FORM 6-K

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, 2003

 


 

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 x    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  x

 



 

IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANÓNIMA

(THE “COMPANY”)

 

REPORT ON FORM 6-K

 

Attached is a copy of the translation into English of the Quarterly Financial Statements for the period ended on March 31, 2003 filed with the Bolsa de Comercio de Buenos Aires and with the Comisión Nacional de Valores


SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Buenos Aires, Argentina.

 

IRSA Inversiones y Representaciones Sociedad Anónima

By:

 

/s/    Saúl Zang        


Name:

 

Saúl Zang

Title:

 

Second Vice Chairman of the Board of Directors

 

Dated:  May 16, 2003


 

IRSA Inversiones y Representaciones

Sociedad Anónima

and subsidiaries

 

Free translation of the

Unaudited Consolidated Financial Statements

for the nine-month periods ended

March 31, 2003 and 2002


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Unaudited Consolidated Balance Sheets as of March 31, 2003 and 2002

 

In thousands of pesos

 

   

March 31,

2003

(Notes 2 and 3)


 

March 31,

2002

(Notes 2 and 3)


ASSETS

       

CURRENT ASSETS

       

Cash and banks

 

59,301

 

37,928

Investments (Note 8)

 

174,015

 

99,960

Mortgages and leases receivables (Note 5)

 

32,447

 

25,546

Other receivables (Note 6)

 

20,338

 

115,743

Inventory (Note 7)

 

10,918

 

24,040

   
 

Total Current Assets

 

297,019

 

303,217

   
 

NON-CURRENT ASSETS

       

Mortgages receivables (Note 5)

 

3,442

 

7,807

Other receivables (Note 6)

 

57,901

 

80,305

Inventory (Note 7)

 

6,143

 

66,437

Investments (Note 8)

 

441,169

 

613,552

Fixed assets (Note 9)

 

1,173,879

 

469,094

Intangible assets

 

44,392

 

4,989

   
 

Total Non-Current Assets

 

1,726,926

 

1,242,184

   
 

Total Assets

 

2,023,945

 

1,545,401

   
 

LIABILITIES

       

CURRENT LIABILITIES

       

Trade accounts payable

 

25,879

 

11,768

Customer advances (Note 10)

 

12,407

 

3,211

Short term-debt (Note 11)

 

63,304

 

771,697

Salaries and social security charges

 

3,488

 

1,505

Taxes payable

 

10,752

 

14,346

Other liabilities (Note 12)

 

18,904

 

29,036

   
 

Total Current Liabilities

 

134,734

 

831,563

   
 

NON-CURRENT LIABILITIES

       

Trade accounts payable

 

4,043

 

266

Customer advances (Note 10)

 

26,845

 

—  

Long term-debt (Note 11)

 

694,331

 

51,852

Taxes payable

 

271

 

—  

Other liabilities (Note 12)

 

6,923

 

5,204

   
 

Total Non-Current Liabilities

 

732,413

 

57,322

   
 

Total Liabilities

 

867,147

 

888,885

   
 

Minority interest

 

441,791

 

89,170

   
 

SHAREHOLDERS’ EQUITY

 

715,007

 

567,346

   
 

Total Liabilities and Shareholders’ Equity

 

2,023,945

 

1,545,401

   
 

 

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, 2002 and 2001

and ended March 31, 2003 and 2002

 

In thousands of pesos

 

    

March 31,

2003

(Notes 2 and 3)


    

March 31,

2002

(Notes 2 and 3)


 

Mortgages, leases and services

  

164,080

 

  

108,011

 

Costs of sales, leases and services

  

(117,623

)

  

(61,655

)

    

  

Gross income

  

46,457

 

  

46,356

 

    

  

Selling expenses

  

(12,339

)

  

(6,477

)

Administrative expenses

  

(25,742

)

  

(24,589

)

    

  

Subtotal

  

(38,081

)

  

(31,066

)

Loss on purchasers rescissions of sales contracts

  

5

 

  

—  

 

Loss from operations and holding of real estate assets (Note 13)

  

10,139

 

  

26,983

 

    

  

Operating income (Note 4)

  

18,520

 

  

42,273

 

    

  

Financial results, net (Note 14)

  

216,869

 

  

(520,741

)

Net income in related companies

  

(2,706

)

  

(21,490

)

Other income and expenses, net (Note 15)

  

6,893

 

  

(3,538

)

    

  

Subtotal

  

239,576

 

  

(503,496

)

    

  

Minority interest

  

(38,325

)

  

(1,788

)

Income tax and asset tax

  

(3,623

)

  

(6,184

)

    

  

Income (loss) for the period

  

197,628

 

  

(511,468

)

    

  

 

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, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

    

March 31,

2003
(Notes 2 and 3)


    

March 31,
2002
(Notes 2 and 3)


 

CASH FLOWS FROM OPERATING ACTIVITIES:

             

Income (loss) for the period

  

197,628

 

  

(511,468

)

Adjustments to reconcile net loss to cash flow from operating activities:

             

•      Equity in earnings of affiliated companies

  

2,706

 

  

16,544

 

•      Minority interest in related companies

  

38,325

 

  

1,788

 

•      Results from repurchase Notes

  

(25,093

)

  

—  

 

•      Allowances and provisions

  

10,115

 

  

797

 

•      Amortization and depreciation

  

69,861

 

  

18,107

 

•      Loss from operations and holding of real estate assets

  

—  

 

  

(26,983

)

•      Financial results

  

(276,798

)

  

441,359

 

•      Income tax

  

3,623

 

  

5,790

 

•      Loss/(Gain)from the sale of fixed assets and intangible assets

  

(2,132

)

  

583

 

Changes in assets and liabilities:

             

•      Decrease/(Increase) in current investments

  

13,436

 

  

(22,102

)

•      Increase in non-current investments

  

(521

)

  

—  

 

•      (Increase)/Decrease in mortgages and leases receivables

  

(3,486

)

  

30,208

 

•      Decrease/(Increase) in other receivables

  

4,236

 

  

(24,375

)

•      Decrease in inventory

  

36,688

 

  

44,562

 

•      Increase in intangible assets

  

(671

)

  

(449

)

•      Decrease in taxes payable, salaries and social security and customer advances

  

(6,556

)

  

(1,209

)

•      (Decrease)/Increase in accounts payable

  

(2,434

)

  

2,525

 

•      Increase in accrued interest

  

33,509

 

  

44,343

 

•      Cash dividends received

  

—  

 

  

2,124

 

•      (Decrease)/Increase in other liabilities

  

(10,396

)

  

13,368

 

    

  

Net cash provided by operating activities

  

82,040

 

  

35,512

 

    

  

CASH FLOWS FROM INVESTING ACTIVITIES:

             

•      Decrease from equity interest in subsidiary companies and equity investees

  

—  

 

  

86,408

 

•      Increase from equity interest in subsidiary companies and equity investees

  

(52,203

)

  

(20,729

)

•      Payment for acquisition of undeveloped parcels of land

  

(651

)

  

(944

)

•      Loans granted to related parties

  

—  

 

  

(51,348

)

•      Cash acquired (from APSA and Bs. As. Trade S.A)

  

16,464

 

  

—  

 

•      Sales of fixed assets

  

2,132

 

  

—  

 

•      Purchase and improvements of fixed assets

  

18,630

 

  

(22,001

)

    

  

Net cash used in investing activities

  

(15,628

)

  

(8,614

)

    

  

CASH FLOWS FROM FINANCING ACTIVITIES:

             

•      Proceeds from short-term and long-term debt

  

396,699

 

  

128,212

 

•      Payment of short-term and long-term debt

  

(273,034

)

  

(138,312

)

•      Minority shareholders contribution

  

89

 

  

553

 

•      Decrease in mortgages payable

  

(9,648

)

  

—  

 

•      Increase in intangible assets

  

(6,265

)

  

(2,415

)

•      Payment of seller financing

  

(1,185

)

  

(1,503

)

    

  

Net cash provided by (used in) financing activities

  

106,656

 

  

(13,465

)

    

  

Net increase in cash and cash equivalents

  

173,068

 

  

13,433

 

Cash and cash equivalents as of beginning of year

  

28,377

 

  

37,394

 

    

  

Cash and cash equivalents as of end of period

  

201,445

 

  

50,827

 

    

  


(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, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

      

March 31,

2003
(Notes 2 and 3)


    

March 31,

2002
(Notes 2 and 3)


Supplemental cash flow information

             

Non-cash activities:

             

•      Increase in inventory through a decrease in fixed assets

    

13,879

    

24,073

•      Decrease in mortgages receivable through the trust

    

—  

    

25,137

•      Increase in investments through a decrease in mortgages receivable

    

—  

    

24,416

•      Capitalization of exchange difference in Fixed assets

    

—  

    

12,983

•      Decrese in non-current investments trrough a decrease in other liabilities

    

—  

    

34,126

•      Increase in other receivable through a decrease in non-current investments

    

—  

    

65,912

•      Increase in other receivable through a decrease in mortgages receivable

    

—  

    

3,021

•      Increase in investments through a decrease in mortgages receivable

    

762

    

—  

•      Decrease in investments through an increase in mortgages receivable

    

1,970

    

—  

•      Increase in customer advances through a decrease in other liabilities

    

2,862

    

—  

•      Increase in inventory through a decrease in mortgages receivable

    

2,757

    

—  

•      Increase in non-current investments through a decrease in other non-current receivable

    

117

    

—  

•      Increase in inventory through a decrease in fixed assets

    

1,212

    

—  

•      Increase in undeveloped parcels of land through a decrease in inventory

    

14,210

    

—  

•      Increase in fixed asset through an increase in mortgages

    

3,989

    

—  

•      Increase in short and long term-debt though a decrease in other liabilities

    

35,423

    

—  

 

4


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited consolidated financial statements

For the nine-month periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

NOTE 1:   ARGENTINE ECONOMIC SITUATION

 

Argentina is immersed in a critical economic situation. The main features of the current economic context are a major external debt burden, a financial system in crisis, country risk indicators far above normal average and an economic recession that has already lasted more than four years. This situation has led to a significant decrease in the demand for goods and services and a large rise in the level of unemployment. The Government’s ability to comply with its commitments has been impaired, which led it to default in the payment of external debt services at the beginning of 2002.

 

To overcome the crisis the country is undergoing, as from December 2001 the government issued measures to restrict the free availability and circulation of cash and the transfer of foreign currency abroad. Subsequently, as from January 2002, laws, decrees and regulations were enacted that involved profound changes to the prevailing economic model and the amendment of the Convertibility Law in force until then. Among the measures adopted was the establishment of a single free exchange market system, that led to a significant devaluation of the Argentine peso during the first months of 2002; the pesification of certain assets and liabilities in foreign currency held abroad and the resulting increase in local prices.

