ARCO VARA AS - NASDAQ OMX Baltic

As at 31 December 2006, Arco Vara AS had in total three outstanding interest bearing debt obligations
and one overdraft balance. The Company had arranged these facilities as the parent company of the
Group in order to fund the general corporate purposes of the Group. The Company has conducted
several bond issues during the last three financial years, rising over EEK 200 million in aggregate. In
2006, the Company successfully completed two bond issues raising total of EEK 97.0 million to
refinance bond outstanding from previous periods.
The Group increased its short-term bank loans balance considerably in 2006. As at the year-end, the
outstanding balance was EEK 458.0 million, which represents an increase of EEK 381.0 million from
the balance as at 31 December 2005. This increase was partially caused by reclassification of long
terms borrowings.
As at 31 December 2006, the Group companies had a total of EEK 1,157 million of interest-bearing
obligations outstanding. Most of these borrowings carry an interest based on EURIBOR.
Approximately 75 per cent of the Group's interest-bearing liabilities are obligations with a floating
interest rate. For financial year 2006 the average interest rates for short-term bank loans and for longterm
bank loans were 5.9 per cent and 5.7 per cent, respectively. The effective interest rate for bonds
in 2006 was 5.2 per cent. The Group intends to fix the interest rates of its long-term borrowings.
The financing agreements entered into by the Group companies contain several negative and positive
covenants and requirements to obtain the lender's consent. Most of the Group's financing agreements
with financial institutions contain customary provisions on events of default, including cross-default.
In addition, under most loan agreements, it is an event of default if the borrower takes significant
additional financial obligations or if there is a change of control in the borrower without the prior
consent of the lender. In addition, most of the financing agreements require the Group or any of the
Joint Ventures to pledge their assets for the benefit of the lender. See “Risk factors - Risks relating to
the Group’s business - Financing and loan agreements” for further information.
Financial leasing liabilities
The Group has used financial leasing facilities over the last three years mainly for financing
acquisitions of investment property. Significance of capital lease as source of financing has decreased
considerably over the last three financial year, from EEK 24.2 million in 2004 to EEK 4.0 million as
of year end 2006.
Off-Balance Sheet Arrangements
As of 31 December 2006, the Group companies had been provided an overdraft facility in an amount
of EEK 35.6 million. The overdraft balance outstanding as at the year-end 2006 was EEK 18.5
million.
The operating lease commitments of the Group totalled EEK 26.3 million as at 31 December 2006, a
decrease of EEK 3.0 million compared to the end of previous financial year. The operating lease
agreements are used for financing investment property items.
The Group had no other off-balance sheet liabilities as of 31 December 2006.
CRITICAL ACCOUNTING POLICIES
Classification of real estate
The classification of real estate items into classes as inventories, investment property or property, plant
and equipment (construction-in-progress) is both on the initial classification as well as on later
reclassification based on the intention of the management on the future use of the real estate. The
accomplishment of the management’s plans depends also on the decisions not controlled by the Group
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