Grupo Clarín S.A.
Annual Report 2012

Plain-text annual report

ANNUAL REPORT 2012 Disclaimer Some of the information in this Annual Report (the “Annual Report”) may contain projections or other forward-looking statements regarding future events or the future financial performance of Grupo Clarín. You can identify forward-looking statements by terms such as ”expect”, ”believe”, “anticipate”, “estimate”, “intend”, ”will”, “could”, “may” or ”might” the negative of such terms or other similar expressions. These statements are only predictions and actual events or results may differ materially. Grupo Clarín does not intend to or undertake any obligation to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in Grupo Clarín’s projections or forward-looking statements, including, among others, general economic conditions, Grupo Clarín’s competitive environment, risks associated with operating in Argentina, a rapid technological and market change, and other factors specifically related to Grupo Clarín and its operations. The Annual Report and certain boxes and charts that include highlighted information for illustrative purposes throughout this publication, include financial information as of and for the fiscal years ended December 31, 2012 and 2011, which was extracted from the Consolidated and the Parent Only Financial Statements as of December 31, 2012, presented on a comparative basis, and their related notes. The Annual Report and the Highlights should be read in conjunction with such financial statements and related notes, the report of Grupo Clarín’s independent accountants, Price Waterhouse & Co. S.R.L., Buenos Aires, Argentina (a member firm of PriceWaterhouseCoopers) relating to such financial statements, and the report of Grupo Clarín’s Supervisory Committee. Financial and Operational Highlights 2012 Macroeconomic Environment Perspectives for the Upcoming Year The Year 2012 and the Media Sector in Argentina Regulatory framework and conditions for the journalistic and media activity during 2012 The Company. Origin, Evolution and Profile Grupo Clarín and its Business Segments in 2012 Supplementary Financial Information CABLE TELEVISION ANd INTERNET ACCESS Programming, Cable Television and Internet Services Commercialization and Customer Service Competition Strategy PRINTING ANd PUBLISHING Arte Gráfico Editorial Argentino Diario Clarín Internet Other Newspapers Ferias y Exposiciones Argentinas BROAdCASTING ANd PROGRAMMING Artear Radio Mitre dIGITAL CONTENT ANd OTHERS Digital Content Other Services CORPORATE GOVERNANCE, ORGANIZATION ANd INTERNAL CONTROL SYSTEM Stock Information and Shareholder Structure GRUPO CLARíN ANd ITS CORPORATE SOCIAL RESPONSIBILITY Our Commitment People’s Voices Social and Sustainability Coverage Promoting Involvement Community Engagement and Social Advertising Fostering Education and Culture Media Literacy and Protection of Young Audiences Excellence in Journalism Our People Environment 03 04 05 06 07 10 12 15 16 19 21 21 21 22 23 24 27 28 31 32 34 37 38 39 43 44 47 48 49 51 52 53 54 55 56 56 57 60 1 2 3 4 5 6 Risk Factors 64 Business Projections and Planning 67 FINANCIAL STATEMENTS AS OF dECEMBER 31, 2012 68 7 ANNUAL REPORT 2012 FINANCIAL HIGHLIGHTSoperATING reSuLTSAdjuSTedebITdAFINANCIAL HIGHLIGHTS (In millions of Ps.) Net Sales Adjusted EBITdA(1) Adjusted EBITdA Margin(2) Net Income(3) 2012 11,318.9 2,772.7 24.5% 972.3 2011 9,325.2 2,475.6 26.5% 785.6 YoY 21.4% 12.0% (7.7%) 23.8% (1) We define Adjusted EBITDA as net sales minus cost of sales (excluding depreciation and amortization) and selling and administrative expenses (excluding depreciation and amortization). We believe that Adjusted EBITDA is a meaningful measure of our performance. It is commonly used to analyze and compare media companies on the basis of operating performance, leverage and liquidity. Nonetheless, Adjusted EBITDA is not a measure of net income or cash flow from operations and should not be considered as an alternative to net income, an indication of our financial performance, an alternative to cash flow from operating activities or a measure of liquidity. Other companies may compute Adjusted EBITDA in a different manner; therefore, Adjusted EBITDA as reported by other companies may not be comparable to Adjusted EBITDA as we report it. (2) We define Adjusted EBITDA Margin as Adjusted EBITDA over Net Sales. (3) We define Net Income as Income for the period. OPERATING RESULTS Total Consolidated Subscribers(1)(3)(4) Total Internet Subscribers(1)(3)(4) Circulation(1) Audience Share %(2) Prime Time Total Time (1) Figures in thousands. 2012 3,404.7 1,504.4 311.7 35.9% 29.4% 2011 3,490.3 1,351.1 331.2 42.2% 33.0% YoY (2.5%) 11.3% (5.9%) (15.1%) (10.9%) (2) Share of broadcast TV audience according to IBOPE for AMBA. PrimeTime is defined as Monday through Friday from 8 pm to 12 am. Total Time is defined as Monday through Sunday from 12 pm to 12 am. (3) Total subscribers consolidated following the same consolidation methods used in the financial statements as of each year end. (4) Total Consolidated Subscribers registered for the year 2011 include those from discontinued operations in Paraguay (115,882 Cable TV Subs and 11,305 internet Subs). AdJUSTEd EBITdA (In millions of Ps.) Cable TV and Internet Access Printing and Publishing Broadcasting and Programming digital Content and Others Subtotal Eliminations Total 2012 2,406.9 229.9 136.1 (0.2) 2011 1,963.8 259.7 252.7 (0.6) 2,772.7 2,475.6 - - YoY 22.6% (11.5%) (46.2%) 64.7% 12.0% NA 2,772.7 2,475.6 12.0% 02 03 The second specific fact is the evolution of the Central Bank's international reserves. The monetary authority has again registered a drop in its foreign currency position of more than USD3 billion. The achievement of a higher foreign trade surplus and the substantial decrease in capital flight and profit / dividend remittances were not sufficient to cover the use of reserves appropriated to the service of foreign currency sovereign debt and, particularly, the collapse in foreign currency inflows to the financial system. As opposed to most other emerging countries in the region, which were able to accumulate reserves throughout the year, Argentina’s decrease in foreign reserves brought this variable to USD43.1 billion at year- end, its low record since 2007. The continued deterioration on the fiscal front deepened still further in 2012. Primary spending has again outgrown revenues. The national primary deficit (without counting profit remittances from BCRA and ANSES) exceeded Ps.35 billion, more than doubling the figure for 2011. The financial deficit (i.e. after payment of interest on public debt) grew in 2012 to over Ps.80 billion. Both figures are the highest since 2003, in absolute and relative terms. This fiscal deterioration occurred in spite of record- high tax pressure and is mostly financed with the printing of currency, which fuels the already high inflationary expectations. 2012 MACROECONOMIC ENVIRONMENT The dynamism that emerging economies were able to sustain in spite the overall slowdown of the developed countries’ economies was one of the few positive economic highlights of 2012. The serious social and economic crisis that continues to affect several Euro Zone countries led to considerable deterioration in the block of developed countries, which could not be offset by the modest upturn of the US or Japan's return to growth. Most industrial emerging countries -led by China and, to a lesser extent, India- proved resilient to such deterioration and were able to continue to grow during the year under review at an above- average rate, thus funneling growth in other emerging countries that provide these industrial economies with agricultural and non-agricultural commodities. All emerging countries recorded lower growth rates compared to 2011. The world has continued to register growth at two different structural paces, reflecting the operation of the new global accumulation mechanism focused on emerging economies. The poor performance of the Argentine economy in 2012 is the exception to the rule prevailing in the emerging countries for two reasons. First of all because, unlike its peers, the world did not represent a burden for Argentina. In fact, even though the slowdown of the Brazilian economy did have a negative impact on Argentina’s industrial exports, in 2012 the price of its agricultural products in general and the price of soya in particular, were higher on average than those of the previous year and remained high compared to historical levels (largely offsetting the lower volume of the crop harvest). Secondly, because unlike in other emerging countries and the region as a whole, local economic policies accentuated, instead of mitigating, the effects of the global financial crisis. The year 2012 stands out as an actual turning point in the performance of the Argentine economy. The change in the ground rules fuelled in the aftermath of last year's presidential elections broadly and significantly damaged economic activity developing a disturbing scenario of stagflation (stagnation plus high inflation). Not even the strong acceleration in the rate of increase in the money supply -which ended the year with an annual increase of 40%, attributable to increased financing from the Central Bank to the Treasury -was sufficient to revert the halt in economic activity. Thus, the balance of the Argentine economy at the end of 2012 is at best modest, as a direct result of the policies applied in response to the imbalances created in, and carried over from, the previous years. The most significant negative side effects of the policies implemented in 2012 were decrease in th|e generation of genuine employment, the stagnation of the purchasing power of workers’ salaries, the capital depletion of the Central Bank, the decrease in exports and the loss of international reserves. The scenario of stagflation is paired with certain additional disturbing conditions under which the economy is operating, such as an accelerated loss of competitiveness, increased primarization and shortage of local and foreign reproductive investments (noticeable mainly in the capital depletion of key strategic sectors). In terms of key macroeconomic equilibrium, we note a slight improvement in the real generation of foreign currency on the external front, which is mainly attributable to the sudden closing of the economy, an unusual situation that negatively affected several aspects of the real economy. This performance is the result of the strong contraction of imports, in general, and intermediate goods and capital, in particular. Consequently, the external surplus for the year was slightly higher than that of the previous year and remained above USD10 billion for the eleventh consecutive year. However, this apparent strategic achievement is tainted by two specific facts. One of them is the widening of the trade deficit in the energy sector, estimated in around USD3.5 billion this year. This phenomenon worsens an historical problem of the Argentine economy, because in order to avoid affecting the country’s foreign reserve position, the surplus of the agricultural sector in the coming years must not only cover the structural deficit of the industrial sector, but also that of the energy sector. Perspectives for the Upcoming Year Under the new scheme in which the Argentine economy is advancing, its short-term and medium- term performance mostly depends on its ability to generate sufficient foreign currency to cover the external structural deficit of industrial (and now also of its energy) sector and honor interest payments on its indebtedness. With respect to the latter, the final outcome of the claims brought by holdouts who did not participate in any of the various exchange offers has implications that are difficult to assess as of the date of this report and is an additional source of concern. Without access to voluntary financing from capital markets, the debt service is directly contingent upon an increase in prices and/or volume of exports and/or the use of reserves. The baseline scenario for the Argentine economy in the coming year is supported by three important assumptions. On the external front, the US-dollar supply is expected to increase, mostly as a result of the harvest volume and the resulting agricultural exports. This will be paired with the shorter maturities of sovereign debt in foreign currency, mainly attributable to the no service of the 2012 coupon of the GDP-linked bonds. Meanwhile, at a regional level, the most relevant highlight is the expected improvement in the performance of Brazil (estimated to grow more than in prior years) and its related positive impact on the Argentine exports (mostly, industrial exports) to that market. At the strictly local level, the mid-term congressional elections could cause a more aggressive drive in economic policy, albeit at the risk of worsening carryover imbalances. In fact and by way of example, inflationary pressures are expected to build up again in line with the recovery of the economic activity, which would continue to hinder the scope of significant improvements the distribution of income of the Argentine people. indicators and in social In the absence of measures that address the distortions accumulated in the last few years and without an additional supply of US dollars from the agricultural sector, the external restriction would inevitably appear again beyond 2013, compromising the economic performance and endangering the ability to move forward with pending issues as well as the accomplishments achieved so far. 04 05 THE YEAR 2012 ANd THE MEdIA SECTOR IN ARGENTINA By the end of the year 2012, the global media industry -undoubtedly one of the most seriously affected by the severe financial crisis of 2009- recorded the highest growth rate in the last five years, thus consolidating the signs of recovery shown in the aftermath of that crisis. That performance is mostly accounted for by the dynamism maintained by most emerging economies in spite of the prolonged slowdown of the developed countries’ economic activity, and its related direct impact on the positive performance of this industry. By way of example, in the year under analysis the Latin American media industry was the one that experienced (and according to market estimates is expected to continue to experience) the highest growth on a global basis, even above that of its Asian counterparts. The macroeconomic improvement in these countries takes some pressure off a critical source of concern for this industry, which already faces several challenges arising from the recurring emergence of new technologies and the changes in the media consumption patterns of the new generations. In contrast, countries such as Spain and Argentina that, for several reasons, failed to improve or had a poorer macroeconomic performance than the previous year have kept or otherwise incorporated an additional problem to the already complex micro-environment of the industry. The accelerated migration of audiences, content and advertisers towards the digital ecosystem is the main phenomenon that emerges from the review of the media industry performance worldwide during 2012. The fixed and mobile broadband revolution is a key driver of this change. The truth is that the digitalization process we are undergoing is giving rise to a veritable cultural revolution on a global basis, beyond the boundaries of our industry. The gradual change in the way we carry out our day-to-day activities is leading to a profound transformation of essential aspects of our societies, such as interpersonal relationships and access to information and entertainment content. Digital natives are the key drivers of this cultural change. The gradual adoption process that involves the initial testing of new technologies that subsequently coexist with older technologies and, ultimately, become the preferred choice over traditional physical alternatives - is a common denominator in the behavior of a considerable portion of today’s population worldwide. In the media industry, the multiple devices that enable Internet access and networks of Internet access suppliers are good examples of this. The paid television and Internet segments continued to expand in 2012, even though Argentina’s penetration rates are among the highest in the region. All of the above, coupled with this new generation of consumers whose habits and preferences remarkably differ from those of prior generations, still poses an unprecedented challenge and at the same time represents an opportunity for each of the different segments of the media industry, which in the face of this changing reality are bound to reformulate their strategies and business models. For the economy and the local media industry, the year 2012 was characterized by slow dynamics, in direct contrast to the regional trend. In fact, as mentioned above, the disturbing stagflation environment (stagnation with high inflation) that characterized the economy throughout the year was an additional source of risk for this industry. Additionally, the government has escalated in its attack against the independent press with the clear purpose of colonizing the media and weakening independent media in general, and Grupo Clarín in particular. Some examples of this are the discrediting campaigns and attacks against journalists and directors from media that are critical of the current administration, the arbitrary allocation of official advertising, the law governing newsprint, the illegal breaking into Cablevisión, the use of publicly-owned media as promotional tools for the government and the expansion of pro- government media. In this complex environment, the figures corresponding to the main sources of revenue of the industry were excessively modest. In fact, advertising investment increased by 15%, less than half the growth rate of 2011, mostly driven by government advertising expenditure, directed to finance a matrix with a greater share of publicly- owned media. In terms of consumer prices, the increase in the consolidated advertising pie of the several industry segments fell again below the inflation rate (of approximately 25% according to private estimates). This reveals that although advertising increased in nominal terms, the rate of increase was substantially lower than the economy as a whole, thus reducing its relative size. Unlike most countries in the region, the newspaper segment continued to attract the largest share of advertising in the local market, followed by broadcast TV. The number of pay television subscribers increased during 2012, but at a slower pace than in the previous year, leveraged by the growing penetration of additional services (incorporation of high-definition signals to the grid and VOD, among others), which permitted a high level of investment in the expansion of network capacity. Broadband demand continued to accelerate significantly, becoming increasingly ubiquitous. In fact, by year-end, residential fixed broadband Internet access reached a new record high in a fiercely competitive environment noted for the promotional offers of its main market players. At the same time, the mobile broadband segment dynamics, driven by the implementation of combined voice and data subscriptions by cell phone companies, evidenced the complementariness that this technology provides to the market. is In this regard, an emerging and curious global phenomenon the users’ ongoing demand for higher speed, mostly as a result of the predominance of video traffic over other traffic and, to a lesser extent, as a result of the increasing number of devices connected to the Internet at home. Naturally, this increased demand for bandwidth per client compels providers to add new capabilities to their networks on an ongoing basis, building pressure on the current business models. Lastly, newspaper circulation has continued to show its downward structural trend, similarly to the rest of the world. Average newspaper circulation in the metropolitan area (City of Buenos Aires and its surroundings) (source: Newspaper and Magazine Circulation Verification Institute, IVC, adjusted by the Company to account for newspapers in the City of Buenos Aires for which circulation is not verified) was 571,800 copies (Mondays through Sundays) - a 3.5% decrease compared to the previous year. On Sundays, average circulation was 1,077,900 copies, a 1.8% rise relative to 2011. In contrast, it is worth noting the increasing number of visits to social networks and websites with content development, mostly news sites with the newspaper on top of the rankings. As a logical consequence, the increased number of readers of digital newspapers reveals that the demand for content remains strong, unlike preference for paper format newspapers, though distributed among a broader variety of technological platforms. Regulatory framework and conditions for the journalistic and media activity during 2012 In addition to the above and to the comments under Note 11 to the Parent Company Only Financial Statements, during 2012 private media in general and Grupo Clarín in particular continued to face an escalating level of harassment. Such harassment was executed through the official and para-official apparatus, with the clear intention of damaging the media’s reputation and directly and indirectly limiting its journalistic activities. In the framework of this escalation, the government reinforced certain actions that threaten and distort the full effectiveness of freedom of speech and information, such as the exponential increase and discriminatory allocation of official advertising used to create and sustain pro-government media, as well as the use of such advertising to condition the press. In 2012, the government spent more than Ps.1.9 billion in official advertising, a 43% rise compared to 2011. Nine media groups closely related to the government were the recipients of 80% of said resources. Further, the government continued to use public funds and media on a discretionary basis to generate content and programs related to political propaganda; with several obstacles and discriminatory conduct in the access to public information and an aggressive campaign to destroy non-partisan media by compromising their economic sustainability and credibility. This discrediting and defamatory strategy was painfully reflected in street banner and graffiti campaigns, banners, balloons, merchandising and clothing, in persecution and public denunciation of journalists, and went so far as to include the financing of soccer hooligans to display banners against the media and the opposition during matches. Other tools to exert editorial pressure consisted of abuse of bureaucratic controls or controls by public agencies that took the form of administrative persecutions, groundless arbitrary resolutions, disproportionate tax controls and recurring audits. In this scenario, the government did not hesitate to exert pressure through entities such as the National Antitrust Commission, AFSCA, the Argentine Securities Commission and the Financial Information Unit. In addition to the discretionary allocation of official advertising as a tool to exert pressure on the media, private companies were banned from including their advertising slots in independent media. Through the Secretariat of Domestic Trade, the government exerts pressure on advertisers from several sectors and threatens them with penalties if they advertise their products or services on certain media. This modus operandi reached its greatest expression in February -after year-end- with the public announcement that the Secretariat of Domestic Trade had issued an unwritten order that is observed without exceptions by the entire market, whereby supermarkets and home appliance stores were arbitrarily banned from advertising in any media from the City of Buenos Aires and its surroundings. This virtual boycotting against private advertising, paired with the arbitrary exclusion of official advertising from non-partisan media, directly affects the economic sustainability of independent media. In the audiovisual sector, this offensive against the media (against both, its editorial freedom and its economic sustainability, which guarantees its independence) had as its utmost expression the enactment of the controversial Audiovisual Communication Services Law and its controversial implementing regulations, which clearly exceed the regulatory framework by granting powers to the regulatory agency that are not provided for by the law. Some examples of this are: i) the power to intervene in the affairs of the audiovisual broadcasting services on a discretionary basis: whether by revoking licenses or through simple summary proceedings, and ii) the oversight of the organization and mandatory content of the programming grid of subscription cable TV services, pursuant to which Cablevisión was imposed over 400 penalties throughout 2011 and 2012 that are now suspended by a court injunction. 06 07 and dismissed the claim of unconstitutionality with respect to sections 41 and 161. In a long ruling, Ricardo Guarinoni, María Susana Najurieta and Francisco de las Carreras highlighted “the right to freedom of speech and information both as an inalienable right of every person and as an essential right for the very same existence of a democratic society.” Regarding section 45, Judge De las Carreras held that the Audiovisual Communication Services Law “imposes an unreasonable limitation on the number of audiovisual communication licenses; establishes certain unjustified incompatibilities among holders of certain licenses; and unfoundedly restricts the reach of the services to an arbitrary percentage of the aggregate population or subscribers”. The judges also declared unconstitutional the second paragraph of section 48, which established that the multiple license regime may not be alleged as an acquired right in light of any regulations set forth under this law or which may be created in the future. In declaring the unconstitutionality of those aspects, the judges incorporated the opinions of technical expert witnesses and decided that there was no reason to maintain the unconstitutionality of section 161, which provides for a 1-year term for media groups to conform to the new law because it no longer affects the license regime or the acquired rights. The judges also decided to maintain the limit of up to 10 broadcast radio and television licenses held by the same media group, on the grounds that it is necessary to restrict the use of the radio spectrum. The decision also upheld section 41 regarding the license transfer regime. Judge Najurieta highlighted “the power of the judges to control the constitutionality of laws” and held that “the media are the vehicle through which ideas and information are disseminated. Freedom of speech would be a mere theoretical declaration without the instruments required to publish ideas, provide information and have access to those ideas and information”. “When a journalistic company has financial and technical resources, it can provide, without external influences, information and news reporting services. The combination of a reduction in audience share, a decrease in private advertising and a lack of official advertising leads to economic insecurity, which affects journalistic freedom”, held the judges in their ruling. The several activities, pressures and strategies implemented by the national government to interfere with the decisions of the Judicial Branch include, but are not limited to: several attempted appointments of judges that are in favor of the Broadcasting Law; pressures on and changes in majorities at the Council of the Judiciary; multiple recussations; pressures on and criminal charges against judges and advisors to remove them or cause them to resign; actions that resulted in the virtual fragmentation of the Courts on Civil and Commercial Matters; changes in the substitution system, and pressures on the Supreme Court up to and including customizing the government’s request for a per saltum appeal to by-pass the regular process, among many other actions against a Republic’s healthy system of checks and balances. On December 6, the Federal Commercial and Civil Court of Appeals granted an extension of the term of the injunction issued in favor of the Company until a final judgment is rendered on the case. This was ratified by the Supreme Court of Argentina after rejecting several court filings from the national government. Horacio Alfonso, First Instance judge, declared Sections 45 and 161 of the Broadcasting Law constitutional, without considering the prevailing Freedom of Expression issues or the expert evidence presented in the case. As mentioned in note 25.d to the Consolidated Financial Statements for the year ended December 31, 2012 filed with the London Stock Exchange, subsequent to year-end, on April 17, 2013 Chamber I of the Federal Court of Appeals on Civil and Commercial Matters decided to declare the unconstitutionality of some points of Section 45 and Section 48 of the Audiovisual Communication Services Law. The Court decided that several core points of section 45 and also part of section 48 of the Audiovisual Communication Services Law are unconstitutional The Company will file an appeal with the Supreme Court of Argentina in due time and form against the partial dismissal of the claim. The law that gave rise to these unconstitutional regulations continues to be challenged before the courts for its infringement of constitutional rights, the granting of broad and discretionary powers over media and content to the Executive Branch, the favoring of official voices, its effects on the sustainability of private media, for promoting the elimination of independent signals and establishing dangerous indirect censorship criteria through the arbitrary granting of licenses and the application of penalties, among other controversial aspects. With respect to the Company, two court decisions that upheld preliminary injunctions and that provided for the suspension of the main sections of the Broadcasting Law are still effective; including but not limited to Section 161, which provides for the mandatory divestiture within the term of one year in order to conform to the new legal restrictions. In spite of the existence and full effectiveness of said court decisions against the law, the government sought to move forward with the implementation thereof in an authoritarian and overwhelming manner. This ratifies all the warnings about the potential danger of editorial control by an enforcement authority that is not independent. The government has stretched the interpretation of certain preliminary injunctions issued in favor of Grupo Clarín in order to launch an attack on the group. The government’s overblown interpretation was used as a platform to initiate a massive propagandistic and administrative operation to anticipate the end of Grupo Clarín and introduce the acronym "7D", which stands for December 7, the date on which the divestiture provision of the Law was supposed to become effective. In this context, during the second half of 2012, the Executive Branch embarked on a fierce and unprecedented attack against the Judicial Branch, particularly in connection with the cases relating to the Audiovisual Communication Services Law. other things, the Law created a registry where all newsprint producers, sellers and buyers shall be registered and set limits and established conditions applicable to Papel Prensa for the production and sale of newsprint. This law also contains a series of temporary clauses, specifically and exclusively addressed to Papel Prensa, whereby Papel Prensa is forced to make investments to meet the total national newsprint demand - excluding from this requirement the other existing company that operates in the country with installed capacity to produce this input. The Law also provides for the capitalization of the funds eventually contributed by the National Government to finance these investments, contravening public order regulations contained in the Argentine Business Associations Law (Law 19,550), in order to dilute the equity interest of Papel Prensa's private shareholders. Said law is still effective and so are the limits on production and import of newsprint and the price per newsprint ton. These and other deplorable actions that are not in line with the expected attitude of a democratic government towards the press were part of the challenging scenario in which private and independent media operated in 2012. During 2012, the Company and its subsidiaries were also subject to other administrative attacks and maneuvers. The effects of Resolution No. 50 et. seq. issued by the Secretariat of Domestic Trade that arbitrarily and discriminatorily seek to fix Cablevisión S.A.’s monthly basic subscription price were suspended by the Federal Court of the City of Mar del Plata, in response to a motion filed by the Argentine Cable Television Association. Additionally, in connection with an administrative resolution issued by SECOM in 2010, whereby Fibertel's license was revoked, there are preliminary injunctions that suspend the application of the resolution and challenge its legality that are still effective. At the same time, during the fiscal year, the offensive against independent media and free journalism continued to take very diverse forms, including the measures adopted by trade unions linked to the government, which repeatedly tried to prevent newspaper and magazine distribution by blockading printing facilities. Several official agencies also sought to control paper, the basic input for newspaper production. The government’s attempt to gain control of the paper industry has intensified, through several administrative and legislative measures that sought systematically to hinder the management of Papel Prensa (Papel Prensa supplies approximately 95% of the Argentine newspapers and the Company indirectly holds a 49% equity interest in that company). The government has tried to interfere with Papel Prensa’s business practices and bring legal and administrative actions against it in a threatening and violent environment. For example, the government filed several motions with the CNV to have Papel Prensa's resolutions declared void for administrative purposes. Several summary proceedings against the Company, its directors and members of the supervisory committee are currently pending before the CNV. Additionally, this agency has recently been granted further discretionary powers under the controversial Capital Markets Law that was recently enacted. On the legislative front, in 2011 Congress enacted Law No. 26,736, which declared a matter of public interest the production and sale of newsprint, violating several constitutional rights and guarantees. The bill was drafted by the National Government with the clear intent of controlling the production and import of this key input for the press, as pointed out and stated by national and regional journalistic associations, opposition leaders and several business sectors. Among 08 09 THE COMPANY. ORIGIN, EVOLUTION ANd PROFILE Grupo Clarín is Argentina’s most prominent and diversified media group and one of the most important in the Spanish-speaking world. The Company is organized and operates in Argentina and its controlling shareholders and management are Argentine. Grupo Clarín is present in the Argentine printed media, radio, broadcast and cable television, audiovisual production, the printing industry and Internet access. Its leadership in the different media is a competitive advantage that enables Grupo Clarín to generate significant synergies and expand into new markets. Substantially all of Grupo Clarín’s assets, operations and clients are located in Argentina, where it generates most of its revenues. The Company also carries out operations at a regional level. The companies that comprise Grupo Clarín employ around 17,000 people and, as of year-end, reported annual net sales of Ps.11.319 billion. Grupo Clarín’s history dates back to 1945, the year in which Roberto Noble founded the newspaper Clarín of Buenos Aires (“Diario Clarín”), with the goal of becoming a mass-distribution and quality newspaper, privileging information and committing to the comprehensive development of the country. Since 1969, Diario Clarín has been led by his wife, Ernestina Herrera de Noble. It became the flagship national newspaper and has consolidated its position throughout the years thanks to the work of its journalists and the loyalty of its readers. Diario Clarín is now one of the Spanish-language newspapers with the highest circulation in the world. Grupo Clarín has been one of the main actors in the changes undergone by the media worldwide. It has incorporated new and varied printing activities and decided to embrace technological developments, investing to reach its audiences through new platforms and channels and through new audiovisual and digital languages. ThE chART bELOw iLLUsTRATEs cOmPANiEs iN which gRUPO cLARíN PARTiciPATEs, diREcTLy OR iNdiREcTLy, ORgANizEd by bUsiNEss sEgmENT cable tv & internet access printing & publishing broadcasting & programming digital content & others 60% cablevisión 100% agea 99.2% artear 100% gestión compartida 100% Ferias y Exposiciones 85.2% Telecolor canal 12 100% compañía de medios digitales Because Argentine Corporate Law No. 19,550 (as amended, the “Argentine Corporate Law”) requires that companies have at least two shareholders, a small percentage of the capital stock of certain of our subsidiaries is held by GC Minor S.A., a company owned by Grupo Clarín (95.3%) and GC Dominio S.A. (4.7%). This chart does not include certain intermediate holding vehicles and certain subsidiaries that do not have significant assets or business. 100% Oportunidades 100% Telba canal 7 100% Tinta Fresca 100% agr 100% bariloche TV 55% Pol-Ka Producciones 100% Unir 30% ideas del sur 50% impripost 100% cimeco 80% diario Los Andes 81% La Voz del interior 37% 12% 49% Papel Prensa 33% Patagonik Film group 25% canal Rural satelital 100% iesa 96% Auto sports 50% Tsc 50% TRisA 100% radio mitre In this way, Grupo Clarín entered the radio and television sectors. Today, it is the owner of one of the two leading broadcast television channels in Argentina (ARTEAR / El Trece) and of AM/ FM broadcast radio stations. Along with the newspaper, these media are recognized as the most credible and considered leaders of Argentine journalism in one of the most diverse media markets in the world. For example, in Buenos Aires, the Company’s media compete in a market that has 5 broadcast television stations, 550 radios, and 12 national newspapers. Grupo Clarín also publishes Olé, the first and only sports newspaper in Argentina; the free newspaper La Razón and the magazines Ñ, Genios, Jardín de Genios, Pymes and Elle, among other publications. Through CIMECO, the Company holds equity interests in the newspapers La Voz del Interior, Día a Día and Los Andes, in a market of approximately 200 regional and local newspapers. The Company also holds an equity interest in a national news agency (DyN). In the audiovisual arena, the Company also produces one of the 5 cable news signals (Todo Noticias), and the cable television networks Volver and Magazine, among others, sports channels and events (TyC Sports), television series and motion pictures (through Pol-Ka, Ideas del Sur and Patagonik Film Group). Another strength lies in its strategic stake in the content distribution sector, through cable television and Internet access. Since the beginning of Multicanal's operations in 1992 and after the recent acquisition of a majority interest in Cablevisión, Grupo Clarín has created one of the largest cable television systems in Latin America in terms of subscribers. Cablevisión is the first cable operator in Argentina among 700 operators and always competes with other cable or satellite options. Through Fibertel, it also provides high- speed Internet services and has one of the largest subscriber bases in a highly competitive market. In line with the global trend, Grupo Clarín has committed itself to expanding digital content production. Grupo Clarín’s Internet portals and sites receive more than half of the visits to Argentine websites. In 1999 Grupo Clarín was incorporated as an Argentine sociedad anónima, a corporation with limited liability. It gradually opened its capital to other participants and, since October 2007, it is listed on the Buenos Aires Stock Exchange and on the London Stock Exchange. It takes pride in having grown in Argentina, in being a source of influence on a local level in an increasingly transnational market with a size that enables it to compete without losing strength among large international players. Grupo Clarín’s investments in Argentina in the last 20 years have been very significant, always focused on Journalism and the mass media. Its activities have contributed to the creation of an important Argentine cultural industry and generate qualified and genuine employment. Its vision and business model focus on investing, producing, informing and entertaining, preserving Argentine values and identity, and preserving business independence in order to ensure journalistic independence. In relation to its mission and values, since its foundation, Grupo Clarín has undertaken intense community activities. Grupo Clarín, together with the Noble Foundation, which was established in 1966, organizes and sponsors several programs and activities, particularly focused on education, culture and citizen participation. Furthermore, as an indication of its social responsibility throughout its history, Grupo Clarín focuses on the ongoing improvement of its processes and develops initiatives that arise from discussions with different stakeholders. wE ANTiciPATEd mARKET TRENds ANd AdAPTEd OUR bUsiNEss mOdEL, TO bEcOmE ThE LARgEsT mEdiA gROUP iN ARgENTiNA Technology Convergence & Regional Expansion 2012 Horizontal Integration 2000 Vertical Integration 1990 Foundation 1970 1945 Relevant Dates July 16, 1999: Grupo Clarín S.A. is created to reorganize and consolidate the direct and indirect holdings of the Clarín Shareholders. October 19, 2007: Grupo Clarín launches its Initial Public Offering (IPO). 10 11 GRUPO CLARíN ANd ITS BUSINESS SEGMENTS IN 2012 In terms of results, Grupo Clarín and its business segments grew again in 2012 in a highly challenging context. During this year the Company consolidated the positive economic and financial performance trends of the previous years. Net consolidated sales increased by 21.4%, from Ps.9.325 billion to Ps.11.319 billion. The growth in cable modem Internet access subscribers played a key role in the performance of subscription revenues. Sales of the remainder of the Company's products and services also increased. SALES BREAKdOWN BY SOURCE OF REVENUE - dECEMBER 2012 vs. dECEMBER 2011 (In millions of Ps.) CABLE TV & PRINTING & BROAdCASTING dIGITAL CONTENT ELIMINATIONS TOTAL % INTERNET ACCESS PUBLISHING & PROGRAMMING & OTHERS 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Advertising 49.7 44.0 1,251.8 1,184.3 1,069.6 979.3 51.2 21.6 (126.5) (125.7) 2,295.7 2,103.5 20.3 22.6 Circulation Printing - - - - 879.5 645.4 169.0 184.9 Video Subs 5,704.8 4,429.0 Internet Subs 1,595.2 1,356.1 Programming - - - - - - - - - - - - - - - - 244.9 191.0 - - - - - - - - - - - - 879.5 645.4 (43.5) (34.3) 125.6 150.6 7.8 1.1 6.9 1.6 - - 5,704.8 4,429.0 50.4 47.5 (6.8) (2.9) 1,588.4 1,353.2 14.0 14.5 (70.4) (57.9) 174.5 133.1 Other Sales 251.9 268.3 85.4 74.6 134.5 98.4 312.6 261.4 (234.0) (192.1) 550.5 510.6 1.5 4.9 1.4 5.5 total sales 7,601.6 6,097.3 2,385.7 2,089.2 1,449.0 1,268.7 363.8 283.0 (481.2) (412.9) 11,318.9 9,325.2 100.0 100.0 Cost of sales (Excluding Depreciation and Amortization) reached Ps.5,713.0 million, an increase of 21.9% from Ps.4,685.5 million reported for 2011 due to higher costs in our business segments, mainly in Cable TV and Internet Access and in Broadcasting and Programming segments. Selling and Administrative Expenses (Excluding Depreciation and Amortization) reached Ps.2,833.2 million, an increase of 30.9% from Ps.2,164.1 million in 2011. This increase was mainly due to higher costs in the Cable TV and Internet access and Printing and Publishing segments. Adjusted EBITDA reached Ps.2,772.7 million, an increase of 12.0% from the Ps.2,475.6 million reported for 2011, driven by higher sales in the Cable TV and Internet access segment, though partially offset by a lower EBITDA in the Broadcasting and Programming and Printing and Publishing segments. Financial Results Net totaled Ps.(916.2) million compared to Ps.(582.1) million for 2011. The increase was mainly due to higher interest expenses and peso depreciation during 2012, which went from Ps.4.30 per dollar at the end of December 2011, to Ps.4.92 per dollar as of December 31, 2012. Equity in Earnings from Unconsolidated Affiliates in 2012 totaled Ps.13.7 million, compared to Ps.33.7 million for 2011. AdJUSTEd EBITdA (In millions of Ps.) Cable TV and Internet Access Printing and Publishing Broadcasting and Programming digital Content and Others Subtotal Eliminations Total dEBT ANd LIQUIdITY (In millions of Ps.) Short Term and Long Term Debt current Financial debt Financial loans Negotiable obligations Accrued interest Acquisition of equipment Sellers Financing Capital Sellers Financing accrued interest Related Parties Capital Related Parties accrued interest Bank overdraft non-current Financial debt Financial loans Negotiable obligations Accrued interest Acquisition of equipment Sellers Financing Capital Sellers Financing accrued interest Related Parties Capital Related Parties accrued interest Bank overdraft total Financial debt(a) Measurement at fair Value total short term and long term debt Cash and Cash Equivalents(B) Net Debt(A) - (B) Net Debt/Adjusted EBITDA (Last 12 Months) % USD Debt % Ar. Ps. Debt 2012 2,406.9 229.9 136.1 (0.2) 2011 1,963.8 259.7 252.7 (0.6) 2,772.7 2,475.6 - - YoY 22.6% (11.5%) (46.2%) 64.7% 12.0% NA 2,772.7 2,475.6 12.0% FY12 FY11 % Change 501.3 130.6 165.2 95.0 70.1 1.1 - 13.2 0.1 25.9 2,738.3 24.5 2,576.7 - 131.0 0.3 - 4.2 1.5 - 3,239.7 (50.9) 3,188.8 1,304.7 1,934.9 0.70x 96.6% 3.4% 446.7 118.6 129.0 86.0 40.3 8.2 - 13.2 0.1 51.3 2,808.7 127.8 2,584.0 - 90.4 0.8 - 4.2 1.5 - 3,255.4 (54.7) 3,200.7 865.6 2,389.8 0.97x 94.5% 5.5% 12.2% 10.1% 28.1% 10.5% 74.1% (86.5%) NA 0.3% 6.8% (49.5%) (2.5%) (80.8%) (0.3%) NA 44.9% (60.2%) NA - 3.9% NA (0.5%) 7.0% (0.4%) 50.7% (19.0%) (27.7%) 2.1% (37.1%) 12 13 debt Profile as of december 31, 2012* (USD MM, Balance Sheet) 635 640 600 560 520 480 440 400 360 320 280 240 200 160 120 80 40 0 151 171 80 100 89 44 2013 2014 2015 2016 2017 2018 Total debt *Exchange Rate: 4.92 ARS/USD. Other Income (expenses), Net reached Ps.0.6 million, compared to Ps.1.5 million in 2011. Income Tax as of December 2012 reached Ps.(524.9) million, from Ps.(425.0) million in December 2011. Income from Discontinued Operations, reached Ps.498.7 million, compared to Ps.47.3 million in 2011. Net Income totaled Ps.972.3 million, an increase of 23.8% from Ps.785.6 million reported for 2011. This was mainly a consequence of higher EBITDA in the Cable TV and Internet access and the income relating to the sale of the discontinued operations of Cablevisión’s subsidiaries in Paraguay. Also it was partially offset by a lower EBITDA in the Broadcasting and Programming and higher peso depreciation. The Equity Shareholders Net Income amounted to Ps.482.3 million, a decrease of 6.3% compared with figures of December 2011. Cash used in acquisitions of property, plant and equipment (CAPEX) totaled Ps.1,383.0 million in 2012, a decrease of 6.4% from Ps.1,478.1 million reported for 2011. Out of the total CAPEX in 2012, 93.5% was allocated to the Cable TV and Internet access segment, 3.7% to the Broadcasting and Programming segment and the remaining 2.8% to other activities. Capex in the Cable TV and Internet Access segment pertains to subscriber growth, network upgrades and digitalization. By the end of 2012, Grupo Clarín’s gross consolidated financial indebtedness (including sellers financing, accrued interest and fair value adjustments) was approximately Ps.3.2 billion, while net consolidated indebtedness was approximately Ps.1.88 billion, representing a decrease of 0.4% and 19.3%, respectively, compared to the previous year. Debt coverage ratio(1) for the period ended December 31, 2012 was 1.17x and the Net Debt at the end of this period totaled Ps.1,934.9 million. (1) Debt Coverage Ratio is defined as Total Financial Debt divided by Adjusted EBITDA (Last Twelve Months). Total Financial debt is defined as financial loans and debt for acquisitions, including accrued interest. SUPPLEMENTARY FINANCIAL INFORMATION The information included in the Supplementary Financial Information is part of this Annual Report and, therefore, should be read in conjunction with same. Setting Up Of Reserves Pursuant to the Argentine Coporate Law and CNV resolutions, Grupo Clarín is required to set up a legal reserve of no less than 5% of each year’s retained earnings until such reserve reaches 20% of its outstanding capital stock plus the corresponding adjustment. The legal reserve is not available for distribution to shareholders. Financial Position and Results of Its Operations During this year, the main changes in the Company’s financial position and results of its operations were the following: Working capital (current assets minus current liabilities) at year-end decreased by Ps.22.3 million compared to the previous year, from (negative) Ps.46.3 million to (negative) Ps.68.6 million. This decrease is basically evidenced in the decrease in Company funds (the items Cash and Banks and Other Current Investments) in the amount of Ps 19.8 million, paired with a net decrease in receivables and liabilities, mainly between related parties. With respect to non-current items, the most significant variation was recorded under Investments, due to the results obtained by Grupo Clarín’s subsidiaries, mainly Cablevisión S.A. (indirectly), Arte Gráfico Editorial Argentino S.A. and Arte Radiotelevisivo Argentino S.A. The Statement of operations as of December 31, 2012 recorded a net income of Ps.482.3 million. Such income is basically derived from earnings of Ps.511 million resulting from equity investments in affiliates and subsidiaries. Grupo Clarín S.A. is still controlled by GC Dominio S.A., which holds 64.2% of its voting rights. Balances and transactions with related parties are detailed in Note 8 to the Parent Company Only Financial Statements. Proposal of the Board Of directors Net income for the year ended on December 31, 2012 was Ps.482,310,720. The Board of Directors proposed to the Annual Ordinary Shareholders’ Meeting that such income be distributed as follows: Net income 2012 (Attributable to Equity Shareholders) To the Legal Reserve To absorb the Accumulated deficit To the Optional Reserve to give financial aid to its subsidiaries and the broadcasting Law Ps.24,057,630 Ps.1,158,122 Ps.457,094,968 Below is a summary of the main criteria on which the above allocation proposed by the Board of Directors is based: -Legal reserve: The legal reserve was calculated pursuant to Section 70 of Law No. 19,550 and CNV resolutions, considering 5% of the net income for the year, minus previous years' adjustments and accumulated losses until it reaches 20% of the capital stock, plus the balance of the Capital Stock Adjustment account. -Accumulated deficit: To absorb the difference arising from presenting the annual financial statements under the International Financial Reporting Standards (IFRS) for the first time. -Optional Reserve to give financial aid to subsidiaries and the broadcasting Law: Even though net income for the year will become liquid if the subsidiaries distribute the related cash dividends, this year there are other issues to be considered that, under a prudent management, make it advisable to allocate said income to an optional reserve only to deal with the potential implications of such other issues. As mentioned throughout this annual report, the outlook for the Company and its main subsidiaries is expected to be uncertain due to the discretionary allocation of official advertising in detriment of independent media, the fact that private companies were banned from including their advertising slots in independent media, and the eventual impact of an adverse and final judgment on the Broadcasting Law case, among other uncertainties described in this Annual Report, coupled with the existing financial commitments. Therefore, the Board of Directors proposes to the Shareholders that the remaining net income for the year be allocated to set up this optional reserve. Subsequently to the end of the period, on April 25, 2013, Grupo Clarín held its General Annual Ordinary Shareholders Meeting. On that occasion, the shareholders considered and approved the 2012 Financial Statements and the Annual Report and other related documentation and the performance and compensation of Directors, Supervisory Committee and Audit Committee. Also, they elected members of the Board of Directors and mentioned committees for fiscal year 2013, along with an external auditor. 14 15 CABLE TELEVISION AND INTERNET ACCESS 1CABLE TELEVISION AND INTERNET ACCESS Grupo Clarín operates, through Cablevisión, one of the main regional integrated cable television and broadband systems. This segment’s revenues mainly derive from monthly subscriptions to basic cable television service and high-speed Internet access. To a lesser extent, its revenues also derive from connection and advertising charges, sales of premium and pay-per-view programming, digital packages, DVR, and high definition signal packages (HD) and sales of the magazine “Miradas”. Out of Grupo Clarín’s total sales in 2012, the Cable television and Internet access segment was the Company’s main revenue driver, with sales of Ps.7.768 billion, taking into consideration intersegment sales and sales from discontinued operations. Regarding the geographic availability of Grupo Clarín's services, by the end of 2012, its network reached approximately 7.3 million Argentine households. Grupo Clarín provides services in the City of Buenos Aires and suburban areas, as well as in the provinces of Buenos Aires, Santa Fe, Entre Ríos, Córdoba, Corrientes, Formosa, Misiones, Salta, Chaco, Neuquén and Río Negro. Regionally, Grupo Clarín also operates in Uruguay. net sales* (In millions of Ps.) adjusted ebitda* (In millions of Ps.) 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 YoY 7,601.6 6,097.3 s s e c c a t e n r e t n I & V T e b a C l 2011 2012 24.7% 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 YoY 2,406.9 1,963.8 s s e c c a t e n r e t n I & V T e b a C l 2011 2012 22.6% *Figures do not include those from discontinued operations in Paraguay. 16 17 During 2012, the Company completed the sale of Cablevisión’s subsidiaries in Paraguay to the Paraguayan company Telefónica Celular del Paraguay S.A. (“Telecel”), a subsidiary of Millicom International Cellular S.A. At the time of the sale, Cablevisión offered paid TV and Internet services in Asunción and Gran Asunción. It had 122,900 paid TV subscribers and 13,700 Fibertel subscribers. In Argentina, at year-end, it had approximately 3,288,800 paid TV subscribers and 1,504,500 Internet subscribers. Cablevisión’s network’s backbone consists entirely of fiber optic cable. The bi-directional service network architecture and the new networks rely on a fiber to service area (“FSA”) design, which combines cable network fiber trunks with coaxial cable extensions and allows bi-directional transmission. By the end of 2012, most of the homes in Cablevisión’s network were passed by its 750 MHz bi-directional broadband. Cablevisión’s 750 MHz networks enable it to offer services and products that generate additional revenues, such as access to Internet, digital services and premium channels. Operating statistics - Cable tV and inteRnet aCCess Homes Passed(1) bidirectional Homes Passed Cable tV Total Consolidated Subscribers(1)(3) Subscribers - Argentina Subscribers - International Uruguay Paraguay % over Homes Passed total equity subscribers(5) Churn Rate % digital VideO(1)(3) Digital Ready Pay TV Subs Total Digital Decoders Argentina International Penetration over Digital Ready TV Subs inteRnet subsCRibeRs(1)(3)(4) total internet subscribers(1)(4) Cablemodem(1) ADSL(1) Dial Up(1) % over Bidirectional Homes Passed total aRPu(2) (1) Figures in thousands 2012 7,455.9 63.9% 3,404.7 3,288.8 115.9 115.9 - 45.7% 3,523.2 15.0% 2,689.3 1,107.2 990.0 117.2 41.2% 1,504.4 1,489.4 8.4 6.6 31.6% 186.9 2011 7,586.5 63.2% 3,490.3 3,264.4 225.9 110.0 115.9 46.0% 3,566.6 15.1% 2,656.0 1,082.5 875.0 207.6 40.8% 1,351.1 1,331.3 12.1 7.6 28.2% 153.4 YoY (1.7%) 1.1% (2.5%) 0.7% (48.7%) 5.4% - (0.7%) (1.2%) (0.2%) 1.3% 2.3% 13.1% (43.5%) 1.0% 11.3% 11.9% (30.8%) (13.9%) 12.0% 21.9% (2) Net Sales / Average Pay TV Subscribers (does not include subscribers from discontinued operations in Paraguay). (3) Total subscribers consolidated following the same consolidation methods used in the financial statements as of each year end. (4) Total Internet Subscribers includes those from discontinued operations in Paraguay (11,305 subs for period 2011). (5) Total subscribers considering the equity share in each subsidiary. Programming, Cable television and internet services Cablevisión offers subscribers a basic service plan that includes the main programming signals, depending on the capacity of local networks. It offers basic and premium programming from more than 25 providers and broadcast television stations of the City of Buenos Aires. Most of the programming agreements include pricing terms denominated in Argentine Pesos generally linked to the number of subscribers. By paying an additional fee and renting a digital set-top box, Cablevisión subscribers receive premium packages and pay-per-view programming that include additional movie channels and adult programming, among other products. Cablevisión is also offering digital services to its subscribers that include a basic digital package, as well as Premium and High Definition (HD) services. Such products are offered in the City of Buenos Aires and its surrounding areas (the “AMBA Region”), in the province of Buenos Aires, and in the main markets of the provinces (such as, Córdoba, Rosario, Santa Fe, etc.). This service allows to broaden the signal offering and features an on-screen guide. Cablevisión has a high definition signal package (HD) as well as the Cablevisión Max HD product, a state-of-the-art digital set-top unit with digital video recorder enabled (DVR). By the end of 2012, Cablevisión had 29 HD signals comprising different genres in order to enhance this product’s offering. During 2012, Cablevisión broadcast events using 3D technology for clients that are subscribed to the Premium HD service and have the adequate equipment to support that technology. In order to increase its brand value, move forward with innovation and content production to meet client demands and continue with the development of the digital products launched in 2007, during the last quarter of 2012, Cablevisión launched the VOD (Video On Demand) platform that allows subscribers to buy programs or event packages on demand through a programming library and that features video functions (pause, fast-forward, rewind). As of December 31, 2012 there were approximately 1,099,500 digital set-top units for the Premium service in all of Cablevisión’s operational regions (including Uruguay), resulting in a penetration rate of approximately 32.3% of all subscribers to its basic cable service provided through its digital network. Cablevisión also offers Cablevisión Flex, an optional social service of digital paid television with a reduced subscription, to approximately 500,000 neighbors of low-income areas. This service, which seeks to enhance "digital inclusion", includes the installation of digital set- top units and allows clients to buy a service with fewer signals for half the price and gradually buy additional signal packages until completing a full basic product. As to Internet access services, Cablevisión offers connectivity products specially designed to meet the needs of both residential and corporate users. The products offered comprise high-speed cable modem Internet access through its 750 MHz network under the Fibertel brand and through other broadband technologies. 18 19 CABLE TELEVISION AND INTERNET ACCESS total internet subscribers(1) 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 YoY 1,504.4 1,351.1 s s e c c a t e n r e t n I & V T e b a C l 2011 2012 11.3% (1) Figures in thousands and Total Internet Subscribers includes those from discontinued operations in Paraguay (11,305 subs for period 2011). Fibertel is undoubtedly the broadband service that offers the highest speed in the market, widely and at competitive prices. It continues to offer Fibertel Evolution, a product with 30-mega downstream speed and 3-mega upstream speed. It is the first internet provider in the country to sell a product of the new Wideband generation -a new technology that allows clients to surf the web at substantially higher speeds. Wideband is based on Docsis 3.0 technology. Its main functionalities following: browsing with multiple are “windows” opened at the same time, real-time streaming, viewing instant high-definition videos uninterruptedly and ability to connect several devices browsing simultaneously to a single modem without sacrificing speed. This service is currently available in the AMBA region, Córdoba, Rosario, La Plata, Santa Fe, Paraná and other cities in the country’s provinces. the As of December 31, 2012, Cablevisión had 1,483,000 clients to cable modem Internet access in Argentina through its own networks; 6,600 clients to the dial-up system; 8,400 clients to the ADSL system and 6,500 to other broadband technologies. Even though Cablevisión has these three technologies, its main focus and differentiating feature is cable modem. It has a leading position in that market under the brand Fibertel and is a clear referent in its category. During 2012, Cablevisión launched Fibertel Zone, the first Argentine WI-FI circuit. This service allows surfing the web for free at the highest speed at bars, restaurants, movie theaters, gyms and parks, among many other spots. The requirements to surf the web at a Fibertel Zone point are a Wi-Fi enabled mobile device and selecting the applicable network. signal. Additionally, under a project aimed at implementing the Argentine Terrestrial Digital TV System, the National Government handed out digital set-top units among certain sectors of society that allow free access to certain signals. industry has The Argentine cable television more than 700 operators. The most significant competitors are Telecentro S.A. located in the AMBA region and DIRECTV (DTH technology), and Internet video streaming systems (Netflix, Arnet play, Speedy) that compete against Cablevisión nationwide. The Company can effectively compete against other cable television providers on the basis of a competitive price, a higher number of quality programs and the customer service it renders through its call-center. been launched in March 2009, making a drastic organizational change through the implementation of a new customer management system. The main purpose was implementing a world- class telecommunications system that allowed Cablevisión to improve its capacity to launch new products and services, such as, VoIP, triple-play, VOD (Video on demand), more cable signals and broadband improvements. Two major competitors (Arnet and Speedy) are identified in the high-speed Internet access segment; each of them related to one of the country's two fixed-telephony providers. These companies also render 3G services through their brands Personal and Movistar, respectively. Claro -which had already been selling 3G technology, started to offer high-speed Internet services through fiber optics. Video subscriber turnover rate for the year ended December 31, 2012 was 15.0%, compared to 15.1% recorded in the previous year. During the year 2012, Cablevisión gained 46,700 subscribers (including net new subscriptions from Paraguay during January-September), compared to 132,400 subscribers during the prior year. Competition Therefore, the Internet access segment faces fierce competition from several providers in an ever-growing market. strategy The long-term business strategy in the cable TV and Internet access segment involves ongoing investments in updating the networks, seeking to increase value for each customer, by introducing innovative and competitive services and products while staying focused on customer satisfaction. The core elements of the long-term strategy include: an expansion of the cable television and Internet broadband connectivity subscriber base, focusing on maintaining the highest speed in the market and stressing customer service and the brand. This strategy also involves improvements in technology, and broader investments intended to streamline a flexible network architecture serving as a platform for developing additional video Internet and voice services to realize the potential provided by technology convergence. Commercialization and Customer service Cablevisión uses several market positioning mechanisms, including promotions, customer service center locations, newsletters about the company, institutional information and programming through its websites. It advertises in the printed media and over its own broadcasting signals. Cablevisión also publishes a free monthly guide distributed to most of its cable television service subscribers and a monthly magazine called "Miradas", which is sold to a portion of its subscriber base. Customer service is provided through an integrated service center that offers round-the- clock support, with the aim of optimizing the customer relationship. In this regard, it launched “Sucursal Virtual”, a website that enables its subscribers to interact with the company to follow procedures that were previously carried out through a telephone call or even in person. Even though most interactions take place over the phone, subscribers may also contact the customer service by e-mail, fax, chat and the web site. During 2012, in terms of technological innovation, Cablevisión introduced a new tool that allows the company to render customized customer service to subscribers that contact it through social networks, particularly Facebook and Twitter. During 2012, Cablevisión took improvement actions that consolidate the customer service model in order to address client questions with a satisfaction level above the market average. In November 2012, Cablevisión successfully completed “Open Project”, an initiative that had Cablevisión competes in the cable television segment against other cable television operators and providers of other television services, including direct, satellite and broadcast services. Given the fact that licenses are granted on a non-exclusive basis, Cablevisión's systems have been frequently subject to overlapping of one or multiple competing cable networks; in addition to the satellite service that is available throughout the company’s entire coverage area. Free broadcasting services are currently available to the Argentine population; in the AMBA region, these services primarily include four private television signals (one of them is controlled by Grupo Clarín) and its local subsidiaries and a national state-owned television 20 21 PRINTING AND PUBLISHING 2PRINTING AND PUBLISHING Grupo Clarín, through Arte Gráfico Editorial Argentino S.A. (“AGEA”), is the main newspaper publisher in Argentina and one of the most prominent editorial content producers in Latin America. Out of Grupo Clarín’s total sales in 2012, the printing and publishing segment accounted for Ps.2.386 billion, taking into consideration intersegment sales. This segment derives revenues primarily from the sale of advertising, copies of newspapers and magazines and optional products. arte gráfico editorial argentino AGEA publishes Clarín, the flagship Argentine newspaper and one of the most important in terms of circulation in the Spanish-speaking world; Olé, founded in 1996, the first and only sports newspaper of its kind in the Argentine market; Diario La Razón, a pioneer in the free newspaper segment as well as Diario Muy, launched in 2011; regional supplements; Genios, a magazine with a high penetration rate in the schoolchildren’s segment. It also publishes Jardín de Genios, aimed at children between 2 and 5 years of age with a supplement for parents; Ñ, a cultural magazine that reflects all cultural news and trends; Revista Pymes, aimed at small- and medium-sized businesses; and Diario de Arquitectura, aimed at the construction world, architects, designers and building contractors, among other products. Through Artes Gráficas Rioplatense S.A. (“AGR”), a controlled subsidiary, the Company is also engaged in color printing, publishing and distribution activities. AGR prints Viva, Clarín’s Sunday magazine and the monthly magazine Shop & Co and carries out other production activities for third parties, including book series, telephone directories and flyers. AGEA has a strong presence in the online classified ads segment through vertical sites, including Autos, Inmuebles y Empleos and in the Internet content market through its websites clarin.com, ole.com.ar, entremujeres.com and biencasero.com. Through its subsidiary and controlled company, Tinta Fresca Ediciones S.A., the Company entered the textbook editorial market. net sales (In millions of Ps.) adjusted ebitda (In millions of Ps.) 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 YoY 2,385.7 2,089.2 259.7 229.9 260 240 220 200 180 160 140 120 100 80 60 40 20 0 i g n h s i l b u P & g n i t n i r P i g n h s i l b u P & g n i t n i r P 2011 2012 2011 2012 14.2% YoY (11.5)% 22 23 diaRiO ClaRín With a long-standing journalistic and commercial leadership consolidated in its 67-year track record, Clarín is the most prominent Argentine newspaper in terms of outreach, influence, circulation and advertising. The success of its prestigious editorial line lies in its identification with the needs and emotions of its audience through a plural and independent journalistic style that includes the most diverse opinions. Clarín’s approach to reality is in tune with its audience, supporting this bond with the responsibility and credibility that characterizes its journalists. Its extensive and thorough investigations, approaches and analyses are conveyed in clear and direct language, providing its readers with easy access to the different sections and issues. During 2012, its daily circulation reached almost 271,000 copies, 1.6 times higher than its closest competitor. On Sundays, over 595,000 copies are sold, which places it among the major Sunday newspapers of the world. Clarín has a 38.7% share of the newspaper market in the City of Buenos Aires and the province of Buenos Aires and a 9.7% share in the provinces. On a national level, it had a 24% market share. Clarín 365 was launched on October 11, 2010 to build loyalty among readers and to reinforce its close bond with them, as well as to retain circulation. It is a Benefits Program for Clarín subscribers that offers discounts, promotions and benefits in more than 1,600 brands and 4,700 stores nationwide. With an average of 461 new subscriptions per day as of December 31, 2012, the program had almost 219,000 subscribers. Given its broad circulation and reach to all social classes, Diario Clarín leads the print media market. It is ranked first in terms of advertising revenues and sold advertising space, and also leads all advertising categories (display, special section and classified ads). With advertising sales revenues exceeding Ps.823 million in 2012, Clarín maintains its advertising leadership both in Display and Classified ads. Online advertising sales rose by 20% to Ps.98.7 million, compared to the previous year. From an editorial perspective, Clarín reaffirmed its long-standing journalistic leadership. Its in- depth coverage of this year’s most outstanding news revealed once again the production quality of its reports and the depth of its approaches and insights. The work of the paper’s investigation team, the constant proposal of new editorial products and the launch of new publications continue to reflect the work of the greatest team of journalists in Argentina. Honoring its traditional journalistic excellence, Clarín received again the Rey de España award, the most important recognition to the Spanish- speaking press. As in 2011, Clarin.com won the Rey de España award in the category “best approach over the Internet”. This year the price was awarded to a special program on the historical trial referred to as Juicio a las Juntas (the claim brought against the members of the military juntas). A team from Clarin.com led by Operating statistics - PRinting and PublisHing Circulation (1) Circulation share % (2) advertising share %(3) 2012 311.7 38.7% 50.3% 2011 331.2 40.0% 54.0% YoY (5.9%) (3.3%) (6.9%) (1) Average number of copies according to IVC (including Diario Clarín and Olé) (2) Share in Buenos Aires and Greater Buenos Aires Area (AMBA) Diario Clarín. Source: AGEA and IVC. (3) Share in Buenos Aires and Greater Buenos Aires Area (AMBA) Diario Clarín. Source: Monitor de Medios Publicitarios S.A. During 2012, the Company completed the second stage of the web project for regional newspapers, including the launch of 8 new sites exclusively devoted to reporting local news in the province of Buenos Aires, in addition to the sites that under operation since 2011. Pablo Loscri, from Clarín's Arts and Infographics Department, did an impressive job reconstructing each and every instance of the historical trial against the military juntas in a multimedia special site at Clarin.com. In addition, Clarín received the following awards: Universidad de Buenos Aires: Award to the Education Supplement; Adepa: Award to Revista VIVA, Ana Laura Pérez and Alejandra Gallo; IPYS Transparencia Internacional: Nicolás Pizzi, Omar Lavieri, Nicolás Wiñazki, Rodolfo Lara and Daniel Santoro were distinguished with honorable mentions for their investigation on the Schoklender case and Madres de Plaza de Mayo; Citi Journalistic Excellence Award to Ezequiel Burgo. In November 2012, a special series on drug trafficking at Villa 1-11-14, a slum located in the Bajo Flores neighborhood, received the second Latin-American Drug Journalism Award, organized by the Latin-American Conference on Drug Policy. In 2012, Diario Clarín offered outstanding promotions that increased interaction with readers, among them, the edition of the game “El Gran DT”. Argentina’s most popular game engaged more than two million participants last year. As of year-end, the game had 500,000 unique users, more than 60 million visits, almost 1 billion page views, an average time on site of 11 minutes and visits from over 140 countries. Diario de Arquitectura has continued to launch high-quality collectibles, such as, “Patrimonio argentino”. During 2012, ARQ launched a series of special editions and products, such as the special edition ARQ 10 AÑOS commemorating the 10th anniversary of the magazine. During the year, Clarín announced the latest winners of the ARQ award, which recognizes the best Argentine architectural work of the last five years on a regional basis and held the award ceremony of the contest Gran Premio Nacional Arq. During the year, the Company continued to offer its 12 regional newspapers. Keeping its close bond and symmetry with readers, the product yielded considerable profitability and was a good support to the Thursday’s edition of Diario Clarín. During the year, the Company made efforts to strengthen the newspaper’s position among local audiences (through special editions and instant promotions). The regional newspapers cover the following locations: Vicente López, San Isidro, Morón - Ituzaingó and Hurlingham, Lomas de Zamora, Avellaneda - Lanús, San Martín - Tres de Febrero, La Matanza, Tigre - San Fernando, San Miguel - Malvinas Argentinas - José C. Paz and Quilmes - Berazategui - Florencio Varela, while monthly newspapers cover Pilar, Escobar, Zárate and Campana, and Moreno, Rodríguez and Luján. 24 25 PRINTING AND PUBLISHING With respect to sports, in addition to the game El Gran DT, in 2012 special supplements were published in the Sports Supplement covering prominent events, including but not limited to the Rally Dakar; the Davis Cup, and the London Olympic Games. The supplement covered all major sporting events during the year, including hockey, rugby, golf and swimming, with correspondents providing quality information to readers. As usual, soccer has had its preferential spot. Special supplements were published covering the Clausura and Apertura tournaments. The Sports Supplement also held its usual annual award ceremony Premios Clarín Deporte. Sergio Maravilla Martínez received the award to the best sportsman of the year. The event was also broadcast by TyC Sports and clarin.com. In order to continue to add value to its readers, Diario Clarín constantly keeps up to date and offers a wide range of editorial products together with the core product, addressing the need to satisfy an increasing segmentation among the diverse demographic groups. It was an intense year in terms of collectible and optional products, consolidating Grupo Clarín as one of the major book editors of Argentina. The highlights were: Grandes Enigmas de La Humanidad; Aventuras de Película 2; Batman; Grandes Fotógrafos National Geographic; El Gran Libro Clarín de las Tartas y Ensaladas; Gran Atlas de la Ciencia NG; Salvemos Nuestra Tierra; El Gran Libro del Tejido 2012; Grandes Pinturas de la Historia; Grandes Batallas Argentinas; Pastas y Arroces; El Gran Libro de Los Rolling Stones; El Gran Libro de la Historia del Automóvil; Batman. El Caballero de la Noche Asciende; Fábulas de Mi País; El Gran Libro Clarín del Crochet 2012; Británica. Enciclopedia Universal Ilustrada; Corín Tellado; 50 Grandes Restaurantes. Sus Mejores Recetas; El Gran Diccionario de Inglés; El Diario de Nat Geo; Plan Verano; Calendario 2013 and Angry Birds. to Clarín’s products continued to set trends, and brand the loyalty activities contributed consolidation of readers’ strong relationship with the brand. Further efforts were channeled into strengthening the bond with advertisers, bringing together new sectors and identifying their needs. Clarín organized the new edition of its renowned Clarín Awards, honoring its strong commitment to the promotion of Argentina’s best in the cultural and sports fields. To this effect, the 15th consecutive “Premio Clarín de Novela” ceremony was held, where Fernando Monacelli received the main award for his novel “Sobrevivientes”. The novel was published by Clarín-Alfaguara and the author won Ps.150,000. PRINTING AND PUBLISHING internet Clarin.com is a news and opinion portal with updates in real time and free access on a 365/24/7 basis, which has been online since 1996. In addition to the full version of the printed newspaper and its archive, Clarin.com features ongoing updates of news produced and published by its own journalists. During 2012, Clarin.com maintained its leadership in the Argentine market and ranked as the most visited Spanish-speaking news site in Latin America, with more than 10,800,000 unique users and 163,000,000 page views, per month (Source: Certifica, Clarín, 2012 January-December average). To further innovate in its ordinary business, Clarin.com took a strong step forward as audiovisual producer, and ventured into the online live broadcasting of long-lasting HD events on a broad range of themes. During 2012, the Company completed 15 productions and live-streams. The web was not the only way to reach the audience. Through Clarin.com, 729,000* unique users were kept informed from their mobile devices and 750,000** people downloaded the product application choosing Clarin.com as preferred brand accompany them at all times. Clarin.com has also become the news site that experienced the largest growth in social networks in Argentina over the last year, thanks to an innovative approach to news reporting and interaction with the community. In December, Clarin.com had 1,900,000 followers on Facebook and 400,000 on Twitter. Through hard work, it has become the Spanish-speaking news site with the largest number of followers on Facebook in Hispanic Latin America and the second largest worldwide, following The New York Times. * Certifica, Clarín, 2012 January-December average. ** Devices: Nokia, iPhone, iPad, Blackberry, Blackberry Playbook - accumulated downloads as of December 31, 2012. 26 27 PRINTING AND PUBLISHING Other newspapers La Razón, the first-ever free distribution newspaper, is mainly distributed in the public transportation network of the City of Buenos Aires, including trains, subways and high-ways. La Razón is also distributed at certain bars and among a group of opinion leaders. Building upon the concept that “La Razón is a travelling companion”, as it does every summer, the newspaper sent copies throughout the season to Mar del Plata, Pinamar and Villa Gesell. During 2012, La Razón continued to publish Agenda Cultural de la Ciudad de Buenos Aires (Cultural Agenda of the City of Buenos Aires) every Thursday and the monthly supplement Gestión Sustentable (Sustainable Management), a space to think about and divulge the social and environmental responsibility actions carried out by corporations and organizations of civil society. generation of young readers, offering advertisers an opportunity to reach a specific market. In addition to launching promotions and organizing tournaments and exhibition games, during 2012, Olé published the Guide to the Clausura Tournament 2012 and the Guide to the Apertura Tournament 2012. After River Plate’s return to the first division tournament, Olé published the magazine “¡Volvimos!”, which covered the soccer club’s path through the National B category and its return to the first division. In December, it published a collectible photographic work entitled “Los mejores momentos de 2012” (The Best of 2012). In April, the National Basketball League’s MVP award ceremony was held again, with the cooperation of the Argentine Association of Basketball Clubs. After thirteen years of existence and with an average daily circulation of 40,000 copies, Olé, the first and only Argentine sports newspaper, continues to consolidate its market positioning. It is the fourth largest newspaper in Buenos Aires in terms of circulation. Since its inception, it has revolutionized reading habits and managed to attract not only sports fans, but also a new In 2011, Clarín launched MUY, a dynamic, visually designed and entertaining newspaper, which features news in addition to regional pages and sports and show business sections. With a “TV- format” design, the newspaper summarizes the most resounding police cases and breaking news on soccer clubs and celebrities. During 2012, the newspaper MUY has continued to offer promotions, optional books + music CDs and free collectibles. Through these actions, the editorial offering and the free special supplements; the newspaper reached an average of 20,000 copies sold per issue. Magazines AGEA also continued to build upon the achievements attained by the cultural magazine Ñ, reaching average sales of 32,000 copies per issue. During the year, several initiatives were carried out, aimed at engaging readers through the launching of collectible products, the creation and sponsorship of forums comprising different cultural issues and involvement in and sponsorship of major cultural events. “Los mejores cuentos de la literatura universal”, “Grandes maestros del blues” and “100 Museos imperdibles de Argentina” are among the most relevant optional and collectible products. Seven special editions were published in 2012. Revista Pymes has continued to consolidate its growth. In June, the magazine was fully redesigned changing its size and paper to meet the market needs. The first edition of the new format included a DVD entitled “Outstanding interviews with outstanding entrepreneurs”. In October, Revista Pymes launched the optional product “Empresas familiares” (Family Businesses). In 2012, the Company continued to publish the magazine Genios. With children and school in mind, this magazine was created with the aim of integrating content for children, parents, school and society, combining education with entertainment. Since it was launched in March 1998, it has led the children’s magazine segment. Its editorial offering is always updated at the beginning of each academic year, presenting new sections, updated school materials and collectible books prepared by experts. During 2012, Genios consolidated its web site genios.com.ar, and launched the magazine “Edición de Oro”, together with the Back to School supplement. The editorial product was comprised by Genios magazine, plus “Guía Escolar” and the collectible product “Cómo escribir ¡Muy Bien!”