 

Impact on the Company’s financial position

 

As mentioned in Note 13 to the basic financial statements, during November 2002, the Company successfully completed the restructuring of its financial debt. Along these lines, the current cash position will enable the Company to take advantage of the opportunities available on the real estate market, as it did over the previous decade.

 

The future development of the economic crisis might require the Government to modify some measures adopted or issue additional regulations. Therefore, the Company’s financial statements should be considered in the light of these circumstances.

 

5


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 2:   BASIS OF CONSOLIDATION — CORPORATE CONTROL

 

  a)   Basis of consolidation

 

The consolidated financial statements have been prepared following the guidelines of Technical Resolution No. 4 of the Argentine Federation of Professional Councils of Economic Sciences (F.A.C.P.C.E.), pursuant to which the Balance Sheets as of March 31, 2003 and 2002 of IRSA Inversiones y Representaciones Sociedad Anónima, the Statements of Income and the Statements of Cash Flows for the three month then ended were consolidated with the financial statements of those companies in which has the necessary votes to exercise control over the corporate decisions.

 

All significant intercompany balances and transactions have been eliminated in consolidation.

 

The following table shows the data concerning the corporate control:

 

      

March 31,
2003


    

March 31,
2002


COMPANIES


    

DIRECT OR INDIRECT % OF
VOTING SHARES


IRSA International Ltd(1)

    

—  

    

100,00

Ritelco S.A.(1)

    

100,00

    

—  

Palermo Invest S.A.

    

66,67

    

66,67

Abril S. A.

    

83,33

    

83,33

Pereiraola S. A.

    

83,33

    

83,33

Baldovinos S. A.

    

83,33

    

83,33

Hoteles Argentinos S. A.

    

80,00

    

80,00

Buenos Aires Trade & Finance Center S.A(3)

    

100,00

    

50,00

Alto Palermo S.A (“APSA”)(2)

    

54,86

    

49,34


(1)   In accordance with mentioned in Note 18 to the Unaudited Consolidated Financial Statements, as of June 30, 2002 the Company decided the liquidation anticipated of IRSA International Ltd.
(2)   As from the quarter ended on 30 September 2002 and as a result of the Company’s acquisition of the convertible negotiable bonds (CNB) referred to in Note 23 to the consolidated financial statements, the Company is consolidating its financial statements with those of its subsidiary Alto Palermo S.A. Furthermore, during January 2003, we purchased an additional 3.4 million shares in Alto Palermo, for a total of U$S 2.4 million, taking our equity interest to 54.86%. We also purchased 2.6 million CNB, for a value of U$S 2.9 million, which, together with the 27.3 million underwritten at the time of the issue, has taken our position to 59.9% of the overall CNB issued by our subsidiary.

 

6


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 2:   (Continued)

 

(3)   On August 16, 2002, the Company and RAGHSA S.A. agreed: i) the redistribution of the block 5M, of the Old Puerto Madero of the City of Buenos Aires, ii) the division and distribution of the charge and commitment to build on those plots of land, previously undertaken before Corporación Antiguo Puerto Madero S.A.(CAPM), iii) the renegotiation of the other commitments and obligations also assumed before CAPM and iv) the exchange of the shares issued by ARSA, BARSA and BAT&FCSA, respectively, which own the plots of land included in block 5M. As a result of the share exchange, the Company now owns 100% of the shares in BAT&FCSA, and transferred its 50% interest in ARSA and BARSA respectively, to RAGHSA S.A.

 

As a result of the consolidation of the related company Alto Palermo S.A., mentioned above, since the beginning of this fiscal year the Company has discontinued the application of the proportional consolidation method in the preparation of the income statements. Accordingly, the financial statement figures originally issued as of March 31, 2002 have been reclassified to conform them to the presentation as of March 31 , 2003.

 

  b)   Consideration of the effects of inflation

 

The Company’s financial statements have been prepared according to Pronouncement M.D. 3/02 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires, which establishes the applicability of Technical Pronouncement No. 6, with the modifications introduced by Technical Pronouncement No. 19 of the Argentine Federation of Professional Council in Economic Sciences as from financial years or non-annual periods ending March 31, 2002.

 

In line with Pronouncement 441/03 of the National Securities Commission, dated April 8, 2003, as from March 1, 2003 the Company stopped applying the method of restatement of financial statement in uniform currency as established by Technical Pronouncement No. 6 with the modifications introduced by Technical Pronouncement No. 19, both pronouncements issued by the Argentine Federation of Professional Council in Economic Sciences (F.A.C.P.C.E.).

 

Therefore, the Company’s financial statements are disclosed in uniform currency at February 28, 2003 and any items of a non-monetary nature existing prior to December 31, 2001 have been considered at their recorded values at that date.

 

The effect of not applying the adjustment for inflation during March 2003 does not imply significant adjustments to the Company’s financial statements at March 31, 2003.

 

7


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 2:   (Continued)

 

The above restatement was made applying the coefficients prepared based on the domestic wholesale price index.

 

The Company used a conversion factor to restate the comparative financial statements in constant Argentine pesos of February 28, 2003 for comparative purposes.

 

  c.   Reclassifications

 

Certain reclassifications of prior period information have been made to conform with the current period presentation.

 

  d.   Acquisition of related companies

 

During the quarter ended March 31, 2002, 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.

 

  e.   Sales in jointly controlled affiliated companies incorporated abroad

 

  i)   Latin American Econetworks N.V (LAE) : On November 7, 2001, the Company sold its interest in LAE for a total consideration of US$ 5,250. The price was fully collected on that date. In July 2000, this company was conceived as a developer of software, technology and internet services.

 

  ii)   Brazil Realty S.A. Empreendimentos e Participaçoes (“Brazil Realty”): As established by the agreement signed on February 28, 2002 and the First Amendment dated May 3, 2002, between Ritelco S.A, IRSA International Limited, IRSA and Creed Holding Ltd, through its subsidiary Ritelco S.A., the Company sold 100% of its participation in Brazil Realty for US$ 44,187 thousand, which had been collected in full at the date of issue of these financial statements.

 

8


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 2 a., have been prepared on a consistent basis with those applied by IRSA Inversiones y Representaciones Sociedad Anónima.

 

  a.   Jointly controlled affiliated companies incorporated abroad

 

The financial statements of the related companies under joint control set up abroad, used for application of the equity method of accounting to value the investment in those companies, were converted into Argentine pesos at the year-end rate of exchange based on the financial statements of those companies stated in the currency of the country of origin. The conversion method envisages the conversion of monetary assets and liabilities at the exchange rate in force at the end of each period and the non-monetary assets and liabilities and equity accounts based on amounts adjusted for inflation, if applicable, at the exchange rate in force at the end of each period. Average exchange rates were used for the conversion of financial statements that reflect the results for the periods. The net gain/loss for monetary conversion is included in the Financial results, net.

 

Since March 31, 1999, as a consequence of changes in the variables to measure fluctuations in domestic prices, and the performance of the Brazilian currency compared to the Argentine peso, IRSA International Limited has decided to value its investments in fixed assets and other intangible assets that cannot be disposed of by its subsidiary, Brazil Realty S.A. Empreendimentos e Participaçôes, at their original cost in pesos, less applicable accumulated depreciation, following the calculation method laid down by Technical Resolution No. 13, which was approved by the March 1999 Resolution of the Administrative Board of the Argentine Federation of Professional Councils in Economic Sciences.

 

  b.   Shares and options of Banco Hipotecario S.A.

 

The shares in Banco Hipotecario S.A. held by Ritelco S.A. (a wholly-owned subsidiary) have been valued at their quotation at the end of the period, less estimated selling expenses, while options were valued at restated cost as mentioned in Note 1.b) to the individual unaudited financial statements or estimated net realizable value, whichever is lower.

 

9


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 3:   (Continued)

 

  c.   Revenue Recognition

 

The Company’s 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 Company’s business segments. As discussed in Note 2.a., the consolidated statements of income were prepared following the guidelines of Technical Resolution No. 4 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 tenant’s monthly gross retail sales (the “Percentage Rent”) (which generally ranges between 4% and 8% of tenant’s gross sales).

 

Furthermore, pursuant to the rent escalation clause in most leases, a tenant’s 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.

 

10


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 3:   (Continued)

 

  c.   Revenue Recognition (Continued)

 

    Leases and services from shopping center operations (Continued)

 

Generally, the Company’s lease agreements vary from 36 to 120 months. Law No. 24,808 provides that tenants may rescind commercial lease agreements after the initial six 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.

 

11


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 3:   (Continued)

 

  c.   Revenue Recognition (Continued)

 

    International operations

 

As of December 31, 2001, the Company held a 49.95% ownership interest in Brazil Realty, a company operating in Brazil, which business primarily comprised the same type of operations related to real estate conducted by the Company in Argentina. See Note 2.e.ii), the Company sold its ownership interest in Brazil of february 28, 2002.

 

  d.   Intangible assets, net

 

Intangible assets are carried at cost adjusted for inflation, less accumulated depreciation.

 

    Trademarks

 

Trademarks include the expenses and fees related to their registration.

 

    Advertising expenses

 

Advertising expenses relate to the Torres de Abasto project, the opening of Abasto Shopping and promotion costs related to Paseo Alcorta. The expenses incurred in relation to Torres de Abasto project are recognized in the statement of operations 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 proyects

 

Investment projects represent expenses primarily related to marketing efforts incurred by the Alto Palermo S.A for the selling of merchandise through certain means of communication. These costs are capitalized and 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.

 

12


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 3:   (Continued)

 

  d.   Intangible assets, net (Coninued)

 

    Goodwill

 

Representing the excess of cost over the fair value of net identifiable assets acquired, is stated at cost adjusted for inflation at the end of the period, and is amortized on a straight-line basis over its estimated economic life, not exceeding 10 years. The goodwill included in this caption was generated by the purchase of shares in Tarshop S.A., Inversha S.A., Pentigras S.A. and Fibesa S.A.

 

    Tenants list-Patio Bullrich

 

This item represents the acquired tenant list of the Patio Bullrich shopping mall and is amortized using the straight-line method over a five-year period.

 

  e.   Issuance of new technical pronouncements

 

In accordance with mentioned in Note 1.c) to the individual unaudited financial statements, the main modifications introduced by the new Technical Pronouncements involving significant adjustments to the Company’s financial statements are related to the recording of income tax by the method of deferred tax, the recording of derivatives and the valuation of credits and debts without an express rate at their current value.

