SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15b-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of May, 2004
Irsa Inversiones y Representaciones Sociedad Anónima
(Exact name of Registrant as specified in its charter)
Irsa Investments and Representations Inc.
(Translation of registrant´s name into English)
Republic of Argentina
(Jurisdiction of incorporation or organization)
Bolívar 108
(C1066AAB)
Buenos Aires, Argentina
(Address of principal executive offices)
Form 20-F * Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No *
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANÓNIMA
(THE COMPANY)
REPORT ON FORM 6-K
Attached is a copy of the English translation of the Quarterly Financial Statements for the period ended on March 31, 2004 filed with the Bolsa de Comercio de Buenos Aires and with the Comisión Nacional de Valores.
IRSA Inversiones y Representaciones
Sociedad Anónima and subsidiaries
Free translation of the
Unaudited Consolidated Financial Statements
For the nine-month period ended as of
March 31, 2004
In comparative format
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Unaudited Consolidated Balance Sheets as of March 31, 2004 and June 30, 2003
In thousand of pesos (Notes 1, 2 and 3)
March 31, 2004 |
June 30, 2003 |
|||||
ASSETS |
||||||
CURRENT ASSETS |
||||||
Cash and banks |
92,259 | 87,182 | ||||
Investments (Note 8) |
58,548 | 139,105 | ||||
Mortgages and leases receivables, net (Note 5) |
39,042 | 35,594 | ||||
Other receivables (Note 6) |
105,777 | 12,147 | ||||
Inventories (Note 7) |
20,460 | 14,575 | ||||
Total Current Assets |
316,086 | 288,603 | ||||
NON-CURRENT ASSETS |
||||||
Mortgages receivables, net (Note 5) |
2,717 | 2,777 | ||||
Other receivables (Note 6) |
139,397 | 123,926 | ||||
Inventories, net (Note 7) |
5,185 | 8,767 | ||||
Investments, net (Note 8) |
430,363 | 433,760 | ||||
Fixed assets, net (Note 9) |
1,210,017 | 1,197,521 | ||||
Intangible assets, net |
2,148 | 3,239 | ||||
Subtotal Non-Current Assets |
1,789,827 | 1,769,990 | ||||
Goodwill, net |
(10,521 | ) | (5,629 | ) | ||
Total Non-Current Assets |
1,779,306 | 1,764,361 | ||||
Total Assets |
2,095,392 | 2,052,964 | ||||
LIABILITIES |
||||||
CURRENT LIABILITIES |
||||||
Trade accounts payable |
32,353 | 25,805 | ||||
Mortgages payable |
2,144 | 2,100 | ||||
Customer advances (Note 10) |
17,732 | 13,212 | ||||
Short term-debt (Note 11) |
89,473 | 87,434 | ||||
Salaries and social security charges |
4,707 | 5,393 | ||||
Taxes payable |
15,713 | 9,778 | ||||
Other liabilities (Note 12) |
20,317 | 28,736 | ||||
Total Current Liabilities |
182,439 | 172,458 | ||||
NON-CURRENT LIABILITIES |
||||||
Trade accounts payable |
2,963 | 3,609 | ||||
Customer advances (Note 10) |
27,191 | 25,260 | ||||
Long term-debt (Note 11) |
520,804 | 592,104 | ||||
Taxes payable |
6,972 | 1,684 | ||||
Other liabilities (Note 12) |
6,671 | 7,331 | ||||
Total Non-Current Liabilities |
564,601 | 629,988 | ||||
Total Liabilities |
747,040 | 802,446 | ||||
Minority interest |
448,260 | 441,332 | ||||
SHAREHOLDERS´ EQUITY |
900,092 | 809,186 | ||||
Total Liabilities and Shareholders´ Equity |
2,095,392 | 2,052,964 | ||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
Eduardo Sergio Elsztain President |
1
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Unaudited Consolidated Statements of Income
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Notes 1, 2 and 3)
March 31, 2004 |
March 31, 2003 |
|||||
Sales, leases and services |
162,309 | 168,116 | ||||
Cost of sales, leases and services |
(87,843 | ) | (114,259 | ) | ||
Gross income |
74,466 | 53,857 | ||||
Selling expenses |
(12,892 | ) | (16,375 | ) | ||
Administrative expenses |
(28,298 | ) | (25,742 | ) | ||
Subtotal |
(41,190 | ) | (42,117 | ) | ||
Torres de Abasto unit contracts´rescissions |
| 5 | ||||
Net loss in credit card trust |
(159 | ) | (3,778 | ) | ||
Results from operations and holding of real estate assets (Note 13) |
| 10,139 | ||||
Operating income (Note 4) |
33,117 | 18,106 | ||||
Amortization of goodwill |
(2,198 | ) | (3,364 | ) | ||
Financial results generated by assets: |
||||||
Interest income |
3,846 | 15,505 | ||||
Interest on discount by assets |
1,675 | | ||||
Financial results |
84,036 | 57,651 | ||||
Exchange gain (loss) |
12,530 | (59,071 | ) | |||
Loss on exposure to inflation |
| (13,489 | ) | |||
Subtotal |
102,087 | 596 | ||||
Financial results generated by liabilities: |
||||||
Interest on discount by liabilities |
(331 | ) | 31,233 | |||
Discounts |
7,235 | 26,154 | ||||
Exchange (loss) gain |
(12,809 | ) | 251,997 | |||
Gain on exposure to inflation |
| 6,908 | ||||
Financial expenses |
(46,187 | ) | (38,297 | ) | ||
Subtotal |
(52,092 | ) | 277,995 | |||
Financial results, net |
49,995 | 278,591 | ||||
Net loss in related companies |
(11,178 | ) | (2,248 | ) | ||
Other income, net (Note 14) |
438 | 6,893 | ||||
Income before tax and minority interest |
70,174 | 297,978 | ||||
Income tax and asset tax |
(22,069 | ) | 2,884 | |||
Minority interest |
(2,874 | ) | (34,991 | ) | ||
Income for the period |
45,231 | 265,871 | ||||
Earning per share |
||||||
Basic (Note 24) |
0.206 | 1.271 | ||||
Diluted (Note 24) |
0.123 | 0.601 | ||||
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
Eduardo Sergio Elsztain President |
2
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Unaudited Statements of Consolidated Cash Flows (1)
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Notes 1, 2 and 3)
March 31, 2004 |
March 31, 2003 |
|||||
CHANGES IN CHASH AND CASH EQUIVALENTS |
||||||
Cash and cash equivalents as of beginning of year |
187,343 | 28,376 | ||||
Cash and cash equivalents as of end of period |
103,404 | 201,445 | ||||
Net (decrease) increase in cash and cash equivalents |
(83,939 | ) | 173,069 | |||
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS |
||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||
Income for the period |
45,231 | 265,871 | ||||
Plus (less) income tax and asset tax accrued for the period |
22,069 | (2,884 | ) | |||
Adjustments to reconcile net income to cash flow from operating activities: |
||||||
Equity in earnings of affiliated companies |
11,178 | 2,248 | ||||
Minority interest in related companies |
2,874 | 34,991 | ||||
Results from repurchase O.N. |
| (25,093 | ) | |||
Allowances and provisions |
140 | 10,115 | ||||
Amortization and depreciation |
49,988 | 69,861 | ||||
Results from sale of fixed assets |
| (2,132 | ) | |||
Financial results |
(62,979 | ) | (335,412 | ) | ||
Changes in operating assets and liabilities: |
||||||
Decrease in current investments |
4,111 | 13,436 | ||||
Increase in non-current investments |
(11,756 | ) | (521 | ) | ||
Increase in mortgages and leases receivables |
(8,110 | ) | (3,486 | ) | ||
(Increase) / Decrease in other receivables |
(3,538 | ) | 4,236 | |||
Decrease in inventory |
4,606 | 36,688 | ||||
Increase in intangible assets |
(242 | ) | | |||
Decrease in taxes payable, salaries and social security and customer advances |
(3,612 | ) | (6,556 | ) | ||
Increase / (Decrease) in accounts payable |
5,902 | (2,434 | ) | |||
Increase in accrued interest |
9,183 | 33,509 | ||||
Decrease in other liabilities |
(10,051 | ) | (10,396 | ) | ||
Net cash provided by operating activities: |
54,994 | 82,041 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||
Payment for acquisition of subsidiary companies and equity investees, net of cash acquired |
| 16,464 | ||||
Decrease from equity interest in subsidiary companies |
| (52,203 | ) | |||
Purchase of shares and options of Banco Hipotecario S.A. |
(127,281 | ) | | |||
Sale of Banco Hipotecario S.A. shares |
46,031 | | ||||
Payment for acquisition of undeveloped parcels of land |
(340 | ) | (651 | ) | ||
Sale of fixed assets and intangible assets |
| 2,132 | ||||
Purchase and improvements of fixed assets |
(14,703 | ) | 18,630 | |||
Net cash used in Investing activities: |
(96,293 | ) | (15,628 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||
Proceeds from short-term and long-term debt |
5,800 | 396,699 | ||||
Payment of short-term and long-term debt |
(66,159 | ) | (279,299 | ) | ||
Decrease in minority shareholders |
(301 | ) | | |||
Cash contribution from minority shareholders |
| 89 | ||||
Issuance of Common Stock |
23,706 | | ||||
Payment of mortgages |
| (9,648 | ) | |||
Dividends paid |
(4,536 | ) | | |||
Payment for seller financing |
(1,150 | ) | (1,185 | ) | ||
Net cash (used in) provided by financing activities: |
(42,640 | ) | 106,656 | |||
Net (decrease) increase in cash and cash equivalents: |
(83,939 | ) | 173,069 | |||
(1) | Includes cash, banks and investments with a realization term not exceeding three months. |
The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.
Eduardo Sergio Elsztain President |
3
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Unaudited Statements of Consolidated Cash Flows (Continued)
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Notes 1, 2 and 3)
March 31, 2004 |
March 31, 2003 | |||
Supplemental cash flow information |
||||
Non-cash activities: |
||||
Increase in fixed assets through a decrease in inventory |
40 | 1,212 | ||
Increase in inventory through a decrease in fixed assets |
2,606 | 13,879 | ||
Increase in inventory through a decrease in undeveloped parcels of lands |
10,748 | | ||
Increase in fixed assets through a decrease in undeveloped parcels of lands |
51,501 | | ||
Increase in intangible assets through a decrease in fixed assets |
31 | | ||
Issuance of credit card receivables |
4,368 | 2,057 | ||
Liquidation of credit card receivables |
1,322 | 1,940 | ||
Increase in non current other receivables through a decrease in inventory |
5,890 | | ||
Increase in other receivables through an increase in taxes payable |
3,178 | | ||
Decrease in short-term and long-term debt through an increase in other liabilities |
1,326 | | ||
Decrease in investments through an increase in mortgages and leases receivables |
| 1,970 | ||
Increase in customer advances through a decrease in other liabilities |
| 2,862 | ||
Increase in undeveloped parcels of land through a decrease in inventory |
| 14,210 | ||
Increase in fixed assets through an increase in mortgages |
| 3,989 | ||
Increase in inventory through a decrease in mortgages and leases receivables |
| 2,757 | ||
Increase in non current investments through a decrease in non current other receivables |
| 117 | ||
Increase in short-term and long-term debt through a decrease in other liabilities |
| 35,423 | ||
Increase in investments through a decrease in mortgages and leases receivables |
| 762 | ||
Conversion of negotiable obligations into shares |
21,969 | |
Eduardo Sergio Elsztain President |
4
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited consolidated financial statements
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos
NOTE 1: BASIS OF CONSOLIDATION CORPORATE CONTROL
a. | Basis of consolidation |
The Company has consolidated its Balance Sheets at March 31, 2004 and June 30, 2003 and the statements of income and cash flow for the periods ended March 31, 2004 and 2003 line by line with the financial statements of its controlled companies, following the procedure established in Technical Pronouncement No. 21 of the Argentine Federation of Professional Councils in Economic Sciences and approved by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires and the National Securities Commission.
All significant intercompany balances and transactions have been eliminated in consolidation.
The following table shows the data concerning the corporate control:
DIRECT OR INDIRECT % OF CAPITAL |
DIRECT OR INDIRECT % OF VOTING SHARES | |||||||
COMPANIES | March 31, 2004 |
June 30, 2003 |
March 31, 2004 |
June 30, 2003 | ||||
Ritelco S.A. |
100,00 | 100,00 | 100,00 | 100,00 | ||||
Palermo Invest S.A. |
66,67 | 66,67 | 66,67 | 66,67 | ||||
Abril S.A. |
83,33 | 83,33 | 83,33 | 83,33 | ||||
Pereiraola S.A. |
83,33 | 83,33 | 83,33 | 83,33 | ||||
Baldovinos S.A. |
83,33 | 83,33 | 83,33 | 83,33 | ||||
Hoteles Argentinos S.A. |
80,00 | 80,00 | 80,00 | 80,00 | ||||
Buenos Aires Trade & Finance Center S.A. |
100,00 | 100,00 | 100,00 | 100,00 | ||||
Alto Palermo S.A. (APSA) |
53,72 | 54,79 | 53,72 | 54,79 |
b. | Acquisition of related companies |
During the year ended at June 30, 2003, the Company acquired 30.955% of the capital stock and registered, non-endorsable, convertible negotiable obligations issued by Valle de Las Leñas S.A., falling due on October 31, 2005, with a face value of US$ 3.7 million, for approximately US$ 2.4 million. On March 4, 2003, the Company sold all its shareholding and negotiable obligations in Valle de las Leñas S.A. for US$ 6.5 million.
5
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 2: CONSIDERATION OF THE EFFECTS OF INFLATION
The financial statements have been prepared in constant monetary units, reflecting the overall effects of inflation through August 31, 1995. As from that date, in accordance with professional accounting standards and the requirements of the control authorities, restatement of the financial statements has been discontinued until December 31, 2001. As from January 1, 2002, in accordance with professional accounting standards, recognition of the effects of inflation in these unaudited financial statements has been reestablished, considering that the accounting measurements restated due to changes in the purchasing power of the currency until August 31, 1995 as well as those arising between that date and December 31, 2001 are stated in currency of the latter date.
On March 25, 2003, the National Executive Branch issued Decree No. 664 establishing that the financial statements for years ending as from that date must be stated in nominal currency. Consequently, in accordance with Resolution No. 441 issued by the National Securities Commission, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion is not in line with current professional accounting standards, which establish that the financial statements must be restated through to September 30, 2003. At March 31, 2004 however, this deviation has not had a material effect on the financial statements.
The rate used for restatement of items in these unaudited financial statements is the domestic wholesale price index published by the National Institute of Statistics and Census.
The following concepts are included together in the Statement of Income as Financial results generated by assets and Financial results generated by liabilities:
a. The result due to exposure to changes in the purchasing power of the currency
b. Other holding gains and losses arising during the period.
c. Financial results.
Comparative information
Certain amounts in the financials statements al June 30, 2003 and March 31, 2003 were reclassified for disclosure on a comparative basis with those for the period ended March 31, 2004.
6
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the subsidiaries mentioned in Note 1, have been prepared on a consistent basis with those applied by IRSA Inversiones y Representaciones Sociedad Anónima.
a. | Shares of Banco Hipotecario S.A. |
The shares of Banco Hipotecario S.A. held by the Company and Ritelco S.A. (a wholly-owned subsidiary) have been valued at their quotation at the end of the period, less estimated selling expenses.
b. | Revenue Recognition |
The Companys revenues mainly stem from office rental, shopping center operations, development and sale of real estate, hotel operations and, to a lesser extent, from e-commerce activities.
See Note 4 for details on the Companys business segments. As discussed in Note 1, the consolidated statements of income were prepared following the guidelines of Technical Resolution No. 21 of the F.A.C.P.C.E.
| Leases and services from shopping center operations |
Leases with tenants are accounted for as operating leases. Tenants are generally charged a rent, which consists of the higher of (i) a monthly base rent (the Base Rent) and (ii) a specified percentage of the tenants monthly gross retail sales (the Percentage Rent) (which generally ranges between 4% and 8% of tenants gross sales).
Furthermore, pursuant to the rent escalation clause in most leases, a tenants Base Rent generally increases between 4% and 7% each year during the term of the lease. Minimum rental income is recognized on a straight-line basis over the term of the lease. Certain lease agreements contain provisions, which provide for rents based on a percentage of sales or based on a percentage of sales volume above a specified threshold. The Company determines the compliance with specific targets and calculates the additional rent on a monthly basis as provided for in the contracts. Thus, these contingent rents are not recognized until the required thresholds are exceeded.