. During the year, it also published other collectibles, such as, “Curso Multimedia de Inglés de la BBC” and “Juegos de tablero de Cartoon Network”. PRINTING AND PUBLISHING Revista Jardín de Genios is a monthly publication aimed not only at pre-school children and those attending the first years of primary school, but also at parents and teachers and other adults who deal with children within this age group (3 to 6 years). The main issues and products launched during the period include: the “Disney Junior” collection; the magazine “Edición de Oro”, with a backpack for kindergarten; and the optional product “Quiero Saber”. In March, Jardín de Genios also launched a new product called “Mis Primeros Pasos” -a book with hands-on and learning activities to help kids in their first learning steps at school, and to learn the numbers and how to read, write, cut and paste. “Mis Primeros Pasos” is a monthly publication that replaces every other issue of Jardín de Genios, published every fifteen days. During 2012, “Tiki Tiki”, a magazine aimed at children aged 7 through 14, continued to strengthen its position. During 2012, Tiki Tiki’s Facebook fan page has become an open channel to communicate with and promote content among readers. In addition to special issues that accompany the magazine, Tiki Tiki also published Tikipedia, the first soccer encyclopedia, and the collection Top Siglo XXI “De lo nuevo, lo mejor”. Revista ELLE -a high-end magazine for women mostly focused on fashion, beauty and news- reaffirmed its leadership in the high-end advertisers segment. In 2012, its circulation reached a monthly average of 30,000 copies. In May and October, the company also published the magazine Elle Decoración. to strengthen The bi-monthly magazine Clarín Rural Revista its position as a continued management tool for the productive sector with all the solutions and technologies aimed at agricultural businesses. Also in 2012 the company continued to publish the monthly magazine- catalogue, Shop & Co, which includes discount coupons on important brands. tinta Fresca Founded in 2004, Tinta Fresca is an Argentine publishing company focused on textbook publishing for all stages of the Argentine education system. Tinta Fresca seeks to place books at the heart of the teaching and learning processes and have teachers and students use them as an effective and updated learning tool. The company has been growing in many aspects over these years. In the editorial area, as a result of leveraging lessons learned, it has managed to expand its exclusive and original focus on textbooks to a considerably diverse editorial offering. With more than 290 titles, in addition to several textbook series for all school stages, including elementary and secondary education, its editorial offering is currently comprised by a variety of activity books for all levels. Said offering has been enriched with sourcebooks (dictionaries, encyclopedias and grammar books) and an interesting catalogue of children and youth literature. In 2012, Tinta Fresca continued to improve its market position. Among many other value-added projects, it strengthened its editorial offering through the launch of the series “Dame la Palabra 1, 2 y 3”; “Atrapaletras”; “Matemática en todas partes 4, 5 y 6” and “Saberes en red de Ciencias Sociales, Ciencias Naturales y Prácticas del Lenguaje 4, 5 y 6”. The nine books that comprise this series have several special sections that include computer activities. Tinta Fresca continued to produce books series by launching “El gran libro de la práctica docente” and “Más actividades”, seeking to offer additional class-room material for teachers. In terms of lexicography, our encyclopedia base was enlarged during 2010 with the publication of “Enciclopedia Mundo Actual”, a book of 2,520 pages and 18 volumes that Diario Clarín has been publishing since 2011. As an outstanding and special contribution to society, the Company made available at Clarin.com a digital and free version of “Diccionario integral del español de la Argentina”, released in April 2011. Users may easily check the full educational and cultural quality content of the dictionary. As a result of the production of collectible materials, newsstands and supermarkets have again been intensively used as sales channels for dictionaries and literature. This substantially contributes to product and content access. 28 29 PRINTING AND PUBLISHING chain Cúspide. The bookstore features a broad and assorted catalogue and an advanced search engine. The site offers several payment methods and payment against delivery. UNIR S.A. (“Unir”) is a company engaged in wholesale mail reception, classification, transportation, distribution and delivery services. As from August 25, 2008, AGEA holds a 93.41% direct controlling interest in Unir. During 2012, Unir's total sales increased by 29%, with revenues of Ps.78.01 million as of year-end. In December 2012, AGEA had its Quality Management System recertified under ISO 9001. CiMeCO CIMECO was organized in 1997 with the aim of acquiring equity interests in Argentine and foreign newspapers, seeking to preserve the regional journalism industry, blending experience, synergy and economies of scale, without altering its editorial principles. CIMECO holds a majority interest in two of the three largest regional newspapers in Argentina: La Voz del Interior (Córdoba) and Los Andes (Mendoza). Los Andes newspaper has been reporting Mendoza’s news since 1882. In that year, the Calle family founded one of the oldest journalistic companies in the country. Los Andes is a benchmark brand in the market. In 2012, the newspaper received the Mercurio award granted by the Argentine Marketing Association, in recognition for its commitment to building loyalty among readers. All the newspaper's actions were focused on driving the growth of the online version, positioning its loyalty program Los Andes Pass, and boosting the sale of optional products. Los Andes newspaper actively participated in all major provincial events and has renewed its agreement with Mendoza’s Sports Alliance to be the region's sports news provider. The program Medios en la educación (The Media and Education) reached its 25th anniversary working with the newspaper at school, and closed the year with the contest "The Dearest Teacher". In addition, Los Andes has maintained its strong commitment to the improvement of internal control processes and guidelines, while introducing improvements to products and services for customers. La Voz del Interior S.A. has again maintained its leadership position in the printed press and its position as an information and entertainment artes gráficas Rioplantense AGR meets certain special printing needs of Clarín and Olé (magazines, optional and collectible products, among others), and also publishes large volumes of graphic material for third parties. It is the leading printing services company in Argentina. In 2012, AGR retained its leading position in the sector with net sales of Ps.233 million and more than 12.5 million units sold in the local and foreign market. The company continued to exploit one of its main strengths: its participation in the entire value chain of the printing industry, which enables it to offer comprehensive customer service, including drafting, prepress, variable printing, offset printing, finishing and distribution. In addition to the progress made in improvement and control management of its production processes and in order to take care of the environment, AGR installed a new catalytic post-burner for the treatment of gas effluents derived from the rotary press furnaces. During this period, AGR successfully completed the implementation of ISO 14000, an internationally accepted standard that sets forth how to establish an effective Environmental Management System (EMS) to achieve a balance between maintaining profitability and reducing the environmental impact. In addition, AGR installed a vacuum system to remove dust from the trim size system ducts and reduce air-suspended particles. In May 2000, AGR entered into an agreement with the Techint Group, acquiring 50% of Impripost Tecnologías S.A. (“Impripost”). Impripost is mainly engaged in the overall production and printing of invoices, advertising brochures, forms, labels and cards. It also provides envelope-stuffing services for mass mailing. In 2011, the Company acquired an interest in the capital stock of Cúspide Libros S.A. through AGR. Through this acquisition, it launched Librocity.com, the online bookstore of Grupo Clarín, in partnership with the retail bookstore Ferias y exposiciones argentinas Since 2007, Ferias y Exposiciones Argentinas has been mainly engaged in the organization of Caminos y Sabores, an exhibition intended to foster Argentina’s gastronomy and handicrafts and promoting the region’s major tourist destinations. During 2012, Ferias y Exposiciones Argentinas held exclusive events for users and owners of agricultural machinery in Caminos y Sabores, as well as in Admite. Throughout its eight editions, Caminos y Sabores has become one of the fastest growing fairs, while boosting the development of all of its key participants: typical food producers, craftsmen and representatives of tourist destinations. In 2012, the exhibition was held from July 6-9 and attracted over one million visitors who enjoyed walking through the market, and attending cooking demonstrations, speeches and art shows. Admite was held in 4 editions -Arroz (Rice), Gestión (Management), Agrícola (Agriculture) and Forrajero (Fodder)- with several courses led by prestigious instructors from the agricultural sector and training on technology and machinery. In 2007, AGEA entered into an agreement with S.A. La Nación for the organization of Expoagro, a new agro-industrial fair, improving the results that had been obtained until then by Feriagro, and achieving a record-high number of exhibitors. In 2012, the exhibition was held in March in the city of Junín, province of Buenos Aires. It was a success and received more than 100,000 visitors. digital benchmark in the central region of the country. Its two printed newspapers, La Voz del Interior and Día a Día, have continued to maintain a 59.4% market share in the province of Córdoba. In addition to this, the sectional directories and the sustained growth in the distribution of third party's and in-house editorial products have contributed to gain more contracts with clients. In terms of advertising, La Voz del Interior S.A.’s products capture 39.7% of the investment in large media, based on the multiple options offered by its print and electronic media. In this last regard, its web sites position the newspaper as a leader in unique visits and page views in the provinces of Argentina. Papel Prensa Papel Prensa is the first producer of newsprint that is wholly owned by Argentine capital. It began its operations in 1978 and is currently the largest Argentine producer of newsprint, with an annual production capacity of approximately 170,000 tons. As of December 31, 2011, the shareholders of Papel Prensa were AGEA (37%), CIMECO (12%), S.A. La Nación (22.5%), the Argentine federal government (27.5%), and other minor investors (1%). Papel Prensa has implemented production policies based on the procurement of strategic inputs without contributing to the depletion of natural resources. To this end, the paper mill recovers raw materials from the recycling of returned newspapers, instead of using virgin fiber. 30 31 BROADCASTING AND PROGRAmmING 3BROADCASTING AND PROGRAMMING Grupo Clarín is also the leading company in the audiovisual broadcasting and programming segment. Through Artear, it holds the license to broadcast El Trece, one of the two largest broadcast television channels in Argentina, and segment leader in terms of advertising share and prime-time audience share. It also has a presence in broadcast television stations in Córdoba (Telecor), Bahía Blanca (Telba), Bariloche (Bariloche TV), and Río Negro (Radio Televisión Río Negro). Grupo Clarín also produces and sells some of the most popular cable television signals. Its audiovisual broadcasting and programming array includes agreements and equity interests in the main television and film producers, such as Pol-Ka Producciones, Ideas del Sur and Patagonik Film Group. Grupo Clarín also owns prominent radio stations, such as Mitre AM 790, La 100 (FM 99.9), both in Buenos Aires, and, more recently, Mitre AM 810 in the province of Córdoba. Grupo Clarín also has a strong stake in sports commercialization and broadcasting rights, mainly soccer and motor racing, directly and through joint ventures. Out of Grupo Clarín’s total sales in 2012, the broadcasting and programming segment accounted for Ps.1,449 million, taking into account intersegment sales. net sales (In millions of Ps.) adjusted ebitda (In millions of Ps.) 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 YoY 1,449.0 1,268.7 260 234 208 182 156 130 104 78 52 26 0 252.7 136.1 i g n m m a r g o r P & g n i t s a c d a o r B i g n m m a r g o r P & g n i t s a c d a o r B 2011 2012 2011 2012 14.2% YoY (46.2%) 32 33 BROADCASTING AND PROGRAMMING aRteaR Amidst a scenario marked by industry challenges and strong competition, Artear was able to achieve its goals in 2012. Its share of the traditional advertising market of broadcast television reached 29.4%. 2012 has had the highest audience concentration in recent years for the leading signals, with Telefe and El Trece achieving a combined 64%. El Trece ranked second in the broadcast TV audience rating with 9.5 points from 12 pm to 12 am, Mondays through Sundays. Its professionalism, artistic quality, innovative proposals and technological developments continue to distinguish it as one of the most prominent signals in the market. In terms of programming, El Trece combined fiction, news and entertainment embracing a varied offering. “Show Match”, “Soñando por cantar”, “Los Únicos”, “Tiempos Compulsivos” and “Condicionados” led audience ratings. “Periodismo para Todos” -a program hosted by Jorge Lanata- is a highlight in terms of journalistic and news programs. Furthermore, “Arriba Argentinos” continued to consolidate its morning audience rating. El Trece’s news programs -“Noticiero Trece”, “Telenoche” and “En Síntesis”- further validated their already existing recognition and credibility with audience ratings that led their respective time slots. With respect to cable television channels, TN achieved the highest audience share throughout the year across all time slots. On several occasions, it outperformed broadcast stations. Several programs particularly stood out, such as “El Juego Limpio”, “Palabras más, Palabras menos”, “Código Político”, “Desde el Llano”, “Argentina para Armar”, “Otro tema”, “A Dos Voces” and “TN Central”. Artear further strengthened its TV slots, seeking to offer diverse options in terms of information and entertainment. The Spanish language music channel “Quiero Música en mi Idioma” was quick to lead audience ratings in the music genre. ”Volver” continued to offer the best of classic and vintage Argentine films and television shows and reaffirmed its role as a 100% national channel that preserves our history with the highest technology. Magazine and Metro, general interest cable channels, continued to develop their programming criteria through thematic modules and standardized broadcasting. Magazine was the signal with the highest audience in the variety category. El Trece Satelital, the Buenos Aires signal of El Trece, continued to focus on local productions and on including a significant number of in-house national productions in its programming. Operating statistics - bROadCasting and PROgRaMMing advertising share %(1) audience share %(2) Prime Time Total Time 2012 36.6% 35.9% 29.4% 2011 36.6% 42.2% 33.0% YoY 0.1% (15.1%) (10.9%) (1) Company estimate, over ad spend in Ps. In broadcast TV for AMBA region. (2) Share of broadcast TV audience according to IBOPE for AMBA. PrimeTime is defined as Monday through Friday from 8 pm to 12 am. Total Time is defined as Monday through Sunday from 12 pm to 12 am. 34 35 BROADCASTING AND PROGRAMMING During 2012, more investments were made in the development of Artear’s web sites. Hours of information, network entertainment, favorite programs and instant news. “tn.com.ar” ranked among the four top online news sites and as a leader in social networks. “eltrecetv.com” has become Argentina’s most visited broadcast TV web site featuring the most outstanding programs, exclusive coverage, back-stage, contests and live interviews. During the year, it had more than 1.7 million users, in addition to 400,000 followers on Facebook and over 535,000 followers on Twitter. Artear has also reinforced the development of exclusive applications and content for the most widely used mobile devices. Additionally in the production section, the most prominent show business and general interest events were broadcast, such as the concerts of Madonna, Lady Gaga, Mamma Mía, Liza Minelli, Luis Miguel, Axel, Hugh Laurie, Carlos Baute and Reik, as well as other shows and events, such as, Cirque du Soleil, Batman Live, Piñón Fijo es mi nombre, La cabra, Quilmes Rock, Pepsi Music and Personal Fest; and a new edition of the traditional UNICEF fund-raising event “Un Sol para los chicos” at the Luna Park stadium. During 2012, Artear sought to strengthen its position as technological market leader, after the successful launch of the signals El Trece HD and TN HD in 2011, when it became the first broadcast signal to produce all of its content in high definition. This success is the result of intensive investment in equipment and professional training. El Trece was the first signal to test a high-definition system on September 25, 1998 and has continued to use it uninterruptedly from 2000 through 2009. During the period, investments were made to strengthen the implemented workflow processes, as well as to move forward with pending issues. Additionally, a building project was carried out to increase the newsroom size, which became a “spectacular newsroom”, as evidenced every day by the images of the news programs broadcast by El Trece and TN. The archive capacity enlargement for the digital system implemented the previous year is one of the most significant acquisitions. Artear continued to produce fictional content for TV series and motion pictures through Pol-Ka, Ideas del Sur and Patagonik Film Group. In the case of Pol-Ka, “Lobo” and “Los únicos, segunda temporada” - the two series scheduled for the beginning of the year - failed to deliver the expected results. In September, Artear started again to broadcast programs in "series" format with “Sos mi hombre”, which achieved a high audience rating. “Condicionados” and “Tiempos compulsivos”, both of them in the Company’s hallmark category of “single” programs, were broadcast during the year with considerably good acceptance from the public and the critics. Also during 2012, Artear completed the production of “Violetta” for Disney and, by the end of the year, started to produce the second season. The program has become very popular among children and youth, with high audience levels both in cable and broadcast TV in Argentina and abroad. Even though 2012 was a challenging year, the 2013 outlook is quite promising since “Sos mi hombre” will continue to be broadcast on El Trece, and “Solamente vos” has a large audience, in spite of the typically low audience shares registered in summer. As for Ideas del Sur, during 2012, the company exceeded the number of production hours and increased advertising sales compared to the previous year. In addition, all of its products achieved good audience levels. The Company also made significant efforts towards developing activities related to the commercialization, organization and broadcast of sports events through TyC Sports, mainly football and motor racing. radio mitre In 2012, AM Mitre 790 reaffirmed its track record and consolidated its second place in the ranking of audience share during the entire year, reaching an audience share of 23 points. The radio talk show “Primera Mañana”, hosted by Nelson Castro with a group of prestigious columnists, stood out among Radio Mitre’s programming. “Hola Chiche”, hosted by Chiche Gelblung, continued to renew the morning slot with a lineup that combines journalism, general news coverage and enjoyable and smart humor. In the afternoon slot, Radio Mitre consolidated its strong journalistic offering with the incorporation of a new program. In February 2012, Radio Mitre launched “Lanata sin filtro”, a program hosted by Jorge Lanata with the participation of Luciana Geuna, Osvaldo Bazán, Nicolas Wiñazki and Adriana Verón that set the agenda with high- impact research and journalistic views. “El Club de la tarde”, hosted by Ernesto Tenembaum, “La Otra Pata”, hosted by Marcelo Zlotogwiazda, and “Lo que queda del día”, hosted by Horacio Caride were also part of the programming. La 100 consolidates its leadership in the FM radio segment, with an entertaining, smart and innovative proposal based on programs led by famous artists and good music. By year-end, La 100 again led the audience share with growth in almost all of its programs. In 2012, the shows “El Show de la Noticia”, hosted by Roberto Pettinato in his ninth season, and “Lalo por hecho”, hosted by Lalo Mir and Maju Lozano, stood out once again. In the afternoon slot, La 100 managed to consolidate its position with “Sarasa”, hosted by Ronnie Arias, and “Atardecer de Un Día Agitado”, hosted by Sergio Lapegüe. “Ranking Yenny” hosted by Guillermo López leads the audience segment on Saturday mornings. To further deepen its bond with listeners, La 100 continued to organize acoustic concerts and on-location broadcasts from its mobile studio, featuring highly-acclaimed national and international artists. Finally, of remarkable note is the growth experienced by Cienradios.com.ar, a site that was conceived as an extension of the Radio Mitre brands to the web, but that now stands on its own. It entails the development of an infinite concept of the dial and is unique in Latin America. Users may choose among a wide offering of broadcast radio stations and other stations, specially designed for the Internet with segmentations of singers, bands, music from different decades, the music presented by the FM radio station hosts, folklore, tango, romantic music and other rhythms. During 2012, the presence of Mitre AM 810 was also consolidated in the province of Córdoba as the second radio with the highest audience share. With a permanent staff in the city and its own news service, Mitre AM 810 developed comprehensive coverage of news comprising Córdoba, Argentina and the world. Its programming includes prestigious hosts, such as, Rafael Martínez, Rebeca Bortoletto and Juan Alberto Mateyko. 36 37 digital content and others 4DIGITAL CONTENT AND OTHERS Revenues in this segment are derived from the sale of advertising on some Internet web sites and portals and the provision of administrative and corporate services by Grupo Clarín and its subsidiary GC Gestión Compartida S.A. (“GCGC”) to third parties and other subsidiaries. They also include digital content production through Contenidos de Medios Digitales S.A. (“CMD”). Out of Grupo Clarín’s total sales in 2012, this segment accounted for Ps.364 million, taking into consideration intersegment sales. digital Content Grupo Clarín is the leading producer of digital content. Through CMD, the Company developed the broadest network of portals and digital content in Argentina, covering news, entertainment, sports, classified advertisements, direct marketing, e-commerce, digital photography, video, blogs, chat rooms, music, mobile content (ringtones, SMS and games) and a browser. This network seeks to replicate on the Internet the presence and relevance of Grupo Clarín’s several offline media. net sales (In millions of Ps.) adjusted ebitda (In millions of Ps.) 2011 2012 363.8 283.0 400 375 350 325 300 275 250 225 200 175 150 125 100 75 50 25 0 s r e h t o & t n e t n o c l a t i g d i 0 (0.1) (0.2) (0.3) (0.4) (0.5) (0.6) (0.7) (0.2) s r e h t o & t n e t n o c l a t i g d i (0.6) 2011 2012 YoY 28.6% YoY 64.7% 38 39 DIGITAL CONTENT AND OTHERS Given the fact that, in line with the corporate strategy, the exploitation of Clarín and Olé websites that were previously operated by Grupo Clarín was transferred to another company of the same economic group, goals have been redefined in order to strengthen the positioning of other sites, such as, Todo Noticias, Cienradios, Ciudad and EltreceTV in terms of traffic and revenues. In addition, the Company continued to sell contextual advertising under the brand iAvisos and completed the first year of operation in the Adnetwork business. The website of Todo Noticias developed by CMD registered amazing audience share growth at year- end. By year-end, TN had 5.6 million unique users, that is, a 47% increase compared to the same month in 2011 and 36.4 million page views, which represents a 40% increase relative to the same month the previous year. Ciudad.com remained the most visited show web site in Argentina, with 5.3 million unique users in December 2012. operating statistics - digital Content and otHers Page Views (1) Unique Visitors(1) 2012 625.3 27.9 2011 613.9 25.9 YoY 1.9% 7.6% (1) In millions. Average. Source IAB and Company Estimates. 40 41 34 35 DIGITAL CONTENT AND OTHERS CMD S.A. has maintained its 80% equity interest in Interpatagonia S.A., and its 51% interest in Clawi S.A. During the year 2012, Tecnología Digital (TECDIA) S.A. was created, a company in which CMD has a 95% equity interest. Club Cupón, the online discount site that had completed the first month of the year with 23,000 coupons sold, in December exceeded 36,000 coupons. Also in 2012, the Company managed to enter the Brazilian market through Clawi S.A., by means of a strategic alliance with Grupo Abril’s Recreio magazine. Thus, with the launch of a version in a different language, Mundo Gaturro became the first online entertainment world in Hispanic Latin America. During the period, Mundo Gaturro reached 6,500,000 registered users and approximately 100,000 access passes sold per month. During 2012, the Company also executed an agreement with UNICEF for the development of educational games. Also during the period, CMD completed its second year of operations in the direct marketing segment through its brand Mr. Sale, achieving sustained growth. Through its brand Yuisy, CMD launched Token Dancer, a thrilling eye-hand coordination game which, by the end of 2012, had registered 370,000 downloads worldwide and is available for iPod, iPhone and iPad at Apple’s Appstore. Yuisy’s consolidation in the Latin-American videogame industry is attributable to the release of third party’s games. The first title released under this modality was ZAP First Jump. These releases are in addition to the popular Rolling Ranch and Halloween Hunter launched in 2011. otHer serviCes Through GCGC, Grupo Clarín renders specialized- process outsourcing services to medium and large companies. The services rendered, which include payroll management and processing and implementation of related processes, as well as human resources management, are oriented to optimize quality and provide innovative management tools. During 2012, total sales increased by 36.6% compared to the previous year. The company continues to bolster the services offered, increasingly focusing on a customer-driven approach, as well as on strengthening improvement processes. ArgenProp Buscainmueble Canal 13 Clasificados Clarin.com Cienradios Ciudad Clarín Blogs Clubcupón Confronte De Autos De Motos Entremujeres Espectáculos Genios Guía de la Industria Grupo Clarín iEco Imagena Interpatagonia La Razón Más Oportunidades Mundo Gaturro Nimbuzz Mublet Olé Quieromimúsica Revista Ñ Shop1 Tangocity Tipete TN TN y la Gente Toda Pasión T&C Sports Ubbi Vía Restó Yuisy VXV Welcome Argentina 42 43 corPorate goVernance, organiZation and internal control sYsteM 5CORPORATE GOVERNANCE, ORGANIZATION AND INTERNAL CONTROL SYSTEM Grupo Clarín’s Board of Directors is responsible for the Company’s management and approves its policies and overall strategies. According to the Company’s By-laws, the Board has ten permanent members and ten alternate members, appointed on an annual basis at the Regular Shareholders’ Meeting. The By-laws also provide for the appointment of four independent directors, two permanent members and two alternate members, appointed in accordance with the requirements of National Securities Commission (“CNV”). execUtiVe coMMittee Grupo Clarín also has a Supervisory Committee comprised of 3 permanent members and 3 alternate members, who are also appointed on an annual basis at the Regular Shareholders’ Meeting. The Board of Directors, through an Audit Committee, is in charge of the ongoing oversight of all matters related to control information systems and risk management, and issues an annual report on these topics. The members of the Company’s Audit Committee may be nominated by any member of the Board of Directors and a majority of its members must meet the independence requirement set forth by the CNV. Day-to-day business decisions of Grupo Clarín are made by an Executive Committee formed by three members of the Board of Directors. Héctor Horacio Magnetto; José Antonio Aranda and Lucio Rafael Pagliaro. aUdit coMMittee At year-end, the Audit Committee was comprised as follows: MeMbers of the board of directors alberto césar José Menzani independent director lorenzo calcagno independent director alejandro alberto Urricelqui director Grupo Clarín’s Board of Directors is comprised by the following members, appointed at the Annual Ordinary Shareholders’ Meeting and Special Meeting per Class of Shares, held on April 26, 2012: héctor horacio Magnetto chairman José antonio aranda Vice chairman lucio rafael Pagliaro alejandro alberto Urricelqui director director sUPerVisorY coMMittee Grupo Clarín’s Supervisory Committee is comprised by the following members, appointed at the Annual Ordinary Shareholders’ Meeting and Special Meeting per Class of Shares, held on April 26, 2012: Jorge carlos rendo Pablo césar casey ralph booth ii luis María blaquier director raúl antonio Morán independent Permanent director Member director carlos a. P. di candia independent Permanent director Member lorenzo calcagno independent director Pablo san Martín independent Permanent alberto césar José Menzani independent director Member hugo ernesto lópez independent alternate Member rubén suárez independent alternate Martín guillermo ríos alternate Member Member 44 45 CORPORATE GOVERNANCE, ORGANIZATION AND INTERNAL CONTROL SYSTEM In order to identify opportunities and streamline structures and systems with the aim of improving processes and making informed decisions, Grupo Clarín sets forth several procedures and policies for the specific purpose of controlling the Company’s operations. The areas responsible for the Company’s internal controls, both at the Company level and at the level of its subsidiaries and affiliates, contribute to the safeguarding of shareholders’ equity, the reliability of financial information and the compliance with laws and regulations. Compensation of the members of the board of directors and senior management Compensation of the members of the Board of Directors is decided at the Shareholders’ Meeting after the close of each fiscal year, considering the cap established by Section 261 of Law No. 19,550 and related regulations of the CNV. Grupo Clarín has compensation arrangements with all of its officers in executive and managerial positions, which contemplate a fixed and variable remuneration scheme. Fixed compensation is tied to the level of responsibility attached to each position and prevailing market salaries. The variable component is tied to performance during the fiscal year based on the objectives set at the beginning of the year. Grupo Clarín does not have any stock option plans in place for its personnel. As mentioned in Note 13 to the parent company only Financial Statements, on January 1, 2008 Grupo Clarín began to implement a Long-term Savings Plan (“PALP”) for certain executives of Grupo Clarín and its subsidiaries. Executives who adhere to such plan will contribute regularly a portion of their salary to a fund that will allow them to increase their income at the retirement age. Furthermore, each company matches the sum contributed by such executives. This matching contribution will be added to the fund raised by the employees. Under certain conditions, employees may access such fund upon retirement or upon termination of their jobs with Grupo Clarín. Grupo Clarín organizes its activities under an executive structure comprising: External Relations Department; Corporate Finance Department; Corporate Control Department; Corporate Strategy Department; Audiovisual Content Department; Corporate Human Resources Department; Corporate Affairs Department and Digital Content Department. The overall criteria used to appoint managers are based on the background and experience in the position and the industry, companies they have worked for, age, professional and moral aptitude, etc. The professional experience and background of the main managers are disclosed to the general public upon their appointment. annual shareholders' meeting Grupo Clarín held its Annual Ordinary Shareholders’ Meeting on April 26, 2012. On this occasion, the shareholders reviewed and approved the accounting records for fiscal year No. 13 ended on December 31, 2011 and the performance and compensation of the members of the Board of Directors, the Supervisory Committee and the Audit Committee. Among other things, they reelected the permanent members and alternate members of the Board of Directors and said committees for the year 2012. The Company distributed dividends for an aggregate amount of Ps.135 million, representing 46.97% of its nominal capital and Ps.0.4697 per share. dividend Policy Grupo Clarín does not have a formal dividend policy governing the amount and payment of dividends or other distributions. According to its By-laws and the Argentine Corporate Law, Grupo Clarín may lawfully pay and make declarations of dividends only out of the retained earnings stated in the Company’s annual Financial Statements prepared in accordance with Argentine GAAP and CNV regulations and approved at the Annual Ordinary Shareholders’ Meeting. In such case, dividends must be paid on a pro rata basis to all holders of shares of common stock as of the relevant record date. Code of Corporate governance to the aforementioned and in In addition conformity with the CNV’s decisions concerning the filing of the report on compliance with the Code of Corporate Governance (Resolution No. 606/12), Grupo Clarín prepared the report for the year under analysis, which is available in the Company’s Website. stoCk information and sHareHolder struCture Grupo Clarín is listed in the Buenos Aires Stock Exchange where it trades its shares, and in the London Stock Exchanges, where it trades its shares in the form of GDS. london stock exchange (lse) - ticker: bolsa de comercio de buenos aires (bcba) - ticker: GCLA (BCBA) Price per share, december 31, 2012 GCLA (LsE) Price per gds, december 31, 2012 total shares total gds equity PartiCiPation at iPo1 % GCLA GCLA Ps.8.50 Us$2.50 287,418,584 143,709,292 20.3% free float 70.9% controlling shareholders2 8.8% gs Unidos, llc (rb)3 sHareHolder struCture - Number of Shares4 controlling shareholders gs Unidos, llc (rb) free float international local total 204,030,227 25,156,869 58,231,488 (46%) 27,045,754 (54%) 31,185,734 287,418,584 1 Since the IPO, our shareholders and management acquired approximately 7.8 MM shares (13.7% of the free float). 2 Controlling Shareholders: Ernestina H. de Noble, Héctor H. Magnetto, José Antonio Aranda and Lucio Rafael Pagliaro. 3 GS Unidos, LLC, a company under the indirect control of Mr. Ralph Booth (Director). 4 As of March 8, 2013. 46 47 grUPo clarÍn and its corPorate social resPonsibilitY 6GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY our Commitment Since its foundation, Grupo Clarín has been aware of its social responsibility as a company and as a member of the media, and has strived to assume such responsibility abiding by the laws, honoring its active and sustained social and community involvement and, especially, fulfilling its duty to inform with honesty and accuracy. Commitment to society is an inherent and essential part of Grupo Clarín’s vision and mission statement. The Company attaches special importance to the relationship with its different audiences, which acknowledge and validate its activities each day and, over time, have established multiple communication and interaction channels with Clarín’s stakeholders. From the standpoint of its audiences, readers and society in general, Grupo Clarín’s media and journalists work day after day towards respecting and consolidating the people’s right to information; combining high credibility with a comprehensive journalistic and entertainment offering based on a deep knowledge of the audience. transparency, standards and guidelines Grupo Clarín seeks to intensify the values and principles that guide the Company’s daily work, particularly those concerning labor, sustainable development, and human rights. The Company’s observance to those principles is also outlined in the Corporate Code of Ethics and also in the “Guía para la Acción”, a document which proposes models for management, organization and roles, while outlining Grupo Clarín’s general policies and procedures concerning labor, the environment and human rights. During 2012, the Company developed its Corporate Social Responsibility and Sustainability Policy, aiming to extend best practices and establish common goals within the organization and its subsidiaries. It also encompasses and promotes the adoption of specific industry related standards among its subsidiaries. Also in this period, the Company started to prepare International its Financial Statements under Financial Reporting Standard (IFRS) changing the manner in which some figures are presented. This, added to an internal materiality assessment on sustainability issues performed in 2012, resulted in the deconsolidation of some subsidiaries in which the Company holds a minority stake such as Trisa, Impripost, Papel Prensa and Ideas del Sur. Therefore, comparative analysis of some figures in this section with those from previous years cannot be properly stated. Since 2004, the Company commits to the Global Compact proposed by the United Nations, seeking to systematically embody the 10 principles that serve as a guideline for a sustainable management. Grupo Clarín also participates in several groups and organizations, which gather other Argentine, Latin-American and global media players and stakeholders to share experiences, identify best practices, and foster cooperation on the specific issues that media companies address as part of their social responsibility strategies. During 2012, through the Noble Foundation, it renewed its presence in the “Grupo de Fundaciones y Empresas”, a space to share knowledge and set standards in the field of strategic social investment. During the period of 2009-2012, Grupo Clarín committed its participation and contributed to the multi-stakeholder development of the Media Sector Supplement for the Global Reporting Initiative. The GRI guidelines published in may 2012 act as a reference for an extensive process, currently underway at the Company, to further consolidate, identify and report relevant information regarding environmental and social impacts, while establishing new goals to strengthen its related initiatives and strategy. 48 49 independence and transparency independence from the government Freedom of expression and transparency are indispensable values to the Company and its professionals. Both principles are particularly relevant in areas linked to news services. At Grupo Clarín, each company commits to the quality, rigor and transparency of its information and content. News coverage and programs aim to be plural and fair, reflecting the journalists’ efforts to inform on facts and events in a balanced manner, while allowing opinion regarding the parties involved. Style guides, ethics manuals, news coverage guidelines -including some for kidnapping and hostage situations- and several other self-regulations and commitments guide the different activities of news and entertainment oriented companies. This does not mean that every issue, especially regarding content and editorial view, is addressed as expected. For that reason Grupo Clarín’s media companies are continuously designing new means to engage with its readers and audiences. As the previous years, 2012 proved to be a specially challenging year for the press and freedom of expression in Argentina. The Company supported numerous initiatives to create awareness on the subject and demonstrated its sustained commitment to defending and promoting it. Independence is a value. For journalists and the media, independence is the solid foundation of their work, which enables them to search for the truth, without any conditioning. Independence is at the core of Grupo Clarín’s business, as a guarantee of freedom for its media to fulfill their journalistic role in Argentine democracy. It is at the same time an assumed responsibility, a way of exercising and guaranteeing rights, an outlook on sustainability from the company, a daily commitment. Independence requires transparency. That is why the information about Grupo Clarín, its media, shareholders, activities, revenues and investments is public and is readily available in its website, in the Argentine Securities Commission and in multiple and several communication channels with the public, audiences and readers. This is not the case with the majority of the other Argentine media, which does not make available to the public their financial statements, the sources of their income, and many times even fail to reveal who their owners are. One of the media’s sources of income is advertising. Presently, most media in Argentina are either state- owned or a significant portion of their income directly depends on the increasing government advertising expenditure. Those are adverse conditions that can often pose a threat for journalistic independence, freedom of speech, access to information and plurality of voices, all vital conditions for a sustainable and democratic society. Grupo Clarín receives virtually no funds for official advertising from the National Government and very little from Provincial Governments. So much so, that in 2012 official advertising from all jurisdictions accounted for only 1% of its revenues. Historically, given the scale and diversity of Grupo Clarín’s revenues, the weight of those funds has always been kept at very low figures, in order to guarantee the freedom of its media and journalists to report without any conditioning. business independence Grupo Clarín pays special attention to guaranteeing its economic independence by pursuing a sustainable business model with diversified sources of income, where advertising is only one of the ways of sustaining its businesses. Among its activities, it also publishes and sells editorial products, produces and sells programming and PeoPle’s voiCes Media sustainability depends profoundly on readers and audiences aware of their rights and ready to demand quality journalistic and entertainment contents, and also on media ready to listen to them. Grupo Clarín's media promote interaction with their publics and audiences, creating spaces and tools aimed at listening and fostering communication. Opinions, critics, tastes, suggestions and comments are received through multiple open spaces for contents created by people for the free expression of society, embracing its diversity and plurality. At a Corporate level, amidst the challenging environment created by the ongoing harassment by the government since 2008, Grupo Clarín also offers multiple and specific communication channels, such as web based tools and social networks, to share the latest updates with accuracy and transparency. The proliferation of new media, Internet based networks and the web 2.0 phenomenon, started a revolution in journalism and in terms of how people consume news and other types of content. This requires a serious assessment on how to face the challenges of the digital era, adapting the Company’s business models to satisfy Grupo Clarín’s audiences, and at the same time addressing sustainability while maintaining the Company’s leadership position. Grupo Clarín’s media companies have a long history of audiences’ and readers’ engagement. The ability to anticipate trends together with a profound knowledge of media consumers and the ability to interpret their needs and meet their demands, explain the Company’s sustained leadership and favored place amongst consumers’ preferences. Clarín’s newspaper segments such as “El juicio final”, “Cartas al país” and daily readers’ surveys, all traditional means of engaging readers, are complemented by more recent initiatives to accompany peoples’ needs to participate in the news process, such as the introduction of readers comments and social media strategies within the online news platforms. Over the last few years, the Company has launched a growing number of new blogs, and generated greater interaction not only with journalists, but also between our users. Interactivity opens space for informative content deriving from readers, listeners and web users. ‘TN y la gente’ is a web- based tool developed by the Company’s news channel, where audiences send photos or video footage captured from personal and mobile cameras, as another way of introducing citizen journalism and increasing end-user participation in our media. The Company also pays special attention to giving voice to small or underserved communities and providing for the development of local content at a regional level. Cablevisión and Artear are working together to gradually renew local TV channels and newscasts in several cities in Argentina. The program takes into consideration access to local information and culture, while providing them with state-of-the–art technology and training. On the other hand, for almost 30 years now Grupo Clarín, through the Noble Foundation, has been offering free media literacy tools aimed at promoting a critical view on journalism and empowering at the same time people in their role of consumers and also creators of contents. 50 51 cable television and Internet services. Additionally, it makes available to the public information about its revenue structure on a quarterly basis. With respect to its advertisers, the Group’s media have business policies that promote diversity and multiplicity of advertising investment sources. Therefore, none of the advertisers that advertise their products in Grupo Clarín’s media accounts, individually, for more than 1% of the Group’s revenues, another way of guaranteeing its independence and freedom to report. Media independence also needs responsible relations between journalism and the company’s own business interests. Grupo Clarín’s media have policies aimed at separating business functions from editorial functions. Particular emphasis is placed on the fact that journalists must not be in charge of or related to advertising sales, in order to allow for the free exercise of their profession, free from any risk and conditioning. Also in each of its media a clear distinction is made between advertising spaces and editorial spaces. As mentioned previously, the Company also has a Code of Ethics applicable to its subsidiaries and employees. It establishes standards of conduct which regulate and prevent situations that may affect the free fulfillment of their duties and transparency of their activities. GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY social and sustainability Coverage To better assess the influence the media can have on different audiences, Grupo Clarín establishes goals to ensure the quality and pluralism of its content. Grupo Clarín’s newspapers and television newscasts have a long and highly praised record in investigative reporting, and provide comprehensive news coverage and insightful pieces on relevant social and environmental issues. Reflecting the diversity of society through its news coverage and entertainment content lies in the core of its unique capacity to engage with audiences and readers. Special supplements, expert and academic voices and editorials, onsite coverage and skilled journalists and infographics complete an extensive offering on topics that vary from health, consumption and development to science, education and conservation. Weekly TV Programs such as ‘TN Ecología’ and ‘TN Ciencia’, in Todo Noticias, Grupo Clarín’s 24 hour news channel and the leading cable channel in Argentina, have become leaders in their fields. During 2012, the Company’s media paid special attention to issues related to climate change and the environment. Radio Mitre, its main broadcasting radio station, combined 24 hour coverage of these issues and continued to air “Planeta Mitre, Compromiso Verde” a series of daily brief radio programs by an environment specialized journalist aimed at raising awareness on environmental issues, recycling and what each of us can do to make the world a better place. Since 2011, the newspaper La Razón has been publishing the monthly supplement Gestión Sustentable (Sustainable Management) to make readers think about the most prominent issues of the sustainable development global agenda and to report on social and environmental responsibility actions carried out by companies and organizations of the civil society. During the year, the supplement received the prestigious award Gota en el Mar, in the category Environment and Sustainability. Among the most significant initiatives, the Company, in association with Vida Silvestre, Farn, Greenpeace and other 7 environmental organizations from Argentina or with active presence in the country launched a collectible named Salvemos Nuestra Tierra (Let’s save our planet) published together with Diario Clarín in March, April and May of 2012. The product, pioneer in its field, sought to raise awareness on major environmental issues and their potential solutions, while offering a guide to learn how to help the planet and activities to work at school or at home. The Company also continued to draw attention to weblogs that create social awareness within Clarin.com. An example of this is “El Otro, el Mismo”, a blog developed in association with Universidad Católica Argentina and social organizations engaged in fostering the inclusion of people with disabilities. Moreover, the “Calendario del Compromiso con la Comunidad” (Calendar of Commitment to the Community) continued to be published in Revista Viva for the seventh consecutive year. Recognizing the importance of reflecting diversity, promoting social justice, protecting youth, encouraging minority recognition and preventing racial and gender discrimination is key in responsible content creation in the media. During the last few years, third party, academic and the company’s own monitoring processes have all registered a gradual, yet sustained increase in social topics coverage. In 2011, the NGO Periodismo Social and Austral University produced an independent report on television news coverage regarding childhood in Argentina. Telenoche, the Company’s main newscast and leader in terms of audience, was identified as the one that allocated more space to news and information regarding children and youth, reaching 32.4% of their total coverage. Also, the report concluded that more than 54% of the sources referred were children and their families. In 2012, the second edition of the report showed that the percentage related to children as sources increased to 60% and that violence as a subject decreased noticeably (16%) from 2011 to 29% of the total coverage, giving the newscast the best score among private channels. Also, the report emphasized that 41% of the coverage related to children was specifically devoted to girls, while another 47% was dedicated to boys and girls alike, reaffirming the newscast commitment to portraying gender issues. This relates to an initiative that the Company launched in 2009 by which is breaking new ground in Argentina: an ambitious training program oriented to audiovisual journalists, that seeks to achieve excellence and raise awareness of the particular features of the main social topics in order to promote responsible coverage in the news. In its initial stages, the project involved training for journalists who work on newscasts related to Cablevisión and Artear, mainly in the interior of the country and reaching most coverage areas. During 2012, the Company, along with communication experts and academics from the mentioned institutions, organized 6 in-house workshops for journalists, editors, cameramen and producers working in all the newscasts produced by Artear (TN and Canal Trece) in order to provide them with content-creation-related- tools and to discuss the main challenges of the different aspects of television coverage of social issues and the editorial values that guide everyday decisions. The experience was very enriching for the professionals participating in the program as well as for the University and Organization representatives. GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY Promoting involvement Still, there is much to be done. In this regard, Grupo Clarín aims to continuously enhance its role in promoting public debate, encouraging individual involvement by better and further portraying the challenges of society under social, economic and environmental aspects with a plural view. Grupo Clarín’s different media companies also endorse several initiatives promoting people’s involvement in democracy and responsible citizen control of their representatives’ acts and decisions. Aware of the need to advocate for a wider respect for the principles of democracy and fundamental human and civil rights, during 2012, the Company continued to promote and create awareness, for example, on the importance of every citizen’s right in the matter of access to information, and of the significance of freedom of expression. Also the Company set out once more to promote values such as solidarity and community involvement. Through Artear, it launched yet another edition of “Abanderados de la Argentina Solidaria”, an award that recognizes the otherwise silent labor of social entrepreneurs and community leaders, by divulging valuable and replicable initiatives that advance social transformation. The initiative is supported by Ashoka and a remarkable panel comprised by outstanding people from the social, academic and cultural sectors. In 2012, the award was granted to Javier Ureta, president of Cascos Verdes, an organization dedicated to the inclusion of people with disabilities in the province and the city of Buenos Aires. In May, Genios magazine launched “Misión Positiva”, its second institutional campaign that sought to promote values such as friendship, fellowship, tolerance, peace, solidarity and environmental care. The initiative included publishing a teachers’ guide with games, and activities for the classroom to encourage children’s involvement. During the period, The Company renewed its partnership with Missing Children and Red Solidaria to publish photographs of missing children in La Razón newspaper and raise awareness about the role of the community in dealing with this problem. The Company also helped to broadcast the events held to remember and create awareness in relation to the anniversary of the terrorist bombing of the AMIA and of Israel Embassy. In order to promote other campaigns and collection efforts and raise awareness about the country's main social topics Grupo Clarín has donated advertising space to several NGOs. Among the most remarkable efforts in this regard were the Colecta Más por Menos, the annual Caritas collection organized by the Argentine Episcopal Conference and the annual collection of the Food Bank Network. Grupo Clarín also provided renewed support to the traditional campaign “Un sol para los chicos”, together with Artear and UNICEF. The campaign reached in 2012 its 21st edition, and raised Ps.14,309,929 for education and other social programs for children and the youth. It is one of the key sources of income for UNICEF in the country, and it also promotes the increase of individual donations which is still noticeably lower 52 53 in Argentina and Latin America compared to the US and Europe . In order to deal strategically with this issue and seeking to bolster the impact of its investment in terms of solidarity campaigns on its media, during 2012 Grupo Clarín decided to conduct research on the limited level of individual contributions to organizations of the civil society. In partnership with AEDROS, an entity specifically engaged in fundraising in the country and with the support of a top consulting company, a nationwide research was conducted that revealed the status and the reasons for the lack of a sustained commitment with a cause in terms of individual money donations. The research findings were published in Diario Clarín and were a significant contribution to the civil society, which is dealing with increasing challenges to its sustainability as a whole. In addition, with the support of Rapp Argentina, a campaign was designed to deal with this problem that was broadly promoted in audiovisual and electronic media, as well as in newspapers and magazines. The campaign sought to foster civic involvement through a sustained and ongoing economic commitment, as the most effective way to make profound changes in the lives of many people in need. The Company plans to measure the impact of this initiative and set goals for the continuity of this project in 2013. Community engagement and social advertising Grupo Clarín’s impact and relation with communities and individuals exceed those of its editorial coverage. Support for vulnerable communities, mentoring education projects, campaigning for disaster affected regions and different types of donations and expertise are only some examples of the many initiatives organized and fostered jointly or separately by Grupo Clarín’s different media companies. In response to civil society organizations growing communication needs and demands, Grupo Clarín launched a multiple approach program that combines spreading and raising active awareness of public and social interest topics through advertising, design and communication services for NGOs and the development of web based blogs and sites. In terms of social advertising, during 2011, through the Noble Foundation and several of its media companies, Grupo Clarín contributed with advertising time and space to promote social, civic and environment related causes, through its own programs or within strategic alliances with renowned NGOs. During 2012 the Company strived to further contribute to the improvement of social advertising and communication skills in civil society organizations. One of the ways to engage this issue involved increasing the scale and impact of “Segundos para Todos”, an advertising contest for NGOs organized by Cablevisión, which combined broadcasting spots with coaching sessions in Buenos Aires, Córdoba, Santa Fe, Salta and Neuquén. During 2012, the company continued to invest in the TV program “Segundos para todos TV”, that reflected their outreach to the community and focused on public interest topics. An additional issue in which Grupo Clarín has a sustained and strategic commitment is in reducing the digital divide and promoting digital inclusion. This is addressed by raising awareness through news coverage and TV programs in different media outlets. Also during 2012, Cablevisión extended its free cable TV and Internet access connections program to a growing number of schools, hospitals and other institutions, reaching 20,362 by the end of the year. This represents an annual contribution of approximately Ps.42.2 million, and is completed with specific programs such as a “social fee” for low income neighborhoods. The impact of the mentioned donation of advertising space and connectivity services can be added to the Ps.2.9 million budget by the Noble Foundation for the 2012 period, and the amount dedicated to other social investment programs in several subsidiaries reaching Ps.6.8 million, all of which collectively represents an investment of Ps.89.4 million. Nevertheless, a detailed total figure cannot be yet estimated in full at a corporate level since information collection systems are being set in place to be able to provide the community investment related to the smaller companies. As well as contributing with its own funding, knowhow and expertise, Grupo Clarín aims to leverage support from others by seeking matching funding and regular donations from individuals and partner organizations for supported initiatives. advertising space donated in 2012 radio broadcast and cable television 412.8 thousand seconds 601.5 thousand seconds Pages in newspapers and Magazines 88.4 pages Ps.36.9 million donated in advertising space in 2012 fostering education and Culture As part of the Company’s initiatives to support education, Grupo Clarín used its cross-segment position and ability to communicate with society to raise awareness of education’s importance as a right and as a critical driver of social development in Argentina’s future. In this sense, the Company tried to foster equal opportunities in education through the generation of updated, affordable and quality educational materials for students, teachers and schools throughout the country, through its publishing company Tinta Fresca. For the ninth consecutive year the Company successfully organized “Digamos Presente”, an initiative focused on equal access to education and rural education, in partnership with APAER, Red Solidaria, Cimientos Foundation, and with the support of Arcor and Telecom. The Company has also renewed its support to the 3rd Educational Quality Forum, a massive event organized by Educar 2050. In this same regard, Grupo Clarín and Cablevisión have renewed their support to the prestigious annual and nationwide research carried out by the Observatorio de la Deuda Social Argentina (Observatory of the Argentine Social Debt) of the Pontificia Universidad Católica Argentina. Among the main alliances are specific initiatives such as the program “Potenciar Comunidades Rurales” (Empowering Rural Communities) carried out with the support of several companies to support local development projects in certain communities with the leadership of Emprendimientos Rurales Los Grobo. One of the most important initiatives generated from a collective effort is the “Premio Clarín- Zurich a la Educación” (Education Award). The fourth edition recognized the best projects aimed at improving the quality of maths teaching. For the next period it will select the best project in the field of Information Technologies. During this period, through the Noble Foundation, the Company continued to offer donations of bibliographical material, and renewed its long time support of several schools which carry the name of the Clarín’s founder, Roberto Noble (‘Escuelas Roberto Noble’). Again this year, the Company sponsored the annual Maratón de Lectura (Reading Marathon) initiative, organized by Fundación Leer with the participation of 4,000,000 children from 13,051 different schools. The event received the donation of books published by Clarín and the initiative was promoted through a wide range advertising campaign. Grupo Clarín and its subsidiaries have also renewed their commitment to culture through several sponsorships to important events and entities, such as, Feria del Libro (Book Fair), PROA Foundation, Faena Art Center, Arte BA, the Meraviglie dalle Marche exhibition, 600 years of Italian art at the National Museum of Decorative Arts, Teatro Colón, Ushuaia's Festival of classical music and the 22nd season of Vamos a la Música which this year introduced “El Cascanueces y las princesas encantadas” at Centro Cultural Konex. The Company also supported the presentations of Iñaki Urlezaga and Trío Argentino, as well as the launch of Teatro Maipo's season presenting “El último tour” by Eleonora Casano and the play “Master Class” with Norma Aleandro as leading actress, and the films “Dos más dos” with the performance of Adrián Suar, Julieta Díaz, Carla Peterson and Juan Minujín and “La suerte en tus manos” featuring Valeria Bertuccelli and Jorge Drexler under the direction of Daniel Burman. As it does traditionally, in 2012 Clarín held the annual award “Premio Clarín de Novela” and supported the exhibition “María Elena Walsh en casa de doña Disparate” at Victoria Ocampo's residence in San Isidro. Through its cable and broadcasting channels, the Company also makes significant efforts to promote the most important cultural, cinema and sports events, and makes an increasing contribution in the field of cultural diversity and local identity. Noteworthy are initiatives such as “Volver”, a cable channel that preserves the most complete Argentine programming archive, or the “Word Archive” at Radio Mitre, which offers an online record of some of the country’s most valuable audio heritage. noble foundations’ educational donations 2012 2011 2010 48,900 53,406 63,542 6,660 500 6,625 4,160 260 550 books Magazines booklets 54 55 GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY Media Literacy and Protection of Young Audiences Media has an increasing role in society and especially in the lives of young people. Through several programs, the Company encourages them to develop tools to access media through critical analysis and to take advantage of opportunities presented by media to explore their identities, creatively express their thoughts and opinions, and amplify their voices. Media Literacy is generally defined as the ability to access, analyze, critically respond and benefit from the different type of media. Grupo Clarín’s main tool for fostering media literacy is “Los medios de comunicación y la educación” (‘Education and Media’), a leading and recognized program that has been in place for nearly 30 years. One of the main activities of the Noble Foundation in 2011 was that of renewing the program, which consists of workshops and booklets for teachers and students to promote a critical approach to the media and to utilize them as complementary resources in education. These programs are supplemented through other initiatives regarding the promotion of responsible content consumption. Through the Noble Foundation, Grupo Clarín renewed the presence and coordination of the media section at the “Museo de los Niños” (Children’s Museum), and continued to promote visits to its printing facilities. During 2012, 14,438 people (mainly students) and 234 institutions had the opportunity to see firsthand what goes on behind the news production and distribution process. Within its Cable TV and Internet access segment, the Company contributes with the protection of young vulnerable audiences, providing tools for parents to keep children from accessing sensitive or age inappropriate programming. This includes several parental control options in Cable TV service and equipment, in addition to guidance tips, awareness campaigns and tools for web access restrictions. On the other side of the screen, children artistic participation in television and films also requires a responsible approach. The Company complies with all regulations and self-imposed guidelines by setting limited time schedules and engaging with parents and tutors. Excellence in Journalism Reaffirming its commitment to journalistic excellence, the Noble Foundation also carried out activities to consolidate the training and “Education and the Media” Program Teachers’ workshops Students’ workshops 2012 125 534 2011 2010 100 525 169 581 excellence of current and future communicators. Among them is the support provided to the Masters Degree in Journalism, an international graduate course with the highest academic level, organized by Grupo Clarín and the University of San Andrés, with the participation of the School of Journalism at Columbia University and the University of Bologna, and led by renowned national and international journalists and academics. In this sense, the Company sponsored the achievements (both at the institutional level and through journalistic content) of the Graduate Course in Scientific, Medical and Environmental Communication. This program is organized by the University Pompeu Fabra in Barcelona, together with the Leloir Institute and the cable station Todo Noticias (TN). Another highlight in this area was the launch during 2011 and renewal in 2012 of the Graduate Program in Digital Journalism organized by the University Pompeu Fabra and TN.com.ar. OUR PEOPLE Grupo Clarín's success and leadership is mostly the result of the efforts, talent, professionalism and creativity of its people. It is no coincidence that Grupo Clarín’s media companies are amongst the most preferred working places by communication professionals. The Company strives to offer better opportunities, incentives and tools to sustain and strengthen the firm commitment of the professionals that believe in Grupo Clarín’s project. totAL EMPLoYEEs 18,240 16,720 15,200 13,680 12,160 10,640 9,120 7,600 6,080 4,560 3,040 1,520 0 17,200 16,277 15,156* 2010 2011 2012 *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. 56 57 Distribution of Company Employees by Category Management Middle management Junior management, administration and commercial Qualified technical personnel Journalists Others 2012 209* 2,220* 4,905* 5,955* 1,187* 680* 2011 248 2,403 2,513 6,988 1,357 3,691 2010 280 2,132 3,706 6,782 N/A* 3,377 *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. The Company possesses a special make-up in terms of age and gender diversity among its employees. When it comes to gender, the higher proportion of male employees is significantly explained by the large number of technical personnel, which in Argentina is predominantly male, working in the printing facilities and in the Cable TV and Internet access segment. The gender composition in other companies of the Group is balanced, especially regarding content related activities, such as journalism and audiovisual production, where the workforce is diverse. Employees by sex 2012 2011 2010 Men 11,654* 13,375 12,698 Women 3,502* 3,825 3,579 Employees by groups of age <30 31-50 >51 2012 2011 2010 3,850* 4,875 4,875 9,466* 9,464 9,464 1,840* 1,938 1,938 *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. In addition to strictly abiding by the laws, the Company sets higher than standard conditions for its employees. Of Grupo Clarín’s total workforce, more than 76% of employees are covered by collective agreements. For those who are not, the Company’s corporate policy is to apply conditions established by the best existing agreement. Taking care of the work environment and conditions, health and job safety and offering training to improve employees’ professional skills and techniques are some of the actions aimed at consolidating the sense of integration and achievement of organizational goals. One of the key ways of obtaining feedback on the Company’s performance is via the global staff survey, carried out every two years. During 2012, the survey was carried out in all of the Company’s subsidiaries, reaching a record level of response of 92%, in comparison with 88% registered in 2010 and 81% in 2008. Amidst the complex environment for the company and its employees related to the harassment by the Government, it is worth noting that figures for climate remained strong and that those related to commitment reached average levels of almost 70%. The same happened with leadership indicators, which maintained their levels with high scores. In 2012, the Company continued to develop the in- house Volunteer Program of Grupo Clarín and its subsidiaries. Named “Vos también” (You Too), the program included the design and implementation of several actions to engage volunteers with the community. The program was implemented in 9 business units, including the corporate area, with impact on 12 provinces in Argentina and in two countries (Paraguay and Uruguay). According to its main indicators, volunteers dedicated 6,901 hours of work (5,629 during working hours), with a global engagement rate of 6.94%, representing 1,180 volunteers with a satisfaction rate of 97.6%. Work was done in association with over one hundred social organizations that have partnered the several initiatives which helped 7,543 people. concerning the daily development of activities. Through these initiatives, volunteers had the chance to make contributions in several areas, such as training on the use of online platforms, radio workshops (such as, “Voces solidarias”, a program sponsored by Radio Mitre to help the Argentine library for the blind), toy-collecting efforts, job placement support and advice, blood donation efforts, social inclusion recreational events, articulations between formal education and the workforce, professional support to Social Organizations, and volunteer social project management, among others. The program had a high satisfaction level among participants: 99.25% of the participants found it rewarding or very rewarding and a similar percentage stated that they would participate again. Grupo Clarín has paid special attention to the multiple internal communication tools, such as the magazine Nuestro Medio, the Corporate Intranet with participation spaces and forums, the digital newsletter Nuestro Resumen, and the digital newsletters of the Corporate Training Program and the Company Climate Management Program, as well as internal communication spaces and notice boards. Year after year, Grupo Clarín increases its efforts to implement and streamline the information channels on benefit programs, policies and relevant organizational changes, and news Benefits and career development Although most benefits are common to the whole Company, each business unit integrates additional benefits that vary in nature according to tasks. Since the last quarter of 2007, the Company, together with its subsidiaries, began to implement a Long-Term Savings Plan for directors and managers, which became effective in 2008. During 2012, corporate and business units’ human resources departments have continued to implement different programs to identify internal talent for career development. Also, Grupo Clarín’s and Cablevisión’s Young Professionals Program was renewed, creating opportunities for professionals that are taking their first steps in their career paths. In order to develop new skills and build up existing strengths, people need encouragement and support. In addition to increasing the number and variety of training options, during 2012, the Company continued efforts to extend and enhance the employee performance appraisal program in different categories. Grupo Clarín’s employees and professionals can update and expand their knowledge and skills through several training programs, ranging from seminars and courses to graduate degrees and MBAs. Human Resources departments are in the process of consolidating individual training records and training hour’s information One of the main initiatives in this respect is the ‘Corporate Training Program’ which includes a wide variety of courses. A relevant aspect among current training options is that the Company pays special attention to training on new tools and technology developments, in order to properly prepare its workforce for the challenges the media sector is facing. In addition, throughout the business units, there have been seminars and programs on quitting smoking, diseases, and other relevant topics, as well as special action campaigns regarding health and medical check-ups, with special focus on the preemptive measures against seasonal diseases. Also, the Group carries our several different activities designed to prevent job related accidents. Grupo Clarín continued to explore alternatives of interaction or joint approach to common interest issues at the various levels of its value chain. Grupo Clarín focused on the implementation of systems and procedures aimed at the application of best practices for purchases, hiring, and contracting with suppliers, within a framework of supervision and transparency. “Vos también” Volunteer Program in 2012 Volunteers Social Organizations involved Direct Beneficiaries Working hours Non-working hours Employee involvement 2012 1,180* 100 7,543 5,629 1,272 6.94%* 2011 1,466 35 6,594 3,354 2,019 13.35% *In 2012, one of Grupo Clarín`s main Companies in terms of workforce, could not participate in one of the programs activities due to an illegal breaking into its facilities, impacting in the final involvement figure. 58 59 ENVIRONMENT It is widely recognized that the media industry has a lower impact than most other industrial processes. Within the framework of an environmental management policy aimed at improving eco-efficiency, the Company and its subsidiaries primarily consume energy, newsprint, cable and water and generate waste. During 2012, the Company continued to take steps towards the measurement, planning and improvement of manufacturing processes to optimize results and address possible impacts. Progress was made in achieving the period's goals by introducing sustainable methods to obtain and use resources; implementing policies for investment in equipment and raising awareness for the adequate use of technology. It is worth mentioning that AGEA, the company that manages the largest printing plant, developed during the period an Environmental Policy and invested in the first stages towards obtaining the ISO 14001 certification. The United Nations Global Compact, signed by Grupo Clarín in 2004, also sets principles regarding environmental protection. Businesses are asked to: (Principle 7) support a precautionary approach to environmental challenges; (Principle 8) undertake initiatives to promote greater environmental responsibility; (Principle 9) and encourages the development and diffusion of environmentally friendly technologies. The present report reflects the global impact of the different subsidiaries where the Group has controlling stakes, while indicating some specific effects with regards to the nature of the different business activities. Based on a materiality assessment and changes in the manner in which information is consolidated starting in 2012, the usual comparative analysis is not available. GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY / Environment Consumption. Newsprint and Energy At the printing plants, the Company followed established guidelines to ensure the provision of materials at quality levels compatible with international standards for paper, inks and other specific inputs. Most of the newsprint supply comes from Papel Prensa. In addition to the FSC certification obtained by AGR in 2010, during the last period, the Company engaged in planning significant environmental investments and put in place the initial stage towards obtaining the ISO 14001 certification at AGEA’s printing plant. In terms of types of inks used, although different printed products require different resources, as an example, the main printing plant usage of vegetable oil based coldset ink reaches almost 60%. Vegetable oil based coldset is environmentally friendlier than other types of ink and allows reducing ink usage by approximately 10/15%. This can also be achieved by printing techniques; at the Company’s printing sites the stochastic printing style in 2008 continues to be applied as a way of optimizing ink usage. introduced Company qualified teams continuously strive to reduce consumption by identifying and adopting increasingly eco-efficient processes. The introduction of adjustments on the dimensions of newspapers made in previous years continues to shows its benefits in the use of paper and other materials. The percentage of polybagging in the Company’s newspapers and magazines continues to be of minor significance, although the use of polypropylene in some parts of the dispatching process is regularly assessed. The primary resource used by Grupo Clarín and its subsidiaries is energy. Grupo Clarín’s consumption comes from both direct and indirect sources; the indirect consumption comes from electricity taken from the grid. Paper Ink Aluminum plates 2012 85,202 tn 1,269 tn 244 tn 2011 2010 112,290 Tn 111,656 Tn 2,735 Tn 236 Tn 2,412 Tn 272 Tn Direct and Indirect energy consumption by primary source: Electricity Natural Gas Gasoline Gasoil LP Gas 2012 216,991 MWh* 31,891 m3* 11,823 GJ* 44,111 GJ* 492 GJ* 2011 2010 431,326 MWh 419,563 MWh 25,825,636 m3 29,898,426 m3 29,399 GJ 24,676 GJ 64,509 GJ 76,043 GJ 2,449 GJ 2,563 GJ *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. 60 61 GRUPO CLARÍN AND ITS CORPORATE SOCIAL RESPONSIBILITY / Environment Energy consumption is significant in the printing activities and, to a lesser extent, in the business units which operate with technology, such as cable television and Internet services, broadcasting, etc. In this area, some initiatives developed by Artear include the introduction of cold lighting in all new and renovated television studios, in order to reduce 5 times or more the regular energy consumption. In addition to the 2011 goal of replacing all of Artear’s live unit news vehicles for low consumption vehicles, during 2012, building improvements were carried out in underground facilities to take advantage of natural light. This, together with the installation of energy efficient cladding resulted in a 2,820 GJ saving. During this period, the company focused on a multiple stage scheme to replace other lighting materials and continued to invest in equipment -manufactured within environmentally friendly parameters- in order to meet the needs of the generation and distribution of content in High Definition. Through Papel Prensa, a subsidiary in which the Company owns a minority stake and that provides newsprint for over 95% of Argentine Newspapers, Grupo Clarín participates in the production of newsprint, which is then used as a raw material by some of its other subsidiaries. This allows a comprehensive view of product's life cycles. Papel Prensa has implemented production policies based on the procurement of strategic inputs without contributing to the depletion of natural resources. To this end, the paper mill recovers raw materials from the recycling of returned newspapers, to generate more newsprint, thus reducing the use of virgin fiber. The type of fiber source (Poplar, and Willow) depends upon the availability of materials, as well as economic considerations such as the minimization of transport distances and costs, which is a relevant economic and environmental consideration. Nevertheless, it is important to mention that fresh fiber comes entirely from sustainable plantations. This means that no native forests are involved or endangered. This is combined with continuing research on Salicaceae, related to their genetic improvement and also to ecologic and silvicultural aspects, done by means of agreements made with universities, research centers and experts, with the objective of increasing productivity, reducing costs and assuring the sustainability of the ecosystem. Papel Prensa’s forestry division undertakes its activities with a sustainability strategy that involves the protection of biodiversity. Protected forestry areas and the banning of hunting activities have led to a sustained increase in bird fauna. These conditions allow for the development of several R&D programs, also in collaboration with universities, which include the introduction, protection and reproduction of certain endangered deer species for their proper and secure development. Emissions and discharges Most of the Company activities are undertaken in urban areas with no relation to natural areas, and complying with urban planning standards in force. In terms of emissions, the main contributors to the Company’s carbon footprint are print sites. The Company is constantly exploring alternatives to improve processes and efficiency in these areas, and to continue to enhance the analysis and inventory of CO2 emissions generated by Grupo Clarín’s activities. The primary strategies available to reduce greenhouse gas emissions are reducing the consumption or changing the energy sources, for example, by increasing the use of renewable forms of fuel and bioenergy. Each one of Grupo Clarín`s subsidiaries identifies and manages waste production and disposal. As part of the treatment of industrial waste from the printing process, the Company collects and separates other waste materials (ink, oils, greases and solvents), which are shipped to certified third parties for recycling and reuse. Aluminum plates used in printing can be 100% reused. Hazardous waste is carefully handled and handed over to authorized waste management companies. The Company continues to carry out strategies to reduce the amount of this type of waste, with significant success. In 2011 the reduction reached 21%. Special care is also maintained regarding the handling of liquid effluents resulting from development processes, subjecting them to rigorous treatments and measurements before disposal. In sites such as La Voz del Interior and AGEA the water is treated and then reused in irrigation or as part of the production process. During this period, the Company reached the goal of generating zero discharges at AGEA’s printing plant, also reducing water usage. Besides printing plants, the Company`s office buildings and other facilities only produce discharge of domestic sewage. Water usage, recycling and discharges are significant in the paper mill. As stated in Papel Prensa’s website, since the beginning of its activity, changes have been introduced into water circuits, and new equipment has been added in order to make it possible for water to be used again, so that the more than 100 cubic metres of fresh water per ton of paper required in the past, have at present been reduced to less than 30 cubic metres, which means a condition comparable to the leading world industries of the same type. The water which is made use of is taken from the Baradero River into which also flow the outcoming effluents. These undergo a first mechanic sedimentation treatment, and then a second treatment consisting of airing ponds where effluents are deprived of their organic matter down to the limited values allowed by the present legal regulations. In addition, Grupo Clarín continued to increase the contribution to the Garrahan Foundation through an office paper recycling program. This was combined with programs for reducing the use of paper in Company offices while seeking to optimize printing techniques, and renewed efforts to raise employee awareness regarding sustainability issues. The Company continued to support projects related to the care and protection of green areas by sponsoring and contributing to the preservation of the parks Plazoleta Dr. Roberto Noble and Parque de la Ribera located in San Isidro. Through preservation works in both parks, the Company also sought to promote responsibility in the care of public areas by the community and constructively contribute to the defense of the environment. 