 

NOTA 4:   SEGMENT INFORMATION

 

The Company has determined that its reportable segments are those that are based on the Company’s method of internal reporting. Accordingly, the Company has six reportable segments. These segments are Development and sales of properties, Office and other non-shopping center rental properties, Shopping centers, Hotel operations, International and Others. As discussed in Note 2.a., the consolidated statements of income were prepared following the guidelines of Technical Resolution No. 4 of the F.A.C.P.C.E.

 

13


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTA 4:   (Continued)

 

A general description of each segment follows:

 

    Development and sale of properties

 

This segment includes the operating results of the Company’s construction and ultimate sale of residential buildings business.

 

    Office and other non-shopping center rental properties

 

This segment includes the operating results of the Company’s 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 Company’s 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.

 

    Hotel operations

 

This segment includes the operating results of the Company’s hotels principally comprised of room, catering and restaurant revenues.

 

    International

 

This segment includes the results of operations:

—Brazil: for the period ended March 31, 2002. As mentioned in Note 2.e.ii), the Company sold its ownership interest in Brazil in February 2002.

 

14


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 4:   (Continued)

 

    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 2 to the unaudited financial statements and in Note 3 to the consolidated unaudited financial statements.

 

The following information provides the operating results from each business unit:

 

15


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 4:   (Continued)

 

As of March 31, 2003:

 

    

Sales and
developments


    

Office and

Others(a)


      

International


    

Shopping centers


    

Hotels


      

Financial and
other operations


  

Total


 

Income

  

44,124

 

  

14,070

 

    

—  

    

80,611

 

  

25,275

 

    

—  

  

164,080

 

Costs

  

(43,897

)

  

(7,204

)

    

—  

    

(51,771

)

  

(14,751

)

    

—  

  

(117,623

)

Gross income

  

227

 

  

6,866

 

    

—  

    

28,840

 

  

10,524

 

    

—  

  

46,457

 

Selling expenses

  

(2,393

)

  

(74

)

    

—  

    

(7,660

)

  

(2,212

)

    

—  

  

(12,339

)

Administrative expenses

  

(4,041

)

  

(2,524

)

    

—  

    

(12,106

)

  

(7,071

)

    

—  

  

(25,742

)

Loss on purchasers rescissions of sales contracts

  

5

 

  

—  

 

    

—  

    

—  

 

  

—  

 

    

—  

  

5

 

Results from operations and holding of real estate assets

  

10,139

 

  

—  

 

    

—  

    

—  

 

  

—  

 

    

—  

  

10,139

 

    

  

    
    

  

    
  

Operating income

  

3,937

 

  

4,268

 

    

—  

    

9,074

 

  

1,241

 

    

—  

  

18,520

 

    

  

    
    

  

    
  

Depreciation and amortization(b)

  

3,505

 

  

4,916

 

    

—  

    

42,756

 

  

4,656

 

    

—  

  

55,833

 

    

  

    
    

  

    
  


(a)   Includes offices, commercial and residential premises.
(b)   Included in operating income/loss.

 

16


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 4:   (Continued)

 

As of March 31, 2002

 

    

Sales and
developments


    

Office and

Others(a)


    

International


      

Shopping centers


    

Hotels


      

Financial and
other operations


  

Total


 

Income

  

40,184

 

  

37,257

 

  

—  

 

    

—  

 

  

30,570

 

    

—  

  

108,011

 

Costs

  

(28,816

)

  

(10,401

)

  

—  

 

    

—  

 

  

(22,438

)

    

—  

  

(61,655

)

Gross income

  

11,368

 

  

26,856

 

  

—  

 

    

—  

 

  

8,132

 

    

—  

  

46,356

 

Selling expenses

  

(3,374

)

  

(126

)

  

—  

 

    

—  

 

  

(2,977

)

    

—  

  

(6,477

)

Administrative expenses

  

(9,568

)

  

(4,395

)

  

(1,061

)

    

(466

)

  

(9,099

)

    

—  

  

(24,589

)

Loss on purchasers rescissions of sales contracts

  

—  

 

  

—  

 

  

—  

 

    

—  

 

  

—  

 

    

—  

  

—  

 

Results from operations and holding of real estate assets

  

(4,790

)

  

—  

 

  

31,487

 

    

286

 

  

—  

 

    

—  

  

26,983

 

    

  

  

    

  

    
  

Operating income

  

(6,364

)

  

22,335

 

  

30,426

 

    

(180

)

  

(3,944

)

    

—  

  

42,273

 

    

  

  

    

  

    
  

Depreciation and amortization(b)

  

1,696

 

  

6,665

 

  

1

 

    

—  

 

  

3,142

 

    

—  

  

11,504

 

    

  

  

    

  

    
  


(a)   Includes offices, commercial and residential premises.
(b)   Included in operating income/loss.

 

17


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 5:   MORTGAGES AND LEASES RECEIVABLES

 

The breakdown for this item is as follows:

 

    

March 31,
2003


    

March 31,
2002


 
    

Current


    

Non-
Current


    

Current


    

Non-

Current


 

Debtors from sale of real estate

  

3,614

 

  

2,595

 

  

17,105

 

  

9,059

 

Unearned interest

  

(69

)

  

(215

)

  

(608

)

  

(1,252

)

Debtors from rent

  

38,840

 

  

1,119

 

  

3,691

 

  

—  

 

Rent in litigation

  

19,244

 

  

—  

 

  

—  

 

  

—  

 

Debtors under legal proceedings

  

2,447

 

  

—  

 

  

3,404

 

  

—  

 

Checks to be deposited

  

8,521

 

  

—  

 

  

—  

 

  

—  

 

Related parties

  

81

 

  

—  

 

  

3,404

 

  

—  

 

Trade accounts receivable for hotel activities

  

2,435

 

  

—  

 

  

—  

 

  

—  

 

Less:

                           

Allowance for doubful accounts

  

(42,666

)

  

(57

)

  

(1,450

)

  

—  

 

    

  

  

  

    

32,447

 

  

3,442

 

  

25,546

 

  

7,807

 

    

  

  

  

 

NOTE 6:   OTHER RECEIVABLES

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


  

Non-
Current


  

Current


  

Non-
Current


Asset tax and prepayments

  

4,002

  

42,121

  

4,460

  

24,604

Value Added Tax (VAT)

  

971

  

2,329

  

1,150

  

2,104

C.N. Hacoaj Project

  

—  

  

—  

  

987

  

—  

Related parties

  

185

  

22

  

365

  

52,813

Guarantee deposits

  

1,505

  

498

  

—  

  

—  

Prepaid expenses

  

253

  

—  

  

—  

  

—  

Expenses to be recovered

  

1,111

  

—  

  

1,508

  

—  

Administration Fund and reserves

  

232

  

—  

  

473

  

—  

Advances to be rendered

  

1,331

  

—  

  

927

  

—  

Accounts recivable from sale of Brazil Realty S.A.

  

—  

  

—  

  

65,912

  

—  

Gross sales tax

  

262

  

334

  

—  

  

—  

Sundry debtors

  

1,925

  

—  

  

2,073

  

721

Operation pending settlement

  

1,508

  

—  

  

33,149

  

—  

Income tax prepayments and withholdings

  

851

  

31

  

679

  

—  

Country club debtors

  

921

  

—  

  

771

  

—  

Trust accounts receivable

  

—  

  

433

  

—  

  

—  

Tax credit certificates

  

3,738

  

—  

  

2,420

  

—  

Interest rate swap receivable

  

458

  

12,133

  

—  

  

—  

Other

  

1,085

  

—  

  

869

  

63

    
  
  
  
    

20,338

  

57,901

  

115,743

  

80,305

    
  
  
  

 

18


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 7:   INVENTORY

 

The breakdown for this item is as follows:

 

    

March 31, 2003


    

Current


  

Non-

Current


Constitución 1111

  

—  

  

—  

Dique IV

  

—  

  

—  

Minetti “D”

  

—  

  

79

Madero 1020

  

1,637

  

—  

Caballito plots of land

  

—  

  

—  

Pilar

  

—  

  

—  

Rivadavia 2768

  

—  

  

153

Santa Fe 1588

  

—  

  

—  

Sarmiento 517

  

—  

  

354

Torres Jardín

  

184

  

300

V.Celina

  

—  

  

53

Abril/Baldovinos

  

6,248

  

4,899

Alto Palermo Park

  

1,216

  

—  

Salguero 3331

  

—  

  

234

Alto Palermo Plaza

  

—  

  

—  

Benavídez

  

—  

  

—  

Torres de Abasto

  

555

  

—  

Resale merchadise

  

7

  

—  

Other properties

  

750

  

71

Other

  

321

  

—  

    
  
    

10,918

  

6,143

    
  

 

    

March 31, 2002


    

Current


  

Non-

Current


Constitución 1111

  

—  

  

2,617

Dique IV

  

—  

  

6,159

Minetti “D”

  

489

  

80

Madero 1020

  

—  

  

—  

Caballito plots of land

  

—  

  

19,900

Pilar

  

—  

  

3,408

Rivadavia 2768

  

—  

  

—  

Santa Fe 1588

  

—  

  

—  

Sarmiento 517

  

—  

  

—  

Torres Jardín

  

428

  

436

V.Celina

  

—  

  

—  

Abril/Baldovinos

  

12,024

  

15,655

Alto Palermo Park

  

7,583

  

1,826

Salguero 3331

  

—  

  

—  

Alto Palermo Plaza

  

1,265

  

1,082

Benavídez

  

—  

  

14,208

Torres de Abasto

  

—  

  

—  

Resale merchadise

  

—  

  

—  

Other properties

  

2,251

  

1,066

Other

  

—  

  

—  

    
  
    

24,040

  

66,437

    
  

 

19


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,

2003


  

March 31,

2002


Current

         

Letes

  

—  

  

16,664

Cedro

  

147

  

—  

Bocanova

  

308

  

—  

Boden

  

1,156

  

—  

Bocon Pro 1

  

—  

  

6,872

IRSA I Trust Exchangeable Certificate

  

169

  

—  

Commercial Paper Banco Rio

  

995

  

—  

Call Plata

  

58

  

—  

Banco Hipotecario S.A.

  

—  

  

22,170

Time deposits and money markets

  

92,569

  

12,900

Mutual funds

  

73,249

  

41,354

Tarshop Trust

  

5,364

  

—  

    
  
    

174,015

  

99,960

    
  

Non-current

         

Alto Palermo S.A.

  

—  

  

344,313

Llao—Llao Resorts S.A.