7
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 3: (Continued)
b. | Revenue Recognition (Continued) |
| Leases and services from shopping center operations (Continued) |
Generally, the Companys lease agreements vary from 36 to 120 months. Law No. 24,808 provides that tenants may rescind commercial lease agreements after the initial nine months, upon not less than 60 days written notice, subject to penalties which vary from one to one and a half months rent if the tenant rescinds during the first year of its lease, and one month of rent if the tenant rescinds after the first year of its lease. The Company also charges its tenants a monthly administration fee, prorated among the tenants according to their leases, which varies from shopping center to shopping center, relating to the administration and maintenance of the common area and the administration of contributions made by tenants to finance promotional efforts for the overall shopping centers operations.
Administration fees are recognized monthly when earned. In addition to rent, tenants are generally charged admission rights, a non-refundable admission fee that tenants may be required to pay upon entering into a lease and upon lease renewal. Admission right is normally paid in one lump sum or in a small number of monthly installments. Admission rights are recognized using the straight-line method over the life of the respective lease agreements. Furthermore, the lease agreements generally provide for the reimbursement of real estate taxes, insurance, advertising and certain common area maintenance costs. These additional rents and tenant reimbursements are accounted for on the accrual basis.
| Credit card operations |
Revenues derived from credit card transactions consist of commissions and financing income. Commissions are recognized at the time the merchants transactions are processed, while financing income is recognized when earned.
| Hotel operations |
The Company recognizes revenues from its rooms, catering, and restaurant facilities as earned on the close of business each day.
c. | Intangible assets, net |
Intangible assets are carried at cost adjusted for inflation, less accumulated amortization.
8
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 3: (Continued)
| Trademarks |
Trademarks include the expenses and fees related to their registration.
| Pre-operating expenses |
This item reflects expenses generated by the opening of new shopping malls restated into year-end currency. Those expenses are amortized by the straight-line method in periods ranging from 2 to 3 years for each shopping mall, beginning as from the date of inauguration.
| Advertising expenses |
Advertising expenses relate to the Torres de Abasto project and the opening of Abasto Shopping adjusted for inflation at the end of the period. The expenses incurred in relation to Torres de Abasto project are recognized in the statement of income as determined under the percentage-of-completion method. Other advertising expenses are amortized under the straight-line method over a term of 3 years.
| Investment projects |
Investment projects represent expenses primarily related to marketing efforts incurred by Alto Palermo S.A for the selling of merchandise through certain means of communication. These costs are amortized to income under the straight-line method as from the start up date of the project. These expenses are written off upon abandonment or disposal of project.
| Tenants list-Patio Bullrich |
This item represents the acquired tenant list of the Patio Bullrich shopping mall restated for inflation at the end of the period and is amortized using the straight-line method over a five-year period.
Intangible assets include advertising costs incurred by the subsidiary APSA, that cannot be capitalized in accordance with current accounting standards, but which will be amortized in the coming year by the Company through application of transition rules.
The value of these assets, net of the provision recorded, does not exceed the estimated recoverable value at the end of the period.
9
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 3: (Continued)
d. | Goodwill |
Negative goodwill represents the market value of net assets of the subsidiaries at the percentage participation acquired in excess of acquisition cost. Goodwill has been restated following the guidelines mentioned in Note 1.4. to the basic financial statements and amortization has been calculated by the straight-line method based on an estimated life of 18 years, considering the weighted average of the remaining useful life of identifiable assets of the issuer subject to depreciation.
Additionally, also included was the goodwill from the controlled company APSA, originating from the purchase of shares of Tarshop S.A., Inversha S.A., Pentigras S.A. and Fibesa S.A. which is amortized through the straight line method over a period of not more than 10 years.
Amortization has been classified under Amortization of goodwill in the Statements of Income.
NOTA 4: SEGMENT INFORMATION
The Company has determined that its reportable segments are those that are based on the Companys method of internal reporting. Accordingly, the Company has five reportable segments. These segments are Development and Sales of properties, Office and other non-shopping center rental properties, Shopping centers, Hotel operations, and Others. As discussed in Note 1, the consolidated financial statements of income were prepared following the guidelines of Technical Resolution No. 21 of the F.A.C.P.C.E.
A general description of each segment follows:
| Development and sale of properties |
This segment includes the operating results of the Companys construction and ultimate sale of residential buildings business.
| Office and other non-shopping center rental properties |
This segment includes the operating results of the Companys lease and service revenues of office space and other non-retail building properties from tenants.
| Shopping centers |
This segment includes the operating results of the Companys shopping centers principally comprised of lease and service revenues from tenants. This segment also includes revenues derived from credit card transactions that consist of commissions and financing income.
10
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 4: (Continued)
| Hotel operations |
This segment includes the operating results of the Companys hotels principally comprised of room, catering and restaurant revenues.
| Financial operations and others |
This segment primarily includes revenues and associated costs generated from the sale of equity securities, other securities-related transactions and other non-core activities of the Company. This segment also includes the results in equity investees of the Company relating to Internet, telecommunications and other technology-related activities of the Company.
The Company measures its reportable segments based on net income. Inter-segment transactions, if any, are accounted for at current market prices. The Company evaluates performance of its segments and allocates resources to them based on net income. The Company is not dependent on any single customer.
The accounting policies of the segments are the same as those described in Note 1 to the unaudited financial statements and in Note 3 to the unaudited consolidated financial statements.
11
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 4: (Continued)
The following information provides the operating results from each business unit:
As of March 31, 2004:
Sales and developments |
Office and Others (a) |
Shopping centers |
Hotels |
Financial and other operations |
Total |
||||||||||||
Income |
16,951 | 10,929 | 103,398 | 31,031 | | 162,309 | |||||||||||
Cost |
(13,668 | ) | (6,159 | ) | (51,130 | ) | (16,886 | ) | | (87,843 | ) | ||||||
Gross income |
3,283 | 4,770 | 52,268 | 14,145 | | 74,466 | |||||||||||
Selling expenses |
(1,505 | ) | (522 | ) | (7,092 | ) | (3,773 | ) | | (12,892 | ) | ||||||
Administrative expenses |
(3,959 | ) | (2,890 | ) | (13,617 | ) | (7,832 | ) | | (28,298 | ) | ||||||
Net loss in credit card trust |
| | (159 | ) | | | (159 | ) | |||||||||
Results from operations and holding of real estate assets |
| | | | | | |||||||||||
Operating ( loss) / Income |
(2,181 | ) | 1,358 | 31,400 | 2,540 | | 33,117 | ||||||||||
Depreciation and amortization (b) |
(1,349 | ) | 4,456 | 39,736 | 4,252 | | 47,095 | ||||||||||
Addition of fixed assets and intangible assets |
744 | 48 | 13,602 | 959 | | 15,353 | |||||||||||
Non-current investments in other companies |
| | 7,157 | 15,309 | | 22,466 | |||||||||||
Operating assets |
283,760 | 249,740 | 974,722 | 111,953 | | 1,620,175 | |||||||||||
Non- Operating assets |
48,419 | 42,614 | 62,439 | 3,885 | 317,860 | 475,217 | |||||||||||
Total assets |
332,179 | 292,354 | 1,037,161 | 115,838 | 317,860 | 2,095,392 | |||||||||||
Operating liabilities |
8,386 | 4,995 | 82,258 | 7,164 | | 102,803 | |||||||||||
Non-Operating liabilities |
134,225 | 120,598 | 209,179 | 38,579 | 141,656 | 644,237 | |||||||||||
Total liabilities |
142,611 | 125,593 | 291,437 | 45,743 | 141,656 | 747,040 |
(a) Includes offices, commercial and residential premises.
(b) Included in operating (loss) / income.
12
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 4: (Continued)
The following information provides the operating results from each business unit:
As of March 31, 2003
Sales and developments |
Office and Others (a) |
Shopping centers |
Hotels |
Financial and other operations |
Total |
||||||||||||
Income |
44,497 | 14,498 | 83,079 | 26,042 | | 168,116 | |||||||||||
Cost |
(43,897 | ) | (7,204 | ) | (48,407 | ) | (14,751 | ) | | (114,259 | ) | ||||||
Gross income |
600 | 7,294 | 34,672 | 11,291 | | 53,857 | |||||||||||
Selling expenses |
(2,766 | ) | (502 | ) | (10,128 | ) | (2,979 | ) | | (16,375 | ) | ||||||
Administrative expenses |
(4,041 | ) | (2,524 | ) | (12,106 | ) | (7,071 | ) | | (25,742 | ) | ||||||
Torres de Abasto unit contracts´rescissions |
5 | | | | | 5 | |||||||||||
Net loss in credit card trust |
| | (3,778 | ) | | | (3,778 | ) | |||||||||
Results from operations and holding of real estate assets |
10,139 | | | | | 10,139 | |||||||||||
Operating Income |
3,937 | 4,268 | 8,660 | 1,241 | | 18,106 | |||||||||||
Depreciation and amortization (b) |
3,505 | 4,916 | 42,756 | 4,656 | | 55,833 | |||||||||||
Addition of fixed assets and intangible assets (c) |
4,294 | 49 | 3,449 | 5,627 | | 13,419 | |||||||||||
Non-current investments in other companies (c) |
| | 8,527 | 13,387 | | 21,914 | |||||||||||
Operating assets (c) |
299,381 | 255,890 | 994,917 | 112,124 | | 1,662,312 | |||||||||||
Non-operating assets (c) |
43,859 | 37,487 | 54,029 | 3,030 | 252,247 | 390,652 | |||||||||||
Total assets (c) |
343,240 | 293,377 | 1,048,946 | 115,154 | 252,247 | 2,052,964 | |||||||||||
Operating liabilities (c) |
6,562 | 4,582 | 69,349 | 4,664 | | 85,157 | |||||||||||
Non-operating liabilities (c) |
154,084 | 138,190 | 224,640 | 42,290 | 158,085 | 717,289 | |||||||||||
Total liabilities (c) |
160,646 | 142,772 | 293,989 | 46,954 | 158,085 | 802,446 |
(a) Includes offices, commercial and residential premises.
(b) Included in operating income.
(c) At June 30, 2003.
13
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 5: MORTGAGES AND LEASES RECEIVABLES, NET
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 |
|||||||||||
Current |
Non- Current |
Current |
Non- Current |
|||||||||
Debtors from sale of real estate |
1,649 | 1,166 | 3,805 | 1,789 | ||||||||
Unearned interest |
(18 | ) | (34 | ) | (67 | ) | (194 | ) | ||||
Debtors from rent and credit card |
39,637 | 1,628 | 45,973 | 1,236 | ||||||||
Rent in litigation |
22,294 | | 22,054 | | ||||||||
Debtors under legal proceedings |
1,500 | | 2,338 | | ||||||||
Checks to be deposited |
9,000 | | 6,177 | | ||||||||
Related parties |
57 | | 137 | | ||||||||
Trade accounts receivable for hotel activities |
3,088 | | 1,877 | | ||||||||
Less: |
||||||||||||
Allowance for doubtful accounts |
(444 | ) | | (593 | ) | | ||||||
Allowance for doubtful leases |
(37,721 | ) | (43 | ) | (46,107 | ) | (54 | ) | ||||
39,042 | 2,717 | 35,594 | 2,777 | |||||||||
NOTE 6: OTHER RECEIVABLES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 |
|||||||||
Current |
Non- Current |
Current |
Non- Current |
|||||||
Asset tax |
1,019 | 51,066 | 59 | 48,674 | ||||||
Value Added Tax (VAT) |
1,012 | 1,665 | 310 | 2,542 | ||||||
Related parties |
245 | 10 | 633 | 17 | ||||||
Guarantee deposits |
362 | 87 | 890 | 693 | ||||||
Prepaid expenses |
187 | | 169 | | ||||||
Expenses to be recovered |
5,354 | | 1,989 | | ||||||
Fund administration |
208 | | 232 | | ||||||
Advances to be rendered |
4,720 | | 824 | | ||||||
Gross sales tax |
346 | 415 | 252 | 318 | ||||||
Deferred income tax |
| 60,729 | | 66,134 | ||||||
Sundry debtors |
2,380 | | 2,079 | | ||||||
Operation pending settlement BH S.A. |
85,560 | | 40 | | ||||||
Income tax prepayments and withholdings |
1,455 | | 983 | 31 | ||||||
Country club debtors |
462 | | 462 | | ||||||
Rebilled condominium expenses |
| | 651 | | ||||||
Trust accounts receivable |
944 | 2,014 | | 433 | ||||||
Tax credit certificates |
979 | | 2,265 | | ||||||
Interest rate swap receivable |
359 | 18,790 | 307 | 8,172 | ||||||
Mortgages receivables |
| 2,208 | | 2,208 | ||||||
Present value other receivables |
| (1,413 | ) | | (3,106 | ) | ||||
Credit from barter of Edificios Cruceros |
| 5,640 | | | ||||||
Allowance for doubtful accounts |
| (2,208 | ) | | (2,208 | ) | ||||
Other |
185 | 394 | 2 | 18 | ||||||
105,777 | 139,397 | 12,147 | 123,926 | |||||||
14
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 7: INVENTORIES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||
Current |
Non- Current |
Current |
Non- Current | |||||
Dique II |
| | 5,648 | | ||||
Minetti D |
42 | | 42 | | ||||
Madero 1020 |
| | 1,373 | | ||||
Rivadavia 2768 |
116 | | 116 | | ||||
Sarmiento 517 |
| | 245 | | ||||
Torres Jardín |
245 | | 245 | | ||||
Abril/Baldovinos |
3,554 | 5,185 | 5,397 | 5,822 | ||||
San Martín de Tours |
4,390 | | | 2,945 | ||||
Benavidez (1) |
10,748 | | | | ||||
Other |
181 | | 396 | | ||||
Torres de Abasto |
555 | | 555 | | ||||
Resale merchandise |
77 | | 99 | | ||||
Bonus merchandise |
87 | | 105 | | ||||
Other properties |
465 | | 354 | | ||||
20,460 | 5,185 | 14,575 | 8,767 | |||||
(1) | Through its subsidiary Inversora Bolivar S.A., the Company granted an option to purchase this building, which was exercised in March 2004. |
15
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 8: INVESTMENTS
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||
Current |
||||
Cedro (1) |
81 | 128 | ||
Lebacs (1) |
| 1,361 | ||
Bocanova (1) |
264 | 305 | ||
Boden (1) |
50 | 1,329 | ||
IRSA I Trust Exchangeable Certificate (1) |
1,188 | 1,324 | ||
Time deposits and money markets |
6,946 | 27,505 | ||
Mutual funds (2) |
43,859 | 102,396 | ||
Tarshop Trust (1) |
6,116 | 4,719 | ||
Interest Banco Ciudad de Bs. As. Bond (1) |
13 | | ||
Other investments (1) |
31 | 38 | ||
58,548 | 139,105 | |||
Non-current |
||||
Llao Llao Resorts S.A. |
15,309 | 13,387 | ||
Banco de Crédito y Securitización S.A. |
7,007 | 7,007 | ||
Banco Hipotecario S.A. |
68,596 | 23,677 | ||
Pérez Cuesta S.A.C.I. |
5,159 | 5,628 | ||
E-Commerce Latina S.A |
1,998 | 2,899 | ||
IRSA I Trust Exchangeable Certificate |
5,612 | 8,777 | ||
Tarshop Trust |
6,899 | 2,567 | ||
Banco Ciudad de Bs. As. Bond |
867 | | ||
Art work |
37 | 37 | ||
Other |
11,138 | | ||
122,622 | 63,979 | |||
Undeveloped parcels of land: |
||||
Constitucion 1111 |
1,146 | 1,146 | ||
Dique IV |
6,160 | 6,160 | ||
Caballito plots of land |
13,616 | 13,616 | ||
Padilla 902 |
71 | 71 | ||
Pilar |
3,109 | 3,109 | ||
Torres Jardín IV |
2,231 | 2,231 | ||
Puerto Retiro |
46,350 | 46,257 | ||
Benavidez (3) |
| 10,748 | ||
Santa María del Plata |
124,699 | 124,594 | ||
Pereiraola |