2012*-total direct and indirect greenhouse gas emissions by weight Direct Emissions Indirect Emission 2012 5,764 tn 27,569 tn *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. 2012*-total weight of waste by type Urban or Non-Hazardous Waste Hazardous Waste 2012 4,264 tn* 437.4 tn* *Note: 2012 figures reflect variations in the scope of Companies included in this annual report. Therefore, comparative analysis with previous years cannot be properly shown. Refer to section “Transparency, Standards and Guidelines” for further detail. Total Water Discharge in Printing Facilities 2012 1,560 m3 62 63 RIsK FACtoRs As an Argentine multimedia company, Grupo Clarín is exposed to a wide range of risks, related to the country and also to its operations. Nevertheless, one of the Company’s strengths lies in its strategic asset diversification to help spread possible risks. The Company relies on a strong internal control system. The identification of risk and its assessment is part of each unit’s business plans, and is also addressed by a corporate based control department and by the Board on a regular basis. Argentina’s economic environment Substantially all of our operations are conducted in Argentina, and are therefore affected by changes in Argentina’s economic environment. The Argentine economy has experienced significant volatility in recent decades, with periods of low or negative growth, high inflation and currency devaluation. After six years of sustained economic growth, the Argentine economy slowed down in the second half of 2008 and throughout 2009, affected by the international crisis as well as internal political developments. Although the trend was later reversed, with real GDP growth reaching 9.2% in 2010 and 8.9% in 2011, real GDP growth declined again in 2012 to 1.9% (all figures according to information published by the National Institute of Statistics and Census -INDEC-). Sustainable economic growth depends on a variety of factors, including international demand for Argentine export commodities and their prevailing prices, stability and competitiveness of the Peso against foreign currencies, confidence of consumers and local and foreign investors and a low rate of inflation. The Argentine economy might be adversely affected by the following factors: • Increase in current inflation affecting competitiveness and economic growth; • Insufficient levels of investment; • Exchange rate volatility; • • Poor development of the Argentine credit market and limited ability to obtain financing from international markets; A reduction of the payment capacity of the Argentine public sector and the possibilities of procuring international financing; • Increase in current public expenditure affecting fiscal accounts; • Possible reduction or reversal in the trade balance due to significant decrease in agricultural prices in general and soy in particular or adverse climatic conditions affecting the production of agricultural commodities; • Recession, low economic growth or economic uncertainties affecting Argentina’s main trading partners; • Government imposed restrictions on imports or exports; • Wage and price controls; • Political and social tensions; • Continued instability of the financial systems of the main developed economies; • Abrupt changes in the monetary and fiscal policies of the main economies worldwide; and • Reversal of capital flows due to domestic and international uncertainty. A downturn in economic activity is likely to result in increased subscriber churn and bad debt, subscriber losses as well as decreased advertising revenues. We seek to address the cycles affecting the Argentine economy by diversifying the scope of our business and managing our foreign currency liabilities. Political and Economic Uncertainties Our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing in Argentina. The Argentine government’s actions impacting the economy, including those in connection with inflation, interest rates, price control, exchange control and taxes, have affected and could continue to affect Argentine companies like ours. Inflation for 2012 stood at 10.8% according to information published by the INDEC and may continue to rise. Private estimates of inflation rates largely exceed those published by the INDEC. According to figures published by members of Congress from opposition parties, the average private inflation estimate was 25.6% for 2012. In the past, inflation has materially undermined the Argentine economy and Argentina’s ability to create conditions that would permit growth. High inflation may also (i) undermine Argentina’s competitiveness abroad producing, inter alia, an increase in unemployment levels and (ii) negatively impact the country’s long-term credit markets. There can be no assurance that inflation rates will not continue to escalate in the future or that the measures adopted or that may be adopted by the Argentine government to control inflation will be effective or successful. Inflation remains a challenge for Argentina. Significant inflation could have a material adverse effect on Argentina’s economy and in turn could increase our costs of operation, in particular labor costs, and may negatively impact our financial condition and results of operations. During the second half of 2011 and in 2012, the Argentine government increased controls on the incurrence of foreign currency-denominated indebtedness, the sale of foreign currency and the acquisition of foreign assets by local residents. New regulations issued in 2012 subject foreign exchange transactions to prior approval by Argentine tax authorities. Since the enhancement of exchange controls in November 2011, and the introduction of measures that have practically closed the foreign exchange market to retail transactions, it is widely reported that the peso/ U.S. dollar exchange rate in the unofficial market and in neighboring markets where the peso is traded differs substantially from the official foreign exchange. Additional controls could have a negative effect on the economy and on private sector companies, including our business. Furthermore, in such event, the imposition of future restrictions on the transfers of funds abroad may impede the transfer of foreign currency on account of dividends to GDS holders. The lack of access to financial markets could have a material adverse effect on the country’s economy, and consequently, our business, financial condition and results of operations. In 2012, the Argentine government introduced a procedure pursuant to which local authorities must pre-approve the import of products and services to Argentina as a pre-condition to permit such import and the consequent access to the foreign exchange market for the payment of the imported products or services. Repeated complaints from various countries against import restrictions implemented by Argentina, suspension of export preferences or retaliations by trading partners may have an adverse effect on Argentine exports, affect the trade balance and, consequently, adversely impact Argentina’s economy. Additionally, increased government control over foreign trade has resulted in a shortage of inputs and spare parts and in production disruptions. The continuation of these shortages may affect the growth of the economy and, consequently, could affect our business, financial condition and results of operations. Expropriations, interventions and other direct involvement by the Argentine government in the economy have had an adverse impact on the level of foreign investment in Argentina, the access of Argentine companies to the international capital markets and Argentina’s commercial and diplomatic relations with other countries. The level of government intervention in the economy may continue or increase, which may adversely affect Argentina’s economy in the medium and long-term and, in turn, our business, results of operations and financial condition. Litigation, as well as claims filed Argentine sovereign debt bondholders and foreign investors with the International Centre for Settlement of Investment Disputes (ICSID) and United Nations Commission on International Trade Law (UNCITRAL) against the Argentine government, have resulted in material judgments and may result in new material judgments against the government, and could result in attachments of or injunctions relating to assets of Argentina that the government intended for other uses. As a result, the Argentine government may not have all the necessary financial resources to honor its obligations, implement reforms and foster growth. During the first quarter of 2011, a team from the International Monetary Fund (the “IMF”) started to work in conjunction with the INDEC. Notwithstanding the foregoing, reports published by the IMF state that their staff has called on Argentina to adopt remedial measures to address the quality of official data. In a meeting held on February 1, 2013, the Executive Board of the IMF found that Argentina’s progress in implementing remedial measures has not been sufficient and, as a result, the IMF issued a declaration of censure against Argentina and called on Argentina to adopt remedial measures to address the inaccuracy of inflation and GDP data without further delay, and in any event, no later than September 29, 2013. If Argentina were not to comply with the remedial measures required by the IMF, the IMF could increase its sanctions towards Argentina. The effects of these measures could derive in further financial and economic hazards for Argentina, including lack of IMF financing. During the last few years, the Argentine government has substantially increased public expenditure. For 2012, the government reported the first fiscal deficit since 2009. The Argentine government has sourced part of its funding requirements from the Central Bank and to the ANSES. We cannot assure you that the government will not seek to finance its deficit by gaining access to the liquidity available in the local financial institutions. On March 22, 2012, the Argentine Congress passed Law No. 26,739, which amended the charter of the Central Bank and Law No. 23,298. Law No. 26,739 amends the objectives of the Central Bank (established in its charter) and removes certain provisions previously in force. As amended, the Central Bank Charter provides that reserves may be made available to the government for the repayment of debt or to finance public expenses. This use of Central Bank reserves for expanded purposes may render Argentina more vulnerable to external shocks, affecting the country’s capacity to overcome the effects of an external crisis, and fuel inflation as the amount of pesos in circulation increases while reserves decrease. In addition, Law No. 26,739 amends the criteria for compliance with the minimum cash requirement for banks. This amendment could affect financial institutions by forcing them to increase liquidity, with a potential adverse impact on credit supply, and therefore on the growth of the Argentine economy and on our business. Legislation and Regulation of the Media Industry In Argentina, the legal system, including the Constitution, shields journalistic activities from regulation to protect the independence of the free press. As a media company, we are vigilant as to the menaces that might arise in this respect and widely cooperate with journalistic associations and other NGOs that advocate for the protection of fundamental constitutional rights such as freedom of speech and freedom of the press. However, during 2012 private media in general and Grupo Clarín in particular continued to face an escalating level of harassment, executed through the official and para-official apparatus with the clear intention of damaging the media’s reputation and directly and indirectly limiting its journalistic activities. In October 2009, the Argentine Congress passed a new Audiovisual Communication Services Law that is intended to replace the general legal framework under which the audiovisual media industry operated in Argentina for approximately three decades. We and others challenged the new Audiovisual Communication Services Law on several grounds, including its encroachment upon constitutional rights, the broad and discretionary powers over media and content granted to the Executive Branch, for favoring state-owned and sponsored media and affecting the sustainability of privately-owned media, promoting the elimination of independent signals and enabling a pervasive and questionable censorship system anchored upon the discretionary power to grant licenses and the application of penalties, among other controversial aspects. 64 65 Since its enactment in October 2009, several courts enjoined the application of the statute in its entirety in certain cases, or of certain of its provisions, in other cases. Some of these rulings have been reversed by the Supreme Court of Argentina and a court of appeals, but injunctions that suspend specific sections of the law are still in effect. On April 17, 2013, the Federal Court of Appeals on Civil and Commercial Matters rendered a decision on the merits regarding the constitutionality of the Audiovisual Communication Services Law, declaring that certain sections of the law are constitutional, but that certain restrictions to ownership of multiple broadcast, cable television licenses and signals are contrary to the Argentine Constitution. Both the National Government and the Company have filed extraordinary appeals against the court of appeal’s decision, which should now be considered by the Supreme Court. Faced with the possibility of an adverse decision, the National government has embarked on a fierce and unprecedented attack against the Judicial Branch, particularly in connection with the cases relating to the Audiovisual Communication Services Law. The several activities, pressures and strategies implemented by the national government to interfere with the decisions of the Judicial Branch include, but are not limited to: several attempted appointments of judges that are in favor of the Broadcasting Law; pressures on and changes in majorities at the Council of the Judiciary (the body responsible for the appointment and removal of judges; multiple recusations of judges sitting in procedures involving the Audiovisual Communication Services Law; pressures on and criminal charges against judges and advisors to remove them or cause them to resign; actions that resulted in the virtual fragmentation of the Courts on Civil and Commercial Matters; changes in the substitution system, and pressures on the Supreme Court up to and including customizing the government’s request for special appeal (per saltum) that would allow the government to by- pass the regular process, among many other actions against the republican system of checks and balances. If ultimately upheld by the judiciary, the application of the new legal and regulatory environment to our cable television, telecommunications and Internet and digital content operations may be disadvantageous to us, and will affect the manner in which we operate our business. Failure or delay in renewing our licenses or obtaining regulatory approvals may also influence the availability of our services to our customers. • Abuse of bureaucratic controls or controls by public agencies in the form of administrative persecutions, groundless arbitrary resolutions, disproportionate tax controls and recurring audits; • Banning private companies from including their advertising slots in independent media; • Blockades to printing facilities to prevent the distribution of certain newspapers and magazines; Since 2009, among other measures, the Argentine government has sought to revoke the authorization granted unanimously by the National Antitrust Commission in 2007 to the transaction whereby the Company indirectly acquired 60% of Cablevisión and Cablevisión acquired all or part of the equity interests of certain of our subsidiaries. • The Argentine government has also taken measures to revoke the license under which Cablevisión renders internet services, and to set the price of its pay-television service according to a pricing formula. Such measures, which we have challenged in court, if upheld would materially adversely affect our business. We have obtained preliminary injunctions that have enjoined the government’s action, and will continue to make every effort to defend ourselves by taking all actions necessary to safeguard our rights. However, we cannot assure that such efforts ultimately will prove successful. Other government of para-official actions against the Company and media in general include: • • An exponential increase and discriminatory allocation of official advertising used to create and sustain pro-government media, as well as the use of such advertising to condition the press; The use of public funds and media on a discretionary basis to generate content and shows that display political propaganda, while creating hurdles and discriminating against certain media in the access to public information; • An aggressive campaign to destroy non-partisan media by compromising their economic sustainability and credibility; Government interference and regulation of the newsprint industry, including a series of temporary clauses, specifically and exclusively addressed to our affiliate Papel Prensa, whereby Papel Prensa is forced to make investments to meet the total national newsprint demand -excluding from this requirement the other existing company that operates in the country with installed capacity to produce newsprint. We cannot assure that government action against independent media and against the Company in particular will not continue or intensify. Increased government action against the Company could materially affect our business, results of operations and financial condition. sector Development and Competition The Company devotes significant resources to analyzing emerging trends and has vast experience and a solid track record in reading consumer demands and successfully developing new products and services, adapting its business model in time. However, the media industry and certain maturing markets to which our services are catered, are dynamic and constantly undergo significant developments at a pace that may differ from our current expectations affecting our growth. Increased competition through new technological developments may adversely affect our business if our analysis of industry trends is not accurate or if we are not able to adapt readily our operations. Programming and Personnel We may not be able to renew our rights to certain programming and our results of operations may be adversely affected by the loss of key personnel. In addition, under the new Audiovisual Communication Services Law we may be forced to divest or cease to broadcast certain signals. The production of content is part of our strategy and we dedicate significant resources to the identification of market trends and new figures and matters of public interest, to preserve the position of leadership we have acquired in the market. Liquidity and Funding We have financial debt outstanding, a significant portion of which is denominated in foreign currency. Financial markets remain practically closed for Argentine companies, and we must rely primarily on our cash flow generation to service our debt. We have engaged in an active liability management policy, and improved our debt to free cashflow ratio to limit our need to access the market as a means of repayment of our financial obligations. Certain of our costs, including a significant portion of our financial expenses, are dollar denominated. Currency fluctuations, such as a considerable devaluation of the Peso against the U.S. dollar are likely to affect adversely the Argentine economy and will impact negatively on our financial condition. BUsINEss PRoJECtIoNs AND PLANNING In the forthcoming years and as part of Argentina’s challenge to achieve sustainable growth, Grupo Clarín seeks to maintain and consolidate its presence in the local market, both in the production and in the distribution of content. Grupo Clarín’s business units, along with the development of its core activities, will continue to work in order to seize opportunities, seeking to reinforce, improve and expand the range of products and services offered; increase market share; reach new audiences and promote permanent innovations. Grupo Clarín will continue to focus on further optimizing the productivity and efficiency levels in all of its areas and companies, seeking to develop and apply the best practices related to each of these processes. At a corporate level, it will continue to focus on the main processes that allow sustainable, healthy and efficient growth from different perspectives: financial structure, management control, business strategy, human resources, innovation and corporate social responsibility. Grupo Clarín will continue to analyze alternative new ventures related to its mission and strategic objectives both in Argentina and abroad, as long as they add value to shareholders and are feasible and viable under the prevailing economic environment. Grupo Clarín will continue to strengthen its consolidated commitment to traditional media, with a growing focus on the area of digital media and connectivity. To such end, the Company will leverage its strong presence in distribution networks, brand strength and, fundamentally, its broad experience in the production of content, recognized by the Spanish-speaking market for its quality, credibility and prestige. In the hostile environment created by the current government towards the media, Grupo Clarín ratifies its determination to bring the necessary legal and administrative actions to safeguard its rights and those of its shareholders, while reinforcing once again its commitment towards its readers, audiences and the country. In its daily work, Grupo Clarín undertakes to assume with strength and responsibility the role the media are called to play through independent journalism and through the defense and promotion of universal and fundamental rights, such as freedom of speech, since these are pillars that extol the quality of democracy and the welfare of the Argentine society as a whole. 66 67 FINANcIAL STATEMENTS AS OF DEcEMBER 31, 2012 7Glossary of Selected Terms 70 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements 71 72 73 74 76 78 SUPPLEMENTARY FINANCIAL INFORMATION 157 REPORT OF INDEPENDENT ACCOUNTANTS 162 PARENT COMPANY ONLY FINANCIAL STATEMENTS Parent Company only Statement of Comprehensive Income Parent Company only Balance Sheet Parent Company only Statement of Changes in Equity Parent Company only Statements of Cash Flows Notes to the Parent Company only Financial Statements Additional Information to the Notes to the Financial Statements -Section No. 68 of the Regulations issued by the Buenos Aires Stock Exchange 165 166 167 168 170 172 222 REPORT OF INDEPENDENT ACCOUNTANTS 224 SUPERVISORY COMMITTEE’S REPORT 226 68 69 Glossary of Selected Terms Consolidated Financial Statements as of December 31, 2012 Presented on a comparative basis AFA Asociación del Fútbol Argentino (Argentine Football Association) AFIP Administración Federal de Ingresos Públicos (Argentine Federal Revenue Service) AFSCA Autoridad Federal de Servicios de Comunicación Audiovisual (Audiovisual Communication Services Law Federal Enforcement Authority) AGEA Arte Gráfico Editorial Argentino S.A. AGL Artes Gráficas del Litoral S.A AGR Artes Gráficas Rioplatense S.A. ANA Administración Nacional de Aduanas (National Customs Administration) APE Acuerdo preventivo extrajudicial (pre-packaged insolvency plan) ARTEAR Arte Radiotelevisivo Argentino S.A. Auto Sports Auto Sports S.A. Bariloche TV Bariloche TV S.A. BCBA Bolsa de Comercio de Buenos Aires (Buenos Aires Stock Exchange) Cablevisión Cablevisión S.A. Canal Rural Canal Rural Satelital S.A. CER Coeficiente de Estabilización de Referencia (Reference Stabilization Coefficient, a consumer price inflation coefficient) CIMECO Compañía Inversora en Medios de Comunicación (CIMECO) S.A. Clarín Global Clarín Global S.A. CLC Compañía Latinoamericana de Cable S.A. CMD Compañía de Medios Digitales S.A. (former PRIMA Internacional) CMI Comercializadora de Medios del Interior S.A. CNDC Comisión Nacional de Defensa de la Competencia (National Antitrust Commission) CNV Comisión Nacional de Valores (Argentine Securities Commission) CPCECABA Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (Professional Council in Economic Sciences of the City of Buenos Aires) COMFER Comité Federal de Radiodifusión (Federal Broadcasting Committee) CUSPIDE Cúspide Libros S.A. CVB CV B Holding S.A. Dinero Mail Dinero Mail LLC Adjusted EBITDA Revenues less cost of sales and selling and administrative expenses (excluding depreciation and amortization) Editorial Atlántida Editorial Atlántida S.A. FACPCE Federación Argentina de Consejos Profesionales de Ciencias Económicas (Argentine Federation of Professional Councils in Economic Sciences) FADRA Fundación de Automovilismo Deportivo de la República Argentina (Argentine Motor Racing Foundation) Fintech Fintech Advisory, Inc. together with its affiliates GCGC GC Gestión Compartida S.A. GCSA Investments GCSA Investments, LLC GC Minor GC Minor S.A. GC Services Grupo Clarín Services, LLC GDS Global Depositary Shares Grupo Carburando Carburando S.A.P.I.C.A.F.I., Mundo Show S.A. and Mundo Show TV S.A. Grupo Clarín, or the Company Grupo Clarín S.A. Grupo Radio Noticias Grupo Radio Noticias S.R.L. Holding Teledigital Holding Teledigital Cable S.A. IASB International Accounting Standards Board Ideas del Sur Ideas del Sur S.A. IESA Inversora de Eventos S.A. IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards IGJ Inspección General de Justicia (Argentine Superintendency of Legal Entities) Impripost Impripost Tecnologías S.A. VAT Value Added Tax JPM JP Morgan Chase Bank, N.A. La Razón Editorial La Razón S.A. La Capital Cable La Capital Cable S.A. Antitrust Law Law No. 25,156, as amended Broadcasting Law Law No. 22,285 and its regulations Audiovisual Communication Services Law Law No. 26,522 and its regulations LSE London Stock Exchange Multicanal Multicanal S.A. IAS International Accounting Standards NCP ARG Argentine Professional Accounting Standards, except for Technical Resolutions No. 26 and 29 which adopt IFRS. OSA Oportunidades S.A. PALP Plan de Ahorro a Largo Plazo (Long-Term Savings Plan) Papel Prensa Papel Prensa S.A.I.C.F. y de M. Patagonik Patagonik Film Group S.A. Pol-Ka Pol-Ka Producciones S.A. PRIMA Primera Red Interactiva de Medios Argentinos (PRIMA) S.A. PRIMA Internacional Primera Red Interactiva de Medios Americanos (PRIMA) Internacional S.A. (now CMD) Radio Mitre Radio Mitre S.A. Raven Raven Media Investments, LLC Ríos de Tinta Ríos de Tinta S.A. SCI or SECI Secretaría de Comercio Interior (Secretariat of Domestic Trade) SECOM Secretaría de Comunicaciones (Secretariat of Communications) SHOSA Southtel Holdings S.A. SMC Secretaría de Medios de Comunicación (Media Secretariat) Supercanal Supercanal Holding S.A. TATC Tres Arroyos Televisora Color S.A. Telba Teledifusora Bahiense S.A. Telecor Telecor S.A.C.I. Teledigital Teledigital Cable S.A. TFN Tribunal Fiscal de la Nación (National Tax Court) Tinta Fresca Tinta Fresca Ediciones S.A. TPO Televisora Privada del Oeste S.A. TRISA Tele Red Imagen S.A. TSC Televisión Satelital Codificada S.A. TSMA Teledifusora San Miguel Arcángel S.A. UNIR Unir S.A. Vistone Vistone S.A. VLG VLG Argentina, LLC Grupo Clarín S.A. Consolidated Financial Statements as of December 31, 2012 Presented on a comparative basis In Argentine Pesos (Ps.) - Notes 2.1 and 2.12 to the consolidated financial statements and Notes 2.1 and 2.8 to the parent company only financial statements. English translation of the Financial Statements and Reports originally issued in Spanish Registered office: Piedras 1743, Buenos Aires, Argentina Main corporate business: Investing and financing Date of incorporation: July 16, 1999 Date of registration with the Public Registry of Commerce: - Of the by-laws: August 30, 1999 - Of the latest amendment: October 10, 2007 Registration number with the IGJ: 1,669,733 Expiration of articles of incorporation: August 29, 2098 Information on Parent company: Name: GC Dominio S.A. Registered office: Piedras 1743, Buenos Aires, Argentina Information on the subsidiaries in Note 2.4 to the consolidated financial statements and Note 4.3 to the parent company only financial statements. Capital structure Type Class “A” Common shares, Ps.1 par value Class “B” Common shares, Ps.1 par value Class “C” Common shares, Ps.1 par value Total as of December 31, 2012 Total as of December 31, 2011 Number of votes Subscribed, registered per share and paid-in capital 5 1 1 75,980,304 186,281,411 25,156,869 287,418,584 287,418,584 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 70 71 Consolidated Statement of Comprehensive Income For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Continuing Operations Revenues Cost of Sales (1) Subtotal - Gross Profit Selling Expenses (1) Administrative Expenses (1) Financial Income Financial Costs Other Income and Expense, net Equity in Earnings from Affiliates and Subsidiaries Income before Income Tax and Tax on Assets Income Tax and Tax on Assets Income for the Year from Continuing Operations Discontinued Operations Net Income from Discontinued Operations (2) 6.1 6.2 6.3 6.3 6.4 6.5 6.6 5.4 7 December 31, 2012 December 31, 2011 11,318,906,093 (6,508,186,503) 4,810,719,590 (1,387,819,339) (1,522,578,855) 162,251,896 (1,078,405,434) 639,370 13,682,715 998,489,943 (524,876,069) 473,613,874 9,325,238,616 (5,374,316,188) 3,950,922,428 (1,094,247,032) (1,146,535,581) 102,687,565 (684,773,400) 1,507,210 33,653,927 1,163,215,117 (425,031,671) 738,183,446 498,717,214 47,426,493 Net Income for the Year 972,331,088 785,609,939 Other Comprehensive Income Variation in Translation Differences of Foreign Operations from Continuing Operations 182,068,772 79,305,275 Variation in Translation Differences of Foreign Operations from Discontinued Operations Other Comprehensive Income for the Year (1,899,698) 180,169,074 1,848,769 81,154,044 Comprehensive Income for the year 1,152,500,162 866,763,983 Profit Attributable to: Shareholders of the Parent Company Non-Controlling Interests Total Comprehensive Income Attributable to: Shareholders of the Parent Company Non-Controlling Interests Basic and Diluted Earnings per Share from Continuing Operations Basic and Diluted Earnings per Share from Discontinued Operations Basic and Diluted Earnings per Share - Total (1) Includes amortization of intangible assets and film library, and depreciation of property, plant and equipment in the amount of Ps. 872,356,212 and Ps. 765,478,746 for the years ended December 31, 2012 and 2011, respectively. (2) As of December 31, 2012, it includes approximately Ps. 444 million in connection with the sale of the interests described in Note 12.g. The notes are an integral part of these consolidated financial statements. 482,310,720 490,020,368 567,296,198 585,203,964 0.96 0.72 1.68 514,753,208 270,856,731 552,746,145 314,017,838 1.72 0.07 1.79 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman Consolidated Balance Sheet As of December 31, 2012, December 31, 2011 and January 1, 2011 In Argentine Pesos (Ps.) - Assets Non-Current Assets Property, Plant and Equipment Intangible Assets Goodwill Deferred Tax Assets Investment in Affiliates and Subsidiaries Other Investments Inventories Other Assets Other Receivables Trade Receivables Total Non-Current Assets Current Assets Inventories Other Assets Other Receivables Trade Receivables Other Investments Cash and Banks Total Current Assets Total Assets December 31, December 31, January 1, Notes 2012 2011 2011 5.1 5.2 5.3 7 5.4 5.5 5.6 5.7 5.8 5.9 5.6 5.7 5.8 5.9 5.5 5.10 4,137,741,603 3,665,276,048 2,822,810,673 554,781,161 622,168,215 715,133,399 2,797,020,692 2,739,655,126 2,700,177,279 55,403,579 389,212,589 99,597,125 13,929,652 1,896,642 128,770,432 125,285,473 34,471,919 387,673,671 109,855 13,139,000 1,546,764 205,230,179 122,595,188 27,151,922 345,840,683 177,403 21,340,016 2,204,616 95,888,460 1,102,833 8,303,638,948 7,791,865,965 6,731,827,284 342,773,949 7,362,757 402,265,693 371,180,023 11,467,311 372,396,801 1,638,550,031 1,224,589,935 685,632,591 623,395,314 247,188,625 629,155,403 252,092,555 78,594,494 280,160,389 954,007,800 264,964,642 332,257,837 3,699,980,335 2,855,978,098 2,162,077,717 12,003,619,283 10,647,844,063 8,893,905,001 Equity (as per the corresponding statement) Attributable to Shareholders of the Parent Company 4,090,030,112 3,634,142,107 3,203,295,205 Attributable to Non-Controlling Interests Total Shareholders' Equity 1,374,568,933 1,063,645,779 936,398,963 5,464,599,045 4,697,787,886 4,139,694,168 Liabilities Non-Current Liabilities Accruals and Other Long-Term Debt Sellers Financing Deferred Tax Liabilities Taxes Payable Other Liabilities Trade Payables and Other Total Non-Current Liabilities Current Liabilities Long-Term Debt Sellers Financing Taxes Payable Other Liabilities Trade Payables and Other Total Current Liabilities Total Liabilities 5.11 5.12 5.13 7 5.14 5.15 5.16 5.12 5.13 5.14 5.15 5.16 254,838,954 193,039,012 159,947,261 2,683,294,222 2,749,309,434 2,117,587,216 325,330 261,847,892 74,910,041 97,588,589 5,888,626 816,853 182,336,02 79,195,842 104,354,485 10,198,755 1,127,017 219,731,774 83,639,832 89,429,579 12,450,978 3,378,693,654 3,319,250,402 2,683,913,657 504,084,669 1,103,888 411,769,236 214,245,125 442,432,030 8,178,434 299,925,923 148,728,234 260,618,199 3,796,354 472,091,432 127,596,292 2,029,123,666 1,731,541,154 1,206,194,899 3,160,326,584 2,630,805,775 2,070,297,176 6,539,020,238 5,950,056,177 4,754,210,833 Total Equity and Liabilities 12,003,619,283 10,647,844,063 8,893,905,001 The notes are an integral part of these consolidated financial statements. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 72 73 Consolidated Statement of Changes in Equity For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Shareholders' Contributions Inflation Adjustment on Additional Capital Stock Capital Stock Paid-in Capital Subtotal Balances as of January 1, 2011 287,418,584 309,885,253 1,413,334,666 2,010,638,503 Set-up of Legal Reserve Dividend Distribution Dividends and Other Movements of Non-Controlling Interest Changes in Reserves for Acquisition of Minority Interests Net Income for the Year Other Comprehensive Income: Variation in Translation Differences of Foreign Operations - - - - - - - - - - - - - - - - - - - - - - - - Balances as of December 31, 2011 287,418,584 309,885,253 1,413,334,666 2,010,638,503 Set-up of Reserves (Note 14) Dividend Distribution (Note 14) Dividends and Other Movements of Non-Controlling Interest Changes in Reserves for Acquisition of Minority Interests Net Income for the Year Other Comprehensive Income: Variation in Translation Differences of Foreign Operations - - - - - - - - - - - - - - - - - - - - - - - - Balances as of December 31, 2012 287,418,584 309,885,253 1,413,334,666 2,010,638,503 (1) Broken down as follows: (i) Optional reserve for future dividends of Ps. 300,000,000; (ii) Judicial reserve for future dividend distribution of Ps. 387,028,756 and (iii) Optional reserve for illiquidity of results of Ps. 694,371,899. The notes are an integral part of these consolidated financial statements. 2 2 - - - - - - - - - - - - ( 2 - - - - - - - - - -- 3 8 -- 5 ( ( - - - - - - - ( D D Translation of Foreign Operations - - - - - - 37,992,937 37,992,937 - - - - - 84,985,478 Other items Other Reserves (16,485,290) - - - (1,899,243) - - Legal Reserve 38,054,509 26,685,724 - - - - - (18,384,533) 64,740,233 Equity attributable to Shareholders of the Parent Company Retained Earnings Total Equity (1) Optional reserves Accumulated of Controlling Non-Controlling Results Interests Interests Total Equity - - - - - - - - 1,171,087,483 3,203,295,205 936,398,963 4,139,694,168 (26,685,724) (120,000,000) - (120,000,000) - - - (120,000,000) -- - 514,753,208 (185,768,664) (185,768,664) (1,899,243) 514,753,208 (1,002,358) 270,856,731 (2,901,601) 785,609,939 - 37,992,937 43,161,107 81,154,044 1,539,154,967 3,634,142,107 1,063,645,779 4,697,787,886 23,912,434 1,381,400,655 (1,405,313,089) - (135,000,000) (135,000,000) - - - (135,000,000) - - - 23,591,807 - - - - - - - - - - - - - - 482,310,720 - (290,063,721) (290,063,721) 23,591,807 482,310,720 15,782,911 490,020,368 39,374,718 972,331,088 - 84,985,478 95,183,596 180,169,074 122,978,415 5,207,274 88,652,667 1,381,400,655 481,152,598 4,090,030,112 1,374,568,933 5,464,599,045 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 74 75 Consolidated Statement of Cash Flows Cash provided by operating activities Net Income for the Year For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Income Tax and Tax on Assets Accrued Interest, net December 31, 2012 December 31, 2011 972,331,088 785,609,939 524,876,069 265,004,506 425,031,671 265,343,618 Adjustments to reconcile net income for the year to cash provided by operating activities: - Depreciation of Property, Plant and Equipment - Amortization of Intangible Assets and Film Library - Net of allowances - Financial Income, except interest - Impairment of Goodwill - Equity in Earnings from Affiliates and Subsidiaries - Other Income and Expense - Income/Loss from Discontinued Operations Changes in Assets and Liabilities: - Trade Receivables - Other Receivables - Inventories - Other Assets - Trade Payables and Other - Taxes Payable - Other Liabilities - Provisions Income Tax and Tax on Assets Payments 726,074,731 146,281,481 108,858,093 462,345,935 - (13,682,715) (3,063,467) (399,258,357) (475,493,666) 138,937,891 27,062,977 2,376,684 278,599,757 (125,281,919) 46,750,050 (30,747,737) (360,027,710) 613,264,887 152,213,859 100,050,589 206,158,381 12,053,573 (33,653,927) (57,874,035) 34,644,754 (408,049,432) (177,458,098) (98,517,084) (2,437,218) 467,607,043 (55,643,520) (10,480,719) (23,360,349) (617,284,673) Net Cash Flows Provided by Operating Activities 2,291,943,691 1,577,219,259 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Cash provided by investment activities - Acquisition of Property, Plant and Equipment, net (1,382,972,222) (1,478,115,464) December 31, 2012 December 31, 2011 - Acquisition of Intangible Assets - Acquisition of Subsidiaries, Net of Cash Acquired - Proceeds from Sale of Property, Plant and Equipment - Dividends collected - Collection from Sale of Permanent Establishment of Foreign Companies - Proceeds from Disposal of Long-Term Investments - Certificates of Deposit - Collections of Certificates of Deposit Net Cash Flows used in Investment Activities Cash provided by Financing Activities - Loans - Repayment of Loans and Issue Expenses - Payment of Interest - Acquisition of investment for the purchase of Notes from Subsidiaries - (Settlement) Collections on Derivatives - Payment of Sellers Financing - Dividends Paid - (Setup) Transfer of Reserve Account / Escrow Funds - Payments to Non-Controlling Interests, net (73,781,197) (15,829,527) 4,049,536 3,415,980 738,299,692 - (108,489,054) 15,419,781 (819,887,011) 158,849,820 (388,699,658) (293,133,497) (195,525,800) (6,177,500) (6,642,392) (135,000,000) (13,409,252) (230,279,010) Net Cash Flows (used in) provided by Financing Activities (1,110,017,289) Financing results generated by cash and cash equivalents Net Increase in Cash Flow Cash and Cash Equivalents at the Beginning of the Year Cash and Cash Equivalents at Year-end 77,116,220 439,155,611 865,580,054 1,304,735,665 The notes are an integral part of these consolidated financial statements. (57,018,157) (20,320,921) 16,081,665 7,591,703 - 14,470,615 (10,000,000) - (1,527,310,559) 861,143,588 (208,488,413) (206,425,022) - 41,790,297 (748,725) (120,000,000) 5,652,799 (185,291,562) 187,632,962 42,090,041 279,631,703 585,948,351 865,580,054 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 76 77 Notes to the Consolidated Financial Statements For the years ended December 31, 2012 Presented on a comparative basis. In Argentine Pesos (Ps.) Note 1 General Information Grupo Clarín is a holding company that operates in the Media industry. Its operating income and cash flows derive from the operations of its subsidiaries in which it participates directly or indirectly. Its operations include cable television and Internet access services, newspaper and other printing, publishing and advertising activities, broadcast television, radio operations and television content production, on-line and new media services, and other media related activities. A substantial portion of its revenues is generated in Argentina. Through its subsidiaries, it is engaged primarily in the following business segments: - Cable Television and Internet Access, consisting of the largest cable network in Latin America in terms of subscribers, operated by its subsidiary Cablevisión (surviving company after its merger with Multicanal and Teledigital), with operations in Argentina and neighboring countries. This company also provides high- speed Internet access under the brands Fibertel and Flash. - Printing and Publishing, consisting of national and regional newspapers, a sports daily, magazine publishing, editing and distribution, and commercial printing. Diario Clarín, the flagship national newspaper, is the newspaper with the second largest circulation in the Spanish-speaking world. The sports daily Olé is the only newspaper of its kind in the Argentine market. The newspaper La Razón is the first ever free newspaper in Argentina. The children's magazine Genios is the children's magazine with the highest circulation in Argentina. AGR is its printing company. - Broadcasting and Programming, consisting of Canal 13, one of the two broadcast television stations with the highest audience share in Argentina, AM (Amplitude Modulation) /FM (Frequency Modulation) radio broadcast stations (Radio Mitre and La 100), and the production of television, film and radio programming content, including cable television signals and organization and broadcasting of sporting events; and - Digital Content and Other, consisting mainly of digital and Internet content, online classified ads and horizontal portals as well as its subsidiary GCGC, its shared service center. Note 2 Basis for the preparation and presentation of the consolidated financial statements 2.1 Basis for the preparation and transition to IFRS Pursuant to General Resolution No. 562 issued on December 29, 2009 entitled “Adoption of International Financial Reporting Standards” and General Resolution No. 576/10, the CNV provided for the application of Technical Resolutions No. 26 and 29 issued by the Argentine Federation of Professional Councils of Economic Sciences (FACPCE, for its Spanish acronym). Since the Company is subject to the public offering regime governed by Law No. 17,811, it is required to apply such standards as from the year beginning January 1, 2012. The FACPCE issues Adoption Communications for the enforcement of IASB resolutions in Argentina. Accordingly, the Company has started to apply such standards to these consolidated financial statements, being January 1, 2011 the date of transition to IFRS, as established by IFRS 1 “First-time Adoption of IFRS”. These consolidated financial statements are the first annual consolidated financial statements presented under IFRS. These consolidated financial statements of Grupo Clarín for the year ended December 31, 2012, presented on a comparative basis, have been prepared under IFRS 1 “First-time Adoption of IFRS”. The Company's consolidated financial statements were previously prepared in accordance with Argentine Professional Accounting Standards ("NCP ARG"), except for Technical Resolutions No. 26 and 29 which adopt IFRS. NCP ARG differ from the IFRS in some areas. For the preparation of these consolidated financial statements, the Company has changed certain valuation and disclosure accounting policies previously applied under NCP ARG in order to comply with the IFRS. The main accounting policies are described in the following notes. Accumulated translation differences related to foreign operations were considered null at the IFRS transition date. The Company has not used the other exemptions available under IFRS 1. Mandatory Exceptions to IFRS The mandatory exceptions to IFRS 1 applicable to the Company are detailed below: 1. Estimates: The estimates made by the Company under IFRS at the IFRS transition date are consistent with the estimates made at the same date under NCP ARG. 2. The other mandatory exceptions provided by IFRS 1 that have not been considered since they are not applicable to Grupo Clarín are the following: • Derecognition of financial assets and liabilities. • Hedge accounting. • Embedded derivatives. 2.2.1 Mandatory Reconciliations Pursuant to FACPCE Technical Resolutions No. 26 and No. 29 and IFRS 1, the following is a detail of the reconciliation of comprehensive income for the year ended December 31, 2011 and the reconciliation of equity as of December 31, 2011 and January 1, 2011 reported under NCP ARG to that reported under IFRS. The Company has changed the figures disclosed for comparative purposes and those corresponding to the transition date (January 1, 2011) to reflect these adjustments. The mandatory reconciliations are presented in Note 2.2.1. These consolidated financial statements have been prepared based on historical cost except for the valuation of financial instruments (see Note 2.21). In general, the historical cost is based on the fair value of the consideration granted in exchange for the assets. The attached consolidated information, approved by the Board of Directors in the meeting held on March 8, 2013, is presented in Argentine Pesos (Ps.), the Argentine legal tender, and arises from accounting records kept by Grupo Clarín S.A. and its subsidiaries. 2.2 Application of IFRS 1 In preparing the consolidated financial statements as of the transition date under IFRS, the Company has applied the mandatory exceptions and certain optional exemptions in order to fully comply with the IFRS in accordance with IFRS 1. The optional exemptions applied by the Company are the following: a) Deemed Cost of Property, Plant and Equipment: The cost of property, plant and equipment, adjusted for inflation in accordance with effective accounting standards, has been considered as the deemed cost at the IFRS transition date, since it is similar to the cost or depreciated cost under IFRS, adjusted to reflect the changes of a general or specific price index. b) Business Combinations: The Company has elected not to apply IFRS 3 “Business combinations” on a retrospective basis for business combinations that occurred prior to the IFRS transition date. c) Accumulated Translation Differences of Foreign Operations: 78 79 2.2.1.1 Reconciliation of net income for the year ended December 31, 2011 Net income for the year under NCP ARG (Income) Effect of transition to IFRS: Addition of the item Minority interest under NCP ARG to Comprehensive income for the year Addition of the variation of Cumulative translation adjustment under NCP ARG to Comprehensive income for the year Subtotal Adjustment to inventories valuation [1] Adjustment for derecognition of pre-operating expenses [2] Derecognition of the adjustment for inflation to intangible assets [4] Recording of put options held by non-controlling interests [5] Adjustment for deferral of installation revenues [6] Effect of consolidation of special purpose entities and other companies [7] Derecognition of the adjustment for inflation of certain subsidiaries [9] Tax effect of adjustments under IFRS [10] Adjustment to the valuation of unconsolidated affiliates [11] Other minor adjustments Total comprehensive income for the year under IFRS Comprehensive income for the year under IFRS attributable to the shareholders of the parent company Comprehensive income for the year under IFRS attributable to non-controlling interests December 31, 2011 522,279,377 267,152,452 86,654,781 876,086,610 (2,288,887) 209,745 338,918 (960,000) (24,568,039) 24,344,769 (16,755,564) 9,413,234 1,190,974 (247,777) 866,763,983 552,746,145 314,017,838 2.2.1.2 Reconciliation of equity as of December 31, 2011 and January 1, 2011 December 31, 2011 January 1, 2011 Shareholders' equity under NCP ARG 3,735,204,430 3,284,857,240 Effect of transition to IFRS: Addition of the item Minority interest under NCP ARG to Shareholders' equity Subtotal Adjustment to inventories valuation [1] Adjustment for derecognition of pre-operating expenses [2] Derecognition of exchange differences capitalization [3] Derecognition of the adjustment for inflation to intangible assets [4] Recording of put options held by non-controlling interests [5] Adjustment for deferral of installation revenues [6] Effect of special purpose entities consolidation [7] Recognition of minority interest acquisition [8] Derecognition of the adjustment for inflation of certain subsidiaries [9] Tax effect of adjustments under IFRS [10] Adjustment to the valuation of unconsolidated affiliates [11] Other minor adjustments Total Shareholders' Equity under IFRS Equity under IFRS attributable to the shareholders of the parent company Equity under IFRS attributable to non-controlling interests 2.2.1.3 Explanation of reconciling items [1] Pursuant to NCP ARG, the valuation criterion applicable to inventories is replacement cost. In accordance with IFRS, inventories are valued at the lower of historical cost or net realizable value. In the income statement, this adjustment has an impact on the item Cost of sales and on Financial income. [2] Pursuant to NCP ARG, the Company and its subsidiaries maintained the capitalization under Intangible assets of certain items not accepted by IFRS. Under IFRS, and since such items do not meet the requirements established by those standards for their capitalization, the Company has reversed the residual value against Accumulated Results in the financial statements prepared under IFRS at the transition date. The impact in the Consolidated Statement of Comprehensive Income is disclosed as decreased amortization of such assets due to the reversal in the first financial statements prepared under IFRS. [3] Under NCP ARG certain exchange 80 81 1,037,401,294 4,772,605,724 (9,558,846) (446,476) (22,904,194) (1,518,634) (18,054,721) (114,740,203) 73,886,214 (7,007,606) (16,755,564) 44,266,017 (627,693) (1,356,132) 4,697,787,886 918,479,254 4,203,336,494 (7,269,959) (656,221) (22,904,194) (1,857,552) (22,249,442) (90,172,164) 49,541,445 - - 34,852,783 (1,818,667) (1,108,355) 4,139,694,168 3,634,142,107 1,063,645,779 3,203,295,205 936,398,963 differences arising from the exit from the convertibility regime and subsequent devaluation of the Argentine Peso had been capitalized. Exchange differences cannot be capitalized at the cost of acquisition of non-financial assets under IFRS. Therefore, the residual value of exchange differences included in such assets has been reversed against Accumulated Results in the financial statements prepared under IFRS at the transition date. The foregoing does not have an impact on the Consolidated Statement of Comprehensive Income since they are non-financial assets which are not subject to amortization. [4] Under NCP ARG the financial statements of all the subsidiaries were adjusted for inflation in periods during which the accounting profession deemed that an inflationary process distorted the figures in the financial statements. The last period in which figures were adjusted for inflation in Argentina was January 2002 to February 2003. Under the criteria set forth by IAS 29, such period should not be considered as hyperinflationary and, therefore, the adjustment for inflation would not be applicable to the financial statements under IFRS. The intangible assets for which there is not an active market do not fall within the optional exemption provided by IFRS 1 described in Note 2.2.a), which was adopted by the Company. Therefore, the residual value of the adjustment for inflation recorded in such period, contained in the balance of intangible assets, has been reversed against Accumulated Results in the financial statements prepared under IFRS at the transition date. The impact on the Consolidated Statement of Comprehensive Income is disclosed as decreased amortization of such intangible assets. [5] There are put options held by non-controlling shareholders that may force certain subsidiaries to acquire a portion or all of such equity interests. Under IFRS the Company has to recognize the liability arising from the present value of the best estimate of the amount payable should the non- controlling shareholder exercise the put option. The offsetting entry of such liability is recorded against non-controlling interest based on the percentage of the net assets underlying the option, while the difference between both values is recorded under equity. Such liability had not been recorded in the financial statements in accordance with NCP ARG. [6] In accordance with NCP ARG the Company adopted as accounting practice for the recognition of revenues from cable TV and Internet installation services the deferral of the amount of these revenues that exceeds the direct expenses incurred to obtain new subscribers in the same period. Under IFRS the Company defers all of the above-mentioned revenues, which are amortized over the average term during which subscribers maintain their subscription to the service, thus generating higher net liabilities from deferred revenues, disclosed under Other current and non-current liabilities. The effect is reflected in the Consolidated Statement of Comprehensive Income, in the sales revenues item. [7] NCP ARG requires the consolidation of subsidiaries based on the effective or potential equity interests that grant the Company the majority of votes at corporate or shareholders' meetings, including those cases in which control is obtained through agreements executed with other shareholders. IFRS requires the consolidation of special purpose entities in which control is exerted through other means. One of the Company's indirect subsidiaries has executed certain agreements of this kind with other companies in which it does not hold an equity interest, for the purposes of rendering certain services on behalf of and by order of such companies. The net effect of the assets, liabilities and net income balances consolidated by these entities is disclosed, in accordance with IFRS, under non-controlling interest in Equity and Net Income. [8] Under NCP ARG the amount in excess of the cost paid during the year 2011 for the acquisition of non-controlling interests in subsidiaries has been recognized as goodwill. Under IFRS, and as established by IAS 27, such amount in excess has been charged to Equity. [9] In accordance with NCP ARG the balances disclosed in the financial statements of Cablevisión's subsidiaries in Uruguay and Paraguay were adjusted for inflation until the date of transition to IFRS (January 1, 2011) taking into consideration the inflationary context of such countries. IAS 29 requires the adjustment for inflation of financial statements in countries with hyperinflationary economies. Under the criteria set forth by IAS 29, Uruguay and Paraguay's economies should not be considered as hyperinflationary and, therefore, the adjustment for inflation is not applicable to the financial statements under IFRS. The Company has elected to adopt the optional exemption mentioned in Note 2.2.a) above. Therefore, as from the date of transition to IFRS the adjustment for inflation is no longer applied to such subsidiaries' financial statements. The related items included in the reconciliation of consolidated income arise from the reversal of the adjustment for inflation of these subsidiaries recorded under NCP ARG in each year. [10] This reconciliation includes the tax effect of the adjustments made in the application of IFRS. The effect of these adjustments is reflected in the Consolidated Statement of Comprehensive Income under income tax. [11] Generated by the effect of the disclosures made in [1] and [10] above on the affiliates. In addition to the differences explained above, in the Consolidated Balance Sheet and the Consolidated Statement of Comprehensive Income under IFRS the assets, liabilities and net income of those companies in which common control is exercised, which were consolidated under the method provided by NCP ARG, are not consolidated under the proportional method because in accordance with IFRS they are disclosed in one item under Investment in Unconsolidated Affiliates of the Consolidated Balance Sheet and under Equity in earnings from affiliates and subsidiaries of the Consolidated Statement of Comprehensive Income (Equity method). In addition to the breakdown of certain specific items required by IFRS, certain assets and liabilities balances have been reclassified to meet IFRS' disclosure criteria. The most significant reclassifications as of December 31, 2011 and January 1, 2011 are the advances to suppliers for acquisition of property, plant and equipment (in the amount of Ps. 88.8 million and Ps. 33.9 million, respectively) and inventories (in the amount of Ps. 46.4 million and Ps. 27.4 million, respectively), which under NCP ARG, were included in the corresponding balance sheet items, are disclosed, in these financial statements prepared under IFRS, under Other receivables. 2.2.1.4 Reconciliation of cash flows arising from the consolidated financial statements as of December 31, 2011 No other significant differences have been identified in the Consolidated Statement of Cash Flows or in the definition of Cash and cash equivalents between NCP ARG and IFRS, except for the impact of the deconsolidation of subsidiaries in which common control is exerted, which in accordance with IFRS have not been consolidated under the proportional method but disclosed as net in one item, and except for the information mentioned in [7] of Note 2.2.1.3 above. 2.3 Standards and Interpretations issued but not adopted to date The Company has not adopted IFRS or revisions of IFRS issued as per the detail below, since their application is not required for the year ended December 31, 2012: - IAS 19 Employee Benefits: Since the Company has not established to date defined benefit plans for its employees and officers, this standard will not have an impact on the Company's financial statements. 82 83 - Certain improvements to IFRS issued in May 2012 by IASB which clarify some of the international accounting standards (IFRS 1 First-time adoption of the International Financial Reporting Standards, IAS 1 Presentation of financial statements, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation and IAS 34 Interim financial reporting). - IFRS 9 Financial Instruments: Issued in November 2009 and amended in October 2010, IFRS 9 establishes new requirements for the classification and measurement of financial assets and liabilities and for their derecognition. IFRS 9 is applicable to the years beginning on or after January 1, 2015, and allows for its early application. The changes may not significantly affect the amounts disclosed regarding the Company's financial assets and liabilities. - IFRS 10 Consolidated Financial Statements: Defines the concept of control and establishes control as the basis for determining which entities are to be consolidated in the consolidated financial statements. The Board of Directors informs that IFRS 10 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The changes may not significantly affect the disclosed amounts that relate to the Company's assets and liabilities. - IFRS 11 Joint Arrangements: Classifies joint arrangements either as joint operations (combining the existing concepts of assets under common control and operations under common control) or as joint ventures (equivalent to the existing concepts of entities under common control). IFRS 11 requires the use of the equity method for joint ventures and it also eliminates the proportional consolidation method for this type of businesses. The Board of Directors informs that IFRS 11 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The changes will probably not significantly affect the amounts of assets and liabilities and the disclosures in the Company's financial statements. - IFRS 12 Disclosure of interests in other entities: Applies to entities with an interest in subsidiaries, joint arrangements, associates or unconsolidated structured entities. IFRS 12 establishes disclosure objectives, as well as the minimum disclosures to be presented. The Board of Directors informs that IFRS 12 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The Company is analyzing the potential impact of this standard. - IFRS 13 Fair Value Measurement: Establishes a structure for the measurement at fair value when required by other standards and the disclosure requirements for measurement at fair value. This IFRS is applicable to both financial and non-financial items measured at fair value. The Board of Directors informs that IFRS 13 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The Company is analyzing the potential impact of this standard. - Amendments to IAS 1 Presentation of financial statements. The main amendment to IAS 1 requires that items of other comprehensive income be grouped into those that may and may not be subsequently reclassified to profit or loss. The amendments to IAS 1 do not specify which items are to be disclosed in other comprehensive income. This amendment will be effective for annual periods beginning as from July 1, 2012. The Company is analyzing the potential impact of this standard. - Amendments to IFRS 7 and IAS 32. The IASB has amended the application guidance to IAS 32 Financial Instruments: Presentation to clarify some of the requirements to offset financial assets and liabilities in the balance sheet. The IASB has also issued an amendment to IAS 7, Financial Instruments: Disclosures to enhance offsetting disclosures These amendments will be effective for annual periods beginning as from January 1, 2013. The Company is analyzing the potential impact of this standard. 2.4 Basis for Consolidation These consolidated financial statements incorporate the financial statements of the Company and its subsidiaries and the joint ventures in which it holds an interest (see Note 2.7). The Company exerts control when it has the power to decide on the financial and operating policies of an entity for the purposes of obtaining benefits from its activities, generally coupled with a participation of more than 50% of the voting rights. Additionally, these consolidated financial statements incorporate the companies mentioned in 2.4.1. For consolidation purposes, the intercompany transactions and the balances between the Company and the consolidated companies have been eliminated. Unrealized income has also been eliminated. Below is a detail of the most relevant consolidated subsidiaries, together with the interest percentages held directly or indirectly in each subsidiary's capital stock and votes, as of each date indicated below: Companies Cablevisión (1) PRIMA AGEA AGR CIMECO ARTEAR (2) Pol-Ka IESA Radio Mitre GCGC CMD GC Services GCSA Investments Direct or Indirect Interest in the Capital Stock and Votes (%) December 31, 2012 December 31, 2011 January 1, 2011 59.9% 59.9% 100.0% 100.0% 100.0% 99.2% 54.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 59.9% 59.9% 100.0% 100.0% 100.0% 99.2% 54.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 59.9% 59.9% 100.0% 100.0% 100.0% 99.2% 54.6% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% (1) Includes Multicanal and Teledigital, which were merged into Cablevisión effective as of October 1, 2008. (2) Interest in votes amounts to 99.7%. The subsidiaries' financial statements used for consolidation purposes bear the same closing date as these consolidated financial statements, comprise the same periods and have been prepared under exactly the same accounting policies as those used by the Company, which are described in the notes to the consolidated financial statements or, as the case may be, adjusted as applicable. 2.4.1 Consolidation of Special Purpose Entities The Company, through one of its subsidiaries, has executed certain agreements with other companies, for the purposes of rendering on behalf of and by order of such companies certain selling and installation services, collections, administration of subscribers, marketing and technical assistance, financial and general business advising, with respect to cable television and Internet access services in Uruguay. In accordance with SIC-12 “Consolidation of Special Purpose Entities”, these consolidated financial statements include the assets, liabilities and results of these companies. Since the Company does not hold an interest in these companies, the offsetting entry of the net effect of the consolidation of the assets, liabilities and results of these companies is disclosed in the items "Equity attributable to non-controlling interests" and "Net Income attributable to non- controlling interests", as required by IFRS. 2.4.2 Changes in the Company's Interests in Existing Subsidiaries The changes in the Company's interests in subsidiaries which do not generate a loss of control are recorded under equity. The book value of the Company's interests and non- controlling interests is adjusted to reflect the changes in the relative interest in the subsidiary. Any difference between the amount for which non-controlling interests were adjusted and the fair value of the consideration paid or received is directly recognized in equity and attributed to the shareholders of the parent company. In case of loss of control, any residual interest in the issuing company is measured at its fair value at the date on which control was lost, allocating the change in the recorded value with an impact on net income. The fair value is the initial amount recognized for such investments for the purposes of its subsequent valuation for the interest retained as associate, 84 85 joint venture or financial instrument. Additionally any amount previously recognized in Other Comprehensive Income regarding such investments is recognized as if Grupo Clarín had disposed of the related assets and liabilities. Consequently, the amounts previously recognized in Other Comprehensive Income may be reclassified to net income. 2.5 Business Combinations The Company applies the acquisition method to account for business combinations. The consideration for each acquisition is measured at fair value (on the date of exchange) of the assets acquired, the liabilities incurred or assumed and the equity instruments issued by the Company in exchange for the control of the company acquired. The costs related to the acquisition are expensed as incurred. The consideration for the acquisition, if any, includes any asset or liability arising from a contingent consideration arrangement, measured at fair value at the acquisition date. Subsequent changes to such fair value, verified within the measurement period, are adjusted against the acquisition cost. The measurement period is the actual period that begins on the acquisition date and ends as soon as the Company receives all the information it was seeking about facts and circumstances that existed as of the acquisition date. The measurement period cannot exceed one year from the acquisition date. All other changes in the fair value of the contingent consideration classified as assets or liabilities, outside the measurement period, are recognized in net income. Changes in the fair value of the contingent consideration classified as equity are not recognized. In the case of business combinations achieved in stages, the Company's equity interest in the company acquired is remeasured at fair value at the acquisition date (i.e., the date on which the Company acquired control) and the resulting gain or loss, if any, is recognized as income/expense or in other comprehensive income, depending on the origin of the variation. In the periods preceding the reporting periods, the Company may have recognized in other comprehensive income the changes in the value of the interest in the capital stock of the acquired company. In that case, the amount recognized in other comprehensive income is recognized on the same basis that would have been required if the Company had directly disposed of the previously-held equity interest. The identifiable assets, liabilities and contingent liabilities of the acquired company that meet the conditions for recognition under IFRS 3 (2008) are recognized at fair value at the acquisition date, except for certain particular cases provided by such standard. Any excess of the acquisition cost (including the interest previously held, if any, and the non- controlling interest) over the net fair value of the subsidiary's or associate's identifiable assets, liabilities and contingent liabilities measured at the acquisition date is recognized as goodwill. Any excess of the net fair value of the identifiable assets, liabilities and contingent liabilities over the acquisition cost is immediately recognized in net income. The acquisition cost comprises the consideration transferred, the amount of any non-controlling interest and the acquisition- date fair value of the acquirer's previously-held equity interest in the acquiree, if any. investor's share in the comprehensive income for the year or in other comprehensive income obtained by the associate, after the acquisition date. The distributions received from the associate will reduce the book value of the investment. Any excess of the acquisition cost over the Company's share in the net fair value of the associate's identifiable assets, liabilities and contingent liabilities measured at the acquisition date is recognized as goodwill. Goodwill is included in the book value of the investment and tested for impairment as part of the investment. Any excess of the Company's share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the acquisition cost, after its measurement at fair value, is immediately recognized in net income. Unrealized gains or losses on transactions between the Company (and subsidiaries) and the associates are eliminated considering the Company's interest in the associates. Adjustments were made, where necessary, to the associates' financial statements so that their accounting policies are in line with those used by the Company. The Company initially recognizes any non- controlling interest as per its share in the amounts recognized for the net identifiable assets of the acquiree. Investments in companies in which the company does not have control or significant influence have been valued at cost, as established by IAS 39. 2.6 Investment in Associates An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the associate, generally accompanied by a 20%-50% holding of the voting power, but does not entail control or joint control over those policies. The associates' net income and the assets and liabilities are disclosed in the consolidated financial statements using the equity method, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”. Under the equity method, the investment in an associate is to be initially recorded at cost and the book value will be increased or decreased to recognize the In the cases where non-controlling shareholders hold put options whereby they may force the Company to acquire shares of subsidiaries, and the Company reasonably estimates that such put options will be duly exercised, the Company discloses the present value of the corresponding future payments under Other Liabilities. 2.7 Interests in Joint Ventures A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint control, i.e., when the financial strategy and the operating decisions related to the company's activities require the unanimous consent of the parties sharing control. Joint venture arrangements that entail the establishment of an independent entity in which each company holds an interest are called jointly controlled entities. The Company, in accordance with IAS 31 "Interests in Joint Ventures”, has applied the equity method to measure its holding in the jointly controlled entity and discloses its holdings in such entities under Investment in unconsolidated affiliates. In the cases of joint business arrangements executed through Uniones Transitorias de Empresas ("UTE"), or jointly controlled operations according to IAS 31, the Company recognizes in its financial statements on a line-by-line basis the assets, liabilities and net income subject to joint control in proportion to its share in such arrangements. These consolidated financial statements include the balances of the UTEs, among them, Ertach S.A. - Prima S.A. Unión Transitoria de Empresas, FEASA - S.A. La Nación Unión Transitoria de Empresas and AGEA S.A. - S.A. La Nación - UTE, in which the Company and/or its subsidiaries hold an interest. 2.8 Goodwill Goodwill arises from the acquisition of subsidiaries and refers to the excess of the cost of acquisition over the net fair value at the date of acquisition of the identifiable assets acquired and liabilities assumed. The Company initially recognizes any non-controlling interest as per its interest percentage in the amounts recognized for the net identifiable assets of the acquired company. If, upon measurement at fair value, the Company's share in the fair value of net identifiable assets of the acquired company exceeds the amount of the consideration transferred, the amount of any non-controlling interest in such company and the fair value of the acquirer's previous non-controlling interest in the acquiree (if any), such excess is immediately recognized in the statement of comprehensive income as a gain arising from a very advantageous acquisition. Goodwill is not amortized, but tested for impairment on an annual basis. For the purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units expected to render benefits from the synergies of the respective business combination. Those cash-generating units to which goodwill is allocated are tested for impairment on an annual basis, or more frequently, when there is any 86 87 indication of impairment. If the recoverable value of the cash-generating unit, i.e. the higher of the value in use or the fair value net of selling expenses, is lower than the value of the net assets allocated to that unit, including goodwill, the impairment loss is first allocated to reduce the goodwill allocated to the unit and then to the other assets of the unit, on a pro rata basis, based on the valuation of each asset in the unit. The impairment loss recognized against the valuation of goodwill is not reversed under any circumstance. In case of a loss of control in the subsidiary, the amount attributable to goodwill is included in the calculation of the corresponding gain or loss. As mentioned in Note 9, the recoverability of certain goodwill could be affected by the final outcome of the circumstances described in such note. 2.9 Revenue Recognition Revenues are recognized when the amount of revenues may be reliably estimated, when future economic benefits are likely to be obtained by the Company, and when specific criteria are met for each of Grupo Clarín's activities, as described below. Revenues for each of the main business segments identified by the Company are recognized when the following conditions are met. - Cable Television and Internet Access Sales of cable or Internet services subscriptions are recognized as revenues for the period in which the services are rendered. Revenues from the installation of these services are accrued over the average term during which clients maintain their subscription to the service. Advertising sales revenues are recognized in the period in which advertising is published or broadcast. Revenues from transactions that include more than one item have been recognized separately to the extent they have commercial substance on their own. The amount of revenues allocated to each item is based on its fair value, which is assessed or estimated at market value. Revenues from the sale of assets are recognized only when the risks and benefits arising from the use of the disposed assets have been transferred, the amount of revenues may be fairly estimated, and the Company is likely to obtain economic benefits (see Note 19). Installment sales are recognized at the value of future income discounted at a market rate assessed at the beginning of the transaction. - Printing and Publishing Advertising sales are determined by the prices achieved per single column centimeter and the number of advertising centimeters sold in the relevant period. Circulation sales include the price received from the sale of newspapers, magazines and other publications. Printing services sales consist mainly of fees received from the printing of magazines, books, brochures and related products. Advertising sales from newspapers and magazines are recognized when advertising is published. Revenues from the sale of newspaper and magazines are recognized upon passing control to the buyer. The Company records the estimated impact of returns, calculated based on historical trends, as a deduction from revenues. Revenues from printing services are recognized upon completion of the services, delivery of the related products and customer acceptance. - Broadcasting and Programming TV and radio advertising sales revenues are recognized when advertising is broadcast. Revenues from programming and distribution of television content are recognized when the programming services are provided. 2.10 Barter Transactions The Company, through its subsidiaries, sells a small portion of its advertising spaces in exchange for goods or services received. Revenues are recorded when the advertisement is made, valued at the fair value of the goods or services received, in the case of goods and other services advertising barter transactions, or delivered, in the case of advertising-for-advertising barter transactions. Goods or services are recorded at the time goods are received or services are rendered. The goods or services to be received in consideration for the advertisements made are recorded as Trade Receivables. The advertisements to be made in exchange for the goods and services received are recorded as Trade Payables and Other. 2.11 Leases Leases are classified as financial leases when the terms of the lease transfer to the lessee substantially all the risks and benefits inherent to the property. All other leases are classified as operating leases. The assets held under financial leases are recognized at the lower of the fair value of the Company's leased assets at the beginning of the lease term, or the present value of the minimum lease payments. The liability held with the lessor is included in the balance sheet as an obligation under financial leases recorded under Debt. Lease payments are apportioned between the finance charge and the reduction of the liabilities under the lease so as to achieve a constant interest rate on the outstanding balance. The finance charge is expensed over the lease term. The assets held under financial leases are depreciated over the shorter of the useful life of the assets or the lease term. Rentals under operating leases are charged to income on a straight line basis over the corresponding lease term. 2.12 Foreign Currency and Functional Currency The financial statements of each of the entities consolidated by the Company are prepared in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of the consolidated financial statements, the net income and the financial position of each entity are stated in Argentine Pesos (Argentina's legal tender for all companies domiciled in Argentina), which is the Company's functional currency, and the reporting currency of the consolidated financial statements. The functional currency of the indirectly controlled Uruguayan, Paraguayan and Brazilian companies, are the Uruguayan Peso, the Guarani and the Real, respectively. In preparing the financial statements of the individual entities, the transactions in currencies other than the entity's functional currency (foreign currency) are recorded at the exchange rates prevailing on the dates on which transactions are carried out. At the end of each reporting year, the monetary items denominated in foreign currency are retranslated at the exchange rates prevailing on such date. Exchange differences are charged to net income as incurred. In preparing the Company's consolidated financial statements, the assets and liabilities balances of the entities which functional currencies is not the Argentine Peso, stated in their own functional currency (Uruguayan Peso, Guarani and Real) are translated to Argentine pesos at the exchange rate prevailing at the end of the year, while the net income is translated at the exchange rate prevailing on the transaction date. Translation differences are recognized in other comprehensive income as “Variation in Translation Differences of Foreign Operations”. 2.13 Financial Costs Financial costs directly attributable to the acquisition, construction or production of assets that require a substantial period of time to prepare for their intended use or sale (“qualifying assets”), are capitalized until they are ready for their intended use or sale. The income, if any, on the temporary investment of the specific borrowings incurred to finance qualifying assets is deducted from the financial costs to be capitalized. All other financial costs are charged to net income as incurred. 2.14 Taxes The income tax charge reflects the sum of current income tax and deferred income tax. 2.14.1 Current and Deferred Income Tax for the year Current and deferred taxes are recognized as expense or income for the year, except when they are related to entries debited or credited to other comprehensive income or equity, in which cases taxes are also recognized in other comprehensive income or directly in equity, respectively. In the case of a business combination, the tax effect is taken into consideration in the calculation of goodwill or in the determination of the excess of acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the cost of the business combination. and net income reported in the consolidated statement of comprehensive income differ due to revenue or expense items that are taxable or deductible in other fiscal years and items that are never taxable or deductible. The current tax liability is calculated using the tax rate in effect as of the date of these consolidated financial statements. Current tax charge is calculated based on the tax rules effective in the countries in which the consolidated entities operate. 