  

14,144

  

8,798

Banco de Crédito y Securitización S.A.

  

7,007

  

7,008

Banco Hipotecario S.A.

  

20,099

  

13,501

IRSA Telecomunicaciones N.V.

  

—  

  

3,661

Pérez Cuesta S.A.C.I.

  

13,032

  

—  

E-Commerce Latina S.A

  

4,112

  

—  

IRSA I Trust Exchangeable Certificate

  

8,967

  

21,135

Tarshop Trust

  

4,182

  

—  

Art work

  

37

  

37

Other investments

  

188

  

30

    
  
    

71,768

  

398,483

    
  

Undeveloped parcels of land:

         

Constitucion 1111

  

1,883

  

—  

Dique IV

  

6,160

  

—  

Caballito plots of land

  

13,616

  

—  

Padilla 902

  

246

  

—  

Pilar

  

3,407

  

—  

Torres Jardín IV

  

2,231

  

3,031

Puerto Retiro

  

46,203

  

46,349

Benavidez

  

14,210

  

—  

Santa María del Plata

  

116,065

  

124,425

Pereiraola

  

21,873

  

21,828

Bs. As. Trade and Finance Center S.A

  

25,973

  

4,808

Buenos Aires Realty S.A.

  

—  

  

5,657

 

20


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 8:   (Continued)

 

    

March 31,

2003


  

March 31,
2002


Undeveloped parcels of land:

         

Argentine Realty S.A.

  

—  

  

5,876

Coto

  

9,042

  

—  

Caballito

  

24,801

  

—  

Rosario

  

56,228

  

—  

Neuquén

  

8,519

  

—  

Alcorta Plaza

  

15,845

  

—  

Other parcels of undeveloped land

  

3,099

  

3,095

    
  
    

369,401

  

215,069

    
  
    

441,169

  

613,552

    
  

 

NOTE 9:   FIXED ASSETS

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,

2002


Hotels

         

Hotel Intercontinental

  

57,972

  

67,722

Hotel Libertador

  

40,195

  

55,499

    
  
    

98,167

  

123,221

    
  

Office buildings

         

Edificios costeros (Dique II)

  

23,564

  

26,704

Laminar Plaza

  

28,096

  

32,333

Libertador 498

  

35,486

  

53,417

Libertador 602

  

2,491

  

3,168

Madero 1020

  

7,617

  

20,471

Maipú 1300

  

40,889

  

47,331

Reconquista 823

  

17,490

  

21,383

Suipacha 652

  

9,945

  

13,973

Alto Palermo Plaza

  

—  

  

1,080

Intercontinental Plaza

  

64,071

  

71,710

Costeros Dique IV

  

17,583

  

23,084

Other

  

—  

  

12,466

Other office buildings

  

6,648

  

—  

    
  
    

253,880

  

327,120

    
  

Commercial real estate

         

Alsina 934

  

1,492

  

1,522

Constitución 1111

  

399

  

6,025

    
  
    

1,891

  

7,547

    
  

 

21


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 9:   (Continued)

 

    

March 31,
2003


  

March 31,

2002


Other fixed assets

         

Abril

  

2,166

  

2,639

Alto Palermo Park

  

794

  

1,075

Thames

  

3,764

  

4,526

Other

  

3,658

  

2,966

    
  
    

10,382

  

11,206

    
  

Shopping Center

         

Alto Avellaneda

  

94,051

  

—  

Alto Palermo

  

252,224

  

—  

Paseo Alcorta

  

73,580

  

—  

Abasto

  

191,303

  

—  

Patio Bullrich

  

129,411

  

—  

Buenos Aires Design

  

22,763

  

—  

Nuevo Noa

  

21,211

  

—  

Other properties

  

13,377

  

—  

Other

  

11,639

  

—  

    
  
    

809,559

  

—  

    
  
    

1,173,879

  

469,094

    
  

 

NOTE 10:   CUSTOMER ADVANCES

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


  

Non-
Current


  

Current


  

Non-

Current


Entrance fees

  

7,615

  

14,437

  

—  

  

—  

Advance payments for rents

  

2,627

  

12,132

  

38

  

—  

Advance payments from customers

  

2,165

  

276

  

3,173

  

—  

    
  
  
  
    

12,407

  

26,845

  

3,211

  

—  

    
  
  
  

 

22


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,

2003


  

March 31,

2002


    

Current


  

Non-
Current


  

Current


  

Non-

Current


Convertible bond APSA 2006(1)

  

—  

  

59,598

  

—  

  

—  

Accrued interest—Convertible bond APSA 2006(1)

  

1,225

  

—  

  

—  

  

—  

Negotiable obligations APSA(2)

  

6,349

  

73,361

  

—  

  

—  

Accrued interest—Negotiable obligations APSA(2)

  

2,819

  

—  

  

—  

  

—  

Related parties

  

2,423

  

—  

  

—  

  

—  

Bank debts(3)

  

37,964

  

151,980

  

470,970

  

51,852

Accrued interest—bank loans(3)

  

3,010

  

—  

  

5,064

  

—  

Bond 100 M.(4)

  

—  

  

298,000

  

—  

  

—  

Interest-Bond 100 M.(4)

  

9,073

  

—  

  

—  

  

—  

Negotiable obligations 2009—principal amount(4)

  

—  

  

111,392

  

223,989

  

—  

Negotiable obligations 2009—accrued interest(4)

  

393

  

—  

  

295

  

—  

Other

  

48

  

—  

  

71,379

  

—  

    
  
  
  
    

63,304

  

694,331

  

771,697

  

51,852

    
  
  
  

(1)   U$S 49,954 thousand corresponds to the Negotiable Bonds Convertible to stock (CNB) issued by APSA for a value of U$S 50,000 million, as detailed in Note 23 to the consolidated financial statements, net of the CNB underwritten by the Company for $ 89,266 M.
(2)   Includes:
  (a)   $ 49,833 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. 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)   $ 9,561 thousand corresponding to secured general liabilities of APSA originally issued for a value of U$S 40.000 M, and which mature on 13 January 2005, on which date the full amount of the principal will be amortized. 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)   $ 20,316 thousand corresponding to secured general liabilities in Shopping Alto Palermo S.A. (SAPSA). 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)   U$S 51,000 thousand corresponding to an unsecured loan falling due in the year 2009, as detailed in Note 6 to the basic financial statements.
  (b)   $ 33,087 thousand current, corresponding to a loan secured with real estate assets belonging to Hoteles Argentinos S.A., as detailed in Note 16 to the consolidated financial statements.
  (c)   $ 4,877 thousand corresponding to other current bank loans.
(4)   Corresponding to the issue of Convertible Negotiable Bonds of the Company for a total value of U$S 100 million as set forth in Note 6 to the basic financial statements.
(5)   Corresponding to the issue of Negotiable Bonds secured with certain Company assets maturing in the year 2009, as detailed in Note 6 and 12 c. a to the basic financial statements.

 

23


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, 2003


  

March 31, 2002


    

Current


    

Non-current


  

Current


    

Non-current


Seller financing

  

6,677

    

—  

  

1,330

    

1,207

Dividends payable

  

3,005

    

—  

  

10,932

    

—  

Intercompany

  

1,129

    

—  

  

—  

    

669

Guarantee deposits

  

855

    

797

  

1,500

    

2,182

Provision for discounts

  

15

    

—  

  

55

    

—  

Provision for lawsuits and contingencies

  

2,244

    

4624

  

33

    

400

Rebilled condominium expenses

  

66

    

—  

  

1,035

    

—  

Directors’ deposits

  

—  

    

8

  

—  

    

13

Fund administration

  

—  

    

491

  

—  

    

—  

Operation pending settlement

  

3,072

    

—  

  

9,326

    

—  

Other provisions

  

275

    

—  

  

1,019

    

—  

Collections on behalf of third parties

  

48

    

—  

  

145

    

—  

Pending settlements for sales of plots

  

151

    

—  

  

1,701

    

—  

Profits not yet realized

  

212

    

955

  

—  

    

—  

Other

  

1,155

    

48

  

1,960

    

733

    
    
  
    
    

18,904

    

6,923

  

29,036

    

5,204

    
    
  
    

 

NOTE 13:   RESULTS FROM OPERATIONS AND HOLDINGS OF REAL ESTATE ASSETS

 

The breakdown for this item is as follows:

 

           

March 31,
2003


  

March 31,

2002


 

Results from transactions related to shares of real estate companies

         

10,139

  

31,772

 

Results from holding of real estate assets

         

—  

  

(4,789

)

           
  

    

(1

)

  

10,139

  

26,983

 

           
  


(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.

 

NOTE 14:   FINANCIAL RESULTS, NET

 

The breakdown for this item is as follows:

 

    

March 31,
2003


    

March 31,

2002


 

Financial results generated by assets:

             

Interest income

  

15,505

 

  

401

 

Gain/(loss) on financial operations

  

17,713

 

  

(79,356

)

Exchange gain/ (loss)

  

(59,071

)

  

148,007

 

Loss on exposure to inflation

  

(13,489

)

  

(165,090

)

    

  

    

(39,342

)

  

(96,038

)

    

  

 

24


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 14:   (Continued)

 

    

March 31,
2003


    

March 31,

2002


 

Financial results generated by liabilities:

             

Discounts

  

26,154

 

  

—  

 

Exchange gain/(loss)

  

258,323

 

  

(581,441

)

Gain on exposure to inflation

  

6,837

 

  

208,363

 

Financial expenses

  

(35,103

)

  

(51,625

)

    

  

    

256,211

 

  

(424,703

)

    

  

Financial results, net

  

216,869

 

  

(520,741

)

    

  

 

NOTE 15:   OTHER INCOME AND EXPENSES; NET

 

    

March 31,
2003


    

March 31,

2002


 

Other income:

             

Gain on early redemption of debt

  

12,936

 

  

—  

 

Gain from the sale of fixed assets and intangible

  

2,132

 

  

—  

 

Other

  

685

 

  

842

 

    

  

    

15,753

 

  

842

 

    

  

Other expenses:

             

Unrecoverable VAT

  

(800

)

  

(1,181

)

Donations

  

(332

)

  

(315

)

Contingencies for lawsuits

  

(3,871

)

  

—  

 

Debit and credit tax

  

(841

)

  

(1,386

)

Other

  

(3,016

)

  

(1,498

)

    

  

    

(8,860

)

  

(4,380

)

    

  

Other income and expenses, net

  

6,893

 

  

(3,538

)

    

  

 

NOTE 16:   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.

