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 November, 2002
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
(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)
BOLIVAR 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 ANONIMA
(THE "COMPANY")
REPORT ON FORM 6-K
Attached is an English translation of the following documents filed by
the Company with the Bolsa de Comercio de Buenos Aires and the Comision Nacional
de Valores: (i) Letter dated November 6, 2002 related to certain items of the
agenda of the Annual General and Special Meeting of Shareholders held on
November 5, 2002; (ii) Summary of the Annual General and Special Meeting of
Shareholders held on November 5, 2002; (iii) Annual Report and Financial
Statements as at June 30, 2002.
(i) By letter dated November 6, 2002 the Company informed that the agenda of the
Annual General and Special Meeting of Shareholders held on November 5, 2002
included the Consideration of the allocation of portfolio company stocks
(distribution among the shareholders of 4,587,285 shares of the Company
proportionally to their shareholdings). . In addition, it was resolved to
suspend, pursuant to Resolution 402/02 of the Comision Nacional de Valores , the
treatment of the thirteenth point of the agenda (Appointment of a Company
Accountant to certify during the next fiscal year and determination of his/her
compensation) until November 27, 2002 at 13.00 hs at Bolivar street, first
floor.
(ii)
SUMMARY OF THE ANNUAL GENERAL AND SPECIAL MEETING OF
SHAREHOLDERS HELD ON NOVEMBER 5, 2002
FIRST POINT:
It was unanimously approved the designation of the representatives of the
shareholders Templeton Foreign Fund and Cresud SACIF y A to approve and sign the
minute of the meeting.-
SECOND POINT:
It was unanimously approved the reasons causing this meeting to be called at a
different date than the one scheduled that were previously informed by the Board
of Directors.
THIRD POINT:
It was unanimously decided to approved the documentation required by Section
234, paragraph 1(st) of Law 19 550, for the fiscal year ended June 30th, 2002.
FOURTH POINT:
It was unanimously decided to approved the performance of duties by the Board of
Directors related to the fiscal year ended on June 30, 2002
FIFTH POINT:
It was unanimously decided to approved the performance of duties by the Audit
Committee related to the fiscal year ended on June 30, 2002
SIXTH POINT:
It was unanimously decided to apply the loss of the fiscal year ended on June
30, 2002 of Pesos 499,619,000 to the account Retained Earnings.
SEVENTH POINT
It was unanimously approved the distribution among the shareholders of 4,587,285
shares of the Company proportionally to their shareholdings.
EIGHTH POINT:
It was unanimously approved the amount of Pesos 979,885 as Directors'
Compensation.
NINTH POINT
It was unanimously decided to approve the resignation to their compensation made
by the Audit Committee.
TENTH POINT:
It was unanimously decided to approve the resignations submitted by Messrs.
Emilio Cardenas, Enrique Antonini, Gary Gladstein and Jeremiah W.O'Connor.
ELEVENTH POINT:
It was unanimously decided: (i) To fix the number of regular directors in eight;
(ii) to appoint Fernando Adrian Elsztain and Aaron Gabriel Juejati as regular
director for a three year period; (iii) to appoint Juan Carlos Quintana Teran,
Salvador Dario Bergel and Gabriel Adolfo Gregorio Rieznikas as alternate
directors. All of them are considered non independent in terms of Resolution 400
of the Comision Nacional de Valores.
TWELFTH POINT
It was unanimously decided to appoint Jose Daniel Abelovich, Carlos Martin
Barbafina and Marcelo Hector Fuxman as regular auditors and Corina Ines Pando,
Diego Niebuhr and Carlos Rebay as alternate auditors.
THIRTEENTH POINT:
It was decided to suspend, pursuant to Resolution 402/02 of the Comision
Nacional de Valores , the treatment of this point of the agenda (Appointment of
a Company Accountant to certify during the next fiscal year and determination of
his/her compensation) until November 27, 2002 at 13.00 hs at Bolivar street 108,
first floor.
[IRSA LOGO]
Inversiones y Representaciones
Sociedad Anonima
Board Report and Financial Statements
-------------------------------------
For the year ended June 30, 2002 and 2001
INDEX PAGE
------------------------------------------------------------------------
CORPORATE PROFILE .....................................................3
LETTER TO THE SHAREHOLDERS ............................................4
ECONOMIC OVERVIEW ....................................................11
DESCRIPTION OF OPERATIONS ............................................15
SUBSEQUENT EVENTS ....................................................39
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION ............40
MANAGEMENT ...........................................................61
STOCK MARKET INFORMATION .............................................67
FINANCIAL STATEMENTS .................................................69
2
CORPORATE PROFILE
Founded IN 1943, IRSA Inversiones y Representaciones S.A. ("IRSA" or "the
Company") is the largest Argentine real estate investment company and the only
Argentine real estate company listed on the Buenos Aires Stock Exchange (the
"BASE") and on the New York Stock Exchange.
IRSA is the best vehicle through which to gain access to the real estate
market in Argentina because of its achievements to date, its significant and
diversified portfolio of properties that ensure it is the leader in almost all
those sectors in which it has participated and because of the capability and
strength of its Management team in taking advantage of opportunities and
maximizing the value of the Company and shareholder return.
3
LETTER TO THE SHAREHOLDERS
To the Shareholders:
At the end of the twelve months corresponding to the fiscal year ended
June 30, 2002, we would like to bring to your attention the results obtained by
the Company and comment on the development of the business.
The first six months of 2002 were among the most dramatic in the history
of Argentina. The domestic economy went into a free fall following the collapse
of the financial system and the absence of clear rules on which to carry our
business.
The lack of measures to define the new monetary system that was to
replace Convertibility led to a devaluation that by the end of the focal year
had increased the price of the US dollar by 280%. The rise in consumer prices
during the first six months of the year was of 30.5%, while wholesale prices
went up 95.6% in the same period.
These conditions led a significant number of leading companies in the
private sector to declare their inability to meet their financial liabilities,
emulating the default on sovereign debt announced by the Argentine Government in
the closing days of 2001.
The crisis in Argentina spread throughout the region, with Uruguay and
Brazil being the most affected. In July an acceleration in the outflow of
deposits from the Uruguayan financial system, which reached 45% of the total
during the first seven months of the year, led to the resignation of the
country's economy minister, the devaluation of its currency and the rescheduling
over the next three years of the return of time deposits by state banks. In
Brazil, the political uncertainty generated by the upcoming presidential
elections aggravated the already poor performance of the economy. These two
factors encouraged the presumption that the country could fail to meet payments
due on its public sector debt, pushing up the country risk rate to 2,422 basis
points and the rate of devaluation of the real, which reached 30.5% during 2002.
