Condensed Interim Consolidated Financial Statements

ARCOR S.A.I.C.

Condensed Interim Consolidated Financial Statements

For the six month period ended June 30, 2014 presented in comparative form

(Free translation from the original in Spanish for publication in Argentina)

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014 AND 2013

CONTENT

Glossary terms
Introduction
Condensed interim consolidated balance sheet
Condensed interim consolidated statement of income
Condensed interim consolidated statement of other comprehensive income
Condensed interim consolidated statement of changes in equity
Condensed interim consolidated statement of cash flows
Notes to the condensed interim consolidated financial statements:
1 / General information
1.1 / Company’s background
1.2 / Data of the parent company
2 / Accounting standards and basis for preparation
2.1 / Basis for preparation
2.2 / Changes in accounting policies. New accounting standards
2.3 / Seasonality of operations
3 / Critical accounting policies and estimates
4 / Segment information
5 / Property, plant and equipment
6 / Investment properties
7 / Intangible assets
8 / Investments
8.1 / Investments in associates
8.2 / Other investments at amortized cost
9 / Restriction on the distribution of profits
10 / Changes in common stock
11 / Loans
12 / Provisions deducted from assets and included in liabilities
13 / Cost of sales and services provided
14 / Information about expenses by function and nature
15 / Exceptional results
16 / Commitments and guarantees granted
17 / Transactions and balances with related parties
18 / Corporate changes
19 / Subsequent events
Information required by Article 1, Chapter III, Title IV of RT/CNV
Schedule A: / Note 5
Schedule B: / Note 7
Schedule C / Note 8.1
Schedule D: / Notes 6 and 8.2
Schedule E: / Note 12
Schedule F: / Note 13
Schedule H: / Note 14

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS AT JUNE 30, 2014 AND 2013

GLOSSARY TERMS

Term / Definition
ARG PCGA / TP (technical pronouncements) issued by the FACPCE with the exception of TP No. 26 (amended by TP No. 29) which adopts the IFRS. These TP include general and specific standards for valuation and disclosure in effect in Argentina, for the companies that are not obliged or have not opted to adopt IFRS.
ARS / Argentine Peso.
Associates / Companies over which Arcor S.A.I.C. has significant influence as established by IAS 28.
B.N.DES. / Brazilian Development Bank.
BRL / Brazilian Real.
CCL / Commercial Companies Law.
CLP / Chilean Peso.
CNV / National Securities Commission of the Argentine Republic.
EUR / Euro.
FACPCE / Argentine Federation of Professional Councils in Economic Sciences.
Group / Economic group formed by Arcor S.A.I.C. and its subsidiaries.
IASB / International Accounting Standard Board.
IFRIC / International Financial Reporting Interpretations Committee.
The Company / Arcor S.A.I.C. / Indistinctively, Arcor Sociedad Anónima, Industrial y Comercial.
IAS / International Accounting Standards.
IFRS / International Financial Reporting Standards.
GR / CNV / General Resolutions issued by the CNV.
TP / FACPCE / Technical Pronouncements issued by FACPCE.
Subsidiaries Companies / Companies on which the Company are exposed or have right to variable yields and have the capacity to exert influence on the amount of these variable yields through its control over the subsidiary, as set forth by IFRS 10.
RT / CNV / Restated Text of the National Securities Commission.
USD / US Dollar.
VPP / Proportional Equity Value or Equity Method.

INTRODUCTION

Considering the requirements of the CNV, the Company has inverted the order to present its condensed interim consolidated and separate financial statements, disclosing at the start the consolidated information for the Company and its Subsidiaries and then, its condensed interim separate financial statements.

In accordance with current regulations, the condensed interim consolidated financial statements are supplementary information to the separate financial statements. The Company's Management recommends reading the condensed interim consolidated and separate financial statements together.

These financial statements have been prepared in the condensed manner established by IAS 34, thus, they do not contain all the information required for a set of annual financial statements under IFRS. However, these condensed interim consolidated financial statements have certain additional information than required by IAS 34, that the Management of the Company considers relevant for an adequate analysis and interpretation of the financial position and results of the operations of the Company and its subsidiaries.