 

25


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 16:   (Continued)

 

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 plaintiff’s 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. Buenos Aires 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 nine-month loans plus the applicable mark-up per the contract, which consists in a variable interest rate applicable during the interest bearing periods, which ranges from 6.56% to 8.46% per year.

 

The guarantee granted was a senior mortgage on a Company property, which houses the Hotel Sheraton Libertador Buenos Aires.

 

At the date of issue of these financial statements, 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 Juanuary 26, April 29, July 29, October 26, 2002, January 26 2003 and April 29, 2003 respectivelly and the interest installment amounting to US$ 672 thousand falling due on July 29, October 26, 2002, January 26, 2003 and April 29, 2003 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 financial statements.

 

Alto Palermo S.A.—Restricted assets.

 

  a)   As of March 31, 2003, APSA records funds for $ 108 thousand in other current receivables, which have been restricted by the Federal Court of First Instance dealing with Labor Matters No. 40—Single Clerk’s Office, in relation to the case entitled “Del Valle Soria, Delicia v. New Shopping S.A.”, dismissal without legal justification.

 

  b)   As of March 31, 2003, the Company records $ 14.4 million for shares in Emprendimiento Recoleta S.A. on which a pledge has been set up.

 

26


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 16:   (Continued)

 

  c)   As of March 31, 2003, the Company records a balance of $ 149 million in non-current financial debts, corresponding to derivative financial instruments used as collateral for operations.

 

  d)   As of March 31, 2003, Shopping Neuquén S.A. includes $ 48 thousand in financial loans, corresponding to a mortgage set up on acquired land for $ 3,314 thousand.

 

  e)   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.

 

  f)   On December 19, 2001 a “Guarantee Trust” agreement was entered into by and between Tarshop S.A., as Trustor, and HSBC Participaciones (Argentina) S.A., as Trustee, to secure compliance by Tarshop S.A with its obligations with the beneficiary, HSBC Bank Argentina S.A.. Those obligations include a loan for $ 1,5 million requested by Tarshop S.A. on November 9, 2000.

 

       The trust assets include receivables in favor of Tarshop S.A. for coupons issued for amounts charged to certain users of the Shopping card (Tarjeta Shopping) issued by Tarshop S.A..

 

Buenos Aires Trade & Finance Center S.A..

 

On October 18, 1999, the Company set up a first mortgage in favor of Corporación Antiguo Puerto Madero Sociedad Anónima as collateral for the balance of the price of U$S 6,428,943,90 (principal and interest) for the acquisition of the Plot of Land 1 of Block 5 M of Dock 3 of Puerto Madero, in the City of Buenos Aires, which will fall due on December 9, 2002. At the financial closing date the full amount of the debt was settled (principal, VAT and interest) and repaid this mortgages.

 

NOTE 17:   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 APSA balance sheet. The remaining receivables in the Trust which have not been sold to third parties are reflected on the APSA balance sheet as a retained interest in transferred credit card receivables. Under these programs, APSA acts as the servicer on the accounts and receives a fee for its services.

 

27


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 17:   (Continued)

 

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.

 

Alto Palermo S.A. entered into two-year revolving-period securitization programs, through which Tarshop sold an aggregate amount of Ps. 83.1 million of its customer credit card receivable. Under the securitization programs, the Trusts issued Ps. 12.4 million nominal value subordinated CPs, Ps. 23.8 million 12% fixed-rate interest TDFs and Ps. 20.0 million 18% fixed-rate interest TDFs, and Ps. 6.9 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. As a credit protection for investors, Tarshop has established cash reserves for losses amounting to Ps. 0.2 million.

 

NOTE 18:   REDUCTION OF CAPITAL STOCK OF IRSA INTERNATIONAL LIMITED AND RITELCO S.A.

 

On December 22, 2000, the shareholders of IRSA International Limited decided to redeem shares and retained earnings in that company for US$ 59,260. On the same date, the shareholders of Ritelco S.A. decided to redeem shares for US$ 58,727. These reductions are pending of approval from the respective control authorities.

 

On March 7, 2001, the shareholders of IRSA International Limited decided to redeem shares for US$ 4,370. On the same date, the shareholders of Ritelco S.A. decided to redeem shares for US$ 4,560. Both decisions are pending of approval from the respective control authorities.

 

During the period ended September 30, 2001, the shareholders of IRSA International Limited decided to redeem shares and retained earnings for US$ 12,464. The decision is pending of approval from the respective control authorities.

 

28


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 18:   (Continued)

 

On June 30, 2002 the shareholders of IRSA International Limited approved the liquidation of the Company, which is pending approval by the control authorities. On that date, the shareholders of Ritelco S.A. decided to make a reduction in capital stock and unappropriated retained earnings amounting to US$ 46,879 thousand. That reduction has not yet been submitted to the approval of the corresponding control authorities.

 

NOTE 19:   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 abovementioned 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.

 

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)

 

29


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 19:   (Continued)

 

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 20:   SETTING UP OF A FINANCIAL TRUST FOR THE SECURITIZATION OF RECEIVABLES OF IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANÓNIMA (IRSA), INVERSORA BOLIVAR S.A. AND BALDOVINOS S.A.

 

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.

 

    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.

 

30


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 20:   (Continued)

 

    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).

 

At March 31, 2003, the Exchangeable Class A, B, C and D Participation Certificates amounted to thousand $ 7,612 in IRSA, thousand $ 1,212 in Inversora Bolívar S.A., and thousand $ 312 in Baldovinos S.A.

 

NOTE 21:   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 $ 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.

 

31


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 21:   (Continued)

 

  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 Company’s 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 IRSA’s 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 IRSA’s shares. Upon the Company’s 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.

 

  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 31 March 2003, the Company has settled all the installments referred to in item d) amounting to a total of $ 39,208 thousand, recording a profit of $ 26,154 thousand as a result of a remission by GSEM. Along these lines, at the date of issue of these financial statements, the aspects referred to in items c), e), f) and g) are null and void.

 

32


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 22:   DERIVATIVE INSTRUMENTS

 

The Company uses various financial derivatives, mainly term exchange purchase-sale contracts, to hedge its net investment in foreign operations and as a complement to reduce its global financial costs.

 

The counterparties to these instruments generally are major financial institutions. The Company does not hold or issue derivative instruments for trading purposes. In entering into these contracts, the Company has assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. The Company does not expect any losses as a result of counterparty defaults.

 

  (i)   Foreign currency forward-exchange contracts

 

The Company uses foreign currency forward-exchange contracts as a supplement to reduce its overall financing costs. Premiums on foreign currency forward-exchange contracts are amortized over the life of the respective contract. The market value of the foreign currency forward contracts has not been recognized in the accompanying financial statements. As of March 31, 2003 and 2002, the Company did not have any foreign currency forward contracts in force.

 

  (ii)   Interest rate swap

 

In order to minimize its financing costs and to manage interest rate exposure, the Company 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.

 

As of March 31, 2001, the Company had an interest rate swap agreement outstanding with an aggregate notional amount of Ps. 85.0 million with maturities through March 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 maturities through March 2005. Any differential to be paid or received under this agreement is accrued and is recognized as an adjustment to interest expense in the statement of operations. The related accrued receivable or payable is included as an adjustment to interest payable. The fair value of the swap agreement is not recognized in the financial statements. During the period ended March 31, 2003 and 2002, the Company recognized a gain of Ps. 3.7 million and Ps. 2.1 million, respectively.

 

33


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 22:   (Continued)

 

  (iii)   Options contracts

 

The Company signs options contracts by which, through the payment or collection of a sum of money (premium) it acquires or grants the right to the other party to buy or sell certain underlying assets (shares, metals, etc.) at a predetermined fixed price during a period previously established.. These contracts have been valued at their market price. The premiums for option contracts are amortized over the life of the corresponding contracts.

 

NOTE 23:   ALTO PALERMO—ISSUANCE OF NEGOTIABLE OBLIGATIONS CONVERTIBLE FOR SHARES

 

On July 19, 2002, Alto Palermo S.A. issued Series I of Negotiable Obligations convertible for ordinary, book-entry shares, par value of $ 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. 14196 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 negotiable obligations shall be convertible for ordinary book-entry shares with a par value of 0.10 each and at a price of US$ 0.0324 per share, at the option of each holder.

 

    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.

 

The Convertible Negotiable Obligations were paid in cash or by using liabilities due from APSA on the subscription date.

 

The Company applied the proceeds from the debt securities covering expenses and related fees to the issuing and placing of convertible negotiable obligations, payment of liabilities with shareholders and repurchase of Class A-2 and B-2 negotiable obligations, the latter corresponding to its subsidiary Shopping Alto Palermo S.A., thus complying with the plan of allocation of funds submitted to the National Securities Commission.

 

34


IRSA Inversiones y Representaciones Sociedad Anónima

and subsidiaries

 

Notes to the unaudited consolidated financial statements (Contd.)

 

NOTE 23:   (Continued)

 

At March 31, 2003 Convertible Negotiable Obligations amounted to US$ 49,954,000.

 

On January 24, 2003 three holders of Convertible Negotiable Obligations in ordinary shares of the Company, exercised their right to convert them for a total of US$ 46,000 leading to the issuing of 1,419,750 ordinary shares of $ 0.1 face value each.

 

NOTE 24:   ALTO PALERMO—COMMITMENT TO MAKE CONTRIBUTIONS AND OPTIONS GRANTED TO ACQUIRE SHARES IN RELATED COMPANIES

 

Alto Palermo S.A. and Telefónica de Argentina S.A. have undertaken to make capital contributions in E-Commerce Latina S.A. for $ 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 $ 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 $ 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.

 

35


 

Name of the Company:

  

IRSA Inversiones y Representaciones S.A.