2.14.3 Deferred Tax Deferred tax is recognized on temporary differences between the book value of the assets and liabilities included in these financial statements and the corresponding tax basis used to determine taxable income. Deferred tax liabilities are generally recognized for all temporary fiscal differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is likely that future taxable income will be available against which those deductible temporary differences can be charged. These assets and liabilities are not recognized if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable income nor the accounting income. The book value of a deferred tax asset is reviewed at each reporting year and reduced to the extent that it is no longer likely that sufficient taxable income will be available in the future to allow for the recovery of all or part of the asset. Deferred tax is recognized on temporary differences arising from investments in foreign subsidiaries. Deferred tax assets and liabilities are measured at the tax rates that are expected to be applicable in the year in which the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting year, to recover or settle the book value of its assets and liabilities. 2.14.2 Current Tax Current tax payable is based on the taxable income recorded during the year. Taxable income Deferred tax assets are offset against deferred tax liabilities if effective regulations allow to offset, before the tax authorities, the amounts 88 89 recognized in those items; and if the deferred tax assets and liabilities arise from income taxes levied by the same tax authority and the Company intends to settle its assets and liabilities on a net basis. Under the IFRS, deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively. 2.14.4 Tax on Assets In Argentina, the tax on assets (impuesto a la ganancia mínima presunta) is supplementary to income tax. The Company assesses this tax at the effective rate of 1% on the taxable assets at year-end. The Company's tax liability for each year will be equal to the higher of the tax on assets assessment or the income tax liability assessed at the legally effective rate on the estimated taxable income for the year. However, if the tax on assets exceeds the income tax liability in any given fiscal year, the excess may be creditable against any excess of income tax liability over the tax on assets in any of the following ten fiscal years. The tax on assets balance has been capitalized in these consolidated financial statements for the amount estimated to be recoverable within the statute of limitations, based on the subsidiaries' current business plans. 2.15 Property, Plant and Equipment Property, plant and equipment held for use in the production or supply of goods and services, or for administrative purposes, are recorded at cost less accumulated depreciation and any accumulated impairment loss. Depreciation of property, plant and equipment in use is recognized on a straight-line basis over its estimated useful life. The estimated useful life, residual value and depreciation method are reviewed at each year-end, with the effect of any changes in estimates accounted for on a prospective basis. Land is not depreciated. Works in process are recorded at cost less any recognized impairment loss. The cost includes professional fees and, in the case of qualifying assets, capitalized financial costs in accordance with the Company's accounting policy (Note 2.13). Depreciation of these assets, as well as in the case of other property, plant and equipment, begins when the assets are ready for their use. Assets held under financial leases are depreciated over the shorter of their estimated useful life equal to the rest of the other similar assets or over the lease term. Repair and maintenance expenses are expensed as incurred. The gain or loss arising from the retirement or disposal of an item of property, plant and equipment is calculated as the difference between income from the sale of the asset and the asset's book value, and recognized under “Other Income and Expense, net” in the statement of comprehensive income. The residual value of an asset is written down to its recoverable value, if the asset's residual value exceeds its estimated recoverable value (see Note 2.17). 2.16 Intangible Assets Intangible assets include trademarks and patents, exclusivity agreements, licenses, software and other rights, the purchase value of the subscriber portfolio, projects in-progress (mainly related to software development) and other intangible assets. The accounting policies regarding the recognition and measurement of such intangible assets are described below. 2.16.1 Intangible Assets Acquired Separately Intangible assets acquired separately are valued at cost, net of the corresponding accumulated amortization and impairment losses. Amortization is calculated on a straight line basis over the estimated useful life of the intangible assets. The Company reviews the useful lives applied, the residual value and the amortization method are reviewed at each year-end, and accounts the effect of any changes in estimates on a prospective basis. Assets held under financial leases are depreciated over the shorter of their estimated useful life, which is equal to the rest of the other similar assets, or over the lease term. 2.16.2 Intangible Assets Acquired in a Business Combination Intangible assets acquired in a business combination are identified and recognized separately regarding goodwill when they meet the definition of intangible assets and their fair value can be measured reliably. Such intangible assets are recognized at fair value at acquisition date. After the initial recognition, intangible assets acquired in a business combination are valued at cost net of accumulated amortization and impairment losses, with the same basis as intangible assets acquired separately. 2.16.3 Internally Generated Intangible Assets Internally generated intangible assets arising from the development phase of an internal project are recognized if certain conditions are met, among them, technical feasibility to complete the development of the intangible asset and the intent to complete such development. The amount initially recognized for internally generated intangible assets comprises all the expenses incurred as from the moment all the intangible assets meet the above-mentioned recognition criteria. Where it is not possible to recognize an internally generated intangible asset, the development expenses are recognized in the statement of comprehensive income in the year in which they are incurred. After the initial recognition, internally developed intangible assets are valued at cost net of accumulated amortization and impairment losses, with the same basis as intangible assets acquired separately. Such assets are included under software and projects in-progress. 2.17 Impairment of Non-Financial Assets, Except Goodwill At the end of each financial statement, the Company reviews the book value of its non-financial assets with definite useful life to determine the existence of any evidence indicating that these assets could be impaired. If there is any indication of impairment, the recoverable value of these assets is estimated for the purposes of determining the amount of the impairment loss (in case the recoverable value is lower than the book value). Where it is not possible to estimate the recoverable value of an individual asset, the Company estimates the recoverable value of the cash-generating unit ("CGU") to which such asset belongs. Where a consistent and reasonable allocation base can be identified, corporate assets are also allocated 90 91 to an individual cash-generating unit or, otherwise, to the smallest group of cash- generating units for which a consistent allocation base can be identified. The recoverable value of an asset is the higher of the fair value less selling expenses or its value in use. In measuring value in use, estimated future cash flows are discounted at their present value using a pre-tax discount rate, which reflects the current market assessments of the time value of money and, if any, the risks specific to the asset for which estimated future cash flows have not been adjusted. Assets with an indefinite useful life (for example, non-financial assets unavailable for use) are not amortized, but are tested for impairment on an annual basis. Non-financial assets, except for goodwill, for which an impairment loss was recorded, are reviewed at each closing date for a possible reversal of the impairment loss. 2.18 Inventories Inventories are valued at the lower of acquisition cost and/or production cost or the net realizable value. The cost is determined under the weighted average price method. The production cost is determined under the cost absorption method, which comprises raw materials, labor and other costs directly related to the production of goods. The net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs necessary to make such sale. The criterion followed to expense each of these inventory items is as follows: - Film Rights (series, soap operas and films) and programs purchased: The cost of series, soap operas and programs purchased to be shown on broadcast television is mainly expensed against the cost of sales on the exhibition date or upon expiration of exhibition rights. Rights related to these programs acquired in perpetuity, if any, are amortized over their estimated useful life (eight years, with a grace period of three years and are subsequently amortized on a straight-line basis over the next five years). Films are expensed against the cost of sales on a decreasing basis, based on the number of showings granted by the respective rights or upon expiration of exhibition rights. Film rights acquired in perpetuity for broadcasting by the Volver channel are amortized over their estimated useful life (seven years, with a grace period of four years. They are subsequently amortized on a decreasing basis over the next three years). - In-house production programs and co-productions: The cost of in-house production programs and co-productions is mainly expensed against the cost of sales after broadcasting of the chapter or program. Rights related to in-house production programs and co-productions acquired in perpetuity, if any, are amortized over their estimated useful life (eight years, with a grace period of three years and are subsequently amortized on a straight-line basis over the next five years). - Events: The cost of events is fully expensed against the cost of sales at the time of broadcasting. The allowance for impairment is calculated based on the recoverability analysis conducted at the closing of each year. The values thus obtained do not exceed their respective recoverable values estimated at the closing of each year. 2.19 Other Assets The assets included in this item have been valued at acquisition cost. Investments denominated in foreign currency subject to restrictions on disposition under financial covenants have been valued at face value plus interest accrued as of each year-end. 2.20 Accruals and Other Accruals and the provision for asset retirement are recognized when the Company has a present obligation (be it legal or constructive) as a result of a past event, when it is likely that an outflow of resources will be required to settle the obligation and when the amount of the obligation can be reliably estimated. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the end of the reporting year, taking into consideration the corresponding risks and uncertainties. Where a provision is measured using the estimated cash flow to settle the present obligation, its book value represents the present value of such cash flow. In estimating its obligations, the Company has taken into consideration the opinion of its legal advisors, if any. 2.21 Financial Instruments 2.21.1 Financial Assets Purchases and sales of financial assets are recognized at the transaction date when the Company undertakes to purchase or sell the asset, and is initially measured at fair value, plus transaction costs, except for those financial assets classified at fair value with changes in the statement of income, which are initially measured at fair value. 2.21.1.1 Classification of Financial Assets Financial assets are classified within the following specific categories: “financial assets at fair value with changes in net income”, “held- to-maturity investments” and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined on initial recognition. 2.21.1.2 Recognition and Measurement of Financial Assets 2.21.1.2.1 Financial Assets at Fair Value with Changes in Net Income Financial assets at fair value with changes in net income are recorded at fair value, recognizing any gain or loss arising from the measurement in the consolidated statement of comprehensive income. The net gain or loss recognized in net income includes any gain or loss generated by the financial asset and is included in the item financial income and cost in the consolidated statement of comprehensive income. The assets designated in this category are classified as current assets if they are expected to be traded within 12 months; otherwise, they are classified as non-current assets. The fair value of these assets is calculated based on the current quoted market price of these instruments. 2.21.1.2.2 Held-to-maturity Investments Held-to-maturity investments are measured at amortized cost using the effective interest rate method less any impairment, if any. The effective interest rate method calculates the amortized cost of a financial asset or liability and the allocation of financial income or cost over the whole corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument to the net book value of the financial asset or liability on its initial recognition. Balances in foreign currency were translated at the exchange rate prevailing at the closing of year for the settlement of these transactions. Foreign exchange differences were charged to net income for each year. 2.21.1.2.3 Loans and Receivables Loans and trade receivables with fixed or determinable payments not traded in an active market are classified as “trade receivables and other”. Trade receivables and other are initially measured at fair value, and subsequently measured at amortized cost using the effective interest rate method, less any impairment, if any. Interest income is recognized using the effective interest rate method, except for short- term balances for which the recognition of interest is not significant. Loans and receivables are classified as current assets, except for the maturities exceeding 12 months from the closing date. Loans in foreign currency have been valued as mentioned above, at the exchange rates prevailing as of each year-end. Foreign exchange differences were charged to net income for each year. 2.21.1.3 Impairment of Financial Assets The Company tests financial assets or a group of assets for impairment at each closing date to assess if there is any objective evidence of impairment. The value of a financial asset or 92 93 a group of assets is impaired, and an impairment loss is recognized, where there is objective evidence of the impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event or events have an impact on the estimated future cash flows of the financial asset or a group of assets, which may be reliably measured. The objective evidence of impairment may include, among others, significant financial difficulties of the issuer or obligor; or breach of contractual terms, such as default or delinquency in interest or principal payments. For certain categories of financial assets, such as accounts receivable and other receivables, the assets that are not impaired on an individual basis are tested for impairment on a collective basis. The objective evidence of impairment of a receivables portfolio includes the Company's past collection experience, an increase in the number of delinquent payments in the receivables portfolio, as well as observable changes in the local economic situation affecting the recoverability of receivables. Where there is objective evidence of an impairment loss in the value of loans granted, receivables or held-to-maturity investments recorded at amortized cost, the loss amount is measured as the difference between the book value and the present value of estimated future cash flows (without including future non- incurred losses), discounted at the original effective interest rate of the financial asset. The asset's book value is written down under a contra asset account. The loss amount is recognized in net income for the year. If, in subsequent periods, the impairment loss amount decreases and such decrease can be objectively related to an event occurring after the impairment has been recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss is reversed. A loss reversal can only be recorded to the extent the financial asset's book value does not exceed the amortized cost that would have been determined if the impairment loss had not been recorded at the reversal date. The reversal amount is recognized in net income for the year. 2.21.1.4 Derecognition of Financial Assets The Company derecognizes a financial asset when the contractual rights to the cash flows of such assets expire or when it transfers the financial asset and, therefore, all the risks and benefits inherent to the ownership of the financial asset are transferred to another entity. If the Company retains substantially all the risks and benefits inherent to the ownership of the transferred asset, it will continue to recognize it and will recognize a liability for the amounts received. 2.21.2 Financial Liabilities Financial liabilities, except for derivatives, are valued at amortized cost using the effective interest rate method. 2.21.2.1 Debt Debt is initially valued at fair value net of the transaction costs incurred, and subsequently valued at amortized cost using the effective interest rate method. Any difference between the initial value net of the transaction costs and the settlement value is recognized in the income statement over the term of the loan using the effective interest rate method. Interest expense has been allocated to “Financial Costs” in the consolidated statement of comprehensive income, except for the portion allocated to the cost of works under construction recorded under “Property, Plant and Equipment”. Debt maturing within the 12 months preceding the closing date is classified as current and those maturing within the 12 months following the closing date are classified as non-current. Loans in foreign currency have been valued as mentioned above, at the exchange rates prevailing as of each year-end. Foreign exchange differences were charged to net income for each year. 2.21.2.2 Trade Payables and Other Trade payables with fixed or determinable payments not traded in an active market are classified as “Trade Payables and Other”. Trade Payables and Other are initially measured at fair value, and subsequently measured at amortized cost using the effective interest rate method. Interest expense is recognized using the effective interest rate method, except for short-term balances for which the recognition of interest is not significant. Trade Payables and Other are classified as current, except for the maturities exceeding 12 months from the closing date. Trade payables in foreign currency have been valued as mentioned above, at the exchange rates prevailing as of each year end. Foreign exchange differences were charged to net income for each year. 2.21.2.3 Derecognition of Financial Liabilities An entity shall derecognize a financial liability (or part of it) when it has been extinguished, i.e., when the obligation specified in the corresponding agreement is discharged, cancelled or expires 2.21.3 Derivatives and Hedge Accounting The Company executes certain financial instruments to manage its exposure to interest rate and exchange risks, including foreign currency hedges, interest rate swaps and currency swaps. Derivatives are initially recognized at fair value at the date of execution of the related contract and subsequently measured at fair value at the end of the reporting year. The resulting gain or loss is immediately recognized in net income unless the derivate is designated as a hedging instrument, in which case the timing for its recognition will depend on the nature of the hedging relationship. The Company uses certain derivatives to hedge the fair value of its recognized liabilities (fair value hedge). The Company documents at the beginning of the transaction the existing relationship between the hedging instruments and the hedged items, as well as its objectives to manage risk and the strategy to carry out hedge transactions. The Company also documents its assessment, both at the beginning and on an ongoing basis, of the high effectiveness of its hedging transactions to offset the changes in the fair value of the hedged items. The fair value of hedging derivatives is fully classified as a non-current asset or liability if the hedged item matures in more than 12 months, and as a current asset or liability if the hedged item matures within 12 months. 2.22 Other Liabilities Advances from customers involving obligations to deliver assets that have not yet been produced have been valued at the higher of the amounts received or the share in the estimated value of the related assets. The other liabilities have been valued at nominal value, which does not differ significantly from its discounted value. 2.23 Assets and liabilities held for sale Non-current assets and liabilities (or disposal groups) are classified as assets and liabilities held for sale where their value will be mostly recovered through the sale thereof, to the extent such sale is highly likely to occur. These assets and liabilities are valued at the lower of book value and fair value less cost of sales. 2.24 Statement of Cash Flows For the purposes of preparing the statement of cash flows, the item “Cash and Cash Equivalents” includes cash and bank balances, high liquidity short-term investments (with original maturities shorter than 90 days), and bank overdrafts payable on demand, if any, are deducted to the extent they are part of the Company's cash management. Bank overdrafts are classified as “Debt” in the consolidated balance sheet. Cash and cash equivalents at each year-end, as disclosed in the consolidated statement of cash flows, may be reconciled against the items related to the balance sheet as follows: December 31, 2012 December 31, 2011 623,395,314 629,155,403 291,086,164 80,951 390,173,236 1,304,735,665 176,821,592 4,680,000 54,923,059 865,580,054 Fair Value Hedge Changes in the fair value of derivatives designated and classified as fair value hedges are charged to net income, together with any change in the fair value of a hedged liability attributable to the hedged risk. The Company only applies fair value hedge accounting to cover the exchange rate fluctuations of the liabilities it holds in foreign currency. The gain or loss relating to the effective portion of foreign currency forward contracts is charged to net income under Financial Costs. The loss or gain related to the ineffective portion, if any, is charged to net income under Other Income and Expense, net. Changes in the fair value of the Company's hedged liabilities denominated in foreign currency, attributable to the risk detailed above, are charged to net income under Financial Costs. 2.21.4 Refinancing of Indebtedness Liabilities arising from the restructuring of financial debts have been initially valued at fair value and will be subsequently measured at amortized cost using the effective interest rate method. Cash and Banks Investments: - Financial Instruments - Securities - Mutual Funds Cash and Cash Equivalents 94 95 In the years ended December 31, 2012 and 2011, the following significant transactions were carried out, which did not have an impact on cash and cash equivalents: Dividends collected through debt settlement Debt settlement through reserve account Interest settlement through reserve account 2.25 Distribution of Dividends The distribution of dividends to the Company's shareholders is recognized as a liability in the financial statements for the year in which the distribution of dividends is approved by the Shareholders' Meeting. Note 3 Accounting estimates and judgments In applying the accounting policies described in Note 2, the Company has to make judgments and prepare accounting estimates of the value of the assets and liabilities which may not be otherwise obtained. The estimates and related assumptions are based on historical experience and other pertinent factors. Actual results may differ from these estimates. The underlying estimates and assumptions are continually reviewed. The effects of the reviews of accounting estimates are recognized for the year in which estimates are reviewed. These estimates basically refer to: Allowance for Bad Debts The Company calculates the allowance for bad debts for debt instruments that are not valued at fair value, taking into account the uncollectibility history, the opinion of its legal advisors, if any, and other circumstances known at the time of calculation. Impairment of Goodwill The Company assesses goodwill for impairment on an annual basis. In determining if there is impairment of goodwill, the Company calculates the value in use of the cash generating units to which it has been allocated. The calculation of the value in use requires the December 31, 2012 December 31, 2011 14,473,092 - 13,255,633 295,708 60,459,379 8,041,871 determination by the entity of the future cash flows that should arise from the cash generating units and an appropriate discount rate to calculate the present value. During this year, no impairment losses have been recorded for goodwill. Recognition and Measurement of Deferred Tax Items Deferred tax assets are only recognized for temporary differences to the extent that it is likely that each entity, on an individual basis, will have enough future taxable income against which the deferred tax assets can be used. Tax loss carryforwards from prior years are only recognized when it is likely that each entity will have enough future taxable income against which they can be used. Pursuant to effective regulations, the use of the subsidiaries' tax credits is based on a projection analysis of future income. The Company examines the recoverable value of deferred tax assets based on its business plans and books a valuation allowance, if appropriate, so that the net position of the deferred tax asset will reflect the probable recoverable value. Determination of the Useful Lives of Property, Plant and Equipment and Intangible Assets The Company reviews the estimated useful life of property, plant and equipment and intangible assets at each year-end. Measurement of the fair value of certain financial instruments The fair value of a financial instrument is the amount at which the instrument could be purchased or sold between knowledgeable, willing parties in an arm's length transaction. If there is a quoted market price available for an instrument in an active market, the fair value is calculated based on that price. If there is no quoted market price available for a financial instrument, its fair value is estimated based on the price established in recent transactions involving the same or similar instruments and, otherwise, based on valuation techniques regularly used in financial markets. The Company uses its judgment to select a variety of methods and makes assumptions based on market conditions at closing. Impairment losses of certain assets other than accounts receivable (including property, plant and equipment and intangible assets) Certain assets, including property, plant and equipment and intangible assets are subject to impairment testing. The Company records impairment losses when it estimates that there is objective evidence of such losses or when the cost of such losses will not be recovered through future cash flows. The evaluation of what constitutes impairment is a matter of significant judgment. The impairment of non-financial assets is dealt with in more depth in Note 2.17. Additionally, as mentioned in Note 9, these estimates could be affected by the final outcome of the circumstances described in such note. Note 4 Segment information The Company is mainly engaged in media and entertainment activities, which are carried out through the companies in which it holds a participating interest. Based on the nature, clients, and risks involved, the following business segments have been identified, which are directly related to the way in which the Company assesses its business performance: - Cable Television & Internet Access: mainly comprises the operations of its subsidiary Cablevisión and its subsidiaries, notably PRIMA. - Printing & Publishing: mainly comprises the operations of its subsidiary AGEA and its subsidiaries AGR, Cúspide, Tinta Fresca, CIMECO and their respective subsidiaries. - Broadcasting and Programming: mainly comprises the operations of its subsidiaries ARTEAR, IESA and Radio Mitre, and their 96 97 respective subsidiaries, including Telecor, Telba, Pol-Ka, Auto Sports (1), Grupo Carburando. - Digital Content and Other: mainly comprises the operations of its controlled companies CMD and subsidiaries, OSA and AGEA S.A. - S.A. La Nación - UTE. Additionally, this segment includes the Company's own operations (typical of a holding company) and those carried out by its controlled company GCGC. (1) During the year ended December 31, 2010, Automóviles Deportivos 2000 S.A. changed its corporate name to Auto Sports S.A. The Company has adopted IFRS 8 - Segment Information, which defines operating segments as those identified based on internal reports with respect to the components of the company regularly reviewed by the Board of Directors, the main operating decisions maker, to allocate resources and assess their performance. The Company uses adjusted EBITDA to measure its performance. The Company believes that adjusted EBITDA is a significant performance measure of its businesses, since it is commonly used in the industry to analyze and compare media companies based on operating performance, indebtedness and liquidity. However, adjusted EBITDA does not measure net income or cash flows generated by operations and should not be considered as an alternative to net income, an indication of the Company's financial performance, an alternative to cash flows generated by operating activities or a measure of liquidity. Since adjusted EBITDA is not defined by IFRS, it is possible that other companies may calculate it differently. Therefore, the adjusted EBITDA reported by other companies may not be comparable to the Company's reported adjusted EBITDA. The following tables include the information as of December 31, 2012 and 2011, prepared on the basis of IFRS, for the business segments identified by the Company. The information as of December 31, 2011 is presented in accordance with IFRS for comparative purposes with the information as of December 31, 2012, used by the Company's Board of Directors for decision making. Note 1 to these consolidated financial statements includes additional information about the Company's businesses. Cable Television and Internet Access Printing and Publishing 7,751,364,335 16,136,265 7,767,500,600 (3,175,358,106) 4,592,142,494 2,228,647,910 157,022,771 2,385,670,681 (1,383,507,738) 1,002,162,943 (931,203,580) (1,018,161,169) (401,925,540) (370,327,233) 2,642,777,745 229,910,170 1,292,701,983 46,866,931 513,881,902 479,054,769 24,615,910 18,132,143 - 4,193,587 Information arising from consolidated income statements as of December 31, 2012 Net Sales to Third Parties (3) Intersegment Sales Net Sales Cost of sales (excluding depreciation and amortization) Subtotal Expenses - excluding depreciation and amortization - Selling Expenses - Administrative Expenses Adjusted EBITDA Depreciation of Property, Plant and Equipment Amortization of Intangible Assets and Film Library (4) Financial Income Financial Costs Equity in Earnings from Affiliates and Subsidiaries Other Income and Expense, net Income Tax and Tax on Assets Income for the Year from Continuing Operations Income/Loss from Discontinued Operations Net Income for the Year Additional consolidated information as of December 31, 2012 Acquisition of Property, Plant and Equipment Acquisition of Intangible Assets Ordinary Income from Foreign Operations Non-Current Assets Held Abroad (1) Deletions are related to Grupo Clarín's intercompany balances and operations. (2) Recognition of revenues from cable TV and Internet installation services and transactions including separate items and the non-consolidation of special purpose entities and income/loss from discontinued operations. (3) Includes also sales to unconsolidated companies. (4) Amortization of film rights acquired in perpetuity, mentioned in Note 2.18. Broadcasting and Programming Digital Content and Other (1) Deletions (2) Adjustments Consolidated (165,886,972) - (165,886,972) (135,662,805) (301,549,777) 11,318,906,093 - 11,318,906,093 (5,712,998,951) 5,605,907,142 16,059,292 49,628,526 (1,340,158,720) (1,493,070,814) (235,861,959) 2,772,677,608 (726,074,731) (146,281,481) 162,251,896 (1,078,405,434) 13,682,715 639,370 (524,876,069) 473,613,874 498,717,214 972,331,088 1,382,972,222 73,781,197 279,866,507 483,271,175 - - (234,015,395) - N 1,332,201,543 116,801,283 1,449,002,826 (1,025,066,804) 423,936,022 (93,812,427) (194,071,863) 172,579,277 191,220,223 363,799,500 (166,204,284) 197,595,216 (65,031,750) (132,763,546) - (481,180,542) (481,180,542) 172,800,786 (308,379,756) 135,755,285 172,624,471 136,051,732 (200,080) 51,840,730 388,595 - 22,819 13,813,599 8,393,528 - - - - - - - 98 99 Cable Television and Internet Access Printing and Publishing 6,116,084,891 8,853,952 6,124,938,843 (2,568,208,135) 3,556,730,708 1,971,129,853 118,037,571 2,089,167,424 (1,178,170,612) 910,996,812 (705,853,333) (770,611,073) (354,132,757) (297,210,749) 2,080,266,302 259,653,306 1,366,879,166 42,690,395 422,627,529 356,269,268 271,600,000 31,710,933 7,921,085 - 3,299,650 2,212,858 Information arising from consolidated income statements as of December 31, 2011 Net Sales to Third Parties (3) Intersegment Sales Net Sales Cost of sales (excluding depreciation and amortization) Subtotal Expenses - excluding depreciation and amortization - Selling Expenses - Administrative Expenses Adjusted EBITDA Depreciation of Property, Plant and Equipment Amortization of Intangible Assets and Film Library (4) Financial Income Financial Costs Equity in Earnings from Affiliates and Subsidiaries Other Income and Expense, net Income Tax and Tax on Assets Income for the Year from Continuing Operations Income/Loss from Discontinued Operations Net Income for the Year Additional consolidated information as of December 31, 2011 Acquisition of Property, Plant and Equipment Acquisition of Intangible Assets Ordinary Income from Foreign Operations Non-Current Assets Held Abroad Additional consolidated information as of January 1, 2011 Non-Current Assets Held Abroad (1) Deletions are related to Grupo Clarín's intercompany balances and operations. (2) Recognition of revenues from cable TV and Internet installation services and transactions including separate items and the non-consolidation of special purpose entities and income/loss from discontinued operations. (3) Includes also sales to unconsolidated companies. (4) Amortization of film rights acquired in perpetuity, mentioned in Note 2.18. Broadcasting and Programming Digital Content and Other (1) Deletions (2) Adjustments Consolidated N 1,159,896,142 108,813,451 1,268,709,593 (792,149,237) 476,560,356 (85,486,201) (138,368,981) 105,749,161 177,210,276 282,959,437 (124,970,514) 157,988,923 (55,587,497) (102,968,300) - (412,915,250) (412,915,250) 134,122,397 (278,792,853) 135,135,571 143,657,282 252,705,174 (566,874) 73,289,674 73,175 - 22,819 22,819 6,235,691 6,333,502 - - - - - - - - - 100 101 (27,621,431) - (27,621,431) (156,158,305) (183,779,736) 9,325,238,616 - 9,325,238,616 (4,685,534,406) 4,639,704,210 20,567,031 46,773,358 (1,045,357,186) (1,118,728,463) (116,439,347) 2,475,618,561 (613,264,887) (152,213,859) 102,687,565 (684,773,400) 33,653,927 1,507,210 (425,031,671) 738,183,446 47,426,493 785,609,939 1,478,115,464 57,018,157 184,858,795 359,591,737 273,835,677 - - (237,768,734) - - Note 5 Breakdown of the main items of the Balance Sheet 5.1. Property, Plant and Equipment Main Account Real Property Furniture and Fixtures Telecommunication, Audio and Video Equipment External Network and Broadcasting Equipment Computer Equipment Technical Equipment Workshop Machinery Tools Spare Parts Installations Vehicles Plots Materials in Warehouse Works-In-Progress Leasehold Improvements Allowance for Impairment of Property, Plant and Equipment and Obsolescence of Materials Total as of December 31, 2012 Main Account Real Property Furniture and Fixtures Telecommunication, Audio and Video Equipment External Network and Broadcasting Equipment Computer Equipment Technical Equipment Workshop Machinery Tools Spare Parts Installations Vehicles Plots Materials in Warehouse Works-In-Progress Leasehold Improvements Allowance for Impairment of Property, Plant and Equipment and Obsolescence of Materials Total as of December 31, 2012 (1) Includes Ps. 24.6 million from discontinued operations. Balance at the Beginning Translation Adjustment Cumulative 560,661,368 94,576,763 207,702,279 3,124,430,025 448,586,820 82,231,104 576,501,207 51,691,676 38,294,224 410,056,024 169,813,640 17,308,504 475,181,484 492,241,898 30,683,673 (15,889,991) 6,764,070,698 2,237,767 5,686,293 (1,257,467) 94,355,326 (20,629,023) 10,750 (19,321,179) 1,187,979 (140,016) 24,264,007 2,857,943 (1,091,139) (220,489) 7,277,047 1,136,462 (1,232,159) 95,122,102 Balance at the Beginning Acquisitions of Businesses 233,026,534 76,655,149 172,175,870 1,133,612,422 370,075,023 56,207,633 515,981,059 39,001,843 31,276,424 315,853,110 114,297,624 14,370,726 3,756,661 - 22,762,084 (257,512) 3,098,794,650 - - - - - - - - - - - - - - - - - 1 Additions Acquisitions of Businesses Retirements Transfers December 31, 2012 Historical value Balances as of 7,454,055 6,066,393 9,543,257 481,903,365 58,504,139 14,954,738 24,820,439 1,262,875 6,088,435 6,690,610 11,967,892 559,659 716,503,557 194,879,040 64,928 - 1,541,263,382 Cumulative - - - - - - - - - - 2,028,250 - - - - - 2,028,250 (16,176,711) (5,586,803) (10,089) (571,419,736) (3,574,677) - (6,385) (1,159,121) - (19,202) (7,868,292) - (159,616,414) (7,168,856) (13,915) - (772,620,201) 6,368,006 459,568 6,858,628 654,520,104 12,237,972 7,286,695 - 14,451,163 - (1,510,534) 28,760 - (452,093,442) (253,500,088) 4,893,168 - - 560,544,485 101,202,214 222,836,608 3,783,789,084 495,125,231 104,483,287 581,994,082 67,434,572 44,242,643 439,480,905 178,828,193 16,777,024 579,754,696 433,729,041 36,764,316 (17,122,150) 7,629,864,231 Accumulated Depreciation Balances as of Net Book Value as of Translation Adjustment Retirements (1) For the year December 31, 2012 December 31, 2012 443,947 3,622,745 (238,810) 92,287,026 3,757,738 1,518,561 3,144,055 1,099,549 (27,187) 17,651,871 2,509,886 823,450 (1,817,868) 114,383 1,205,208 - 126,094,554 (6,584,161) (3,669,919) (3,084) (463,950,539) (2,192,342) - - (795,759) - (20,533) (6,237,189) - - - - - (483,453,526) 11,125,302 4,365,530 12,403,331 591,536,657 50,844,075 7,809,296 9,073,882 13,490,878 3,695,782 21,159,395 18,694,168 278,283 - - 6,210,371 - 750,686,950 102 103 238,011,622 80,973,505 184,337,307 1,353,485,566 422,484,494 65,535,490 528,198,996 52,796,511 34,945,019 354,643,843 129,264,489 15,472,459 1,938,793 114,383 30,177,663 (257,512) 3,492,122,628 322,532,863 20,228,709 38,499,301 2,430,303,518 72,640,737 38,947,797 53,795,086 14,638,061 9,297,624 84,837,062 49,563,704 1,304,565 577,815,903 433,614,658 6,586,653 (16,864,638) 4,137,741,603 Main Account Real Property Furniture and Fixtures Telecommunication, Audio and Video Equipment External Network and Broadcasting Equipment Computer Equipment Technical Equipment Workshop Machinery Tools Spare Parts Installations Vehicles Plots Materials in Warehouse Works-In-Progress Leasehold Improvements Allowance for Impairment of Property, Plant and Equipment and Obsolescence of Materials Total as of December 31, 2011 Main Account Real Property Furniture and Fixtures Telecommunication, Audio and Video Equipment External Network and Broadcasting Equipment Computer Equipment Technical Equipment Workshop Machinery Tools Spare Parts Installations Vehicles Plots Materials in Warehouse Works-In-Progress Leasehold Improvements Allowance for Impairment of Property, Plant and Equipment and Obsolescence of Materials Total as of December 31, 2011 (1) Includes Ps. 21.1 million from discontinued operations. Balance at the Beginning Translation Adjustment Cumulative 550,239,665 86,854,029 181,796,149 2,360,138,148 403,596,252 76,878,683 556,803,249 38,731,286 33,995,586 401,899,963 130,662,151 15,212,403 468,918,319 163,354,444 27,678,047 (15,889,991) 5,480,868,383 2,642,092 2,362,532 - 61,459,306 1,330,398 - - 382,671 - (549,939) 1,447,310 - 6,107,668 (458,734) (1,131,923) - 73,591,381 Balance at the Beginning Acquisitions of Businesses 219,359,814 69,575,055 157,723,085 895,854,722 317,705,844 50,845,316 507,661,741 27,469,299 28,402,478 247,420,554 101,804,421 13,378,472 1,125,400 - 19,987,351 (255,842) 2,658,057,710 389,319 1,384,352 - - - - - - - 2,017,124 41,535 - - - - - 3,832,330 - - - - 4 Additions Acquisitions of Businesses Retirements Transfers December 31, 2011 Historical value Balances as of 7,043,303 3,817,498 25,992,740 393,656,318 38,982,412 2,447,301 5,084,473 560,955 4,298,638 4,865,691 39,197,915 1,774,019 822,437,615 231,422,683 716,736 - 1,582,298,297 Cumulative 389,319 1,459,461 - - - - - - - 2,654,585 62,114 - - - - - (7,544,159) (424,337) (86,610) (240,705,793) (93,892) - (2,404,135) (562,623) (1,555,850) - (122,448,308) (1,427,135) - - 4,565,479 (377,252,842) 7,891,148 507,580 - 549,882,046 4,771,650 2,905,120 17,017,620 12,016,764 - 1,748,347 - 322,082 (699,833,810) 99,350,640 3,420,813 - - 560,661,368 94,576,763 207,702,279 3,124,430,025 448,586,820 82,231,104 576,501,207 51,691,676 38,294,224 410,056,024 169,813,640 17,308,504 475,181,484 492,241,898 30,683,673 (15,889,991) 6,764,070,698 Accumulated Depreciation Balances as of Net Book Value as of Translation Adjustment Retirements (1) For the year December 31, 2011 December 31, 2011 233,026,534 76,655,149 172,175,870 1,133,612,422 370,075,023 56,207,633 515,981,059 39,001,843 31,276,424 315,853,110 114,297,624 14,370,726 3,756,661 - 22,762,084 (257,512) 3,098,794,650 327,634,834 17,921,614 35,526,409 1,990,817,603 78,511,797 26,023,471 60,520,148 12,689,833 7,017,800 94,202,914 55,516,016 2,937,778 471,424,823 492,241,898 7,921,589 (15,632,479) 3,665,276,048 1,355,406 1,684,925 - 41,451,879 1,226,735 - - 191,419 - (621,227) 1,065,032 - 233,417 - (714,067) - 45,873,519 (1,637,649) (1,824) (4,431) (238,424,972) (240,434) - (1,122,005) - - (301,481) (1,545,662) - - - - - (243,278,458) 13,559,644 4,012,641 14,457,216 434,730,793 51,382,878 5,362,317 9,441,323 11,341,125 2,873,946 67,338,140 12,932,298 992,254 2,397,844 - 3,488,800 (1,670) 634,309,549 104 105 The following table details the average years of useful life of the items comprising Property, Plant and Equipment: Item Real Property Furniture and Fixtures Telecommunication, Audio and Video Equipment External Network and Broadcasting Equipment Computer Equipment Technical Equipment Workshop Machinery Tools Spare Parts Installations Vehicles Plots Leasehold Improvements 5.2. Intangible Assets Main Account Exploitation Rights and Licenses Exclusivity Agreements Other Rights Subscriber Portfolio Acquired Software Trademarks and Patents Projects in-Progress Other Total as of December 31, 2012 Main Account Exploitation Rights and Licenses Exclusivity Agreements Other Rights Subscriber Portfolio Acquired Software Trademarks and Patents Projects in-Progress Other Total as of December 31, 2012 (1) Includes Ps. 2.1 million from discontinued operations. Average Useful Life (in years) 50 10 between 3 and 4 between 3 and 20 3 between 4 and 10 10 5 5 between 3 and 10 5 5 between 3 and 10 Balance at Cumulative the Beginning Translation Adjustment 30,925,198 15,091,041 10,232,330 1,073,157,424 44,386,515 4,708,704 64,126,242 92,282,003 1,334,909,457 (5,321,989) - 4,733,893 853,750 1,357,349 39,440 - (4,113,285) (2,450,842) Balance at the Beginning 25,174,499 7,572,521 8,584,087 589,349,285 14,129,660 3,615,679 - 64,315,511 712,741,242 Acquisition of Businesses - 2,000,000 - - - - - - Additions 3,805,868 - 490,032 - 11,549,930 926,074 41,733,081 15,276,254 73,781,239 Cumulative Retirements Transfers December 31, 2012 Historical value Balances as of (1,617,047) - - - - - - - - - - - 105,855,476 3,847 (105,859,323) - - 27,792,030 17,091,041 15,456,255 1,074,011,174 163,149,270 5,678,065 - 103,444,972 1,406,622,807 Accumulated Amortization Balances as of Net Book Value 2,000,000 (1,617,047) O Translation Adjustment Retirements (1) For the year December 31, 2012 as of December 31, 2012 (6,033,789) - 1,521,086 725,688 725,936 39,440 - (1,083,429) (4,105,068) (1,617,047) - - - - - - - (1,617,047) 5,162,954 1,478,489 1,800,314 108,907,211 21,771,223 307,120 - 5,395,208 144,822,519 106 107 22,686,617 9,051,010 11,905,487 698,982,184 36,626,819 3,962,239 - 68,627,290 851,841,646 5,105,413 8,040,031 3,550,768 375,028,990 126,522,451 1,715,826 - 34,817,682 554,781,161 Main Account Exploitation Rights and Licenses Exclusivity Agreements Other Rights Subscriber Portfolio Acquired Software Trademarks and Patents Projects in-Progress Other Balance at the Beginning Cumulative Translation Adjustment Historical value Balances as of December 31, Additions 2011 2,174,561 2,747,540 26,003,097 15,091,041 10,232,330 1,073,157,424 29,212,128 3,962,143 32,338,944 81,228,476 - - - - - - 4,782,685 6,957,246 - - - 15,174,387 746,561 31,787,298 6,270,842 30,925,198 15,091,041 10,232,330 1,073,157,424 44,386,515 4,708,704 64,126,242 92,282,003 Total as of December 31, 2011 1,271,225,583 56,726,628 1,334,909,457 Balance at the Beginning Cumulative Translation Adjustment Accumulated Amortization Balances as of Net Book Value as of December 31, December 31, (1) For the year 2011 2011 20,933,603 6,047,419 7,192,963 480,963,481 5,123,864 3,091,403 - 2,226,208 - - - - - - 2,014,688 1,525,102 1,391,124 25,174,499 7,572,521 8,584,087 5,750,699 7,518,520 1,648,243 108,385,804 589,349,285 483,808,139 9,005,796 524,276 - 14,129,660 3,615,679 - 30,256,855 1,093,025 64,126,242 27,966,492 32,739,451 4,781,666 26,794,394 64,315,511 Main Account Exploitation Rights and Licenses Exclusivity Agreements Other Rights Subscriber Portfolio Acquired Software Trademarks and Patents Projects in-Progress Other Total as of December 31, 2011 556,092,184 7,007,874 149,641,184 712,741,242 622,168,215 (1) Includes Ps. 0.2 million from discontinued operations. 5.3 Goodwill Company assesses the recoverability of goodwill considering each company for which it records goodwill as a different cash generating unit (“CGU”). The recoverable amount of each CGU has been determined as per its value in use, calculated based on operating cash flows estimated in the financial budgets approved by Management, which comprise a period ranging from one to three years. Cash flows not included in those periods are projected using a growth rate, assessed based on statistical data and historical indicators of Argentina, which does not exceed the long-term average growth of each business. The gross margin used in each case for the calculation of the value in use allocated to each CGU arises from budgets prepared by each business for the period under consideration, which are in line with the historical data and the expectations regarding market development and evolution of the respective businesses. The discount rate used in each case for the calculation of the value in use allocated to each CGU takes into account the risk-free rate, the country risk premium and the premium for risks specific to each business, and the indebtedness structure of each CGU. In particular, the annual discount rate applied to the projections of Cablevisión's cash flows is of approximately 12%. Net Book Allowance as of as of as of Value before for Goodwill December 31, December 31, January 1, Net balances Net balances Net balances Main Account Impairment impairment 2012 2011 2011 Cablevisión and subsidiaries (1) PRIMA CIMECO and related companies Cúspide and subsidiaries Telecor Grupo Carburando Pol-Ka Telba Bariloche TV Other Total 3,113,063,902 (594,075,234) 2,518,988,668 2,468,927,313 2,439,579,895 2,272,319 - 2,272,319 2,272,319 2,272,319 235,982,248 (54,637,313) 181,344,935 181,344,935 180,286,033 19,059,775 39,173,062 12,053,573 16,130,769 3,774,071 1,844,621 21,816,329 - - (12,053,573) (6,850,727) - - 19,059,775 39,173,062 - 9,280,042 3,774,071 1,844,621 20,658,344 39,173,062 - 9,280,042 3,774,071 1,844,621 - 39,173,062 12,053,573 9,280,042 3,774,071 1,844,621 (533,130) 21,283,199 12,380,419 11,913,663 3,465,170,669 (668,149,977) 2,797,020,692 2,739,655,126 2,700,177,279 (1) Includes goodwill of Multicanal and Teledigital, merged into Cablevisión (see Note 8.1.d). 5.4 Investment in Unconsolidated Affiliates December 31, December 31, January 1, Interest (%) 2012 2011 2011 Papel Prensa Ver TV S.A. TPO TATC Ríos de Tinta La Capital Cable TSMA AGL Ideas del Sur Patagonik Canal Rural TSC TRISA Impripost Other Investments Equity in Earnings from Affiliates and Subsidiaries TRISA Papel Prensa La Capital Cable AGL Canal Rural Ríos de Tinta Impripost VLG Other Companies 108 109 49.00% 49.00% 47.00% 49.99% 50.00% 49.00% 49.10% 50.00% 30.00% 33.33% 24.99% 50.00% 50.00% 50.00% 186,458,231 192,758,928 183,478,623 15,656,650 10,822,223 6,797,511 4,193,587 10,972,032 10,060,515 12,893,886 17,410,671 11,943,978 3,638,207 5,132,164 64,646,211 11,552,623 17,034,100 15,656,650 10,822,223 6,722,931 3,299,650 14,984,238 10,060,515 12,248,866 17,035,581 11,275,049 3,804,125 5,172,979 56,459,568 10,208,824 17,163,544 15,656,650 10,822,223 5,847,539 2,212,858 6,218,710 10,060,515 10,557,366 17,038,283 11,006,235 3,308,642 4,988,625 48,267,997 10,021,155 6,355,262 389,212,589 387,673,671 345,840,683 December 31, 2012 December 31, 2011 8,186,642 (5,477,205) 10,255,856 466,521 1,088,911 70,55 2,401,324 (6,307,465) 2,997,579 13,682,715 14,236,069 8,108,820 8,765,532 1,199,222 1,495,467 1,284,187 1,650,086 (4,561,061) 1,475,605 33,653,927 The financial information related to unconsolidated companies (without considering those valued at cost) is summarized below (in millions of Argentine pesos): Total Assets Total Liabilities Net Assets Total Income for the year Net Income for the year 5.5 Other Investments Non-Current Financial Instruments Securities Current Financial Instruments Securities Mutual Funds Other 5.6 Inventories Non-Current Film Products and Rights Current Raw Materials and Supplies Products-in-Process Finished Goods Film Products and Rights Other Subtotal Less: Allowance for Impairment of Inventories 5.7 Other Assets Non-Current Works of Art Other Current Reserve Account Other December 31, 2012 December 31, 2011 1,138 471 667 1,476 92 1,195 493 702 1,213 96 December 31, 2012 December 31, 2011 January 1, 2011 99,597,125 - 99,597,125 291,086,164 4,373,191 390,173,236 - 685,632,591 - 109,855 109,855 187,585,566 4,680,000 54,923,059 - 247,188,625 - 177,403 177,403 70,304,156 - 183,712,486 10,948,000 264,964,642 December 31, 2012 December 31, 2011 January 1, 2011 13,929,652 13,929,652 235,229,897 1,951,575 28,553,958 83,078,087 71,801 348,885,318 (6,111,369) 342,773,949 13,139,000 13,139,000 246,420,485 973,397 37,578,897 89,184,383 199,126 374,356,288 (3,176,265) 371,180,023 21,340,016 21,340,016 182,787,800 2,161,336 16,258,546 50,408,628 987,735 252,604,045 (511,490) 252,092,555 December 31, 2012 December 31, 2011 January 1, 2011 533,010 1,363,632 1,896,642 - 7,362,757 7,362,757 533,010 1,013,754 1,546,764 - 11,467,311 11,467,311 533,010 1,671,606 2,204,616 71,436,282 7,158,212 78,594,494 5.8 Other Receivables Non-Current Tax Credits Guarantee Deposits Prepaid Expenses Advances Related Parties (Note 16) Other Current Tax Credits Court-ordered and Guarantee Deposits Prepaid Expenses Advances Derivatives Related Parties (Note 16) Sundry Receivables Other Allowance for Other Bad Debts 5.9 Trade Receivables Non-Current Trade Receivables Current Trade Receivables Related Parties (Note 16) Allowance for Bad Debts 5.10 Cash and Banks Cash and Imprest Funds Cash at Banks 5.11 Accruals and Other Non-Current Provisions for Lawsuits and Contingencies Accrual for Retirement of Assets December 31, 2012 December 31, 2011 January 1, 2011 29,071,847 2,393,139 32,049,057 46,706,040 17,312,664 1,237,685 128,770,432 28,146,558 1,155,599 64,974,448 83,676,404 15,238,424 12,038,746 205,230,179 21,600,642 883,017 11,296,558 33,307,668 13,744,482 15,056,093 95,888,460 98,979,763 129,996,025 54,576,609 12,958,195 108,944,242 68,271,431 - 20,091,695 20,997,255 72,735,694 (712,582) 402,265,693 11,595,055 75,569,941 91,800,802 - 4,685,406 19,391,074 40,085,710 (727,212) 372,396,801 9,522,069 52,613,247 69,431,355 37,348,003 15,638,455 11,665,045 30,034,629 (669,023) 280,160,389 December 31, 2012 December 31, 2011 January 1, 2011 125,285,473 125,285,473 1,720,125,393 42,893,260 (124,468,622) 1,638,550,031 122,595,188 122,595,188 1,298,234,683 39,453,675 (113,098,423) 1,224,589,935 1,102,833 1,102,833 1,031,842,249 34,261,001 (112,095,450) 954,007,800 December 31, 2012 December 31, 2011 January 1, 2011 13,891,570 609,503,744 623,395,314 14,991,530 614,163,873 629,155,403 9,834,327 322,423,510 332,257,837 December 31, 2012 December 31, 2011 January 1, 2011 244,711,114 10,127,840 254,838,954 184,197,422 8,841,590 193,039,012 151,347,261 8,600,000 159,947,261 110 111 December 31, 2012 December 31, 2011 January 1, 2011 5.12 Loans Non-Current Financial Loans Notes Acquisition of equipment Related Parties (Note 16) Interest and Restatement Measurement at Fair Value Current Bank Overdraft Financial Loans Notes Acquisition of equipment Related Parties (Note 16) Interest and Restatement Measurement at Fair Value 24,532,325 2,576,671,000 131,042,046 5,775,689 - (54,726,838) 2,683,294,222 25,938,501 130,633,167 165,200,000 70,085,470 13,316,320 95,037,331 3,873,880 504,084,669 The following table details the changes in loans and indebtedness for the year ended December 31, 2012 and the prior year: Balances as of January 1st New Loans and Indebtedness (1) Accrued Interest Other Financial Effects Acquisition of investment for the purchase of Notes from Subsidiaries (Note 23) Payment of Interest Payment of Principal Repurchase / Financial Debt Refinancing Result (2) Balances as of December 31 (1) Mostly loans for the purchase of capital assets and inventories. (2) As of December 31, 2012 it belongs to the repurchase of Notes, issued by Cablevisión, carried out on June 12, 2012 and September 21, 2012, charged to financial income in the Consolidated Statement of Comprehensive Income. As of December 31, 2011 it belongs to the refinancing of Notes, issued by Cablevisión, carried out on February 11, 2011, charged to financial income in the Consolidated Statement of Comprehensive Income. 127,765,988 2,583,977,500 90,419,726 5,717,866 37,900 (58,609,546) 2,749,309,434 51,328,110 118,613,980 129,000,000 40,266,383 13,264,292 86,023,776 3,935,489 442,432,030 2012 3,191,741,464 160,647,673 304,446,963 437,066,953 (195,525,800) (304,037,904) (402,949,658) (4,010,800) 3,187,378,891 111,642,658 1,964,840,968 31,452,148 5,083,272 75,800 4,492,370 2,117,587,216 9,979,032 41,614,044 133,904,847 33,555,473 5,093,485 33,137,578 3,333,740 260,618,199 2011 2,378,205,415 861,143,588 253,298,050 214,434,150 - (205,370,104) (268,947,792) (41,021,843) 3,191,741,464 The following table summarizes the maturities of consolidated loans (undiscounted values): Non-Current Debt years years years years years Non-Current From 1 to 2 From 2 to 3 From 3 to 4 From 4 to 5 More than 5 Total To fall due Financial Loans Notes Acquisition of equipment Related Parties Total as of 10,891,571 666,112,000 65,540,353 5,775,689 8,373,669 432,960,000 53,477,556 - 3,075,805 828,159,000 12,024,137 - 2,191,280 - 24,532,325 432,960,000 216,480,000 2,576,671,000 - - - - 131,042,046 5,775,689 December 31, 2012 748,319,613 494,811,225 843,258,942 435,151,280 216,480,000 2,738,021,060 Up to 3 months 22,017,092 42,333,760 41,300,000 12,489,066 5,416,324 93,046,994 From 3 to 6 From 6 to 9 From 9 months months months to 1 year Total Current To fall due 3,921,409 73,659,254 41,300,000 17,470,365 7,899,996 1,990,337 - 11,829,767 41,300,000 24,434,749 - - - 2,810,386 41,300,000 15,691,290 - - 25,938,501 130,633,167 165,200,000 70,085,470 13,316,320 95,037,331 Current Loans Bank Overdraft Financial Loans Notes Acquisition of equipment Related Parties Interest and Restatement Total as of December 31, 2012 216,603,236 146,241,361 77,564,516 59,801,676 500,210,789 Consolidated loans mainly include the following: 5.12.1 Cablevisión The most significant bank and financial loans borrowed by Cablevisión and its subsidiaries are the following: Date Issued Borrower Balances as of Balances as of Principal December 31, December 31, Amount 2012 2011 In millions of USD Final Maturity Interest Rate February 2011 February 2011 February 2011 February 2011 May 2011 May 2011 December 2003 (1) Cablevisión (1) Cablevisión (1) Cablevisión (2) Cablevisión (2) Cablevisión (2) Prima Multicanal 88.2 71.3 223.3 17.2 50.0 70.0 80.3 87.4 70.6 221.0 17.1 37.5 12.5 80.3 88.2 71.3 February 2018 February 2018 223.3 February 2018 17.2 50.0 70.0 80.3 February 2018 May 2014 May 2014 July 2016 (3) 8.75% (3) 9.375% (3) 9.625% (3) 9.375% Libor + 7.5% Libor + 7.5% (3) 3.5% to 4.5% (1) Use of funds: Refinancing of Notes. (2) Use of funds: Acquisition of non-financial assets and financing of imports (Note 23). (3) Fixed rate. 112 113 As a result of the Notes issued, Cablevisión has undertaken certain covenants, including: (i) limitation on the issuance of guarantees by subsidiaries; (ii) mergers, consolidations, and sale of assets under certain conditions, (iii) limitation on incurring debt above certain approved ratios, (iv) limitation on capital expenditure exceeding certain amount, (v) limitation on transactions with shareholders and affiliates under certain conditions, (vi) limitation on the issuance and sale of significant subsidiaries' shares with certain exceptions. As a result of the issue of its variable-rate Notes, PRIMA has undertaken certain covenants, including the limitation to carry out transactions with shareholders and affiliates under certain conditions. Cablevisión is the guarantor of the issue and the obligor for the payment of PRIMA's Notes for up to USD 35,000,000. 5.12.2 AGEA On January 28, 2004, the subsidiary AGEA issued USD30.6 million aggregate principal amount Series C Notes due 2014, which accrue interest at an incremental fixed rate (2% from December 17, 2003 to January 28, 2008; 3% from January 29, 2008 to January 28, 2012; and 4% from January 29, 2012 to maturity), payable semiannually. Principal will be repaid in a lump sum on January 28, 2014. On January 26, 2006, AGEA issued Ps. 300 million aggregate principal amount Series D Notes due 2014, which accrued interest at a variable rate equal to the CER variation for the period, plus a 4.25% margin, payable semiannually commencing on June 15, 2006. Principal was repaid in 8 equal and consecutive semiannual installments beginning on June 15, 2008. As of December 31, 2011 AGEA had repaid in full principal under Series D Notes, plus interest accrued thereon. The Series C Notes due 2014 include certain covenants and restrictions, including but not limited to, restrictions on borrowings, creation of encumbrances, mergers, disposition of significant assets, transactions with affiliates (including the Company) and payment of dividends or other payments to shareholders (including the payment of management fees to the Company), if certain ratios are not met or if certain amounts are exceeded. Additionally, on July 15, 2011, AGEA executed a syndicated loan agreement in the amount of Ps. 45 million with Standard Bank Argentina S.A. and Banco Itaú Argentina S.A., which accrues interest at a fixed annual rate of 18.45% payable on a quarterly basis as from October 18, 2011. Principal will be repaid in five consecutive quarterly installments beginning on July 18, 2012. 5.12.3 GCGC As of December 31, 2012 GCGC was the borrower under a loan with Banco de la Ciudad de Buenos Aires executed to finance the repair, recycling and improvement of the building for a principal amount of up to Ps. 30 million. Such loan will be repaid in 60 months, as from October 2012, with a 24-month grace period, i.e. in 36 monthly consecutive installments, accruing interest at the average Badlar rate for Private Banks plus 100 basic points. The aggregate amount of the loan will be advanced to the company in several stages, after having obtained the required professional certifications. As of December 31, 2012 expenditures amount to Ps. 1.9 million. GCGC was the borrower under a loan agreement with Standard Bank Argentina for a principal amount of Ps. 7.5 million to finance the repair, recycling and improvement of the building. The loan will be repaid in 36 months, as from October 2012, with a 18-month grace period. The principal amount will be repaid in 7 quarterly decreasing installments as from the 18th month. Such loan accrues interest at a 15% fixed nominal annual rate. 5.12.4 GCSA Investments As of December 31, 2012 GCSA Investments was the borrower under a loan with JP Morgan Chase Bank for a principal amount of USD 10 million, due on June 30, 2013. Interest under the loan accrues at a variable rate and is payable semiannually. The loan agreement sets forth certain covenants and restrictions, including mainly restrictions on borrowings, creation of encumbrances, winding-up, liquidation and effective changes of control. 5.12.5 ARTEAR As of December 31, 2012 ARTEAR was the borrower under a commercial loan with a local bank for a principal amount of Ps. 15 million. Principal on the loan is payable in three equal installments due in January, April and July 2013. Interest accrues at a fixed rate and is payable on a quarterly basis, starting in October 2011 until the final maturity. 5.12.6 CMD As of December 31, 2012 CMD was the borrower under a loan with Banco de la Ciudad de Buenos Aires for a prinicpal amount of Ps. 9.7 million. Proceeds were used to finance partially the acquisition and renovation of the building. Such loan will be repaid in 60 months, with a 24-month grace period, i.e. in 36 monthly consecutive installments, accruing interest at the average Badlar rate for Private Banks plus 100 basic points. The first installment was due on June 27, 2010. 5.13 Sellers Financing The following table summarizes the consolidated debt maturities in connection with the acquisition of companies: Non-Current Sellers Financing years 2012 2011 2010 To fall due Total as of Total as of Total as of From 1 to 2 December 31, December 31, December 31, Principal 325,330 325,330 816,853 1,127,017 Current Sellers Financing Without any established term Up to 3 months From 3 to 6 From 6 to 9 From 9 months December 31, December 31, December 31, months months to 1 year 2012 2011 2010 To fall due Total as of Total as of Total as of Principal 778,558 - 325,330 - - 1,103,888 8,178,434 3,796,354 5.14 Taxes Payable Non-Current Taxes Payable on a National Level Taxes Payable on a Municipal Level Current Taxes Payable on a National Level Taxes Payable on a Provincial Level Taxes Payable on a Municipal Level December 31, 2012 December 31, 2011 January 1, 2011 74,910,041 - 74,910,041 386,657,664 6,548,977 18,562,595 411,769,236 79,195,842 - 79,195,842 283,531,658 3,045,438 13,348,827 299,925,923 83,156,561 483,271 83,639,832 454,930,998 6,484,639 10,675,795 472,091,432 114 115 5.15 Other Liabilities Non-Current Related Parties (Note 16) Guarantee Deposits Unearned Revenue Call Options (Note 10) Derivatives Investment in Affiliates and Subsidiaries Other Current Advances from Customers Dividends Payable Related Parties (Note 16) Call Options (Note 10) Unearned Revenue Derivatives Other 5.16 Trade Payables and Other Non-Current Suppliers and Trade Provisions Employer's Contributions Current Suppliers and Trade Provisions Related Parties (Note 16) Employer's Contributions December 31, 2012 December 31, 2011 January 1, 2011 - 2,599 81,047,345 5,154,721 - 6,269,973 5,113,951 97,588,589 62,049,186 2,459,472 30,336 14,760,000 84,925,814 4,010,000 46,010,317 214,245,125 - 14,376 75,181,695 18,054,721 3,900,000 4,530,531 2,673,162 104,354,485 48,292,565 3,765,361 496,819 - 47,599,975 4,353,000 44,220,514 148,728,234 438,783 1,975,322 59,824,566 17,094,721 - 4,164,093 5,932,094 89,429,579 44,662,304 2,008,066 467,331 5,154,721 38,479,483 - 36,824,387 127,596,292 December 31, 2012 December 31, 2011 January 1, 2011 5,774,324 114,302 5,888,626 1,262,496,139 86,717,499 679,910,028 2,029,123,666 8,448,050 1,750,705 10,198,755 1,105,728,114 119,465,629 506,347,411 1,731,541,154 12,450,978 - 12,450,978 747,063,100 77,240,030 381,891,769 1,206,194,899 Note 6 Breakdown of the main items of the statement of comprehensive income 6.1. Revenues Sales of Cable TV Subscriptions Advertising Sales Sales of Internet Subscriptions Circulation Sales Printing Services Sales TV Signals Sales Other Sales Total (1) (1) Includes sales executed through barter transactions as of December 31, 2012 and 2011 in the amount of Ps. 91.6 million and Ps. 91.2 million, respectively. December 31, 2012 December 31, 2011 5,704,777,503 2,295,676,706 1,588,414,701 879,516,792 125,569,566 174,492,718 550,458,107 11,318,906,093 4,428,956,203 2,103,470,240 1,353,185,580 645,355,965 150,616,463 133,095,885 510,558,280 9,325,238,616 6.2. Cost of Sales Inventories at the beginning of the year Purchases for the year Production and Services Expenses (Note 6.3.) Less: Inventories at year-end Cost of Sales December 31, 2012 December 31, 2011 387,495,288 734,628,930 5,748,877,255 (362,814,970) 6,508,186,503 273,944,061 838,665,547 4,649,201,868 (387,495,288) 5,374,316,188 6.3. Production and Services, Selling and Administrative Expenses Production and Services Selling Administrative December 31, December 31, Total as of Total as of Item Expenses Expenses Expenses 2012 2011 Fees for Services Salaries, Social Security and Benefits to Personnel Advertising and Promotion Expenses Taxes, Duties and Contributions Doubtful Accounts Travel Expenses Maintenance Expenses Distribution Expenses Communication Expenses Contingencies Stationery and Office Supplies Commissions Productions and Co-Productions Printing Expenses Rights Services and Satellites Severance Payments Non-Computable VAT Rentals Amortization of Intangible Assets Amortization of Film Library Depreciation of Property, Plant and Equipment Impairment of Inventories and Obsolescence of Materials Other Expenses Total as of 224,478,084 52,220,726 395,535,038 672,233,848 501,219,589 2,274,235,418 432,092,466 614,270,446 3,320,598,330 2,493,064,405 - 340,657,473 1,035,567 341,693,040 279,351,149 165,623,054 298,957,843 32,139,351 496,720,248 376,615,207 - 51,502,288 337,403,480 30,987,497 42,811,874 29,837,238 27,966,380 39,045,753 - 10,731,068 117,599,006 - 42,811,874 92,070,594 482,968,866 70,033,250 42,467,310 77,411,654 397,379,233 55,439,745 6,715,959 40,666,127 2,213,820 - 6,546,507 19,042,120 15,476,286 59,708,247 13,005,680 50,676,789 3,837,430 - 3,622,645 21,844,738 20,245,827 193,891,072 27,705,902 215,735,810 23,741,399 164,791,145 165,757,963 114,962,902 1,049,888,005 191,835,730 10,619,233 20,093,188 147,898,880 - - - - - - 631,526 4,872,195 - 16,579,993 4,275,922 - 165,757,963 114,962,902 1,049,888,005 209,047,249 19,767,350 20,093,188 148,112,364 130,880,539 896,811,069 168,989,020 29,236,364 18,773,590 6,283,336 25,973,934 180,156,150 126,730,101 130,511,915 6,736,721 5,526,920 142,775,556 149,475,245 3,505,925 - - 3,505,925 2,738,614 661,169,712 40,923,898 23,981,121 726,074,731 613,264,887 6,337,972 110,846,493 - 37,100,707 - 35,204,963 6,337,972 183,152,163 6,906,490 122,902,893 December 31, 2012 5,748,877,255 1,387,819,339 1,522,578,855 8,659,275,449 Total as of December 31, 2011 4,649,201,868 1,094,247,032 1,146,535,581 6,889,984,481 116 117 6.4. Financial Income Interest Exchange Differences Income from Changes in the Fair Value of Financial Instruments Repurchase / Financial Debt Refinancing Result Total 6.5. Financial Costs Interest Other Taxes and Expenses Exchange Differences Financial Discounts on Assets and Liabilities CER Restatement Income from Changes in the Fair Value of Financial Instruments Total 6.6. Other Income and Expense Income from Sale of Property, Plant and Equipment Income from Disposal of Investments Goodwill Impairment Other Total December 31, 2012 December 31, 2011 66,957,393 91,283,703 - 4,010,800 162,251,896 22,972,677 36,392,994 2,300,051 41,021,843 102,687,565 December 31, 2012 December 31, 2011 (331,961,899) (203,360,750) (508,447,786) (27,572,137) (5,119,362) (1,943,500) (1,078,405,434) (288,316,295) (145,508,778) (222,052,329) (17,678,855) (2,973,143) (8,244,000) (684,773,400) December 31, 2012 December 31, 2011 3,213,458 - - (2,574,088) 639,370 10,194,877 6,657,315 (12,053,573) (3,291,409) 1,507,210 Note 7 Income tax The following table shows the reconciliation between the consolidated income tax charged to net income for the years ended December 31, 2012 and 2011 and the income tax liability that would result from applying the current tax rate on consolidated income before income tax and tax on assets and the income tax liability assessed for each year (amounts stated in thousands of Argentine Pesos): Income before Income Tax Current Rate Income Tax Assessed at the Current Tax Rate on Income before Income Tax Permanent Differences: Equity in Earnings from Affiliates and Subsidiaries Non-Taxable Income Other Subtotal Valuation Allowance for Net Deferred Tax Assets Charged to Income Total Income Tax Deferred Tax Current Tax Income Tax Assessed for the Year Tax on assets Total December 31, 2012 December 31, 2011 998,490 35% (349,472) 4,789 (149,759) (10,207) (504,649) (14,524) (519,173) (58,580) (460,593) (519,173) (5,703) (524,876) 1,163,215 35% (407,125) 11,779 (11,242) (7,252) (413,840) (8,819) (422,659) 44,716 (467,375) (422,659) (2,373) (425,032) 118 119 Breakdown of Consolidated Deferred Tax (in thousands of Argentine pesos): December 31, December 31, January 1, Changes Year Changes Year 2012 2011 2011 2012 2011 Deferred Assets Tax Loss Carryforwards Specific Tax Loss Carryforward Inventories Other Investments Accruals and Other Trade Payables and Other Deferred Tax Liabilities Property, Plant and Equipment Intangible Assets Trade Receivables Other Assets Other Liabilities Long-Term Debt Subtotal Valuation Allowance on Tax Loss Carryforwards Total Net Deferred Tax Liabilities 95,065 1,008 7,095 7,463 66,428 19,913 196,972 (109,901) (119,272) (25,884) (1,912) (88,756) (17,799) (363,524) 73,349 477 5,078 7,646 47,417 16,066 150,033 (107,236) (136,622) (21,193) (4,651) 20,794 (17,920) (266,828) 34,085 5,768 3,514 7,828 37,184 2,863 91,242 (102,428) (211,369) 42,898 (3,900) 14,992 2,739 (257,068) 21,716 531 2,017 (183) 19,011 3,847 46,939 (2,665) 17,350 (4,691) 2,739 (109,550) 121 (96,696) (39,892) (403,416) (31,069) (297,897) (26,754) (283,822) (8,823) (105,519) 39,264 (5,291) 1,564 (182) 10,233 13,203 58,791 (4,808) 74,747 (64,091) (751) 5,802 (20,659) (9,760) (4,315) (14,075) (1) (206,444) (147,864) (192,580) (58,580) 44,716 (1) Comprises Deferred Tax Assets in the amount of Ps. 55,403,579 and Deferred Tax Liabilities in the amount of Ps. 261,847,892 as of December 31, 2012, disclosed in the Consolidated Balance Sheet. As of December 31, 2012, the Company's and its subsidiaries' accumulated consolidated tax loss carryforwards amounted to approximately Ps. 274,491 thousand, which calculated at the current tax rate, represent deferred tax assets in the amount of approximately Ps. 96,073 thousand. The following table shows the expiration date of the accumulated tax loss carryforwards pursuant to statutes of limitations (amounts stated in thousands of Argentine Pesos): Expiration year Amount of Tax Loss Carryforward 2013 2014 2015 2016 2017 19,202 29,851 36,684 106,130 82,624 274,491 The Company estimates that the tax loss carryforwards are recoverable for the net amounts disclosed. Note 8 Provisions and other contingencies 8.1 Regulatory Framework a. SCI Resolution No. 50/10 approved certain rules for the sale of pay television services. These rules provide that cable television operators must apply a formula to estimate their monthly subscription prices. The price arising from the application of the formula was to be informed to the Office of Business Loyalty (Dirección de Lealtad Comercial) between March 8 and March 22, 2010. Cable television operators must adjust such amount semi- annually and inform the result of such adjustment to said Office. Even though as of the date of these financial statements the subsidiary Cablevisión cannot assure the actual impact of the application of this formula, given the vagueness of the variables provided by the Resolution to calculate the monthly subscription prices, Cablevisión believes that Resolution No. 50/10 is arbitrary and bluntly disregards its freedom to contract, which is part of the right to freedom of industry and trade. Therefore, it has filed the pertinent administrative claims and has brought the necessary legal actions requesting the suspension of the Resolution's effects and ultimately requesting its nullification. Even though Cablevisión, like other companies in the industry, has strong constitutional arguments to support its position, it cannot be assured that the final outcome of this issue will be favorable. Therefore, Cablevisión may be forced to modify the price of its pay television subscription, a situation that could significantly affect the revenues of its core business. This creates a general framework of uncertainty over Cablevisión's business that could significantly affect the recoverability of its relevant assets reported in these consolidated financial statements and Grupo Clarín S.A.'s assets related to its investment in Cablevisión. Notwithstanding the foregoing, as of the date of these financial statements, in accordance with the decision rendered on August 1, 2011 in re "LA CAPITAL CABLE S.A. v/ Ministry of Economy-Secretary of Domestic Trade", the Federal Court of Appeals of Mar del Plata has ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees 120 121 represented by the Argentine Cable Television Association ("ATVC", for its Spanish acronym). Upon being served on the SCI and the Ministry of Economy on September 12, 2011, such decision became fully effective and may not be disregarded by the SCI. On June 1, 2010, the SCI imposed a Ps. 5 million fine on Cablevisión alleging that it had failed to comply with the information regime set forth by Resolution No. 50/10, and invoking the Antitrust Law to impose such penalty. The fine was appealed and submitted to the Federal Administrative Court of Appeals, Chamber V, which decided to reduce the fine to Ps. 300,000. Cablevisión appealed this decision by filing an extraordinary appeal with the Supreme Court of Argentina. On March 10, 2011 SCI Resolution No. 36/11 was published in the Official Gazette. This Resolution falls within the framework of SCI Resolution No. 50/10. Resolution No. 36/11 sets forth the parameters to be applied to the services rendered by Cablevisión to its subscribers from January through April 2011. These parameters are as follows: 1) the monthly basic subscription price shall be Ps. 109 for that period; 2) the price of other services rendered by Cablevisión should remain unchanged as of the date of publication of the resolution; and 3) the promotional benefits, existing rebates and/or discounts already granted as of that same date shall be maintained. The resolution also provides that Cablevisión shall reimburse users for any amount collected above the price set for that period. Cablevisión believes that Resolution No. 36/10 is illegal and arbitrary, since it is grounded on Resolution No. 50/2010, which is absolutely null and void. Since the application of Resolution No. 50/10 has been suspended, the application of Resolution No. 36/2011, which falls within the framework of the former, is also suspended. The claim filed by Cablevisión seeking the nullification of Resolution No. 50/2010 is currently pending before the Federal Administrative Court of First Instance No. 7 of the City of Buenos Aires. Subsequently, the SCI issued Resolutions Nos. 65/11, 92/11, 123/11, 141/11, 10/11, 25/12, 97/12 and 161/12 pursuant to which the SCI extended the effectiveness of Resolution No. 36/11 up to and including March 2013, and adjusted the cable television subscription price to Ps.130. Cablevisión believes, however, that given the terms under which the Federal Court of the City of Mar del Plata granted the preliminary injunction, that is, ordering the SCI to suspend the application of Resolution No. 50/97 with respect to all cable television licensees (among them, Cablevisión and its subsidiaries) represented by ATVC, and also given the fact that Resolutions No. 36/11, 65/11, 92/11, 123/11, 141/11, 25/12, 97/12 and 161/12 merely extend the effectiveness of Resolution No. 50/10, Cablevisión continues to be protected by said preliminary injunction, and, therefore, its ordinary course of business will not be affected. On January 13, 2012, the Secretariat of Domestic Trade issued Resolution No. 2/2012 granting Cablevisión 24 hours to resume service to those subscribers who had duly paid their subscription fee in the amount established by the National Government. In its sixth section, the Resolution provides that if the company does not comply with its obligations thereunder, penalties may be imposed as provided by Law 20,680. On February 10, 2012, Cablevisión received a fine of Ps. 1 million for alleged non- compliance with such Resolution. Such fine has been appealed but no decision has been rendered on the matter yet. After the Federal Court of Mar del Plata issued its injunction, several Municipal Offices of Consumer Information (“OMIC”, for its Spanish acronym) and several individuals filed claims requesting that Cablevisión comply with Resolution No. 50/10 and the subsequent resolutions that extended its effectiveness. In some cases, preliminary injunctions were granted. In every case, Cablevisión appealed such preliminary injunctions alleging that Resolution No. 50/10, as amended, and/or the subsequent resolutions that extended its effectiveness, had been suspended with respect to Cablevisión, its branches and subsidiaries prior to the issuance of such preliminary injunctions. b. On August 19, 2010 the Media Secretariat issued Resolution No. 100/2010, whereby it revoked the license that had been granted to Fibertel. Cablevisión believes that this resolution is an absolutely null and void administrative act. Its language contradicts express provisions of the National Constitution, of Law No. 19,550 (Argentine Business Associations Law), Decrees Nos. 1,185/90 and 764/00 and Law No. 19,549 of Administrative Procedures, among others. The Resolution disregards the several filings made by Cablevisión with the Media Secretariat requesting such agency to issue an administrative act evidencing that Cablevisión, pursuant to section 82 of the Argentine Business Associations Law, is the successor of Fibertel and, therefore, the holder of the exclusive telecommunication service license and of the registrations that had been previously granted to Fibertel. More than eight years after that request, in spite of the existence of a draft of a favorable decision in the case file, with a completely arbitrary attitude that contradicts other precedents of the same agency, and without prior notice that would have allowed Cablevisión to exercise its defense right, the SECOM ordered that the license be revoked and that the users migrate within 90 days of the resolution's notification. On August 26, 2010 Cablevisión filed an appeal requesting the reversal of the resolutions, and if such appeal is rejected, a subsidiary appeal against that Resolution before the highest administrative authority. The appeal was dismissed pursuant to SECOM Resolution No. 132/2010 dated October 7, 2010. However, since Cablevisión had filed a subsidiary appeal to have the case heard by the highest administrative authority; the file was submitted to the Ministry of Federal Planning, Public Investment and Utilities. As of the date of these financial statements, this appeal is pending resolution. On February 24, 2011, Chamber No. 3 of the Federal Court of Appeals on Civil and Commercial Matters of the City of Buenos Aires, in re “ANTITRUST ASSOCIATION V. NATIONAL GOVERNMENT MEDIA SECRETARIAT ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS” confirmed the decision rendered in the first instance, stating that the National Government, Media Secretariat, shall refrain from disrupting or limiting in any way the Internet access services offered by Cablevisión. It also partially amended the above decision by broadening its effects, ordering the National Government to refrain from enforcing Resolution No. 100/10, thus allowing new customers to subscribe to the Internet access services offered by Cablevisión. Cablevisión has strong grounds that support its position, it cannot be assured that the final outcome of this issue will be favorable. On December 16, 2011, Federal Civil and Commercial Court No. 3, Clerk's Office No. 5 issued a related injunction in re “CABLEVISION S.A. v. NATIONAL GOVERNMENT ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS”, ordering the suspension of the effects of SECOM Resolution No. 100/10 and also guaranteeing new subscribers the possibility to subscribe to the Internet Access service offered by Cablevisión. On December 20, 2011, at the request of Cablevisión, a new preliminary injunction was issued in re “CABLEVISION S.A. v. National Government - Argentine Secretariat of Communications on COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS”. On the basis of the above-mentioned precedent, and on the existing connection between the subject matters of both cases, as alleged by Cablevisión, the injunction ordered the suspension of the effects of SECOM Resolution No. 100/10. The National Government filed an appeal with Chamber No. 3 of the Federal Court of Appeals on Civil and Commercial Matters which is still pending as of the date of these financial statements. Due to the imminent possibility that the application of Law No. 26,522 will affect the assets used to provide Internet access services, within the framework of this same file Cablevisión requested the extension of the scope of the effective injunction, which was granted on December 6, 2012. Such extension entailed notifying AFSCA of the injunction which prevents it from affecting in any way the Internet access services offered by Cablevisión. Based on the above-mentioned preliminary injunctions, Cablevisión is authorized to continue to render the telecommunication services granted to Fibertel. Cablevisión will resort to all available administrative and judicial remedies in order to have SECOM Resolution No. 100/2010 declared null and void. Even though 122 123 On September 10, 2010, the National Administration of Domestic Trade notified Cablevisión that a Ps. 5 million fine had been imposed for promoting the Fibertel service without being the holder of the license (Section 7 of Law No. 24,240), for the impossibility of honoring the promotion offered to undetermined potential consumers (Section 7 of Law No. 24,240), for providing wrong information to the customers (Section 4 of Law No. 24,240), and for the impossibility of honoring promotions because Cablevisión was not the holder of the Fibertel license (Section 19 of Law No. 24,240). Cablevisión appealed such decision in due course, since it believes it has sufficient arguments in its favor. The file was assigned No. 1,276 and is pending before Chamber No. 2 of the Court of Appeals on Administrative Matters. On April 17, 2012 the appeal was partially granted, reducing the fine to Ps. 380,000. Notwithstanding the foregoing, Cablevisión filed an appeal with the Supreme Court of Argentina in due time and form against such decision. On July 12, 2012, Chamber No. 2 of the Federal Court of Appeals on Administrative Matters decided to dismiss the appeals filed by both parties. Cablevisión filed an appeal against the above- mentioned dismissal since it believes it has sufficient grounds to have the fine revoked. However, Cablevisión cannot assure that the outcome