For our Company, the fiscal year ended June 30, 2002, showed a loss of
Ps.499.6 million. Among the relevant factors determining the negative net result
reached, we can mention the financing effects which presented a net loss of
Ps.432.2 million. In the composition of the mentioned line of our income
statement, it is worth noting the loss due to the net exchange rate difference
which at the end of this fiscal year came up to Ps.255.1 million and the result
generated by the effects of inflation showing a net loss of Ps.53.1 million. The
whole of our operations were affected by the deep deterioration of the
macroeconomic conditions of the domestic market, recording a loss of Ps.46.9
million at the operating result level. In its composition, what stands out is a
loss due to the holding of real estate assets of Ps.96.8 million, as a
consequence of the recognition of the writing down of certain real estate
properties.
The value of the assets of our Company has been affected by the
deterioration of relative prices. We consider that as soon as the level of
activity shows some signs of recovery, there will be a generalized
re-composition of our assets.
Sales decreased to Ps.211.3 million, which implies a fall by 37.8%
compared to the previous fiscal year. Total assets declined by 23.4% compared to
the previous fiscal year, reaching Ps.1,144.7 million and the net financial debt
went up by 50%, totaling Ps.564.9 million as of June 30, 2002. The above
mentioned increase is a result of the impact of the devaluation over our
financial liabilities in dollars, which means that the said liabilities grew, if
measured in Pesos, around 280% as of the end of this fiscal year.
In the light of this scenario of generalized default and corporate net
worths dilution, our Company fulfilled all of its obligations and made the most
of the financial tools available in the market so as to cancel all of its
pesified financial liabilities by the acquisition of rescheduled certificates of
bank deposit. The strategy
4
implemented allowed us to obtain important discounts in the repayment of
liabilities, thus reducing high financial costs.
The Sales and Development and Hotels segments were the most adversely
affected by the drop in economic activity levels. The share of sales accounted
for by the various segments was as follows: Sales and Developments Ps. 45.2
million, Offices and Others Ps. 34.3 million, Shopping Centers Ps. 77.6 million,
Hotels Ps. 29.5 million and International Ps. 24.8 million. Operating income for
the year totaled Ps. (46.9), representing a fall of Ps. 124.0 million as
compared to the previous fiscal year.
SHOPPING CENTERS
ALTO PALERMO S. A. (APSA)
The current situation has had an undoubted impact on the operations of
Alto Palermo S.A. (APSA) ("APSA") causing a net loss for the current year of Ps.
42.2 million, mainly as a result of the increase in the financial burden from
the disproportionate increase in interest rates, the effect of the devaluation
and lower revenues from the drop in consumer spending, a fundamental variable
for the business.
The operating cost reduction process which begun in previous years and
continued in the current fiscal year has meant that the structure of the Company
is in line with business levels, ensuring that results were not further
affected.
Throughout the year commercial activities were carried out with a view to
the long term, supporting lease-holders in the difficult times the country is
experiencing, particularly during those months in which the Argentine economy
was virtually paralyzed.
During fiscal year 2002 APSA's shopping centers suffered a significant
decrease in consumption that translated to a reduction of sales of 19.4%
compared to last year. In the light of the recessive economic situation, this
segment adopted aggressive promotional activities in order to increase internal
consumption and attract tourism, a new segment generated by the attractiveness
of local proposals and the benefits that come together with the new devaluation
context. In this way, during the last months the segment managed to revert a
downward trend that had been going on for more than three years. In the last
months of the periods the shopping center segment obtained higher figures than
the ones obtained for the same months of fiscal year 2001.
APSA suffered a drop in collections in the early months of the year that
affected the bad debt allowance in relation to its shopping centers, with an
increase of Ps. 19.3 million compared to the previous year. However, since March
a recovery has been noted in this variable, with collection levels higher than
billing.
The property sale area has celebrated the conclusion of the sale of the
Torres de Abasto, one of the most successful recent real estate developments.
The Tarjeta Shopping credit card suffered from the prevailing context,
being responsible for a loss of Ps. 10.1 million for the year. In view of this
situation, APSA altered its strategy, aiming to create increased loyalty among
clients by offering a varied commercial proposal, with new financial products
which will have a growing impact on the results of the coming year.
Two years after the launch of Altocity.Com, a retail e-commerce company
in which APSA holds a 50% interest, it has succeeded in consolidating its
position as one of the leaders of this type of sales channel, becoming well
established in consumer preference.
Regarding its financial situation, last year APSA intended to be aware of
the opportunities presented in the market with the aim to reduce its financial
costs. It is so that APSA turned up to be the first Argentine company to return
to the capital market, launching the first branch of convertible notes for US$
50,0 million. Today APSA is proud to inform that the convertible notes have been
completely subscribed and integrated. This
5
offering allows APSA to restructure its financial debt, be able to fulfill its
short-term obligations and maintain an adequate capital structure.
In a context of devaluation and widespread default, when first the State
and then a large number of private companies declared their inability to meet
their obligations, APSA is proud to have succeeded in complying with its
liabilities on their due dates.
APSA is aware that the effort it makes today will bear fruit in the
future, and that its exertions to comply with its commitments will become one of
its main assets tomorrow. When markets look back on the behaviour of companies
at a time when it was easy to be just one more company throwing the towel, APSA
will possess an incomparable competitive advantage as a result of its notable
attitude.
APSA is aware of the difficult task before it as a new fiscal year gets
under way, but is fully confident of the Company's potential and the success of
the steps that have been taken during the current year, which will ensue it will
emerge from the crisis as a sound business with strong growth potential. It is
to be hoped that the signs of improvement seen towards the end of the fiscal
year on the business variables will be consolidated, reversing the negative
trend of recent years.
OFFICES AND OTHERS
During the year ended June 30, 2002 income from rental properties totals
Ps. 34.3 million compared to Ps. 45.6 in the same period of fiscal year 2001.
Average occupancy fell from 89% at June 30, 2002 to 72% at June 30 2002. This
drop has been due to the severe economic recession that has forced certain
companies to relocate their plants or move to lower rent areas, such as Aguas
Argentinas, which did not renew its contract for the premises at Reconquista
823, leaving them vacant. In addition, Decree 214 dated February 4, 2002
established the conversion into pesos of contracts in dollars at the rate of
US$1= $1 and the index-linking of contracts in force according to the CER
coefficient. In the case of new contracts, this coefficient cannot be applied,
making it difficult to enter into any new rental agreements.
During the year just ended, the Company continued with the disposal of
some of its non-strategic rental properties.
SALE OF RIVADAVIA 2243. On January 31, 2002 the Company sold one of its
commercial properties located at Avenida Rivadavia 2243 to the Tia supermarket
chain. For the sale of this property with a floor area of 2,070 m2 the Company
received a total of US$ 0.9 million and Ps. 1.0 million. This property had a
book value of Ps. 3.7 million.