Corporate domicile:

  

Bolívar 108 1º Floor—Federal Capital

Principal activity:

  

Real estate investment and development

 

Unaudited Financial Statements for the nine-month periods

ended as of March 31, 2003

compared with the same previous period

Stated in thousands of pesos

Fiscal period No. 60 beginning July 1º, 2002

 

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 11)

 

           

In thousands of pesos


Type of stock


    

Authorized for Public

Offer of
Shares


  

Subscribed


  

Paid up


Common stock,1 vote each

    

211,999,273

  

212,000

  

212,000

      
  
  


IRSA Inversiones y Representaciones Sociedad Anónima

 

Unaudited Balance Sheets as of March 31, 2003 and 2002

 

In thousands of pesos

 

    

March 31,

2003

(Notes 1 and 2)


  

March 31,

2002

(Notes 1 and 2)


ASSETS

         

CURRENT ASSETS

         

Cash and banks (Schedule G)

  

36,844

  

17,982

Investments (Schedules C, D and G)

  

117,035

  

19,911

Mortgages and leases receivables (Note 3)

  

3,267

  

11,022

Other receivables (Note 4 and Schedule G)

  

47,886

  

34,428

Inventory (Note 5)

  

2,324

  

2,865

    
  

Total Current Assets

  

207,356

  

86,208

    
  

NON-CURRENT ASSETS

         

Mortgages receivables (Note 3)

  

269

  

5,683

Other receivables (Note 4)

  

13,862

  

73,000

Inventory (Note 5)

  

1,638

  

33,664

Investments (Schedules C, D and G)

  

877,933

  

897,724

Fixed assets (Schedule A)

  

193,843

  

264,557

Intangible assets (Schedule B)

  

6,258

  

2,507

    
  

Total Non-Current Assets

  

1,093,803

  

1,277,135

    
  

Total Assets

  

1,301,159

  

1,363,343

    
  

LIABILITIES

         

CURRENT LIABILITIES

         

Trade accounts payable

  

3,266

  

2,177

Mortgages payable

  

—  

  

—  

Customer advances

  

354

  

1,586

Short-term debt (Note 6 and Schedule G)

  

10,112

  

753,676

Salaries and social security charges

  

463

  

400

Taxes payable (Schedule G)

  

2,963

  

10,313

Other liabilities (Note 7)

  

6,288

  

23,702

    
  

Total Current Liabilities

  

23,446

  

791,854

    
  

NON-CURRENT LIABILITIES

         

Trade accounts payable

  

—  

  

266

Long-term debt (Note 6)

  

561,372

  

—  

Customer advances

  

623

  

—  

Other liabilities (Note 7)

  

711

  

3,877

    
  

Total Non-Current Liabilities

  

562,706

  

4,143

    
  

Total Liabilities

  

586,152

  

795,997

    
  

SHAREHOLDERS ‘EQUITY
(As per relevant statement)

  

715,007

  

567,346

    
  

Total Liabilities and Shareholders’ Equity

  

1,301,159

  

1,363,343

    
  

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 Income

For the nine-month periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

    

March 31,

2003

(Notes 1 and 2)


    

March 31,

2002

(Notes 1 and 2)


 

Mortgages, leases and services

  

35,817

 

  

46,219

 

Cost of sales, leases and services (Schedule F)

  

(31,715

)

  

(26,842

)

    

  

Gross (Loss)—Income

  

4,102

 

  

19,377

 

Selling expenses (Schedule H)

  

(998

)

  

(1,670

)

Administrative expenses (Schedule H)

  

(5,949

)

  

(11,926

)

    

  

Subtotal

  

(6,947

)

  

(13,596

)

    

  

Loss from operations and holding of real estate assets

  

10,141

 

  

(4,789

)

    

  

Operating income

  

7,296

 

  

992

 

    

  

Financial results, net (Note 8)

  

147,357

 

  

(484,211

)

Equity in earnings of controlled and affiliated companies (Nota 10 c.)

  

45,638

 

  

(23,809

)

Other income and (expenses), net (Note 9)

  

(1,619

)

  

(1,613

)

    

  

Income—(Loss) before taxes

  

198,672

 

  

(508,641

)

Income tax and asset tax (Note 2 g. and h.)

  

(1,044

)

  

(2,827

)

    

  

Income—(Loss) for the period

  

197,628

 

  

(511,468

)

    

  

 

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 Changes in Shareholders’ Equity

For the nine-month periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

 

In thousands of pesos (Notes 1 and 2)

 

Items


 

Shareholders’ contributions


  

Reserved
Earnings


               
 

Common

Stock


  

Treasury

stock


    

Inflation

adjustment of

common stock


  

Inflation

adjustment of

treasury stock


    

Additional

paid-in-capital


 

Total


  

Legal reserve


 

Retained

earnings


   

Total as of

March 31,

2003


 

Total as

of
March 31,
2002


 
                        

Balances as of beginning of the year

 

207,412

  

4,588

 

  

268,524

  

5,863

 

  

569,481

 

1,055,868

  

19,447

 

(557,936

)

 

517,379

 

1,078,814

 

Distribution resolved by the Ordinary and Extraordinary Shareholders’ Meeting on November 5, 2002:

                                                    

—Distribution of Company shares:

 

4,588

  

(4,588

)

  

5,863

  

(5,863

)

  

—  

 

—  

  

—  

 

—  

 

 

—  

 

—  

 

Income—(Loss) for the period

 

—  

  

—  

 

  

—  

  

—  

 

  

—  

 

—  

  

—  

 

197,628

 

 

197,628

 

(511,468

)

   
  

  
  

  
 
  
 

 
 

Balances as of March 31, 2003

 

212,000

  

—  

 

  

274,387

  

—  

 

  

569,481

 

1,055,868

  

19,447

 

(360,308

)

 

715,007

 

—  

 

   
  

  
  

  
 
  
 

 
 

Balances as of March 31, 2002

 

207,412

  

4,588

 

  

268,524

  

5,863

 

  

569,481

 

1,055,868

  

19,447

 

(507,969

)

 

—  

 

567,346

 

   
  

  
  

  
 
  
 

 
 

 

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(1)

For the nine-month periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

    

March 31,

2003
(Notes 1 and 2)


    

March 31,

2002
(Notes 1 and 2)


 

  CASH FLOWS FROM OPERATING ACITIVITES:

             

Income—(Loss) for the period

  

197,628

 

  

(511,468

)

Adjustments to reconcile net loss to cash flow from operating activities:

             

•      Equity in earnings of controlled and affiliated companies

  

(45,628

)

  

23,018

 

•      Loss from operations and holding of real estate assets

  

—  

 

  

4,789

 

•      Allowances and provisions

  

169

 

  

63

 

•      Amortization and depreciation

  

5,600

 

  

10,452

 

•      Financial results

  

(191,684

)

  

404,718

 

•      Income tax

  

1,044

 

  

2,827

 

Changes in assets and liabilities:

             

•      (Increase) Decrease in current investments

  

(4,572

)

  

10,908

 

•      Increase in non-current investments

  

(24,671

)

  

—  

 

•      Decrease in mortgages and leases receivables

  

6,265

 

  

19,617

 

•      Decrease (Increase) in other receivables

  

18,090

 

  

(2,700

)

•      Decrease in inventory

  

18,889

 

  

14,809

 

•      Decrease (Increase) in intangible assets

  

262

 

  

(343

)

•      Increase in taxes payable, salaries and social security and customer advances

  

2,037

 

  

2,266

 

•      Decrease in accounts payable

  

(1,013

)

  

(451

)

•      Increase in accrued interest

  

17,158

 

  

40,384

 

•      Cash dividends received

  

—  

 

  

1,653

 

•      Increase (Decrease) in other liabilities

  

1,956

 

  

(1,035

)

    

  

 Net cash provided by operating activities

  

1,530

 

  

19,507

 

    

  

  CASH FLOWS FROM INVESTING ACTIVITIES:

             

•      Decrease from equity interest in subsidiary companies and equity investees

  

10,343

 

  

(4,059

)

•      Increase from equity interest in subsidiary companies and equity investees

  

(20,641

)

  

88,164

 

•      Payment for acquisition of undeveloped parcels of land

  

(78

)

  

(541

)

•      Cash acquired from mergers

  

—  

 

  

266

 

•      Loans granted to related parties

  

(32,057

)

  

(51,348

)

•      Purchase and improvements of fixed assets

  

(3,923

)

  

(20,895

)

    

  

Net cash used in investing activities

  

(46,356

)

  

11,587

 

    

  

  CASH FLOWS FROM FINANCING ACTIVITIES:

             

•      Intercompany loans

  

—  

 

  

20,472

 

•      Proceeds from loans

  

356,295

 

  

89,529

 

•      Payment of loans

  

(164,821

)

  

(127,271

)

•      Increase in intangible assets

  

(6,360

)

  

(2,415

)

•      Payment of seller financing

  

(1,185

)

  

(1,503

)

    

  

Net cash provided by (used in) financing activities

  

183,929

 

  

(21,188

)

    

  

Net increase in cash and cash equivalents

  

139,103

 

  

9,906

 

    

  

Cash and cash equivalents as of beginning of year

  

5,034

 

  

8,402

 

    

  

Cash and cash equivalents as of end of period

  

144,137

 

  

18,308

 

    

  


(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

 

40


IRSA Inversiones y Representaciones Sociedad Anónima

 

Unaudited Statements of Cash Flows (Continued)

For the nine-month periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

      

March 31,

2003

(Notes 1 and 2)


    

March 31,

2002

(Notes 1 and 2)


Supplemental cash flow information

             

Non-cash activities:

             

•      Increase in inventory through a decrease in fixed assets

    

12,013

    

19,062

•      Increase in fixed assets through a decrease in inventory

    

153

    

—  

•      Increase in undeveloped parcels of land through a decrease in inventory

    

25,319

    

—  

•      Decrease in other receivables through an increase in Convertible Bond APSA 2006

    

81,967

    

—  

•      Increase in fixed assets through an increase in mortgages payable

    

931

    

—  

•      Decrease in short and long term debt through a decrease in other receivables

    

7,417

    

—  

•      Increase in non-current investments through a decrease in other receivables

    

456

    

—  

•      Increase in inventory through a decrease in mortgages receivable

    

896

    

—  

•      Increase in investments through a decrease in mortgages receivables

    

—  

    

19,570

•      Decrease in mortgages receivables through the trust

    

—  

    

20,171

•      Increase in other receivables through a decrease in mortgages receivables

    

—  

    

2,445

 

41


 

IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements

For the nine-months periods beginning on

July 1, 2002 and 2001

and ended March 31, 2003 and 2002

In thousands of pesos

 

NOTE 1:   BASIS FOR THE PRESENTATION

 

  a)   Disclosure criteria

 

In compliance with the provisions of Resolution No. 368/01, 372/01 and 398/02 of the Argentine Securities Commission, these financial statements are stated in thousands of Argentine pesos and have been prepared in line with the valuation and disclosure criteria contained in Technical Resolutions No. 4, 5, 6, 8, 9, 10, 12 and 13 of the Argentine Federation of Professional Councils of Economic Sciences (the “FACPCE”), and according to the provisions of the aforementioned Resolutions.

 

The financial statements for the nine-month periods ending 31 March 2003 and 2002 have not been audited. The Company’s management considers that they include all the necessary adjustments to reasonably present the financial result for the periods referred to.

 

The financial result for the period ended 31 March 2003 does not necessarily reflect the net income for the year.