21,875 | 21,875 | ||
Bs. As. Trade and Finance Center S.A |
25,973 | 25,973 | ||
Air space Supermercado Coto |
9,080 | 9,080 | ||
Caballito |
26,000 | 26,000 | ||
Rosario |
| 51,501 | ||
Neuquén |
8,539 | 8,539 | ||
Alcorta Plaza |
15,953 | 15,950 | ||
Other parcels of undeveloped land |
2,939 | 2,931 | ||
307,741 | 369,781 | |||
430,363 | 433,760 | |||
(1) | Not considered as cash for purposes of the unaudited statements of cash flow. |
(2) | Ps. 37,939 corresponding to the Dolphin Fund PLC at March 31, 2004 not considered as cash for purpose of the statement of cash flow and Ps. 1,721 corresponding to the NCH Development Partner fund at March 31, 2004 not considered as cash for purpose of the statement of cash flows. |
(3) | Through its subsidiary Inversora Bolivar S.A., the Company granted an option to purchase this building, which was exercised in March 2004. |
16
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 9: FIXED ASSETS, NET
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||
Hotels |
||||
Hotel Intercontinental |
55,475 | 57,177 | ||
Hotel Libertador |
38,264 | 39,890 | ||
93,739 | 97,067 | |||
Office buildings |
||||
Avda. de Mayo 595 |
4,045 | 4,112 | ||
Avda. Madero 942 |
1,982 | 2,006 | ||
Edificios costeros (Dique II) |
17,696 | 17,937 | ||
Laminar Plaza |
27,676 | 28,021 | ||
Libertador 498 |
35,006 | 35,444 | ||
Libertador 602 |
2,458 | 2,488 | ||
Madero 1020 |
3,773 | 6,433 | ||
Maipú 1300 |
40,227 | 40,771 | ||
Reconquista 823 |
16,850 | 17,075 | ||
Sarmiento 517 |
203 | 166 | ||
Suipacha 652 |
9,801 | 9,945 | ||
Alto Palermo Plaza |
| 2 | ||
Intercontinental Plaza |
62,699 | 63,728 | ||
Costeros Dique IV |
17,360 | 17,566 | ||
239,776 | 245,694 | |||
Commercial real estate |
||||
Alsina 934 |
1,464 | 1,485 | ||
Constitución 1111 |
397 | 403 | ||
1,861 | 1,888 | |||
Other fixed assets |
||||
Abril |
1,916 | 2,189 | ||
Alto Palermo Park |
417 | 420 | ||
Thames |
3,310 | 3,650 | ||
Other |
3,483 | 3,489 | ||
9,126 | 9,748 | |||
17
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 9: (Continued)
March 31, 2004 |
June 30, 2003 | |||
Shopping Center |
||||
Alto Avellaneda |
99,315 | 105,133 | ||
Alto Palermo |
233,712 | 247,477 | ||
Paseo Alcorta |
69,908 | 72,690 | ||
Abasto |
212,713 | 221,314 | ||
Patio Bullrich |
123,238 | 127,803 | ||
Buenos Aires Design |
23,997 | 25,840 | ||
Alto Noa |
22,808 | 23,810 | ||
Rosario |
61,986 | | ||
Other properties |
10,623 | 10,743 | ||
Other |
7,215 | 8,314 | ||
865,515 | 843,124 | |||
Total |
1,210,017 | 1,197,521 | ||
NOTE 10: CUSTOMER ADVANCES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||
Current |
Non- Current |
Current |
Non- Current | |||||
Admission rights |
10,276 | 16,887 | 7,442 | 14,044 | ||||
Leases advances |
4,870 | 10,304 | 4,183 | 11,216 | ||||
Customer advances |
2,586 | | 1,587 | | ||||
17,732 | 27,191 | 13,212 | 25,260 | |||||
18
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 11: SHORT AND LONG TERM DEBT
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||
Current |
Non- Current |
Current |
Non- Current | |||||
Convertible bond APSA 2006 (1) |
| 51,795 | | 55,550 | ||||
Accrued interest- Convertible bond APSA 2006 (1) |
1,042 | | 2,418 | | ||||
Negotiable obligations APSA (2) |
24,080 | 49,567 | 3,640 | 73,617 | ||||
Accrued interest- Negotiable obligations APSA (2) |
3,992 | | 1,554 | | ||||
Bank debts (3) |
49,002 | 56,326 | 71,138 | 91,464 | ||||
Accrued interest - bank debts (3) |
228 | 3,360 | 3,032 | | ||||
Bond 100 M. (4) |
| 262,752 | | 279,235 | ||||
Interest-Bond 100 M. (4) |
8,113 | | 2,765 | | ||||
Negotiable obligations 2009 - principal amount (5) |
2,673 | 91,542 | | 92,238 | ||||
Negotiable obligations 2009 - accrued interest (5) |
343 | 5,462 | 2,677 | | ||||
Other |
| | 210 | | ||||
89,473 | 520,804 | 87,434 | 592,104 | |||||
(1) | Corresponding to the Negotiable Bonds Convertible to stock (CNB) issued by APSA for a value of US$ 50 million, as detailed in Note 22 to the unaudited consolidated financial statements, net of the CNB underwritten by the Company for U$S 30,929 thousand, net of fees and expenses related to issue of debt to be accrued. |
(2) | Includes: |
(a) | Ps. 49,621 thousand in unsecured general liabilities belonging to APSA, originally issued for a total value of V$N 85,000,000, which mature on 7 April 2005, on which date the principal will be amortized in full, net of issue expenses. The terms of the liabilities require APSA to maintain certain financial ratios and conditions, specific debt/equity ratios, and establish restrictions to the procurement of new loans. |
(b) | Ps. 9,785 thousand corresponding to secured general liabilities of APSA originally issued for a value of US$ 40,000 thousand, and which mature on 13 January 2005, on which date the full amount of the principal will be amortized, net of issue expenses. As a detailed on Note 15 the current negotiable bonds are secured by the fiduciary assignment in the interest of the holders of the total share capital in Shopping Alto Palermo S.A. The terms of the liabilities require APSA to maintain certain financial ratios and conditions, specific debt/equity ratios, and establish restrictions to the procurement of new loans. |
(c) | Ps. 15,901 thousand corresponding to secured general liabilities in Shopping Alto Palermo S.A. (SAPSA), as a detailed on Note 15, net of issue expenses. The terms of the liabilities require SAPSA to maintain certain financial ratios and conditions, specific debt/equity ratios, and establish restrictions to the procurement of new loans. |
(3) | Includes mainly: |
(a) | US$ 20.3 million corresponding to an unsecured loan falling due in the year 2009, as detailed in Note 5 to the unaudited financial statements. |
(b) | Ps. 35,553 thousand current, corresponding to a loan secured with real estate assets belonging to Hoteles Argentinos S.A., as detailed in Note 15 to the unaudited consolidated financial statements. |
(c) | Ps. 11,804 thousand corresponding to other current bank loans. |
(4) | Corresponding to the issue of Convertible Negotiable Bonds of the Company for a total value of US$ 100 million as set forth in Notes 5 and 11 to the unaudited financial statements. |
(5) | Corresponding to the issue of Negotiable Bonds secured with certain Company assets maturing in the year 2009, as detailed in Note 5 and 10 b. to the unaudited financial statements. |
19
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 12: OTHER LIABILITIES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 |
|||||||||
Current |
Non-current |
Current |
Non-current |
|||||||
Seller financing |
5,647 | | 6,625 | | ||||||
Dividends payable |
2,703 | | 1,521 | 1,182 | ||||||
Related parties |
2,847 | | 3,283 | 1 | ||||||
Guarantee deposits |
532 | 1,490 | 726 | 977 | ||||||
Provision for discounts |
9 | | 9 | | ||||||
Provision for lawsuits and contingencies |
1,868 | 4,520 | 1,170 | 4,682 | ||||||
Directors´ fees |
96 | | 7,840 | | ||||||
Rebilled condominium expenses |
278 | | 444 | | ||||||
Directors´ deposits |
| 8 | | 8 | ||||||
Fund administration |
491 | | 491 | | ||||||
Operation pending settlement |
16 | | 16 | | ||||||
Collections on behalf of third parties |
| | 5 | | ||||||
Pending settlements for sales of plots |
359 | | 113 | | ||||||
Contributed leasehold improvements |
212 | 743 | 212 | 902 | ||||||
Donations payable |
2,877 | | 4,827 | | ||||||
Present value other liabilities |
| (102 | ) | | (433 | ) | ||||
Trust account payable |
283 | | | | ||||||
Other |
2,099 | 12 | 1,454 | 12 | ||||||
20,317 | 6,671 | 28,736 | 7,331 | |||||||
NOTE 13: RESULTS FROM OPERATIONS AND HOLDINGS OF REAL ESTATE ASSETS
The breakdown for this item is as follows:
March 31, 2004 |
March 31, 2003 | |||
Results from transactions related to shares of real estate companies |
| 10,139 | ||
Results from holding of real estate assets |
| | ||
(1) |
| 10,139 | ||
(1) | This item includes losses from the quotation of shares in real estate companies, premiums on issuance of shares earned and losses from the impairment of real estate assets. |
20
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 14: OTHER INCOME, NET
The breakdown for this item is as follows:
March 31, 2004 |
March 31, 2003 |
|||||
Other income: |
||||||
Gain on early redemption of debt |
| 12,936 | ||||
Gain from the sale of fixed assets and intangible assets |
134 | 2,132 | ||||
Recovery of allowance for doubtful accounts |
1,617 | | ||||
Other |
1,195 | 685 | ||||
2,946 | 15,753 | |||||
Other expenses: |
||||||
Unrecoverable VAT |
(534 | ) | (800 | ) | ||
Donations |
(395 | ) | (332 | ) | ||
Contingencies for lawsuits |
(762 | ) | (3,871 | ) | ||
Debit and credit tax |
(640 | ) | (841 | ) | ||
Other |
(177 | ) | (3,016 | ) | ||
(2,508 | ) | (8,860 | ) | |||
Other income, net |
438 | 6,893 | ||||
21
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 15: RESTRICTED ASSETS
Puerto Retiro S.A.: extension of the bankruptcy
On April 18, 2000, Puerto Retiro S.A. was notified of a filing made by the National Government, through the Ministry of Defense, to extend the petition in bankruptcy of Inversora Dársena Norte S.A. (Indarsa) to Puerto Retiro S.A Concurrently with the complaint, at the request of plaintiff, the bankruptcy court granted an order restraining the ability of Puerto Retiro to sell or dispose in any manner the real estate property purchased from Tandanor S.A. (Tandanor).
Indarsa had purchased 90% of the capital stock of Tandanor, a formerly state owned company privatized in 1991, engaged in the shipyard industry.
In June 1993, Tandanor sold the plot of land near Puerto Madero denominated Planta 1 to Puerto Retiro S.A.
Indarsa did not comply with the payment of the outstanding price for the purchase of the stock of Tandanor, and therefore the Ministry of Defense requested the bankruptcy of Indarsa. Since the only asset of Indarsa were the shareholdings in Tandanor, the Ministry of Defense is pursuing to extend the bankruptcy to other companies or individuals which, according to its view, acted as an economic group, and therefore, requested the extension of the bankruptcy to Puerto Retiro which acquired Planta 1 from Tandanor. The lawsuit is at its first stages. Puerto Retiro S.A. answered the claim and appealed the preventive measures ordered. This appeal was overruled on December 14, 2000.
Puerto Retiro S.A. believes, pursuant to the advice of its legal advisors, that the plaintiffs claim shall be rejected by the courts.
Hoteles Argentinos S.A.: mortgage loan
The Extraordinary Shareholders Meeting of Hoteles Argentinos S.A. held on January 5, 2001, approved taking a long-term mortgage loan from Bank Boston N.A. for a total of US$ 12,000,000 to be used to refinance existing debts. The term of the loan was agreed at 60 months payable in 19 equal and quarterly installments of US$ 300,000 and one final payment of US$ 6,300,000. The agreement was signed on January 26, 2001.
Interest is paid quarterly in arrears at an annual interest rate equivalent to LIBOR for year loans plus the applicable mark-up per the contract, which consists in a variable interest rate applicable in the nine month period ended March 31, 2004 it ranged between 5.8700% and 6.0713%.
The guarantee granted was a senior mortgage on a Company property, which houses the Hotel Sheraton Libertador Buenos Aires.
22
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 15: (Continued)
As a result of the current economic situation, the lack of credit and the crisis of the Argentine financial system, principal installments of US$ 300 thousand falling due on January 26, April 29, July 29, October 26, 2002, January 29, April 29, July 29, October 26, 2003, January 26 and April 26, 2004 respectively and the interest installment amounting to US$ 1,015 thousand falling due on July 29, October 26, 2002, January 29, April 29, July 29, October 29, 2003, January 26 and April 26, 2004 were not paid. Although Hoteles Argentinos Management is renegotiating the debt with its creditors, as failure to pay the installments when due entitles the bank to require acceleration of principal and interest maturities, the loan has been classified and is shown under current financial loans in these unaudited consolidated financial statements.
On March 5, 2004, BANKBOSTON N.A. formally notified Hoteles Argentinos S.A. that as from March 10, 2004 it assigned to Marathon Master Fund Ltd., domiciled at 461 Fifth Avenue, 10th floor, New York, NY 10017, USA, all the rights and obligations arising from the loan agreement entered into on January 26, 2001 between Hoteles Argentinos S.A. as borrower and BankBoston N.A., as lender, together with all the changes, guarantees and insurance policies related to that contract.
Consequently, all pending obligations of Hoteles Argentinos S.A. must be fulfilled in favor of the assignee, Marathon Master Fund Ltd.
Alto Palermo S.A.- Restricted assets.
a) | As of March 31, 2004, Shopping Neuquén S.A. includes Ps. 41,791 in financial loans, corresponding to a mortgage set up on acquired land for Ps. 3,314 thousand. |
b) | On January 18, 2001, Shopping Alto Palermo S.A. issued negotiable obligations secured by all the shares representing its corporate capital transferred in trust in favor of their holders. |
c) | At March 31, 2004, the Company holds funds under other current receivables amounting to Ps. 107,922 attached by the National Labor Court of First Instance No. 40 in relation to the case Del Valle Soria, Delicia against New Shopping S.A. claiming unfair dismissal and Ps. 185,424 restricted by the National Court on Civil Matters No. 6, Secretariat 12, in connection with the case Metal Design SRL against Alto Palermo S.A. (APSA) due to unpaid invoices. |
d) | At March 31, 2004, the shares of Emprendimiento Recoleta S.A. are pledged. |
e) | At March 31, 2004 there is a balance of US$ 50 million in the caption other non-current receivables corresponding to funds guaranteeing derivative instruments transactions. |
23
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 16: TARSHOP CREDIT CARD RECEIVABLE SECURITIZACION
Alto Palermo S.A. has ongoing revolving period securitization programs through which Tarshop, a majority-owned subsidiary of APSA, transfers a portion of its customer credit card receivable balances to a master trust (the Trust) that issues certificates to public and private investors.
To the extent the certificates are sold to third parties, the receivables transferred qualify as sales for financial statement purposes and are removed from the company balance sheet. The remaining receivables in the Trust which have not been sold to third parties are reflected on the company balance sheet as a retained interest in transferred credit card receivables. Under these programs, the company acts as the servicer on the accounts and receives a fee for its services.
Under the securitization programs, the Trust may issue two types of certificates representing undivided interests in the Trust - Títulos de Deuda Fiduciaria (TDF) and Certificados de Participación (CP), which represent debt, and equity certificates, respectively. Interest and principal services are paid periodically to the TDF holders throughout the life of the security. CPs are subordinated securities which entitle the CP holders to share pro rata in the cash flows of the securitized credit card receivables, after principal and interest on the TDFs and other fees and expenses have been paid. During the revolving period no payments are made to TDF and CP holders. Principal collections of the underlying financial assets are used by the Trust to acquire additional credit card receivables throughout the revolving period. Once the revolving period ends, a period of liquidation occurs during which: (i) no further assets are purchased and (ii) all cash collections are used to fulfill the TDF service requirements and (iii) the remaining proceeds are used to fulfill the CPs service requirements.