SALE OF LIBERTADOR 498 OFFICES - On April 12 and 16, 2002, the Company
sold two of its building floors located in the Libertador 498 office building
tower. The price paid for the sale of floor 5 amounted to Ps.1,195,000 and
Ps.1,450,400 for floor 7.
SALE OF DOCK 5 UNITS - On May 15 and 16, 2002, the Company sold units 141
and 156 located in Dock 5 for US$ 87,000 and Ps.276,375, respectively. On June
21, 2002 it completed the sale of unit 155 located in the same building for a
total amount of US$ 133,555.56, US$ 55,555.56 of which have already been
received by the Company. The remaining US$ 78,000 shall be paid in 12
installments without interest, starting on July 14, 2002. On August 20, 2002
unit 140 was sold for a total amount of US$ 110,000.
SALES AND DEVELOPMENTS
The Sales and Developments, was one of the segments most severely
affected by the recession. Income earned by this segment fell to Ps. 45.2
million at June 30, 2002, compared to Ps. 89.8 at June 30, 2001. This reduction
has mainly been due to the limited stock of units for sale that the Company can
currently count on, as a result of the interruption several quarters previously
of new development launches, because of the severe recession and the consequent
fall in demand.
6
SALE OF PROPERTIES AGAINST TIME DEPOSITS. To stimulate property sales,
the Company has actively promoted the sales against rescheduled time deposit
certificates. Under this mechanism, in effect until April 15, 2002, sales were
made for a total of Ps. 9.6 million. Eleven units were sold in the Alto Palermo
Park building for a total of Ps. 6.2 million, as well as two floors in the "El
Rulero" office building (Libertador 498) for a total of Ps. 2.6 million. This
operations enabled purchasers to make use of their funds that had been
immobilized within the financial system, while the Company was able to sell
property at higher values, with the proceeds being credited to sight accounts.
SALE OF MINETTI D UNITS - On April 26, 2002 and May 10, 2002, the Company
sold two of its lofts in the building Minetti D. For this sale the Company
received Ps.100,000 and Ps.78,000, respectively. During May 2002 the sale of one
of the Company's car-ports in the same building took place for a total of Ps.
8,000
ABRIL, HUDSON, PROVINCIA DE BUENOS AIRES. At the end of the fiscal year
2002, 19 of the 20 neighbourhoods projected for all the development were being
marketed, 85% of the lots in such neighbourhoods had been sold. There were 98
houses under construction, 412 finished houses and 61 new projects has been
submitted. It should be noted that 450 families are already living in this
development and 530 regularly children attend the bilingual school opened in
March 1999.
HOTELS
The hotel business has been significantly affected by current market
conditions. Income for this segment was down by approximately 27.9%, reaching
Ps. 29.5 million. Average occupancy levels continued to fall because of the
profound domestic crisis. Average room rates measured in Pesos recovered
slightly compared to the previous year as they were set in dollars. We consider
that the current rate of exchange will have a positive influence on the segment,
promoting the growth of regional tourism.
INTERNATIONAL
SALE OF BRAZIL REALTY - On February 28, 2002, Ritelco S.A., a controlled
company of IRSA, sold 100% of its equity interest in Brazil Realty, subsidiary
of the Company in Brazil. Creed Holdings LTD, purchased the entire stockholding.
The transaction's price was agreed in the amount of US$ 44.2 million. This
transaction generated a net positive result of Ps.31.5 millions.
This transaction represented the conclusion of our International
activities.
FINANCIAL POSITION
The drastic capital flight suffered by Argentina since the second half of
2001 which led the financial system to the edge of collapse, added to economic
policy errors in the first half of 2002, altered the domestic financial market
in most unexpected ways. The measures ordered by the economic authorities, the
conversion into pesos of the loans initially granted in dollars on the domestic
market and their restatement according to an index based in changes in consumer
prices, the freeing of the exchange rate and other measures affecting the normal
development of the monetary system led a significant number of companies to
default on their debt. In this context, the financial area of our Company
concentrated on making use of all available opportunities to reduce the
Company's financial debt. This strategy, in addition to ensuring we complied
with our debt commitments, has enabled us to obtain significant discounts in the
settlement of liabilities, lowering high financial costs.
Conversion of Debt into Pesos. On the repeal of the Convertibility Law on
February 4, 2002, all liabilities denominated in us dollars payable to the
Argentine banking system and subject to Argentine law were forcibly converted
into Peso-denominated liabilities at the rate of one Peso per US dollar.
However, a significant part of the Company's liabilities are subject to the laws
of the State of New York, and were therefore not converted into Pesos.
7
Approximately US$ 42 million of IRSA's debt was converted into Pesos, and
in the case of its shopping center subsidiary APSA, this rule converted the full
amount of its financial debt into Pesos. The debt converted to Pesos is to de
restated according to the CER index that reflects inflation and is published on
a daily basis. In addition, debt converted into Pesos accrues interest at a
maximum rate of between 6% and 8%, depending on whether there are real
guarantees for the corresponding loans.
DEBT CANCELLATION WITH RESCHEDULED BANK DEPOSITS - Between the months of
January and June 2002, the Company cancelled pesified short term debt for an
amount of Ps.46.7 million (includes the Banco Galicia loan and Inversora Bolivar
debt) by the acquisition, via purchase from hands of depositors and via property
sales, of rescheduled deposit certificates, achieving important discounts over
the notional value. The funds used on this purchase were mainly obtained from
the sale of the Brazil Realty and from the Company's cash generation.
This procedure determined important savings on financial expenses, due to
the reduction on interests charges. On the other hand, the debt cancellation was
done at a very important discount over its original dollar value, due to the
fact that the conversion to pesos was established at an exchange rate of one
U.S. dollar (US$ 1) = one Peso (Ps.1) and due to the possibility of using
rescheduled bank deposits purchased at attractive discounts.
IMPACT OF DEVALUATION ON THE COMPANY'S FINANCIAL POSITION - As a
consequence of the ending of the Peso-U.S. dollar parity set forth under the
Convertibility Law, and although part of our liabilities were pesified at the
exchange rate Ps.1=US$ 1, those liabilities constituted under American law
remained in U.S. dollars therefore creating an important negative result due to
the Peso devaluation, approximately amounting to Ps.255.1 million for this
period. These results have been recorded under "Financial Results" and partially
explain the considerable loss on this line for this period.
It must be noted that the reported figures reflect distortions arising
from the significant instability of the currency. Furthermore, some items are
subject to this adjustment while others are not, a fact which significantly
complicate the analysis of performance and the assessment of the value of the
Company's assets. We believe that the relative distortions will gradually
disappear and the value of real estate assets will recover over time, hand in
hand with the economy's general correction.
