F. | For details concerning the approval of the Discount Investments Board, at the request of the trustees for the holders of its bonds involving B, D, F, G, H & I series, for giving its undertaking in connection with certain activities, see Note 16.F.1.f above.

IDB Development Corporation Ltd. Convenience translation
291

Note 35 – Events after the date of the Statement of Financial Position (cont.)

| G. | In February 2015, the percentage of Mr. Mordechai Ben-Moshe’s holding in the Company's issued share capital decreased. This decrease may constitute a ground to demand immediate repayment of the loans that the Company and Discount Investments received. For details, see notes 16.E.n and 16.F.1.b above. Furthermore, the aforesaid change in the structure of the control of the Company will require the approval of the Ministry of Communications with regard to Cellcom’s licenses. For details, see note 23.B.1 above.

| H. | For details concerning the agreement that was signed between IDB Tourism and several of its subsidiaries and a third party, for the sale of Diesenhaus’ tourist activities both domestic and incoming and the shares of certain of Diesenhaus’ subsidiaries which are subject to pending conditions, see note 3.H.6.b above.

| For details concerning IDB Tourism and the Company's engagement in the compromise agreement with the Sky Fund, subject to completing the transaction for the sale of Diesenhaus’ activities, see Note 3.H.6.c above.

| I. | For details concerning the IDB Tourism and Israir’s engagement with a foreign banking corporation by way of a Letter of Undertaking for a reorganization amounting to an estimated scope of about $90 million for the benefit of Israir; see note 16.F.6.1 above.

| J. | Regarding claims submitted against held corporations after the date of the statement on financial position and changes that apply after this date involving pending and standing claims as of the financial statement’s date, see note 23 above.

IDB Development Corporation Ltd. Convenience translation
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Annex A – List of the Main Companies as of December 31, 2014
List of the main companies that are directly held by the Company

|  |  | Holding percentage |  |
Company name | Holding company |  | % |  |
Discount Investment Corporation Ltd. | IDB Development Corporation Ltd. |  |  | 73.92 |  | Consolidated subsidiary
Clal Holdings Insurance Enterprises Ltd. | IDB Development Corporation Ltd. |  |  | 54.97 |  | Investment presented at fair value through the Statement of Income
IDB Tourism (2009) Ltd. | IDB Development Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
IDB Group Investment Inc. (1) | Maniv Issues Ltd. |  |  | 50.00 |  | Consolidated subsidiary
Modiin Energy Limited Partnership | IDB Development Corporation Ltd. |  |  | 9.12 |  | Included partnership

List of the main companies that are held by Discount Investment Corporation Ltd.

|  |  | Holding percentage |  |
Company name | Holding company |  | % |  |
Koor Industries Ltd. (2) | Discount Investment Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Elron Electronic Industries Ltd. | Discount Investment Corporation Ltd. |  |  | 50.32 |  | Consolidated subsidiary
Bartan Holdings and Investments Ltd. (3) | Discount Investment Corporation Ltd. |  |  | 55.68 |  | Consolidated subsidiary
Epsilon Investment House Ltd. | Discount Investment Corporation Ltd. |  |  | 68.75 |  | Consolidated subsidiary
Property & Building Corporation Ltd.(5) | Discount Investment Corporation Ltd. |  |  | 76.46 |  | Consolidated subsidiary
Gav Yam Land Ltd. | Property & Building Corporation Ltd. |  |  | 69.07 |  | Consolidated subsidiary
Israel Property Rental Corporation Ltd.(ISPRO) (1) | Property & Building Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
MATAM - Haifa Science Industries Center | Property & Building Corporation Ltd. |  |  | 50.10 |  | Consolidated subsidiary
Neveh-Gad Building & Development Ltd. | Property & Building Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Hadarim Properties Ltd. | Property & Building Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
PBC USA Investment Inc. | Property & Building Corporation Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Cellcom Israel Ltd. (5) | Discount Investment Corporation Ltd. |  |  | 41.78 | (4) | Consolidated subsidiary
Netvision Ltd. | Cellcom Israel Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Shufersal Ltd. (5) | Discount Investment Corporation Ltd. |  |  | 45.49 | (4) | Consolidated subsidiary
Shufersal Real Estate Ltd. | Shufersal Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Adama Agricultural Solutions Ltd. (5) | Koor industries Ltd. |  |  | 40.00 |  | Included

(1) | The other 50% is held indirectly by Property & Building Corporation Ltd.