of the appeal will be favorable. Since the appeal does not have staying effects, on October 18, 2012 the National Administration of Domestic Trade ordered Cablevisión to pay within ten (10) business days the fine reduced by Chamber No. 2. On October 29, 2012 Cablevisión settled the fine in the amount of Ps. 380,000 and the compliance was recorded in the file. c. Pursuant to the Antitrust Law and to Broadcasting Law No. 22,285, the transactions carried out on September 26, 2006 that resulted in an increase in the indirect interest the Company held in Cablevisión to 60%, Cablevisión's acquisition of 98.5% of Multicanal and 100% of Holding Teledigital, and Multicanal's acquisition of PRIMA (from PRIMA Internacional (now CMD)), required the authorization of the CNDC (validated by the SCI), and the COMFER. On October 4, 2006, the Company, Vistone, Fintech, VLG and Cablevisión, as purchasers, and AMI CV Holdings LLC, AMI Cable Holdings Ltd. and HMTF-LA Teledigital Cable Partners LP, as sellers, filed for the approval of the acquisition. After several requests for information, the SCI issued Resolution No. 257/07, with a prior opinion of the CNDC in favor of the approval of the above-mentioned transactions and after consulting the COMFER and the SECOM, which did not raise any objections. The Company was served notice in this respect on December 7, 2007. Such Resolution was appealed by five entities. As of the date of these financial statements, the CNDC has dismissed the five appeals filed against the above-mentioned resolution. Four of the entities filed direct appeals before the judicial branch. Three of those appeals were dismissed and one is still pending resolution. Cablevisión believes that if the CNDC acts as it did in the case of the three dismissed direct appeals, the fourth appeal is unlikely to be admitted. On June 11, 2008, Cablevisión was served with a decision of the Federal Court of Appeals on Civil and Commercial Matters revoking a decision rendered by the CNDC on September 13, 2007, whereby such agency had dismissed a claim filed by Gigacable S.A. prior to the December 7, 2007 decision referred to above. The Court of Appeals revoked CNDC's decision only with respect to matters relating to the conduct of Cablevisión and Multicanal prior to CNDC's authorization of the transactions on December 7, 2007, and ordered an investigation to determine whether a fine should be imposed on Cablevisión and Multicanal due to such conduct. As of the date of these financial statements, Cablevisión has filed its response, which is pending analysis by such agency. d. On December 15, 2008, the shareholders of Cablevisión approved the merger of Multicanal, Delta Cable S.A., Holding Teledigital, Teledigital, Televisora La Plata Sociedad Anónima, Pampa TV S.A., Construred S.A. and Cablepost S.A. into Cablevisión, whereby, effective as of October 1, 2008, Cablevisión, as surviving company, became the universal successor to all of the assets, rights and obligations of the merged companies. The merger commitment was executed on February 12, 2009 and was filed with the CNV pursuant to applicable regulations that require administrative approval. As of the date of these financial statements, such merger is pending administrative approval by the CNV and registration with the IGJ. On September 3, 2009, the COMFER issued Resolution No. 577/09 whereby it withheld approval of Cablevisión's merger with Multicanal S.A. On September 8, 2009, Multicanal was served with CNDC Resolution No. 106/09, dated September 4, 2009, whereby the CNDC ordered an audit to articulate and harmonize the several aspects of Resolution No. 577/09 issued by the COMFER with Resolution No. 257/07 issued by the Secretariat of Domestic Trade. Resolution No. 106/09 also sets forth that the notifying companies shall not, from the enactment thereof and until the end of the audit and / or resolution of the CNDC, be able to remove or replace physical or legal assets. On September 17, 2009 Judge Dr. Esteban Furnari of the National Court on Federal Administrative Matters No. 2, in re “Multicanal and Other v. Conadeco- Decree 527/05 and other on Proceeding leading to a declaratory judgment”, ordered the suspension of the effects of COMFER Resolution No. 577/09, of CNDC Resolution No. 106/09, and any other act resulting therefrom, until a final decision was rendered in the case. On October 23, 2009, the court decision that had suspended the effects of COMFER Resolution No. 577/09 and CNDC Resolution No. 106/09 was revoked by Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, in re “Multicanal and Other v. Conadeco- Decree 527/05 and other on Proceeding leading to a declaratory judgment”. Therefore, the calculation of the suspended terms was automatically resumed. On that basis, on December 1, 2009, Cablevisión ratified the filing it had made with the COMFER at the time of the merger, and specified the licenses to which it had decided to maintain title. On December 16, 2009, the Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, in re "Multicanal and other v. CONADECO Decree 527/05 and other on Proceeding leading to a declaratory judgment" File No. 14,024/08, granted the extraordinary appeal filed by Multicanal and Grupo Clarín against the decision rendered by that same court on October 23, 2009. With the granting of that appeal, Cablevisión's preliminary injunction regained full force and effect. Accordingly, on January 8, 2010 Cablevisión notified such circumstance to the COMFER. Subsequently, on March 9, 2011, the Supreme Court of Argentina in re “MULTICANAL and Other v./ CONADECO - Decree 527/05 and other on/Proceeding leading to a declaratory judgment”, granted the appeal by right and the extraordinary appeal filed by the National Government and revoked the decision rendered by Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, which had confirmed the preliminary injunction requested by Cablevisión in the first instance. Notwithstanding the foregoing, Cablevisión believes that this matter does not have a material impact on the substantive issues. Notwithstanding the required filings made by Cablevisión and its shareholders to prove that they were complying with the commitment agreed with the CNDC on December 7, 2007 (date on which the SCI granted authorization), on September 23, 2009, the SCI issued Resolution No. 641, whereby it ordered the CNDC to verify compliance with the parties' proposed commitment by visiting the parties' premises, requesting reports, reviewing documents and information and carrying out hearings, among other things. On December 11, 2009, Cablevisión notified the CNDC of the completion and corresponding verification of the fulfillment of the voluntary undertakings made by Cablevisión at the time of the enactment of SCI Resolution No. 257/07. On December 15, 2009, Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters issued a preliminary injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions” (case 124 125 10,506/09), partially acknowledging the preliminary injunction requested by Grupo Clarín, and instructing the CNDC and the SCI to notify Grupo Clarín whenever their own verification of Cablevisión's fulfillment of its undertakings had been concluded, regardless of the result. Should such agencies have any observations, they should notify Grupo Clarín within a term of 10 days. On the same date, the CNDC issued Resolution No. 1,011/09 whereby it deemed Cablevisión's voluntary undertakings unfulfilled and declared the rescission of the authorization granted under Resolution No. 257/07. On December 17, 2009, the Federal Court of Appeals on Commercial-Criminal Matters, Chamber A, decided to suspend the term to appeal Resolution No. 1,011/09 until the main case was transferred back to the CNDC, considering it had been in such court since December 16, 2009. On December 17, 2009, the CNDC notified Cablevisión of the initiation of the motion for execution of Resolution No. 1,011/09. On December 18, 2009, Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters issued an injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions”, which suspended the effects of Resolution No. 1,011/09 until the notice set forth in the injunction of December 15, 2009 was served. Accordingly, the CNDC served notice to Cablevisión by means of Resolution No. 1,101/09. On December 30, 2009, the Federal Commercial and Civil Court of Appeals, Chamber No. 2, issued a preliminary injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions”, partially acknowledging Grupo Clarín's request and suspending the term for Grupo Clarín to respond to Resolution No. 1,101/09 until Grupo Clarín is granted access to the administrative proceedings related to the charges brought by the CNDC in its Opinion No. 770/09 (on which Resolution No. 1,011/09 was based). On February 19, 2010, Cablevisión requested the nullification of the notice, and as a default argument, submitted the response requested under Resolution No. 1,101/09. On February 26, 2010, the Federal Court of Appeals on Commercial-Criminal Matters approved the recusation filed by Cablevisión and excluded the Secretary of Domestic Trade from the proceedings. On March 3, 2010, the Argentine Ministry of Economy and Public Finance issued Resolution No. 113 (subscribed by the Minister of Economy, Dr Amado Boudou) rejecting the request for the nullification of Resolution No. 1,011/09, the requests for abstention and excusation of certain officials, and all the evidence produced in connection with such request for nullification. The voluntary undertakings made by Cablevisión under Resolution No. 257/07 were deemed unfulfilled, thus declaring the rescission of the authorization granted under such resolution. The parties involved were ordered to take all necessary actions to comply with such rescission within a term of six months, and to inform the CNDC about the progress made in that respect on a monthly basis. Such resolution was appealed in due time and form. The appeal was granted without staying the execution of judgment. The appeal is currently pending before Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters in re “AMI CABLE HOLDING and other on/ Appeal of the National Antitrust Commission Resolution” (File No. 2,054/2010). On March 3, 2010, the Company brought a claim seeking to nullify of COMFER Resolution No. 577/09. Upon being served with this claim, the COMFER filed an exception, which was responded by Cablevisión. On September 4, 2012 the Judge decided to dismiss the exception filed by the COMFER, which shall bear the legal costs incurred. On December 13, 2012 the order to notify about such decision was submitted and it was issued by the Court on December 26, 2012. In that same act, a request was submitted to set the preliminary hearing (before the discovery proceedings). On April 20, 2010, Chamber 2 of the Federal Court of Appeals on Civil and Commercial Matters granted the appeal filed by Grupo Clarín S.A. in re “Grupo Clarín on delay in the appeal of the proceedings”, and decided that the appeal granted by the CNDC to Grupo Clarín S.A. against Resolution No. 113/10 had the effect of staying such resolution. The National Government filed an appeal asking that the Court of Appeals revoke its own decision with respect to the effect granted to the April 20 decision, and that it decline its jurisdiction. It also filed an extraordinary appeal. Both appeals were dismissed. Chamber No. 2 requested the administrative file and the Court's decision is pending. Cablevisión considers that it has strong grounds to have the effects of the above Resolution suspended and therefore has brought the relevant legal actions. However, it cannot assure that the outcome will be favorable. Decisions made on the basis of these financial statements should consider the eventual impact that the above-mentioned resolutions might have on Cablevisión and its subsidiaries, and these financial statements should be read in light of such uncertainty. e. Under Proceeding File No. 21,788/08 dated November 17, 2008, Cablevisión informed the COMFER about the corporate business reorganization process effective as of October 1, 2008. In that same act, Cablevisión informed the COMFER about: i) all the licenses to which it became universal successor under the corporate business reorganization process; ii) the exercise of an option for one of the licenses in each of the locations where it held multiple licenses, and iii) the relinquishment of original licenses and extensions so as to eliminate the multiple licenses accumulated in each of the locations where it held multiple licenses. As a result of such corporate business reorganization process, Cablevisión became the universal successor of 158 licenses to exploit Supplementary Services in several locations (pursuant to section 44, subsection b) of Law 22,285. To avoid having multiple licenses, Cablevisión informed the COMFER about its irrevocable intention to relinquish a total of 78 licenses (including original licenses and extensions) so as to eliminate all the supplementary service licenses that exceeded the limit set for supplementary services in each location (which was one license per designated area). Notwithstanding the foregoing, through Resolution No. 577/COMFER/09, the COMFER illegitimately decided to withhold approval of the merger requested by Cablevisión, requesting Cablevisión to submit a divestiture plan on the grounds that the license relinquishments spontaneously communicated by that company were not sufficient. (See Note 8.1.d). f. On May 23, 2011, Supercanal S.A. filed a claim for the protection of constitutional rights (acción de amparo) before the Federal Court of Mendoza against Cablevisión, Grupo Clarín and other co-defendants, requesting that they refrain from exercising alleged anti-competitive practices and that the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión (see Note 8.1.d.) be separated from the other assets, liabilities and businesses of Cablevisión and transferred to third parties. Together with the claim for the protection of constitutional rights, Supercanal S.A. requested a preliminary injunction - for the same purposes - which was granted on December 16, 2011. The injunction ordered the separation of the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión within a term of 60 days. The court also appointed a supervisor (interventor) and co-administrator for a term of twelve months, who shall enforce the injunction, order the changes to such company's management required for the effective enforcement of the duties to be fulfilled by the Board of Directors, and also report on a monthly basis to the court about his/her performance. Such court-appointed supervisor (interventor) and co-administrator shall have the obligation to perform the necessary functions aimed at fulfilling the actions ordered pursuant to the injunction. Cablevisión filed an appeal against such injunction and presented the grounds for its defense in due time and form. Cablevisión also requested the replacement of such injunction with another less burdensome, one that could largely cover the risks alleged by Supercanal in its claim. On April 26, 2012, the Federal Court of Appeals of Mendoza, Chamber A, dismissed the appeal filed by Cablevisión against the decision of December 16, 2011, but extended the term to divest the assets, liabilities and businesses of Multicanal that had been merged into Cablevisión to 120 days. The court also dismissed the request to replace the injunction. Cablevisión believes it has strong grounds to defend its position. Therefore, it has already informed the Court that it shall proceed to file an appeal with the Supreme Court of Argentina 126 127 against such decisions. Notwithstanding the foregoing, Cablevisión cannot assure the outcome of this appeal. On August 14, 2012, Cablevisión was served notice of a decision rendered by Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters of the City of Buenos Aires (“the Court of Appeals”) on August 13, 2012 whereby it declared the existence of a connection between the case brought by Supercanal S.A. in the Province of Mendoza and the appeal of MECON Resolution No. 113/10 (“Ami Cable Holding LTD and other on/ Appeal of the National Antitrust Commission Resolution). The Court of Appeals stated that the hearing of the case in the Province of Mendoza gives rise to an atypical jurisdictional issue that affects the correct rendering of justice in the case and the powers of said Court of Appeals. The Court of Appeals therefore ordered Federal Court No. 2 of Mendoza to send the file so that the case could continue under the jurisdiction of the Federal Courts on Civil and Commercial Matters of the City of Buenos Aires. The Federal Court No. 2 of Mendoza and the Federal Court of Appeals of Mendoza were served notice of said order on the same date and both of them rejected it, giving rise to a jurisdictional conflict between Chamber No. 2 of the Court of Appeals and Federal Court No. 2 of Mendoza. Pursuant to Section 24, subsection 7 of Decree/Law No. 1285/58, if a jurisdictional conflict arises between a federal judge of a given jurisdiction and a Federal Court of Appeals of a different jurisdiction, said conflict must be resolved by the Argentine Supreme Court. After having been served notice of the decision of Chamber No. 2 of the Court of Appeals, on August 17, 2012, Judge Walter Bento of the Federal Court Nº 2 of Mendoza issued an order to notify Cablevisión of an extension of the scope of the injunction issued in re “Supercanal S.A. v. Cablevisión S.A. and other on Claim for the protection of constitutional rights (acción de amparo)”. Under this injunction, the judge ordered the removal of the Board of Directors of Cablevisión and its replacement with a court-appointed administrator (interventor) whose role was to fulfill court orders. However, in response to the claim brought by Cablevisión on August 21, 2012 with the Argentine Supreme Court in connection with the abovementioned jurisdictional conflict, the Supreme Court ordered the immediate suspension of the proceedings until a decision is rendered on the jurisdictional conflict. Notwithstanding this, Cablevisión and its legal advisors believe that the order issued on August 17 is irregular and that it may not be deemed a valid notice, because it should have been issued within the framework of the proceedings pending with the Federal Court on Civil and Commercial Matters rather than being served at a domicile established in the city of Mendoza. At present, all these proceedings are suspended and were sent to the Argentine Supreme Court for it to render a decision on the jurisdictional conflict. g. On October 21, 2010, the National Administration of Domestic Trade served notice to Cablevisión of (i) a fine of Ps. 5 million for failing to comply with the duty to inform (Section 4 of Law 24,240) concerning one of its promotions and (ii) a fine of Ps. 500,000 for infringing Section 2, subsection c) of Decree 1153/95 of the regulations to Section 10 of Law 22,802. Cablevisión appealed the fine because it believes it has strong arguments in its favor. The file was assigned No. 1281 and is pending before Chamber No. 2 of the Court of Appeals on Federal-Administrative Matters. On October 4, 2011, the Court of Appeals partially affirmed Resolution 739/10 and reduced the fine to Ps. 2.2 million, imposing 75% of the legal costs on Cablevisión. On October 13, 2011 Cablevisión filed a Federal Ordinary appeal with the Supreme Court of Argentina and on October 20, 2011 it filed a federal extraordinary appeal with that same court in the event that the ordinary appeal may be dismissed. On October 21, 2011, Chamber No. 2 of the Federal Court of Appeals on Administrative Matters granted the ordinary appeal and the legal brief was submitted in due time and form. On August 7, 2012 the Supreme Court of Argentina decided that the Ordinary Appeal had been wrongly granted. On December 13, 2012 the Chamber dismissed the appeal filed by Cablevisión, which shall bear the costs incurred. On December 20, 2012 Cablevisión filed an appeal against the above-mentioned dismissal since it believes it has sufficient grounds to have the fine revoked. However, Cablevisión cannot assure that the outcome of the appeal will be favorable. h. On May 31, 2012, Cablevisión was served notice of Resolution No. 16,819 dated May 23, 2012 whereby the Argentine Securities Commission (CNV, for its Spanish acronym) ordered the initiation of summary proceedings against Cablevisión and its directors, members of the Supervisory Committee and the Head of Market Relations for an alleged failure to comply with the duty to inform. The CNV considers that Cablevisión failed to comply with its duty to inform because the investor community was deprived of its right to become fully aware of the grounds of a decision rendered by the Federal Court of Mendoza and the scope of the powers granted by that court to the co-administrator appointed in re “Supercanal S.A. v. Cablevisión S.A. on protection of constitutional rights”, in addition to the fact that other self-regulated authorities were allegedly not notified of the information furnished by Cablevisión. On June 25, 2012, Cablevisión filed a response petitioning that its defenses be sustained and all charges dismissed. Cablevisión and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure that the outcome of the said summary proceedings will be favorable. i. Pursuant to CNV Resolution No. 16,834 dated June 14, 2012 notified to the Company on June 27, 2012, the CNV ordered the initiation of summary proceedings against the Company and the members of its Board of Directors, Supervisory Committee and Audit Committee in office at the time of the occurrence of certain events under review (September 19, 2008) for alleged failure to comply with the duty to inform. Under said Resolution, the CNV argues that the Company allegedly failed to comply with the duty to disclose the filing of a claim against it entitled “Consumidores Financieros Asociación Civil para su defensa and other v. Grupo Clarín on/Ordinary”, which the CNV considers relevant. On July 25, 2012, Cablevisión filed a response petitioning that its defenses be sustained and that all charges against it be dismissed. The Company and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure the outcome of said summary proceedings. Notwithstanding the foregoing, Cablevisión cannot assure that the appeals will be resolved in its favor. j. The Executive Branch of Uruguay issued Decree No. 73/012, published in the Official Gazette on March 16, 2012, whereby it expressly repealed Decree No. 231/011, which had revoked certain signals' broadcast frequencies. However, the new decree ratified and repeated - virtually in identical terms - the decree that was being repealed, and added certain provisions that caused further detriment to two companies with which a subsidiary of Cablevisión has contractual arrangements in place. Consequently, on March 23, 2012 the two affected companies filed an appeal requesting that Decree No. 73/012 be revoked. The appeal is still pending resolution. In May 2012, the aforesaid companies brought a legal action with the Court in Administrative Litigation Matters requesting the nullification of the resolution and the suspension of its execution. Those appeals have progressed through the corresponding instances and are pending resolution as of the date of these consolidated financial statements. Notwithstanding the foregoing, said companies cannot assure the outcome of these actions. In the preparation of these consolidated financial statements, the Company has considered the effects that could be derived, and that may be projected to date within a foreseeable period as a result of the effects, if any, from these regulatory changes. k. On June 4, 2012, the Federal Court of Appeals of Rosario partially confirmed SCI Resolution No. 219/2010, whereby the Secretary of Domestic Trade found that Cablevisión and Multicanal had engaged in market sharing practices in connection with the paid-television service in the City of Santa Fe and reduced the fine imposed on each of the companies involved from Ps. 2.5 million to Ps. 2 million. However, this decision is not yet final, because Cablevisión and Multicanal and the Ministry of Economy filed appeals with the Argentine Supreme Court, which are still pending. 128 129 l. On March 1, 2011, the SCI served notice to Multicanal and Cablevisión of Resolution No. 19/11 whereby the Secretary of Domestic Trade found that both companies had engaged in market sharing practices in connection with the paid-television service in the City of Paraná and imposed a fine of Ps. 2.5 million on each of them. Cablevisión filed an appeal in due time and form. This appeal was dismissed by the Federal Court of Appeals of Paraná. Therefore, Cablevisión filed an appeal with the Argentine Supreme Court. On November 4, 2011, the appeal of SCI Resolution No. 19/11 filed by Cablevisión with the Supreme Court was partially granted by the Federal Court of Appeals of Paraná. On August 30, 2012, the Argentine Supreme Court dismissed the appeal filed by Cablevisión; therefore, Resolution No. 19/11 became final. The case is currently pending with the Court of Appeals of Paraná, which shall order its referral to the SCI. The SCI, in turn, shall serve notice to the companies involved in order for them to pay the fine. m. Cablevisión, by itself and as successor of Multicanal's operations after the merger, is a party to several administrative proceedings under the Antitrust Law, facing charges of anticompetitive conduct, including territorial division of markets, price discrimination, abuse of dominant position, refusal to deal and predatory pricing, as well as a proceeding filed by the Cámara de Cableoperadores Independientes (Chamber of Independent Cable Operators), challenging the transactions consummated on September 26, 2006. While Cablevisión believes that its conduct and that of Multicanal have always been within the bounds of the Argentine Antitrust Law and regulations and that their positions in each of these proceedings are reasonably grounded, it can give no assurance that any of these cases will be resolved in its favor. n. On January 22, 2010, Cablevisión was served with CNDC Resolution No. 8/10 issued within the framework of file No. 0021390/2010 entitled “Official Investigation of Cable Television Subscriptions (C1321)”. Pursuant to such Resolution, Cablevisión, among other companies, was ordered to refrain from conducting collusive practices and, particularly, from increasing the price of cable television subscriptions for a term of 60 days, counted as from the date all required notices are certified as completed. According to said Resolution, companies which have already increased the price of the subscriptions shall return to the price applicable in November 2009 and maintain such price for the abovementioned term. On February 2, 2010, by means of Resolution No. 13/10, the CNDC ordered Cablevisión to credit its subscribers the amount of any price increase made after the date of CNDC Resolution No. 8/10 on its March invoices. Cablevisión appealed both resolutions in due time and form and their effects were suspended by an injunction issued by Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters at the request of Cablevisión. Finally, on October 4, 2011, the same Chamber granted the appeal, declaring that the claim based on CNDC Resolution No. 8/10 was moot and nullifying CNDC Resolution No. 13/10. The National Government appealed such decision before the Supreme Court of Argentina, which shall grant or dismiss the appeal. o. On August 5, 2010, Cablevisión was served with CNC Resolution No. 2,936/2010 within the framework of Administrative Proceeding File No. 2,940/2010, pursuant to which Cablevisión and/or any other individual or entity through which the services relating to the licenses and registrations granted to FIBERTEL S.A. ("Fibertel") may be rendered shall refrain from adding new subscribers and from altering the conditions under which the services are currently rendered. To decide as it did, the Argentine Communications Commission disregarded the corporate reorganization that was completed and registered before the IGJ, whereby Fibertel merged into Cablevisión effective as of April 1, 2003. By virtue of that merger process, Cablevisión became the universal successor to all of the assets, rights and obligations of Fibertel as the merged company, among them, the Exclusive License awarded through SECOM Resolutions No. 100/96, 2375/97, 168/02 and 83/03. Therefore, Fibertel did not transfer or divest of its rights and obligations to third parties - among them, those derived from the above-mentioned Exclusive License. Fibertel continued to carry out its activities through Cablevisión as surviving company. In order to implement the above-mentioned corporate business reorganization, on March 5, 2003, the Argentine Communications Commission and the SECOM were notified of the corporate business reorganization for its acknowledgement. The technical and legal areas of the Argentine Communications Commission issued a favorable resolution with respect to the compliance with the requirements of current regulations to register Fibertel's license under the name of Cablevisión. SECOM had a term of 60 days to decide on the corporate business reorganization. However, such agency failed to render a decision as required by the applicable regulations. Not until August 19, 2010 did SECOM issue Resolution No. 100/2010, revoking Fibertel's license. Cablevisión believes that the Resolution is arbitrary and that it flagrantly violates due process and its defense right. Therefore, Cablevisión has appealed such resolution. No decision has been rendered on the matter yet. p. On October 28, 2010, Cablevisión was served notice of the National Administration of Domestic Trade's resolutions imposing two fines of Ps. 5 million each, for allegedly failing to observe the typographic character requirements under applicable regulations (Resolution 906/98) when informing its subscribers of the increase in the price of their cable television subscriptions. Cablevisión appealed the fines on November 12, 2010 because it believes it has strong grounds in its favor. However, it cannot assure that the outcome will be favorable. One of the files was assigned No. 1280 and is pending before Chamber No. 1 of the Federal Administrative Court of Appeals, and the other one was assigned No. 1,278 and is pending before Chamber No. 5 of the Federal Administrative Court of Appeals. q. The litigation brought before the Civil, Commercial, Mining and Labor Court of the City of Concarán, Province of San Luis, in early 2007 in re “Grupo Radio Noticias SRL v. Cablevisión and others”, is still pending before the Federal Court in Administrative Litigation Matters No. 2. The purpose of that claim was to challenge the share transfers mentioned in Note 8.1.c. and to request the revocation of Cablevisión's broadcasting licenses. Cablevisión has responded to such claim and believes it is very unlikely that it will be admitted. r. The Government of the City of Mar del Plata enacted Ordinance No. 9163, governing the installation of cable television networks. Such ordinance was amended and restated by Ordinance No. 15,981 dated February 26, 2004, giving cable companies until December 31, 2007 to adapt their cable networks to the new municipal requirements. The ordinance sets forth that in those areas where street lighting has underground wiring, cable television networks are to be placed underground. In this sense, the Executive Department of the Municipality of General Pueyrredón has submitted to the Municipal Council a proposed ordinance extending the term provided until December 31, 2015. Such ordinance is ready for discussion by legislators. Even though the ordinance provides for certain penalties that may be imposed, the City has not imposed such penalties to cable systems that are not in compliance with such ordinance. s. On November 27, 2012 the National Administration of Domestic Trade served Cablevisión with Resolution No. 308/2012, whereby it imposed a Ps. 5 million fine on that company alleging that it had failed to comply with Section No. 4 of the Antitrust Law (increase in the subscription price of cable tv services/wrongful information provided by Customer Service, informed by mail that SCI Resolution No. 50/10 and the supplementing resolutions are suspended on grounds of unconstitutionality, when in fact they have been suspended by an injunction). On December 11, 2012 Cablevisión appealed Resolution No. 308/2012. The administrative file No. S01:0312056/2011 is currently pending before the National Administration of Domestic Trade and must be submitted to the Federal Court of Appeals on Administrative Matters for it to determine, by lottery, the first instance court that will hear the case. 130 131 Cablevisión and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure that the revocation of the fine will be resolved in its favor. 8.2 Claims and Disputes with Governmental Agencies a. The Argentine Federal Revenue Service (“AFIP”) served the subsidiary CIMECO with a notice challenging its income tax assessment for the fiscal periods 2000, 2001 and 2002. In such notice, the AFIP challenged mainly the deduction of interest and exchange differences in the tax returns filed for those years. If AFIP's position prevails, CIMECO's maximum contingency as of December 31, 2012 would amount to approximately Ps. 12 million principal amount and Ps. 24.9 million interest. CIMECO filed a response, which was dismissed by the tax authorities. The tax authorities issued their own official assessment and imposed penalties. CIMECO appealed the tax authorities' resolution before the National Tax Court on August 15, 2007. During the year ended December 31, 2010, CIMECO received a pro forma income tax assessment from the AFIP for fiscal periods 2003 through 2007, as a consequence of AFIP's challenge to CIMECO's income tax assessments for the periods 2000 through 2002 mentioned above. CIMECO filed a response before AFIP, rejecting such assessment and requesting the suspension of administrative proceedings until the Federal Tax Court renders its decision on the merits. During 2011, the AFIP served CIMECO with a notice stating the income tax charges assessed for the periods 2003 through 2007 and ordering the initiation of summary proceedings. The AFIP's assessment shows a difference in the Income Tax liability for the above indicated periods in its favor for an amount in excess of the amount that had been estimated originally, as a result of the method used to calculate certain deductions. CIMECO responded to the assessment rejecting all of the adjustments and requesting that the proceedings be rendered without effect and filed, with no further actions to be taken. On April 26, 2012, the AFIP issued a new official assessment comprising the fiscal periods 2003 through 2007 in which it applied the same method for the calculation than that used for the administrative settlement, claiming a total liability of Ps. 120 million. On May 21, 2012, an appeal was filed with the Federal Tax Court. CIMECO and its legal and tax advisors believe CIMECO has strong grounds to defend the criteria adopted in their tax returns and that AFIP's challenges will not be admitted by the Federal Tax Court. Accordingly, CIMECO has not booked an allowance in connection with the effects such challenges may have. b. Since 2005, the ANA has brought several claims against the holders of broadcasting and cable TV licenses for the payment of customs duties applicable to the import of films documented between 2000 and 2005. According to the ANA, holders of TV licenses are liable to pay customs duties, VAT and income tax not only on the customs value of the physical supports, but also on the reproduction rights agreed upon in the related contracts. ARTEAR filed objections against these claims on the basis of international agreements, doctrine and case law on the subject. As a consequence of the criteria followed by ARTEAR, during the period covered by the claim, it paid other taxes that would not have been payable if ANA's interpretation had been applied. As of the date of these financial statements, ARTEAR had to pay the differences claimed by ANA in a few isolated cases because the appeals filed with the Federal Court of Appeals against the National Tax Court's decisions do not have staying effects. In the first unfavorable decision rendered by Chamber No. 4 of the Federal Court of Appeals, which was appealed by ARTEAR, the Argentine Supreme Court refrained from rendering judgment on the merits of the case. Over the last months, all other Chambers of the Federal Court of Appeals have rendered decisions against ARTEAR's position. Therefore, as of the date of these financial statements, ARTEAR has set up an allowance to account for the estimated losses that may result from such claims, notwithstanding the fact that ARTEAR still considers that its interpretation of the customs law is based on reasonable legal grounds. c. On September 10, 2010, the AFIP served TRISA with a notice with objections to its income tax assessment, with respect to the application of the withholding regime set forth under the section following section 69 of the Income Tax law, for fiscal periods 2004, 2005 and 2006. If AFIP's position prevails, TRISA's contingency would amount to approximately Ps. 28.9 million, out of which Ps. 9.3 million corresponds to taxes on dividend payments made during those years, Ps. 6.5 million to a 70% fine on the omitted tax, and Ps. 13.1 million to late-payment interest. TRISA filed a response, which was dismissed by the tax authorities. On December 20, the tax authorities issued their own official assessment and imposed penalties. TRISA appealed the tax authorities' resolution before the National Tax Court on February 8, 2011. TRISA and its legal and tax advisors believe that TRISA has strong grounds to defend its position and that AFIP's challenges will not be admitted by the Federal Tax Court. Accordingly, TRISA has not booked a provision in connection with the effects such challenges may have. d. On August 13, 2012, the parent company GC Dominio S.A. was served notice of a claim brought by the Argentine Superintendency of Legal Entities (IGJ) whereby it seeks to annul the registration with the Public Registry of Commerce of the appointment of GC Dominio S.A.'s authorities, approved at the Shareholders' Meeting held on May 17, 2011. which is pending before the Federal Court of First Instance on Commercial Matters No. 25, Clerk's Office No. 49 (“Inspección General de Justicia v. Dominio S.A. on/Ordinary”, File No. 58652). The claim brought by the IGJ seeks to annul the registration with IGJ of the appointment of GC Dominio S.A.'s authorities, approved at the Annual Ordinary General Shareholders' Meeting of GC Dominio held on May 17, 2011. The appointment was registered with the IGJ on April 23, 2012 under No. 7147, Book No. 59 of Share Companies. According to the IGJ and as the case file is said to show, GC Dominio has allegedly failed to comply with certain regulations applicable to foreign shareholders upon registration of the appointment of authorities. Also within the framework of this claim, the Court ordered the filing of a lis pendens by the IGJ. GC Dominio S.A.'s legal advisors have strong grounds to sustain that the resolution of IGJ's claim seeking the de-registration of the appointment of authorities has serious defects and infringes the guarantees of reasonableness and due process; a principle that derives f rom the constitutional guarantee of defense in court, which entails the right to be heard and to produce evidence to the contrary. GC Dominio S.A. has appealed such injunction because it considers that the IGJ has not shown that its legal arguments are, at least, plausible. e. As a result of a report on suspicious activities reported by the Argentine Federal Revenue Service (“AFIP”) concerning transactions carried out between the Company and some subsidiaries, the Financial Information Unit (“FIU”) pressed criminal charges for alleged money laundering. The action is now pending before Federal Court No. 9, under Dr. Luis Rodriguez. The FIU has pressed charges against the Company and its directors for alleged money laundering activities related to the trading of shares between the Company and some of its subsidiaries. The Company has appointed defense attorneys and has requested a copy of the file to understand the details of the charges. As of the date of these consolidated financial statements, the FIU has not yet produced all the evidence requested by prosecutor Miguel Angel Osorio. The Company and its legal advisors consider that there are strong arguments in the Company's favor having gathered evidence that supports their lack of involvement in any such maneuvers. However, they cannot assure that the outcome of this action will be favorable. f. By means of Resolution 16,364/2010, dated and notified to AGEA as of July 15, 2010, the CNV's Board of Directors decided to initiate summary proceedings against AGEA and certain current and past members of its board of directors and supervisory commission, for alleged infringement of the Argentine Business Associations Law, Decree No. 677/01 and Law No, 22,315. AGEA, as well as the current and past members of the board of directors and supervisory commission who are subject to the summary proceedings, duly filed their respective responses. 132 133 g. AGEA received several inspections from the AFIP aimed at verifying compliance with the so-called competitiveness plans implemented by the National Executive Branch. As a result of such inspections, after several reports issued by the AFIP and the corresponding Resolutions issued by the Ministry of Economy, such bodies allege that certain acts performed by AGEA during 2002 lead to the nullity of some of the benefits granted under said plans for an estimated amount of Ps. 33.4 million. AGEA and its legal counsel believe that there are sufficient grounds in favor of AGEA and, accordingly, no provision has been recorded. An ordinary appeal has been filed by AGEA against such Resolutions. As of the date of these financial statements, such appeal is pending resolution. However, AGEA cannot assure that the appeal will be resolved in its favor. 8.3 Other Claims and Disputes a. On December 12, 2001, Supercanal filed a claim against Multicanal for damages as a result of the enforcement of a preliminary injunction brought by Multicanal against Supercanal. Multicanal responded to such claim denying any liability. Based on de jure and de facto precedents of the case, Cablevisión, as successor of Multicanal's operations, believes that the claim filed should be rejected in its entirety, and that the legal costs should be borne by the plaintiff. As of the date of these financial statements, the proceeding was at the discovery stage. The court of first instance dismissed Supercanal's request that it be allowed to sue without paying court fees or costs. This decision has been ratified by the Federal Court of Appeals. b. On June 22, 2007 TRISA and TSC executed several documents with AFA, applicable from the 2007/2008 until the 2013/2014 soccer seasons, governing the broadcasting by TRISA of all of the National “B” soccer tournament matches and by TSC of ten of the Argentine soccer first division official tournament matches played each week. Out of those ten matches, TRISA broadcast five through TyC Sports. Those agreements set the price to be paid by TRISA for these products and clearly stated its right to sell such products and, additionally, had AFA's express consent. On August 12, 2009 AFA notified TSC of its decision to terminate unilaterally the above- mentioned agreement. TSC has challenged AFA's unilateral termination of the agreement and, in order to safeguard its rights, on June 15, 2010 it brought a legal action against AFA for contractual breach and damages. On July 27, 2011, AFA unilaterally terminated the agreement that bound AFA and TRISA until the 2013/2014 soccer season for the broadcasting of all Argentine National “B” soccer tournament matches. AFA's decision was totally arbitrary and illegitimate, since TRISA has not breached any provision of the agreement, which does not expressly allow voluntary unilateral termination by either party. Therefore, TRISA has challenged AFA's unilateral termination of the agreement. In light of the events and until the situation is remedied, TRISA will not be able to broadcast the five weekly matches of the first division tournament or any of the National “B” soccer tournament matches that it used to broadcast on its signal TyC Sports. The broadcasting rights for the matches of Metropolitan First B category are not governed by the above-mentioned agreements, but by an agreement that is in full force and effect as of the date of these financial statements. The situation described above had a significant impact on TRISA's revenues and costs. Therefore, it had to adjust its signal to these new circumstances. In light of the circumstances described in the above paragraphs, as from August 2009, TRISA has recorded a portion of its revenues based on the progress of negotiations with each client and the new content of the signal. During this year, TRISA has completed those negotiations. As a result, no significant differences arose between the actual results and the original estimates. c. On January 31, 2012, FADRA informed Grupo Carburando's subsidiary Mundo Show S.A. the unilateral rescission of the agreement executed in 2006 whereby FADRA assigned to that company the rights comprising image, sound and static advertising of motor racing at the road racing events Turismo Carretera and TC Pista until December 31, 2015. Mundo Show S.A. has challenged and rejected FADRA's unilateral rescission of the agreement and is analyzing the legal actions it will bring to safeguard its rights. In light of the events and until the situation is remedied, Mundo Show S.A. will not be able to sell or export the audiovisual and static advertising rights of the above-mentioned motor racing events. Therefore, an allowance has been set up for impairment of goodwill and other assets related to such agreement in the amount of approximately Ps. 17 million. d. Pursuant to a notarial certificate issued on September 19, 2008, AGEA and the Company were served with a legal action brought by an entity representing consumers and alleged financial victims (and by six other individuals). Claimants are Multicanal noteholders who claim to be allegedly affected by Multicanal's APE. The claim is grounded on a Consumer Defense Law which, in general terms, provides for an ambiguous procedure that is very strict against the defendant. The Company, AGEA and certain directors and members of the supervisory committee and shareholders have been served with the claim. After rejecting certain preliminary defenses presented by the defendants, such as the application of statutes of limitation and the failure to comply with prior mediation procedures, the claim followed ordinary procedure and the above-mentioned persons duly filed their respective responses. e. On September 16, 2010 the Company was served with a claim brought against it by Consumidores Financieros Asociación Civil para su Defensa. The plaintiff claims a reimbursement of the difference between the value of the shares of the Company purchased at their initial ‘public offering and the value of the shares at the time a decision is rendered in the case. The Company has duly responded to the claim and the intervening Court has deemed the claim responded. 8.4 Matters concerning Papel Prensa: I. Papel Prensa has several disputes pending before the Commercial Court of Appeals of the City of Buenos Aires as a consequence of CNV Resolution No. 16,222. Pursuant to said Resolution, the CNV declared that certain decisions of Papel Prensa's Board of Directors were irregular and with no effect for administrative purposes. The Resolution challenged the Board's fulfillment of the formalities required in the preparation, transcription and execution of meeting minutes on the relevant corporate books. On June 24, 2010, in File No. 75,479/09, the Commercial Court of Appeals of the City of Buenos Aires, Chamber C, decided to nullify CNV Resolution No. 16,222. On the basis of Resolution No. 16,222, the CNV has questioned subsequent decisions of Papel Prensa's Board and of its Shareholders. In response, Papel Prensa has brought several administrative claims against the CNV, questioning its position. All of such claims were decided in Papel Prensa's favor by the Commercial Court of Appeals of the City of Buenos Aires. Consequently, the CNV's decisions were nullified. Furthermore, the Commercial Court of Appeals, Chamber C, dismissed the appeals filed by the CNV before the Supreme Court of Argentina against the Court of Appeals' decisions. The CNV filed a direct appeal before the Supreme Court. As a consequence of the above, Papel Prensa has continued with the criminal proceedings brought against certain public officials. On February 1 and 4, 2010 the Secretary of Domestic Trade, Mario G. Moreno, and the CNV, respectively, requested the judicial intervention of Papel Prensa before the commercial justice. Such claims were pending before the Federal Commercial Court of First Instance No. 2, Clerk's Office No. 4, temporarily under judge Dr. Eduardo Malde, who, on March 8, 2010, issued an injunction whereby he suspended certain decisions adopted at meetings of the Board of Directors and at Shareholders Meetings held on or after November 4, 2009. Judge Malde also appointed a co-administrator without removing the members of the previous corporate bodies. Papel Prensa filed an appeal, which the Commercial Court of Appeals, Chamber C, resolved in Papel Prensa's favor, by revoking the injunction on August 31, 2010. On December 7, 2010 the same Chamber C dismissed the appeals filed by the CNV and the National Government before the Supreme Court of Argentina against the Court of Appeals' decision. Both the CNV and the National Government filed direct appeals against such decision. None of the claims mentioned in the above paragraphs had a material effect on AGEA's 134 135 financial and economic condition as of December 31, 2012. II. On January 6, 2010, the SCI issued Resolution 1/2010 whereby certain business practices were imposed on Papel Prensa. Papel Prensa brought a legal action against such resolution on grounds of unconstitutionality before the Federal Court on Administrative Matters and requested an injunction which was granted by the intervening judge. Pursuant to the injunction, the effects of such Resolution were suspended. On May 7, 2010, the Federal Court on Administrative Matters revoked the injunction. Papel Prensa appealed such decision, which was affirmed by the Federal Court of Appeals on Administrative Matters. Papel Prensa filed an appeal against the Court of Appeals' decision. The appeal was denied and Papel Prensa was served notice of that denial on September 1, 2010. III. Papel Prensa suspended its operations with related parties between March 9 and April 21, 2010 pursuant to an injunction issued on March 8, 2010 by Judge Malde. In his ruling, Judge Malde decided to suspend the Board of Directors' resolution of December 23, 2009, which had approved the terms and conditions of transactions with related parties for the year 2010. On April 21, 2010, the Board of Directors of Papel Prensa, following a proposal made by the court-appointed supervisor (interventor) and co-administrator, approved the resumption of such company's transactions with related parties under provisional conditions for as long as the decision rendered by the Board on December 23, 2009 remained suspended and/or until Papel Prensa's corporate bodies established a business practice to follow with related parties. Such approval involved suspending the application of volume discounts in connection with purchases made by related parties, which could be recognized in their favor, subject to the court's decision on the appeal filed by Papel Prensa against Judge Malde's injunction of March 8, 2010. As from April 21, 2010, transactions with related parties were resumed under the provisional conditions approved by the Board on April 21, 2010. At a meeting held on December 23, 2010, Papel Prensa's Board of Directors approved new conditions that must be fulfilled for the recognition and payment of volume discounts that may be applicable to related parties in connection with purchases of paper made as from April 21, 2010. These new conditions are as follows: (i) the lifting of the provisional suspension of the resolutions adopted by the Board meeting of December 23, 2009, as explained in the previous paragraph, and (ii) the resolution or end, by any means, of any state of uncertainty that may eventually exist about the conditions approved by Papel Prensa's Board in the first item of the agenda of the meeting held on April 21, 2010, as a consequence of the claim brought by the National Government in re “National Government - Secretariat of Domestic Trade - v./ Papel Prensa S.A.I.C.F. y de M. on/ Ordinary”, File No. 97,564, currently pending before Federal Commercial Court of First Instance No. 26, Clerk's Office No. 52. Under this proceeding, the National Government seeks to obtain, among other things, a declaratory judgment of nullity of the provisional conditions for the resumption of transactions with related parties in connection with the purchase and sale of paper approved by Papel Prensa's Board in the first item of the agenda of the above mentioned meeting held on April 21, 2010. Furthermore, at this meeting held on December 23, 2010, Papel Prensa's Board decided to maintain the originally approved sales policy, but to subject the accrual and enforceability, and, consequently, the recognition and payment to the clients, of the eventual volume discounts that may be applicable to them with respect to paper purchases made between January 1, 2011 and December 31, 2011, to a final favorable ruling in the claim brought by Papel Prensa against the constitutionality of SCI Resolution No. 1/2010, or to the final nullification of such Resolution No. 1/2010 in any other way or by any other legal means, whichever happens first. In connection with related parties, the Board approved the same policies and conditions as those approved for the other clients in general. In a meeting held on December 27, 2011 Papel Prensa's Board of Directors decided to maintain for 2012 the same commercial policies that had been approved for 2011 - under the same terms and conditions mentioned in the previous paragraph - for all of its customers in general (including related parties). The commercial policy approved by Papel Prensa was affected by Law 26,736 -effective as from January 5, 2012- which declared a matter of public interest the production, sale and distribution of wood pulp and newsprint and set forth the regulatory framework to be adopted by the producers, sellers, distributors and buyers of such inputs. Among other things, the Law set limits and established conditions applicable to Papel Prensa for the production, distribution and sale of newsprint (including a formula to determine the price of paper), and created the National Registry of Producers, Distributors and Sellers of Wood Pulp and Newsprint where all producers, sellers, distributors and buyers shall be registered as a mandatory requirement in order to produce, sell, distribute, and/or purchase newsprint and wood pulp as from the enactment of the Law. It also contains a series of temporary clauses, specifically and exclusively addressed to Papel Prensa, whereby Papel Prensa is forced to make investments to meet the total national demand for newsprint - excluding from this requirement the other existing company that operates in the country with installed capacity to produce this input. The Law also provides for the capitalization of the funds eventually contributed by the National Government to finance these investments for the purposes of increasing the equity interest and the political rights of the National Government in Papel Prensa, contravening public order regulations contained in Law 19,550 and disregarding several constitutional rights and guarantees of Papel Prensa and its private shareholders. On February 10, 2012 AGEA registered in the National Registry of Producers, Distributors and Sellers of Wood Pulp and Newsprint (Record No. 63 in File No. S01:0052528/12), clearly stating that the decision to register shall not be construed as an acknowledgment or conformity with the legitimacy of Law 26,736, Resolution No. 9/2012 issued by the Ministry of Economy and Public Finance and SCI Resolution No. 4/2012 issued in connection with such Law and/or any other issued in the future, since they seriously affect several rights and guarantees of AGEA which are recognized and protected by the Argentine National Constitution. Shareholders' meeting held on September 27, 2011, as well as on the agenda to be addressed at the meeting of Papel Prensa's Board of Directors of October 3, 2011, which had been the subject matter of Resolution No. 16,691; and (ii) at the hearing held in April 2012 before the same Commercial Court the National Government, Papel Prensa, AGEA, Compañía Inversora en Medios de Comunicación (CIMECO) S.A. and S.A. La Nación, with the assistance of the Argentine Securities Commission, agreed to request the court to order a shareholders' meeting with an agenda substantially similar to that of Papel Prensa's Shareholders' Meeting held on September 27, 2011. The request was granted by the intervening judge and the meeting was scheduled for August 29, 2012. The meeting began on that date but, as a consequence of certain disturbances provoked by the representative of the National Government, the private shareholders that were present at the meeting decided to adjourn it for 48 hours without addressing the agenda. After that, and notwithstanding the resolution adopted at the meeting, on August 31, 2012 Judge O`Reilly decided to order that the adjourned meeting would resume on September 25, 2012. However, the meeting was not held because the Judge subsequently held that the appeals filed against other points of her decision resulted in the suspension of every point of the decision she had rendered, including the new date scheduled for the meeting, even though all appellants had consented to that point. Therefore, the new date of the court-convened meeting that began on August 29, 2012 may not be set until the Supreme Court has rendered its decision about the appeals against Judge O`Reilly's decision of August 31, 2012. Once that occurs and the file is sent back to the original court, Judge O`Reilly shall set a new date to resume the meeting. V. AGEA has not recorded any impact in connection with the foregoing, since its effects shall depend on the final outcome. Such effects are not expected to be material to these financial statements. IV. On September 12, 2011, the CNV issued Resolution No. 16,647 whereby it rendered irregular and with no effect for administrative purposes the decisions made by Papel Prensa's Board of Directors at the meetings held on July 20, 2011 and August 5, 2011. At those meetings, the Board of Directors had called two shareholders' meetings, to be held on September 27, 2011 and September 15, 2011, respectively. Notwithstanding the fact that Resolution No. 16,647 was appealed by Papel Prensa and is therefore not final, on September 15, 2011, Commercial Court No. 5, Clerk's Office No. 9, issued an injunction with respect to the Board of Directors' decisions to call the two shareholders' meetings. The injunction had been requested by the shareholders Arte Gráfico Editorial Argentino S.A., Compañía Inversora en Medios de Comunicación (CIMECO) S.A., and S.A. La Nación. Given that the issuance of the injunction had validated Papel Prensa's decision to call the two shareholders' meetings, both were held as originally scheduled. Nevertheless, and based on the above Resolution No. 16,647, on October 13, 2011 the CNV issued Resolution No. 16,671 rendering irregular and with no effect for administrative purposes all of the decisions made at Papel Prensa's Shareholders' Meetings held on September 15, 2011 and September 27, 2011. Papel Prensa filed an appeal against Resolution No. 16,671, which is, therefore, not final. Also based on Resolution No. 16,647, on November 16, 2011, the CNV issued Resolution No. 16,691 whereby the CNV rendered irregular and with no effect for administrative purposes the decisions made at the Board of Directors' Meeting held on October 3, 2011 and the call for the Board of Directors' meeting on November 17, 2011. Such Resolution is not to be deemed final since Papel Prensa filed an appeal and requested its nullification. In this sense, of particular note is that: (i) at the hearing held before Federal Commercial Court No. 26 of First Instance, Clerk's Office No. 52, the National Government, Papel Prensa, AGEA, Compañía Inversora en Medios de Comunicación (CIMECO) S.A. and S.A. La Nación agreed, among other things, on the composition of the company's corporate bodies, and in particular on the recognition of the authorities appointed by the private shareholders at Papel Prensa's 136 137 Note 9 Regulatory framework for audiovisual communication services Until the enactment of Audiovisual Communication Services Law No. 26,522, the installation, operation and acquisition of audiovisual communication services in Argentina were governed by Broadcasting Law No. 22,285 . Cable TV activities were regulated and overseen mainly by the COMFER. Under Law No. 22,285 broadcasting service companies in Argentina required a non- exclusive license from the COMFER in order to operate. Other approvals were also required, including the authorization from municipal agencies. Broadcasting licenses were granted for an initial period of 15 years, allowing for a one-time extension of 10 years. The extension of the license was subject to the approval of the COMFER, which would determine whether or not the licensee had met the terms and conditions under which the license had been granted. Both Cablevisión and its subsidiaries and other subsidiaries of Grupo Clarín that render broadcasting services, hold licenses granted by the COMFER under such Law. Some of Cablevisión's licenses, including its original license (with and extended term that originally expired on March 31, 2006), and the licenses of other subsidiaries, have already been extended for the above-mentioned 10-year term. On May 24, 2005, Decree No. 527/05 provided for a 10-year-suspension of the terms then effective of broadcasting licenses or their extensions. Calculation of the terms shall be automatically resumed upon expiration of the suspension term, subject to certain conditions. The Decree required that companies seeking to benefit from the extension submit to the COMFER's approval, within two years from the date of the Decree, programming proposals that would contribute to the preservation of the national culture and the education of the population and a technology investment project to be implemented during the suspension term. COMFER's Resolution No. 214/07 regulated the obligations established by Decree No. 527/05 in order to benefit from such suspension. The proposals then submitted were approved and, accordingly, the terms of the licenses originally awarded to Cablevisión, as well as the terms of the licenses to which Cablevisión became the universal successor, and the licenses of other subsidiaries, are currently suspended for ten years. COMFER Resolution No. 275/09 lifted a suspension of license grants that had been ordered by COMFER Resolution No. 726/00 and approved the Rules governing the licensing of Broadcasting and Supplementary Services by means of a physical link, and set a term to apply for licenses under an abbreviated procedure. Therefore, Cablevisión and certain subsidiaries purchased bidding forms to apply for new licenses through this option in such locations where they had not obtained the suspension of the term ordered by Decree No. 527/05, since the terms of those licenses had expired. Cablevisión has requested the COMFER's approval of several transactions, including certain company reorganizations and share transfers. The request for approval of the merger of Cablevisión and its subsidiaries (see Note 8.1.d.) is still pending. The Audiovisual Communication Services Law (Law No. 26,522) was passed and enacted on October 10, 2009, subject to strong concerns over its content and enactment procedure. Even though the new Law became effective on October 19, 2009, not all of the implementing regulations provided by the law have been enacted. Therefore, Law No. 22,285 still applies with respect to those matters which to date have not been regulated, until all terms and procedures for the regulation of the new law are defined. The law provides for the replacement of the COMFER with the Audiovisual Communication Services Law Federal Enforcement Authority (AFSCA, for its Spanish acronym) as a decentralized and autocratic agency under the jurisdiction of the Executive Branch, and vests the new agency with authority to enforce the law. It may be argued that, as of the date of these financial statements, AFSCA has not yet been fully formed and, therefore, its functioning is still questionable. The new law, which governs the audiovisual communication services activities conducted by the Company through its subsidiaries, establishes, among other things,: • A license award and review scheme that grants wide discretion to the Executive Branch and to an Enforcement Authority with questionable composition and powers, • A 10-year limitation to the terms of licenses, with a one-time non-renewable extension, • The non-transferability of authorizations and licenses, • A regulatory framework and registration requirements for signals, production companies and advertising agencies, • A multiple license scheme that: i) restricts to 10 the number of Audiovisual Communication Service licenses, plus a single broadcasting signal for radio, broadcast TV and subscription cable TV services that make use of the radio spectrum; ii) restricts the licensing of subscription broadcasting services rendered by means of a physical link (cable), limiting the number of licenses to 24; iii) sets forth a further restriction on these services, which may not be provided to more than 35% of all inhabitants or subscribers nationwide; iv) establishes that a broadcast TV signal and a cable TV signal may not be simultaneously exploited in the same location, and v) establishes that broadcast TV networks may only own one cable TV signal. The same applies to cable TV networks, which may only own the so-called “local channel”, which is mandatory for every license • Mandatory quotas for certain types of content. Also controversially, the law sets forth retroactive effects by requiring holders of current broadcasting licenses - which were legitimately acquired rights under Law No. 22,285 as amended - to conform to the new law within the term of one year counted as from the time certain mechanisms required for implementation are set in place. It is publicly known that several concerns have been expressed about this law, since it has defects that render it unconstitutional; it seriously damages the development of the audiovisual industry and it restricts fundamental freedoms. Some of these industry players, among them Grupo Clarín and its main subsidiaries, have already made court filings in this sense. As of the date of these financial statements, insofar as the Company is concerned, two preliminary injunctions are in full force and effect providing for: (i) the provisional suspension of section 161 of the Audiovisual Communication Services Law 138 139 with respect to Grupo Clarín, Cablevisión and other subsidiaries, which has been confirmed by the Supreme Court of Argentina, and (ii) at the request of the Consumer Defense Committee, the suspension of the application of sections 45, 161 and 62 through 65 of such Law. Even though this decision has been partially revoked by the Federal Court of Appeals of Salta, the Court of Appeals' decision may be deemed not to be final since the affected party filed an extraordinary appeal, thereby restoring the effects of the decision rendered in the first instance. Regarding the suspension of Section 161 referred to under point (i) above, it should be noted that the Supreme Court of Argentina had confirmed both the injunction and the term of three years set by Chamber I of the Federal Court of Appeals on Civil and Commercial Matters, only changing the date as from which such term had to be calculated. According to such decision, the application of Section 161 was suspended for plaintiffs until December 7, 2012, after which date Section 161 of Law 26,522 could be applicable to the Company and its subsidiaries. In light of certain delaying maneuvers carried out by the National Government, aimed at avoiding a decision on the constitutionality of such law before the date mentioned above, on December 6, 2012 the same Court of Appeals extended the effectiveness of the injunction then in force until a final judgment is rendered on the merits of the case. Against such decision, the National Government filed an appeal directly before the Supreme Court of Argentina. The Court dismissed in-limine the appeal filed by the National Government on December 10, 2012 on the grounds that there were no urgent reasons to decide on the matter, maintaining the effectiveness of the injunction. The National Government filed a Federal Extraordinary Appeal, which was granted by the Court of Appeals on December 19, 2012 and is currently pending before the Supreme Court of Argentina. On December 14, 2012 the Company was served with the decision rendered by the Court of First Instance on the merits of the case in re “Grupo Clarín S.A. and Other v. the Executive Branch on Declaratory Action” (File 119/10). The judge recognized the legitimacy of the plaintiffs to bring an action, considering them holders of the licenses, but rejected the unconstitutionality claim with legal costs to be borne by the claimant. An appeal was filed against that decision in due time and form and is now pending before the Court of Appeals. Subsequently, the Court of Appeals shall order the parties to provide grounds for the appeal filed (see Note 25). On December 17, 2012, the Company, Cablevisión, Artear and Radio Mitre were served with AFSCA/12 Resolution No. 2276, whereby the AFSCA decided to commence the official transfer procedure, further ordering the appraisal by the Court of Appraisals of Argentina of the licenses and the indispensable assets related to broadcast services and ordering both companies to respond, within the framework of that procedure, to a request for information about the licenses and/or services directly or indirectly owned by them. Those companies challenged AFSCA's resolution because it violates the injunction granted and extended by Chamber No. 1 of the Federal Civil and Commercial Court of Appeals. The Executive Branch has regulated most sections of Law No. 26,522 by means of Decree No. 1,225/2010. The most notably arbitrary provision of this decree is the highly discretional mandatory divestiture system set forth to regulate Section 50 of the Audiovisual Communication Services Law, which has evident confiscatory effects. Additionally, AFSCA has issued Resolution No. 432/2011, whereby it approved new bidding terms and conditions for the granting of licenses. Even though Grupo Clarín's subsidiaries have challenged the validity or constitutionality of some regulations imposed by the Enforcement Authority, they have fully complied with the required procedures only in the event that such requirements may be considered valid, for the purposes of safeguarding their rights. Cablevisión complied with AFSCA Resolution No. 296/2010, which provides guidelines for the organization of the programming grid that must be followed by the owners of pay TV audiovisual services. This resolution regulates section 65, subsections a) and b) of Law No. 26,522. The Resolution supplements the provisions of the regulations to the same section of Decree No. 1,225/2010. Cablevisión believes that both the provisions of Decree No. 1,225/2010 and AFSCA Resolution No. 296/2010 are regulatory abuses and violate the right to freedom of press, guaranteed by the National Constitution. In spite of Cablevisión's efforts to organize its programming grids in accordance with the provisions of section 65 of Law No. 26,522, AFSCA has disregarded the effectiveness of several court decisions ordering the suspension of this law and its regulations and has initiated multiple summary proceedings in connection with the cable television licenses of which Cablevisión is the lawful successor. AFSCA contends that Cablevisión failed to comply with the regulations set forth by AFSCA Resolution No. 296/2010. Cablevisión submitted the responses set forth under section 1, Exhibit II of AFSCA Resolution No. 224/2010 in connection with such accusations. A decision has been rendered on some of the summary proceedings and, as a result, a fine was imposed on Cablevisión. Cablevisión has appealed these decisions. Some of the appeals filed by Cablevisión have been decided against it and have again been appealed. To date, two court decisions that order the inapplicability of Resolution No. 296/2010 are still in effect, to wit: i) the injunction issued in re “CODELCO v. NATIONAL GOVERNMENT -EXECUTIVE BRANCH on PRELIMINARY INJUNCTION” pending before the Federal Court of Salta, which suspended, among other things, the application of section 65 of Law No. 26,522 and its regulations. Even though such decision was revoked by the Federal Court of Appeals of Salta, the Court of Appeals' decision may be deemed not to be final since the affected party filed an extraordinary appeal, thereby restoring the effects of the decision rendered in the first instance and ii) the injunction ordered in re “CABLEVISIÓN S.A. v. NATIONAL GOVERNMENT AND OTHERS ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS” by the Federal Court of Appeals of Mar del Plata, whereby the decision rendered in the First Instance was revoked. Such decision rendered in the First Instance had ordered the dismissal of Cablevisión's request, ordering AFSCA to suspend - until a final decision was rendered on the matter - the application of the penalties derived from the alleged non-compliance with section 65 of Law No. 26,522 and Decree No. 1,225/2010 and the application of section 6 of AFSCA Resolution No. 296/2010 on the grounds that Cablevisión's alleged serious non- compliance was not contemplated in the Law or in the Decree. The National Government filed an appeal with the Supreme Court against this decision. Such appeal is still pending resolution. In re “AFSCA v. CABLEVISION SA Decree 1225/10 - RES. 296/10 on/ Proceeding leading to a declaratory judgment” currently pending before the Federal Court of First Instance on Administrative Matters No. 9, on May 16, 2012 the Court granted an injunction that had been requested by AFSCA, ordering Cablevisión and/or the pay television audiovisual services it exploits to conform to Section 65, paragraph 3 b) of Decree No. 1225/2010 and Sections 1, 2, 3, 4 and 5 of AFSCA Resolution No. 296/2010, until a final judgment is rendered on the merits of the case. Cablevisión appealed such injunction. On August 6, 2012, Cablevisión was served notice of a decision rendered by the Federal Court of First Instance on Administrative Matters No. 9 of the City of Buenos Aires, whereby it imposed a fine on Cablevisión of Ps. 20,000 per day for each day of delay in conforming to the injunction that ordered Cablevisión to comply with Section 65 of Decree No. 1225/2010 and AFSCA Resolution No. 296/2010. Cablevisión appealed such fine. As of the date of these financial statements, the appeals filed against the injunction and the fine referred to above are still pending before Chamber No. 4 of the Federal Court of Appeals on Administrative Matters. Between September and October 2011, AFSCA brought 46 charges of delegation of the exploitation of several licenses of which Cablevisión is currently the legal successor. The charges were brought within the framework of COMFER file No. 2,005/08, concerning the registration of the corporate reorganization whereby Multicanal and Teledigital, among other subsidiaries, merged into Cablevisión. Cablevisión has submitted the appropriate responses on behalf of the merged licensees charged as indicated above, which to date have not been decided upon. Cablevisión believes it has strong grounds to reverse the charges 140 141 brought by administrative and/or judicial means. As of the date of these financial statements, the responses submitted are still pending resolution. The Company and its subsidiaries are evaluating the possible effects on their business of such questioned Audiovisual Communication Services Law, its implementing regulations and the matters mentioned above. Depending on several aspects, the Company and/or some of its subsidiaries could be forced to divest of certain services, which shall in turn depend on the choices made by the Company and/or its subsidiaries. All of the above could result in a reduction of the services the Company currently renders, the ownership and rights of which were acquired in compliance with Law No. 22,285. Therefore, at present this situation generates uncertainties about the business of the Company and its subsidiaries, which could significantly affect the recoverability of the Company's relevant assets. In re “Grupo Clarín S.A. and others v. the Executive Branch on/Declaratory Action” (File No.119/10), the accounting and economic experts have submitted their reports where, among other things related to the claim, have estimated the potential accounting and company value losses the Company would suffer if compelled to make divestitures in the final term of one year. Based on the experts' exclusive assumptions, this situation could result in potential accounting losses ranging from Ps. 1.5 billion and Ps. 3.3 billion and a potential significant impairment of the company value. However, the experts have stated that these estimates will depend on several decisions that have not yet been made by the plaintiffs and, therefore, the actual outcome could differ from their estimates. In this sense, AFSCA's application of other interpretations of the law and/or its regulation may allow for taking different actions than those taken by expert witnesses, which may produce different results to those originally estimated by the latter. However, taking into account the new developments that have been taking place regarding AFSCA's interpretations concerning other companies subject to the Law, there are uncertainties for the Company as to the effects that would be derived from the eventual concrete application of such law, which may vary if a wide or restrictive interpretation of the law prevails and, therefore, the corresponding actions to be taken by the Company. The Company continues analyzing the economic impact and the possible consequences that would be derived from an improbable but possible unfavorable judgment. For this reason, the Company cannot accurately quantify the eventual impact on these financial statements. However, the recoverability of the Company's assets could be unaffected if the Company's and other parties' main arguments were adopted to create a framework of increased rationality, either by the amendment, repeal or declaration of unconstitutionality of the new media law and/or its implementing regulations. The Company and its legal advisors consider that this Audiovisual Communication Services law and its implementing regulations violate fundamental constitutional rights, such as, the property right and freedom of the press, among others. For this reason, it will bring the legal actions in each instance to safeguard its rights and those of its shareholders; as well as to protect the fundamental principles infringed by such law. The decisions to be made based on these financial statements should contemplate the eventual impact that these changes in the regulatory framework may have on the Company and its subsidiaries. The Company's financial statements should be read in the light of this uncertain environment. Other Matters Related to the COMFER, now AFSCA. Cablevisión As from November 1, 2002 and until December 31, 2012, the COMFER and AFSCA initiated summary administrative proceedings against Cablevisión and Multicanal (merged into Cablevisión) for infringements of regulations regarding the content of programming. Accordingly, a provision has been set up in this regard. ARTEAR As of December 31, 2012, ARTEAR recorded a provision in the amount of approximately Ps. 7.8 million for fines imposed by the COMFER and AFSCA, some of which have been appealed and are pending resolution. Note 10 Call options ARTEAR Pursuant to ARTEAR's acquisition of 85.2% of its subsidiary Telecor's capital stock in 2000, Telecor's sellers have an irrevocable put option of the remaining 755,565 common, registered, non-endorsable shares, representing 14.8% of the capital stock and votes of Telecor, for a 16-year term as from March 16, 2010 at a price of USD3 million and ARTEAR has an irrevocable call option for such shares for a term of 26 years as from March 16, 2000 at a price of approximately USD4.8 million, which will be adjusted at a 5% nominal annual rate as from April 16, 2016.Subsequently, under an addendum to the original agreements, the beginning of the effectiveness of the irrevocable put option was changed from March 16, 2010 to March 16, 2013. CMD Pursuant to CMD's acquisition of 60.0% of Interpatagonia S.A.'s capital stock in 2007, CMD and the sellers granted each other reciprocal call and put options on all of the shares owned by each of the parties, effective from August 1, 2011 to July 31, 2012. Subsequently, in connection with the acquisition mentioned in Note 12.e., on August 17, 2011, CMD and the seller executed a new agreement whereby they granted each new reciprocal call and put options on all of the shares owned by each of the parties. The price of the shares varies depending on who exercises the option, which is effective from August 1, 2014 to December 31, 2014. The balances arising from the put options mentioned above are disclosed in the item Other Current and Non-Current Liabilities of the Balance Sheet, with an offsetting entry in Other Reserves and Non-Controlling Interest under Equity. 11.1.1 Capital Risk Management Grupo Clarín manages its capital structure seeking to ensure its ability to continue as an ongoing concern, while maximizing the return to its shareholders through the optimization of debt and equity balances. As part of this process, Grupo Clarín monitors its capital structure through the debt-to-equity ratio, which is equal to the quotient of its net debt (Debt less Cash and Banks and Other Current Investments) divided by its adjusted EBITDA. The debt-to-equity ratio for the reporting years is as follows: December 31, 2012 December 31, 2011 3,187 (623) (681) 1,883 2,773 0.68 3,192 (629) (236) 2,327 2,476 0.94 Note 11 Financial instruments 11.1 - Financial Risks Management (*) (*) The amounts included in this note are stated in millions of Argentine pesos. Grupo Clarín is a party to transactions involving financial instruments, which entail exposure to market, currency and interest rate risks. The management of these risks is based on the particular analysis of each situation, taking into account its own estimates and those made by third parties of the evolution of the respective factors. Loans (i) Less: Cash and Cash Equivalents - Cash and Banks - Other Current Investments Net Debt Adjusted EBITDA Debt-to-Equity Ratio (i) Long-term and short-term loans, including derivatives and financial guarantee agreements. The debt-to-equity ratio is reasonable compared to other industry players and considering the particular situation of Argentina and of the companies that make up Grupo Clarín. 142 143 11.1.2 Categories of Financial Instruments December 31, 2012 December 31, 2011 January 1, 2011 Financial Assets Loans and Receivables (1) - Cash and Banks - Current Investments - Receivables (2) At fair value with an impact on net income - Current Investments - Derivatives Total Financial Assets Financial Liabilities At amortized cost - Debt (3) - Accounts Payable and Other Liabilities (4) At fair value with an impact on net income - Derivatives Total Financial Liabilities (1) Net of the allowance for doubtful accounts in the amount of approximately Ps. 126 million, Ps. 114 million and Ps. 113 million, respectively. (2) Includes receivables with related parties in the amount of approximately Ps. 80 million, Ps. 59 million and Ps. 63 million, respectively. (3) Includes loans with related parties in the amount of approximately Ps. 19 million as of December 31, 2012 and 2011 and Ps. 10 million as of January 1, 2011. (4) Includes debt with related parties in the amount of approximately Ps. 87 million, Ps. 120 million and Ps. 78 million, respectively. 