BANCO GALICIA LOAN - Renovation and payment of principal - On September
28, 2001, the Company paid the outstanding US$ 10 million balance under the US$
40.0 million facility granted by Banco Galicia in December 1999. On October 11,
2001 a new US$ 7.0 million loan with a one-year maturity was granted by Banco
Galicia. The loan accrues interest at Encuesta Corregida rate plus 500 basis
points. In accordance with Decree 214 this loan has been pesified. In May, 2002
our Company completely repaid this loan with rescheduled bank deposits and
obtained an important discount over its value in pesos.
FIDEICOMISO IRSA I (IRSA, IBSA AND BALDOVINOS) - SALE OF THE MORTGAGE
PORTFOLIO - On November 2, 2001, the Company entered into an agreement with
Banco Sudameris for it to act as trustee and lead manager of Fideicomiso IRSA I.
The whole mortgage portfolio generated by the three companies mentioned above,
which amounts approximately Ps.26.6 million, was transferred to the trust. On
December 31, 2001, the Company received from Banco Sudameris US$ 10 million in
terms of underwriting. In addition, between the months of January and March,
2002 the Company received Ps.2.35 million.
SALE OF LATIN AMERICAN ECONETWORKS N.V. - On November 7, 2001, we sold
our ownership in Latin American Econetworks for Ps. 5.2 million.
EXTENSION OF MATURITY OF THE US$ 43.5 MILLION NOTE - After a number of
extensions agreed upon between IRSA and the holders of the US$ 43.5 million
Note, September 9, 2002, was established as final date of maturity of the
principal amount. In addition, a capitalization of interest was agreed upon. On
May 15, 2002, the Company repurchased a fraction of the notes, which resulted in
a reduction of the outstanding amount, that
8
by August 30, 2002, reached US$ 40.1 million. The Company and the note holders
are studying the available alternatives for the repayment of this facility.
EXTENSION OF MATURITY OF THE US$ 80 MILLION SYNDICATED CREDIT FACILITY -
On July 31, 2002 the Company's US$ 80 million syndicated credit facility matured
and due to the continuing effects of the economic recession and the lack of
available financial resources, the Company agreed with the intervening banks to
postpone maturity until September 30, 2002. The Company expects to renegotiate
the credit under new conditions, by that date.
ISSUE OF BONDS CONVERTIBLE INTO ORDINARY SHARES OF IRSA - The
Shareholders' Special and General Meeting of IRSA held on March 8, 2002 approved
the issuance of bonds convertible into ordinary shares of the Company of a Ps. 1
nominal value each, entitled to 1 vote, for up to US$ 100 million, with a fixed
coupon ranging between 6% to 12% per annum, payable every six months in arrears
and with a conversion price which will result from the average closing price for
the twenty days previous to the closing of the transaction, with a conversion
premium of up to 10%, at the board of directors' discretion, to be determined by
the board with warrants attached that will be exercised at a conversion price
plus an issue premium of between 20% y 30%. The proceeds of this issue will be
used fundamentally to repay existing liabilities, working capital, and to
underwrite, in case it happens, the second branch of the convertible bond
offered by APSA. The Company is awaiting the relevant approvals of the
supervisory agencies so as to implement the issue.
ISSUE OF NEGOTIABLE OBLIGATIONS CONVERTIBLE INTO ORDINARY SHARES OF APSA
- The Ordinary and Extraordinary Shareholders' Special and General Meeting of
APSA held on December 4, 2001r, approved the issuance of negotiable Obligations
convertible into ordinary shares of APSA with a par value of Ps. 0.1 each and
one vote per share, for up to a nominal value of US$ 100 million, accruing
interest at a fixed rate of 10% p.a. payable six-monthly in arrears with a
conversion price of between Ps. 0.10 and Ps. 0.15 to be determined by the board.
The funds generated by the issue will be assigned to settle liabilities existing
at that date.
ISSUE OF BONDS CONVERTIBLE INTO ORDINARY SHARES OF APSA - On August 20,
2002, APSA ended its subscription period for the first branch for up to US$ 50
million of bonds convertible into ordinary shares of APSA of a Ps.0.1 nominal
value each. In this sense, IRSA has subscribed a total amount of US$ 27.2
million of the convertible notes of APSA. The issue of Series I was a success
and has been fully subscribed.
Despite the unfavourable economic and financial conditions reigning in
the Argentine market and despite the crisis in which the corporate sector is
immersed, the Management of our Company has re-stated its commitment to stand
out, focusing with energy and creativity on the crucial task of consolidating
the financial situation of the Company. Furthermore, and under the same
principle of supporting a flexible and efficient structure, we have deepened our
plan of rationalizing resources. This plan has shown a decline of 34.8% in
administrative expenses as of June 30, 2002.
In spite of the long lasting economic crisis pervading in the country, we
are aware of the fact that human and natural resources as well as investments on
facilities performed during the last decade in Argentina remain practically
intact. The possibility of recreating market conditions facilitating growth and
action by the private sector, sole generator of genuine employment, shall depend
on the responsibility and efficiency of the country's leaders. Among the main
premises to be met for the purpose of restoring the essential trust environment
absolutely necessary to recover investment we find, in the first place, the
country's reinsertion in the world initiating negotiations with external
creditors. Furthermore, we must guarantee restoration of the domestic financial
system and stabilization of macroeconomic indicators through consistent and
precise monetary and tax policies. As was the case in previous fiscal years, we
reassert our trust in the privileged features of Argentina's economy for prompt
recovery. Looking forward to this moment, we state our strong commitment to
protect our Company's asset value, maintaining our business segments growth
potential.
To conclude, I would like to thank all those who have worked alongside us
throughout the year: our shareholders, bankers, tenants and clients, and in
particular our personnel, for their support and confidence that have made this
Company's business possible.
9
Eduardo S. Elsztain
President
10
ECONOMIC OVERVIEW
INTERNATIONAL OUTLOOK
In spite of the aggressive monetary policy implemented by the US Federal
Reserve, consisting in a drastic reduction in the rate of interest from 6.50% to
1.75%, its economy did not succeed in taking off during the whole of 2001. After
the first six months during which the level of economic activity cooled
considerably, the attacks on September 11 and the subsequent call by the US
president for a war on terrorism had a negative impact on investor and consumer
confidence in the United States, causing drops in all key indicators. The
largest Western economies did not fare any better, and the Japanese economy
remained immersed in a long lasting domestic crisis. Faced by this scenario, the
Republican administration reacted by encouraging an increase in public spending,
providing significant assistance to those sectors most affected by the crisis,
with particularly great help given to airlines. The measures adopted were
reflected in a significant rise in US GDP in the first quarter of 2002, but this
recovery did not last very long. This sombre outlook was compounded by the
scandal surrounding the collapse of several blue-chip companies that were
accused of misrepresenting their financial statements, further undermining the
already deteriorated level of confidence of local and foreign investors. As a
result, financial markets were severely affected, leading US stock market
indicators suffered losses in excess of 30%, while the collapse of their
European equivalents was even sharper.