The Company entered into two-years revolving-period securitization programs, through which Tarshop sold an aggregate amount of Ps. 102.7 million of its customer credit card receivable. Under the securitization programs, the Trusts issued Ps. 14.5 million nominal value subordinated CPs. Ps. 26.7 million 12% fixed-rate interest TDFs and Ps. 22.5 million 18% fixed-rate interest TDFs, and Ps. 17.1 million variable rate interest TDFs. Tarshop acquired all the CPs at an amount equal to their nominal value while the TDFs were sold to other investors through a public offering in Argentina except for Ps. 0.4 million, which were acquired by Tarshop S.A. As a credit protection for investors, Tarshop has established cash reserves for losses amounting to Ps. 1.3 million.
24
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 17: PURCHASE OF SHARES AND OPTION OF BANCO HIPOTECARIO S.A.
On December 30, 2003, the Company purchased 4,116,267 shares of Banco Hipotecario S.A. at US$ 2.3868 per share and 37,537 warrants at US$ 33.86 each, granting the right to purchase an additional total of 3,753,700 shares. This transaction implied a total disbursement of US$ 11.1 million.
Furthermore, on February 2, 2004, the Company and its subsidiary Ritelco exercised a substantial portion of the options acquired mentioned above, jointly with the options held before the end of the period. Accordingly, 4,774,000 shares for a total of Ps. 33.4 million were acquired.
Therefore, at the date of issuing these financial statements, the total holding amounted to 20,128,733 shares.
The Board of Directors intends to sell a portion of the shares acquired from Banco Hipotecario S.A (see Note 25).
NOTE 18: IRSA INTERNATIONAL LIMITED INVESTMENT´S IN IRSA TELECOMUNICACIONES N.V.
In the fourth quarter of the year ended June 30, 2000, the Company had invested US$ 3.0 million, in the form of irrevocable capital contributions, into two unrelated companies, namely, Red Alternativa S.A., a provider of satellite capacity to Internet service providers, and Alternativa Gratis S.A., an Internet service provider (referred to herein as the Companies). At that date, the Companies were development stage companies with no significant operations.
Between July 2000 and August 2000, the Company, together with Dolphin Fund Plc, increased their respective investments in the above mentioned Companies, in exchange for shares of common stock. In a series of transactions, which occurred between August 2000 and December 2000, (i) the Company formed IRSA Telecomunicaciones N.V. (ITNV), a holding company organized under the laws of the Netherlands Antilles, for the purposes of completing a reorganization of the Companies (the Reorganization) and (ii) the Company, Dolphin Fund Plc and the previous majority shareholder of the Companies contributed their respective ownership interests in the Companies into ITNV in exchange for shares of common stock of ITNV.
25
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 18: (Continued)
In September and December 2000, the Company had made additional contributions to ITNV for US$ 3 million, generating an increase in its participation in the capital stock at that date of 62%.
As a result of the Reorganization, the Companies are now wholly owned subsidiaries of ITNV. Following the Reorganization, the Company held a 49.36% interest in ITNV.
On December 27, 2000, the shareholders of ITNV entered into an agreement with Quantum Industrial Partners LDC (QIP) and SFM Domestic Investment LLC (SFM and together with QIP referred to herein as the Investors) (the Shareholders Agreement), under which the Investors contributed US$ 4.0 million in cash in exchange for 1,751,453 shares of Series A mandatorily redeemable convertible preferred stock and an option to purchase 2,627,179 additional shares of mandatorily redeemable convertible preferred stock. Pursuant to the terms of the Shareholders Agreement, options were granted for a period up to five years and at an exercise price equal to the quotient of US$ 6.0 million by 2,627,179 preferred shares. On or after December 27, 2005, ITNV might be required, at the written request of holders of the then outstanding Series A preferred stock to redeem such holders outstanding shares of series A preferred stock for cash at the greater of (i) 200% of the original issue price multiplied by the number of preferred stock to be redeemed, and (ii) the fair market value of the common shares each holder of Series A preferred stock would have been entitled to receive if such holder had converted the number of Series A preferred stock to be redeemed into common stock at the redemption date; plus in the case of (i) and (ii), any accrued or declared but unpaid dividends.
NOTE | 19: MORTGAGE RECEIVABLE SECURITIZATION |
The Board of Directors of IRSA, in the meeting held on November 2, 2001, authorized the setting up of a financial trust for the securitization of Company receivables. The trust program for issuing participation certificates, under the terms of Law No. 24.441, was approved by the National Securities Commission by means of Resolution No. 13.040, dated October 14, 1999, as regards the program and in particular as regards the Trust called IRSA I following a decision of the Board of Directors dated December 14, 2001.
On December 17, 2001, IRSA, Inversora Bolívar S.A. and Baldovinos S.A., parties of the first part (hereinafter the Trustors) and Banco Sudameris Argentina S.A., party of the second part (hereinafter the Trustee), have agreed to set up the IRSA I Financial Trust under the Global Program for the Issuance of FIDENS Trust Values, pursuant to the contract entered into on November 2, 2001.
Under the above program, the trustors have sold their personal and real estate credits, secured with mortgages or arising from bills of sale with the possession of the related properties, for the total amount US$ 26,585,774 to the Trustee, in exchange for cash and the issuance by the Trustee of Participation Certificates for the same nominal value and in accordance with the following classes:
| Class A Participation Certificates (CPA): Nominal value of US$ 13,300,000, with a 15% fixed annual nominal yield, with monthly Service payments due on the 15th of each month or on the immediately following working day. These certificates grant the right to collect the following Services: (a) a fixed yield calculated on the Class principal balance, with monthly capitalization, payable monthly as from the total settlement of the CPAs, and (b) an amortization. |
26
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 19: (Continued)
| Class B Participation Certificates (CPB): Nominal value of US$ 1,000,000, with a 15.50% fixed annual, nominal yield, with monthly Service payments due on the 15th of each month or on the immediately following working day. These certificates grant the right to collect the following Services: (a) a fixed yield calculated on the Class principal balance, with monthly capitalization, payable monthly as from the total settlement of the CPAs, and (b) an amortization equivalent to the sums paid as from the Last Service Payment Date on which the total settlement of the CPA Certificates may have taken place, net of their fixed yield. |
| Class C Participation Certificates (CPC): Nominal value of US$ 1,600,000, with a 16% fixed annual nominal yield, with monthly Service payments due on the 15th of each month or on the immediately following working day. These certificates grant the right to collect the following Services: (a) a fixed yield calculated on the Class principal balance, with monthly capitalization, payable monthly as from the total settlement of the CPBs, and (b) an amortization equivalent to the sums paid as from the Last Service Payment Date on which the total settlement of the CPBs may have taken place, net of their fixed yield. The fixed yield will accrue as from the Cut-Off Date and will be capitalized on a monthly basis. |
| Class D Participation Certificates (CPD): Nominal Value of US$ 10,685,774. These grant the right to collect monthly the sums arising from the Cash Flow, net of the contributions made to the Expense Fund, once the remaining classes have been fully settled. |
The period for placing the Participation Certificates was from December 27, 2001 to January 15, 2002.
Pursuant to Decree No. 214/02, assets and debts in U.S. dollars or other foreign currencies in the Argentine financial system as of January 6, 2002, were converted to pesos at the rate of exchange of Ps. 1 per US$ 1 or its equivalent in another currency and was adjusted by a reference stabilization index (CER) / coefficient of salary fluctuation (CVS).
On July 21, 2003 an amendment was signed to the trust contract by which a system of proportional adjustment to the Participation Certificates was established to recognize the CER and CVS, and also to modify the face of the Participation Certificates Class D, with the new face value being Ps. 10,321,280.
At March 31, 2004, the Exchangeable Class C and D Participation Certificates amounted to thousand Ps. 5,659 in IRSA, thousand Ps. 948 in Inversora Bolívar S.A., and thousand Ps. 233 in Baldovinos S.A. Class A and B Certificates are totally amortized at the closing of the period.
27
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 20: CAPITAL REDUCTION IN PALERMO INVEST S.A. AND INVERSORA BOLIVAR S.A.
On November 9, 2001, IRSA Inversiones y Representaciones S.A. (the Company) and GSEM/AP Holdings L.P. (GSEM) entered into a first amendment to the Shareholders Agreement entered into on February 25, 1998, which was followed by a second amendment dated November 27, which established, among other issues, the following:
a) | The capital reduction of Palermo Invest S.A. by thousand Ps. 37,169. |
b) | The unanimous approval of Palermo Invest S.A.s shareholders of a cash dividend for a total amount in pesos equivalent to thousand US$ 19,702, provided this amount does not exceed, on the payment dates, the amount legally distributable. As stated in Decree No. 214/02, the dollar rate of exchange mentioned above has been left without effect. |
c) | The assignment by the Company in favor of GSEM of rights proportional to the dividends mentioned in b) (called IRSA Dividend Right), in such a way that GSEM will have the right to collect all the dividends that may be approved (called GSEM Dividend Right), with the scope defined in point g). |
d) | The Companys obligation to pay a total amount of thousand US$ 13,135 to GSEM (called GSEM Credit), to be settled in two equal installments for a total amount of US$ 6,567 each, plus interest accrued at the time of payment, the first installment falling due on January 31, 2002 and the second on April 30, 2002. |
e) | The entering into a Share Trust Agreement pursuant to which the Company has assigned in trust, under the terms of Law No. 24,441, in favor of the Trustee (ABN AMRO BANK N.V.), all the shares it owns in Palermo Invest S.A.. Under no circumstances, may the Trustee transfer, pledge or otherwise assign IRSAs shares either wholly or partially to any Person, and it must at all times exercise the voting rights granted by the shares as indicated by IRSA. Under the trust provisions, GSEM is not empowered, at any time, to request the trustee to extinguish the right to redeem IRSAs shares. Upon the Companys total fulfillment of its obligations to GSEM, the trustee must return the shares to IRSA under the terms and conditions of the trust agreed with the Trustee. |
f) | GSEM is empowered to collect all the distributions that Palermo Invest S.A. may resolve, provided the Company has not settled all the obligations generated in favor of GSEM, as provided in point d) above. |
28
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 20: (Continued)
g) | Finally, the Company and GSEM/AP Holdings L.P. acknowledge that: i) all the amounts received in cash by GSEM from Palermo Invest S.A. on account of IRSA Dividend Right, must be considered as a reduction in the amount owed by IRSA under the GSEM Credit, and ii) all the amounts received in cash by GSEM on account of the GSEM Credit will oblige GSEM to return to IRSA the equivalent portion of IRSA Dividend Right, but if IRSA pays the total amount plus all accrued interest and reasonable costs to GSEM, IRSA may then recover its rights regarding the IRSA Dividend Right. |
At 30 June 2003, the Company has settled all the installments referred to in item d) amounting to a total of Ps. 39,208 thousand, recording a profit of Ps. 25,962 thousand as a result of a remission by GSEM. Along these lines, at the date of issue of these unaudited financial statements, the aspects referred to in items c), e), f) and g) are null and void.
NOTE 21: DERIVATIVE INSTRUMENTS
The Company uses certain financial instruments to reduce its global financing costs. Furthermore, the Company has not used the financial instruments to hedge future operations or commitments
| Interest rate swaps |
Interest rate swaps are used to hedge interest rate exposure. Liabilities generated by the interest rate swap have been valued at estimated settlement cost.
Differences generated by application of the mentioned criteria to assets and liabilities under swaps for derivatives were recognized in the results for the period.
In order to minimize its financing costs and manage interest rate exposure, APSA entered into an interest rate swap agreement to effectively convert a portion of its peso-denominated fixed- rate debt to peso-denominated floating rate debt.
29
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 21: (Continued)
At March 31, 2001 the Company had an interest rate swap agreement outstanding with an aggregate notional amount of Ps. 85.0 million with maturity in April 2005. This swap agreement initially allowed the Company to reduce the net cost of its debt. However, subsequent to June 30, 2001, the Company modified the swap agreement due to an increase in interest rates as a result of the economic situation. Under the terms of the revised agreement, the Company converted its peso-denominated fixed rate debt to U.S. dollar-denominated floating rate debt for a notional amount of US$ 69.1 million with maturity in April 2005, which as of March 31, 2004 has a fair value of US$ 43.43 million. Any difference payable or receivable is accrued and recorded as an adjustment to disbursements for interest in the Statement of Income. During the periods ended March 31, 2004 and 2003, APSA recognized a gain of Ps. 13.9 million and of Ps. 53.3 million, respectively.
The inherent risk to Alto Palermo S.A. from the swap agreement is limited to the cost of replacing that contract at current market rates. Alto Palermo S.A. considers that such cost would increase in the event of a continuing devaluation of the peso.
| Options contracts to purchase metals |
In December 2003, Ritelco S.A. acquired gold and silver purchase contracts maturing in February and March 2004. Both operations were settled upon maturity and, consequently, the Company does not hold derivative instruments at year-end. In accordance with its risk administration policies, the Company enters into future metal contracts for speculative purposes.
The result from both future metal operations at March 31, 2004 amounts to Ps. 4.4 million which equals to US$ 1.5 million and are recorded in the line Financial results generated by assets in the Statement of Income.
30
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 22: ALTO PALERMO - ISSUANCE OF NEGOTIABLE OBLIGATIONS CONVERTIBLE FOR SHARES
On July 19, 2003, Alto Palermo S.A. issued Series I of Negotiable Obligations convertible for ordinary, book-entry shares, par value of Ps. 0.10 each, for up to US$ 50,000,000.
After the end of the period granted to exercise the accretion right, the Negotiable Obligations convertible for Shares for US$ 50,000,000 were fully subscribed and paid-up.
This issuance was resolved at the Ordinary and Extraordinary Meeting of Shareholders held on December 4, 2001, approved by the National Securities Commission Resolution No. 14.196 dated March 15, 2002 and authorized to list for trading on the Buenos Aires Stock Exchange on July 8, 2002.
The main issue terms and conditions of the convertible Negotiable Obligations are as follows:
| Issue currency: US dollars. |
| Due date: July 19, 2006. |
| Interest: at a fixed nominal rate of 10% per annum. Interest is payable semi-annually. |
| Payment currency: US dollars or its equivalent in pesos. |
| Conversion right: the notes will be converted at the option of each holder into ordinary book entry shares at a conversion price equivalent to the higher of the result from dividing the nominal value of the Companys shares (Ps. 0.1) by the exchange rate and US$ 0.0324, which means that each Note is potentially exchangeable for 30,864 shares of Ps. 0.1 par value each. |
| Right to collect dividends: the shares underlying the conversion of the negotiable obligations will be entitled to the same right to collect any dividends to be declared after the conversion as the shares outstanding at the time of the conversion. |
31
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 22: (Continued)
The Convertible Negotiable Obligations were paid in cash or by using liabilities due from APSA on the subscription date.
The Company applied the funds obtains from the offering of securities to payment of expenses and fees relating to issuing and placement of convertible negotiable obligations, payment of liabilities with shareholders and repurchase of negotiables obligations Class A-2 and B-2 the latter belong to its subsidiary Shopping Alto Palermo S.A., thus fulfilling the plan for allocation of funds duly presented to the National Securities Commission.
At March 31, 2004, third party holders of Convertible Negotiable Obligations to ordinary Company shares, have exercised their right to convert them for a total US$ 930,590, generating the issuing of 27,568,130 ordinary shares with a face value of Ps. 0.1 each. As a result of conversions, the Company has recorded a loss of Ps. 11.8 million arising from 1.73 % dilution of its shareholding in APSA, which is disclosed in the Net loss in related companies line in the consolidated Statement of Income.
The total amount of Convertible Negotiable Obligations at March 31, 2004 was US$ 49.07 million.
NOTE 23: ALTO PALERMO - COMMITMENT TO MAKE CONTRIBUTIONS AND OPTIONS GRANTED TO ACQUIRE SHARES IN RELATED COMPANIES
The Company and Telefónica de Argentina S.A. have undertaken to make capital contributions in E-Commerce Latina S.A. for Ps. 10 million, payable during April 2001, according to their respective shareholdings, and, if approved by the Board of Directors of E-Commerce Latina S.A., to make an optional capital contribution for up Ps. 12 million for the development of new lines of business. Telefónica de Argentina S.A. would contribute 75% of that amount.
On April 30, 2001, Alto Palermo S.A. and Telefónica de Argentina S.A. made a contribution of Ps. 10 million, according to their respective shareholdings.
In addition, E-Commerce Latina S.A. has granted an irrevocable option to acquire Class B shares representing 15% of the corporate capital of Altocity.com S.A. in favor of Consultores Internet Managers Ltd., a company organized in the Cayman Islands, in order to act as representative of the Management of Altocity.com S.A. and represented by an independent lawyer. That option may be exercised during a term of 8 years as from February 26, 2000, at a price equivalent to current and future contributions to be made in Altocity.com S.A., plus interest to be accrued at a rate of 14% and to be capitalized annually.