 

The present financial statements must be readen considerating the circumstances mentioned in Note 1 to the unaudited consolidated financial statements.

 

  b)   Recognition of the effects of inflation

 

The Company’s financial statements have been prepared according to Pronouncement M.D. 3/02 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires, which establishes the applicability of Technical Pronouncement No. 6, with the modifications introduced by Technical Pronouncement No. 19 of the Argentine Federation of Professional Council in Economic Sciences as from financial years or non-annual periods ending March 31, 2002.

 

In line with Pronouncement 441/03 of the National Securities Commission, dated April 8, 2003, as from March 1, 2003 the Company stopped applying the method of restatement of financial statement in uniform currency as established by Technical Pronouncement No. 6 with the modifications introduced by Technical Pronouncement No. 19, both pronouncements issued by the Argentine Federation of Professional Council in Economic Sciences (F.A.C.P.C.E.).

 

Therefore, the Company’s financial statements are disclosed in uniform currency at February 28, 2003 and any items of a non-monetary nature existing prior to December 31, 2001 have been considered at their recorded values at that date.

 

The effect of not applying the adjustment for inflation during March 2003 does not imply significant adjustments to the Company’s financial statements at March 31, 2003.

 

The above restatement was made applying the coefficients prepared based on the domestic wholesale price index.

 

42


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 1:       (Continued)

 

 

For purposes of comparison, the figures corresponding to the nine-month period ended March 31, 2002 have been restated as of February 28, 2003.

 

  c)   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” and 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 1 January 2003).

 

The National Securities Commission, through Resolution 434/03, has adopted the Technical Resolutions referred to with certain exceptions and modifications, which shall apply to the financial years commencing on 1 January 2003. Consequently, the Company has prepared these financial statements in accordance with Resolution 415/02 which do not envisage these changes and differ with the provisions contained in the accounting standards currently in force.

 

The main modifications introduced by the new Technical Pronouncements involving significant adjustments to the Company’s financial statements are related to the recording of income tax by the method of deferred tax, the recording of derivatives and the valuation of credits and debts without an express rate at their current value.

 

NOTE 2:   SIGNIFICANT ACCOUNTING POLICIES

 

The following is a summary of the principal accounting policies followed by the Company in the preparation of the financial statements, Which have been applied consistently with regard to the same period of the previous year.

 

  a.   Investments

 

  a.1.   Current investments

 

Current investments include time deposits, which are valued at their cost plus accrued interest and mutual funds, which are carried at market value.

 

Time deposits have original maturities of three months or less. Unrealized gains and losses on time deposits and mutual funds are included in Financial Results, net, in the Statements of Income.

 

43


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:       (Continued)

 

  a.   Investments (Continued)

 

  a.1.   Current investments (Continued)

 

Current investments also include equity securities, government bonds and stock. Unrealized gains and losses on government bonds, equity securities and stock are also included in Financial Results, net, in the Statements of Income.

 

Generally, these investments represent securities traded on a National Securities Exchange, which are valued at the last reported sales price net of estimated selling expenses.

 

  a.2.   Non-current investments

 

  a.2.1.   Equity investments

 

Equity investments in controlled and affiliated companies have been accounted for under the equity method, in accordance with the provisions of Technical Resolution No. 5 of the F.A.C.P.C.E.

 

Equity investments in less than 20% of the capital stock in companies in which the Company does not exercise significant influence are generally carried at market value, recognizing realized gains and losses in earnings, and if these do not exist, at their acquisition cost adjusted for inflation.

 

The value paid for the purchase of shares in controlled and affiliated companies over or under their equity value at the date of acquisition was recognized as positive or negative goodwill, which is amortized over ten periods.

 

The Company presents consolidated financial statements with its subsidiaries.

 

  a.2.2.   Participation certificates

 

The certificates of participation in IRSA I financial trust have been valued at their acquisition cost plus accrued interest in the case of classes A, B and C, and at the cost resulting from apportioning the participation certificate holding to the trust assets in the case of class D.

 

  a.2.3.   Investments in debt securities

 

The investment in APSA’s Convertible Bonds has been valued at cost, applying the exchange rate in force at period end, plus accrued interest.

 

44


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:       (Continued)

 

 

  a.   Investments (Continued)

 

  a.3.   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 Company’s 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.b), or estimated net realizable value, whichever is lower. Land and land improvements are transferred to inventories when construction commences.

 

At the end of the previous fiscal year, as mentioned in Note 2.m., the Company set up provisions for impairment of certain plots (identified as Santa Maria del Plata and Torres Jardín IV).

 

The accounting value of plots of land, net of provisions set up, does not exceed estimated recoverable value.

 

  b.   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 periods.

 

Residential, office and other non-retail properties completed or under construction are stated at cost, adjusted for inflation at the end of the period, as defined in Note 1.b), 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 and advertising 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 March 31, 2003 and 2002.

 

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.

 

45


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:       (Continued)

 

 

  b.   Inventory (Continued)

 

At the end of the previous fiscal year, as mentioned in Note 2.m, the Company set up provisions for impairment of certain inventories (identified as Avda. Madero 1020, Rivadavia 2768, Constitución 1111, Terrenos de Caballito, Padilla 902 and parking lots in Dock 13).

 

The accounting value of inventories, net of provisions set up, does not exceed estimated recoverable value.

 

  c.   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 provisions set up, does not exceed estimated recoverable value.

 

    Rental properties

 

Rental properties are carried at cost, adjusted for inflation at the end of the period, as defined in Note 1.b), 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 periods for buildings. Expenditures for ordinary maintenance and repairs are charged to operations 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 results.

 

The Company capitalizes interest on long-term construction projects. No interest costs were capitalized during the period ended March 31, 2003 and 2002.

 

At the end of the previous fiscal year, as mentioned in Note 2.m, the Company set up provisions for impairment of certain rental properties (identified as Libertador 498, Maipú 1300, Avda. Madero 1020, Suipacha 652, Laminar Plaza, Reconquista 823, Constitución 1111, Dock 2 M10- Building C-. Libertador 602, Dock 2 M10 -Building A-, Avda. Madero 942, Avda. de Mayo 595, Costeros Dique IV and Sarmiento 517).

 

46


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:       (Continued)

 

 

  c.   Fixed assets (Continued)

 

    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, 2003 and 2002 were not material. These costs are being amortized on a straight-line basis over a period of 3 periods.

 

    Other properties and equipment

 

Other property and equipment properties are carried at cost, adjusted for inflation at the end of the period, as defined in Note 1.b), 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 (periods)


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.

 

  d.   Intangible assets

 

Intangible assets are carried at cost, adjusted for inflation at the end of the period as defined in Note 1.b), less accumulated depreciation.

 

    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 repurchase of this notes, the related expenses are amortized using the proportional method.

 

    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.

 

47


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:   (Continued)

 

 

  e.   Foreign currency assets and liabilities

 

Assets and liabilities denominated in foreign currency are translated at the exchange rate prevailing at period end.

 

Transactions denominated in foreign currencies are translated into pesos at the prevailing exchange rates on the date of transaction settlement. Foreign currency transaction gains and losses are recorded within Financial Results, net.

 

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 and were adjusted by a reference stabilization index (CER).

 

  f.   Monetary assets and liabilities

 

Monetary assets and liabilities are stated at their face value plus or minus the related financial gain or loss.

 

  g.   Income tax

 

The Company has determined its income tax charge at the 35% rate in force in all periods presented.

 

The taxable results for the period ended March 31, 2003, determined according to the to Argentine income tax law, showed a taxable income of approximately $ 111.2 million.

 

As of March 31, 2003, the Company had accumulated tax loss carryforwards of approximately Ps. 260 million, which expire in the year 2007.

 

 

48


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:    (Continued)  

 

 

  h.   Asset tax

 

During the period ended June 30, 1999, Law 25,063 set out the asset tax for four fiscal periods. This tax supplements the income tax, because while the latter is levied on the taxable income for the period, the asset tax is levied on the potential yield of certain assets at a 1% rate, and the Company’s tax liability is the higher of both taxes.

 

Law 25,360 modified Law 25,063 by extending the term of application to ten fiscal periods.

 

Any excess of the asset tax over and above the income tax in a given fiscal period may be considered as a payment on account of the income tax to be generated in the next ten periods (in excess of the asset tax).

 

As of March 31, 2003 the Company has estimated the applicable asset tax and has reflected the portion it estimates it will be able to offset in future periods in line with the rules in force under other (current and non-current) receivables, charging the remaining portion to income currently.

 

  i.   Customer advances

 

Customer advances represent payments received in advance in connection with the sale and rent of properties.

 

  j.   Provisions for allowances and contingencies

 

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 consolidated financial statements reflect that consideration.

 

49


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:    (Continued)  

 

  j.   Provisions for allowances and contingencies (Continued)

 

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 Company’s estimates of the outcomes of these matters and the Company’s 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 Company’s future results of operations and financial condition or liquidity.

 

  k.   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. 119 and Ps. 931 thousand for the period ended March 31, 2003 and 2002, respectively.

 

  l.   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.

 

  m.   Impairment of long-lived assets

 

The Company regularly evaluates its non-current assets for recoverability. The Company considers that impairment losses arise when the recoverable value is lower than book value. Impairment losses must be appropriated to the result for the period. The recoverable value is mainly determined using independent estimates or projections of future cash flows. At the end of the previous fiscal year, due to the progressive deterioration of the Argentine economy and the impact on the Company’s revenue of the measures adopted by the National Government mentioned in Note 1 to the unaudited consolidated financial statements, the Company has reevaluated the recoverable value of its non-current assets, recording an impairment loss as the valuation of certain assets has exceeded the estimated recoverable value.

 

  n.   Financial derivatives

 

The Company uses various financial derivatives to hedge its net investment in foreign operations and as a complement to reduce its global financial costs.

 

50


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:    (Continued)  

 

  n.   Financial derivatives (Continued)

 

The Company does not engage in trading or other speculative use of these financial instruments. Additionally, 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.

 

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.

 

    Foreign currency forward-exchange contracts

 

In accordance with the Company’s risk management policies, it uses long-term foreign currency purchase and sale contracts as a supplement to reduce its overall financial costs as well as to administer its exposure regarding net investments in financial transactions.

 

Foreign currency forward-exchange contracts entered into by the Company generally mature within one period. Premiums on foreign currency forward-exchange contracts are amortized over the life of the respective contracts.