In addition to being affected by the events mentioned, emerging economies
suffered the total loss of the voluntary credit market and had to face their own
crisis unleashed by their high levels of indebtedness. Unfortunately, the most
notorious example of this has been that of Argentina.
THE ARGENTINE ECONOMY
As a result of the worsening of the recession that began in mid-1998,
during the second half of 2001 Argentina's GDP fell by an average of 5% compared
to the same period of the previous year. After a series of measures that did not
achieve the desired effect, the Economy Ministry attempted to reverse the
recession by promoting a sharp reduction in the fiscal deficit. As a first step,
Congress approved a "Zero Deficit Law", and later by means of an emergency law a
13% reduction was decreed in civil service wages and state pensions. A few
months later, growing financial restrictions led several provincial
administrations, including the important province of Buenos Aires, to begin to
print their own currency to be able to cover their growing cash deficits. The
issue of these quasi-currencies reached a volume in excess of Ps. 8 billion.
On December 3, 2001, in the face of the impossibility of reversing the
massive outflow of deposits from the financial system, which between July and
December 2001 had reached US$ 14.3 billion (16% of the total), the Economy
Ministry issued a regulation limiting cash withdrawals from bank accounts, a
measure that later became known as the "corralito". This step, together with the
worsening of the social situation, led to the early conclusion of the term of
the Alianza government. This situation brought to the surface the profound
institutional and political crisis affecting the country
11
[GRAPHIC OMITTED]
Source: Estudio Miguel Angel Broda y Asoc.
During the brief presidency of Adolfo Rodriguez Saa, which lasted only
seven days immediately prior to taking over by Dr. Eduardo Duhalde, a cessation
of payments was declared on sovereign debt, a measure widely applauded by
legislators when announced to Congress.
The first step taken by the new economic authorities consisted in the
abandoning of the convertibility system that had governed the Argentine economy
since 1991. After a series of false starts, it was eventually replaced by a
floating rate system with Central Bank intervention. In less than three months
the devaluation totalled approximately 200%.
A widespread pesification (forced conversion into pesos) was decreed in
clear violation of all contracts in force in the private and public sectors in
Argentina. This pesification included the US$ 45 billion that still remained
within the financial system. In addition, restrictions on disposing of cash were
tightened, and the repayment of deposits in excess of Ps. 10,000 was
rescheduled, as a result of which they were to be repaid in installments through
to 2005. This measure known as the "corralon", in addition to failing to achieve
its principal objective, namely the prevention of any other outflow of deposits
from the system, led to an even greater drop in the level of economic activity.
In spite of the efforts to contain the leakage of deposits out of the
financial system, the ineffectiveness of the measures adopted, added to the
withdrawals of deposits as a result of the court rulings in favour of savers,
forced the Central Bank to provide Ps. 20 billion in financial assistance to
banks by means of repos and rediscounts. This phenomenal increase in money
supply was mostly absorbed by the Central Bank itself bye means of the sale of
its liquid international reserves, which dropped 35% (US$ 5.3 billion) in the
first half of 2002.
12
[GRAPHIC OBJECT OMITTED]
Source: Estudio M.A. Broda y Asoc.
On June 30, 2002, the US dollar price closed at Ps. 3.80, a 280%
devaluation; in the first six months of the year the wholesale price index
increased by 95.6% and consumer prices went up by 30.5% In this context it is
hardly surprising that in the first quarter of 2002 there was a negative
variation of GDP of 16.3% compared to the same period of the previous year, the
largest drop recorded in the historical series. Overall demand fell sharply,
mainly as a result of a drop of 46.1% in gross fixed domestic investment, and
consumption fell 20.9%.
[GRAPHIC OBJECT OMITTED]
Source: Estudio M.A. Broda y Asoc.
The trade balance became the only positive indicator in the economy, with
a surplus of US$ 8,175 million, explained by the collapse in imports, down 63.3%
year-on-year, while exports were down 7.4% because of the lower prices for
exported goods (down 9.7%) and an increase in export volumes of 3.3%.
The drastic collapse of macroeconomic indicators was an announcement of a
sharp deterioration in private sector activity. Leading companies, including
some of the highest capitalized firms in Argentina, declared they were unable to
meet their financial obligations after the devaluation reduced their income in
terms of foreign currency to a fraction of former levels. As could be expected,
in a reflex action aimed at ensuring survival, the most affected companies
significantly reduced their personnel,
13
ensuring the unemployment level reached a historical high of 21.4% of the
work-force.
During fiscal year 2001-2002, Argentine capital markets suffered from the
economic mismanagement just like other sectors. In this period, share prices
according to the Merval, stated in dollars, fell back 78%. In the first weeks of
June, the Merval hit a low of 75 points, recording a loss of 92% compared to the
level reached five years earlier. Bond values were affected by the announcement
of default on sovereign debt, falling dramatically, selling at parties of close
to 20%. This took the country risk indicator, the spread on sovereign bonds over
US Treasury Bills, to an unheard level of 7,000 basis points.
[GRAPHIC OBJECT OMITTED]
Source: Estudio M.A. Broda y Asoc
The following macroeconomic indicators summarize the evolution of the
Argentine economy during the last eight years:
LEADING INDICATORS
----------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000 2001 2002 (P)
----------------------------------------------------------------------------------------------------------------------
Real GDP Growth (in %) -2,85 5,53 8,11 3,85 -3,39 -0,79 -4,41 -12,80
Inflation (Combined Price Index) in % * 4,90 1,70 0,30 -1,10 -2,10 -1,50 -1,70 32,40
Fiscal Result (as % of GDP) -1,51% -2,22% -1,47% -1,39% -2,59% -2,44% -3,22% -1,41%
Exports FOB (Millions of U$S) 21,16 24,04 26,43 26,43 23,31 26,41 26,66 25,50
Imports CIF (Millions of U$S) 20,20 23,86 30,50 31,40 25,51 25,24 20,31 9,50
Balance of Payment's Current Account
(MM U$S)** -5,20 -6,82 -12,29 -14,55 -11,95 -8,97 -4,43 10,30
Trade Balance (Millions of U$S) 0,96 0,18 -4,07 -4,97 -2,20 1,17 6,34 16,00
Unemployment Rate *** 17,40 17,20 14.9 12.9 14,30 15,10 17,35 22,00
----------------------------------------------------------------------------------------------------------------------
(P) Projected*
Annual average**
Accrual basis***
Average for the country (as % of E.A.P.)
Source: Estudio M.A. Broda y Asoc.