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED BALANCE SHEET

AT JUNE 30, 2014 AND DECEMBER 31, 2013

(Values expressed in Argentine Peso)

ASSETS / Notes / 06.30.2014 / 12.31.2013
NON-CURRENT ASSETS
Property, plant and equipment / 5 / 3,788,350,836 / 2,927,645,018
Investment properties / 6 / 39,942,350 / 34,699,123
Intangible assets / 7 / 424,918,461 / 384,122,693
Investment in associates / 8 / 22,328 / 23,536
Biological assets / 69,656,230 / 62,419,083
Deferred tax assets / 308,637,611 / 232,164,357
Other investments at amortized cost / 8 / 7,884,798 / 5,256,290
Other receivables / 693,367,832 / 500,313,194
Trade accounts receivable / 34,559 / 45,781
TOTAL NON-CURRENT ASSETS / 5,332,815,005 / 4,146,689,075
CURRENT ASSETS
Biological assets / 10,733,635 / 10,503,065
Inventories / 3,995,576,435 / 3,424,707,435
Other receivables / 815,193,427 / 816,566,013
Trade accounts receivable / 3,119,396,828 / 2,628,114,791
Other investments at amortized cost / 8 / 2,086,151 / 1,672,098
Derivative financial instruments / 8,585,561 / 466,037
Cash and cash equivalents / 1,092,468,515 / 866,597,053
TOTAL CURRENT ASSETS / 9,044,040,552 / 7,748,626,492
TOTAL ASSETS / 14,376,855,557 / 11,895,315,567

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED BALANCE SHEET

AT JUNE 30, 2014 AND DECEMBER 31, 2013

(Values expressed in Argentine Peso)

LIABILITIES AND EQUITY / Notes / 06.30.2014 / 12.31.2013
EQUITY
Capital and reserves attributable to the Company´s shareholders
Outstanding shares / 10 / 700,000,000 / 700,000,000
Treasury stock / (70,244) / (70,244)
Legal reserve / 117,623,016 / 109,854,221
Optional reserve for future investments / 799,713,359 / 799,713,359
Special reserve for future dividends / 341,108,851 / 343,501,746
Special reserve, adoption of IFRS / 203,256,621 / 203,256,621
Retained earnings / 104,731,500 / 155,375,900
Other equity components / 1,032,244,327 / 563,812,372
SUBTOTAL ATTRIBUTABLE TO THE COMPANY´S SHAREHOLDERS / 3,298,607,430 / 2,875,443,975
Non-controlling interest / 1,229,105,901 / 1,011,745,577
TOTAL EQUITY / 4,527,713,331 / 3,887,189,552
LIABILITIES
NON-CURRENT LIABILITIES
Loans / 11 / 3,472,682,323 / 2,918,400,128
Deferred tax liabilities / 28,908,885 / 39,315,246
Employee retirement benefits obligations / 107,477,134 / 79,183,303
Provisions / 12 / 143,863,015 / 88,094,820
Trade accounts payable and other liabilities / 16,133,294 / 65,504,051
TOTAL NON-CURRENT LIABILITIES / 3,769,064,651 / 3,190,497,548
CURRENT LIABILITIES
Loans / 11 / 1,832,519,613 / 1,293,445,895
Derivative financial instruments / 2,420,485 / 1,212,652
Income tax payable / 156,291,861 / 80,460,769
Employee retirement benefits obligations / 31,754,768 / 20,552,351
Provisions / 12 / 61,084,382 / 60,129,034
Advances from customers / 84,100,499 / 64,962,680
Trade accounts payable and other liabilities / 3,911,905,967 / 3,296,865,086
TOTAL CURRENT LIABILITIES / 6,080,077,575 / 4,817,628,467
TOTAL LIABILITIES / 9,849,142,226 / 8,008,126,015
TOTAL EQUITY AND LIABILITIES / 14,376,855,557 / 11,895,315,567

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED STATEMENT OF INCOME

FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013

(Values expressed in Argentine Peso)