32
IRSA Inversiones y Representaciones Sociedad Anónima
and subsidiaries
Notes to the unaudited consolidated financial statements (Contd.)
NOTE 24: EARNINGS PER SHARE
Below is a reconciliation between the weighted average of ordinary outstanding shares and the weighted average of diluted ordinary shares. The latter has been determined considering the possibility of holders of Negotiable Obligations convertible into Ordinary Shares of the Company for a nominal value of up to US$ 100,000,000, mentioned in Note 11 to the unaudited financial statements, exercising their right to convert the bonds held by them into shares.
Weighted average outstanding shares total 213,469.
Conversion of securities into debt.
Weighted average diluted ordinary shares total 561,251.
Below is a reconciliation between net income used for calculation of the basic and diluted earnings per share.
31.03.04 |
31.03.03 |
||||
Result for calculation of basic earnings per share |
45,231 | 265,871 | |||
Exchange difference |
6,560 | (55,000 | ) | ||
Interest |
16,741 | 9,072 | |||
Income tax |
| 16,075 | |||
Result for calculation of diluted earnings per share |
68,532 | 236,018 | |||
Net basic earnings per share |
0.206 | 1.271 | |||
Net diluted earnings per share |
0.123 | 0.601 |
NOTE 25: SUBSEQUENT EVENTS
On May 7, 2004, Ritelco S.A. sold a participation of 2,444,571 shares of Banco Hipotecario S.A. to IFIS at a unit price of Ps. 7.0. The total amount of the operation is US$ 6.0 million and generated a loss of Ps. 1.6 million.
33
IRSA Inversiones y Representaciones
Sociedad Anónima
Free translation of the
Unaudited Financial Statements
For the nine-month period ended as of
March 31, 2004
In comparative format
IRSA Inversiones y Representaciones Sociedad Anónima
Name of the Company: |
IRSA Inversiones y Representaciones S.A. | |
Corporate domicile: |
Bolívar 108 1º Floor Autonomous City of Buenos Aires | |
Principal activity: |
Real estate investment and development |
Unaudited Financial Statements at March 31, 2004
compared with the same period of the previous year
Stated in thousand of pesos
Fiscal year No. 61 beginning July 1º, 2003
DATE OF REGISTRATION WITH THE PUBLIC REGISTRY OF COMMERCE
Of the By-laws: |
June 25, 1943 | |
Of last amendment: |
July 2, 1999 | |
Registration number with the Superintendence of Corporations: |
4,337 | |
Duration of the Company: |
Until April 5, 2043 |
Information related to subsidiary companies is shown in Schedule C.
CAPITAL COMPOSITION (Note 9) | ||||||
In thousands of pesos | ||||||
Type of stock |
Authorized for Public Offer of Shares |
Subscribed |
Paid up | |||
Common stock,1 vote each |
238,252,537 | 238,253 | 238,253 | |||
35
IRSA Inversiones y Representaciones Sociedad Anónima
Unaudited Balance Sheets as of March 31, 2004 and June 30, 2003
In thousand of pesos (Note 1)
March 31, 2004 |
June 30, 2003 | |||
ASSETS |
||||
CURRENT ASSETS |
||||
Cash and banks (Schedule G) |
19,282 | 54,569 | ||
Investments (Schedules C, D and G) |
17,498 | 79,569 | ||
Mortgages and leases receivables (Note 2) |
3,325 | 2,889 | ||
Other receivables (Note 3 and Schedule G) |
74,180 | 20,035 | ||
Inventories (Note 4) |
5,096 | 8,172 | ||
Total Current Assets |
119,381 | 165,234 | ||
NON-CURRENT ASSETS |
||||
Mortgages receivables (Note 2) |
73 | 256 | ||
Other receivables (Note 3 and Schedule G) |
74,326 | 87,443 | ||
Inventories (Note 4) |
304 | 3,382 | ||
Investments, net (Schedules C, D and G) |
971,469 | 883,664 | ||
Fixed assets, net (Schedule A) |
181,037 | 185,854 | ||
Intangible assets, net (Schedule B) |
| | ||
Total Non-Current Assets |
1,227,209 | 1,160,599 | ||
Total Assets |
1,346,590 | 1,325,833 | ||
LIABILITIES |
||||
CURRENT LIABILITIES |
||||
Trade accounts payable (Schedule G) |
1,766 | 2,323 | ||
Mortgages payable (Schedule G) |
2,144 | 2,100 | ||
Customer advances |
710 | 899 | ||
Short - term debt (Note 5 and Schedule G) |
12,985 | 38,581 | ||
Salaries and social security payable |
575 | 559 | ||
Taxes payable (Schedule G) |
5,341 | 3,011 | ||
Other liabilities (Note 6 and Schedule G) |
2,336 | 10,495 | ||
Total Current Liabilities |
25,857 | 57,968 | ||
NON-CURRENT LIABILITIES |
||||
Long - term debt (Note 5 and Schedule G) |
419,442 | 457,838 | ||
Customer advances |
| 18 | ||
Taxes payable |
45 | 74 | ||
Other liabilities (Note 6 and Schedule G) |
1,154 | 749 | ||
Total Non-Current Liabilities |
420,641 | 458,679 | ||
Total Liabilities |
446,498 | 516,647 | ||
SHAREHOLDERS EQUITY (As per relevant statement) |
900,092 | 809,186 | ||
Total Liabilities and Shareholders Equity |
1,346,590 | 1,325,833 | ||
The accompanying notes and schedules are an integral part of these unaudited financial statements.
Eduardo Sergio Elsztain President |
36
IRSA Inversiones y Representaciones Sociedad Anónima
Unaudited Statements of Income
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Note 1)
March 31, 2004 |
March 31, 2003 |
|||||
Sales, leases and services |
20,861 | 36,213 | ||||
Cost of sales, leases and services (Schedule F) |
(16,502 | ) | (31,715 | ) | ||
Gross income |
4,359 | 4,498 | ||||
Selling expenses (Schedule H) |
(1,011 | ) | (1,394 | ) | ||
Administrative expenses (Schedule H) |
(6,533 | ) | (5,949 | ) | ||
Subtotal |
(7,544 | ) | (7,343 | ) | ||
Results from operations and holding of real estate assets |
| 10,141 | ||||
Operating results |
(3,185 | ) | 7,296 | |||
Financial results generated by assets: |
||||||
Interest income |
8,143 | 1,849 | ||||
Exchange gain (loss) |
12,413 | (60,537 | ) | |||
Loss on exposure to inflation |
| (10,790 | ) | |||
Gain on financial operations |
20,082 | 12,008 | ||||
Interest on discount of assets |
697 | | ||||
Subtotal |
41,335 | (57,470 | ) | |||
Financial results generated by liabilities: |
||||||
Discounts |
7,235 | 26,154 | ||||
Exchange (loss) gain |
(10,476 | ) | 200,572 | |||
Gain on exposure to inflation |
| 2,621 | ||||
Interest on discount of liabilities |
17 | 31,233 | ||||
Financial expenses (Schedule H) |
(29,747 | ) | (34,040 | ) | ||
Subtotal |
(32,971 | ) | 226,540 | |||
Financial results, net |
8,364 | 169,070 | ||||
Equity in earnings of controlled and affiliated companies (Note 8 c.) |
44,091 | 42,237 | ||||
Other expenses, net (Note 7) |
(1,024 | ) | (1,619 | ) | ||
Income before tax |
48,246 | 216,984 | ||||
Income tax and asset tax ( Notes 1.6 m., n. and 12) |
(3,015 | ) | 48,887 | |||
Income for the period |
45,231 | 265,871 | ||||
The accompanying notes and schedules are an integral part of these unaudited financial statements.
Eduardo Sergio Elsztain President |
37
IRSA Inversiones y Representaciones Sociedad Anónima
Unaudited Statements of Changes in Shareholders Equity
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Note 1)
Items |
Shareholders contributions |
Reserved Earnings |
Retained deficit |
Total as of March 31, |
Total as of March 31, | ||||||||||||||||
Common Stock |
Treasury stock |
Inflation adjustment of common stock |
Inflation adjustment of treasury stock |
Additional paid-in- capital |
Total |
Legal reserve |
|||||||||||||||
Balances as of beginning of year |
212,013 | | 274,387 | | 569,489 | 1,055,889 | 19,447 | (266,150 | ) | 809,186 | 522,720 | ||||||||||
Issuance of common stock |
26,240 | | | | 19,435 | 45,675 | | | 45,675 | | |||||||||||
Income for the period |
| | | | | | | 45,231 | 45,231 | 265,871 | |||||||||||
Balances as of March 31, 2004 |
238,253 | | 274,387 | | 588,924 | 1,101,564 | 19,447 | (220,919 | ) | 900,092 | | ||||||||||
Balances as of March 31, 2003 |
212,000 | | 274,387 | | 569,481 | 1,055,868 | 19,447 | (286,724 | ) | | 788,591 | ||||||||||
The accompanying notes and schedules are an integral part of these unaudited financial statements.
Eduardo Sergio Elsztain President |
38
IRSA Inversiones y Representaciones Sociedad Anónima
Unaudited Statements of Cash Flows (1)
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Note 1)
March 31, 2004 |
March 31, 2003 |
|||||
CHANGES IN CHASH AND CASH EQUIVALENTS |
||||||
Cash and cash equivalents as of beginning of year |
120,292 | 5,034 | ||||
Net (decrease) increase in cash and cash equivalents |
(99,314 | ) | 139,103 | |||
Cash and cash equivalents as of end of period |
20,978 | 144,137 | ||||
CAUSES OF CHANGES IN CASH AND CASH EQUIVALENTS |
||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||
Income for the period |
45,231 | 265,871 | ||||
Plus (less) income tax and asset tax accrued for the period |
3,015 | (48,887 | ) | |||
Adjustments to reconcile net income to cash flow from operating activities: |
||||||
Equity in earnings of controlled and affiliated companies |
(44,091 | ) | (42,237 | ) | ||
Allowances and provisions |
58 | 169 | ||||
Amortization and depreciation |
3,761 | 5,600 | ||||
Financial results |
(26,921 | ) | (213,125 | ) | ||
Changes in assets and liabilities: |
||||||
Decrease (Increase) in current investments |
9,517 | (4,572 | ) | |||
Increase in non-current investments |
(610 | ) | (24,671 | ) | ||
Decrease in mortgages and leases receivables |
100 | 6,265 | ||||
Decrease in other receivables |
7,526 | 18,090 | ||||
Decrease in inventory |
2,829 | 18,889 | ||||
(Decrease) Increase in taxes payable, salaries and social security and customer advances |
(4,412 | ) | 2,037 | |||
Decrease in accounts payable |
(557 | ) | (1,013 | ) | ||
Increase in accrued interest |
11,045 | 17,158 | ||||
(Decrease) Increase in other liabilities |
(7,942 | ) | 1,956 | |||
Net cash (used in) provided by operating activities |
(1,451 | ) | 1,530 | |||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||
Decrease from equity interest in subsidiary companies |
1,047 | 10,343 | ||||
Increase interest in subsidiary companies |
(42,040 | ) | (20,641 | ) | ||
Purchase of shares and options of Banco Hipotecario S.A. |
(77,873 | ) | | |||
Sale of shares of Banco Hipotecario S.A. |
35,656 | | ||||
Purchase of Alto Palermo S.A. shares |
(2,952 | ) | | |||
Sale of Alto Palermo S.A. shares |
3,273 | | ||||
Loans received (granted) to related parties |
13,367 | (32,057 | ) | |||
Purchase and improvements of undeveloped parcels of land |
(105 | ) | (78 | ) | ||
Purchase and improvements of fixed assets |
(753 | ) | (3,923 | ) | ||
Dividends collected |
5,464 | | ||||
Net cash used in investing activities |
(64,916 | ) | (46,356 | ) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||
Proceeds from short-term and long-term debt |
| 356,295 | ||||
Payment of short-term and long-term debt |
(55,503 | ) | (171,181 | ) | ||
Payment for seller financing |
(1,150 | ) | (1,185 | ) | ||
Issuance of common stock |
23,706 | | ||||
Net cash (used in) provided by financing activities |
(32,947 | ) | 183,929 | |||
Net (decrease) increase in cash and cash equivalents |
(99,314 | ) | 139,103 | |||
(1) | Includes cash, banks and investments with a realization term not exceeding three months. |
The accompanying notes and schedules are an integral part of these unaudited financial statements.
Eduardo Sergio Elsztain President |
39
IRSA Inversiones y Representaciones Sociedad Anónima
Unaudited Statements of Cash Flows (Continued)
For the nine month periods beginning on
July 1, 2003 and 2002
and ended March 31, 2004 and 2003
In thousand of pesos (Note 1)
March 31, 2004 |
March 31, 2003 | |||
Supplemental cash flow information |
||||
Non-cash activities: |
||||
Increase in inventory through a decrease in fixed assets |
2,606 | 12,013 | ||
Increase in fixed assets through a decrease in inventory |
40 | 153 | ||
Increase in undeveloped parcels of land through a decrease in inventory |
| 25,319 | ||
Decrease in other receivable for APSA bond |
| 81,967 | ||
Decrease in short and long term debt through an increase in other payable |
1,326 | | ||
Increase in inventory through a decrease in mortgages receivables |
| 896 | ||
Decrease in non-current investments through an increase in other receivables |
2,220 | | ||
Increase in non-current investments through a decrease in other receivables |
| 456 | ||
Increase in other current receivables through an increase in current taxes payable |
2,854 | | ||
Increase in fixed assets through an increase in mortgages payable |
| 931 | ||
Increase in other non-current receivables through a decrease in inventory |
5,890 | | ||
Conversion of negotiable obligations into shares |
21,969 | | ||
Decrease in short-term and long-term debt through a decrease in other receivables |
| 7,417 | ||
Increase in non-current investments through a decrease in other receivables |
14,200 | |
Eduardo Sergio Elsztain President |
40
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements
For the nine month periods beginning on
July 1, 2003 and 2003
and ended March 31, 2004 and 2003
In thousand of pesos
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Below are the most relevant accounting standards used by the Company to prepare these unaudited financial statements:
1.1. Issuance of new technical pronouncements
The Professional Council in Economic Sciences of the Autonomous City of Buenos Aires approved Technical Pronouncements No. 16: Conceptual framework for professional accounting standards, No. 17: Professional accounting standards: development of some general application issues, No. 18 : Professional accounting standards: development of some particular application issues, No. 19: Amendments to Technical Pronouncements Nos. 4, 5, 6, 8, 9, 11 and 14 and 20: Derivatives and hedging transactions, through Resolutions C 238/01, C 243/01, C 261/01, C 262/01 and C 187/02, respectively; establishing that those Technical Pronouncements and amendments to them will come into force for fiscal years commencing as from July 1, 2002, except for TR 20, whose effective date tallies with the financial years commencing January 1, 2003.
The National Securities Commission has adopted the mentioned Technical Pronouncements, incorporating certain amendments, to be in effect as from years commenced on January 1, 2003.
Furthermore, the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires approved Technical Pronouncement No. 21: Equity Method Value consolidation of financial statements information to disclose on related parties through Resolution M.D. No. 5/2003. This Technical Pronouncement and the modifications it incorporates, became effective for financial years beginning as from April 1, 2003. Furthermore, the National Securities Commission has adopted it, making certain changes and establishing that it is applicable as from fiscal years commenced on April, 2004, accepting advance application.