The default on the debt, the abrupt end of Convertibility and the forced
conversion into pesos represent unprecedented events that defy the institutions
governing the economy of a country. The consequences of such violations to
security and legal guarantees in Argentina still remain to be seen. Many years
of strict discipline will be required to repair the damage that has been caused.
14
DESCRIPTION OF OPERATIONS
We are one of Argentina's leading real estate companies. We are engaged
directly and indirectly through subsidiaries and joint ventures in a range of
real estate activities in Argentina. Our principal activities consist of: (i)
the acquisition and development of residential properties primarily for sale,
(ii) the acquisition, development and operation of office and other non-shopping
center retail properties primarily for rental purposes, (iii) the acquisition,
development and operation of shopping center properties, (vi) the acquisition
and operation of luxury hotels, and (v) the acquisition of undeveloped land
reserves for future development or sales. We are the only Argentine real estate
company with shares listed in the Buenos Aires Stock Exchange and the New York
Stock Exchange.
Our headquarters are located at Bolivar 108, Buenos Aires (C1066AAD),
Argentina. Our telephone number is +54 (11) 4323-7555, our fax number is +54
(11) 4323-7597 and our web site is www.irsa.com.ar.
COMMERCIAL STRATEGY
As one of the few companies owning, developing and administrating real
estate in Argentina, we consider that we hold certain competitive advantages
that we expect will allow us to continue to gain an increasing share of the real
estate property market in Argentina. These advantages include:
o Our experience and that of our managers in the acquisition,
development, sale, leasing and management of top quality property;
o Our considerable reputation and positioning as developers of
comprehensive real estate services in both Argentina and other Latin
American real estate markets;
o The quality of our existing portfolio of properties and our land
reserves;
o Our access to sources of long-term capital;
o Our strategy aimed at preserving a high level of liquidity, enabling
better advantage to be taken of the real estate opportunities that
arise in favorable terms; and
o The quality of our existing tenants and the high occupancy
percentage of our rental property portfolio, which enables us to
count on a significant stable source of liquidity for our cash flow.
Our strategy is to increase our cash flow, revenues and asset value
through the continuous expansion of our diversified portfolio of properties and
assets by means of the purchase, development and operation of real property,
either individually or in association with third parties, in all our business
segments.
Offices. We intend to purchase, develop and operate class A office
buildings, in the principal office areas of Buenos Aires and in other strategic
areas, with attractive returns and capital appreciation potential. We believe
that large Argentine and multinational companies will continue to show a growing
demand for class A offices, to the extent that their business continues to
expand in Argentina and Latin America, which, in turn, will further encourage
the shift from the traditional midtown office area to other more modern areas
with better access and more convenient spaces. We have managed to create a
top-quality tenant base.
Shopping Centers. Through our subsidiary APSA, we seek to become a leader
in the shopping center industry in Argentina through the consolidation of our
operations, new developments in strategic points of Buenos Aires and other large
cities of Argentina, and the purchase of the principal shopping centers. The
main growth engines of the shopping center industry are: (i) the increase in the
consumption of goods capable of being sold in shopping centers; (ii) the change
in buying habits, abandoning shopping at street-level retail stores; and (iii)
the relatively low level of market penetration of shopping centers in Argentina
as compared to many developed countries, which implies a significant growth
potential in the long term. APSA
15
has been able to improve the operating margins of its shopping centers by
consolidating its administration, which has enabled it to capitalize on
operating synergies, scales of economy and marketing and promotion
opportunities.
Residential Properties. We have benefited from the increased financing
available for the purchase of houses and the better transportation
infrastructure from the center of the cities towards suburban areas. In urban
areas, we seek to purchase undeveloped properties strategically located in
densely populated areas for the development of apartment complexes that offer
recreational "green areas", sports facilities and security services. In suburban
areas, we seek to purchase undeveloped properties close to Buenos Aires in order
to build residential neighborhoods, and, subsequently, sell the land for
construction of houses after the installation of the basic infrastructure by us.
Hotels. We intend to purchase first-line hotels, whenever opportunities
arise, and to delegate their operation to first-level hotel operators in order
to capitalize on their operating experience, international networks and
marketing agreements so as to take advantage of the benefits derived from the
growing flow of tourism and trade.
Land Reserves. We continue to acquire undeveloped lands and properties
strategically located inside and outside the city. In all cases, the objective
is to acquire lands with potential for development and appreciation for their
subsequent sale. We consider that having a reserve of lands will enable us to
have wide supply of properties for the development of new projects and will
create a barrier against potential competitors.
OVERVIEW OF PROPERTIES
As of June 30, 2002, we either directly or through our subsidiaries and
joint ventures, owned significant interests in a portfolio of 58 properties in
Argentina, located principally in Buenos Aires. The following table sets forth
certain information concerning our operation and property portfolio.
CONSOLIDATED OPERATING INCOME (1)
YEARS ENDED JUNE 30,
------------------------------------------------
2002 2001 2000 1999
--------- ----------- --------- ---------
(IN THOUSANDS OF PESOS)
Offices and other non-shopping center
rental properties (23.616) 28.052 31.360 32,230
Shopping centers (18.295) 32.223 23.809 30,513
Development and sale of properties (35.602) 4.128 5.835 33,175
Hotels (3.351) (755) 2.868 3,507
International 33.924 21.610 33.617 22,907
--------- ----------- ---------- ---------
TOTAL (46.940)(2) 77.012 97.489 122,333
========= =========== ========== =========
(1) Prepared according to the proportional consolidation method.
(2) Includes Ps. 96.8 million for the writing down of certain
properties.
OFFICES AND OTHER NON-SHOPPING CENTER RENTAL PROPERTIES
We are engaged in the acquisition, development and management of offices
and other non-shopping center rental properties in Argentina. As of June 30,
2002, we, directly and indirectly, owned interests in 19 office and other
non-shopping center rental properties in Argentina which comprised 129,179
square meters of gross leasable area. Of these properties, 13 were office
properties which comprised 89,409 square meters of gross leasable area. For the
fiscal year ended June 30, 2002, we had net sales from office and other
non-shopping center rental properties of Ps. 34.1 million.
16
All of our office rental properties in Argentina are located in the city
of Buenos Aires. Four of our properties are currently single tenant properties
and the remaining properties are leased to multiple tenants. As of June 30,
2002, the average occupancy rate of all of our office properties was
approximately 72%. Five different tenants accounted for approximately 64.6% of
our net revenues from office and other non-shopping center rental properties and
less than 5.5% of our total consolidated sales for the fiscal year ended June
30, 2002. These five office tenants are: Grupo Total Austral, Grupo Danone,
Cisco Systems Argentina S.A., Nextel Argentina S.A. and Allende y Brea.