Notes / For the six month period ended: / For the three month period ended:
06.30.2014 / 06.30.2013 / 06.30.2014 / 06.30.2013
Sales of goods and services / 11,552,177,004 / 8,104,292,802 / 5,816,757,798 / 4,105,025,630
Cost of sales and services provided / 13 / (7,269,625,789) / (5,247,289,429) / (3,856,380,904) / (2,688,636,036)
SUBTOTAL / 4,282,551,215 / 2,857,003,373 / 1,960,376,894 / 1,416,389,594
Results generated by biological assets / 39,130,798 / (15,733,078) / 2,404,911 / (7,230,884)
GROSS PROFIT / 4,321,682,013 / 2,841,270,295 / 1,962,781,805 / 1,409,158,710
Selling expenses / 14 / (2,364,765,498) / (1,671,640,445) / (1,228,636,196) / (868,056,247)
Administrative expenses / 14 / (557,926,449) / (375,257,162) / (300,114,823) / (217,641,765)
Other (losses) net / (113,238,707) / (70,471,659) / (62,751,083) / (32,652,740)
OPERATING INCOME / 1,285,751,359 / 723,901,029 / 371,279,703 / 290,807,958
Exceptional results, net / 15 / (19,529,829) / 69,136,973 / (10,818,842) / 10,268,048
Financial income / 171,645,446 / 75,740,176 / 89,040,166 / 40,399,137
Financial expenses / (496,828,872) / (213,606,512) / (270,734,827) / (113,576,520)
Net foreign exchange differences / (429,543,135) / (172,877,215) / (24,743,125) / (81,804,058)
NET FINANCIAL RESULTS / (754,726,561) / (310,743,551) / (206,437,786) / (154,981,441)
Net (loss) on investments in associates / (4,629) / (5,466) / (5,018) / (1,508)
INCOME BEFORE INCOME TAX / 511,490,340 / 482,288,985 / 154,018,057 / 146,093,057
Income tax / (271,887,210) / (209,112,851) / (105,533,059) / (73,792,248)
NET INCOME FOR THE PERIOD / 239,603,130 / 273,176,134 / 48,484,998 / 72,300,809
Income attributable to:
Company's shareholders / 104,720,749 / 191,447,662 / (15,243,550) / 29,720,286
Non-controlling interest / 134,882,381 / 81,728,472 / 63,728,548 / 42,580,523
TOTAL / 239,603,130 / 273,176,134 / 48,484,998 / 72,300,809
Earnings per share attributable to Company's shareholders
Basic and diluted earnings per share / 0.00150 / 0.00273 / (0.00022) / 0.00042

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2014 AND 2013

(Values expressed in Argentine Peso)

For the six-month period ended: / For the three-month period ended:
06.30.2014 / 06.30.2013 / 06.30.2014 / 06.30.2013
NET INCOME FOR THE PERIOD / 239,603,130 / 273,176,134 / 48,484,998 / 72,300,809
OTHER COMPREHENSIVE INCOME FOR THE PERIOD
Items that can later be reclassified to income/loss
Cash flow hedges / 1,212,652 / 2,215,382 / - / (157,185)
SUBTOTAL / 1,212,652 / 2,215,382 / - / (157,185)
Currency translation differences and effect of hyperinflation in companies / 574,091,833 / 81,990,433 / 82,639,825 / (40,725,661)
Income tax effect / (2,942,666) / (345,550) / (221,654) / 339,666
SUBTOTAL / 571,149,167 / 81,644,883 / 82,418,171 / (40,385,995)
OTHER COMPREHENSIVE INCOME FOR THE PERIOD / 572,361,819 / 83,860,265 / 82,418,171 / (40,543,180)
COMPREHENSIVE INCOME FOR THE PERIOD / 811,964,949 / 357,036,399 / 130,903,169 / 31,757,629
Other comprehensive income for the period attributable to:
Company's shareholders / 468,431,955 / 67,558,991 / 68,767,032 / (33,727,324)
Non-controlling interest / 103,929,864 / 16,301,274 / 13,651,139 / (6,815,856)
TOTAL / 572,361,819 / 83,860,265 / 82,418,171 / (40,543,180)
Total comprehensive income for the period attributable to:
Company's shareholders / 573,152,704 / 259,006,653 / 53,523,482 / (4,007,038)
Non-controlling interest / 238,812,245 / 98,029,746 / 77,379,687 / 35,764,667
TOTAL / 811,964,949 / 357,036,399 / 130,903,169 / 31,757,629

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

ARCOR SOCIEDAD ANÓNIMA, INDUSTRIAL Y COMERCIAL

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2014 AND 2013

(Values expressed in Argentine Peso)