11.1.3 Objectives of Financial Risk Management Grupo Clarín monitors and manages the financial risks related to its operations; these risks include market risk (including exchange risk, interest rate risk and equity price risk), credit risk and liquidity risk. Grupo Clarín does not enter into financial instruments for speculative purposes as common practice. 11.1.4 Exchange Risk Management Grupo Clarín enters into certain foreign currency transactions; therefore, it is exposed to fluctuations of exchange rates. 623 235 2,171 550 - 3,579 3,187 2,185 4 5,376 629 75 1,723 172 - 2,599 3,192 1,967 8 5,167 332 64 1,311 191 37 1,935 2,378 1,640 - 4,018 Certain subsidiaries of Grupo Clarín have entered into foreign currency forward transactions, for the purposes of mitigating the adverse effects that future exchange rate fluctuations may eventually have on foreign currency liabilities and, therefore, on the Company's financial position. The Company cannot assure that those operations will protect its financial position from the eventual negative effect of exchange rate fluctuations. The following table shows the monetary assets and liabilities denominated in US dollars, the main foreign currency involved in Grupo Clarín's transactions, at the closing of the years ended December 31, 2012 and 2011: Assets Other Receivables Trade Receivables Other Investments Cash and Banks Total Assets Liabilities Long-Term Debt Sellers financing Other Liabilities Trade Payables and Other Total Liabilities The Central Bank of Argentina and the Argentine Federal Revenue Service issued certain resolutions related to the exchange market, establishing regulations on the requirements for accessing such market. These financial statements have been prepared based on the assumption that the Company will be able to access such market in order to purchase the foreign currency needed to meet its obligations. 11.1.4.1 Foreign Exchange Sensitivity Analysis Grupo Clarín is exposed to exchange risk, mainly with respect to the US dollar. Taking into consideration the balances disclosed above, Grupo Clarín estimates that the impact of a 10% favorable/unfavorable fluctuation of the US dollar exchange rate would generate an income/loss before taxes of approximately Ps. 238 million and Ps. 267 million as of December 31, 2012 and 2011, respectively. While income from foreign exchange agreements in case of a 10% favorable/unfavorable fluctuation of the US dollar exchange rate would generate income before taxes in the amount of approximately Ps. 5 million and Ps. 23 million as of December 31, 2012 and 2011 or a loss before taxes in the amount of approximately Ps. 5 million and Ps. 21 million as of December 31, 2012 and 2011, respectively. The sensitivity analysis presented above is hypothetical since the quantified impact is not USD (in millions) USD (in millions) December 31, 2012 December 31, 2011 11 26 77 61 175 620 - 6 32 658 5 25 27 49 106 678 1 2 47 728 necessarily an indicator of the actual impact, because exposure levels may vary over time. Additionally, even though Grupo Clarín conducts its operations in Argentine pesos, an eventual devaluation of such currency may have an indirect impact on its operations, depending on the ability of the suppliers involved to adjust their prices to such effect. 11.1.5. Interest Rate Risk Management Grupo Clarín is exposed to interest rate risk basically through Cablevisión and its subsidiaries. This is due to the fact that these companies have taken loans at fixed and variable interest rates and have not entered into hedge agreements to mitigate these risks. If interest rates had eventually been 100 basic points higher and all the variables had remained constant, the additional estimated loss before taxes would have been of approximately Ps. 6.2 million and Ps. 3.7 million as of December 31, 2012 and 2011, respectively. 11.1.6. Equity Price Risk Management Grupo Clarín is exposed to equity price risk in connection with its holdings of mutual funds, securities and bonds and foreign exchange agreements. Its sensitivity to the variation in the price of these instruments is detailed below: December 31, 2012 December 31, 2011 Investments valued at quoted prices at closing Other debt instruments valued at quoted prices at closing 390 4 60 8 144 145 The estimated impact of an eventual 10% favorable/unfavorable fluctuation of the quoted price of mutual funds, assuming that all the other variables remain constant, would generate an income/loss before taxes of approximately Ps. 39 million and Ps. 6 million as of December 31, 2012 and 2011, respectively. While income from foreign exchange agreements in case of a 10% favorable/unfavorable fluctuation of the US dollar exchange rate would generate income before taxes in the amount of approximately Ps. 5 million and Ps. 23 million as of December 31, 2012 and 2011 or a loss before taxes in the amount of approximately Ps. 5 million and Ps. 21 million as of December 31, 2012 and 2011, respectively. 11.1.7 Credit Risk Management Credit risk is defined as the risk that one of the parties may breach its contractual obligations, generating an eventual financial loss for Grupo Clarín. Credits involving the Cable Television and Internet Access Segment The credit risk affects cash and cash equivalents, deposits held at banks and financial institutions, as well as credit exposures with clients, including other remaining credits and transactions involved. The companies that operate in this segment actively monitor the credit worthiness of their treasury instruments and the counterparties related to derivatives in order to minimize credit risk. Upon expiration of invoices issued, if they are still outstanding, these companies file several claims for collection purposes. Bank deposits are held in renowned institutions. No significant credit risk concentration is observed concerning clients, due to the atomization of the subscriber base. As of December 31, 2012 and 2011, non- impaired past due trade receivables amounted to approximately Ps. 231.3 million and Ps. 149.6 million, respectively. These receivables involve subscribers without any recent insolvency record. Credits of the Printing and Publishing Segment The companies that operate in this segment conduct an analysis of the clients' financial position at the beginning of the business relationship, through a credit risk report requested from several credit rating agencies. The credit amount granted to each client is monitored on a daily basis, with reports being submitted to the financial management. The credit risk affects cash and cash equivalents, deposits held at banks and financial institutions, as well as credit granted to clients. The maximum theoretical credit risk exposure of the companies operating in this segment is represented by the book value of net financial assets, disclosed in the consolidated balance sheet. For the purposes of conducting an analysis of the suitability of the allowance for bad debts, these companies consider each client on a case by case basis, verifying, among other factors, if there is any record of delinquency, risk of bankruptcy, insolvency proceeding or other judicial proceeding. Trade receivables comprise a significant number of clients and are internally classified among the following categories: Advertising, Official, Distribution, Internet and Subscriptions, among others. The companies that operate in this segment have recorded an allowance for doubtful accounts accounting for 4% of accounts receivable as of December 31, 2012 and 2011. The companies that operate in this segment did not set up an allowance for bad debts for those amounts in which no significant change was recorded in the credit rating, considering such amounts as recoverable. The companies that operate in this segment have a wide range of clients, including individuals, businesses - medium-and-large-sized companies - and governmental agencies. Therefore, these companies' receivables are not subject to credit risk concentration. As of the same dates, the allowance for bad debts amounted to Ps. 79.2 million and Ps. 73.4 million, respectively. This allowance for trade receivables is sufficient to cover the past due doubtful receivables. Credits from the Broadcasting and Programming Segment Credit risk represents for the companies that operate in this segment the risk of incurring in losses arising from possible breaches of the contractual obligations assumed by business or financial counterparties. This risk may be due to economic or financial factors, or to particular circumstances of the counterparty, or to other economic, commercial or administrative factors. Credit risk affects cash and cash equivalents, deposits held at banks and financial institutions in a wide sense, and every form of credit granted to the companies that operate in this segment. The maximum exposure to credit risk is represented by the value of financial assets considered as a whole, recorded in the Consolidated Balance Sheet under Cash and Banks, Other Investments, Trade Receivables and Other Receivables. Financial instruments are executed with creditworthy banks and financial institutions renowned in the market and for terms not longer than three months. In this sense, the companies that operate in this segment have a policy of diversifying their investments among different banks and financial institutions, thus reducing the concentration risk in only one counterparty. As to the credit risk related to financial credit, the companies that operate in this segment evaluate the credit standing of the different counterparties to define their investment levels, based on their equity and credit rating. As to Trade Receivables, such companies have a wide range of clients, categorized depending on the type of business. These categories are: Advertising, Signals, Programming and other. Within this classification, clients can also be classified as advertising agencies, direct advertisers, distributors of cable TV, broadcast TV stations and other, each of them of a Information as of December 31, 2012: Maturities Matured Without any established term First Quarter 2013 Second Quarter 2013 Third Quarter 2013 Fourth Quarter 2013 More than 1 year 146 147 different magnitude. Due to this diversity of clients, there is not a significant credit risk concentration in this respect. The allowance for bad debts is set up upon conducting an analysis of the debtor portfolio, which is recorded as follows: - In the case of individual risks identified (risks of bankruptcy, insolvency proceedings or judicial proceedings pending with the company), for its total value. - The rest of the cases is decided based on the aging of the past due debt, the progress of the collection procedures, the solvency conditions and the variations observed in the clients' settlement periods. 11.1.8. Liquidity Risk Management Liquidity risk is the risk that Grupo Clarín may not be able to fulfill its financial obligations at maturity. Grupo Clarín manages liquidity risk through the management of its capital structure and, if possible, the access to different capital markets. It also manages liquidity risk through a constant review of the estimated cash flows to ensure that it will have enough liquidity to fulfill its obligations. In February 2011, Cablevisión refinanced part of the financial debt, extending the maturity terms with respect to the previous debt. 11.1.8.1 Interest Rate Risk and Liquidity Risk Table The following table shows the breakdown of financial liabilities by relevant groups of maturities based on the remaining period as from the date of the balance sheet through the contractual maturity date. The amounts disclosed in this table represent undiscounted cash flows (principal plus contractual interest). Long-Term Debt Other Debts - 1 274 127 201 94 3,266 3,963 508 195 1,202 225 12 10 154 2,306 Information as of December 31, 2011: Maturities Matured Without any established term First Quarter 2012 Second Quarter 2012 Third Quarter 2012 Fourth Quarter 2012 More than 1 year 11.1.9 Financial Instruments at Fair Value The following table shows Grupo Clarín's financial assets and liabilities measured at fair value at the closing of the reporting year: Long-Term Debt Other Debts - - 271 79 207 165 3,591 4,313 332 268 1,085 169 19 15 199 2,087 December 31, 2012 Quoted Prices (Level 1) Other Significant Observable Items (Level 2) 550 4 390 - 160 4 December 31, 2011 Quoted Prices (Level 1) Other Significant Observable Items (Level 2) 172 8 60 - 112 8 Assets Current Investments Liabilities Financial Instruments Assets Current Investments Liabilities Financial Instruments Financial assets and liabilities are valued using quoted prices for identical assets and liabilities (Level 1), and the prices of similar instruments arising from sources of information available in the market (Level 2). At the closing of the reporting years, Grupo Clarín did not have any financial asset or liability for which a comparison had not been conducted against observable market data to determine their fair value (Level 3). current liabilities is similar to their fair value, due to the short-term maturities of these instruments. The fair value of non-current financial liabilities accounts for the estimated amount that would be required to settle the liabilities and is estimated based on the current rates available to Grupo Clarín for the liabilities with similar terms (currency and remaining term). 11.1.10 Fair Value of Financial Instruments The book value of cash, accounts receivable and The following table shows the estimated fair value of non-current financial liabilities: December 31, 2012 December 31, 2011 Book Value Fair Value Book Value Fair Value Non-Current Debt 2,683 2,469 2,749 2,576 Note 12 Interests a. During 2007, AGEA increased its interest in CIMECO from 33.3% to 50.0%, and executed call and put options on an additional interest in CIMECO's capital stock. During 2008, AGEA partially assigned the rights and obligations arising from such options to its subsidiary AGR and to the Company. Subsequently, in 2008, AGEA, AGR and the Company exercised such call option, increasing, directly and indirectly, the Company's equity interest in CIMECO and Papel Prensa to 100% and 49%, respectively. On April 10, 2008, the Company and the parties to the above-mentioned transaction notified CNDC of such transaction and on May 12, 2008 filed form F-1. After such notice and as of the date of these financial statements, the Company submitted additional information requested by the CNDC. As of the date of these financial statements, the above transaction is subject to administrative approvals. b. On January 11, 2008, IESA acquired the controlling interest of a group of companies mainly engaged in sports journalism, production and commercialization of shows, and the production of motor racing television broadcasting. The share purchase agreement sets forth certain objectives to be met by such group of companies. In case of breach of such provision, the sellers shall have to pay an indemnification. These transactions are subject to administrative approvals. c. On September 2, 2008, ARTEAR increased its equity interest in Pol-Ka and SB Producciones S.A. to 55% of such companies' capital stock and votes, thus acquiring a controlling interest in both companies, in which it previously exercised common control. These transactions are subject to administrative approvals. d. On February 10, 2011, CMD sold to a third party all of its shares of Dinero Mail, for approximately USD 4.4 million in cash; part of the price was withheld as guarantee. 148 149 e. On August 17, 2011, CMD executed a stock purchase agreement, whereby it increased by 20% its interest in Interpatagonia S.A., where it now holds 80% of the capital stock. CMD paid approximately Ps. 4.3 million in consideration for the shares. f. On October 3, 2011 the Company's subsidiary AGR acquired 65.46% of the capital stock and votes of Cúspide Libros S.A. and 2.40% of the capital stock and votes of Librerías Fausto S.A.C.E.I. (controlled by Cúspide Libros S.A.). The transaction amounted to USD 2.8 million and Ps. 3.8 million. g. On July 15, 2012, subject to the fulfillment of certain conditions precedent, each of Cablevisión's Paraguayan subsidiaries (Cable Visión Comunicaciones S.A., Televisión Dirigida S.A., Consorcio Multipunto Multicanal S.A. and Producciones Unicanal S.A.) entered into an agreement with a Paraguayan company, whereby they agreed to assign most of their assets and operations. Such conditions precedent were fulfilled on October 1, 2012 and the agreed-upon assignment was executed for a total consideration of USD 142.4 million. Out of that amount, USD 6.7 million was held in escrow. As a result of that operation, Cablevisión obtained a net consolidated gain after taxes of approximately Ps. 444 million, which, taking into consideration the Company's equity interest in Cablevisión, accounts for a gain of approximately Ps. 180 million after taxes. Cablevisión S.A. had a 70% interest in such subsidiaries and the remaining 30% was held by minority shareholders. On October 1, 2012 the minority shareholders transferred their equity interests to the majority group for a total consideration of USD 31.5 million. On October 1, 2012, Cablevisión sold its equity interest in Teledeportes Paraguay S.A. for approximately USD 6.8 million. Out of that amount, USD 0.2 million was held in escrow. Note 13 Discontinued operations The results of operations of Cablevisión's Paraguayan subsidiaries (see Note 12.g) are disclosed under discontinued operations in these consolidated financial statements. Revenues Cost of Sales Gross income Administrative Expenses Selling Expenses Financial Income Financial Costs Other Income and Expense, net Income before Income Tax Income Tax Income for the year from discontinued operations For a better understanding of the Consolidated Statement of Cash Flows, below is a detail of the total net balances from discontinued operations (in millions of Ps.): Cash flows (used in) / generated by operating activities Cash flows generated by (used in) investing activities Cash flows generated by (used in) financing activities Financial results generated by (used in) cash Total Cash provided for the Year Note 14 Reserves, retained earnings and dividends Balances at the beginning of the year: Legal Reserve Accumulated Results Other Reserves Total Net Income Attributable to the Parent Company Dividend Distribution Changes in Reserves for Acquisition of Minority Interests Balance at the end of the year December 31, 2012 December 31, 2011 234,015,395 (105,770,126) 128,245,269 (51,581,016) (16,117,563) 3,943,864 (4,140,628) 519,586,568 579,936,494 (57,630,783) 522,305,711 237,768,734 (104,538,099) 133,230,635 (49,573,719) (20,626,307) 4,274,617 (8,165,166) (890,248) 58,249,812 (10,823,319) 47,426,493 December 31, 2012 December 31, 2011 (168,265,638) 172,946,069 68,719,855 4,024,959 77,425,245 46,336,087 (34,847,951) (654,758) (390,136) 10,443,242 December 31, 2012 December 31, 2011 64,740,233 1,539,154,967 (18,384,533) 1,585,510,667 482,310,720 (135,000,000) 23,591,807 1,956,413,194 38,054,509 1,171,087,483 (16,485,290) 1,192,656,702 514,753,208 (120,000,000) (1,899,243) 1,585,510,667 a. Grupo Clarín On April 26, 2012, Grupo Clarín's Annual Regular Shareholders' Meeting decided, among other things, to appropriate the accumulated results for the year 2011; which at that time amounted to Ps. 1,540,313,089 as follows: (i) Ps. 23,912,434 to the legal reserve, (ii) Ps. 135,000,000 to dividend distribution, (iii) Ps. 387,028,756 to the judicial reserve for future dividend distribution, (iv) Ps. 300,000,000 to the optional reserve for future dividends and (v) Ps. 694,371,899 to the optional reserve for illiquidity of results. b. Cablevisión On April 23, 2012, Cablevisión's General Regular and Special Shareholders' Meeting decided to distribute dividends in the amount of Ps. 217 million, payable in two equal installments, the first one on or before May 24, 2012, as determined by the Board of Directors, and the second one on or before December 31, 2012, as determined by the Board of Directors. Out of such amount, approximately Ps. 87 million corresponds to the non-controlling interest in that company. On April 27, 2012, Cablevisión's Board of Directors, taking into consideration that the company had enough earnings to settle the entire amount of the approved dividends, decided to make available to shareholders, as from such date, the amount of Ps. 217 million. Note 15 Non-controlling interest December 31, 2012 December 31, 2011 Balances as of January 1st Equity in the Earnings of Other Companies for the year Dividends and Other Movements of Non-Controlling Interest Changes in Reserves for Acquisition of Minority Interests Variation in Translation Differences of Foreign Operations Balance at the end of the year 1,063,645,779 490,020,368 (290,063,721) 15,782,911 95,183,596 1,374,568,933 936,398,963 270,856,731 (185,768,664) (1,002,358) 43,161,107 1,063,645,779 Note 16 Balances and transactions with related parties The following table contains the outstanding balances with related parties: Other Receivables Non-Current Under Joint Control Current Under Joint Control Other Related Parties Trade Receivables Current Under Joint Control Other Related Parties December 31, 2012 December 31, 2011 January 1, 2011 17,312,664 17,312,664 3,946,590 16,145,105 20,091,695 41,450,950 1,442,310 42,893,260 15,238,424 15,238,424 1,794,441 2,890,965 4,685,406 36,287,958 3,165,717 39,453,675 13,744,482 13,744,482 6,312,258 9,326,197 15,638,455 33,754,882 506,119 34,261,001 150 151 Trade Payables and Other Current Under Joint Control Other Related Parties Long-Term Debt Non-Current Under Joint Control Current Other Related Parties Other Liabilities Non-Current Other Related Parties Current Under Joint Control Other Related Parties December 31, 2012 December 31, 2011 January 1, 2011 67,957,504 18,759,995 86,717,499 5,775,689 5,775,689 13,316,320 13,316,320 - - - 30,336 30,336 87,458,426 32,007,203 119,465,629 5,717,866 5,717,866 13,264,292 13,264,292 - - - 496,819 496,819 55,397,639 21,842,391 77,240,030 5,083,272 5,083,272 5,093,485 5,093,485 438,783 438,783 1,805 465,526 467,331 The following table shows the operations with related parties for the years ended December 31, 2012 and 2011: Item December 31, 2012 December 31, 2011 Under Joint Control Advertising Sales Circulation Sales Printing Services Sales Sales of Internet Subscriptions TV Signals Sales Other Sales Interest Income Productions and Co-Productions Printing and Distribution Costs Rights Advertising and Promotion Expenses Interest Expense Other Related Parties Advertising Sales Circulation Sales TV Signals Sales Other Sales Other Income Rentals Advertising and Promotion Expenses Interest Expense Other Purchases 50,896,183 10,987 1,172,411 485,598 15,034,057 8,245,768 1,788,085 (29,103,994) (23,612,708) (109,539,691) (5,852,531) (636,334) 495,571 - 3,386,741 16,248,805 657,543 (159,121) (1,794,748) (1,232,274) (173,333,619) 50,429,641 9,000 - 639,551 32,939,584 7,000,346 2,305,270 (25,888,208) (11,136,385) (154,666,517) (5,214,593) (1,526,196) - 135,540 2,626,686 7,900,163 - (199,357) (1,244,364) (744,480) (163,285,770) The fees paid to the Board of Directors and the Upper Management of Grupo Clarín for the years ended December 31, 2012 and 2011 amounted to approximately Ps. 120 million and Ps. 100 million, respectively. Note 17 Earnings per share The following table shows the net income and the weighted average of the number of common shares used in the calculation of basic earnings per share: Net Income used in the Calculation of Basic Earnings per Share (gain): From Continuing Operations From Discontinued Operations Weighted Average of the Number of Common Shares used in the Calculation of Basic Earnings per Share Earnings per Share The weighted average of the number of outstanding shares was 287,418,584. Since no debt securities convertible into shares were recorded, the same weighted average should be used for the calculation of diluted earnings per share. Basic and Diluted Earnings per Share From Continuing Operations From Discontinued Operations Total Earnings per Share Dividends paid for the year 2012 amounted to Ps. 135,000,000 (Ps. 0.47 per share). 152 153 December 31, 2012 December 31, 2011 276,210,672 206,100,048 482,310,720 287,418,584 1.68 495,735,174 19,018,034 514,753,208 287,418,584 1.79 December 31, 2012 December 31, 2011 0.96 0.72 1.68 1.72 0.07 1.79 Note 18 Note 19 Covenants, sureties and guarantees provided a. Note 5.12 sets forth certain restrictions to which Cablevisión (by itself and as the surviving company and successor to Multicanal's operations after the merger), PRIMA and AGEA are subject under their respective financial obligations described in such note. b. IESA is subject to contractual restrictions on the transfer of its equity interest in TRISA and Tele Net Image Corp. c. During the year 2009, AGR purchased a binding machine on credit. To secure the transaction, AGR granted the supplier a pledge over the machine. AGR granted joint and several guarantees for the loans granted by Banco de Inversión y Comercio Exterior and Standard Bank Argentina S.A. to Artes Gráficas del Litoral S.A. d. In July 2009, the Company executed an agreement securing payment of GCSA Investments' obligations under its loan, as detailed in Note 5.12.4 to these consolidated financial statements. e. On May 27, 2010, CMD executed a mortgage agreement on a building of its property securing the payment of the obligations under the loan with Banco de la Ciudad de Buenos Aires mentioned in Note 5.12.6. f. In October 2011, the Company executed agreements securing the payment of certain financing transactions of one of its subsidiaries in the amount of USD 2.9 million, effective from October 2011 to October 2013. g. On September 25, 2012, GCGC executed a mortgage agreement on a building of its property securing the payment of the obligations under the loan with Banco de la Ciudad de Buenos Aires mentioned in Note 5.12.3. Grupo Clarín acts as guarantor of said financing. h. On October 12, 2012, the Company executed an agreement securing the payment of the obligations under a loan taken by GCGC with Standard Bank Argentina mentioned in Note 5.12.3. Award of the BID of the city of Buenos AIres On June 7, 2011, the Government of the City of Buenos Aires issued Decree No. 316 whereby it approved a public bidding process to contract comprehensive digital services for educational purposes for elementary school students in the City of Buenos Aires. Such services include, but are not limited to, the delivery of one netbook per student and one notebook per teacher under a gratuitous bailment agreement, connectivity, first and second level support, content access control, replacement in case of theft or damage and new license, both with certain limitations. The bid was awarded to PRIMA for a five-year term, which will start after certain requirements have been met. As consideration, PRIMA would receive an amount per student, teacher and school. As of December 31, 2011 the initial requirements had been met in order to bring the agreement into effect and to begin its billing. The agreement has been in effect during the year. No inconveniences have arisen and the Government of the City of Buenos Aires has been honoring the payments in accordance with the bidding terms. Note 20 Long-term savings plan During the last quarter of 2007, the Company, together with its subsidiaries, began to implement a PALP for certain executives (directors and managers comprising the “executive payroll”), which became effective in January 2008. Executives who adhere to such plan undertake to contribute regularly a portion of their salary (variable within a certain range, at the employee's option) to a fund that will allow them to strengthen their savings capacity. Each company of the Group where those executives render services will match the sum contributed by such executives. This matching contribution will be added to the fund raised by the employees. Under certain conditions, the employees may access such funds upon termination of their participation in the PALP. The PALP provides for certain special conditions for those managers who were in the “executive payroll” before January 1, 2007. Such conditions consist of supplementary contributions made by each company to the PALP related to the executive's years of service with the Group. As of December 31, 2012, such supplementary contributions made by the Company on a consolidated basis amount to approximately Ps. 40 million, and the charge to income is deferred until the retirement of each executive. Pursuant to IAS No. 19, the above-mentioned savings plan qualifies as a Defined Contribution 1 year Between 1 and 5 years 5 years or more Plan, which means that the companies' contributions shall be charged to income on a monthly basis as from the date the plan becomes effective. Note 21 Operating Leases Lease Agreements As of December 31, 2012 and 2011, the Company is a party to non-cancellable operating leases, which are currently effective and have different terms and renewal rights. The total amount of minimum future payments for non-cancellable operating leases is the following (in millions of Ps.): December 31, 2012 December 31, 2011 96 120 7 223 43 60 10 113 Note 22 Derivatives The following is a detail of the derivatives held by the Company (amounts stated in millions of Argentine pesos): Foreign Currency Forward Contracts - Fair Value Hedge Interest Rate and Exchange Rate Swap Agreements Total Less Non-Current Portion: Foreign Currency Forward Contracts - Fair Value Hedge Total Current portion December 31, 2012 December 31, 2011 January 1, 011 Assets Liabilities Assets Liabilities Assets Liabilities - - - - - - 4.0 - 4.0 - - 4.0 - - - - - - 8.2 - 8.2 3.9 3.9 4.3 - 37.2 37.2 - - 37.2 - - - - - - No ineffectiveness has been recorded in connection with fair value hedges. 154 155 Note 23 Note 25 Subsequent events In re "Grupo Clarín S.A. and Other v. Executive Branch on Declaratory Action" (File 119/10), mentioned in Note 9, on January 25, 2013 the Company, the National Government and AFSCA, which is also a party to this case, submitted the brief with the grievances caused by the decision rendered in the First Instance, expressing the grounds of their appeal pursuant to applicable law. The parties were served with those grounds for them to refute them by February 13, 2013. As from that date, the file has been pending before Chamber No. 1 of the Court of Appeals, which shall render a decision on the appeal. Note 26 Approval of financial statements Grupo Clarín's Board of Directors has approved the consolidated financial statements and authorized their issue for March 8, 2013. Cablevisión Comunicaciones S.A.'s investment On December 19, 2012 Cablevisión Comunicaciones S.A. (a subsidiary of Cablevisión) executed a Total Return Swap for USD 40 million which provides for the collection, as from the execution of the agreement, of all principal and interest on the notes issued by Prima and the effective delivery of the notes at first request either in the form of permanent certificates, in book-entry form or as interest on the notes. Such transaction is disclosed net of the total notes in the consolidated financial statements (Note 5.12). Note 24 Law No. 26,831 Capital markets On December 28, 2012 Capital Markets Law No. 26,831 (the "Law"), which was passed on November 29, 2012 and enacted on December 27, 2012, was published in the Official Gazette. The Law provides for a comprehensive amendment of the public offering regime, regulated until that date by Law No. 17,811, enhancing, among others, the National Government's monitoring powers, as well as changing the authorization, control and monitoring mechanisms of all stages of the public offering process and the role of all the entities and individuals involved. The Law became effective on January 28, 2013. Notwithstanding the foregoing, given that as of the date of these financial statements the CNV had not yet regulated the Law, on January 21, 2013 that agency issued Resolution No. 615 whereby it provided that until the respective regulations are issued, the relevant CNV rules continue to apply (as amended in 2001). Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman SUPPLEMENTARY FINANCIAL INFORMATION 156 157 Supplementary Financial Information As of December 31, 2012 1. Company’s activities Grupo Clarín is the most prominent and diversified media group in Argentina and one of the most important in the Spanish-speaking world. It has presence in the printed media, radio, broadcast and cable television, audiovisual content production, the printing industry and Internet. Its leadership in the different media is a competitive advantage that enables Grupo Clarín to generate significant synergies and expand into new markets. Its activities are grouped into four main segments: Cable television and Internet access, Printing and publishing, Broadcasting and Programming, and Digital content and other. The Company carried out its activities in the challenging context faced as a consequence of constant harassment of the media in general and, specifically, Grupo Clarín. Among the main activities carried out during the year, the following were the most significant: In the Printing and Publishing segment, during the year, the Company continued to publish its traditional newspapers and magazines, focusing on strengthening its editorial offering through the launch of new collectible and optional products. In the Broadcasting and Programming Segment, El Trece maintained its positioning among the broadcast stations which the highest audience share. This leading position is mostly Non-Current Assets Current Assets Total Assets Equity of the Parent Company Equity of Non-Controlling Interests Total Equity Non-Current Liabilities Current Liabilities Total Liabilities attributable to the performance of its programming grid both during the Prime Time, as well as during other times, with good results for the afternoon and weekend programs, with programs such as "ShowMatch", "Soñando por Cantar", "Noticiero 13" and "Telenoche" in the News Program segment; "Este es el Show", "Soñando por Bailar", "Sos mi Hombre" and "Periodismo Para Todos", among others. In the Cable Television and Internet Access segment, the Company focused on subscriber loyalty initiatives and on the expansion of its Cablevisión HD and broadband Internet access subscriber base. Fibertel continued to promote Evolution, a 30 Mbps high-speed connectivity product launched in fiscal year 2011, the only one in the market. Progress was also made in the optimization of the reach of digital and premium services to cities and towns in the provinces. On October 1, 2012, Cablevisión S.A.'s subsidiaries completed the assignment of their operations in the Republic of Paraguay (see Note 12.g to these consolidated financial statements). 2. Consolidated financial structure Note: the amounts are rounded up and stated in thousands of Argentine Pesos. The figures under total amounts may not represent the exact arithmetic sum of the other figures in the table. As established by the CNV through Resolutions No. 562 (amended by Resolution No. 576) and No. 592, the following table shows the balances and results for the year, on a comparative basis with the prior year, both prepared under IFRS. December 31, 2012 December 31, 2011 8,303,639 3,699,980 12,003,619 4,090,030 1,374,569 5,464,599 3,378,694 3,160,327 6,539,020 7,791,866 2,855,978 10,647,844 3,634,142 1,063,646 4,697,788 3,319,250 2,630,806 5,950,056 Total Equity and Liabilities 12,003,619 10,647,844 3. Consolidated comprehensive income structure Note: the amounts are rounded up and stated in thousands of Argentine Pesos. The figures under total amounts may not represent the exact arithmetic sum of the other figures in the table. As established by the CNV through Resolutions No. 562 (amended by Resolution No. 576) and No. 592, the following table shows the balances and results for the year, on a comparative basis with the prior year, both prepared under IFRS. Operating Income/Loss from Continuing Operations (1) Financial Results Equity in Earnings from Affiliates and Subsidiaries Other Income and Expense, net Income/Loss from Continuing Operations before Income Tax and Tax on Assets Income Tax and Tax On Assets Income for the Year from Continuing Operations Net Income from Discontinued Operations Net Income for the Year Other Comprehensive Income for the Year Total Comprehensive Income for the Year (1) Defined as net sales less cost of sales and expenses. 4. Cash flow structure Note: the amounts are rounded up and stated in thousands of Argentine Pesos. The figures under total amounts may not represent the exact arithmetic sum of the other figures in the table. As established by the CNV through Resolutions No. 562 (amended by Resolution No. 576) and No. 592, the following table shows the balances and results for the year, on a comparative basis with the prior year, both prepared under IFRS. December 31, 2012 December 31, 2011 1,900,321 (916,154) 13,683 639 998,490 (524,876) 473,614 498,717 972,331 180,169 1,152,500 1,710,140 (582,086) 33,654 1.507 1,163,215 (425,032) 738,183 47,426 785,610 81,154 866,764 Cash provided by (used in) Operating Activities Cash provided by (used in) Investment Activities Cash provided by (used in) Financing Activities Total Cash provided (used) for the Year Financial Results Generated By Cash And Cash Equivalents Total Changes in Cash December 31, 2012 December 31, 2011 2,291,944 (819,887) (1,110,017) 362,040 77,116 439,156 1,577,219 (1,527,311) 187,633 237,541 42,090 279,632 158 159 5. Statistical data Cable TV subscribers (1) (5) Cable TV homes passed (2) (5) Cable TV churn ratio Internet access subscribers (1) Newspaper circulation (3) Canal 13 audience share Prime Time (4) Total Time (4) December 31, December 31, December 31, December 31, December 31, 2012 2011 2010 2009 2008 3,404,698 3,490,320 3,357,853 3,192,950 3,190,570 7,455,898 15.0 1,504,380 311,699 35.9 29.4 7,586,506 15.1 1,351,107 331,238 42.2 33.0 7,485,595 14.3 1,128,171 360,816 42.2 31.0 7,457,043 15.8 988,031 394,796 40.1 29.7 6,753,590 15.3 938,767 431,098 43.3 33.5 (1) Includes companies controlled, directly and indirectly, by Cablevisión (Argentina, Uruguay and Paraguay). (2) Contemplates the elimination of the overlapping of networks between Cablevisión and subsidiaries (including Multicanal and Teledigital). (3) Average quantity of newspapers per day (Diario Clarín and Olé), pursuant to the Instituto Verificador de Circulaciones (this figure represents sales in Argentina and abroad). (4) Share of prime time audience of broadcast television stations in the Metropolitan Area of Buenos Aires, as reported by IBOPE. Prime time is defined as 8:00 PM to 12:00 AM, Monday through Friday. Total time is defined as 12:00 PM to 12:00 AM, Monday through Sunday. (5) As of December 31, 2012 it does not include the data corresponding to Cablevisión's subsidiaries in Paraguay (see Note 12.g.). 6. Ratios Liquidity (current assets / current liabilities) Solvency (equity / total liabilities) Capital assets (non-current assets / total assets) 1.17 0.84 0.69 1.09 0.79 0.73 December 31, 2012 December 31, 2011 7. Outlook Grupo Clarín's corporate strategy is aimed at consolidating its presence in the local and regional market, strengthening its presence in the traditional media, with a growing focus on digital media and in the production and in the distribution of content. Among its initiatives, the Company seeks to leverage its positioning in the Argentine industry and its vast knowledge of the media consumer to strengthen and develop its current businesses. One of its main objectives is to boost its cable television and Internet access services by leveraging its strong presence in distribution networks, the strength of its brands and, above all, its vast experience in content production. In a framework of continued hostility against the media, the Company remains committed to informing with independence, to reaching all sectors of society and to supporting the quality and credibility values of its media. It will assess the implications of the laws related to its activities; while bringing the pertinent legal actions to safeguard its rights and those of its readers, audiences and clients. Whatever the context, the Company will continue to assess eventual opportunities for growth in the local and international market that may increase value for its shareholders and conform to its business strategy. The Company will keep focusing on the core processes that allow for a sustainable and efficient growth from different perspectives: financial structure, management control, business strategy, human resources, innovation and corporate social responsibility. 8. Progress made on compliance with the implementation of the IFRS On April 29, 2010, the Company's Board of Directors approved the IFRS implementation plan. To date, the Company has fulfilled the aspects established by such plan and has issued the first annual consolidated financial statements under IFRS for the year ended December 31, 2012. Notes 2.2 to the interim condensed consolidated financial statements and Note 2.2 to the interim condensed parent company only financial statements disclose the information about reconciliation between NCP ARG and IFRS, which is required by Technical Resolution No. 26 (amended by Technical Resolution No. 29) and by IFRS 1. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 160 161 Report of Independent Accountants Free translation from the original prepared in Spanish To the Shareholders, President and Directors of Grupo Clarín S.A. Legal domicile: Piedras 1743 Autonomous City of Buenos Aires CUIT No 30-70700173-5 1. We have audited the attached consolidated financial statements of Grupo Clarín S.A. and its controlled subsidiaries which comprise the consolidated balance sheet at December 31, 2012, the consolidated statements of comprehensive income , the consolidated statements of changes in equity and of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. The balances and other information for the fiscal year 2011 are an integral part of the above- mentioned audited financial statements, so they are to be considered in the light of those financial statements. 2. The Board of Directors is responsible for the reasonable preparation and presentation of these consolidated financial statements in accordance with International Financial Reporting Standards adopted by the Argentine Federation of Professional Councils in Economic Sciences (FACPCE, for its Spanish acronym) as professional accounting standards and incorporated by the Argentine Securities Commission (CNV, for its Spanish acronym) to its regulations, as adopted by the International Accounting Standards Board (IASB). Further, the Board of Directors is responsible for the internal control it may deem necessary to enable preparing consolidated financial statements free of material misstatements caused by errors or irregularities. Our responsibility is to express an opinion on the consolidated financial statements based on the audit we performed with the scope detailed in paragraph 3.. 3. We conducted our audit in accordance with auditing standards in effect in Argentina. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements and to form an opinion on the reasonableness of the relevant information contained in the consolidated financial statements. An audit includes examining, on a selective test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting standards used and significant estimates made by the Company, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. 4. On October 10, 2009, Audiovisual Communication Services Law No. 26,522 (the “Law”) was enacted which repeals Broadcasting Law No. 22,285 which regulate the principal activities of the Company and some of its subsidiaries. As mentioned in Notes 9 and 25 to the consolidated financial statements, the Company and certain subsidiaries are analyzing the possible consequences that could be derived from the change of regulatory framework on their business, and as indicated in the same Notes, is bringing and will bring all legal actions corresponding to each instance to safeguard its rights and those of its shareholders. Accordingly, there is uncertainty as to the effect that this change in the regulatory framework and the outcome of the legal actions being brought by the Company could have on the activities of the economic group and, therefore, on its consolidated financial statements taken as a whole. 5. As mentioned in Notes 8.1.b., 8.1.c., 8.1.d. and 8.1.e. to the consolidated financial statements, since September 2009, the Federal Broadcasting Committee, the National Antitrust Commission, the Secretariat of Domestic Trade (“SCI”, for its Spanish acronym), Argentine Secretariat of Communications and the Ministry of Economy and Public Finance have issued several resolutions on matters related to: (i) several aspects related to the acquisition of Cablevisión S.A., Multicanal S.A. and other companies, and their subsequent merger, and (ii) the revocation of the license that had been originally granted to FIBERTEL S.A. In addition, as indicated in Note 8.1.f. to the consolidated financial statements, the subsidiary Cablevisión was served with a preliminary injunction granted to a third party ordering the separation of the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión and the appointment of a court-appointed supervisor (interventor) and co-administrator. As indicated in the above-mentioned Notes, the subsidiary Cablevisión has brought legal actions as it considered appropriate. Accordingly, there is uncertainty regarding the effect that the final outcome of these situations could have on the activities of the subsidiary Cablevisión S.A. and, therefore, on the consolidated financial statements of the company taken as a whole. 6. As mentioned in Note 8.1.a. to the consolidated financial statements, on March 3, 2010 the Secretariat of Domestic Trade (“SCI”) issued Resolution 50/10 establishing the formula for calculation of the monthly subscription price to be paid by the users of pay-television services. As indicated in the same Note, on March 10, 2011 SCI Resolution No. 36/11 was published in the Official Gazette establishing the parameters to be applied to the services rendered by Cablevisión, having been extended on several occasions the effectiveness of Resolution No. 36/11 until March 2013. As indicated in this Note, the subsidiary Cablevisión filed the corresponding administrative claims and will bring the necessary legal actions requesting a stay of its effects and ultimately its nullity. Accordingly, there is uncertainty regarding the effect that the final outcome of the situation could have on the subsidiary Cablevisión and its subsidiaries' business and, therefore, on the recoverability of its assets. 7. In our opinion, subject to the possible effect on the consolidated financial statements of any potential adjustments and/or reclassifications, if applicable, that could be required as a result of the resolution of the uncertainties described in paragraphs 4, 5, and 6, the consolidated financial statements mentioned in paragraph 1 present fairly, in all material respects, the consolidated financial position of Grupo Clarín S.A. and its subsidiaries as of December 31, 2012 and their consolidated comprehensive income and consolidated cash flows for the fiscal year then ended, in accordance with International Financial Reporting Standards. 162 163 e.1) 87% on the total fees for services invoiced to the Company for all concepts in that year; e.2) 14% on the total fees for audit and related services invoiced to the Company, its parent companies, subsidiaries and affiliates in that year; e.3) 14% on the total fees for services invoiced to the Company, its parent companies, subsidiaries and affiliates for all concepts in that year. f) We have applied the procedures on prevention of asset laundering and terrorism funding set forth in the relevant professional rules issued by the Professional Council for Economic Sciences of the Autonomous City of Buenos Aires. Autonomous City of Buenos Aires, March 8, 2013 8. In accordance with current regulations in respect to Grupo Clarín S.A., we report that: a) The consolidated financial statements of Grupo Clarín S.A. have been transcribed to the “Inventory and Balance Sheet” book and comply with the Corporations Law and pertinent resolutions of the Argentine Securities Commission, as regards those matters within our competence; b) The parent company only financial statements of Grupo Clarín S.A. arise from accounting records kept in all formal respects in conformity with legal provisions which maintain the security and integrity conditions based on which they were authorized by the Argentine Securities Commission; c) We have read the supplementary financial information, on which, as regards those matters that are within our competence, we have no observations to make other than those already stated in paragraphs 4., 5. and 6.; d) At December 31, 2012 the debt accrued in favor of the (Argentine) Integrated Social Security System according to the Company's accounting records and calculations amounted to $1.416.749, none of which was claimable at that date; e) In accordance with section 4 of General Resolution No. 400 issued by the Argentine Securities Commission, amending section 18 subsection e) of the title III.9.1 of the Rules of such Commission, we inform that the total of fees for the audit and related services invoiced to the Company for the year ended December 31,2012 represents: Price Waterhouse & Co. S.R.L. Dr. Carlos A. Pace (Partner) PARENT COMPANY ONLY FINANCIAL STATEMENTS 164 165 Parent Company only Statement of Comprehensive Income For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Notes December 31, 2012 December 31, 2011 Equity in Earnings from Affiliates and Subsidiaries Management fees Administrative Expenses (1) Financial Income Financial Costs Other Income and Expense, net Income before Income Tax and Tax on Assets Income Tax and Tax on Assets 4.3 5.1 5.2 5.3 6 511,048,778 95,346,439 (106,242,489) 5,935,496 (11,130,989) (11,190,319) 483,766,916 549,337,713 77,689,987 (82,962,408) 657,201 (17,263,242) (11,563,098) 515,896,153 (1,456,196) (1,142,945) Net Income for the Year 482,310,720 514,753,208 Other Comprehensive Income Variation in Translation Differences of Foreign Operations Other Comprehensive Income for the year net of income tax 84,985,478 84,985,478 37,992,937 37,992,937 Comprehensive Income for thr year 567,296,198 552,746,145 (1) Includes depreciation of property, plant and equipment and amortization of intangible assets in the amount of Ps. 544.064 and Ps. 559.055 for the years ended December 31, 2012 and 2011, respectively. The notes are an integral part of these parent company only financial statements. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman Parent Company only Balance Sheet As of December 31, 2012, December 31, 2011 and January 1, 2011 In Argentine Pesos (Ps.) Assets Non-Current Assets Property, Plant and Equipment Intangible Assets Deferred Tax Assets Investment in Affiliates and Subsidiaries Other Receivables Total Non-Current Assets Current Assets Other Receivables Other Investments Cash and Banks Total Current Assets Total Assets December 31, December 31, January 1, Notes 2012 2011 2011 4.1 4.2 6 4.3 4.4 4.4 4.5 4.6 1,234,447 140,256 11,162,847 919,419 1,011,711 - - 10,352,970 9,744,474 4,174,676,650 3,694,851,174 3,288,950,768 30,000 30,000 2,135,600 4,187,244,200 3,706,153,563 3,301,842,553 25,198,828 7,742,929 5,251,306 85,113,690 29,866,561 2,950,680 38,193,063 117,930,931 5,040,993 13,639,242 3,055,959 21,736,194 4,225,437,263 3,824,084,494 3,323,578,747 Equity (as per the corresponding statement) 4,090,030,112 3,634,142,107 3,203,295,205 Liabilities Non-Current Liabilities Other Liabilities Total Non-Current Liabilities Current Liabilities Long-Term Debt Taxes Payable Other Liabilities Trade Payables and Other Total Current Liabilities 4.3 4.7 4.8 4.9 28,624,787 28,624,787 25,706,586 25,706,586 19,155,260 19,155,260 62,084,479 1,623,568 14,437,674 28,636,643 127,730,585 2,609,920 13,555,211 20,340,085 71,242,000 1,463,118 11,719,705 16,703,459 106,782,364 164,235,801 101,128,282 Total Liabilities 135,407,151 189,942,387 120,283,542 Total Equity and Liabilities 4,225,437,263 3,824,084,494 3,323,578,747 The notes are an integral part of these parent company only financial statements. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 166 167 Parent Company only Statement of Changes in Equity For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Balances as of January 1, 2011 Set-up of Legal Reserve (Note 7.a.) Dividend Distribution (Note 7.a.) Changes in Reserves for Sellers Financing Net Income for the Year Other Comprehensive Income: Variation in Translation Differences of Foreign Operations Adjustment on Additional Capital Stock Capital Stock Paid-in Capital 287,418,584 309,885,253 1,413,334,666 - - - - - - - - - - - - - - - Balances as of December 31, 2011 287,418,584 309,885,253 1,413,334,666 Set-up of reserves (Note 7.a.) Dividend Distribution (Note 7.a.) Changes in Reserves for Sellers Financing Net Income for the Year Other Comprehensive Income: Variation in Translation Differences of Foreign Operations - - - - - - - - - - -- Balances as of December 31, 2012 287,418,584 309,885,253 1,413,334,666 (1) Broken down as follows: (i) Optional reserve for future dividends of Ps. 300,000,000; (ii) Judicial reserve for future dividend distribution of Ps. 387,028,756 and (iii) Optional reserve for illiquidity of results of Ps. 694,371,899. The notes are an integral part of these parent company only financial statements. - - - - - - - - 3 - - - - - - - - - - - - ( 2 2 2 - - - - - - 5 ( ( 2,010,638,503 - - - - - 2,010,638,503 - - - - Shareholders' Contributions Translation of Other items Subtotal Foreign Operations Other Reserves Legal Reserve - - - - 37,992,937 37,992,937 (16,485,290) - - (1,899,243) - - 38,054,509 26,685,724 - - - - (18,384,533) 64,740,233 (1) Optional reserves - - - - - - - Retained Earnings Accumulated Results Total Equity 1,171,087,483 (26,685,724) (120,000,000) - 514,753,208 3,203,295,205 - (120,000,000) (1,899,243) 514,753,208 - 1,539,154,967 37,992,937 3,634,142,107 - - - - - 23,591,807 84,985,478 - 23,912,434 1,381,400,655 (1,405,313,089) - - - - - - (135,000,000) - 482,310,720 - (135,000,000) 23,591,807 482,310,720 - 84,985,478 2,010,638,503 122,978,415 5,207,274 88,652,667 1,381,400,655 481,152,598 4,090,030,112 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 168 169 Parent Company only Statements of Cash Flows For the years ended December 31, 2012 and 2011 In Argentine Pesos (Ps.) Cash provided by Operating Activities Net Income for the Year Income Tax and Tax on Assets Accrued Interest, net December 31, 2012 December 31, 2011 482,310,720 514,753,208 1,456,196 7,736,987 1,142,945 13,284,640 Adjustments to reconcile net income for the year to cash used in operating activities: - Depreciation of Property, Plant and Equipment and Amortization of Intangible Assets - Exchange Difference and Other Financial Results - Equity in Earnings from Affiliates and Subsidiaries Changes in Assets and Liabilities: - Other Receivables - Trade Payables and Other - Taxes Payable - Other Liabilities Income Tax and Tax on Assets Payments 544,064 (5,745,051) (511,048,778) (4,310,406) 8,273,433 (2,815,415) 882,463 (1,226,707) 559,055 1,271,397 (549,337,713) (22,429,789) 3,636,626 1,538,014 1,835,506 (1,229,415) Net Cash Flows used in Operating Activities (23,942,494) (34,975,526) Cash provided by Investment Activities Dividends collected Capital contributions in subsidiaries Acquisition of Property, Plant and Equipment, net Acquisition of Intangible Assets Loans and interest collected Loans granted Net Cash Flows provided by Investment Activities 101,180,510 (11,042,000) (825,716) (173,632) - - 89,139,162 58,378,830 (5,176,800) (466,763) - 2,670,041 (3,000,000) 52,405,308 Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Cash provided by Financing Activities Loans Payment of Debts Payment of Interest Dividends Paid Net Cash Flows used in Financing Activities Financing results generated by Cash and Cash Equivalents (Decrease) / Increase in cash flow, net Cash and Cash Equivalents at the Beginning of the Year December 31, 2012 December 31, 2011 45,771,275 (1,678,162) - (135,000,000) (90,906,887) 5,887,213 (19,823,006) 32,817,241 121,637,672 (3,263,963) (265,938) (120,000,000) (1,892,229) 584,487 16,122,040 16,695,201 Cash and Cash Equivalents at Year-end 12,994,235 32,817,241 The notes are an integral part of these parent company only financial statements. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 170 171 Notes to the Parent Company only Financial Statements For thr years ended December 31, 2012 Presented on a comparative basis In Argentine Pesos (Ps.) - Note 1 General Information Grupo Clarín is a holding company that operates in the Media industry. Its operating income and cash flows derive from the operations of its subsidiaries in which it participates directly or indirectly. The operations of its subsidiaries include cable television and Internet access services, newspaper and other printing, publishing and advertising activities, broadcast television, radio operations and television content production, on-line and new media services, and other media related activities. A substantial portion of its revenues is generated in Argentina. Note 2 Basis for the Preparation and Presentation of the Parent Company only Financial Statements 2.1 Basis for the preparation and transition to IFRS Pursuant to General Resolution No. 562 issued on December 29, 2009 entitled “Adoption of International Financial Reporting Standards” and General Resolution No. 576/10, the CNV provided for the application of Technical Resolutions No. 26 (TR 26) and 29 issued by the Argentine Federation of Professional Councils of Economic Sciences (FACPCE, for its Spanish acronym). Since the Company is subject to the public offering regime governed by Law No. 17,811, it is required to apply such standards as from the year beginning January 1, 2012. The FACPCE issues Adoption Communications for the enforcement of IASB resolutions in Argentina. Accordingly, the Company has started to apply such standards to these parent company only financial statements, being January 1, 2011 the date of transition to IFRS, as established by IFRS 1 “First-time Adoption of IFRS”. These parent company only financial statements are the first annual parent company only financial statements presented under IFRS. TR 26 establishes that parent company only financial statements must be prepared under IFRS approved to date in Argentina by the “FACPCE”, except for the valuation of investments in subsidiaries, which are valued under the equity method. In preparing these parent company only financial statements for the year ended December 31, 2012, presented on a comparative basis, the Company has followed the guidelines provided by TR 26, and, therefore, these financial statements have been prepared under IFRS 1 “First-time Adoption of IFRS”, except for the above-mentioned valuation of investments in subsidiaries. The Company's parent company only financial statements were previously prepared in accordance with NCP ARG. NCP ARG differ from the IFRS in some areas. For the preparation of these parent company only financial statements, the Company has changed certain valuation and disclosure accounting policies previously applied under NCP ARG in order to comply with the IFRS. The main accounting policies are described in the following notes. The Company has changed the figures disclosed for comparative purposes and those corresponding to the transition date (January 1, 2011) to reflect these adjustments. The mandatory reconciliations are presented in Note 2.2.1. The interim condensed parent company only financial statements have been prepared based on historical cost, except for the measurement at fair value of certain non-current assets and financial instruments. In general, the historical cost is based on the fair value of the consideration granted in exchange for the assets. The attached information, approved by the Board of Directors in the meeting held on March 8, 2013, is presented in Argentine Pesos (Ps.), the Argentine legal tender, and arises from accounting records kept by Grupo Clarín S.A. 2.2 Application of IFRS 1 In preparing the financial statements as of the transition date under IFRS, the Company has applied the mandatory exceptions and certain optional exemptions in order to fully comply with the IFRS in accordance with IFRS 1. The optional exemptions applied by the Company are the following: a) Deemed Cost of Property, Plant and Equipment: The cost of property, plant and equipment, adjusted for inflation in accordance with effective accounting standards, has been considered as the deemed cost at the IFRS transition date, since it is similar to the cost or depreciated cost under IFRS, adjusted to reflect the changes of a general or specific price index. b) Business Combinations: The Company has elected not to apply IFRS 3 “Business combinations” on a retrospective basis for business combinations that occurred prior to the IFRS transition date. c) Accumulated Translation Differences of Foreign Operations: Accumulated translation differences related to foreign operations were considered null at the IFRS transition date. The Company has not used the other exemptions available under IFRS 1. Mandatory Exceptions to IFRS The mandatory exceptions to IFRS 1 applicable to the Company are detailed below: 1. Estimates: The estimates made by the Company under IFRS at the IFRS transition date are consistent with the estimates made at the same date under NCP ARG. 2. The other mandatory exceptions provided by IFRS 1 that have not been considered because they are not applicable to the Company are the following: • Derecognition of financial assets and liabilities. • Hedge accounting. • Embedded derivatives. 2.2.1 Mandatory Reconciliations Pursuant to FACPCE Technical Resolutions No. 26 and No. 29 and IFRS 1, the following is a detail of the reconciliation of comprehensive income for the year ended December 31, 2011 and the reconciliation of equity as of December 31, 2011 and January 1, 2011 reported under NCP ARG to that reported under IFRS. 2.2.2.1 Reconciliation of net income for the year ended December 31, 2011 Net income for the year under NCP ARG (Income) Effect of transition to IFRS: Addition of the variation of Cumulative translation adjustment under NCP ARG to Comprehensive income for the year Subtotal Effect in the variation of the Cumulative translation adjustment due to adjustments to the valuation of affiliates and subsidiaries [1] Effect in income from the adjustments to the valuation of affiliates [1] Total comprehensive income for the year under IFRS [1] Generated by the effect of the adjustments to equity and net income of the companies in which the Company holds an equity interest and the effect of the adjustments to the goodwill of such companies. The description of the adjustments made to such companies is disclosed in Note 2.2 to the consolidated financial statements. December 31, 2011 522,279,377 48,067,813 570,347,190 (10,074,876) (7,526,169) 552,746,145 172 173 2.2.2.2 Reconciliation of equity as of December 31, 2011 and January 1, 2011 Shareholders' equity under NCP ARG 3,735,204,430 3,284,857,240 December 31, 2011 January 1, 2011 Effect of transition to IFRS: Adjustment to the valuation of affiliates and subsidiaries and goodwill [1] Total Shareholders' Equity under IFRS [1] Generated by the effect of the adjustments to equity and net income of the companies in which the Company holds an equity interest and the effect of the adjustments to the goodwill of such companies. The description of the adjustments made to such companies is disclosed in Note 2.2 to the consolidated financial statements. 2.2.2.3 Reconciliation of cash flows arising from the parent company only financial statements as of December 31, 2011 No significant differences have been identified in the Parent Company Only Statement of Cash Flows or in the definition of Cash and cash equivalents between NCP ARG and IFRS. 2.3. Standards and Interpretations issued but not adopted to date The Company has not adopted IFRS or revisions of IFRS issued as per the detail below, since their application is not required for the year ended December 31, 2012: - IAS 19 Employee Benefits: Since the Company has not established to date defined benefit plans for its employees and officers, this standard will not have an impact on the Company's financial statements. - Certain improvements to IFRS issued in May 2012 by IASB which clarify some of the international accounting standards (IFRS 1 First-time adoption of the International Financial Reporting Standards, IAS 1 Presentation of financial statements, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation and IAS 34 Interim financial reporting). - IFRS 9 Financial Instruments: Issued in November 2009 and amended in October 2010, IFRS 9 establishes new requirements for the classification and measurement of financial assets and liabilities and for their (101,062,323) 3,634,142,107 (81,562,035) 3,203,295,205 derecognition. IFRS 9 is applicable to the years beginning on or after January 1, 2015, and allows for its early application. The changes may not significantly affect the disclosed amounts that relate to the Company's financial assets and liabilities. - IFRS 10 Consolidated Financial Statements: Defines the concept of control and establishes control as the basis for determining which entities are to be consolidated in the consolidated financial statements. The Board of Directors informs that IFRS 10 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The changes will probably not significantly affect the amounts disclosed regarding the Company's assets and liabilities. - IFRS 11 Joint Arrangements: Classifies joint arrangements either as joint operations (combining the existing concepts of assets under common control and operations under common control) or as joint ventures (equivalent to the existing concepts of entities under common control). IFRS 11 requires the use of the equity method for joint ventures and it also eliminates the proportional consolidation method for this type of businesses. The Board of Directors informs that IFRS 11 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The changes may not significantly affect the amounts of assets and liabilities and the disclosures in the Company's financial statements. - IFRS 12 Disclosure of interests in other entities: Applies to entities with an interest in subsidiaries, joint arrangements, associates or unconsolidated structured entities. IFRS 12 establishes disclosure objectives, as well as the minimum disclosures to be presented. The Board of Directors informs that IFRS 12 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The Company is analyzing the potential impact of this standard. - IFRS 13 Fair Value Measurement: Establishes a structure for the measurement at fair value when required by other standards and the disclosure requirements for measurement at fair value. This IFRS is applicable to both financial and non-financial items measured at fair value. The Board of Directors informs that IFRS 13 will be adopted in the Company's financial statements for the annual period beginning on January 1, 2013. The Company is analyzing the potential impact of this standard. - Amendments to IAS 1 Presentation of financial statements. The main amendment to IAS 1 requires that items of other comprehensive income be grouped into those that may and may not be subsequently reclassified to profit or loss. The amendments to IAS 1 do not specify which items are to be disclosed in other comprehensive income. This amendment will be effective for annual periods beginning as from July 1, 2012. The Company is analyzing the potential impact of this standard. - Amendments to IFRS 7 and IAS 32. The IASB has amended the application guidance to IAS 32 Financial Instruments: Presentation to clarify some of the requirements to offset financial assets and liabilities in the balance sheet. The IASB has also issued an amendment to IAS 7, Financial Instruments: Disclosures to enhance offsetting disclosures These amendments will be effective for annual periods beginning as from January 1, 2013. The Company is analyzing the potential impact of this standard. 2.4 Equity Interests The Company records the interest in its subsidiaries and associates using the equity method, as established by TR 26. 174 175 A subsidiary is an entity over which the Company exercises control. The Company exerts control when it has the power to decide on the financial and operating policies of an entity for the purposes of obtaining benefits from its activities, generally coupled with a participation of more than 50% of the voting rights. An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the associate, generally accompanied by a 20%-50% holding of the voting power, but does not entail control or joint control over those policies. The subsidiaries' and associates' net income and the assets and liabilities are disclosed in the financial statements using the equity method, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5 “Non-Current Assets Held for Sale and Discontinued Operations”. Under the equity method, the investment in a subsidiary or associate is to be initially recorded at cost and the book value will be increased or decreased to recognize the investor's share in the comprehensive income for the year or in other comprehensive income obtained by the subsidiary or associate, after the acquisition date. The distributions received from the subsidiary or associate will reduce the book value of the investment. The losses incurred by an associate in excess of the Company's interest in such company are recognized to the extent the Company has undertaken any legal or implicit obligation or has made payments on behalf of the associate. Any excess of the acquisition cost over the Company's share in the net fair value of the subsidiary's or associate's identifiable assets, liabilities and contingent liabilities measured at the acquisition date is recognized as goodwill. Goodwill is included in the book value of the investment and tested for impairment as part of the investment. Any excess of the Company's share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the acquisition cost, after its measurement at fair value, is immediately recognized in the statement of income. Unrealized gains or losses on transactions between the Company and its subsidiaries and the associates are eliminated considering the Company's interest in those companies. Adjustments were made, where necessary, to the subsidiaries' and associates' financial statements so that their accounting policies are in line with those used by the Company. 2.4.1 Changes in the Company's Interests in Existing Subsidiaries The changes in the Company's interests in subsidiaries which do not generate a loss of control are recorded under equity. The book value of the Company's interests is adjusted to reflect the changes in the relative interest in the subsidiary. Any difference between the amount for which an additional investment is recorded and the fair value of the consideration paid or received is directly recognized in equity. In case of loss of control and significant influence, any residual interest in the issuing company is measured at its fair value at such date, allocating the change in the recorded value with an impact on net income. The fair value is the initial amount recognized for such investments for the purposes of its subsequent valuation for the interest retained as associate, joint venture or financial instrument. Additionally any amount previously recognized in Other Comprehensive Income regarding such investments is recognized as if the Company had disposed of the related assets and liabilities. Consequently, the amounts previously recognized in Other Comprehensive Income may be reclassified to net income. 2.5 Business Combinations The Company applies the acquisition method to account for business combinations. The consideration for each acquisition is measured at fair value (on the date of exchange) of the assets acquired, the liabilities incurred or assumed and the equity instruments issued by the Company in exchange for the control of the company acquired. The costs related to the acquisition are expensed as incurred. The consideration for the acquisition, if any, includes any asset or liability arising from a contingent consideration arrangement, measured at fair value at the acquisition date. Subsequent changes to such fair value, verified within the measurement period, are adjusted against the acquisition cost. The measurement period is the actual period that begins on the acquisition date and ends as soon as the Company receives all the information it was seeking about facts and circumstances that existed as of the acquisition date. The measurement period cannot exceed one year from the acquisition date. All other changes in the fair value of the contingent consideration classified as assets or liabilities, outside the measurement period, are recognized in net income. Changes in the fair value of the contingent consideration classified as equity are not recognized. In the case of business combinations achieved in stages, the Company's equity interest in the company acquired is remeasured at fair value at the acquisition date (i.e., the date on which the Company acquired control) and the resulting gain or loss, if any, is recognized as income/expense or in other comprehensive income, depending on the origin of the variation. In the periods preceding the reporting periods, the Company may have recognized in other comprehensive income the changes in the value of the interest in the capital stock of the acquired company. In that case, the amount recognized in other comprehensive income is recognized on the same basis that would have been required if the Company had directly disposed of the previously-held equity interest. The identifiable assets, liabilities and contingent liabilities of the acquired company that meet the conditions for recognition under IFRS 3 (2008) are recognized at fair value at the acquisition date, except for certain particular cases provided by such standard. Any excess of the acquisition cost (including the interest previously held, if any, and the non-controlling interest) over the Company's share in the net fair value of the subsidiary's or associate's identifiable assets, liabilities and contingent liabilities measured at the acquisition date is recognized as goodwill. Any excess of the Company's share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the acquisition cost, after its measurement at fair value, is immediately recognized in net income. The acquisition cost comprises the consideration transferred and the acquisition- date fair value of the acquirer's previously-held equity interest in the acquiree, if any. As mentioned in Note 11, the recoverability of certain goodwill could be affected by the final outcome of the circumstances described in such note. 2.6 Goodwill Goodwill arises from the acquisition of subsidiaries and associates and refers to the excess of the sum of the consideration transferred, the fair value of the acquirer's previously-held equity interest (if any) in the acquiree over the interest acquired in the net amount of the fair value at the date of acquisition of the identifiable assets acquired and liabilities assumed. If, upon measurement at fair value, the Company's share in the fair value of net identifiable assets of the acquired company exceeds the amount of the consideration transferred, the amount of any non-controlling interest in such company and the fair value of the acquirer's previously-held equity interest in the acquiree (if any), such excess is immediately recognized in the statement of comprehensive income as a gain arising from a very profitable acquisition. Goodwill is not amortized, but tested for impairment on an annual basis. For the purposes of impairment testing, goodwill is allocated to each of the Company's cash- generating units expected to render benefits from the synergies of the respective business combination. Those cash-generating units to which goodwill is allocated are tested for impairment on an annual basis, or more frequently, when there is any indication of impairment. If the recoverable value of the cash-generating unit, i.e. the higher of the value in use or the fair value net of selling expenses, is lower than the value of the net assets allocated to that unit, including goodwill, the impairment loss is first allocated to reduce the goodwill allocated to the unit and then to the other assets of the unit, on a pro rata basis, based on the valuation of each asset in the unit. The impairment loss recognized against the valuation of goodwill is not reversed under any circumstance. In case of a loss of control in the subsidiary, the amount attributable to goodwill is included in the calculation of the corresponding gain or loss. 176 177 2.7 Revenue recognition Management fees are recognized when such services are rendered at the fair value of the consideration received or to be received. 2.8 Foreign Currency and Functional Currency The financial statements of each of the Company's subsidiaries or associates are prepared in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of the Company's parent company only financial statements, the net income and the financial position of each entity are stated in Argentine Pesos (Argentina's legal tender for all companies domiciled in Argentina), which is the Company's functional currency. In preparing the financial statements of the individual entities, the transactions in currencies other than the entity's functional currency (foreign currency) are recorded at the exchange rates prevailing on the dates on which transactions are carried out. At the end of each reporting year, the monetary items denominated in foreign currency are retranslated at the exchange rates prevailing on such date. Exchange differences are charged to net income as incurred. In preparing the Company's parent company only financial statements, in order to measure, under the equity method, the Company's interest in the entities which functional currencies is different from the Argentine Peso, the assets and liabilities of such companies are translated to Argentine pesos at the exchange rate prevailing at the end of the year, while the net income is translated at the exchange rate prevailing on the transaction date. Translation differences are recognized in other comprehensive income as “Variation in Translation Differences of Foreign Operations”. 2.9 Taxes The income tax charge reflects the sum of current income tax and deferred income tax. 2.9.1 Current and Deferred Income Tax for the year Current and deferred taxes are recognized as expense or income for the year, except when they are related to entries debited or credited to other comprehensive income or directly to equity, in which cases taxes are also recognized in other comprehensive income or directly in equity, respectively. In the case of a business combination, the tax effect is taken into consideration in the calculation of goodwill or in the determination of the excess of acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the cost of the business combination. 2.9.2 Current Tax Current tax payable is based on the taxable income recorded during the year. Taxable income and net income reported in the consolidated statement of comprehensive income differ due to revenue or expense items that are taxable or deductible in other fiscal years and items that are never taxable or deductible. The current tax liability is calculated using the tax rate in effect as of the date of these parent company only financial statements. 2.9.3 Deferred Tax Deferred tax is recognized on temporary differences between the book value of the assets and liabilities included in these financial statements and the corresponding tax basis used to determine taxable income. Deferred tax liabilities are generally recognized for all temporary fiscal differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is likely that future taxable income will be available against which those deductible temporary differences can be charged. These assets and liabilities are not recognized if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable income nor the accounting income. The book value of a deferred tax asset is reviewed at each reporting year and reduced to the extent that it is no longer likely that sufficient taxable income will be available in the future to allow for the recovery of all or part of the asset. Deferred tax assets and liabilities are measured at the tax rates that are expected to be applicable in the year in which the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting year, to recover or settle the book value of its assets and liabilities. Deferred tax assets are offset against deferred tax liabilities if effective regulations allow to offset, before the tax authorities, the amounts recognized in those items; and if the deferred tax assets and liabilities arise from income taxes levied by the same tax authority and the Company intends to settle its assets and liabilities on a net basis. Under the IFRS, deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively. 2.9.4 Tax on Assets In Argentina, the tax on assets (impuesto a la ganancia mínima presunta) is supplementary to income tax. The Company assesses this tax at the effective rate of 1% on the taxable assets at year-end. The Company's tax liability for each year will be equal to the higher of the tax on assets assessment or the income tax liability assessed at the legally effective rate on the estimated taxable income for the year. However, if the tax on assets exceeds the income tax liability in any given fiscal year, the excess may be creditable against any excess of income tax liability over the tax on assets in any of the following ten fiscal years. The tax on assets balance has been capitalized in the parent company only financial statements, net of a valuation allowance, based on the Company's current business plans. 2.10 Property, Plant and Equipment and Intangible Assets Property, plant and equipment held for use in the supply of services, or for administrative purposes, are recorded at cost less accumulated depreciation and any accumulated impairment loss. Depreciation of property, plant and equipment is recognized on a straight-line basis over its estimated useful life. The estimated useful life, residual value and depreciation method are reviewed at each year-end, with the effect of any changes in estimates accounted for on a prospective basis. Repair and maintenance expenses are expensed as incurred. The gain or loss arising from the retirement or disposal of an item of property, plant and equipment is calculated as the difference between income from the sale of the asset and the asset's book value, and recognized under “Other Income and Expense, net” in the parent company only statement of comprehensive income. The residual value of an asset is written down to its recoverable value, if the asset's residual value exceeds its estimated recoverable value (see Note 2.11). Intangible assets comprise software and are valued at cost, net of the corresponding accumulated amortization and impairment losses. Amortization is calculated on a straight line basis over the estimated useful life of the intangible assets. The Company reviews the useful lives applied, the residual value and the amortization method are reviewed at each year-end, and accounts the effect of any changes in estimates on a prospective basis. 