The principal changes incorporated by the new Technical Pronouncements, which have had a material effect on the financial statements of the Company, are as follows:
| Incorporation of strict guidelines for purposes of comparison against recoverable values. |
| Obligatory requirement regarding application of the deferred tax method for recognition of income tax. |
| Incorporation of new disclosure requirements, including information by segment, earnings per share and comparative information to be filed. |
| Adoption of an accounting model in which the intention of the Company prevails in defining the valuation criteria to be adopted. Furthermore, receivables and payables were recognized in general at their discounted values. |
41
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
| Determination of guidelines for recognition, measurement and disclosure of derivatives and hedge operations. |
| Research, development, trademarks, advertising, reorganization and other costs cannot be capitalized. Only organization and pre-operating costs that meet certain requirements can be capitalized. |
| Change of method for recognition of business combinations (acquisitions, pooling of interests, spin-offs and mergers). |
| Incorporation of guidelines to be followed to determine whether certain transactions (financial instruments issued by the Company, irrevocable contributions, preferred shares) must be classified under liabilities or shareholders equity. |
A detail of effect on results at March 31, 2003 from application of the new accounting standards is included in the following table:
Item |
Effect on results at Ps. |
||
Recording of adjustment and prior years results in subsidiaries and related companies under long-term investments (*) |
(3,401 | ) | |
Application of the deferred tax method (vs. current tax) |
49,931 | ||
Discount of liabilities |
21,713 | ||
Total |
68,243 | ||
(*) | Related to the application of the deferred tax method (vs. current tax) and recognition of financial derivatives at estimated settlement cost. |
1.2. Preparation and presentation of financial statements
These unaudited financial statements are stated in Argentine pesos and were prepared in accordance with disclosure and valuation criteria contained in the Technical Pronouncements issued by the Argentine Federation of Professional Councils in Economic Sciences, approved with certain amendments by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires, in accordance with the resolutions issued by the National Securities Commission.
The unaudited financial statements corresponding to the nine-month periods ended March 31, 2004 and 2003 have not been audited.
Company Management estimates that all the necessary adjustments have been made to reasonably present the results of each period.
The results for the nine-month periods ended March 31, 2004 and 2003, do not necessarily reflect proportionately the Companys results for the complete financial years.
42
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
1.3. Use of estimations
The preparation of the unaudited financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses for the period. Estimates are used when accounting for allowance for doubtful accounts, depreciation, amortization, impairment of long-lived assets, income taxes and contingencies. Future actual results could differ from the estimates and assumptions prepared at the date of these unaudited financial statements.
1.4. Recognition of the effects of inflation
The financial statements have been prepared in constant monetary units, reflecting the overall effects of inflation through August 31, 1995. As from that date, in accordance with professional accounting standards and the requirements of the control authorities, restatement of the financial statements has been discontinued until December 31, 2001. As from January 1, 2002 in accordance with professional accounting standards, recognition of the effects of inflation in these unaudited financial statements has been re-established, considering that the accounting measurements restated due to changes in the purchasing power of the currency until August 31, 1995 as well as those arising between that date and December 31, 2001 are stated in currency of the latter date.
On March 25, 2003, the National Executive Branch issued Decree No. 664 establishing that the financial statements for years ending as from that date must be stated in nominal currency. Consequently, in accordance with Resolution No. 441 issued by the National Securities Commission, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion is not in line with current professional accounting standards, which establish that the financial statements must be restated through to September 30, 2003. At March 31, 2004 this deviation has not had a material effect on the financial statements.
The rate used for restatement of items in these unaudited financial statements is the domestic wholesale price index published by the National Institute of Statistics and Census.
The following concepts are included together in the Statement of Income as Financial results generated by assets and Financial results generated by liabilities:
a. The result of exposure to changes in the purchasing power of the currency.
b. Other holding gains and losses arising during the period.
c. Financial results.
1.5. Comparative information
According to the new Technical Pronouncements mentioned in Point 1.1, the Balance Sheet is disclosed in comparative format with the year ended June 30, 2003.
Certain amounts in the financial statements at March 31, 2003 and June 30, 2003 were reclassified for disclosure on a comparative basis with those for the current period.
43
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
1.6. | Valuation criteria |
a. | Cash and banks |
Cash on hand has been valued at face value.
b. | Foreign currency assets and liabilities |
Foreign currency assets and liabilities were valued at period-end exchange rates.
Operations denominated in foreign currency are converted into pesos at the rates of exchange in effect at the date of settlement of the operation. Operations in foreign currency are shown in the Statement of Income under Financial results, net.
In accordance with Decree 214/02, certain assets and liabilities denominated in US dollars or other foreign currencies existing at January 6, 2003 were converted into pesos at the parity of Ps. 1 per US$ 1 and adjusted through application of the reference stabilization index (CER).
c. | Short-term investments |
Time deposits were valued at placement value plus financial results accrued based on the internal rate of return determined at that moment.
Short-term investments in debt securities, shares and mutual funds were valued at their net realization value.
Participation certificates class C in the IRSA I financial trust were valued at acquisition cost plus accrued interest.
d. | Trade receivables and accounts payable |
Trade receivables and accounts payable were valued at the price applicable to spot operations at the time of the transaction plus interest and implicit financial components accrued at the internal rate of return determined at that moment.
e. | Financial receivables and payables |
Financial receivables and payables were valued at the amount deposited and collected, respectively, net of operating costs, plus financial results accrued based on the rate estimated at that time.
At June 30, 2003 certain financial loans were valued at their discounted value, calculated at the rate accepted by the creditor to receive advance payment, as the Company settled the loan before maturity.
44
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
f. | Other receivables and payables |
Sundry receivables and payables (Asset tax, corporations sect. 33 Law No. 19.550, deposits in guarantee, accounts receivable in trust and customer advances) were valued based on the best estimate of the amount receivable and payable, respectively, discounted at the interest rate applicable to freely available savings accounts published by the Argentine Central Bank in effect at the time of incorporation to assets and liabilities, respectively. Deferred tax assets and liabilities have not been discounted.
As established by the regulations of the National Securities Commission and as mentioned above, deferred tax assets and liabilities have not been discounted. This criterion is not in accordance with current accounting standards in effect in the Autonomous City of Buenos Aires, which require that those balances be discounted. The effect resulting from this difference has not had a material impact on the financial statements.
Credits in kind:
Right to receive goods to be produced:
The units relating to the building called Edificios Cruceros have been valued according to the accounting measuring standards corresponding to inventories receivable.
Liabilities in kind:
Obligation to deliver assets to be manufactured:
Units committed for delivery related to the property identified as San Martín de Tours were valued at the higher of the value of the sums received or the production cost of the assets to be delivered plus additional costs necessary to place the assets at the disposal of the creditor.
Stock exchange transactions to be settled:
Stock exchange transactions to be settled have been valued according to the accounting measuring standards corresponding to assets receivable.
g. | Balances corresponding to financial transactions and sundry receivables and payables with related parties |
Receivables and payables with related parties generated by financial transactions and other sundry transactions were valued in accordance with the terms agreed by the parties.
45
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
h. | Inventory |
A property is classified as available for sale upon determination by the Board of Directors that the property is to be marketed for sale in the normal course of business over the next several years.
Residential, office and other non-retail properties completed or under construction are stated at cost, adjusted for inflation, as defined in Note 1.4., or estimated net realizable value, whichever is lower. Costs include land and land improvements, direct construction costs, construction overhead costs, interest on indebtedness and real estate taxes. Selling costs are deferred and charged to expense in the period in which the related revenue is earned, as determined under the percentage-of-completion method. Total contract costs are charged to expense in the period in which the related revenue is earned, as determined under the percentage-of-completion method. No interest costs were capitalized during the period ended at March 31, 2004 and the year ended at June 30, 2003.
Properties held for sale are classified as current or non-current based on the estimated date of sale and the time at which the related receivable is expected to be collected by the Company.
At March 31, 2004, the Company had not set up an allowance for impairment of value of Inventories.
At the end of the previous fiscal year, as mentioned in Note 1.6.o., the Company set up allowances for impairment of certain inventories (identified as Avda. Madero 1020, Rivadavia 2768, Minetti D, Torres Jardín, Sarmiento 517 and parking lots in Dock 13).
The accounting value of inventories, net of allowances set up, does not exceed estimated recoverable value.
i. | Long -term investments |
i.a. Investments in debt securities:
Investments in debt securities were valued based on the best estimate of the discounted amount receivable applying the corresponding rate of return estimated at the time of incorporation to assets, as the Company will hold them to maturity. The value thus obtained does not exceed the respective estimated recoverable value at the end of the period.
46
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
i.b. Investments in shares of subsidiaries and related companies:
The long-term investments in subsidiaries and related companies detailed in Schedule C, except for investments in Banco de Crédito y Securitización S.A. and in Banco Hipotecario S.A., which do not exceed 20% of the capital stock, were valued by the equity method of accounting based on the financial statements at March 31, 2004 issued by them.
The accounting standards used by the subsidiaries to prepare their financial statements are the same as those used by the Company.
The accounting standards used by the related companies to prepare their financial statements are those currently in effect.
This item also includes the lower or higher value paid for the purchase of shares in subsidiaries and related companies which exceeds or is below the market value of the assets acquired and goodwill related to the subsidiary Alto Palermo S.A.
The investments for less than 20% of the capital stock of corporations in which the Company does not exercise significant influence are generally recognized at market value, with the resulting income or losses being recorded in profit and loss accounts or at restated purchase cost if no market value exists.
| Certificates of participation in IRSA I financial trust: |
The certificates of participation in IRSA I financial trust have been valued at the cost resulting from apportioning the participation certificate holding to the trust assets in the case of class D.
| Undeveloped parcels of lands: |
The Company acquires undeveloped land in order to provide an adequate and well-located supply for its residential and office building operations. The Companys strategy for land acquisition and development is dictated by specific market conditions where the Company conducts its operations.
Land held for development and sale and improvements are stated at cost adjusted for inflation at the end of the period, as defined in Note 1.4., or estimated net realizable value, whichever is lower. Land and land improvements are transferred to inventories when construction commences.
At March 31, 2004, the Company had not set up an impairment of value of undeveloped parcels of lands.
47
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
As mentioned in Note 1.6.o., at June 30, 2003 the Company recognized an impairment in connection with certain parcels of undeveloped land (identified as Padilla 902, Pilar, Constitución 1111). Furthermore, at June 30, 2003 the allowance set up on Santa María del Plata amounting to Ps. 8,528 has been reversed.
The values thus obtained, net of the allowances recorded, do not exceed their respective estimated recoverable values at the end of period.
j. | Fixed assets |
Fixed assets, net comprise primarily of rental properties and other property and equipment held for use by the Company.
Fixed assets value, net of allowances set up, does not exceed estimated recoverable value.
| Rental properties |
Rental properties are carried at cost, adjusted for inflation, as defined in Note 1.4., less accumulated depreciation. Costs incurred for the acquisition of the properties are capitalized. Accumulated depreciation is computed under the straight-line method over the estimated useful lives of the assets, which generally are estimated to be 50 years for buildings. Expenditures for ordinary maintenance and repairs are charged to results in the period incurred. Significant renovations and improvements, which improve or extend the useful life of the asset are capitalized and depreciated over its estimated remaining useful life. At the time depreciable assets are retired or otherwise disposed of, the cost and the accumulated depreciation of the assets are eliminated from the accounts and the resulting gain or loss is disclosed in the statement of income.
The Company capitalizes interest on long-term construction projects. No interest costs were capitalized during the period ended March 31, 2004 and the year ended June 30, 2003.
At March 31, 2004 the company had not set up an impairment of value of fixed assets.
As mentioned in Note 1.6.o., at June 30, 2003, the Company recognized an impairment on certain rental property (identified as Avda. Madero 1020, Reconquista 823, Avda. Madero 942 and Sarmiento 517).
| Software obtained or developed for internal use |
The Company capitalizes certain costs associated with the development of computer software for internal use. Costs capitalized during the period ended March 31, 2004 and the year ended June 30, 2003 were not material.
48
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
These costs are being amortized on a straight-line basis over a period of 3 years.
| Other properties and equipment |
Other property and equipment properties are carried at cost, adjusted for inflation, as defined in Note 1.4., less accumulated depreciation. Accumulated depreciation is computed under the straight-line method over the estimated useful lives of the assets, as specified below:
Asset |
Estimated useful life (years) | |
Leasehold improvements |
On contract basis | |
Facilities |
10 | |
Machinery and equipment |
10 | |
Furniture and fixtures |
5 | |
Computer equipment |
3 |
The cost of maintenance and repairs is charged to expense as incurred. The cost of significant renewals and improvements are added to the carrying amount of the respective assets. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts.
k. | Intangible assets |
Intangible assets are carried at cost, adjusted for inflation at the end of the period as defined in Note 1.4., less accumulated amortization.
Intangible assets accounting value, does not exceed estimated recoverable value.
| Deferred Financing Cost |
Expenses incurred in connection with the issuance of debt and proceeds of loans have been deferred and are being amortized using the interest method over the life of the related issuances. In the case of redemption of this notes, the related expenses are amortized using the proportional method.
Amortization has been recorded under financial results in the Statement of Income.
49
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
| Selling and advertising expenses |
Expenses incurred relating to the marketing of developing properties, including advertising, commissions and other expenses, are charged to expense in the period in which the related revenue is earned, as determined under the percentage-of-completion method.
l. | Customer advances |
Customer advances represent payments received in advance in connection with the sale and rent of properties.
m. | Income tax |
The Company has recognized the charge for income tax by the deferred tax liability method, recognizing timing differences between measurements of accounting and tax assets and liabilities (See Note 12).
To determine deferred assets and liabilities, the tax rate expected to be in effect at the time of reversal or use has been applied to timing differences identified and tax loss carryforwards, considering the legal regulations approved at the date of issue of these unaudited financial statements.
Since it is unlikely that future taxable income will fully absorb tax loss carryforwards, the Company has recorded an impairment on a portion of that credit.
n. | Asset Tax |
The Company calculates Asset tax by applying the current 1% rate on computable assets at the end of the period. This tax complements income tax. The Companys tax obligation in each year will coincide with the higher of the two taxes. However, if Asset tax exceeds income tax in a given year, that amount in excess will be computable as payment on account of income tax arising in any of the following ten years.
At March 31, 2004, the Company estimated asset tax recognizing under other receivables (non-current) the amount estimated to be offset as payment on account of income tax in future years in accordance with current regulations, and expensed the balance.
50
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
o. | Allowances and Provisions |
Allowance for doubtful accounts: the Company provides for losses relating to mortgage, lease and other accounts receivable. The allowance for losses is recognized when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the terms of the agreements. The allowance is determined on a one-by-one basis considering the present value of expected future cash flow. While management uses the information available to make evaluations, future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in making the evaluations. Management has considered all events and/or transactions that are subject to reasonable and normal methods of estimations, and the unaudited financial statements reflect that consideration.
For impairment of assets: the Company regularly evaluates its non-current assets for recoverability. The Company considers that an impairment loss is recorded whenever the recoverable value is lower than book value. Impairment losses must be expensed against the result for the period. The recoverable value is mainly calculated using independent appraisals or projections of future cash flows.
For contingencies and sundry risks: the Company has certain contingent liabilities with respect to existing or potential claims, lawsuits and other proceedings, including those involving labor and other matters. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the Companys estimates of the outcomes of these matters and the Companys lawyers experience in contesting, litigating and settling other matters.
As the scope of the liabilities becomes better defined, there may be changes in the estimates of future costs, which could have a material effect on the Companys future results of operations and financial condition or liquidity.
At the date of issue of these unaudited financial statements, Management understands that there are no elements to foresee potential contingencies having a negative impact on these unaudited financial statements.
p. | Shareholders equity accounts |
Movements in shareholders equity accounts have been restated following the guidelines detailed in Note 1.4.
The Common stock account was stated at historical nominal value. The difference between value stated in constant currency and historical nominal value is shown under Inflation adjustment of common stock forming part of the shareholders equity.
51
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
q. | Results for the period |
The results for the period are shown as follows:
Income accounts are shown in currency of the month to which they correspond, and have been restated as mentioned in Note 1.4.
Charges for assets consumed (fixed asset depreciation, intangible asset amortization and cost of sales) were determined based on the values recorded for such assets.
Results from investments in controlled and affiliated companies was calculated under the equity method, by applying the percentage of the Companys equity interest to the income - (loss) of such companies.
r. | Advertising expenses |
The Company generally charges the advertising and publicity expenses to results when they are incurred, except for the advertising and publicity expenses related to the sale of real estate projects. Advertising and promotion expenses were approximately Ps. 165 thousand and Ps. 119 thousand for the periods ended March 31, 2004 and 2003, respectively.
s. | Pension information |
The Company does not maintain any pension plans. Argentine laws provide for pension benefits to be paid to retired employees from government pension plans and/or privately managed funds plan to which employees may elect to contribute.
t. | Financial derivatives |
The Company uses various financial derivatives as a complement to reduce its global financial costs.