CAPTIONS / OWNER’S CONTRIBUTIONS / TREASURY
STOCK / RETAINED EARNINGS / OTHER EQUITY COMPONENTS / SUBTOTAL ATTRIBUTABLE TO COMPANY’S SHARE HOLDERS / NON-CONTROLLING INTEREST / TOTAL EQUITY
COMMON STOCK
OUTSTANDING SHARES / LEGAL
RESERVE / OPTIONAL RESERVE FOR FUTURE INVESTMENTS / SPECIAL RESERVE FOR FUTURE DIVIDENDS / SPECIAL RESERVE, ADOPTION OF IFRS
(1) / RETAINED EARNINGS / TRANSLATION RESERVE / RESERVE FOR CASH FLOW HEDGES
Balances at January 1, 2014 / 700,000,000 / (70,244) / 109,854,221 / 799,713,359 / 343,501,746 / 203,256,621 / 155,375,900 / 565,025,024 / (1,212,652) / 2,875,443,975 / 1,011,745,577 / 3,887,189,552
Net income for the period / - / - / - / - / - / - / 104,720,749 / - / - / 104,720,749 / 134,882,381 / 239,603,130
Other comprehensive income for the period / - / - / - / - / - / - / - / 467,219,303 / 1,212,652 / 468,431,955 / 103,929,864 / 572,361,819
Total comprehensive income for the period / - / - / - / - / - / - / 104,720,749 / 467,219,303 / 1,212,652 / 573,152,704 / 238,812,245 / 811,964,949
Capital contribution of non-controlling interest / - / - / - / - / - / - / - / - / - / - / 1,066 / 1,066
Setting-up reserves (2) / - / - / 7,768,795 / - / - / - / (7,768,795) / - / - / - / - / -
Cash Dividend (2) / - / - / - / - / (2,392,895) / - / (147,607,105) / - / - / (150,000,000) / (21,452,987) / (171,452,987)
Prescribed Dividend (3) / - / - / - / - / - / - / 10,751 / - / - / 10,751 / - / 10,751
Total at June 30, 2014 / 700,000,000 / (70,244) / 117,623,016 / 799,713,359 / 341,108,851 / 203,256,621 / 104,731,500 / 1,032,244,327 / - / 3,298,607,430 / 1,229,105,901 / 4,527,713,331

(1) Special reserve that may only be allocated to capitalization or absorption of possible negative balances of the Unappropriated Retained Earnings account, as established by the CNV and as resolved by the Ordinary and Extraordinary Shareholders´ Meeting held on April 27, 2013.

(2) As per the Ordinary and Extraordinary Shareholders' Meeting held on April 26, 2014. The non-controlling interest includes the distribution of cash dividends for ARS 21,452,987 of the subsidiary Arcorpar S.A.

(3) As set out by article 40 of the Corporate Bylaws, the unclaimed uncollected dividends become statute-barred 3 years after they have been made available.

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

CAPTIONS / SUBTOTAL ATTRIBUTABLE TO COMPANY’S SHARE HOLDERS / NON-CONTROLLING INTEREST / TOTAL EQUITY
PARTNERS’ CONTRIBUTIONS / TREASURY STOCK / RETAINED EARNINGS / OTHER EQUITY COMPONENTS
COMMON STOCK
OUTSTANDING SHARES / SHARES TO BE ISSUED AS A RESULTS OF A MERGER / ADDITIONAL PAID-IN CAPITAL / LEGAL RESERVE / OPTIONAL RESERVE FOR FUTURE INVESTMENTS / SPECIAL RESERVE FOR FUTURE DIVIDENDS / SPECIAL RESERVE, ADOPTION OF IFRS
(1) / RETAINED EARNINGS / TRANSLATION RESERVE / RESERVE FOR CASH FLOW HEDGES
Balances at January 1, 2013 / 700,000,000 / - / - / (70,244) / 86,340,623 / 799,713,359 / 300,000,000 / - / 470,271,965 / 205,955,195 / (5,134,376) / 2,557,076,522 / 799,056,106 / 3,356,132,628
Net income for the period / - / - / - / - / - / - / - / - / 191,447,662 / - / - / 191,447,662 / 81,728,472 / 273,176,134
Other comprehensive income for the period / - / - / - / - / - / - / - / - / - / 65,343,609 / 2,215,382 / 67,558,991 / 16,301,274 / 83,860,265
Total comprehensive income for the period / - / - / - / - / - / - / - / - / 191,447,662 / 65,343,609 / 2,215,382 / 259,006,653 / 98,029,746 / 357,036,399
Increase of capital / - / 44,806 / - / - / - / - / - / - / - / - / - / 44,806 / - / 44,806
Additional paid-in capital / - / - / 90,861 / - / - / - / - / - / - / - / - / 90,861 / - / 90,861
Cancellation increase capital / - / (44,806) / (90,861) / - / - / - / - / - / - / - / - / (135,667) / - / (135,667)
Setting-up reserves (2) / - / - / - / - / 23,513,598 / - / 83,501,746 / 203,256,621 / (310,271,965) / - / - / - / - / -
Acquisition of non-controlling interest / - / - / - / - / - / - / - / - / - / - / - / - / (163,700) / (163,700)
Cash Dividend (2) / - / - / - / - / - / - / - / - / (160,000,000) / - / - / (160,000,000) / (9,790,995) / (169,790,995)
Total at June 30, 2013 / 700,000,000 / - / - / (70,244) / 109,854,221 / 799,713,359 / 383,501,746 / 203,256,621 / 191,447,662 / 271,298,804 / (2,918,994) / 2,656,083,175 / 887,131,157 / 3,543,214,332