2.11 Impairment of Non-Financial Assets, Except Goodwill At the end of each financial statement, the Company reviews the book value of its non-financial assets with definite useful life to determine the existence of any evidence indicating that these assets could be impaired. If there is any indication of impairment, the recoverable value of these assets is estimated for the purposes of determining the amount of the impairment loss (in case the recoverable value is lower than the book value). Where it is not possible to estimate the recoverable value of an individual asset, the Company estimates the recoverable value of the cash-generating unit ("CGU") to which such asset belongs. Where a consistent and reasonable allocation base can be identified, corporate assets are also allocated to an individual cash-generating unit or, otherwise, to the smallest group of cash-generating units for which a consistent allocation base can be identified. The recoverable value of an asset is the higher of the fair value less selling expenses or its value 178 179 in use. In measuring value in use, estimated future cash flows are discounted at their present value using a pre-tax discount rate, which reflects the current market assessments of the time value of money and, if any, the risks specific to the asset for which estimated future cash flows have not been adjusted. Assets with an indefinite useful life (for example, non-financial assets unavailable for use) are not amortized, but are tested for impairment on an annual basis. During this year, no impairment losses have been recorded for these assets. 2.12 Financial Instruments 2.12.1 Financial Assets Purchases and sales of financial assets are recognized at the transaction date when the Company undertakes to purchase or sell the asset, and is initially measured at fair value, plus transaction costs, except for those financial assets classified at fair value with changes in the statement of income, which are initially measured at fair value. 2.12.1.1 Classification of Financial Assets Financial assets are classified within the following specific categories: “financial assets at fair value with changes in net income”, “held-to-maturity investments” and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined on initial recognition. 2.12.1.2 Recognition and Measurement of Financial Assets 2.12.1.2.1 Financial Assets at Fair Value with Changes in Net Income Financial assets at fair value with changes in net income are recorded at fair value, recognizing any gain or loss arising from the measurement in the statement of comprehensive income. The net gain or loss recognized in net income includes any gain or loss generated by the financial asset and is included in the item financial income and cost in the parent company only statement of comprehensive income. The assets designated in this category are classified as current assets if they are expected to be traded within 12 months; otherwise, they are classified as non-current assets. The fair value of these assets is calculated based on the current quoted market price of these securities. 2.12.1.2.2 Held-to-maturity Investments Held-to-maturity investments are measured at amortized cost using the effective interest rate method less any impairment, if any. The effective interest rate method calculates the amortized cost of a financial asset or liability and the allocation of financial income or cost over the whole corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts over the expected life of the financial instrument to the net book value of the financial asset or liability on its initial recognition. Balances in foreign currency were translated at the exchange rate prevailing at the closing of year for the settlement of these transactions. Foreign exchange differences were charged to net income for each year. 2.12.1.2.3 Loans and Receivables Loans and trade receivables with fixed or determinable payments not traded in an active market are classified as “trade receivables and other”. Trade receivables and other are initially measured at fair value, and subsequently measured at amortized cost using the effective interest rate method, less any impairment, if any. Interest income is recognized using the effective interest rate method, except for short- term balances for which the recognition of interest is not significant. Loans and receivables are classified as current assets, except for the maturities exceeding 12 months from the closing date. Loans in foreign currency have been valued as mentioned above, at the exchange rates prevailing as of each year-end. Foreign exchange differences were charged to net income for each year. 2.12.1.3 Impairment of Financial Assets The Company tests financial assets or a group of assets for impairment at each closing date to assess if there is any objective evidence of impairment. The value of a financial asset or a group of assets is impaired, and an impairment loss is recognized, where there is objective evidence of the impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event or events have an impact on the estimated future cash flows of the financial asset or a group of assets, which may be reliably measured. The objective evidence of impairment may include, among others, significant financial difficulties of the issuer or obligor; or breach of contractual terms, such as default or delinquency in interest or principal payments. The Company tests for impairment financial assets disclosed under Other Receivables on a case by case basis. Where there is objective evidence of an impairment loss in the value of loans granted, receivables or held-to-maturity investments recorded at amortized cost, the loss amount is measured as the difference between the book value and the present value of estimated future cash flows (without including future non-incurred losses), discounted at the original effective interest rate of the financial asset. The asset's book value is written down under a contra asset account. The loss amount is recognized in net income for the year. If, in subsequent periods, the impairment loss amount decreases and such decrease can be objectively related to an event occurring after the impairment has been recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss is reversed. A loss reversal can only be recorded to the extent the financial asset's book value does not exceed the amortized cost that would have been determined if the impairment loss had not been recorded at the reversal date. The reversal amount is recognized in net income for the year. 2.12.1.4 Derecognition of Financial Assets The Company derecognizes a financial asset when the contractual rights to the cash flows of such assets expire or when it transfers the financial asset and, therefore, all the risks and benefits inherent to the ownership of the financial asset are transferred to another entity. If the Company retains substantially all the risks and benefits inherent to the ownership of the transferred asset, it will continue to recognize it and will recognize a liability for the amounts received. 2.12.2 Financial Liabilities Financial liabilities are valued at amortized cost using the effective interest rate method. 2.12.2.1 Debts Debt is initially valued at fair value net of the transaction costs incurred, and subsequently valued at amortized cost using the effective interest rate method. Any difference between the initial value net of the transaction costs and the settlement value is recognized in the income statement over the term of the loan using the effective interest rate method. Interest expense has been charged to the parent company only statement of comprehensive income under “Financial Costs”. 2.12.2.2 Trade Payables and Other Trade payables with fixed or determinable payments not traded in an active market are classified as “Trade Payables and Other”. Trade Payables and Other are initially measured at fair value, and subsequently measured at amortized cost using the effective interest rate method. Interest expense is recognized using the effective interest rate method, except for short-term balances for which the recognition of interest is not significant. Trade Payables and Other are classified as current, except for the maturities exceeding 12 months from the closing date. Cash and Banks Short-Term Investments Cash and Cash Equivalents In the years ended December 31, 2012 and 2011, the following significant transactions were carried out, which did not have an impact on cash and cash equivalents: Trade payables in foreign currency have been valued as mentioned above, at the exchange rates prevailing as of each year end. Foreign exchange differences were charged to net income for each year. 2.12.2.3 Derecognition of Financial Liabilities An entity shall derecognize a financial liability (or part of it) when, and only when, it has been extinguished, i.e., when the obligation specified in the corresponding agreement is discharged, cancelled or expires. 2.13 Other Liabilities The other liabilities have been valued at nominal value, which does not differ significantly from its discounted value. 2.14 Statement of Cash Flows For the purposes of preparing the statement of cash flows, the item “Cash and Cash Equivalents” includes cash and bank balances, high liquidity short-term investments (with original maturities shorter than 90 days), and bank overdrafts payable on demand, if any, are deducted to the extent they are part of the Company's cash management. Bank overdrafts are classified as “Debts” in the balance sheet. Cash and cash equivalents at each year-end, as disclosed in the statement of cash flows, may be reconciled against the items related to the parent company only balance sheet as follows: December 31, 2012 December 31, 2011 5,251,306 7,742,929 12,994,235 2,950,680 29,866,561 32,817,241 Dividends collected through debt settlement Contributions to Subsidiaries 132,640,431 20,261,301 73,755,307 - December 31, 2012 December 31, 2011 180 181 2.15 Distribution of Dividends The distribution of dividends to the Company's shareholders is recognized as a liability in the financial statements for the year in which the distribution of dividends is approved by the Shareholders' Meeting. Note 3 Accounting Estimates and Judgments In applying the accounting policies described in Note 2, the Company has to make judgments and prepare accounting estimates of the value of the assets and liabilities which may not be otherwise obtained. The estimates and related assumptions are based on historical experience and other pertinent factors. Actual results may differ from these estimates. The underlying estimates and assumptions are continually reviewed. The effects of the reviews of accounting estimates are recognized for the year in which estimates are reviewed. These estimates basically refer to: Impairment of Goodwill The Company assesses goodwill for impairment on an annual basis. In determining if there is impairment of goodwill, the Company calculates the value in use of the cash generating units to which it has been allocated. The calculation of the value in use requires the determination by the entity of the future cash flows that should arise from the cash generating units and an appropriate discount rate to calculate the present value. During this year, no impairment losses have been recorded for goodwill. Recognition and Measurement of Deferred Tax Items As disclosed in Note 2.9, deferred tax assets are only recognized for temporary differences to the extent that it is likely that the entity will have enough future taxable income against which the deferred tax assets can be used. Tax loss carryforwards from prior years are only recognized when it is likely that the entity will have enough future taxable income against which they can be used. The Company examines the recoverable value of deferred tax assets based on its business plans and books a valuation allowance, if appropriate, so that the net position of the deferred tax asset will reflect the probable recoverable value. Determination of the Useful Lives of Property, Plant and Equipment The Company reviews the reasonableness of the estimated useful life of property, plant and equipment at each year-end. Measurement of the fair value of certain financial instruments The fair value of a financial instrument is the amount at which the instrument could be purchased or sold between knowledgeable, willing parties in an arm's length transaction. If there is a quoted market price available for an instrument in an active market, the fair value is calculated based on that price. If there is no quoted market price available for a financial instrument, its fair value is estimated based on the price established in recent transactions involving the same or similar instruments and, otherwise, based on valuation techniques regularly used in financial markets. The Company uses its judgment to select a variety of methods and makes assumptions based on market conditions at closing. Note 4 Breakdown of the Main Items of the Parent Company only Balance Sheet 4.1 Property, Plant and Equipment Main Account the Beginning Additions Retirements 2012 Historical value Balance at Balances as of December 31, Furniture and Fixtures Audio and Video Equipment Telecommunication Equipment Computer Equipment Total as of December 31, 2012 352,594 122,179 103,740 4,367,683 4,946,196 83,826 - 47,957 693,933 825,716 - - - - - 436,420 122,179 151,697 5,061,616 5,771,912 Balance at the Depreciation Balances Net Book as of Value as of December December Main Account Rate Beginning Retirements For the year 31, 2012 31, 2012 Furniture and Fixtures Audio and Video Equipment Telecommunication Equipment Computer Equipment Total as of December 31, 2012 10% 20% 20% 33% 147,429 81,889 60,010 3,737,449 4,026,777 - - - - - 40,271 14,272 187,700 96,161 19,222 436,923 79,232 4,174,372 248,720 26,018 72,465 887,244 510,688 4,537,465 1,234,447 Balance at Historical value Balances as of December 31, Main Account the Beginning Additions Retirements 2011 Furniture and Fixtures Audio and Video Equipment Telecommunication Equipment Computer Equipment Total as of December 31, 2011 282,845 118,159 98,280 3,980,149 4,479,433 69,749 4,020 5,460 387,534 466,763 - - - - - 352,594 122,179 103,740 4,367,683 4,946,196 Balance at the Depreciation Balances Net Book as of Value as of December 31, December 31, Main Account Rate Beginning Retirements For the year 2011 2011 Furniture and Fixtures Audio and Video Equipment Telecommunication Equipment Computer Equipment Total as of December 31, 2011 10% 20% 20% 33% 117,069 62,481 46,772 3,241,400 3,467,722 - - - - - 30,360 19,408 13,238 147,429 81,889 60,010 496,049 3,737,449 205,165 40,290 43,730 630,234 559,055 4,026,777 919,419 182 183 4.2 Intangible Assets Balance at Historical value Balances as of December 31, Main Account Software Total as of December 31, 2012 the Beginning Additions Retirements 2012 - - 173,632 173,632 - - 173,632 173,632 Balance at the Amortization Balances Net Book as of Value as of December 31, December Main Account Rate Beginning Retirements For the year 2012 31, 2012 Software Total as of December 31, 2012 33% - - - - 33,376 33,376 140,256 33,376 33,376 140,256 4.3. Investment in Unconsolidated Affiliates Included in non-current assets: Corporate Name Main business activity and votes 2012 2011 2011 Direct interest Valuation as of Valuation as of Valuation as of in capital December 31, December 31, January 1, Investing and financing 97.0% 889,863,588 728,689,320 579,712,064 SHOSA (1) SHOSA Goodwill Vistone (1) VLG (1) VLG Goodwill CVB (1) CLC (1) Pem S.A. AGEA AGR CIMECO CIMECO Goodwill CMI ARTEAR Investing Investing and financing Investing and financing Investing and financing Investing Publishing and Printing Printing Investing and financing Advertising Broadcasting Services Radio Mitre Broadcasting Services IESA Investing and financing GC Services Investing and financing GCGC CMD GC Minor Services Investing and financing Investing and financing 95.0% 11.0% 95.0% 99.9% 0.1% 99.9% 0.9% 20.7% 0.8% (2) 97.0% 94.7% 96.9% 100% 97.5% 84.6% 95.6% 495,735,087 935,907,491 165,692,576 100,503,301 213,426,388 58,904,881 2 681,361,011 1,440,978 35,321,311 58,837,707 176,242 359,734,353 27,119,367 102,314,354 11,182,693 8,030,273 23,786,177 5,338,870 495,735,087 817,446,091 122,793,570 100,503,301 182,300,990 49,022,825 2 593,652,512 1,459,237 32,296,420 58,837,707 137,066 325,733,460 34,560,469 102,719,135 9,840,619 7,810,923 25,439,017 5,873,423 495,735,087 706,600,891 108,613,463 100,503,301 155,539,492 41,431,643 2 574,265,229 1,326,116 28,056,493 58,837,707 100,650 261,024,651 24,363,148 103,707,575 6,918,261 12,857,978 23,551,159 5,805,858 4,174,676,650 3,694,851,174 3,288,950,768 Included in non-current liabilities: Direct interest Valuation as of Valuation as of Valuation as of in capital December 31, December 31, January 1, Main business activity and votes 2012 2011 2011 Corporate Name GCSA Investments Investing and financing 100% 28,624,787 28,624,787 25,706,586 25,706,586 19,155,260 19,155,260 (1) Companies through which an interest is held in Cablevisión S.A. (2) Interest in votes amounts to 98.8%. Equity in Earnings from Affiliates and Subsidiaries December 31, 2012 December 31, 2011 SHOSA Vistone VLG CVB CLC AGEA CIMECO GCSA Investments ARTEAR IESA Radio Mitre GCGC CMD GC Services Other 4.4 Other Receivables Non-Current Guarantee Deposits Tax on assets Valuation Allowance for Tax on Assets Other Current Related Parties (Note 8) Tax Credits Advances Other 228,480,831 164,088,477 43,964,793 39,559,876 9,378,433 27,119,742 7,170,843 (13,610,201) 34,000,893 (404,782) (25,775,855) (1,707,198) (1,653,734) 1,342,074 (905,414) 511,048,778 171,118,903 121,458,459 32,508,406 29,033,136 6,886,064 81,273,503 6,934,796 (6,551,328) 103,488,817 (988,439) 4,252,320 (5,047,055) 1,887,858 2,922,358 159,915 549,337,713 December 31, 2012 December 31, 2011 January 1, 2011 30,000 27,993,242 30,000 31,305,899 (27,993,242) (31,305,899) - 30,000 22,994,617 603,090 1,563,841 37,280 25,198,828 - 30,000 83,218,676 492,599 640,829 761,586 85,113,690 30,000 32,470,574 (32,470,574) 2,105,600 2,135,600 2,488,645 425,334 914,214 1,212,800 5,040,993 184 185 4.5 Other Investments Financial Instruments Money Market 4.6 Cash and Banks Cash and Imprest Funds Cash at Banks 4.7 Debt Current Related Parties (Note 8) December 31, 2012 December 31, 2011 January 1, 2011 572,684 7,170,245 7,742,929 500,593 29,365,968 29,866,561 6,730,099 6,909,143 13,639,242 December 31, 2012 December 31, 2011 January 1, 2011 145,927 5,105,379 5,251,306 59,527 2,891,153 2,950,680 59,327 2,996,632 3,055,959 December 31, December 31, January 1, (1) Rate 2012 2011 2011 14% 62,084,479 62,084,479 127,730,585 127,730,585 71,242,000 71,242,000 (1) Annual Average Nominal Rate applicable as of December 31, 2012. The following table details the changes in loans and indebtedness for the year ended December 31, 2012 and the prior year: Balances as of January 1st New Loans and Indebtedness Accrued Interest Other Financial Effects Settlement of principal and interest Balances as of December 31 4.8 Taxes Payable Current Taxes Payable on a National Level Taxes Payable on a Provincial Level 4.9 Trade Payables and Other Current Suppliers and Trade Provisions Related Parties (Note 8) Employer's Contributions 2012 2011 127,730,585 62,894,866 7,819,631 - (136,360,603) 62,084,479 71,242,000 121,637,672 10,067,391 1,802,792 (77,019,270) 127,730,585 December 31, 2012 December 31, 2011 January 1, 2011 1,327,384 296,184 1,623,568 2,470,487 139,433 2,609,920 1,313,690 149,428 1,463,118 December 31, 2012 December 31, 2011 January 1, 2011 4,294,506 1,415,638 22,926,499 28,636,643 2,737,602 289,052 17,313,431 20,340,085 1,791,309 1,274,025 13,638,125 16,703,459 Note 5 Breakdown of the Main Items of the Parent Company only Statement of Comprehensive Income 5.1 Information Required under Section 64, Subsection b) of Law No. 19,550 Administrative Expenses December 31, 2012 December 31, 2011 65,902,696 524,000 24,929,742 4,016,887 918,901 80,600 346,693 1,035,567 489,712 986,987 2,810,603 83,154 510,688 33,376 3,572,883 106,242,489 52,683,078 195,000 17,138,361 3,378,725 706,914 92,730 276,936 947,768 514,447 705,553 2,314,133 47,706 559,055 - 3,402,002 82,962,408 December 31, 2012 December 31, 2011 5,793,333 142,163 5,935,496 561,802 95,399 657,201 December 31, 2012 December 31, 2011 (7,879,150) (3,251,839) - (11,130,989) (13,380,039) (2,031,828) (1,851,375) (17,263,242) Item Salaries, Social Security and Benefits to Personnel (1) Supervisory Committee's fees Fees for services (2) Taxes, Duties and Contributions Other personnel expenses General expenses IT expenses Maintenance Expenses Communication expenses Advertising expenses Travel Expenses Stationery and Office Supplies Depreciation of Property, Plant and Equipment Amortization of Intangible Assets Other expenses Total (1) Includes fees for technical and administrative services to Directors in the amount of Ps. 8,488,955 and Ps. 6,925,658, respectively. Additionally, they include the effect of the long-term savings plan mentioned in Note 13. (2) Includes Directors' fees in the amount Ps. 1,071,585 and Ps. 861,112, respectively. 5.2 Financial Income Exchange Difference and Other Financial Results Interest 5.3 Financial Costs Interest Other Taxes and Expenses Exchange Difference and Other Financial Results 186 187 Note 6 Income tax The following table shows the breakdown of net deferred tax assets (amounts stated in thousands of Argentine Pesos): Assets Tax Loss Carryforwards Other Investments Employer's Contributions Other Subtotal Valuation Allowance for Deferred Tax Assets Net Deferred Tax Assets December 31, 2012 December 31, 2011 January 1, 2011 28,180 7,463 3,692 8 39,343 (28,180) 11,163 28,268 7,645 2,694 14 38,621 (28,268) 10,353 21,217 7,828 1,916 - 30,961 (21,217) 9,744 The following table shows the reconciliation between the income tax and tax on assets charged to net income for the years ended December 31, 2012 and 2011 and the income tax liability that would result from applying the current tax rate on income before income tax and tax on assets and the income tax liability assessed for each year (amounts stated in thousands of Argentine Pesos): Income Tax Assessed at the Current Tax Rate (35%) on Income before Income Tax Permanent Differences: Gain/Loss on Investments in Subsidiaries Non-Taxable Income Other Subtotal Valuation Allowance for Net Deferred Tax Assets Charged to Income Income Tax Deferred Taxes for the Year Income Tax Tax on assets Total December 31, 2012 December 31, 2011 (169,318) (180,564) 178,867 (4,529) 832 5,852 (5,042) 810 810 810 (2,266) (1,456) 192,268 (4,447) 403 7,660 (7,051) 609 609 609 (1,752) (1,143) As of December 31, 2012, the Company's accumulated tax loss carryforwards amounted to approximately Ps. 80.5 million, which calculated at the current tax rate, represent deferred tax assets in the amount of approximately Ps. 28.2 million. The following table shows the expiration date of the accumulated tax loss carryforwards pursuant to statutes of limitations (amounts stated in thousands of Argentine Pesos): Expiration year Amount of Tax Loss Carryforward 2013 2014 2015 2016 2017 11,678 19,023 15,345 20,061 14,406 80,513 Note 7 Reserves, Retained Earnings and Dividens Balances at the beginning of the year: Legal Reserve Accumulated Results Other Reserves Total Net Income Attributable to the Parent Company Dividend Distribution Changes in Reserves for Acquisition of Investments Balance at the end of the year a. Grupo Clarín The Company's bylaws set forth that retained earnings shall be appropriated as follows: (i) 5% to the Company's legal reserve until such reserve equals 20% of the Company's capital stock; and (ii) the balance, in whole or in part, to the payment of the fees of the members of the Board of Directors and the Supervisory Committee, to dividends on common shares, or reserve accounts, or as otherwise determined by the Shareholders, among other situations. At the Company's Annual Regular Shareholders' Meeting held on April 28, 2011, the shareholders decided, among other things, to appropriate the earnings for the year 2010; which at that time amounted to Ps. 533,714,480 as follows: (i) Ps. 26,685,724 to the legal reserve; (ii) Ps. 120,000,000 to dividend distribution, which has been paid as of the date of these financial statements, and (iii) Ps. 387,028,756 to retained earnings. 188 189 December 31, 2012 December 31, 2011 64,740,233 1,539,154,967 (18,384,533) 1,585,510,667 482,310,720 (135,000,000) 23,591,807 1,956,413,194 38,054,509 1,171,087,483 (16,485,290) 1,192,656,702 514,753,208 (120,000,000) (1,899,243) 1,585,510,667 On April 26, 2012, Grupo Clarín's Annual Regular Shareholders' Meeting decided, among other things, to appropriate the accumulated results for the year 2011; which at that time amounted to Ps. 1,540,313,089 as follows: (i) Ps. 23,912,434 to the legal reserve, (ii) Ps. 135,000,000 to dividend distribution, which have already been paid, (iii) Ps. 387,028,756 to the judicial reserve for future dividend distribution, (iv) Ps. 300,000,000 to the optional reserve for future dividends and (v) Ps. 694,371,899 to the optional reserve for illiquidity of results. b. Cablevisión On April 23, 2012, Cablevisión's General Regular and Special Shareholders' Meeting decided to distribute dividends in the amount of Ps. 217 million, payable in two equal installments, the first one on or before May 24, 2012, as determined by the Board of Directors, and the second one on or before December 31, 2012, as determined by the Board of Directors. Out of such amount, approximately Ps. 87 million corresponds to the non-controlling interest in that company. On April 27, 2012, Cablevisión's Board of Directors, taking into consideration that the company had enough earnings to settle the entire amount of the approved dividends, decided to make available to shareholders, as from such date, the amount of Ps. 217 million. Note 8 Balances and Transactions with Related Parties The following table shows the breakdown of the Company's balances with its related parties: Company Item December 31, December 31, January 1, 2012 2011 2011 Subsidiaries Vistone SHOSA CVB CLC AGEA Long-Term Debt Long-Term Debt Long-Term Debt Long-Term Debt Other Receivables Trade Payables and Other ARTEAR Other Receivables IESA Radio Mitre GCGC Trade Payables and Other Trade Payables and Other Other Receivables Other Receivables (30,327,556) (23,636,527) (3,147,155) (4,973,241) 18,912,095 (27,906) 157,374 (240,774) (29,975) 8,042 10,742 Trade Payables and Other (1,024,735) Indirectly controlled Cablevisión Other Receivables PRIMA AGR UNIR Impripost Ferias y Trade Payables and Other Trade Payables and Other Other Receivables Trade Payables and Other Other Receivables Trade Payables and Other Other Receivables Exposiciones S.A. Auto Sports Other Receivables Other Receivables - (6,682) (29,537) 3,334,710 (56,029) 1,158 - 377,075 128 193,293 (44,846,677) (70,968,174) (10,299,790) (1,615,944) 75,303,174 (60,367) 1,412 (166,065) (29,975) 1,312,190 4,692 (14,457) - (4,629) (12,726) 4,575,889 (833) 1,157 - (23,880,000) (41,650,700) (5,711,300) - - (918,295) 142,599 (26,618) (29,975) 1,526,790 4,692 (83,646) 600 (87,372) (127,186) 523,961 (890) 1,200 (43) 442,425 288,675 128 1,577,609 128 - The following table details the transactions carried out by the Company with related parties for the years ended December 31, 2012 and 2011: Company Item December 31, 2012 December 31, 2011 Subsidiaries AGEA ARTEAR Vistone CLC SHOSA CVB Radio Mitre GCGC Management fees Advertising Management fees Services Interest Expense Interest Expense Interest Expense Interest Expense Management fees Interest Income Management fees Services Indirectly controlled Cablevisión Management fees PRIMA AGR Impripost Auto Sports Services Services Management fees Services Management fees Management fees The fees paid to the Board of Directors and the Upper Management of the Company for the years ended December 31, 2012 and 2011 amounted to approximately Ps. 40 million and Ps. 30 million, respectively. 28,800,000 (18,581) 32,200,000 - (3,650,625) (411,069) (3,390,119) (367,818) 240,000 35,671 5,000 (4,826,042) 22,800,000 (40,209) (280,192) 8,400,000 (49,254) 1,380,000 1,521,439 28,800,000 (5,656) 15,600,000 (17,466) (3,668,554) (116,168) (5,431,890) (850,779) 240,000 40,041 - (4,103,627) 22,800,000 - (258,959) 7,200,000 (5,739) 1,140,000 1,909,987 190 191 Note 9 Terms and Interest Rates of Investments, Receivables and Liabilities December 31, 2012 Investments (1) Without any established term Receivables (2) Without any established term To fall due - Within three months Liabilities (2) (3) Without any established term To fall due - Within three months - More than three months and up to six months Debts (4) Without any established term To fall due - More than three months and up to six months - More than nine months and up to twelve months 7,742,929 7,742,929 23,666,405 1,562,423 1,562,423 25,228,828 3,511,135 26,878,576 14,308,174 41,186,750 44,697,885 212,383 44,727,271 17,144,825 61,872,096 62,084,479 (1) Bearing interest at floating rate. (2) Non-interest bearing. (3) Do not include equity interests in the amount of Ps. 28,624,787 (see Note 4.3). (4) Bearing interest at fixed rate. Note 10 Provisions and Other Contingencies 10.1 Regulatory Framework a. SCI Resolution No. 50/10 approved certain rules for the sale of pay television services. These rules provide that cable television operators must apply a formula to estimate their monthly subscription prices. The price arising from the application of the formula was to be informed to the Office of Business Loyalty (Dirección de Lealtad Comercial) between March 8 and March 22, 2010. Cable television operators must adjust such amount semi-annually and inform the result of such adjustment to said Office. Even though as of the date of these financial statements the subsidiary Cablevisión cannot assure the actual impact of the application of this formula, given the vagueness of the variables provided by the Resolution to calculate the monthly subscription prices, Cablevisión believes that Resolution No. 50/10 is arbitrary and bluntly disregards its freedom to contract, which is part of the right to freedom of industry and trade. Therefore, it has filed the pertinent administrative claims and has brought the necessary legal actions requesting the suspension of the Resolution's effects and ultimately requesting its nullification. Even though Cablevisión, like other companies in the industry, has strong constitutional arguments to support its position, it cannot be assured that the final outcome of this issue will be favorable. Therefore, Cablevisión may be forced to modify the price of its pay television subscription, a situation that could significantly affect the revenues of its core business. This creates a general framework of uncertainty over Cablevisión's business that could significantly affect the recoverability of its relevant assets reported in these financial statements and Grupo Clarín S.A.'s assets related to its investment in Cablevisión. Notwithstanding the foregoing, as of the date of these financial statements, in accordance with the decision rendered on August 1, 2011 in re "LA CAPITAL CABLE S.A. v/ Ministry of Economy-Secretary of Domestic Trade", the Federal Court of Appeals of Mar del Plata has ordered the SCI to suspend the application of Resolution No. 50/10 with respect to all cable television licensees represented by the Argentine Cable Television Association ("ATVC", for its Spanish acronym). Upon being served on the SCI and the Ministry of Economy on September 12, 2011, such decision became fully effective and may not be disregarded by the SCI. On June 1, 2010, the SCI imposed a Ps. 5 million fine on Cablevisión alleging that it had failed to comply with the information regime set forth by Resolution No. 50/10, and invoking the Antitrust Law to impose such penalty. The fine was appealed and submitted to the Federal Administrative Court of Appeals, Chamber V, which decided to reduce the fine to Ps. 300,000. Cablevisión appealed this decision by filing an extraordinary appeal with the Supreme Court of Argentina. On March 10, 2011 SCI Resolution No. 36/11 was published in the Official Gazette. This Resolution falls within the framework of SCI Resolution No. 50/10. Resolution No. 36/11 sets forth the parameters to be applied to the services rendered by Cablevisión to its subscribers from January through April 2011. These parameters are as follows: 1) the monthly basic subscription price shall be Ps. 109 for that period; 2) the price of other services rendered by Cablevisión should remain unchanged as of the date of publication of the resolution; and 192 193 3) the promotional benefits, existing rebates and/or discounts already granted as of that same date shall be maintained. The resolution also provides that Cablevisión shall reimburse users for any amount collected above the price set for that period. Cablevisión believes that Resolution No. 36/10 is illegal and arbitrary, since it is grounded on Resolution No. 50/2010, which is absolutely null and void. Since the application of Resolution No. 50/10 has been suspended, the application of Resolution No. 36/2011, which falls within the framework of the former, is also suspended. The claim filed by Cablevisión seeking the nullification of Resolution No. 50/2010 is currently pending before the Federal Administrative Court of First Instance No. 7 of the City of Buenos Aires. Subsequently, the SCI issued Resolutions Nos. 65/11, 92/11, 123/11, 141/11, 10/11, 25/12, 97/12 and 161/12 pursuant to which the SCI extended the effectiveness of Resolution No. 36/11 up to and including March 2013, and adjusted the cable television subscription price to Ps.130. Cablevisión believes, however, that given the terms under which the Federal Court of the City of Mar del Plata granted the preliminary injunction, that is, ordering the SCI to suspend the application of Resolution No. 50/97 with respect to all cable television licensees (among them, Cablevisión and its subsidiaries) represented by ATVC, and also given the fact that Resolutions No. 36/11, 65/11, 92/11, 123/11, 141/11, 25/12, 97/12 and 161/12 merely extend the effectiveness of Resolution No. 50/10, Cablevisión continues to be protected by said preliminary injunction, and, therefore, its ordinary course of business will not be affected. On January 13, 2012, the Secretariat of Domestic Trade issued Resolution No. 2/2012 granting Cablevisión 24 hours to resume service to those subscribers who had duly paid their subscription fee in the amount established by the National Government. In its sixth section, the Resolution provides that if the company does not comply with its obligations thereunder, penalties may be imposed as provided by Law 20,680. On February 10, 2012, Cablevisión received a fine of Ps. 1 million for alleged non- compliance with such Resolution. Such fine has been appealed but no decision has been rendered on the matter yet. After the Federal Court of Mar del Plata issued its injunction, several Municipal Offices of Consumer Information (“OMIC”, for its Spanish acronym) and several individuals filed claims requesting that Cablevisión comply with Resolution No. 50/10 and the subsequent resolutions that extended its effectiveness. In some cases, preliminary injunctions were granted. In every case, Cablevisión appealed such preliminary injunctions alleging that Resolution No. 50/10, as amended, and/or the subsequent resolutions that extended its effectiveness, had been suspended with respect to Cablevisión, its branches and subsidiaries prior to the issuance of such preliminary injunctions. b. On August 19, 2010 the Media Secretariat issued Resolution No. 100/2010, whereby it revoked the license that had been granted to Fibertel. Cablevisión believes that this resolution is an absolutely null and void administrative act. Its language contradicts express provisions of the National Constitution, of Law No. 19,550 (Argentine Business Associations Law), Decrees Nos. 1,185/90 and 764/00 and Law No. 19,549 of Administrative Procedures, among others. The Resolution disregards the several filings made by Cablevisión with the Media Secretariat requesting such agency to issue an administrative act evidencing that Cablevisión, pursuant to section 82 of the Argentine Business Associations Law, is the successor of Fibertel and, therefore, the holder of the exclusive telecommunication service license and of the registrations that had been previously granted to Fibertel. More than eight years after that request, in spite of the existence of a draft of a favorable decision in the case file, with a completely arbitrary attitude that contradicts other precedents of the same agency, and without prior notice that would have allowed Cablevisión to exercise its defense right, the SECOM ordered that the license be revoked and that the users migrate within 90 days of the resolution's notification. On August 26, 2010 Cablevisión filed an appeal requesting the reversal of the resolutions, and if such appeal is rejected, a subsidiary appeal against that Resolution before the highest administrative authority. The appeal was dismissed pursuant to SECOM Resolution No. 132/2010 dated October 7, 2010. However, since Cablevisión had filed a subsidiary appeal to have the case heard by the highest administrative authority; the file was submitted to the Ministry of Federal Planning, Public Investment and Utilities. As of the date of these financial statements, this appeal is pending resolution. On February 24, 2011, Chamber No. 3 of the Federal Court of Appeals on Civil and Commercial Matters of the City of Buenos Aires, in re “ANTITRUST ASSOCIATION V. NATIONAL GOVERNMENT MEDIA SECRETARIAT ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS” confirmed the decision rendered in the first instance, stating that the National Government, Media Secretariat, shall refrain from disrupting or limiting in any way the Internet access services offered by Cablevisión. It also partially amended the above decision by broadening its effects, ordering the National Government to refrain from enforcing Resolution No. 100/10, thus allowing new customers to subscribe to the Internet access services offered by Cablevisión. On December 16, 2011, Federal Civil and Commercial Court No. 3, Clerk's Office No. 5 issued a related injunction in re “CABLEVISION S.A. v. NATIONAL GOVERNMENT ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS”, ordering the suspension of the effects of SECOM Resolution No. 100/10 and also guaranteeing new subscribers the possibility to subscribe to the Internet Access service offered by Cablevisión. On December 20, 2011, at the request of Cablevisión, a new preliminary injunction was issued in re “CABLEVISION S.A. v. National Government - Argentine Secretariat of Communications on COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS”. On the basis of the above-mentioned precedent, and on the existing connection between the subject matters of both cases, as alleged by Cablevisión, the injunction ordered the suspension of the effects of SECOM Resolution No. 100/10. The National Government filed an appeal with Chamber No. 3 of the Federal Court of Appeals on Civil and Commercial Matters which is still pending as of the date of these financial statements. Argentina in due time and form against such decision. On July 12, 2012, Chamber No. 2 of the Federal Court of Appeals on Administrative Matters decided to dismiss the appeals filed by both parties. Cablevisión filed an appeal against the above- mentioned dismissal since it believes it has sufficient grounds to have the fine revoked. However, Cablevisión cannot assure that the outcome of the appeal will be favorable. Since the appeal does not have staying effects, on October 18, 2012 the National Administration of Domestic Trade ordered Cablevisión to pay within ten (10) business days the fine reduced by Chamber No. 2. On October 29, 2012 Cablevisión settled the fine in the amount of Ps. 380,000 and the compliance was recorded in the file. c. Pursuant to the Antitrust Law and to Broadcasting Law No. 22,285, the transactions carried out on September 26, 2006 that resulted in an increase in the indirect interest the Company held in Cablevisión to 60%, Cablevisión's acquisition of 98.5% of Multicanal and 100% of Holding Teledigital, and Multicanal's acquisition of PRIMA (from PRIMA Internacional (now CMD)), required the authorization of the CNDC (validated by the SCI), and the COMFER. On October 4, 2006, the Company, Vistone, Fintech, VLG and Cablevisión, as purchasers, and AMI CV Holdings LLC, AMI Cable Holdings Ltd. and HMTF-LA Teledigital Cable Partners LP, as sellers, filed for the approval of the acquisition. After several requests for information, the SCI issued Resolution No. 257/07, with a prior opinion of the CNDC in favor of the approval of the above-mentioned transactions and after consulting the COMFER and the SECOM, which did not raise any objections. The Company was served notice in this respect on December 7, 2007. Such Resolution was appealed by five entities. As of the date of these financial statements, the CNDC has dismissed the five appeals filed against the above-mentioned resolution. Four of the entities filed direct appeals before the judicial branch. Three of those appeals were dismissed and one is still pending resolution. Due to the imminent possibility that the application of Law No. 26,522 will affect the assets used to provide Internet access services, within the framework of this same file Cablevisión requested the extension of the scope of the effective injunction, which was granted on December 6, 2012. Such extension entailed notifying AFSCA of the injunction which prevents it from affecting in any way the Internet access services offered by Cablevisión. Based on the above-mentioned preliminary injunctions, Cablevisión is authorized to continue to render the telecommunication services granted to Fibertel. Cablevisión will resort to all available administrative and judicial remedies in order to have SECOM Resolution No. 100/2010 declared null and void. Even though Cablevisión has strong grounds that support its position, it cannot be assured that the final outcome of this issue will be favorable. On September 10, 2010, the National Administration of Domestic Trade notified Cablevisión that a Ps. 5 million fine had been imposed for promoting the Fibertel service without being the holder of the license (Section 7 of Law No. 24,240), for the impossibility of honoring the promotion offered to undetermined potential consumers (Section 7 of Law No. 24,240), for providing wrong information to the customers (Section 4 of Law No. 24,240), and for the impossibility of honoring promotions because Cablevisión was not the holder of the Fibertel license (Section 19 of Law No. 24,240). Cablevisión appealed such decision in due course, since it believes it has sufficient arguments in its favor. The file was assigned No. 1,276 and is pending before Chamber No. 2 of the Court of Appeals on Administrative Matters. On April 17, 2012 the appeal was partially granted, reducing the fine to Ps. 380,000. Notwithstanding the foregoing, Cablevisión filed an appeal with the Supreme Court of 194 195 Cablevisión believes that if the CNDC acts as it did in the case of the three dismissed direct appeals, the fourth appeal is unlikely to be admitted. On June 11, 2008, Cablevisión was served with a decision of the Federal Court of Appeals on Civil and Commercial Matters revoking a decision rendered by the CNDC on September 13, 2007, whereby such agency had dismissed a claim filed by Gigacable S.A. prior to the December 7, 2007 decision referred to above. The Court of Appeals revoked CNDC's decision only with respect to matters relating to the conduct of Cablevisión and Multicanal prior to CNDC's authorization of the transactions on December 7, 2007, and ordered an investigation to determine whether a fine should be imposed on Cablevisión and Multicanal due to such conduct. As of the date of these financial statements, Cablevisión has filed its response, which is pending analysis by such agency. d. On December 15, 2008, the shareholders of Cablevisión approved the merger of Multicanal, Delta Cable S.A., Holding Teledigital, Teledigital, Televisora La Plata Sociedad Anónima, Pampa TV S.A., Construred S.A. and Cablepost S.A. into Cablevisión, whereby, effective as of October 1, 2008, Cablevisión, as surviving company, became the universal successor to all of the assets, rights and obligations of the merged companies. The merger commitment was executed on February 12, 2009 and was filed with the CNV pursuant to applicable regulations that require administrative approval. As of the date of these financial statements, such merger is pending administrative approval by the CNV and registration with the IGJ. On September 3, 2009, the COMFER issued Resolution No. 577/09 whereby it withheld approval of Cablevisión's merger with Multicanal S.A. On September 8, 2009, Multicanal was served with CNDC Resolution No. 106/09, dated September 4, 2009, whereby the CNDC ordered an audit to articulate and harmonize the several aspects of Resolution No. 577/09 issued by the COMFER with Resolution No. 257/07 issued by the Secretariat of Domestic Trade. Resolution No. 106/09 also sets forth that the notifying companies shall not, from the enactment thereof and until the end of the audit and / or resolution of the CNDC, be able to remove or replace physical or legal assets. On September 17, 2009 Judge Dr. Esteban Furnari of the National Court on Federal Administrative Matters No. 2, in re “Multicanal and Other v. Conadeco- Decree 527/05 and other on Proceeding leading to a declaratory judgment”, ordered the suspension of the effects of COMFER Resolution No. 577/09, of CNDC Resolution No. 106/09, and any other act resulting therefrom, until a final decision was rendered in the case. On October 23, 2009, the court decision that had suspended the effects of COMFER Resolution No. 577/09 and CNDC Resolution No. 106/09 was revoked by Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, in re “Multicanal and Other v. Conadeco- Decree 527/05 and other on Proceeding leading to a declaratory judgment”. Therefore, the calculation of the suspended terms was automatically resumed. On that basis, on December 1, 2009, Cablevisión ratified the filing it had made with the COMFER at the time of the merger, and specified the licenses to which it had decided to maintain title. On December 16, 2009, the Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, in re "Multicanal and other v. CONADECO Decree 527/05 and other on Proceeding leading to a declaratory judgment" File No. 14,024/08, granted the extraordinary appeal filed by Multicanal and Grupo Clarín against the decision rendered by that same court on October 23, 2009. With the granting of that appeal, Cablevisión's preliminary injunction regained full force and effect. Accordingly, on January 8, 2010 Cablevisión notified such circumstance to the COMFER. Subsequently, on March 9, 2011, the Supreme Court of Argentina in re “MULTICANAL and Other v./ CONADECO - Decree 527/05 and other on/Proceeding leading to a declaratory judgment”, granted the appeal by right and the extraordinary appeal filed by the National Government and revoked the decision rendered by Chamber No. 3 of the Court of Appeals on Federal Administrative Matters, which had confirmed the preliminary injunction requested by Cablevisión in the first instance. Notwithstanding the foregoing, Cablevisión believes that this matter does not have a material impact on the substantive issues. Notwithstanding the required filings made by Cablevisión and its shareholders to prove that they were complying with the commitment agreed with the CNDC on December 7, 2007 (date on which the SCI granted authorization), on September 23, 2009, the SCI issued Resolution No. 641, whereby it ordered the CNDC to verify compliance with the parties' proposed commitment by visiting the parties' premises, requesting reports, reviewing documents and information and carrying out hearings, among other things. On December 11, 2009, Cablevisión notified the CNDC of the completion and corresponding verification of the fulfillment of the voluntary undertakings made by Cablevisión at the time of the enactment of SCI Resolution No. 257/07. On December 15, 2009, Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters issued a preliminary injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions” (case 10,506/09), partially acknowledging the preliminary injunction requested by Grupo Clarín, and instructing the CNDC and the SCI to notify Grupo Clarín whenever their own verification of Cablevisión's fulfillment of its undertakings had been concluded, regardless of the result. Should such agencies have any observations, they should notify Grupo Clarín within a term of 10 days. On the same date, the CNDC issued Resolution No. 1,011/09 whereby it deemed Cablevisión's voluntary undertakings unfulfilled and declared the rescission of the authorization granted under Resolution No. 257/07. On December 17, 2009, the Federal Court of Appeals on Commercial-Criminal Matters, Chamber A, decided to suspend the term to appeal Resolution No. 1,011/09 until the main case was transferred back to the CNDC, considering it had been in such court since December 16, 2009. 196 197 On December 17, 2009, the CNDC notified Cablevisión of the initiation of the motion for execution of Resolution No. 1,011/09. On December 18, 2009, Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters issued an injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions”, which suspended the effects of Resolution No. 1,011/09 until the notice set forth in the injunction of December 15, 2009 was served. Accordingly, the CNDC served notice to Cablevisión by means of Resolution No. 1,101/09. On December 30, 2009, the Federal Commercial and Civil Court of Appeals, Chamber No. 2, issued a preliminary injunction in re “Grupo Clarín S.A. v. Secretariat of Domestic Trade and other on preliminary injunctions”, partially acknowledging Grupo Clarín's request and suspending the term for Grupo Clarín to respond to Resolution No. 1,101/09 until Grupo Clarín is granted access to the administrative proceedings related to the charges brought by the CNDC in its Opinion No. 770/09 (on which Resolution No. 1,011/09 was based). On February 19, 2010, Cablevisión requested the nullification of the notice, and as a default argument, submitted the response requested under Resolution No. 1,101/09. On February 26, 2010, the Federal Court of Appeals on Commercial-Criminal Matters approved the recusation filed by Cablevisión and excluded the Secretary of Domestic Trade from the proceedings. On March 3, 2010, the Argentine Ministry of Economy and Public Finance issued Resolution No. 113 (subscribed by the Minister of Economy, Dr Amado Boudou) rejecting the request for the nullification of Resolution No. 1,011/09, the requests for abstention and excusation of certain officials, and all the evidence produced in connection with such request for nullification. The voluntary undertakings made by Cablevisión under Resolution No. 257/07 were deemed unfulfilled, thus declaring the rescission of the authorization granted under such resolution. The parties involved were ordered to take all necessary actions to comply with such rescission within a term of six months, and to inform the CNDC about the progress made in that respect on a monthly basis. Such resolution was appealed in due time and form. The appeal was granted without staying the execution of judgment. The appeal is currently pending before Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters in re “AMI CABLE HOLDING and other on/ Appeal of the National Antitrust Commission Resolution” (File No. 2,054/2010). On March 3, 2010, the Company brought a claim seeking to nullify of COMFER Resolution No. 577/09. Upon being served with this claim, the COMFER filed an exception, which was responded by Cablevisión. On September 4, 2012 the Judge decided to dismiss the exception filed by the COMFER, which shall bear the legal costs incurred. On December 13, 2012 the order to notify about such decision was submitted and it was issued by the Court on December 26, 2012. In that same act, a request was submitted to set the preliminary hearing (before the discovery proceedings). On April 20, 2010, Chamber 2 of the Federal Court of Appeals on Civil and Commercial Matters granted the appeal filed by Grupo Clarín S.A. in re “Grupo Clarín on delay in the appeal of the proceedings”, and decided that the appeal granted by the CNDC to Grupo Clarín S.A. against Resolution No. 113/10 had the effect of staying such resolution. The National Government filed an appeal asking that the Court of Appeals revoke its own decision with respect to the effect granted to the April 20 decision, and that it decline its jurisdiction. It also filed an extraordinary appeal. Both appeals were dismissed. Chamber No. 2 requested the administrative file and the Court's decision is pending. Cablevisión considers that it has strong grounds to have the effects of the above Resolution suspended and therefore has brought the relevant legal actions. However, it cannot assure that the outcome will be favorable. Decisions made on the basis of these financial statements should consider the eventual impact that the above-mentioned resolutions might have on Cablevisión and its subsidiaries, and these financial statements should be read in light of such uncertainty. e. Under Proceeding File No. 21,788/08 dated November 17, 2008, Cablevisión informed the COMFER about the corporate business reorganization process effective as of October 1, 2008. In that same act, Cablevisión informed the COMFER about: i) all the licenses to which it became universal successor under the corporate business reorganization process; ii) the exercise of an option for one of the licenses in each of the locations where it held multiple licenses, and iii) the relinquishment of original licenses and extensions so as to eliminate the multiple licenses accumulated in each of the locations where it held multiple licenses. As a result of such corporate business reorganization process, Cablevisión became the universal successor of 158 licenses to exploiting Supplementary Services in several locations (pursuant to section 44, subsection b) of Law 22,285. To avoid having multiple licenses, Cablevisión informed the COMFER about its irrevocable intention to relinquish a total of 78 licenses (including original licenses and extensions) so as to eliminate all the supplementary service licenses that exceeded the limit set for supplementary services in each location (which was one license per designated area). Notwithstanding the foregoing, through Resolution No. 577/COMFER/09, the COMFER illegitimately decided to withhold approval of the merger requested by Cablevisión, requesting Cablevisión to submit a divestiture plan on the grounds that the license relinquishments spontaneously communicated by that company were not sufficient. (See Note 10.1.d). f. On May 23, 2011, Supercanal S.A. filed a claim for the protection of constitutional rights (acción de amparo) before the Federal Court of Mendoza against Cablevisión, Grupo Clarín and other co-defendants, requesting that they refrain from exercising alleged anti-competitive practices and that the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión (see Note 10.1.d.) be separated from the other assets, liabilities and businesses of Cablevisión and transferred to third parties. Together with the claim for the protection of constitutional rights, Supercanal S.A. requested a preliminary injunction - for the same purposes - which was granted on December 16, 2011. The injunction ordered the separation of the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión within a term of 60 days. The court also appointed a supervisor (interventor) and co-administrator for a term of twelve months, who shall enforce the injunction, order the changes to such company's management required for the effective enforcement of the duties to be fulfilled by the Board of Directors, and also report on a monthly basis to the court about his/her performance. Such court-appointed supervisor (interventor) and co-administrator shall have the obligation to perform the necessary functions aimed at fulfilling the actions ordered pursuant to the injunction. Cablevisión filed an appeal against such injunction and presented the grounds for its defense in due time and form. Cablevisión also requested the replacement of such injunction with another less burdensome, one that could largely cover the risks alleged by Supercanal in its claim. On April 26, 2012, the Federal Court of Appeals of Mendoza, Chamber A, dismissed the appeal filed by Cablevisión against the decision of December 16, 2011, but extended the term to divest the assets, liabilities and businesses of Multicanal that had been merged into Cablevisión to 120 days. The court also dismissed the request to replace the injunction. Cablevisión believes it has strong grounds to defend its position. Therefore, it has already informed the Court that it shall proceed to file an appeal with the Supreme Court of Argentina against such decisions. Notwithstanding the foregoing, Cablevisión cannot assure the outcome of this appeal. On August 14, 2012, Cablevisión was served notice of a decision rendered by Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters of the City of Buenos Aires (“the Court of Appeals”) on August 13, 2012 whereby it declared the existence of a connection between the case brought by 198 199 Supercanal S.A. in the Province of Mendoza and the appeal of MECON Resolution No. 113/10 (“Ami Cable Holding LTD and other on/ Appeal of the National Antitrust Commission Resolution). The Court of Appeals stated that the hearing of the case in the Province of Mendoza gives rise to an atypical jurisdictional issue that affects the correct rendering of justice in the case and the powers of said Court of Appeals. The Court of Appeals therefore ordered Federal Court No. 2 of Mendoza to send the file so that the case could continue under the jurisdiction of the Federal Courts on Civil and Commercial Matters of the City of Buenos Aires. The Federal Court No. 2 of Mendoza and the Federal Court of Appeals of Mendoza were served notice of said order on the same date and both of them rejected it, giving rise to a jurisdictional conflict between Chamber No. 2 of the Court of Appeals and Federal Court No. 2 of Mendoza. Pursuant to Section 24, subsection 7 of Decree/Law No. 1285/58, if a jurisdictional conflict arises between a federal judge of a given jurisdiction and a Federal Court of Appeals of a different jurisdiction, said conflict must be resolved by the Argentine Supreme Court. After having been served notice of the decision of Chamber No. 2 of the Court of Appeals, on August 17, 2012, Judge Walter Bento of the Federal Court Nº 2 of Mendoza issued an order to notify Cablevisión of an extension of the scope of the injunction issued in re “Supercanal S.A. v. Cablevisión S.A. and other on Claim for the protection of constitutional rights (acción de amparo)”. Under this injunction, the judge ordered the removal of the Board of Directors of Cablevisión and its replacement with a court- appointed administrator (interventor) whose role was to fulfill court orders. However, in response to the claim brought by Cablevisión on August 21, 2012 with the Argentine Supreme Court in connection with the abovementioned jurisdictional conflict, the Supreme Court ordered the immediate suspension of the proceedings until a decision is rendered on the jurisdictional conflict. Notwithstanding this, Cablevisión and its legal advisors believe that the order issued on August 17 is irregular and that it may not be deemed a valid notice, because it should have been issued within the framework of the proceedings pending with the Federal Court on Civil and Commercial Matters rather than being served at a domicile established in the city of Mendoza. At present, all these proceedings are suspended and were sent to the Argentine Supreme Court for it to render a decision on the jurisdictional conflict. g. On October 21, 2010, the National Administration of Domestic Trade served notice to Cablevisión of (i) a fine of Ps. 5 million for failing to comply with the duty to inform (Section 4 of Law 24,240) concerning one of its promotions and (ii) a fine of Ps. 500,000 for infringing Section 2, subsection c) of Decree 1153/95 of the regulations to Section 10 of Law 22,802. Cablevisión appealed the fine because it believes it has strong arguments in its favor. The file was assigned No. 1281 and is pending before Chamber No. 2 of the Court of Appeals on Federal-Administrative Matters. On October 4, 2011, the Court of Appeals partially affirmed Resolution 739/10 and reduced the fine to Ps. 2.2 million, imposing 75% of the legal costs on Cablevisión. On October 13, 2011 Cablevisión filed a Federal Ordinary appeal with the Supreme Court of Argentina and on October 20, 2011 it filed a federal extraordinary appeal with that same court in the event that the ordinary appeal may be dismissed. On October 21, 2011, Chamber No. 2 of the Federal Court of Appeals on Administrative Matters granted the ordinary appeal and the legal brief was submitted in due time and form. On August 7, 2012 the Supreme Court of Argentina decided that the Ordinary Appeal had been wrongly granted. On December 13, 2012 the Chamber dismissed the appeal filed by Cablevisión, which shall bear the costs incurred. On December 20, 2012 Cablevisión filed an appeal against the above-mentioned dismissal since it believes it has sufficient grounds to have the fine revoked. However, Cablevisión cannot assure that the outcome of the appeal will be favorable. h. On May 31, 2012, Cablevisión was served notice of Resolution No. 16,819 dated May 23, 2012 whereby the Argentine Securities Commission (CNV, for its Spanish acronym) ordered the initiation of summary proceedings against Cablevisión and its directors, members of the Supervisory Committee and the Head of Market Relations for an alleged failure to comply with the duty to inform. The CNV considers that Cablevisión failed to comply with its duty to inform because the investor community was deprived of its right to become fully aware of the grounds of a decision rendered by the Federal Court of Mendoza and the scope of the powers granted by that court to the co-administrator appointed in re “Supercanal S.A. v. Cablevisión S.A. on protection of constitutional rights”, in addition to the fact that other self-regulated authorities were allegedly not notified of the information furnished by Cablevisión. On June 25, 2012, Cablevisión filed a response petitioning that its defenses be sustained and all charges dismissed. Cablevisión and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure that the outcome of the said summary proceedings will be favorable. i. Pursuant to CNV Resolution No. 16,834 dated June 14, 2012 notified to the Company on June 27, 2012, the CNV ordered the initiation of summary proceedings against the Company and the members of its Board of Directors, Supervisory Committee and Audit Committee in office at the time of the occurrence of certain events under review (September 19, 2008) for alleged failure to comply with the duty to inform. Under said Resolution, the CNV argues that the Company allegedly failed to comply with the duty to disclose the filing of a claim against it entitled “Consumidores Financieros Asociación Civil para su defensa and other v. Grupo Clarín on/Ordinary”, which the CNV considers relevant. On July 25, 2012, Cablevisión filed a response petitioning that its defenses be sustained and that all charges against it be dismissed. The Company and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure the outcome of said summary proceedings. j. The Executive Branch of Uruguay issued Decree No. 73/012, published in the Official Gazette on March 16, 2012, whereby it expressly repealed Decree No. 231/011, which had revoked certain signals' broadcast frequencies. However, the new decree ratified and repeated - virtually in identical terms - the decree that was being repealed, and added certain provisions that caused further detriment to two companies with which a subsidiary of Cablevisión has contractual arrangements in place. Consequently, on March 23, 2012 the two affected companies filed an appeal requesting that Decree No. 73/012 be revoked. The appeal is still pending resolution. In May 2012, the aforesaid companies brought a legal action with the Court in Administrative Litigation Matters requesting the nullification of the resolution and the suspension of its execution. Those appeals have progressed through the corresponding instances and are pending resolution as of the date of these financial statements. Notwithstanding the foregoing, said companies cannot assure the outcome of these actions. In the preparation of these consolidated financial statements, the Company has considered the effects that could be derived, and that may be projected to date within a foreseeable period as a result of the effects, if any, from these regulatory changes. k. On June 4, 2012, the Federal Court of Appeals of Rosario partially confirmed SCI Resolution No. 219/2010, whereby the Secretary of Domestic Trade found that Cablevisión and Multicanal had engaged in market sharing practices in connection with the paid-television service in the City of Santa Fe and reduced the fine imposed on each of the companies involved from Ps. 2.5 million to Ps. 2 million. However, this decision is not yet final, because Cablevisión and Multicanal and the Ministry of Economy filed appeals with the Argentine Supreme Court, which are still pending. Notwithstanding the foregoing, Cablevisión cannot assure that the appeals will be resolved in its favor. 200 201 l. On March 1, 2011, the SCI served notice to Multicanal and Cablevisión of Resolution No. 19/11 whereby the Secretary of Domestic Trade found that both companies had engaged in market sharing practices in connection with the paid-television service in the City of Paraná and imposed a fine of Ps. 2.5 million on each of them. Cablevisión filed an appeal in due time and form. This appeal was dismissed by the Federal Court of Appeals of Paraná. Therefore, Cablevisión filed an appeal with the Argentine Supreme Court. On November 4, 2011, the appeal of SCI Resolution No. 19/11 filed by Cablevisión with the Supreme Court was partially granted by the Federal Court of Appeals of Paraná. On August 30, 2012, the Argentine Supreme Court dismissed the appeal filed by Cablevisión; therefore, Resolution No. 19/11 became final. The case is currently pending with the Court of Appeals of Paraná, which shall order its referral to the SCI. The SCI, in turn, shall serve notice to the companies involved in order for them to pay the fine. m. Cablevisión, by itself and as successor of Multicanal's operations after the merger, is a party to several administrative proceedings under the Antitrust Law, facing charges of anticompetitive conduct, including territorial division of markets, price discrimination, abuse of dominant position, refusal to deal and predatory pricing, as well as a proceeding filed by the Cámara de Cableoperadores Independientes (Chamber of Independent Cable Operators), challenging the transactions consummated on September 26, 2006. While Cablevisión believes that its conduct and that of Multicanal have always been within the bounds of the Argentine Antitrust Law and regulations and that their positions in each of these proceedings are reasonably grounded, it can give no assurance that any of these cases will be resolved in its favor. n. On January 22, 2010, Cablevisión was served with CNDC Resolution No. 8/10 issued within the framework of file No. 0021390/2010 entitled “Official Investigation of Cable Television Subscriptions (C1321)”. Pursuant to such Resolution, Cablevisión, among other companies, was ordered to refrain from conducting collusive practices and, particularly, from increasing the price of cable television subscriptions for a term of 60 days, counted as from the date all required notices are certified as completed. According to said Resolution, companies which have already increased the price of the subscriptions shall return to the price applicable in November 2009 and maintain such price for the abovementioned term. On February 2, 2010, by means of Resolution No. 13/10, the CNDC ordered Cablevisión to credit its subscribers the amount of any price increase made after the date of CNDC Resolution No. 8/10 on its March invoices. Cablevisión appealed both resolutions in due time and form and their effects were suspended by an injunction issued by Chamber No. 2 of the Federal Court of Appeals on Civil and Commercial Matters at the request of Cablevisión. Finally, on October 4, 2011, the same Chamber granted the appeal, declaring that the claim based on CNDC Resolution No. 8/10 was moot and nullifying CNDC Resolution No. 13/10. The National Government appealed such decision before the Supreme Court of Argentina, which shall grant or dismiss the appeal. o. On August 5, 2010, Cablevisión was served with CNC Resolution No. 2,936/2010 within the framework of Administrative Proceeding File No. 2,940/2010, pursuant to which Cablevisión and/or any other individual or entity through which the services relating to the licenses and registrations granted to FIBERTEL S.A. ("Fibertel") may be rendered shall refrain from adding new subscribers and from altering the conditions under which the services are currently rendered. To decide as it did, the Argentine Communications Commission disregarded the corporate reorganization that was completed and registered before the IGJ, whereby Fibertel merged into Cablevisión effective as of April 1, 2003. By virtue of that merger process, Cablevisión became the universal successor to all of the assets, rights and obligations of Fibertel as the merged company, among them, the Exclusive License awarded through SECOM Resolutions No. 100/96, 2375/97, 168/02 and 83/03. Therefore, Fibertel did not transfer or divest of its rights and obligations to third parties - among them, those derived from the above-mentioned Exclusive License. Fibertel continued to carry out its activities through Cablevisión as surviving company. In order to implement the above-mentioned corporate business reorganization, on March 5, 2003, the Argentine Communications Commission and the SECOM were notified of the corporate business reorganization for its acknowledgement. The technical and legal areas of the Argentine Communications Commission issued a favorable resolution with respect to the compliance with the requirements of current regulations to register Fibertel's license under the name of Cablevisión. SECOM had a term of 60 days to decide on the corporate business reorganization. However, such agency failed to render a decision as required by the applicable regulations. Not until August 19, 2010 did SECOM issue Resolution No. 100/2010, revoking Fibertel's license. Cablevisión believes that the Resolution is arbitrary and that it flagrantly violates due process and its defense right. Therefore, Cablevisión has appealed such resolution. No decision has been rendered on the matter yet. p.On October 28, 2010, Cablevisión was served notice of the National Administration of Domestic Trade's resolutions imposing two fines of Ps. 5 million each, for allegedly failing to observe the typographic character requirements under applicable regulations (Resolution 906/98) when informing its subscribers of the increase in the price of their cable television subscriptions. Cablevisión appealed the fines on November 12, 2010 because it believes it has strong grounds in its favor. However, it cannot assure that the outcome will be favorable. One of the files was assigned No. 1280 and is pending before Chamber No. 1 of the Federal Administrative Court of Appeals, and the other one was assigned No. 1,278 and is pending before Chamber No. 5 of the Federal Administrative Court of Appeals. q. The litigation brought before the Civil, Commercial, Mining and Labor Court of the City of Concarán, Province of San Luis, in early 2007 in re “Grupo Radio Noticias SRL v. Cablevisión and others”, is still pending before the Federal Court in Administrative Litigation Matters No. 2. The purpose of that claim was to challenge the share transfers mentioned in Note 10.1.c. and to request the revocation of Cablevisión's broadcasting licenses. Cablevisión has responded to such claim and believes it is very unlikely that it will be admitted. r. The Government of the City of Mar del Plata enacted Ordinance No. 9163, governing the installation of cable television networks. Such ordinance was amended and restated by Ordinance No. 15,981 dated February 26, 2004, giving cable companies until December 31, 2007 to adapt their cable networks to the new municipal requirements. The ordinance sets forth that in those areas where street lighting has underground wiring, cable television networks are to be placed underground. In this sense, the Executive Department of the Municipality of General Pueyrredón has submitted to the Municipal Council a proposed ordinance extending the term provided until December 31, 2015. Such ordinance is ready for discussion by legislators. Even though the ordinance provides for certain penalties that may be imposed, the City has not imposed such penalties to cable systems that are not in compliance with such ordinance. s. On November 27, 2012 the National Administration of Domestic Trade served Cablevisión with Resolution No. 308/2012, whereby it imposed a Ps. 5 million fine on that company alleging that it had failed to comply with Section No. 4 of the Antitrust Law (increase in the subscription price of cable tv services/wrongful information provided by Customer Service, informed by mail that SCI Resolution No. 50/10 and the supplementing resolutions are suspended on grounds of unconstitutionality, when in fact they have been suspended by an injunction). On December 11, 2012 Cablevisión appealed Resolution No. 308/2012. The administrative file No. S01:0312056/2011 is currently pending before the National Administration of Domestic Trade and must be submitted to the Federal Court of Appeals on Administrative Matters for it to determine, by lottery, the first instance court that will hear the case. Cablevisión and its legal advisors believe that the company has strong arguments in its favor. Nevertheless, Cablevisión cannot assure that the revocation of the fine will be resolved in its favor. 202 203 10.2 Claims and Disputes with Governmental Agencies a. Concerning the decisions made at the Company's Annual Regular Shareholders' Meeting held on April 28, 2011, on September 1, 2011 the Company was served with a preliminary injunction in re “National Social Security Administration v/ Grupo Clarín S.A. on/ ordinary” whereby the Company may not in any way dispose, in part or in whole, of the Ps. 387,028,756 currently recorded under the retained earnings account, other than to distribute dividends to the shareholders. On the same date, the Company was served with a claim brought by Argentina's National Social Security Administration requesting the nullity of the decision made on point 7 (Appropriation of Retained Earnings) of the agenda of the Annual Regular Shareholders' Meeting held on April 22, 2010. As of the date of these financial statements, the Company has duly answered to the complaint and the intervening judge ordered discovery proceedings which have already commenced. On November 1, 2011, the CNV issued Resolution No. 593, which provides that shareholders' meetings considering financial statements must, with respect to retained earnings that are not subject to restrictions on distribution and that may be dealt with pursuant to applicable law, expressly decide whether to distribute them as dividends, to capitalize them and issue shares, appropriate them to set up reserves other than legal reserves, or a combination of the above. b. The Argentine Federal Revenue Service (“AFIP”) served the subsidiary CIMECO with a notice challenging its income tax assessment for the fiscal periods 2000, 2001 and 2002. In such notice, the AFIP challenged mainly the deduction of interest and exchange differences in the tax returns filed for those years. If AFIP's position prevails, CIMECO's maximum contingency as of December 31, 2012 would amount to approximately Ps. 12 million principal amount and Ps. 24.9 million interest. CIMECO filed a response, which was dismissed by the tax authorities. The tax authorities issued their own official assessment and imposed penalties. CIMECO appealed the tax authorities' resolution before the National Tax Court on August 15, 2007. During the year ended December 31, 2010, CIMECO received a pro forma income tax assessment from the AFIP for fiscal periods 2003 through 2007, as a consequence of AFIP's challenge to CIMECO's income tax assessments for the periods 2000 through 2002 mentioned above. CIMECO filed a response before AFIP, rejecting such assessment and requesting the suspension of administrative proceedings until the Federal Tax Court renders its decision on the merits. During 2011, the AFIP served CIMECO with a notice stating the income tax charges assessed for the periods 2003 through 2007 and ordering the initiation of summary proceedings. The AFIP's assessment shows a difference in the Income Tax liability for the above indicated periods in its favor for an amount in excess of the amount that had been estimated originally, as a result of the method used to calculate certain deductions. CIMECO responded to the assessment rejecting all of the adjustments and requesting that the proceedings be rendered without effect and filed, with no further actions to be taken. On April 26, 2012, the AFIP issued a new official assessment comprising the fiscal periods 2003 through 2007 in which it applied the same method for the calculation than that used for the administrative settlement, claiming a total liability of Ps. 120 million. On May 21, 2012, an appeal was filed with the Federal Tax Court. CIMECO and its legal and tax advisors believe CIMECO has strong grounds to defend the criteria adopted in their tax returns and that AFIP's challenges will not be admitted by the Federal Tax Court. Accordingly, CIMECO has not booked an allowance in connection with the effects such challenges may have. c. Since 2005, the ANA has brought several claims against the holders of broadcasting and cable TV licenses for the payment of customs duties applicable to the import of films documented between 2000 and 2005. According to the ANA, holders of TV licenses are liable to pay customs duties, VAT and income tax not only on the customs value of the physical supports, but also on the reproduction rights agreed upon in the related contracts. ARTEAR filed objections against these claims on the basis of international agreements, doctrine and case law on the subject. As a consequence of the criteria followed by ARTEAR, during the period covered by the claim, it paid other taxes that would not have been payable if ANA's interpretation had been applied. As of the date of these financial statements, ARTEAR had to pay the differences claimed by ANA in a few isolated cases because the appeals filed with the Federal Court of Appeals against the National Tax Court's decisions do not have staying effects. In the first unfavorable decision rendered by Chamber No. 4 of the Federal Court of Appeals, which was appealed by ARTEAR, the Argentine Supreme Court refrained from rendering judgment on the merits of the case. Over the last months, all other Chambers of the Federal Court of Appeals have rendered decisions against ARTEAR's position. Therefore, as of the date of these financial statements, ARTEAR has set up an allowance to account for the estimated losses that may result from such claims, notwithstanding the fact that ARTEAR still considers that its interpretation of the customs law is based on reasonable legal grounds. d. On September 10, 2010, the AFIP served TRISA with a notice with objections to its income tax assessment, with respect to the application of the withholding regime set forth under the section following section 69 of the Income Tax law, for fiscal periods 2004, 2005 and 2006. If AFIP's position prevails, TRISA's contingency would amount to approximately Ps. 28.9 million, out of which Ps. 9.3 million corresponds to taxes on dividend payments made during those years, Ps. 6.5 million to a 70% fine on the omitted tax, and Ps. 13.1 million to late-payment interest. TRISA filed a response, which was dismissed by the tax authorities. On December 20, the tax authorities issued their own official assessment and imposed penalties. TRISA appealed the tax authorities' resolution before the National Tax Court on February 8, 2011. TRISA and its legal and tax advisors believe that TRISA has strong grounds to defend its position and that AFIP's challenges will not be admitted by the Federal Tax Court. Accordingly, TRISA has not booked a provision in connection with the effects such challenges may have. e. On August 13, 2012, the parent company GC Dominio S.A. was served notice of a claim brought by the Argentine Superintendency of Legal Entities (IGJ) whereby it seeks to annul the registration with the Public Registry of Commerce of the appointment of GC Dominio S.A.'s authorities, approved at the Shareholders' Meeting held on May 17, 2011. which is pending before the Federal Court of First Instance on Commercial Matters No. 25, Clerk's Office No. 49 (“Inspección General de Justicia v. Dominio S.A. on/Ordinary”, File No. 58652). The claim brought by the IGJ seeks to annul the registration with IGJ of the appointment of GC Dominio S.A.'s authorities, approved at the Annual Ordinary General Shareholders' Meeting of GC Dominio held on May 17, 2011. The appointment was registered with the IGJ on April 23, 2012 under No. 7147, Book No. 59 of Share Companies. According to the IGJ and as the case file is said to show, GC Dominio has allegedly failed to comply with certain regulations applicable to foreign shareholders upon registration of the appointment of authorities. Also within the framework of this claim, the Court ordered the filing of a lis pendens by the IGJ. GC Dominio S.A.'s legal advisors have strong grounds to sustain that the resolution of IGJ's claim seeking the de-registration of the appointment of authorities has serious defects and infringes the guarantees of reasonableness and due process; a principle that derives from the constitutional guarantee of defense in court, which entails the right to be heard and to produce evidence to the contrary. GC Dominio S.A. has appealed such injunction because it considers that the IGJ has not shown that its legal arguments are, at least, plausible. f. As a result of a report on suspicious activities reported by the Argentine Federal Revenue Service (“AFIP”) concerning transactions carried out between the Company and some subsidiaries, the Financial Information Unit (“FIU”) pressed criminal charges for alleged money laundering. The action is now pending before Federal Court No. 9, under Dr. Luis Rodriguez. The FIU has pressed charges against the Company and its directors for alleged money laundering activities related to the trading of shares between the Company and some of its subsidiaries. The Company has 204 205 appointed defense attorneys and has requested a copy of the file to understand the details of the charges. As of the date of these consolidated financial statements, the FIU has not yet produced all the evidence requested by prosecutor Miguel Angel Osorio. The Company and its legal advisors consider that there are strong arguments in the Company's favor having gathered evidence that supports their lack of involvement in any such maneuvers. However, they cannot assure that the outcome of this action will be favorable. g. By means of Resolution 16,364/2010, dated and notified to AGEA as of July 15, 2010, the CNV's Board of Directors decided to initiate summary proceedings against AGEA and certain current and past members of its board of directors and supervisory commission, for alleged infringement of the Argentine Business Associations Law, Decree No. 677/01 and Law No, 22,315. AGEA, as well as the current and past members of the board of directors and supervisory commission who are subject to the summary proceedings, duly filed their respective responses. h. AGEA received several inspections from the AFIP aimed at verifying compliance with the so-called competitiveness plans implemented by the National Executive Branch. As a result of such inspections, after several reports issued by the AFIP and the corresponding Resolutions issued by the Ministry of Economy, such bodies allege that certain acts performed by AGEA during 2002 lead to the nullity of some of the benefits granted under said plans for an estimated amount of Ps. 33.4 million. AGEA and its legal counsel believe that there are sufficient grounds in favor of AGEA and, accordingly, no provision has been recorded. An ordinary appeal has been filed by AGEA against such Resolutions. As of the date of these financial statements, such appeal is pending resolution. However, AGEA cannot assure that the appeal will be resolved in its favor. 