(2) | See note 3.H.4.b.

(3) | Includes a holding through another company in the Discount Investments Ltd. group.

(4) | 45.17% of voting rights.

(5) | Includes a holding through companies that are fully owned by the holding company.

IDB Development Corporation Ltd. Convenience translation
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Annex A – List of the Main Companies as of December 31, 2013 (cont.)
List of the main companies held by IDB Tourism (2009) Ltd.

|  |  | Holding percentage |  |
Company name | Holding company |  | % |  |
Clal Travel & Tourism Holdings Ltd. | IDB Tourism (2009) Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Diesenhaus Ltd. | Clal Travel & Tourism Holdings Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Diesenhaus Unitours Incoming Tourism (1998) Ltd. | Diesenhaus Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Diesenhaus Travel & Tourism (1979) Ltd. | Diesenhaus Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Diesenhaus Ramat Hasharon (1982) Ltd. | Diesenhaus Travel & Tourism (1979) Ltd. |  |  | 50.00 |  | Affiliated company
Anadim Tourism & Aviation Ltd. | IDB Tourism (2009) Ltd. |  |  | 100.00 |  | Consolidated subsidiary
Open Ski Ltd. | Anadim Tourism & Aviation Ltd. |  |  | 53.50 |  | Consolidated subsidiary
Israir Airlines & Tourism Ltd. | Anadim Tourism & Aviation Ltd. |  |  | 100.00 |  | Consolidated subsidiary

IDB Development Corporation Ltd. Convenience translation
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Annex B –Share Based Payments
The main option programs for employees in the Company’s subsidiaries as of December 31, 2014:

|  | In Cellcom |
The subsidiary company’s equity as of December 31, 2013 |  |  |
Number of shares |  |  | 100,584,490 |
Total equity attributed to the shareholders of the subsidiary (in NIS millions) |  |  | 1,076 |
General details of the plan |  |  |  |
The year in which the plan was approved |  |  | 2006 |
The number of options remaining as of December 31, 2014, which have not yet been granted |  | (a) 769,517 |
The maximum contractual lifetime of the options at the time of their grant |  | 3.5-6 years |
Vesting |  |  |  |
The number of vesting years from the time of the grant |  |  | 2-4 |
The vesting time of the first tranche – end of year from the date of the grant |  |  | 1 |
The vesting time of the last tranche – end of year from the date of the grant |  |  | 2-4 |
The percentage of the options vesting at the end of each year |  |  | 25%-50 | %
The exercise price (for the options in existence as of December 31, 2014) |  |  |  |
The base exercise price per share at the time of the grant of the options |  | (a) $5.91-$31.74 |
Adjustment of the exercise price for the distribution of dividends |  | Yes |
Adjustment of the exercise price for a change in the index |  | No |
The share price of the subsidiary company on the Stock Exchange (for the options in existence as of December 31, 2014) |  |  |  |
At the time of the grant (the time of the approval by the Board of Directors) |  | $ | 6.14-$33.69 |
At the time of the allocation of the options |  | $ | 6.14-$33.69 |
Movements in the number of option warrants in circulation in 2014 |  |  |  |
Balance as of January 1, 2014 |  |  | 2,965,964 |
Exercised in the course of the year |  |  | (1,986,093 | )
Expired or forfeited in the course of the year |  |  | (341,006 | )
Balance as of December 31, 2014 |  |  | 638,865 |
Additional data as of December 31, 2014 |  |  |  |
Exercise price of the options in circulation |  | $ | 5.67-$28.95 |
Weighted average exercise price of the options in circulation |  | $ | 15.86 |
Number of exercisable options |  |  | 445,365 |
Weighted average exercise price of the exercisable options |  | $ | 17.00 |
Weighted average lifetime of the options in circulation |  | 2.1 years |
Benefits inherent in the options that have been granted (including in respect of plans that have ended) |  |  |  |
Expenses recorded in the year 2014 (in NIS millions) |  |  | 3 |
Expenses recorded in the year 2013 (in NIS millions) |  |  | 9 |
Expenses recorded in the year 2012 (in NIS millions) |  |  | 7 |

(a) | The exercise price serves solely and exclusively for the purpose of determining the benefit component of the options, in accordance with which the quantity of shares that will actually be issued in return for exercising the options will be calculated. Only the nominal value of the shares that will be issued in return for exercising the options will be paid when the options are exercised.

295