Administration and Management. We generally act as the managing agent of
the office properties in which we own an interest. These interests consist
primarily of the ownership of entire buildings or a substantial number of floors
in a building. The buildings in which we own floors are generally managed
pursuant to the terms of a condominium agreement that typically provides for
control by a simple majority of the interests (based on the area owned) in the
building. As the managing agent of operations, we are responsible for handling
services, such as security, maintenance and housekeeping. These services are
generally contracted to third party providers. The cost of the services are
passed-through and paid for by the tenants, except in the case of our unrented
units, in which case we absorb the cost. Our leasable space is marketed through
commissioned brokers, the media and directly by us.
Leases. We generally lease space in our offices and other non-shopping
center rental properties pursuant to lease agreements with terms of three to
five years that are renewable at the option of the tenant for additional two or
three years. Our non-shopping center lease agreements are generally denominated
in U.S. dollars and, in accordance with Argentine law, their terms are not
subject to adjustment for inflation. Rents for renewal periods are based upon
projected estimates of United States inflation or other customary factors.
The following table sets forth certain information regarding our direct
and indirect ownership interest in offices and other non-shopping center rental
properties:
OFFICES AND OTHER NON-SHOPPING CENTER RENTAL PROPERTIES
DATE LEASABLE OCCUPANCY IRSA'S MONTHLY TOTAL RENTAL INCOME FOR BOOK
OF AREA M2 RATE INTEREST RENTAL THE FISCAL YEAR PS,/000 (4) VALUE
ACCQUISITION (1) (2) INCOME
PS./000 (3) 2002 2001 2000 PS./000 (5)
---------------------------------------------------------------------------------------------------------------------
OFFICES
Inter-Continental
Plaza (6) 11/18/97 22,535 83% 67% 347 7,564 9,445 8,631 38,612
Libertador 498 12/20/95 11,152 59% 100% 178 4,638 6,270 7,639 33,744
Maipu 1300 9/28/95 10,325 62% 100% 153 4,500 5,779 5,755 36,922
Laminar Plaza 3/25/99 6,521 95% 100% 213 4,426 5,025 3,069 25,343
Madero 1020 (7) 12/21/95 5,056 45% 100% 60 1,886 3,617 3,656 13,755
Reconquista 823/41 11/12/93 6,100 0% 100% 0 2,070 3,013 2,700 15,807
Suipacha 652/64 11/22/91 11,453 45% 100% 56 1,299 2,658 3,181 9,021
Edificios Costeros 3/20/97 6,399 27% 100% 41 1,353 2,034 158 21,197
Costeros Dique IV 8/29/01 5,437 63% 100% 101 1,712 - - 15,877
Others (8) 4,431 65% N/A 56 1,333 1,653 1,958 10,362
---------------------------------------------------------------------------------------------------------------------
SUBTOTAL 89,409 60% N/A 1,205 30,781 39,494 36,747 220,640
OTHER RENTAL PROPERTIES
Commercial Properties (9)
(10) 6,023 99% 100% 32 2,095 4,296 7,625 5,486
Other properties (11) 33,747 100% N/A 40 1,281 1,901 2,641 4,570
---------------------------------------------------------------------------------------------------------------------
SUBTOTAL 39,770 100% N/A 72 3,376 6,197 10,266 10,056
RELATED EXPENSES
MANAGEMENT FEES 1,134 1,291 1,123
---------------------------------------------------------------------------------------------------------------------
TOTAL OFFICES AND
OTHER (12) 129,179 72% N/A 1,277 35,291 46,982 48,136 230,696
---------------------------------------------------------------------------------------------------------------------
(1) Total leasable area for each property. To obtain the square meters
attributable to us, this column should be multiplied by our net ownership
interest. Excludes common areas and parking.
(2) Calculated dividing occupied square meters by leasable area.
(3) Agreements in force as of 06/30/02 were computed, pro-rata our Company's
net ownership interest in each property.
17
(4) Total consolidated leases, as authorized by the Comision Nacional de
Valores, reexpressed as of 06/30/02. Excludes gross income tax deduction.
(5) Cost of acquisition, plus improvements, less accumulated depreciation,
plus adjustment for inflation as of 06/30/02.
(6) Through Inversora Bolivar S.A.
(7) Includes in the book value Ps. 4,730,000 corresponding to 1,716 m2 and 36
parking places, all of which are exposed in "Inventory" in our Financial
Highlights.
(8) Includes the following properties: Madero 942, Av. De Mayo 595/99, Av.
Libertador 602 and Sarmiento 517 (through our Company). Cumulative
revenues for the fiscal years 2001 and 2000 include revenues from Avenida
de Mayo 701 (fully sold) Puerto Madero Dock 5 and Puerto Madero Dock 6.
(9) Includes the following properties: Constitucion 1111 and Alsina 934/44
(through our Company). Cumulative revenues include: In all fiscal years
reported, the revenues from Santa Fe 1588 and Rivadavia 2243 (fully
sold). In fiscal years 2001 and 2000, the revenues from Sarmiento 580 and
Montevideo 1975 (fully sold). In fiscal year 2000, the revenues from
Galerias Pacifico.
(10) Includes in the book value Ps. 3,767 thousand, corresponding to 1,947 m2
from the property located at Constitucion 1111, which is exposed in
"Inventory" in our Financial Highlights.
(11) Includes the following properties: the Santa Maria del Plata facilities
(former Ciudad Deportiva de Boca Juniors, through our Company - only
rents are included since book value is reflected on the Developments
table) - Aguero 596 and R. Nunez 4615 (Cordoba), plots in Carlos Gardel
(through Alto Palermo S.A), Thames, 1 unit in Alto Palermo Plaza and 2
units in Alto Palermo Park (through Inversora Bolivar S.A.). Cumulative
revenues include: In fiscal year 2001 and 2000, the revenues from Serrano
250 (fully sold). In fiscal year 2000, the revenues from Cervino and
Terrenos Monserrat (completely sold).
(12) Corresponds to the "Offices and Other Rental Properties" business unit
mentioned in Note 4 to the Consolidated Financial Statements. Excludes
gross income tax deduction.
The following table shows a schedule of the lease expirations of our
office and other non-shopping center properties for leases outstanding as of
June 30, 2002, assuming that none of the tenants exercise renewal options or
terminate their lease early. Most tenants have renewal clauses in their leases.
PERCENTAGE OF ANNUAL RENTAL PERCENTAGE OF
NUMBER OF SQUARE METERS TOTAL SQUARE INCOME UNDER TOTAL RENTAL
FISCAL YEAR OF LEASES SUBJECT TO METERS SUBJECT EXPIRING LEASES INCOME UNDER
LEASE EXPIRATION EXPIRING EXPIRING LEASES TO EXPIRATION (1) EXPIRING LEASES
---------------- --------- --------------- -------------- --------------- ---------------
(m2) (%) (Ps. ) (%)
2002 6 5.916 6% 70,000 5%
2003 28 51.598 55% 457,322 31%
2004 32 13.272 14% 329,281 23%
2005 7 5.299 6% 133,513 9%
2006+ 11 17.291 19% 462,721 32%
---- ------- ---- -------- ---
Total 84 93.377 100% 1,452,837 100%
---- ------- ---- --------- ---
(1) Excludes Thames and Serrano rental properties. Not proportional to
our actual holding in each property.