10.3 Other Claims and Disputes a. On December 12, 2001, Supercanal filed a claim against Multicanal for damages as a result of the enforcement of a preliminary injunction brought by Multicanal against Supercanal. Multicanal responded to such claim denying any liability. Based on de jure and de facto precedents of the case, Cablevisión, as successor of Multicanal's operations, believes that the claim filed should be rejected in its entirety, and that the legal costs should be borne by the plaintiff. As of the date of these financial statements, the proceeding was at the discovery stage. The court of first instance dismissed Supercanal's request that it be allowed to sue without paying court fees or costs. This decision has been ratified by the Federal Court of Appeals. b. On June 22, 2007 TRISA and TSC executed several documents with AFA, applicable from the 2007/2008 until the 2013/2014 soccer seasons, governing the broadcasting by TRISA of all of the National “B” soccer tournament matches and by TSC of ten of the Argentine soccer first division official tournament matches played each week. Out of those ten matches, TRISA broadcast five through TyC Sports. Those agreements set the price to be paid by TRISA for these products and clearly stated its right to sell such products and, additionally, had AFA's express consent. On August 12, 2009 AFA notified TSC of its decision to terminate unilaterally the above- mentioned agreement. TSC has challenged AFA's unilateral termination of the agreement and, in order to safeguard its rights, on June 15, 2010 it brought a legal action against AFA for contractual breach and damages. On July 27, 2011, AFA unilaterally terminated the agreement that bound AFA and TRISA until the 2013/2014 soccer season for the broadcasting of all Argentine National “B” soccer tournament matches. AFA's decision was totally arbitrary and illegitimate, since TRISA has not breached any provision of the agreement, which does not expressly allow voluntary unilateral termination by either party. Therefore, TRISA has challenged AFA's unilateral termination of the agreement. In light of the events and until the situation is remedied, TRISA will not be able to broadcast the five weekly matches of the first division tournament or any of the National “B” soccer tournament matches that it used to broadcast on its signal TyC Sports. The broadcasting rights for the matches of Metropolitan First B category are not governed by the above-mentioned agreements, but by an agreement that is in full force and effect as of the date of these financial statements. The situation described above had a significant impact on TRISA's revenues and costs. Therefore, it had to adjust its signal to these new circumstances. In light of the circumstances described in the above paragraphs, as from August 2009, TRISA has recorded a portion of its revenues based on the progress of negotiations with each client and the new content of the signal. During this year, TRISA has completed those negotiations. As a result, no significant differences arose between the actual results and the original estimates. c. On January 31, 2012, FADRA informed Grupo Carburando's subsidiary Mundo Show S.A. the unilateral rescission of the agreement executed in 2006 whereby FADRA assigned to that company the rights comprising image, sound and static advertising of motor racing at the road racing events Turismo Carretera and TC Pista until December 31, 2015. Mundo Show S.A. has challenged and rejected FADRA's unilateral rescission of the agreement and is analyzing the legal actions it will bring to safeguard its rights. In light of the events and until the situation is remedied, Mundo Show S.A. will not be able to sell or export the audiovisual and static advertising rights of the above-mentioned motor racing events. Therefore, an allowance has been set up for impairment of goodwill and other assets related to such agreement in the amount of approximately Ps. 17 million. d. Pursuant to a notarial certificate issued on September 19, 2008, AGEA and the Company were served with a legal action brought by an entity representing consumers and alleged financial victims (and by six other individuals). Claimants are Multicanal noteholders who claim to be allegedly affected by Multicanal's APE. The claim is grounded on a Consumer Defense Law which, in general terms, provides for an ambiguous procedure that is very strict against the defendant. The Company, AGEA and certain directors and members of the supervisory committee and shareholders have been served with the claim. After rejecting certain preliminary defenses presented by the defendants, such as the application of statutes of limitation and the failure to comply with prior mediation procedures, the claim followed ordinary procedure and the above-mentioned persons duly filed their respective responses. e. On September 16, 2010 the Company was served with a claim brought against it by Consumidores Financieros Asociación Civil para su Defensa. The plaintiff claims a reimbursement of the difference between the value of the shares of the Company purchased at their initial public offering and the value of the shares at the time a decision is rendered in the case. The Company has duly responded to the claim and the intervening Court has deemed the claim responded. 10.4 Matters concerning Papel Prensa: I. Papel Prensa has several disputes pending before the Commercial Court of Appeals of the City of Buenos Aires as a consequence of CNV Resolution No. 16,222. Pursuant to said Resolution, the CNV declared that certain decisions of Papel Prensa's Board of Directors were irregular and with no effect for administrative purposes. The Resolution challenged the Board's fulfillment of the formalities required in the preparation, transcription and execution of meeting minutes on the relevant corporate books. On June 24, 2010, in File No. 75,479/09, the Commercial Court of Appeals of the City of Buenos Aires, Chamber C, decided to nullify CNV Resolution No. 16,222. On the basis of Resolution No. 16,222, the CNV has questioned subsequent decisions of Papel Prensa's Board and of its Shareholders. In response, Papel Prensa has brought several administrative claims against the CNV, questioning its position. All of such claims were decided in Papel Prensa's favor by the Commercial Court of Appeals of the City of Buenos Aires. Consequently, the CNV's decisions were nullified. Furthermore, the Commercial Court of Appeals, Chamber C, dismissed the appeals filed by the CNV before the Supreme Court of Argentina against the Court of Appeals' decisions. The CNV filed a direct appeal before the Supreme Court. 206 207 As a consequence of the above, Papel Prensa has continued with the criminal proceedings brought against certain public officials. On February 1 and 4, 2010 the Secretary of Domestic Trade, Mario G. Moreno, and the CNV, respectively, requested the judicial intervention of Papel Prensa before the commercial justice. Such claims were pending before the Federal Commercial Court of First Instance No. 2, Clerk's Office No. 4, temporarily under judge Dr. Eduardo Malde, who, on March 8, 2010, issued an injunction whereby he suspended certain decisions adopted at meetings of the Board of Directors and at Shareholders Meetings held on or after November 4, 2009. Judge Malde also appointed a co-administrator without removing the members of the previous corporate bodies. Papel Prensa filed an appeal, which the Commercial Court of Appeals, Chamber C, resolved in Papel Prensa's favor, by revoking the injunction on August 31, 2010. On December 7, 2010 the same Chamber C dismissed the appeals filed by the CNV and the National Government before the Supreme Court of Argentina against the Court of Appeals' decision. Both the CNV and the National Government filed direct appeals against such decision. None of the claims mentioned in the above paragraphs had a material effect on AGEA's financial and economic condition as of December 31, 2012. II. On January 6, 2010, the SCI issued Resolution 1/2010 whereby certain business practices were imposed on Papel Prensa. Papel Prensa brought a legal action against such resolution on grounds of unconstitutionality before the Federal Court on Administrative Matters and requested an injunction which was granted by the intervening judge. Pursuant to the injunction, the effects of such Resolution were suspended. On May 7, 2010, the Federal Court on Administrative Matters revoked the injunction. Papel Prensa appealed such decision, which was affirmed by the Federal Court of Appeals on Administrative Matters. Papel Prensa filed an appeal against the Court of Appeals' decision. The appeal was denied and Papel Prensa was served notice of that denial on September 1, 2010. III. Papel Prensa suspended its operations with related parties between March 9 and April 21, 2010 pursuant to an injunction issued on March 8, 2010 by Judge Malde. In his ruling, Judge Malde decided to suspend the Board of Directors' resolution of December 23, 2009, which had approved the terms and conditions of transactions with related parties for the year 2010. On April 21, 2010, the Board of Directors of Papel Prensa, following a proposal made by the court-appointed supervisor (interventor) and co-administrator, approved the resumption of such company's transactions with related parties under provisional conditions for as long as the decision rendered by the Board on December 23, 2009 remained suspended and/or until Papel Prensa's corporate bodies established a business practice to follow with related parties. Such approval involved suspending the application of volume discounts in connection with purchases made by related parties, which could be recognized in their favor, subject to the court's decision on the appeal filed by Papel Prensa against Judge Malde's injunction of March 8, 2010. As from April 21, 2010, transactions with related parties were resumed under the provisional conditions approved by the Board on April 21, 2010. At a meeting held on December 23, 2010, Papel Prensa's Board of Directors approved new conditions that must be fulfilled for the recognition and payment of volume discounts that may be applicable to related parties in connection with purchases of paper made as from April 21, 2010. These new conditions are as follows: (i) the lifting of the provisional suspension of the resolutions adopted by the Board meeting of December 23, 2009, as explained in the previous paragraph, and (ii) the resolution or end, by any means, of any state of uncertainty that may eventually exist about the conditions approved by Papel Prensa's Board in the first item of the agenda of the meeting held on April 21, 2010, as a consequence of the claim brought by the National Government in re “National Government - Secretariat of Domestic Trade - v./ Papel Prensa S.A.I.C.F. y de M. on/ Ordinary”, File No. 97,564, currently pending before Federal Commercial Court of First Instance No. 26, Clerk's Office No. 52. Under this proceeding, the National Government seeks to obtain, among other things, a declaratory judgment of nullity of the provisional conditions for the resumption of transactions with related parties in connection with the purchase and sale of paper approved by Papel Prensa's Board in the first item of the agenda of the above mentioned meeting held on April 21, 2010. Furthermore, at this meeting held on December 23, 2010, Papel Prensa's Board decided to maintain the originally approved sales policy, but to subject the accrual and enforceability, and, consequently, the recognition and payment to the clients, of the eventual volume discounts that may be applicable to them with respect to paper purchases made between January 1, 2011 and December 31, 2011, to a final favorable ruling in the claim brought by Papel Prensa against the constitutionality of SCI Resolution No. 1/2010, or to the final nullification of such Resolution No. 1/2010 in any other way or by any other legal means, whichever happens first. In connection with related parties, the Board approved the same policies and conditions as those approved for the other clients in general. In a meeting held on December 27, 2011 Papel Prensa's Board of Directors decided to maintain for 2012 the same commercial policies that had been approved for 2011 - under the same terms and conditions mentioned in the previous paragraph - for all of its customers in general (including related parties). The commercial policy approved by Papel Prensa was affected by Law 26,736 -effective as from January 5, 2012- which declared a matter of public interest the production, sale and distribution of wood pulp and newsprint and set forth the regulatory framework to be adopted by the producers, sellers, distributors and buyers of such inputs. Among other things, the Law set limits and established conditions applicable to Papel Prensa for the production, distribution and sale of newsprint (including a formula to determine the price of paper), and created the National Registry of Producers, Distributors and Sellers of Wood Pulp and Newsprint where all producers, sellers, distributors and buyers shall be registered as a mandatory requirement in order to produce, sell, distribute, and/or purchase newsprint and wood pulp as from the enactment of the Law. It also contains a series of temporary clauses, specifically and exclusively addressed to Papel Prensa, whereby Papel Prensa is forced to make investments to meet the total national demand for newsprint - excluding from this requirement the other existing company that operates in the country with installed capacity to produce this input. The Law also provides for the capitalization of the funds eventually contributed by the National Government to finance these investments for the purposes of increasing the equity interest and the political rights of the National Government in Papel Prensa, contravening public order regulations contained in Law 19,550 and disregarding several constitutional rights and guarantees of Papel Prensa and its private shareholders. On February 10, 2012 AGEA registered in the National Registry of Producers, Distributors and Sellers of Wood Pulp and Newsprint (Record No. 63 in File No. S01:0052528/12), clearly stating that the decision to register shall not be construed as an acknowledgment or conformity with the legitimacy of Law 26,736, Resolution No. 9/2012 issued by the Ministry of Economy and Public Finance and SCI Resolution No. 4/2012 issued in connection with such Law and/or any other issued in the future, since they seriously affect several rights and guarantees of AGEA which are recognized and protected by the Argentine National Constitution. IV. On September 12, 2011, the CNV issued Resolution No. 16,647 whereby it rendered irregular and with no effect for administrative purposes the decisions made by Papel Prensa's Board of Directors at the meetings held on July 20, 2011 and August 5, 2011. At those meetings, the Board of Directors had called two shareholders' meetings, to be held on September 27, 2011 and September 15, 2011, respectively. Notwithstanding the fact that Resolution No. 16,647 was appealed by Papel Prensa and is therefore not final, on September 15, 2011, Commercial Court No. 5, Clerk's Office No. 9, issued an injunction with respect to the Board of Directors' decisions to call the two shareholders' meetings. The injunction had been requested by the shareholders Arte Gráfico Editorial Argentino S.A., Compañía Inversora en Medios de Comunicación (CIMECO) S.A., and S.A. La Nación. Given that the issuance of the injunction had validated Papel Prensa's decision to call the two shareholders' meetings, both were held as originally scheduled. 208 209 Nevertheless, and based on the above Resolution No. 16,647, on October 13, 2011 the CNV issued Resolution No. 16,671 rendering irregular and with no effect for administrative purposes all of the decisions made at Papel Prensa's Shareholders' Meetings held on September 15, 2011 and September 27, 2011. Papel Prensa filed an appeal against Resolution No. 16,671, which is, therefore, not final. Also based on Resolution No. 16,647, on November 16, 2011, the CNV issued Resolution No. 16,691 whereby the CNV rendered irregular and with no effect for administrative purposes the decisions made at the Board of Directors' Meeting held on October 3, 2011 and the call for the Board of Directors' meeting on November 17, 2011. Such Resolution is not to be deemed final since Papel Prensa filed an appeal and requested its nullification. In this sense, of particular note is that: (i) at the hearing held before Federal Commercial Court No. 26 of First Instance, Clerk's Office No. 52, the National Government, Papel Prensa, AGEA, Compañía Inversora en Medios de Comunicación (CIMECO) S.A. and S.A. La Nación agreed, among other things, on the composition of the company's corporate bodies, and in particular on the recognition of the authorities appointed by the private shareholders at Papel Prensa's Shareholders' meeting held on September 27, 2011, as well as on the agenda to be addressed at the meeting of Papel Prensa's Board of Directors of October 3, 2011, which had been the subject matter of Resolution No. 16,691; and (ii) at the hearing held in April 2012 before the same Commercial Court the National Government, Papel Prensa, AGEA, Compañía Inversora en Medios de Comunicación (CIMECO) S.A. and S.A. La Nación, with the assistance of the Argentine Securities Commission, agreed to request the court to order a shareholders' meeting with an agenda substantially similar to that of Papel Prensa's Shareholders' Meeting held on September 27, 2011. The request was granted by the intervening judge and the meeting was scheduled for August 29, 2012. The meeting began on that date but, as a consequence of certain disturbances provoked by the representative of the National Government, the private shareholders that were present at the meeting decided to adjourn it for 48 hours without addressing the agenda. After that, and notwithstanding the resolution adopted at the meeting, on August 31, 2012 Judge O`Reilly decided to order that the adjourned meeting would resume on September 25, 2012. However, the meeting was not held because the Judge subsequently held that the appeals filed against other points of her decision resulted in the suspension of every point of the decision she had rendered, including the new date scheduled for the meeting, even though all appellants had consented to that point. Therefore, the new date of the court-convened meeting that began on August 29, 2012 may not be set until the Supreme Court has rendered its decision about the appeals against Judge O`Reilly's decision of August 31, 2012. Once that occurs and the file is sent back to the original court, Judge O`Reilly shall set a new date to resume the meeting. V. AGEA has not recorded any impact in connection with the foregoing, since its effects shall depend on the final outcome. Such effects are not expected to be material to these financial statements. Note 11 Regulatory Framework for Audiovisual Communication Services Until the enactment of Audiovisual Communication Services Law No. 26,522, the installation, operation and acquisition of audiovisual communication services in Argentina were governed by Broadcasting Law No. 22,285. Cable TV activities were regulated and overseen mainly by the COMFER. Under Law No. 22,285 broadcasting service companies in Argentina required a non- exclusive license from the COMFER in order to operate. Other approvals were also required, including the authorization from municipal agencies. Broadcasting licenses were granted for an initial period of 15 years, allowing for a one-time extension of 10 years. The extension of the license was subject to the approval of the COMFER, which would determine whether or not the licensee had met the terms and conditions under which the license had been granted. Both Cablevisión and its subsidiaries and other subsidiaries of Grupo Clarín that render broadcasting services, hold licenses granted by the COMFER under such Law. Some of Cablevisión's licenses, including its original license (with an extended term that originally expired on March 31, 2006), and the licenses of other subsidiaries, have already been extended for the above-mentioned 10-year term. On May 24, 2005, Decree No. 527/05 provided for a 10-year-suspension of the terms then effective of broadcasting licenses or their extensions. Calculation of the terms shall be automatically resumed upon expiration of the suspension term, subject to certain conditions. The Decree required that companies seeking to benefit from the extension submit to the COMFER's approval, within two years from the date of the Decree, programming proposals that would contribute to the preservation of the national culture and the education of the population and a technology investment project to be implemented during the suspension term. COMFER's Resolution No. 214/07 regulated the obligations established by Decree No. 527/05 in order to benefit from such suspension. The proposals then submitted were approved and, accordingly, the terms of the licenses originally awarded to Cablevisión, as well as the terms of the licenses to which Cablevisión became the universal successor, and the licenses of other subsidiaries, are currently suspended for ten years. COMFER Resolution No. 275/09 lifted a suspension of license grants that had been ordered by COMFER Resolution No. 726/00 and approved the Rules governing the licensing of Broadcasting and Supplementary Services by means of a physical link, and set a term to apply for licenses under an abbreviated procedure. Therefore, Cablevisión and certain subsidiaries purchased bidding forms to apply for new licenses through this option in such locations where they had not obtained the suspension of the term ordered by Decree No. 527/05, since the terms of those licenses had expired. Cablevisión has requested the COMFER's approval of several transactions, including certain company reorganizations and share transfers. The request for approval of the merger of Cablevisión and its subsidiaries (see Note 8.1.d.) is still pending. The Audiovisual Communication Services Law (Law No. 26,522) was passed and enacted on October 10, 2009, subject to strong concerns over its content and enactment procedure. Even though the new Law became effective on October 19, 2009, not all of the implementing regulations provided by the law have been enacted. Therefore, Law No. 22,285 still applies with respect to those matters which to date have not been regulated, until all terms and procedures for the regulation of the new law are defined. The law provides for the replacement of the COMFER with the Audiovisual Communication Services Law Federal Enforcement Authority (AFSCA, for its Spanish acronym) as a decentralized and autocratic agency under the jurisdiction of the Executive Branch, and vests the new agency with authority to enforce the law. It may be argued that, as of the date of these financial statements, AFSCA has not yet been fully formed and, therefore, its functioning is still questionable. The new law, which governs the audiovisual communication services activities conducted by the Company through its subsidiaries, establishes, among other things,: • A license award and review scheme that grants wide discretion to the Executive Branch and to an Enforcement Authority with questionable composition and powers, • A 10-year limitation to the terms of licenses, with a one-time non-renewable extension, • The non-transferability of authorizations and licenses, • A regulatory framework and registration requirements for signals, production companies and advertising agencies, • A multiple license scheme that: i) restricts to 10 the number of Audiovisual Communication Service licenses, plus a single broadcasting signal for radio, broadcast TV and subscription cable TV services that make use of the radio spectrum; ii) restricts the licensing of subscription broadcasting services rendered by means of a physical link (cable), limiting the number of licenses to 24; iii) sets forth a further restriction on these services, which may not be provided to more than 35% of all inhabitants or subscribers nationwide; iv) establishes that a broadcast TV signal and a cable TV signal 210 211 may not be simultaneously exploited in the same location, and v) establishes that broadcast TV networks may only own one cable TV signal. The same applies to cable TV networks, which may only own the so-called “local channel”, which is mandatory for every license • Mandatory quotas for certain types of content. Also controversially, the law sets forth retroactive effects by requiring holders of current broadcasting licenses - which were legitimately acquired rights under Law No. 22,285 as amended - to conform to the new law within the term of one year counted as from the time certain mechanisms required for implementation are set in place. It is publicly known that several concerns have been expressed about this law, since it has defects that render it unconstitutional; it seriously damages the development of the audiovisual industry and it restricts fundamental freedoms. Some of these industry players, among them Grupo Clarín and its main subsidiaries, have already made court filings in this sense. As of the date of these financial statements, insofar as the Company is concerned, two preliminary injunctions are in full force and effect providing for: (i) the provisional suspension of section 161 of the Audiovisual Communication Services Law with respect to Grupo Clarín, Cablevisión and other subsidiaries, which has been confirmed by the Supreme Court of Argentina, and (ii) at the request of the Consumer Defense Committee, the suspension of the application of sections 45, 161 and 62 through 65 of such Law. Even though this decision has been partially revoked by the Federal Court of Appeals of Salta, the Court of Appeals' decision may be deemed not to be final since the affected party filed an extraordinary appeal, thereby restoring the effects of the decision rendered in the first instance. Regarding the suspension of Section 161 referred to under point (i) above, it should be noted that the Supreme Court of Argentina had confirmed both the injunction and the term of three years set by Chamber I of the Federal Court of Appeals on Civil and Commercial Matters, only changing the date as from which such term had to be calculated. According to such decision, the application of Section 161 was suspended for plaintiffs until December 7, 2012, after which date Section 161 of Law 26,522 could be applicable to the Company and its subsidiaries. companies challenged AFSCA's resolution because it violates the injunction granted and extended by Chamber No. 1 of the Federal Civil and Commercial Court of Appeals. In light of certain delaying maneuvers carried out by the National Government, aimed at avoiding a decision on the constitutionality of such law before the date mentioned above, on December 6, 2012 the same Court of Appeals extended the effectiveness of the injunction then in force until a final judgment is rendered on the merits of the case. Against such decision, the National Government filed an appeal directly before the Supreme Court of Argentina. The Court dismissed in-limine the appeal filed by the National Government on December 10, 2012 on the grounds that there were no urgent reasons to decide on the matter, maintaining the effectiveness of the injunction. The National Government filed a Federal Extraordinary Appeal, which was granted by the Court of Appeals on December 19, 2012 and is currently pending before the Supreme Court of Argentina. On December 14, 2012 the Company was served with the decision rendered by the Court of First Instance on the merits of the case in re “Grupo Clarín S.A. and Other v. the Executive Branch on Declaratory Action” (File 119/10). The judge recognized the legitimacy of the plaintiffs to bring an action, considering them holders of the licenses, but rejected the unconstitutionality claim with legal costs to be borne by the claimant. An appeal was filed against that decision in due time and form and is now pending before the Court of Appeals. Subsequently, the Court of Appeals shall order the parties to provide grounds for the appeal filed (see Note 18). On December 17, 2012, the Company, Cablevisión, Artear and Radio Mitre were served with AFSCA/12 Resolution No. 2276, whereby the AFSCA decided to commence the official transfer procedure, further ordering the appraisal by the Court of Appraisals of Argentina of the licenses and the indispensable assets related to broadcast services and ordering both companies to respond, within the framework of that procedure, to a request for information about the licenses and/or services directly or indirectly owned by them. Those The Executive Branch has regulated most sections of Law No. 26,522 by means of Decree No. 1,225/2010. The most notably arbitrary provision of this decree is the highly discretional mandatory divestiture system set forth to regulate Section 50 of the Audiovisual Communication Services Law, which has evident confiscatory effects. Additionally, AFSCA has issued Resolution No. 432/2011, whereby it approved new bidding terms and conditions for the granting of licenses. Even though Grupo Clarín's subsidiaries have challenged the validity or constitutionality of some regulations imposed by the Enforcement Authority, they have fully complied with the required procedures only in the event that such requirements may be considered valid, for the purposes of safeguarding their rights. Cablevisión complied with AFSCA Resolution No. 296/2010, which provides guidelines for the organization of the programming grid that must be followed by the owners of pay TV audiovisual services. This resolution regulates section 65, subsections a) and b) of Law No. 26,522. The Resolution supplements the provisions of the regulations to the same section of Decree No. 1,225/2010. Cablevisión believes that both the provisions of Decree No. 1,225/2010 and AFSCA Resolution No. 296/2010 are regulatory abuses and violate the right to freedom of press, guaranteed by the National Constitution. In spite of Cablevisión's efforts to organize its programming grids in accordance with the provisions of section 65 of Law No. 26,522, AFSCA has disregarded the effectiveness of several court decisions ordering the suspension of this law and its regulations and has initiated multiple summary proceedings in connection with the cable television licenses of which Cablevisión is the lawful successor. AFSCA contends that Cablevisión failed to comply with the regulations set forth by AFSCA Resolution No. 296/2010. Cablevisión submitted the responses set forth under section 1, Exhibit II of AFSCA Resolution No. 224/2010 in connection with such accusations. A decision has been rendered on some of the summary proceedings and, as a result, a fine was imposed on Cablevisión. Cablevisión has appealed these decisions. Some of the appeals filed by Cablevisión have been decided against it and have again been appealed. To date, two court decisions that order the inapplicability of Resolution No. 296/2010 are still in effect, to wit: i) the injunction issued in re “CODELCO v. NATIONAL GOVERNMENT -EXECUTIVE BRANCH on PRELIMINARY INJUNCTION” pending before the Federal Court of Salta, which suspended, among other things, the application of section 65 of Law No. 26,522 and its regulations. Even though such decision was revoked by the Federal Court of Appeals of Salta, the Court of Appeals' decision may be deemed not to be final since the affected party filed an extraordinary appeal, thereby restoring the effects of the decision rendered in the first instance and ii) the injunction ordered in re “CABLEVISIÓN S.A. v. NATIONAL GOVERNMENT AND OTHERS ON COMPLAINT FOR THE PROTECTION OF CONSTITUTIONAL RIGHTS” by the Federal Court of Appeals of Mar del Plata, whereby the decision rendered in the First Instance was revoked. Such decision rendered in the First Instance had ordered the dismissal of Cablevisión's request, ordering AFSCA to suspend - until a final decision was rendered on the matter - the application of the penalties derived from the alleged non-compliance with section 65 of Law No. 26,522 and Decree No. 1,225/2010 and the application of section 6 of AFSCA Resolution No. 296/2010 on the grounds that Cablevisión's alleged serious non- compliance was not contemplated in the Law or in the Decree. The National Government filed an appeal with the Supreme Court against this decision. Such appeal is still pending resolution. In re “AFSCA v. CABLEVISION SA Decree 1225/10 - RES. 296/10 on/ Proceeding leading to a declaratory judgment” currently pending before the Federal Court of First Instance on Administrative Matters No. 9, on May 16, 2012 the Court granted an injunction that had been requested by AFSCA, ordering Cablevisión 212 213 and/or the pay television audiovisual services it exploits to conform to Section 65, paragraph 3 b) of Decree No. 1225/2010 and Sections 1, 2, 3, 4 and 5 of AFSCA Resolution No. 296/2010, until a final judgment is rendered on the merits of the case. Cablevisión appealed such injunction. On August 6, 2012, Cablevisión was served notice of a decision rendered by the Federal Court of First Instance on Administrative Matters No. 9 of the City of Buenos Aires, whereby it imposed a fine on Cablevisión of Ps. 20,000 per day for each day of delay in conforming to the injunction that ordered Cablevisión to comply with Section 65 of Decree No. 1,225/2010 and AFSCA Resolution No. 296/2010. Cablevisión appealed such fine. As of the date of these financial statements, the appeals filed against the injunction and the fine referred to above are still pending before Chamber No. 4 of the Federal Court of Appeals on Administrative Matters. Between September and October 2011, AFSCA brought 46 charges of delegation of the exploitation of several licenses of which Cablevisión is currently the legal successor. The charges were brought within the framework of COMFER file No. 2,005/08, concerning the registration of the corporate reorganization whereby Multicanal and Teledigital, among other subsidiaries, merged into Cablevisión. Cablevisión has submitted the appropriate responses on behalf of the merged licensees charged as indicated above, which to date have not been decided upon. Cablevisión believes it has strong grounds to reverse the charges brought by administrative and/or judicial means. As of the date of these financial statements, the responses submitted are still pending resolution. The Company and its subsidiaries are evaluating the possible effects on their business of such questioned Audiovisual Communication Services Law, its implementing regulations and the matters mentioned above. Depending on several aspects, the Company and/or some of its subsidiaries could be forced to divest of certain services, which shall in turn depend on the choices made by the Company and/or its subsidiaries. All of the above could result in a reduction of the services the Company currently renders, the ownership and rights of which were acquired in compliance with Law No. 22,285. Therefore, at present this situation generates uncertainties about the business of the Company and its subsidiaries, which could significantly affect the recoverability of the Company's relevant assets. In re “Grupo Clarín S.A. and others v. the Executive Branch on/Declaratory Action” (File No.119/10), the accounting and economic experts have submitted their reports where, among other things related to the claim, have estimated the potential accounting and company value losses the Company would suffer if compelled to make divestitures in the final term of one year. Based on the experts' exclusive assumptions, this situation could result in potential accounting losses ranging from Ps. 1.5 billion and Ps. 3.3 billion and a potential significant impairment of the company value. However, the experts have stated that these estimates will depend on several decisions that have not yet been made by the plaintiffs and, therefore, the actual outcome could differ from their estimates. In this sense, AFSCA's application of other interpretations of the law and/or its regulation may allow for taking different actions than those taken by expert witnesses, which may produce different results to those originally estimated by the latter. However, taking into account the new developments that have been taking place regarding AFSCA's interpretations concerning other companies subject to the Law, there are uncertainties for the Company as to the effects that would be derived from the eventual concrete application of such law, which may vary if a wide or restrictive interpretation of the law prevails and, therefore, the corresponding actions to be taken by the Company. The Company continues analyzing the economic impact and the possible consequences that would be derived from an improbable but possible unfavorable judgment. For this reason, the Company cannot accurately quantify the eventual impact on these financial statements. However, the recoverability of the Company's assets could be unaffected if the Company's and other parties' main arguments were adopted to create a framework of increased rationality, either by the amendment, repeal or declaration of unconstitutionality of the new media law and/or its implementing regulations. The Company and its legal advisors consider that this Audiovisual Communication Services law and its implementing regulations violate fundamental constitutional rights, such as, the property right and freedom of the press, among others. For this reason, it will bring the legal actions in each instance to safeguard its rights and those of its shareholders; as well as to protect the fundamental principles infringed by such law. The decisions to be made based on these financial statements should contemplate the eventual impact that these changes in the regulatory framework may have on the Company and its subsidiaries. The Company's financial statements should be read in the light of this uncertain environment. Other Matters Related to the COMFER, now AFSCA. Cablevisión As from November 1, 2002 and until December 31, 2012, the COMFER and AFSCA initiated summary administrative proceedings against Cablevisión and Multicanal (merged into Cablevisión) for infringements of regulations regarding the content of programming. Accordingly, a provision has been set up in this regard. ARTEAR As of December 31, 2012, ARTEAR recorded a provision in the amount of approximately Ps. 7.8 million for fines imposed by the COMFER and AFSCA, some of which have been appealed and are pending resolution. Note 12 Capital Stock Structure Upon the Company's public offering during 2007, the capital stock amounted to Ps. 287,418,584, represented by: consist of supplementary contributions made by each company to the PALP related to the executive's years of service with the Group. As of December 31, 2012, such supplementary contributions made by the Company on a parent company only basis amount to approximately Ps. 11 million, and the charge to income is deferred until the retirement of each executive. Pursuant to IAS No. 19, the above-mentioned savings plan qualifies as a Defined Contribution Plan, which means that the companies' contributions shall be charged to income on a monthly basis as from the date the plan becomes effective. Note 14 Financial Instruments 14.1 Financial Risks Management Grupo Clarín is a party to transactions involving financial instruments, which entail exposure to market, currency and interest rate risks. The management of these risks is based on the particular analysis of each situation, taking into account its own estimates and those made by third parties of the evolution of the respective factors. 14.1.1 Capital Risk Management Grupo Clarín manages its capital structure seeking to ensure its ability to continue as an ongoing concern, while maximizing the return to its shareholders through the optimization of debt and equity balances. As part of this process, Grupo Clarín monitors its capital structure through the debt-to-equity ratio, which is equal to the quotient of its net debt (loans less Cash and Banks and other Current Investments) divided by shareholders' equity. The debt-to-equity ratio for the year ended December 31, 2012 and 2011 is as follows: - 75.980.304 Class A common, registered, non-endorsable shares, with nominal value of Ps. 1 each and entitled to 5 votes per share. - 186,281,411 Class B book-entry common shares, with nominal value of Ps. 1 each and entitled to 1 vote per share. - 25,156,869 Class C common, registered, non-endorsable shares, with nominal value of Ps. 1 each and entitled to 1 vote per share. On October 5 and 11, 2007, the CNV and BCBA, respectively, granted authorization for the Company's admission to the initial public offering of its capital stock. Said authorizations contemplated (i) the public offering of its Class B book-entry common shares, (ii) the listing of its Class B book-entry common shares, and (iii) the listing of its registered non- endorsable Class C common shares, trading of which was suspended due to restrictions on transfers set forth by the Bylaws. Also in the last quarter of 2007, the Company was granted authorization for the listing of its GDSs in the LSE. Each GDS represents two of the Company's Class B common shares. Note 13 Long-Term Savings Plan During the last quarter of 2007, the Company, together with its subsidiaries, began to implement a PALP for certain executives (directors and managers comprising the “executive payroll”), which became effective in January 2008. Executives who adhere to such plan undertake to contribute regularly a portion of their salary (variable within a certain range, at the employee's option) to a fund that will allow them to strengthen their savings capacity. Each company of the Group where those executives render services will match the sum contributed by such executives. This matching contribution will be added to the fund raised by the employees. Under certain conditions, the employees may access such funds upon termination of their participation in the PALP. The PALP provides for certain special conditions for those managers who were in the “executive payroll” before January 1, 2007. Such conditions 214 215 December 31, 2012 December 31, 2011 62,084,479 127,730,585 (5,251,306) (7,742,929) 49,090,244 (2,950,680) (29,866,561) 94,913,344 4,090,030,112 3,634,142,107 0.01 0.03 Loans (i) Less: Cash and Cash Equivalents - Cash and Banks - Other Current Investments Net Debt Shareholders' Equity Debt-to-Equity Ratio (i) Long-term and short-term loans, including derivatives and financial guarantee agreements. Since Grupo Clarín is a holding company, the measurement of this ratio on the Company's parent company only balances is not relevant. On a consolidated basis, the debt-to-equity ratio is reasonable compared to other industry players and considering the particular situation of Argentina and of the companies that make up Grupo Clarín. 14.1.2 Categories of Financial Instruments Financial Assets Loans and Receivables (1) (2) - Cash and Banks - Current Investments - Other Receivables At fair value with an impact on net income - Current Investments Total Financial Assets Financial Liabilities At amortized cost - Debt (3) - Accounts Payable and Other Liabilities (4) Total Financial Liabilities (1) Net of the allowance for doubtful accounts in the amount of Ps. 28.0 million, Ps. 31.3 million and Ps. 32.5 million, respectively. (2) Includes receivables with related parties in the amount of Ps. 23.0 million, Ps. 83.2 million and Ps. 2.5 million, respectively. December 31, 2012 December 31, 2011 January 1, 2011 5,251,306 572,684 23,664,987 7,170,245 36,659,222 2,950,680 500,593 83,741,275 29,365,968 116,558,516 3,055,959 6,730,100 2,943,979 6,909,142 19,639,180 December 31, 2012 December 31, 2011 January 1, 2011 62,084,479 127,730,585 71,242,000 26,498,650 88,583,129 22,166,595 149,897,180 18,918,457 90,160,457 (3) Debts with related parties. (4) Includes debts with related parties in the amount of Ps. 1.4 million, Ps. 0.3 million and Ps. 1.3 million, respectively. 14.1.3 Objectives of Financial Risk Management Grupo Clarín monitors and manages the financial risks related to its operations; these risks include market risk (including exchange risk, interest rate risk and equity price risk), credit risk and liquidity risk. Grupo Clarín does not enter into financial instruments for speculative purposes as common practice. As of December 31, 2012 and 2011, the Company was not a party to agreements involving derivatives. Assets Current Assets Cash and Banks Other Investments Total Current Assets Total Assets The Central Bank of Argentina and the Argentine Federal Revenue Service issued certain resolutions related to the exchange market, establishing regulations on the requirements for accessing such market. These financial statements have been prepared based on the assumption that the Company will be able to access such market in order to purchase the foreign currency needed to meet its obligations. 14.1.4 Exchange Risk Management Grupo Clarín enters into foreign currency transactions; therefore, it is exposed to fluctuations of exchange rates. The Company does not currently enter into foreign exchange hedging transactions to manage foreign currency fluctuation risk. In case the Company enters into such transactions, it cannot assure that those operations will protect its financial position from the eventual negative effect of exchange rate fluctuations. The following table shows the monetary assets and liabilities denominated in foreign currency at the closing of the year ended December 31, 2012 and 2011: (USD) (USD) December 31, 2012 December 31, 2011 59,361 1,586,666 1,646,027 1,646,027 39,179 7,010,930 7,050,109 7,050,109 14.1.4.1 Foreign Exchange Sensitivity Analysis Grupo Clarín is exposed to exchange risk, mainly with respect to the US dollar. The following table shows the Company's sensitivity to an increase in the exchange rate of the US dollar. The sensitivity rate represents Management's assessment of the possible reasonable changes in exchange rates. The sensitivity analysis only includes the outstanding monetary items denominated in foreign currency and adjusts its translation at the end of the year with a 10% increase in the exchange rate, assuming that all the remaining variables remain constant. 216 217 Net Income 803,261 3,006,166 Effect in Ps. Effect in Ps. December 31, 2012 December 31, 2011 substantial increase in interest rates may limit the Company's ability to access financing. 14.1.6. Credit Risk Management Credit risk is defined as the risk that one of the parties may breach its contractual obligations, generating an eventual financial loss for Grupo Clarín. The Company renders services solely to companies of the same economic group. The credit risk on liquid funds is limited due to the fact that the counterparties are banks with high credit ratings issued by credit rating agencies. The following table details the maturities of the Company's financial assets as from the closing of the reporting year. The amounts disclosed in the table are the undiscounted contractual cash flows. December 31, 2012 December 31, 2011 12,994,235 23,376,815 288,172 36,659,222 32,817,241 83,563,596 177,679 116,558,516 The sensitivity analysis presented above is hypothetical since the quantified impact is not necessarily an indicator of the actual impact, because exposure levels may vary over time. Additionally, even though Grupo Clarín conducts its operations in Argentine pesos, an eventual devaluation of such currency may have an indirect impact on its operations, depending on the ability of the suppliers involved to adjust their prices to such effect. 14.1.5. Interest Rate Risk Management At the closing of the year, the Company does not have any financial assets or liabilities with variable interest rates. However, a Payable on Demand Without any established term To fall due - Up to three months 14.1.7. Liquidity Risk Management The Board of Directors is ultimately responsible for liquidity management. Accordingly, it has established an adequate framework to manage liquidity so that Management can meet short, medium and long-term financing requirements, as well as the Company's liquidity management. The Company manages liquidity risk maintaining an adequate level of reserves, financial facilities and loans, monitoring on an ongoing basis projected cash flows against actual cash flows and reconciling the maturity profiles of financial assets and liabilities. 14.1.8. Interest Rate Risk and Liquidity Risk Table The following table details the maturities of the Company's financial liabilities as from the closing of the reporting year. The amounts disclosed in the table are the undiscounted contractual cash flows. Without any established term To fall due Up to three months - More than three months and up to six months More than nine months and up to twelve months Long-Term Debt and Other Liabilities December 31, 2012 Accounts Payable Total as of 212,382 - 3,511,136 8,679,340 3,723,518 8,679,340 44,727,271 14,308,174 59,035,445 17,144,826 62,084,479 - 26,498,650 17,144,826 88,583,129 14.1.9. Financial Instruments at Fair Value The following table shows Grupo Clarín's financial assets and liabilities measured at fair value at the closing of the reporting year: Assets Current Investments Assets Current Investments Financial assets are valued using the prices of similar instruments obtained from information sources available in the market (Level 2). As of December 31, 2012 and 2011, Grupo Clarín did not have any asset or liability valued using the quoted prices for identical assets and liabilities (Level 1), or assets or liabilities for which a comparison had not been conducted against observable market data to determine their fair value (Level 3). 218 219 December 31, 2012 Other Significant Observable Items (Level 2) 7.170.245 7.170.245 December 31, 2011 Other Significant Observable Items (Level 2) 29,365,968 29,365,968 14.1.10. Fair Value of Financial Instruments The book value of cash and banks, accounts receivable and short-term liabilities is similar to the fair value since these are instruments with short-term maturities. As of December 31, 2012, the Company does not have long-term financial liabilities. Note 15 Covenants, Sureties and Guarantees provided a. In July 2009, the Company executed an agreement securing payment of GCSA Investments' obligations under its loan, as detailed in Note 5.12.4 to consolidated financial statements. b. In October 2011, the Company executed agreements securing the payment of certain financing transactions of one of its subsidiaries in the amount of USD 2.9 million, effective from October 2011 to October 2013. c. On September 25, 2012, GCGC executed a mortgage agreement on a building of its property securing the payment of the obligations under the loan with Banco de la Ciudad de Buenos Aires mentioned in Note 5.12.3 to the consolidated financial statements. Grupo Clarín acts as guarantor of said financing. d. On October 12, 2012, the Company executed an agreement securing the payment of the obligations under a loan taken by GCGC with Standard Bank Argentina mentioned in Note 5.12.3 to the consolidated financial statements. Note 16 Changes in the Company's Interests a. In April 2008, AGEA assigned to the Company 54.5% of its rights and obligations derived from the call option described in Note 16.b. On that date, the Company exercised such call option, acquiring shares that accounted for 27.3% of CIMECO's capital stock. b. During 2007, AGEA increased its interest in CIMECO from 33.3% to 50.0%, and executed call and put options on an additional interest in CIMECO's capital stock. During 2008, AGEA partially assigned the rights and obligations arising from such options to its subsidiary AGR and to the Company. Subsequently, in 2008, AGEA, AGR and the Company exercised such call option, increasing, directly and indirectly, the Company's equity interest in CIMECO and Papel Prensa to 100% and 49%, respectively. On April 10, 2008, the Company and the parties to the above-mentioned transaction notified CNDC of such transaction and on May 12, 2008 filed form F-1. After such notice and as of the date of these financial statements, the Company submitted additional information requested by the CNDC. As of the date of these financial statements, the above transaction is subject to administrative approvals. c. On January 11, 2008, IESA acquired the controlling interest of a group of companies mainly engaged in sports journalism, production and commercialization of shows, and the production of motor racing television broadcasting. The share purchase agreement sets forth certain objectives to be met by such group of companies. In case of breach of such provision, the sellers shall have to pay an indemnification. These transactions are subject to administrative approvals. d. On September 2, 2008, ARTEAR increased its equity interest in Pol-Ka and SB Producciones S.A. to 55% of such companies' capital stock and votes, thus acquiring a controlling interest in both companies, in which it previously exercised common control. These transactions are subject to administrative approvals. e. On February 10, 2011, CMD sold to a third party all of its shares of Dinero Mail, for approximately USD 4.4 million in cash; part of the price was withheld as guarantee. f. On August 17, 2011, CMD executed a stock purchase agreement, whereby it increased by 20% its interest in Interpatagonia S.A., where it now holds 80% of the capital stock. CMD paid approximately Ps. 4.3 million in consideration for the shares. g. On October 3, 2011 the Company's subsidiary AGR acquired 65.46% of the capital stock and votes of Cúspide Libros S.A. and 2.40% of the capital stock and votes of Librerías Fausto S.A.C.E.I. (controlled by Cúspide Libros S.A.). The transaction amounted to USD 2.8 million and Ps. 3.8 million. h. On July 15, 2012, subject to the fulfillment of certain conditions precedent, each of Cablevisión's Paraguayan subsidiaries (Cable Visión Comunicaciones S.A., Televisión Dirigida S.A., Consorcio Multipunto Multicanal S.A. and Producciones Unicanal S.A.) entered into an agreement with a Paraguayan company, whereby they agreed to assign most of their assets and operations. Such conditions precedent were fulfilled on October 1, 2012 and the agreed-upon assignment was executed for a total consideration of USD 142.4 million. Out of that amount, USD 6.7 million was held in escrow. As a result of that operation, Cablevisión obtained a net consolidated gain after taxes of approximately Ps. 444 million, which, taking into consideration the Company's equity interest in Cablevisión, accounts for a gain of approximately Ps. 180 million after taxes. Cablevisión S.A. had a 70% interest in such subsidiaries and the remaining 30% was held by minority shareholders. On October 1, 2012 the minority shareholders transferred their equity interests to the majority group for a total consideration of USD 31.5 million. On October 1, 2012, Cablevisión sold its equity interest in Teledeportes Paraguay S.A. for approximately USD 6.8 million. Out of that amount, USD 0.2 million was held in escrow. Note 17 Law No. 26,831 Capital Markets On December 28, 2012 Capital Markets Law No. 26,831 (the "Law"), which was passed on November 29, 2012 and enacted on December 27, 2012, was published in the Official Gazette. The Law provides for a comprehensive amendment of the public offering regime, regulated until that date by Law No. 17,811, enhancing, among others, the National Government's monitoring powers, as well as changing the authorization, control and monitoring mechanisms of all stages of the public offering process and the role of all the entities and individuals involved. The Law became effective on January 28, 2013. Notwithstanding the foregoing, given that as of the date of these financial statements the CNV had not yet regulated the Law, on January 21, 2013 that agency issued Resolution No. 615 whereby it provided that until the respective regulations are issued, the relevant CNV rules continue to apply (as amended in 2001). Note 18 Subsequent Events In re "Grupo Clarín S.A. and Other v. Executive Branch on Declaratory Action" (File 119/10), mentioned in Note 11, on January 25, 2013 the Company, the National Government and AFSCA, which is also a party to this case, submitted the brief with the grievances caused by the decision rendered in the First Instance, expressing the grounds of their appeal pursuant to applicable law. The parties were served with those grounds for them to refute them by February 13, 2013. As from that date, the file has been pending before Chamber No. 1 of the Court of Appeals, which shall render a decision on the appeal. Note 19 Approval of Parent Company Only Financial Statements The Board of Directors has approved the parent company only financial statements and authorized their issue for March 8, 2013. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 220 221 Additional Information to the Notes to the Financial Statements - Section No. 68 of the Regulations issued by the Buenos Aires Stock Exchange Balance Sheet as of December 31, 2012 1) There are no specific material regulatory regimes currently applicable to the Company that may entail the contingent loss or acquisition of legal benefits. 4) The classification of receivables and liabilities according to their related financial effects is detailed in Note 9 to the parent company only financial statements. 2) As mentioned in Note 16.a) to the parent company only financial statements, during 2008 the Company carried out transactions that resulted in the acquisition of an equity interest in CIMECO. 3) The classification of receivables and liabilities by maturity is detailed in Note 9 to the parent company only financial statements. 5) Equity interest under Section 33 of Law No. 19,550 is detailed in Note 4.3 of the parent company only financial statements. Accounts receivable from and payable to related parties are disclosed under Note 8 to the parent company only financial statements. The following table summarizes the breakdown of such accounts payable and receivable as per the above points 3) and 4). Without any established term To fall due - From three to six months - From nine to twelve months Receivables Liabilities (1) 22,994,617 (1) 1,628,021 - - (2) 44,727,271 (2) 17,144,825 Total 22,994,617 63,500,117 (1) Balances are denominated in local currency and do not accrue any interest. (2) The balances are denominated in local currency and accrue interest at a fixed rate. 6) There are no trade receivables or loans to directors, members of the Supervisory Committee and their relatives up to, and including, the second degree of kinship and no such trade receivables or loans existed during the fiscal year. 7) The Company does not have any inventories. 8) The Company has used current values for the valuation of assets and liabilities acquired from Cablevisión, taking into account, mainly, the following criteria: - Subscriber portfolio: valued based on, among other things, an analysis of the acquired subscriber portfolio's cash flow generation, considering the subscriber turnover of such portfolio, discounted at a market rate. 19,550, since its main corporate purposes are investment and finance. 12) The Company assesses the recoverable value of its long-term investments each time it prepares its financial statements. In the case of investments for which the Company does not book goodwill with an indefinite useful life, it assesses their recoverable value when there is any indication of impairment. In the case of investments for which the Company books goodwill with an indefinite useful life, it assesses their recoverable value by comparing the book value with cash flows discounted at the corresponding discount rate, considering the weighted average capital cost, and taking into consideration the projected performance of the main operating variables of the respective companies. - Financial debt: since the acquired companies were not listed at the time of the acquisition, the financial debt was valued based on cash flow discounted at a market rate. 13) As of December 31, 2012, the Company does not have any relevant tangible property, plant and equipment requiring efficient insurance coverage. - Fixed assets: valued based on internal estimates made by the subsidiaries according to available information (kilometers and technical characteristics of the network, replacement value per kilometer and type of network based on business knowledge and purchase price of the resources needed, state of the network at the time of acquisition, real estate appraisals of the most significant real property, among others). Similarly, the Company has recorded the net acquired assets of CIMECO at fair value. 9) The Company does not have any property, plant and equipment subject to appraisal write-up. 10) The Company does not have any obsolete property, plant and equipment. 11) The Company is not subject to the restrictions under section 31 of Law No. 14) Booked provisions for contingencies do not exceed, either individually or as a whole, two percent (2%) of the Company's shareholders' equity. 15) As of the date of these financial statements, the Company does not have any contingent situations, the financial effects of which, if any, have not been booked (see Note 11 to the parent company only financial statements). 16) The Company does not have any irrevocable contributions on account of future share subscriptions. 17) The Company does not have any unpaid cumulative dividends on preferred shares 18) In Notes 7.a. and 10.2.a) to the parent company only financial statements reference is made to the treatment given to retained earnings. Signed for identification purposes with the report dated March 08, 2013 Price Waterhouse & Co. S.R.L. C.P.C.E.C.A.B.A. VOL. 1- FOL. 17 Carlos Alberto Pedro Di Candia Chairman of the Supervisory Committee Dr. Carlos A. Pace (Partner) Certified Public Accountant (U.B.A.) C.P.C.E.C.A.B.A. VOL. 150 - FOL. 106 Héctor Horacio Magnetto Chairman 222 223 Report of Independent Accountants Free translation from the original prepared in Spanish To the Shareholders, President and Directors of Grupo Clarín S.A. Legal domicile: Piedras 1743 Autonomous City of Buenos Aires CUIT No 30-70700173-5 1. We have audited the attached parent company only financial statements of Grupo Clarín S.A. which comprise the parent company only balance sheet at December 31, 2012, the parent company only statements of comprehensive income , the parent company only statements of changes in equity and of cash flows for the year then ended and a summary of significant accounting policies and other explanatory information. The balances and other information for the fiscal year 2011 are an integral part of the above-mentioned audited financial statements, so they are to be considered in the light of those financial statements. 2. The Board of Directors is responsible for the reasonable preparation and presentation of these parent company only financial statements in accordance with Professional Accounting Standards of Technical Resolution No. 26 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE, for its Spanish acronym) incorporated by the Argentine Securities Commission (CNV, for its Spanish acronym) to its regulations. These rules differ from International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) and used in the preparation of consolidated financial statements of Grupo Clarín S.A. with its controlled subsidiaries, in the aspects mentioned in Note 2.1 to the attached parent company only financial statements. Further, the Board of Directors is responsible for the internal control it may deem necessary to enable preparing parent company only financial statements free of material misstatements caused by errors or irregularities. Our responsibility is to express an opinion on the parent company only financial statements based on the audit we performed with the scope detailed in paragraph 3.. 3. We conducted our audit in accordance with auditing standards in effect in Argentina. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the parent company only financial statements are free of material misstatements and to form an opinion on the reasonableness of the relevant information contained in the parent company only financial statements. An audit includes examining, on a selective test basis, evidence supporting the amounts and disclosures in the parent company only financial statements. An audit also includes assessing the accounting standards used and significant estimates made by the Company, as well as evaluating the overall presentation of the parent company only financial statements. We believe that our audit provides a reasonable basis for our opinion. 4. On October 10, 2009, Audiovisual Communication Services Law No. 26,522 (the “Law”) was enacted which repeals Broadcasting Law No. 22,285 which regulate the principal activities of the Company and some of its subsidiaries. As mentioned in Notes 11 and 18 to the parent company only financial statements, the Company and certain subsidiaries are analyzing the possible consequences that could be derived from the change of regulatory framework on their business, and as indicated in the same Notes, is bringing and will bring all legal actions corresponding to each instance to safeguard its rights and those of its shareholders. Accordingly, there is uncertainty as to the effect that this change in the regulatory framework and the outcome of the legal actions being brought by the Company could have on the activities of the economic group and, therefore, on its parent company only financial statements taken as a whole. 5. As mentioned in Notes 10.1.b., 10.1.c., 10.1.d. and 10.1.e. to the parent company only financial statements, since September 2009, the Federal Broadcasting Committee, the National Antitrust Commission, the Secretariat of Domestic Trade (“SCI”, for its Spanish acronym), Argentine Secretariat of Communications and the Ministry of Economy and Public Finance have issued several resolutions on matters related to: (i) several aspects related to the acquisition of Cablevisión S.A., Multicanal S.A. and other companies, and their subsequent merger, and (ii) the revocation of the license that had been originally granted to FIBERTEL S.A. In addition, as indicated in Note 10.1.f. to the parent company only financial statements, the subsidiary Cablevisión was served with a preliminary injunction granted to a third party ordering the separation of the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión and the appointment of a court-appointed supervisor (interventor) and co-administrator. As indicated in the above-mentioned Notes, the subsidiary Cablevisión has brought legal actions as it considered appropriate. Accordingly, there is uncertainty regarding the effect that the final outcome of these situations could have on the activities of Cablevisión S.A. and, therefore, on the recoverability of the investment that owns Grupo Clarín S.A. over that company through its subsidiaries Southtel Holdings S.A., Vistone S.A., VLG Argentina L.L.C., CV B Holding S.A. and Compañía Latinoamericana de Cable S.A. 6. As mentioned in Note 10.1.a. to the parent company only financial statements, on March 3, 2010 the Secretariat of Domestic Trade (“SCI”) issued Resolution 50/10 establishing the formula for calculation of the monthly subscription price to be paid by the users of pay-television services. As indicated in the same Note, on March 10, 2011 SCI Resolution No. 36/11 was published in the Official Gazette establishing the parameters to be applied to the services rendered by Cablevisión, having been extended on several occasions the effectiveness of Resolution No. 36/11 until March 2013. As indicated in this Note, Cablevisión filed the corresponding administrative claims and will bring the necessary legal actions requesting a stay of its effects and ultimately its nullity. Accordingly, there is uncertainty regarding the effect that the final outcome of the situation could have on the subsidiary Cablevisión and its subsidiaries' business and, therefore, on the recoverability of the investment that owns Grupo Clarín S.A. over that companies through its subsidiaries Southtel Holdings S.A., Vistone S.A., VLG Argentina L.L.C., CV B Holding S.A. and Compañía Latinoamericana de Cable S.A.. 7. In our opinion, subject to the possible effect on the parent company only financial statements of any potential adjustments and/or reclassifications, if applicable, that may be required as a result of the resolution of the uncertainties described in paragraphs 4, 5, and 6, the parent company only financial statements mentioned in paragraph 1 present fairly, in all material respects, the parent company only financial position of Grupo Clarín S.A. as of December 31, 2012 and the parent company only comprehensive income and parent company only cash flows for the fiscal year then ended, in accordance with the rules of Technical Resolution No. 26 of the Argentine Federation of Professional Councils in Economic Sciences for the parent company only financial statements of a controlling entity. 8. In accordance with current regulations in respect to Grupo Clarín S.A., we report that: a) The parent company only financial statements of Grupo Clarín S.A. have been transcribed to the “Inventory and Balance Sheet” book and comply with the Corporations Law and pertinent resolutions of the Argentine Securities Commission, as regards those matters within our competence; 224 225 b) The parent company only financial statements of Grupo Clarín S.A. arise from accounting records kept in all formal respects in conformity with legal provisions which maintain the security and integrity conditions based on which they were authorized by the Argentine Securities Commission; c) We have read the additional information to the Notes to the parent company only financial statements required by section 68 of the listing regulations of the Buenos Aires Stock Exchange, on which, as regards those matters that are within our competence, we have no observations to make other than those already stated in paragraphs 4., 5. and 6.; d) At December 31, 2012 the debt accrued in favor of the (Argentine) Integrated Social Security System according to the Company's accounting records and calculations amounted to $1.416.749, none of which was claimable at that date; e) In accordance with section 4 of General Resolution No. 400 issued by the Argentine Securities Commission, amending section 18 subsection e) of the title III.9.1 of the Rules of such Commission, we inform that the total of fees for the audit and related services invoiced to the Company for the year ended December 31,2012 represents: e.1) 87% on the total fees for services invoiced to the Company for all concepts in that year; e.2) 14% on the total fees for audit and related services invoiced to the Company, its parent companies, subsidiaries and affiliates in that year; e.3) 14% on the total fees for services invoiced to the Company, its parent companies, subsidiaries and affiliates for all concepts in that year. f) We have applied the procedures on prevention of asset laundering and terrorism funding set forth in the relevant professional rules issued by the Professional Council for Economic Sciences of the Autonomous City of Buenos Aires. Autonomous City of Buenos Aires, March 8, 2013 Price Waterhouse & Co. S.R.L. Dr. Carlos A. Pace (Partner) Supervisory Committee’s Report To the Shareholders of: Grupo Clarín S.A. TAX ID No. 30-70700173-5 Registered office: Piedras 1743 City of Buenos Aires In our capacity as members of Grupo Clarín S.A.'s Supervisory Committee and pursuant to subsection 5, section 294, of the Argentine Business Associations Law No. 19,550, the regulations of the Argentine Securities Commission (CNV, for its Spanish acronym) and the Regulations issued by the Buenos Aires Stock Exchange, we have performed a review of the documents mentioned in Section I below, within the scope set forth in Section II below. The preparation and issuance of the documents referred to above are the responsibility of the Company's Board of Directors, in exercise of its exclusive duties. Our responsibility is to issue a report on such documents, based on the work performed within the scope set forth in Section II. I. DOCUMENTS SUBJECT TO REVIEW a) Parent Company Only Balance Sheet as of December 31, 2012 disclosed in the Parent Company Only Financial Statements as of December 31, 2012. b) Parent Company Only Statement of Comprehensive Income disclosed in the Parent Company Only Financial Statements as of December 31, 2012. c) Parent Company Only Statement of Changes in Equity disclosed in the Parent Company Only Financial Statements as of December 31, 2012. d) Parent Company Only Statement of Cash Flows disclosed in the Parent Company Only Financial Statements as of December 31, 2012. e) Notes 1 to 18 disclosed in the Parent Company Only Financial Statements as of December 31, 2012. f ) The Consolidated Financial Statements of Grupo Clarín S.A. and its subsidiaries comprising the Consolidated Balance Sheet as of December 31, 2012, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in Equity and the Consolidated Statement of Cash Flows for the year then ended, together with the corresponding notes 1 through 25. II. SCOPE OF THE REVIEW We conducted our review in accordance with effective statutory auditing standards established by the Argentine Business Associations Law (Law No. 19,550), as amended, and by Technical Resolution No. 15 issued by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (Argentine Federation of Professional Councils of Economic Sciences, FACPCE, for its Spanish acronym). Said standards require that the review of the documents set forth in I. be conducted in accordance with effective auditing standards for the review of financial statements; that the documents be checked for consistency with the information on corporate decisions stated in minutes and that such decisions conform to the law and the by-laws, in all formal and documentary aspects. In order to conduct our professional work on the documents detailed in Section I., we have reviewed the work performed by the external auditor Carlos A. Pace, a partner of Price Waterhouse & Co. S.R.L., who issued his reports on March 8, 2013, pursuant to the effective auditing standards for the audit of financial statements. An audit requires that the auditors plan and perform their work for the purposes of obtaining reasonable assurance about whether the financial statements are free from material misstatement or significant errors. An audit comprises examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, as well as assessing the accounting principles used and significant estimates made by the Company's Management, as well as evaluating the overall presentation of the financial statements. Since the Supervisory Committee is not responsible for management control; the review did not extend to the business criteria and decisions from the Company's different areas as these matters are the exclusive responsibility of the Board of Directors. The Company's Board of Directors is responsible for the preparation and fair presentation of: (i) the Parent Company Only Financial Statements in accordance with the professional accounting standards established by Technical Resolution No. 26 issued by the FACPCE incorporated by the CNV to its regulations. Such standards differ from the International Financial Reporting Standards (IFRS) approved by the International Accounting Standards Board (IASB) and used in the preparation of the consolidated financial statements of Grupo Clarín S.A. and its subsidiaries in the aspects mentioned in Note 2.1 to the Parent Company Only Financial Statements. Additionally, the Board of Directors is responsible for an adequate internal control as deemed necessary so that the parent company only financial statements are free from material misstatements arising from errors or irregularities; (ii) the consolidated financial statements in accordance with IFRS adopted as professional accounting standards in Argentina by the FACPCE and incorporated by the CNV to its regulations, as approved by the IASB. The Board of Directors is also responsible for an adequate internal control as deemed necessary so that the consolidated financial statements are free from material misstatements arising from errors or irregularities. Our responsibility is to express our opinion on the consolidated and parent company only financial statements, based on the scope mentioned in this section. III. PRIOR COMMENTS 1. On October 10, 2009, Audiovisual Communication Services Law No. 26,522 (the “Law”) was enacted which repeals Broadcasting Law No. 22,285, which governs the main activities carried out by the Company and some of its subsidiaries. As mentioned in Notes 11 and 18 to the parent company only financial statements and in Notes 9 and 25 to the consolidated financial statements, the Company and certain subsidiaries are analyzing the possible impact of this change in the regulatory framework on their business, and, as indicated in such notes, legal actions are being and will be brought at each instance to safeguard its rights and those of its shareholders. Accordingly, there is uncertainty as to the effect that this change in the regulatory framework and the outcome of the legal actions being brought by the Company could have on the activities of the economic group and, therefore, on these parent company only financial statements and consolidated financial statements taken as a whole. 2. As mentioned in Notes 10.1.b., 10.1.c., 10.1.d. and 10.1.e. to the parent company only financial statements and in Notes 8.1.b., 8.1.c., 8.1.d. and 8.1.e. to the consolidated financial statements, since September 2009, the Federal Broadcasting Committee, the National Antitrust Commission, the Secretariat of Domestic Trade (“SCI”, for its Spanish acronym), the Argentine 226 227 Secretariat of Communications and the Ministry of Economy and Public Finance have issued several resolutions on matters related to: (i) several aspects related to the acquisition of Cablevisión S.A., Multicanal S.A. and other companies, and their subsequent merger, and (ii) the revocation of the License that had been originally granted to FIBERTEL S.A. In addition, as indicated in Note 10.1.f. to the parent company only financial statements and in Note 8.1.f. to the consolidated financial statements, the subsidiary Cablevisión was served with a preliminary injunction granted to a third party ordering the separation of the assets, liabilities and businesses that used to belong to Multicanal and that were subsequently merged into Cablevisión and the appointment of a court-appointed supervisor (interventor) and co-administrator. As mentioned in the above- mentioned notes, the subsidiary Cablevisión has brought legal actions as it considered appropriate. Accordingly, there is uncertainty as to the effect that the final outcome of these situations could have on the activities of: (i) Cablevisión and, therefore, on the recoverability of Grupo Clarín S.A.'s investment in such company through its subsidiaries Southtel Holdings S.A., Vistone S.A., VLG Argentina L.L.C., CV B Holding S.A. and Compañía Latinoamericana de Cable S.A. in the parent company only financial statements and (ii) the subsidiary Cablevisión and, therefore, on the consolidated financial statements taken as a whole. 3. As mentioned in Note 10.1.a. to the parent company only financial statements and in Note 8.1.a. to the consolidated financial statements, on March 3, 2010 the SCI issued Resolution No. 50/10 establishing a formula for the calculation of the monthly subscription price to be paid by the users of pay-television services. Subsequently, as mentioned in the same notes, on March 10, 2011, SCI Resolution No. 36/11 was published in the Official Gazette establishing the parameters to be applied to the services rendered by Cablevisión. The effectiveness of such Resolution No. 36/11 has been extended several times up to and including March 2013. As indicated in those notes, the subsidiary Cablevisión has filed the pertinent administrative claims and will bring legal actions requesting a stay of its effects and ultimately its nullity. Accordingly, there is uncertainty as to the effect that the final outcome of this situation could have on the activities of: (i) Cablevisión and its subsidiaries and, therefore, on the recoverability of Grupo Clarín S.A.'s investment in such companies through its subsidiaries Southtel Holdings S.A., Vistone S.A., VLG Argentina L.L.C., CV B Holding S.A. and Compañía Latinoamericana de Cable S.A. in the parent company only financial statements and (ii) the subsidiary Cablevisión and its subsidiaries and, therefore, on the recoverability of their assets in the consolidated financial statements. IV. SUPERVISORY COMMITTEE'S OPINION In our opinion, based on our work, within the review scope described in Section II. of this report: (i) subject to the effect on the parent company only financial statements of eventual adjustments and/or reclassifications, if any, that may be required as a result of the resolution of the uncertainties described in paragraphs 1., 2. and 3. of Section III., the parent company only financial statements mentioned in Section I., present fairly, in all material respects, the parent company only financial position of Grupo Clarín S.A. as of December 31, 2012, and the results disclosed in the Parent Company Only Statements of Comprehensive Income and Cash Flows for the year then ended in accordance with the rules of Technical Resolution No. 26 of the FACPCE for parent company only financial statements of a controlling entity; (ii) subject to the effect on the consolidated financial statements of eventual adjustments and/or reclassifications, if any, that may be required as a result of the resolution of the uncertainties described in paragraphs 1., 2. and 3. of Section III., present fairly, in all material respects, the consolidated financial position of Grupo Clarín S.A. and its subsidiaries as of December 31, 2012, and the results disclosed in the Consolidated Statements of Comprehensive Income and Cash Flows for the year then ended in accordance with the International Financial Reporting Standards; Company's accounting records kept, in all formal aspects, in accordance with effective legislation. b) We have reviewed the Inventory and the Board of Directors' Annual Report for the year ended December 31, 2012. In this regard, within the scope of our competence, we have no observations to make. The representations about future events included in the Annual Report are the Board of Directors' exclusive responsibility. c) Furthermore, we report that in exercise of the legality control within our field of competence, during the year ended December 31, 2012 we have applied the procedures set forth in Section 294 of Argentine Business Associations Law No. 19,550, as deemed necessary based on the circumstances and we have no observations to make in that regard. d) We have reviewed the information included in the Exhibit to the Annual Report about the degree of compliance with the Code of Corporate Governance required by CNV General Resolution No. 606/12 and we have no observations to make in that regard. e) As required by CNV regulations, regarding the independence of the external auditors and the quality of the audit policies applied by them and the accounting polices applied by the Company, the above-mentioned external auditor's report includes the representation concerning the application of the auditing standards effective in Argentina which provide for independence requirements, and was issued without qualifications as to the application of such regulations or discrepancies as to the professional accounting standards. f ) We have applied the asset laundering and terrorist financing crimes prevention procedures provided under the professional standards issued by Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (Professional Council in Economic Sciences of the City of Buenos Aires). V. IN COMPLIANCE WITH EFFECTIVE REGULATIONS, WE HEREBY REPORT THAT: City of Buenos Aires, March 8, 2013 a) The financial statements mentioned in Section I. have been recorded in the “Inventory and Balance Sheet” legal book and arise from the Carlos Alberto Pedro Di Candia Chairman Grupo Clarín S.A. Piedras 1743 C1140ABK Ciudad de Buenos Aires Argentina www.grupoclarin.com Investor Relations Grupo Clarín Alfredo Marín / Agustín Medina Manson + 54 11 4309 7215 investors@grupoclarin.com www.grupoclarin.com/ir Design and production Chiappini + Becker Visual Communication Telephone: (54 11) 4314 7774 www.ch-b.com www.grupoclarin.com 

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