The Company has not used financial instruments to hedge transactions foreseen or firm commitments. To be eligible for hedging, the Company must be exposed to currency or interest rate risk, and the financial instrument must reduce the exposure and be designated as such. In addition, for hedging purposes, the significant characteristics and expected terms of the planned transaction must be identified and the expected transaction must be probable. Financial instruments that can be recorded as hedging instruments must maintain a high correlation between the hedging instrument and the item being hedged at the beginning and during the entire hedging period.
52
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
The Company formally documents all the relationships between hedging instruments and hedged items, as well as its risk management objective and strategy before embarking on hedging transactions. This process includes detailing all the derivatives designated for hedging of specific assets and liabilities in the balance sheet or specific firm commitments or planned transactions. The Company also evaluates both at the beginning of the hedging transaction and on an ongoing basis whether the derivatives used in hedging transactions are very effective to offset fluctuations in the market values or cash flows of the items hedged. If it is determined that a derivative is not very effective for hedging or that it has stopped being an effective cover, the Company would discontinue the recording of such hedging instrument in the future.
u. | Revenue recognition |
u.1. | Sales of properties |
The Company records revenue from the sale of properties classified as inventory when all of the following criteria are met:
| the sale has been consummated; |
| there is sufficient evidence to demonstrate the buyers ability and commitment to pay for the property; |
| the Companys receivable is not subject to future subordination; and |
| the Company has transferred the property to the buyer. |
The Company uses the percentage-of-completion method of accounting with respect to sales of development properties under construction effected under fixed-price contracts. Under this method, revenue is recognized based on the ratio of costs incurred to total estimated costs applied to the total contract price. The Company does not commence revenue and cost recognition until such time as the decision to proceed with the project is made and construction activities have begun.
The percentage-of-completion method of accounting requires the Companys management to prepare budgeted costs in connection with sales of properties/units. All changes to estimated costs of completion are incorporated into revised estimates during the contract period.
u.2. | Leases |
Revenues from leases are recognized on a straight line bases over the life of the related lease contracts.
v. | Cash and cash equivalents |
The Company considers all highly liquid investments with original maturities of three months or less, consisting primarily in mutual funds.
53
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 1: (Continued)
w. | Result from operations and holding of real estate |
The results from operations and holding of real estate assets include the results provided by the valuation and sale of shares in real estate investment companies.
x. | Monetary assets and liabilities |
Monetary assets and liabilities are stated at their face value plus or minus the related financial gain or loss.
NOTE 2: MORTGAGES AND LEASES RECEIVABLES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||||
Current |
Non-current |
Current |
Non-current | |||||||
Mortgages and leases receivable |
1,065 | 73 | 841 | 256 | ||||||
Debtors under legal proceedings |
1,201 | | 1,488 | | ||||||
Related parties (Note 8 a.) |
1,991 | | 1,508 | | ||||||
Less: |
||||||||||
Allowance for doubtful accounts (Schedule E) |
(932 | ) | | (948 | ) | | ||||
3,325 | 73 | 2,889 | 256 | |||||||
As of March 31, 2004 and June 30, 2003, current and non-current receivables from the sale of real estate are secured by first degree mortgages in favor of the Company.
54
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 3: OTHER RECEIVABLES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 |
|||||||||
Current |
Non- current |
Current |
Non- current |
|||||||
Asset tax (Note 1.6.n.) |
| 19,155 | 2 | 18,235 | ||||||
Value Added Tax (VAT) |
5 | | 193 | | ||||||
Related parties (Note 8 a.) |
10,086 | 10 | 15,959 | 20,383 | ||||||
Guarantee deposits |
| 38 | | 38 | ||||||
Expenses to recover |
4,232 | | 1,059 | | ||||||
Gross sales tax |
5 | | 4 | | ||||||
Income tax prepayments and withholdings |
14 | | 5 | | ||||||
Operating pending settlement BH S.A. |
58,627 | | 40 | | ||||||
Trust accounts receivable |
| 361 | | 361 | ||||||
Credit Fiscal Certificates |
979 | | 2,265 | | ||||||
Present Value |
| (809 | ) | | (1,505 | ) | ||||
Deferred income tax (Note 12) |
| 49,931 | | 49,931 | ||||||
Credit from barter of Edificios Cruceros (1) |
| 5,640 | | | ||||||
Other |
232 | | 508 | | ||||||
74,180 | 74,326 | 20,035 | 87,443 | |||||||
(1) | Secured with first mortgage in favor of the Company. |
NOTE 4: INVENTORIES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||
Current |
Non- current |
Current |
Non- current | |||||
Real estate for sale |
5,096 | 304 | 8,172 | 3,382 | ||||
5,096 | 304 | 8,172 | 3,382 | |||||
The value recorded at March 31, 2004 and June 30, 2003 includes the valuation allowance, as mentioned in Note 1.6.o.
55
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 5: SHORT AND LONG TERM DEBT
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 | |||||||
Current |
Non- current |
Current |
Non- current | |||||
Bank loans (2) |
1,645 | 56,326 | 30,464 | 86,365 | ||||
Bank loans - Accrued interest (2) |
211 | 3,360 | 2,509 | | ||||
Negotiable Obligations 2009 principal amount (3) |
2,673 | 91,542 | | 92,238 | ||||
Negotiable Obligations - 2009 -accrued interest (3) |
343 | 5,462 | 2,677 | | ||||
Convertible Negotiable Obligations - 2007 (1) |
8,113 | 262,752 | 2,765 | 279,235 | ||||
Other financial loans |
| | 166 | | ||||
12,985 | 419,442 | 38,581 | 457,838 | |||||
In November 2002 the Company refinanced financial loans amounting to US$ 103.4 million. The new conditions are substantially different from the original conditions, and therefore the Company has written off the original loans and recognized a new debt discounted at a rate reflecting the market appraisals on the money time value and risks inherent to the debt. Accordingly, at March 31, 2003, the Company has recognized net income amounting to Ps. 38.2 million, resulting from considering the difference between the discounted value of the new debts at the market rate (8% p.a.) and the book value of refinanced debts at the moment of refinancing.
1. | According to Note 11, these tally with the convertible negotiable obligations to stock (CNB) for a total amount of US$ 100 million which as of the current date amounts to US$ 92.5 million, net of issue expenses. |
2. | Corresponds an unsecured loan for a total of US$ 51 million, which falls due on 20 November 2009, with the principal being amortized in 20 quarterly installments with a two-year grace period. US$ 35 million of the principal accrue interest at the LIBO rate over three months plus 200 basis points, and US$ 16 million accrue interest at a fixed rate that is progressively increased. On July 25, 2003 the Company redeemed the mentioned US$ 16 million for US$ 10.9 million. In addition, on March 17, 2004, the Company redeemed US$ 12 million for a total amount of US$ 8.6 million. Consequently, at March 31, 2004, principal (net of interest to be accrued at a market rate of 8% p.a.) amounts to US$ 20.3 million. |
The terms of the loan require the Company to maintain certain financial ratios and conditions, specific debt/equity ratios, moreover, they also restrict certain investments, the making of payments, the procurement of new loans and the sale of certain assets and other capital investments.
3. | Corresponds with the Negotiable Bonds secured by the assets described in Note 10.b. for US$ 37.4 million, which mature on 20 November 2009, and have quarterly interest payments at the LIBO rate over three months plus 200 basis points. Consequently, at March 31, 2004 the Company recorded a total balance of US$ 32.9 million, which correspond to US$ 37.4 million discounted at a market rate equivalent to 8% p.a. |
The terms of the loan require the Company to maintain certain financial ratios and conditions, specific debt/equity ratios; they also restrict certain investments, the making of payments, the procurement of new loans and the sale of certain assets and other capital investments.
56
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 6: OTHER LIABILITIES
The breakdown for this item is as follows:
March 31, 2004 |
June 30, 2003 |
|||||||||
Current |
Non- current |
Current |
Non- current |
|||||||
Seller financing |
| | 1,099 | | ||||||
Related parties (Note 8 a.) |
1 | | 426 | | ||||||
Guarantee deposits |
375 | 1,232 | 474 | 807 | ||||||
Provision for discounts (Schedule E) |
3 | | 3 | | ||||||
Provision for lawsuits (Schedule E) |
279 | | 247 | | ||||||
Directors´ fees |
| | 4,674 | | ||||||
Directors deposits |
| 8 | | 8 | ||||||
Fund administration |
1 | | | | ||||||
Operating pending settlement |
| | 1 | | ||||||
Donations payable |
1,469 | | 3,269 | | ||||||
Trust account payables |
92 | | | | ||||||
Collections on behalf of third parties |
| | 5 | | ||||||
Present Value |
| (86 | ) | | (66 | ) | ||||
Other |
116 | | 297 | | ||||||
2,336 | 1,154 | 10,495 | 749 | |||||||
57
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 7: OTHER EXPENSES, NET
The breakdown for this item is as follows:
March 31, 2004 |
March 31, 2003 |
|||||
Other income: |
||||||
Results from sale of fixed assets |
62 | 1 | ||||
Other |
129 | 64 | ||||
191 | 65 | |||||
Other expenses: |
||||||
Unrecoverable VAT |
(345 | ) | (464 | ) | ||
Donations |
(262 | ) | (326 | ) | ||
Debit and credit tax |
(452 | ) | (528 | ) | ||
Lawsuits |
(32 | ) | (166 | ) | ||
Other |
(124 | ) | (200 | ) | ||
(1,215 | ) | (1,684 | ) | |||
Total other expenses, net |
(1,024 | ) | (1,619 | ) | ||
NOTE 8: BALANCES AND TRANSACTIONS WITH INTERCOMPANY
a. The balances as of March 31, 2004 and June 30, 2003 with controlled, affiliated and related companies are as follows:
March 31, 2004 |
June 30, 2003 | |||
Abril S.A. (1) |
||||
Current mortgages and leases receivables |
| 3 | ||
Alternativa Gratis S.A. (4) |
||||
Current mortgages and leases receivables |
4 | 5 | ||
Alto Palermo S.A. (1) |
||||
Current mortgages and leases receivables |
148 | 2 | ||
Other current receivables |
1,945 | 2,048 | ||
Current accounts payable |
70 | 120 | ||
Other current liabilities |
1 | 1 | ||
Altocity.Com S.A. (4) |
||||
Current mortgages and leases receivables |
2 | 92 | ||
Other current receivables |
| 26 | ||
Baldovinos S.A. (1) |
||||
Current mortgages and leases receivables |
325 | 613 | ||
Banco Hipotecario S.A. (4) |
||||
Non-current investments |
16,466 | 7,793 | ||
Operating pending settlement |
58,627 | | ||
Banco de Crédito y Securitización S.A (4) |
||||
Non-current investments |
7,007 | 7,007 |
58
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 8:
a.(Continued)
March 31, 2004 |
June 30, 2003 | ||||
Cresud S.A.C.I.F. (2) |
|||||
Current mortgages and leases receivables |
38 | 1 | |||
Other current receivables |
| 188 | |||
Current accounts payable |
5 | 62 | |||
Dolphin Fund Management S.A. (4) |
|||||
Current mortgages and leases receivables |
| 22 | |||
Other current receivables |
| 19 | |||
Current accounts payable |
| 109 | |||
Fibesa S.A. (4) |
|||||
Other current receivables |
| 9 | |||
Current accounts payable |
2 | 2 | |||
Hoteles Argentinos S.A. (1) |
|||||
Current accounts payable |
2 | 2 | |||
Inversora Bolívar S.A. (1) |
|||||
Current mortgages and leases receivables |
1,458 | 732 | |||
Other current receivables |
648 | 1,336 | |||
Current accounts payable |
14 | 98 | |||
a | ) | ||||
Llao Llao Resorts S.A. (3) |
|||||
Other current liabilities |
| 425 | |||
Palermo Invest S.A. (1) |
|||||
Other current receivables |
4,731 | 2,366 | |||
Other non-current receivables |
| 2,366 | |||
Advances employees (4) |
|||||
Managers, Directors and other current Staff of the Company |
98 | 95 | |||
Managers, Directors and other non- current Staff of the Company |
10 | 14 | |||
Red Alternativa S.A. (4) |
|||||
Current mortgages and leases receivables |
6 | 34 | |||
Other current receivables |
| 3 | |||
Ritelco S.A. (1) |
|||||
Other current receivables |
| 7,344 | |||
Other non-current receivables |
| 18,003 | |||
SAPSA (4) |
|||||
Other current receivables |
2,664 | 2,465 | |||
Tarshop S.A. (4) |
|||||
Current mortgages and leases receivables |
10 | 4 | |||
Other current receivables |
| 60 |
(1) | Subsidiary. |
(2) | Shareholder. |
(3) | Equity investee |
(4) | Related party |
59
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 8: (Continued)
b. | Results on controlled, affiliated and related companies during the periods ended March 31, 2004 and 2003 are as follows: |
Period |
Sales and service fees |
Leases |
Holding results |
Recovery of expenses |
Interest Earned |
Interest Lost | ||||||||
Related parties |
||||||||||||||
Alto Palermo S.A. |
2004 | 565 | | | | 145 | | |||||||
2003 | | | | | 1,914 | | ||||||||
Altocity.Com S.A. |
2004 | 42 | 100 | | | | | |||||||
2003 | | 73 | | | | | ||||||||
Alternativa Gratis S.A. |
2004 | 29 | | | | | | |||||||
2003 | | | | | | | ||||||||
Cresud S.A |
2004 | 323 | | | | | | |||||||
2003 | | | | | | 197 | ||||||||
Econentworks Argentina S.A. |
2004 | | | | | | | |||||||
2003 | | | | | | | ||||||||
Red Alternativa S.A. |
2004 | 13 | 112 | | | | | |||||||
2003 | | 85 | | 44 | | | ||||||||
Tarshop S.A. |
2004 | 101 | 48 | | | | | |||||||
2003 | | 27 | | | | | ||||||||
Dolphin Found Management S.A. |
2004 | 18 | | 2,041 | | 2 | | |||||||
2003 | | | | | | 32 | ||||||||
Abril S.A. |
2004 | 13 | | | | | | |||||||
2003 | 13 | | | | | | ||||||||
Llao Llao Resorts S.A. |
2004 | | 28 | | | | | |||||||
2003 | | | | | | 34 | ||||||||
Inversora Bolívar S.A. |
2004 | 1,072 | 126 | | | | | |||||||
2003 | | | | 580 | | | ||||||||
Valle de las Leñas S.A. |
2004 | | | | | | | |||||||
2003 | | | | | 76 | | ||||||||
Shopping Alto Palermo S.A. |
2004 | | | | | 199 | | |||||||
2003 | | | | | 66 | | ||||||||
Banco Hipotecario S.A. |
2004 | | | 16,866 | | | | |||||||
2003 | | | | | | | ||||||||
Ritelco S.A. |
2004 | | | | | 659 | | |||||||
2003 | | | | | | | ||||||||
Personal loans |
2004 | | | | | 4 | | |||||||
2003 | | | | | 14 | | ||||||||
Total 2004 |
2,176 | 414 | 18,907 | | 1,009 | | ||||||||
Total 2003 |
13 | 185 | | 624 | 2,070 | 263 | ||||||||
c. | The composition of intercompany gain is as follows: |
Income | ||||
March 31, 2004 |
March 31, 2003 | |||
Equity in earnings of controlled and affiliated companies |
43,077 | 42,227 | ||
Amortization of intangible assets and investments |
1,014 | 10 | ||
44,091 | 42,237 | |||
60
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 9: COMMON STOCK
a. | Common stock |
As of March 31, 2004, IRSAs capital stock was as follows:
Par Value |
Approved by |
Date of record with the Public Registry of Commerce | ||||||
Body |
Date |
|||||||
Shares issued for cash |
| First Meeting for IRSAs Incorporation | 04.05.1943 | 06.25.1943 | ||||
Shares issued for cash |
16,000 | Extraordinary Shareholders´ Meeting | 11.18.1991 | 04.28.1992 | ||||
Shares issued for cash |
16,000 | Extraordinary Shareholders´ Meeting | 04.29.1992 | 06.11.1993 | ||||
Shares issued for cash |
40,000 | Extraordinary Shareholders´ Meeting | 04.20.1993 | 10.13.1993 | ||||
Shares issued for cash |
41,905 | Extraordinary Shareholders´ Meeting | 10.14.1994 | 04.24.1995 | ||||
Shares issued for cash |
2,000 | Extraordinary Shareholders´ Meeting | 10.14.1994 | 06.17.1997 | ||||
Shares issued for cash |
74,951 | Extraordinary Shareholders´ Meeting | 10.30.1997 | 07.02.1999 | ||||
Shares issued for cash |
21,090 | Extraordinary Shareholders´ Meeting | 04.07.1998 | 04.24.2000 | ||||
Shares issued for cash |
54 | Board of Directors´ Meeting | 05.15.1998 | 07.02.1999 | ||||
Shares issued for cash |
9 | Board of Directors´ Meeting (2) | 04.15.2003 | 04.28.2003 | ||||
Shares issued for cash |
4 | Board of Directors´ Meeting (2) | 05.21.2003 | 05.29.2003 | ||||
Shares issued for cash |
172 | Board of Directors´ Meeting (2) | 08.22.2003 | Pending | ||||
Shares issued for cash |
27 | Board of Directors´ Meeting (2) | 08.22.2003 | Pending | ||||
Shares issued for cash |
918 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
22 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
92 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
6,742 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
662 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
46 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
26 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
77 | Board of Directors´ Meeting (2) | 12.31.2003 | Pending | ||||
Shares issued for cash |
8,493 | Board of Directors´ Meeting (3) | 12.31.2003 | Pending | ||||
Shares issued for cash |
23 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
6 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
1,224 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
999 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
1 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
968 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
4 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
1,193 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash |
512 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash (1) |
20 | Board of Directors´ Meeting (2) | 03.31.2004 | Pending | ||||
Shares issued for cash (1) |
4,013 | Board of Directors´ Meeting (3) | 03.31.2004 | Pending | ||||
238,253 | ||||||||
The Ordinary and Extraordinary Shareholders Meeting held on 5 November 2002 and its recess held on 27 November 2002, approved the distribution of 4,587,285 treasury stock proportionately with the shareholders holdings and, in accordance with the resolution issued by the Board of Directors on 11 December 2002, such stock was made available to the shareholders as from 19 December 2002.
