19. RESERVES AND RETAINED EARNINGS

The caption “Reserves” in the amount of 315,621 thousand Euros includes:

  • Legal reserves: The Commercial Company Code in place requires that at least 5% of the net profit must be transferred to this reserve until it has reached 20% of the share capital. The reserve can only be used to cover losses or to increase capital. At 31 December 2014 this caption amounts to 97,295 thousand Euros;

  • Fair value reserves: includes changes in the fair value of available for sale financial assets (60,313 thousand Euros positive), as detailed in Note 13;

  • Hedging reserve: includes changes in the fair value of hedging derivative financial instruments when cash flow hedge is effective (negative 19,468 thousand Euros) as detailed in Note 16;

  • Free reserves: This caption is changed by (i) application of the results of previous years, being available for distribution to shareholders, except for the limitation set by the Companies Code in respect of own shares (Note 18), and (ii) changes in equity of associates registered under the equity method. On December 31, 2014, this caption amounts to 177,482 thousand Euros.

In accordance with the Portuguese legislation, increases in equity as a result of the incorporation of positive fair value (fair value reserves and hedging reserves) can only be distributed to shareholders when the correspondent assets have been sold, exercised, extinct, settled or used.