 

    Interest rate swaps

 

Interest rate swaps are used to hedge interest rate exposure. Interest rate swaps are recognized on an accrual basis, recording the net amount receivable or payable as an adjustment to the interest rate expense. The accrued amount receivable or payable is included as an adjustment to the interest expense. Upon expiry or termination of a swap, the net income or loss realized or pending realization is recognized over the remaining original term if the hedged item remains unpaid, or immediately if the underlying hedged item is not unpaid. If the swap has not expired, or if it expires before maturity, but the underlying hedged item is no longer unpaid, the unrealized income or loss on the interest swap is immediately recognized.

 

51


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:    (Continued)  

 

 

    Options contracts

 

The Company signs options contracts by which, through the payment or collection of a sum of money (premium) it acquires or grants the right to the other party to buy or sell certain underlying assets (shares, metals, etc.) at a predetermined fixed price during a period previously established.. These contracts have been valued at their market price. The premiums for option contracts are amortized over the life of the corresponding contracts.

 

  o.   Shareholders’ equity

 

Opening balances and account movements are stated in the currency of the month to which they correspond, restated as mentioned in Note 1.b).

 

  p.   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.b).

 

    Charges for assets consumed (fixed asset depreciation, intangible asset amortization and cost of sales) were determined based on the values recorded for such assets.

 

    Financial gains and losses are included in Note 8, broken down to show those generated by assets and by liabilities.

 

    Income—(loss) from investments in controlled and affiliated companies was calculated under the equity method, by applying the percentage of the Company’s equity interest to the income—(loss) of such companies.

 

  q.   Estimations

 

The preparation of the 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 the 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 financial statements.

 

52


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 2:    (Continued)  

 

 

  r.   Revenue recognition

 

  r.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 buyer’s ability and commitment to pay for the property;

 

    the Company’s 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 Company’s 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.

 

  r.2.   Leases

 

Revenues from leases are recognized over the life of the related lease contracts. All revenues are presented net of taxes levied on sales.

 

  s.   Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less, consisting primarily in mutual funds.

 

  t.   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.

 

53


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

 

NOTE 3:   MORTGAGES AND LEASES RECEIVABLES

 

The breakdown for this item is as follows:

    

March 31,
2003


  

March 31,
2002


    

Current


      

Non-current


  

Current


      

Non-current


Mortgages and leases receivable

  

1,441

 

    

269

  

4,482

 

    

5,548

Debtors under legal proceedings

  

1,426

 

    

—  

  

2,760

 

    

—  

Intercompany (Note 10 a.)

  

1,184

 

    

—  

  

5,042

 

    

135

Less:

                           

Allowance for doubtful accounts (Schedule E)

  

(784

)

    

—  

  

(1,262

)

    

—  

    

    
  

    
    

3,267

 

    

269

  

11,022

 

    

5,683

    

    
  

    

 

As of March 31, 2003, current and non-current receivables from the sale of real estate are secured by first degree mortgages in favor of the Company.

 

NOTE 4:   OTHER RECEIVABLES

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


  

Non-current


  

Current


  

Non-current


Asset tax (Note 2 h.)

  

3,705

  

13,441

  

3,026

  

19,524

Value Added Tax (VAT)

  

741

  

—  

  

77

  

—  

C.N. Hacoaj Project

  

—  

  

—  

  

987

  

—  

Intercompany (Note 10 a.)

  

37,471

  

22

  

24,125

  

52,813

Services to be billed

  

—  

  

—  

  

171

  

—  

Guarantee deposits

  

—  

  

38

  

—  

  

63

Expenses to recover

  

782

  

—  

  

900

  

—  

Gross sales tax

  

4

  

—  

  

—  

  

—  

Income tax prepayments and withholdings

  

5

  

—  

  

105

  

—  

Operating pending settlement

  

1,508

  

—  

  

759

  

—  

Trust accounts receivable

  

—  

  

361

  

—  

  

600

Credit Fiscal Certificates

  

2,220

  

—  

  

2,420

  

—  

Advance Directors´fees

  

—  

  

—  

  

22

  

—  

Other

  

1,450

  

—  

  

1,836

  

—  

    
  
  
  
    

47,886

  

13,862

  

34,428

  

73,000

    
  
  
  

 

54


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

 

NOTE 5:   INVENTORY

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


    

Non-current


  

Current


  

Non-current


Real estate for sale

  

2,324

    

1,638

  

2,865

  

33,664

    
    
  
  
    

2,324

    

1,638

  

2,865

  

33,664

    
    
  
  

 

The value recorded at March 31, 2003 includes the valuation allowance, as mentioned in Note 2.b.

 

NOTE 6:   SHORT AND LONG TERM DEBT

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


  

Non-current


  

Current


    

Non-current


Bank loans(2)

  

—  

  

151,980

  

453,736

    

—  

Bank loans—Accrued interest(2)

  

646

  

—  

  

4,278

    

—  

Negotiable Obligations—2009 principal amount(3)

  

—  

  

111,392

  

223,989

    

—  

Negotiable Obligations—2009—accrued interest(3)

  

393

  

—  

  

295

    

—  

Convertible Negotiable Obligations—2007 principal amount(1)

  

—  

  

298,000

  

—  

    

—  

Convertible Negotiable Obligations—2007 accrued interest(1)

  

9,073

  

—  

  

—  

    

—  

Other financial loans

  

—  

  

—  

  

71,378

    

—  

    
  
  
    
    

10,112

  

561,372

  

753,676

    

—  

    
  
  
    

1.   According to Note 13, these tally with the Negotiable Bonds convertible to stock (CNB) for a total amount of U$S 100 million.
2.   In November 2002, The Company obtained an unsecured loan for a total of U$S 51 million, which falls due on 20 November 2009, with the principal being amortized in 20 quarterly installments with a two-year grace period. U$S 35 million of the principal accrue interest at the LIBO rate over three months plus 200 basis points, and U$S 16 million accrue interest at a fixed rate that is progressively increased. At 31 March 2003, it accrues a fixed annual interest rate of 5.50% plus an annual LIBO of 1.34%. Interest is payable on a quarterly basis. In february 2003, payment was made of the first installment of interest.

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.   In November 2002, the Board of Directors of the Company approved the issue of Negotiable Bonds secured by the assets described in Note 12.c. for U$S 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. At 31 March 2003 these accrue an annual interest of 1.34% at the LIBO rate. In february 2003, payment was made of the first installment of interest.

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.

 

55


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

 

NOTE 7:   OTHER LIABILITIES

 

The breakdown for this item is as follows:

 

    

March 31,
2003


  

March 31,
2002


    

Current


    

Non-current


  

Current


    

Non-current


Seller financing

  

1,073

    

—  

  

1,269

    

1,207

Intercompany (Note 10 a.)

  

1,165

    

—  

  

20,539

    

669

Guarantee deposits

  

504

    

703

  

999

    

1,988

Provision for discounts (Schedule E)

  

5

    

—  

  

18

    

—  

Provision for lawsuits (Schedule E)

  

370

    

—  

  

33

    

—  

Directors’ deposits

  

—  

    

8

  

—  

    

13

Fund administration

  

—  

    

—  

  

24

    

—  

Operating pending settlement

  

3,057

    

—  

  

—  

    

—  

Collections on behalf of third parties

  

48

    

—  

  

145

    

—  

Other

  

66

    

—  

  

675

    

—  

    
    
  
    
    

6,288

    

711

  

23,702

    

3,877

    
    
  
    

 

NOTE 8:   FINANCIAL RESULTS, NET

 

The breakdown for this item is as follows:

 

    

March 31,

2003


    

March 31,
2002


 

Financial results generated by assets:

             

Interest income

  

1,849

 

  

288

 

Exchange loss

  

(60,537

)

  

25,561

 

Loss on exposure to inflation

  

(10,790

)

  

(53,810

)

Gain—(Loss) on financial operations

  

12,008

 

  

(30,226

)

    

  

    

(57,470

)

  

(58,187

)

    

  

Financial results generated by liabilities:

             

Discounts

  

26,154

 

  

—  

 

Exchange gain

  

206,898

 

  

(390,518

)

Gain on exposure to inflation

  

2,621

 

  

8,031

 

Financial expenses (Schedule H)

  

(30,846

)

  

(43,537

)

    

  

    

204,827

 

  

(426,024

)

    

  

Financial results, net

  

147,357

 

  

(484,211

)

    

  

 

56


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

 

NOTE 9:   OTHER INCOME AND EXPENSES, NET

 

The breakdown for this item is as follows:

 

    

March 31,

2003


    

March 31,

2002


 

Other income:

             

Product of sale of fixed assets

  

1

 

      

Other

  

64

 

  

644

 

    

  

    

65

 

  

644

 

    

  

Other expenses:

             

Unrecoverable VAT

  

(464

)

  

(822

)

Donations

  

(326

)

  

(73

)

Debit and credit tax

  

(528

)

  

(926

)

Lawsuits

  

(166

)

  

(128

)

Other

  

(200

)

  

(308

)

    

  

    

(1,684

)

  

(2,257

)

    

  

Total other income and expenses, net

  

(1,619

)

  

(1,613

)

    

  

 

NOTE 10:   BALANCES AND TRANSACTIONS WITH INTERCOMPANY

 

  a.   The balances as of March 31, 2003 and 2002 with controlled, affiliated and related companies are as follows:

 

    

March 31,

2003


  

March 31,

2002


Abril S.A.

         

Current mortgages and leases receivables

  

12

  

3

Other current receivables

  

—  

  

979

Alternativa Gratis S.A.

         

Current mortgages and leases receivables

  

—  

  

38

Alto Palermo S.A.

         

Current mortgages and leases receivables

  

61

  

2,850

Other current receivables

  

1,761

  

—  

Other non-current receivables

  

—  

  

52,555

Current accounts payable

  

20

  

230

Other current liabilities

  

1

  

—  

Other non-current liabilities

  

—  

  

669

Altocity.Com S.A.

         

Current mortgages and leases receivables

  

74

  

151

Baldovinos S.A.

         

Current mortgages and leases receivables

  

774

  

1,583

Non-current mortgages receivables

  

—  

  

135

Other current receivables

  

—  

  

—  

Current accounts paylable

  

1

  

—  

Other current liabilities

  

37

  

17

 

57


IRSA Inversiones y Representaciones Sociedad Anónima

 

Notes to the unaudited financial statements (Continued)

 

NOTE 10:   (Continued)

 

    

March 31,

2003


  

March 31,

2002


Banco Hipotecario S.A.

         

Current mortgages and leases receivables

  

—  

  

3

Other current receivables

  

—  

  

2

Current investments

  

—  

  

361

Non-current investments

  

6,285

  

—  

Banco de Crédito y Securitización S.A

         

Non-current investments

  

7,007

  

7,008