(1) | The shares were issued after the date of closing of the financial statements. |
(2) | Conversion of negotiable obligations mentioned in Note 11. |
(3) | Exercise of options mentioned in Note 11. |
61
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 9: (Continued)
b. | Treasury stock |
The Company repurchases periodically outstanding ordinary shares when it considers that their price is undervalued on the market.
During the periods ended March 31, 2004 and 2003 no treasury shares were bought.
c. | Restriction on the distribution of profits |
In accordance with the Argentine Corporations Law and the Companys By-laws, 5% of the net and realized profit for the year calculated in accordance with Argentine GAAP plus (less) prior year adjustments must be appropriated by resolution of the shareholders to a legal reserve until such reserve equals 20% of the Companys outstanding capital. This legal reserve may be used only to absorb losses.
d. | Non-contributory Management Stock Ownership Plan |
On October 30, 1997, the shareholders authorized the Company to enter into a Non-contributory Management Stock Ownership Plan (NMSOP) with eight executive officers of the Company (the Beneficiaries), pursuant to which the Beneficiaries were granted the right to purchase up to 24 million shares of common stock (the Participation Shares), at a purchase price equal to Ps. 1.0 per share, subject to the implementation of an Equity Participation Agreement (EPA). Under Argentine law, the Company established a special purpose trust in this connection (the Trust).
The Beneficiaries were required to purchase the Participation Shares available, if any, within 24 months of any capital increase. The Trust has an original term of nine years. According to the terms of the NMSOP and the Trust, Beneficiaries are not entitled to receive any distributions (either in the form of shares, cash or other) from the Trust during its term, although, Beneficiaries are allowed to cause the Trust to sell their designated shares of common stock held by the Trust in certain cases. In addition, the Company was not allowed to grant any loans or otherwise assist the Beneficiaries in financing the purchase of the Participation Shares.
On April 7, 1998, the Companys shareholders, at an extraordinary shareholders meeting, approved a capital increase of 24 million shares to permit the Beneficiaries to purchase all of the Participation Shares to which they were entitled under the EPA.
The BASE and the CNV approved the capital increase on June 4, 1999, and on August 31, 1999 the Beneficiaries acquired 21,090,024 shares at Ps. 1.0 per share.
At March 31, 2004, all the shares held by the trust were sold in accordance with the terms of the contract and, therefore, no shares in trust are recorded.
62
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 10: RESTRICTED ASSETS
b) | The Labor Court N° 55 decided the distress of units N° 14 and 20 located in Sarmiento 517, property of the Company, in connection with a lawsuit in which the Company is co-defendant. |
c) | The Company has mortgaged the following real estate: Dock 2 M10 (1l) buildings A and B, Torre Jardín IV, Dock IV, Reconquista 823, 9 activity units at Suipacha 652, 58 activity units at Madero 1020 and 14 plots of the land owned in the district of Caballito, in connection with the secured negotiable bonds referred to in Note 5.3. By means of Minutes No. 1445 dated August 14, 2003 of the Board of Directors´ Meeting, it was resolved to lift and release the mortgages on these properties, substituting them for new mortgages on the following properties: 13 functional units al Libertador 498, 71 supplementary units al Laminar Plaza and 19 supplementary units al Dique IV. |
d) | The Company has a first mortgage on the property identified as San Martín de Tours amounting to US$ 750,000, as performance bond for the construction of the building and transfer of title on the units to be exchanged in favor of Establecimientos Providence S.A. |
NOTE 11: CONVERTIBLE NEGOTIABLE OBLIGATION
On March 8, 2002, the Ordinary and Extraordinary Meeting of Shareholders resolved:
a) | Approving the issuance of Negotiable Obligations Convertible into Ordinary Shares of the company (ONC) for up to a face value of US$100,000,000 (one hundred million pesos), for a term of 5 (five) years, at a fixed interest rate of 6% to 12% per annum, payable half-periodly in arrears. |
b) | Approving a subscription option for the ONC holders to subscribe ordinary shares of the company at 1 (one) share per Ps.1 (one peso) of ONC face value, paying in cash Ps.1(pesos one) as subscription price, during 15 (fifteen) days after the conversion term has expired, including the corresponding capital increase. |
c) | Suppressing the preferential subscription and accretion rights, or reducing the term to exercise the preference, as provided by section 12 of the Negotiable Obligations Law and other applicable regulations. |
63
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 11: (Continued)
d) | Amending article nine (9) of the bylaws to partially adapt its contents to the market circumstances arising from the amendment approved, by replacing 1) the 20% percentage referred to in the amendment to the bylaws, by the percentage indicated in Decree 677/01, i.e., 35%; and 2) eliminating the negotiable obligations or other convertible debt securities, as well as the warrants, from the calculation mentioned in Article Nine of the Bylaws. |
The public offering and listing of the above-mentioned negotiable obligations was approved by Resolution No. 14316 of the National Securities Commission dated September 24, 2002 and the Buenos Aires Stock Exchange, authorizing the issuance for up to US$ 100,000,000 of securities consisting of negotiable obligations convertible for ordinary shares, bearing interest at an annual rate of 8% and falling due in 2007 and which, at the time of their conversion, provide the right to options to subscribe 100,000,000 ordinary shares. Furthermore, the conversion price and the price of Warrants have been set as follows:
a) | The conversion price is 0.5571 shares (5.5713 GDS), while the price of the Warrant is 0.6686 shares (6.6856 GDS). |
b) | The holder is entitled to exchange each Negotiable Obligation issued by IRSA for 1.7949 shares (0.1795 GDS) and has an option to purchase the same number of shares at the exercise price set for the Warrant. |
As a result of the distribution of 4,587,285 treasury stock, the Company has adjusted the conversion price of its Convertible Negotiable Bonds in accordance with the terms of the issue. Thus, the conversion price of the Negotiable Bonds fell from US$ 0.5571 to US$ 0.54505 and the price of execution of the warrants dropped from US$ 0.6686 to US$ 0.6541. Said adjustment came into force on 20 December 2002.
The Convertible Negotiable Obligations and options will fall due on November 14, 2007.
The convertible negotiable bonds were underwritten in full and were paid in cash and assigned to restructure or partially settle the Company´s financial debt al the time of such subscription. Consequently, Note 5 of the financial statements shows the Companys financial debt after the restructuring and placement mentioned above.
On March 31, 2004, holders of Convertible Negotiable Obligations had exercised their right to convert them for a total of US$ 7.5 million, giving rise to the issuing of 13,746,921 ordinary shares of Ps. 1 face value each as disclosed in Note 9.
Furthermore, at March 31, 2004, options to subscribe Company shares amounting to US$ 8.2 million were exercised, giving rise to the issue of 12,506,343 ordinary shares of Ps. 1 par value each, as mentioned in Note 9.
The total amount of Convertible Negotiable Obligations at March 31, 2004 is US$ 92,507,920.
64
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 12: INCOME TAX DEFERRED TAX
The evolution and breakdown of deferred tax assets and liabilities are as follows:
Items |
Balances at the beginning of year |
Changes for the period |
Balances at period-end |
||||||
Non-current deferred assets and liabilities |
|||||||||
Investments |
1,968 | (11,345 | ) | (9,377 | ) | ||||
Trade receivables |
207 | 63 | 270 | ||||||
Other receivables |
469 | (194 | ) | 275 | |||||
Inventories |
100 | 526 | 626 | ||||||
Fixed assets |
(28 | ) | (483 | ) | (511 | ) | |||
Intangible assets |
8 | | 8 | ||||||
Tax loss carryforwards |
68,466 | 10,603 | 79,069 | ||||||
Financial debt |
11,092 | (4,003 | ) | 7,089 | |||||
Other debt |
1,837 | (1,698 | ) | 139 | |||||
Provisions |
87 | 11 | 98 | ||||||
Allowances for deferred assets |
(34,275 | ) | 6,520 | (27,755 | ) | ||||
Total non-current |
49,931 | | 49,931 | ||||||
Total net deferred assets |
49,931 | | 49,931 | ||||||
Net assets at the end of the period derived from the information included in the above table amount to Ps. 49,931 thousand.
Deferred assets have been provided for in the portion estimated not to be absorbed based on projections of results for future years.
65
IRSA Inversiones y Representaciones Sociedad Anónima
Notes to the unaudited financial statements (Continued)
NOTE 12: (Continued)
Below is a reconciliation between income tax expensed and that resulting from application of the current tax rate to the accounting profit for the periods ended March 31, 2004 and 2003, respectively:
Items |
31.03.04 Ps. |
31.03.03 Ps. |
||||
Result for the period (before income tax) |
48,246 | 216,984 | ||||
Current income tax rate |
35 | % | 35 | % | ||
Result for the period at the tax rate |
16,886 | 75,944 | ||||
Permanent differences at the tax rate: |
||||||
Restatement into uniform currency |
(15,419 | ) | (26,801 | ) | ||
Donations |
92 | | ||||
Amortization of goodwill |
9 | 123 | ||||
Equity in earnings of controlled and affiliated companies |
3,177 | (8,066 | ) | |||
Holding result on Participation Certificates F.F. |
(88 | ) | (19 | ) | ||
Expired tax loss carryforward |
| 557 | ||||
Cost of sale ARSA / BARSA |
| (39 | ) | |||
Directors´ Fees |
(9 | ) | 218 | |||
Sundry permanent differences |
1,872 | | ||||
Recovery of allowance for deferred assets. |
(6,520 | ) | (91,848 | ) | ||
Total income tax charge for the period (*) |
| (49,931 | ) | |||
Difference |
| | ||||
(*) | Difference with the income tax charge of the Statements of Income belongs to asset tax charge. |
Unexpired income tax loss carryforward pending use at the end of the period amount to Ps. 225,911 thousand according to the following detail:
Generated in |
Amount Ps. |
Year of expiry | ||
2002 |
211,160 | 2007 | ||
2004 |
14,751 | 2009 | ||
Total tax loss carryforward |
225,911 |
66
IRSA Inversiones y Representaciones Sociedad Anónima
Fixed Assets
For the nine month period beginning on
July 1, 2003
and ended March 31, 2004
compared with the year ended June 30, 2003
In thousand of pesos
Schedule A
Depreciation |
||||||||||||||||||||||||
For the period/year |
||||||||||||||||||||||||
Items |
Value at beginning of year |
Increases and transfers |
Deductions and Transfers |
Value as of end of The year/period |
Accumulated as of beginning of year |
Increase, deductions And Transfers |
Rate % |
Amount (1) |
Accumulated as of the year/ period end |
Net carrying Value as of March 31, 2004 |
Net carrying June 30, 2003 | |||||||||||||
Furniture and fixtures |
1,514 | | | 1,514 | 1,512 | | 20 | | 1,512 | 2 | 2 | |||||||||||||
Computer equipment |
4,193 | 130 | | 4,323 | 3,983 | | 33.33 / 20 | 190 | 4,173 | 150 | 210 | |||||||||||||
Leasehold improvements |
5,692 | 614 | | 6,306 | 3,902 | | 10 | 457 | 4,359 | 1,947 | 1,790 | |||||||||||||
Real Estate: |
||||||||||||||||||||||||
Alsina 934 |
1,776 | | | 1,776 | 291 | | 2 | 21 | 312 | 1,464 | 1,485 | |||||||||||||
Av. de Mayo 595 |
5,586 | | | 5,586 | 1,474 | | 2 | 67 | 1,541 | 4,045 | 4,112 | |||||||||||||
Av. Madero 942 |
2,462 | | | 2,462 | 456 | | 2 | 24 | 480 | 1,982 | 2,006 | |||||||||||||
Constitución 1111 |
584 | | | 584 | 181 | | 2 | 6 | 187 | 397 | 403 | |||||||||||||
Costeros Dique IV |
18,190 | | | 18,190 | 624 | | 2 | 206 | 830 | 17,360 | 17,566 | |||||||||||||
Dique 2M10 (1I)Edif.A |
19,050 | | | 19,050 | 1,113 | | 2 | 241 | 1,354 | 17,696 | 17,937 | |||||||||||||
Laminar Plaza |
29,948 | | | 29,948 | 1,927 | | 2 | 345 | 2,272 | 27,676 | 28,021 | |||||||||||||
Libertador 498 |
41,443 | 9 | | 41,452 | 5,999 | | 2 | 447 | 6,446 | 35,006 | 35,444 | |||||||||||||
Libertador 602 |
2,866 | | | 2,866 | 378 | | 2 | 30 | 408 | 2,458 | 2,488 | |||||||||||||
Madero 1020 |
7,801 | | (3,171 | ) | 4,630 | 1,368 | (565 | ) | 2 | 54 | 857 | 3,773 | 6,433 | |||||||||||
Maipú 1300 |
47,246 | | | 47,246 | 6,475 | | 2 | 544 | 7,019 | 40,227 | 40,771 | |||||||||||||
Reconquista 823 |
20,813 | | | 20,813 | 3,738 | | 2 | 225 | 3,963 | 16,850 | 17,075 | |||||||||||||
Sarmiento 517 |
217 | 40 | | 257 | 51 | | 2 | 3 | 54 | 203 | 166 | |||||||||||||
Suipacha 652 |
13,249 | | | 13,249 | 3,304 | | 2 | 144 | 3,448 | 9,801 | 9,945 | |||||||||||||
Total as of March 31, 2004 |
222,630 | 793 | (3,171 | ) | 220,252 | 36,776 | (565 | ) | | 3,004 | 39,215 | 181,037 | | |||||||||||
Total as of June 30, 2003 |
238,192 | 5,069 | (20,631 | ) | 222,630 | 33,884 | (1,147 | ) | | 4,039 | 36,776 | | 185,854 | |||||||||||
(1) | The accounting application of the depreciation for the period is set forth in Schedule H, |
67
IRSA Inversiones y Representaciones Sociedad Anónima
Intangible Assets
For the nine-month period beginning on
July 1, 2003
and ended March 31, 2004
compared with the year ended June 30, 2003
In thousand of pesos
Schedule B
Items |
Values of origin |
Amortization |
Net carrying value as of | ||||||||||||||||||||
Balances as of beginning of year |
Additions |
Deductions |
Balances as the period / |
Accumulated of year |
Additions |
Deductions |
Amount (1) |
Accumulated the period / |
March 31, 2004 |
June 30, 2003 | |||||||||||||
Development property expenses |
177 | | | 177 | 177 | | | | 177 | | | ||||||||||||
Deferred financing cost |
3,216 | | | 3,216 | 3,216 | | | | 3,216 | | | ||||||||||||