Properties. Set forth below you will find information regarding our
principal currently owned office properties, including the names of the tenants
occupying 5% or more of the gross leasable area of each property.
INTER-CONTINENTAL PLAZA, CITY OF BUENOS AIRES. Inter-Continental Plaza is
a modern 24-story building located next to the Inter-Continental Hotel in the
historic neighborhood of Monserrat in downtown city of Buenos Aires. We own the
entire building which has floor plates averaging 900 square meters. It has 203
parking spaces. The principal tenants currently include Total Austral S.A.,
Bagley S.A., Vintage Oil Argentina Inc. Sucursal Argentina, Pharmacia Argentina
S.A. and Mercedes Benz Leasing Argentina S.A
LIBERTADOR 498, CITY OF BUENOS AIRES. Libertador 498 is a 27-story office
tower located at the intersection of Avenida 9 de Julio, Avenida del Libertador
and Autopista Illia, three of the most important thoroughfares of the city of
Buenos Aires, making it accessible from the north, west and south of the city.
We own 20 floors with floor plates averaging 620 square meters. The building has
a singular cylindrical design and a highly visible circular neon billboard that
makes it a landmark in the Buenos Aires skyline. The principal tenants in this
building currently include Epson Argentina S.A., MTV Networks Latin America
Inc., Farmanet S.A., Heidrick & Struggles Argentina S.A. and Eastman Chemical
Argentina S.R.L. Chrysler Argentina S.A. leases the billboard for an annual rent
of Ps. 120,000 through June 30, 2002.
18
MAIPU 1300, CITY OF BUENOS AIRES. Maipu 1300 is a 23-story office tower
located on the San Martin Plaza, a prime office zone, on Avenida del Libertador,
a major north-south thoroughfare. The building is also located within walking
distance of the Retiro commuter train station, Buenos Aires' most important
public transportation hub, connecting rail, subway and bus transit. We own the
entire building which has floor plates averaging 440 square meters. The
building's principal tenants currently include Tecpetrol S.A., Allende & Brea,
Petrolera Santa Fe S.A. and Totalfinaelf Gas Transmission Argentina S.A.
LAMINAR PLAZA, CITY OF BUENOS AIRES. Laminar Plaza is a 20-story office
building located in Catalinas, the city of Buenos Aires' most exclusive office
district. The floor plates each measure 1,453 square meters. The main tenants,
among others, are as follows: Cisco Systems, Movicom Bellsouth, Chubb Argentina
de Seguros S.A., La Plata Cereal and Bank Hapoalim B.M.
MADERO 1020, CITY OF BUENOS AIRES. Madero 1020 is a 25-story office tower
located in the center of the Catalinas area, a prime office zone, with
spectacular views of the Port of Buenos Aires, the Rio de la Plata and downtown
Buenos Aires. We own 10 non-contiguous floors with the floor plates averaging
572 square meters. The building's principal tenants currently include Abeledo
Gottheil Abogados S.C., Compania Ericsson S.A.C.E.I. and DuPont S.A.
SUIPACHA 652/64, CITY OF BUENOS AIRES. Suipacha 652/64 is a seven-floor
office building located in the office district of the city of Buenos Aires. We
own the entire building which has floor plates unusually large, measuring 1,580
square meters on most floors. This property underwent substantial renovations
shortly after we acquired the deed in 1991 to prepare the building for rental.
The building's principal tenants currently include Procter & Gamble
Interamericas Inc. and APSA's subsidiary, Tarshop.
RECONQUISTA 823/41, CITY OF BUENOS AIRES. Reconquista 823/41 is a
15-story office tower located in the Catalinas area. We own the entire building
which is currently fully leased to Aguas Argentinas. The office building is
comprised of three basement levels with 56 parking spaces, a ground floor and 15
additional floors of office space. The floor plates average 540 square meters.
As of May 2002, the property was leased to Aguas Argentinas, who decided not to
continue the lease contract.
EDIFICIOS COSTEROS, DOCK 2, CITY OF BUENOS AIRES. Costeros A and B are
two four-story buildings developed by us and located in the Puerto Madero area.
We own the two buildings which have a gross leasable area of 6,399 square meters
and 67 parking spaces. In September 1999 we completed their construction and in
April 2000 began to market the office spaces. The main tenants of these
properties are as follows: Leo Burnett Worldwide Invest. Inc., APSA's
subsidiary, Altocity.Com, Red Alternativa S.A. and Alternativa Gratis S.A. We
currently intend to develop two additional buildings on the adjacent land but
have not yet established a date to begin construction.
EDIFICIOS COSTEROS, DOCK 4, CITY OF BUENOS AIRES. On August 29, 2001, we
signed the deed of sale of "Section C" of the office complex known as Puerto del
Centro that includes buildings "5" and "6". This property is located in Pierina
Daelessi street N(degree) 340, over the East Side of Dock 4 of Puerto Madero and
has approximately 5,500 square meters of gross leasable area and 50 parking
lots. The building's principal tenants currently include Nextel Argentina S.A.,
Patagon Internacional S.A. and Petroenergy S.A.
OTHER OFFICE PROPERTIES. We also have interests in four other office
properties, all of which are located in the city of Buenos Aires. These
properties are either entire buildings or portions of buildings, none of which
contributed more than Ps. 1.0 million in annual rental income for fiscal year
2002. These properties include Constitucion 1111 and Alsina 934.
RETAIL AND OTHER PROPERTIES. Our portfolio of rental properties includes
nine rental properties that are leased as street retail, supermarkets, a
warehouse and various other uses. Most of these properties are located in the
city of Buenos Aires, although some are located in other cities in Argentina.
These properties include Santa Fe 1588/600 and Rivadavia 2243/65.
19
SHOPPING CENTERS
We are also engaged in purchasing, developing and managing shopping
centers, through our subsidiary APSA. As of June 30, 2002, APSA operated and
owned majority interests in seven shopping centers, five of which are located in
the city of Buenos Aires. One shopping center is located in greater Buenos Aires
area and another is in the city of Salta. APSA also owns indirectly an 18.9%
non-controlling interest in Mendoza Plaza in the city of Mendoza. In addition to
purchasing, developing and managing shopping centers, APSA owns an 80% interest
in Tarshop, a limited purpose credit card company which originates credit card
accounts to promote sales from APSA's tenants and other selected retailers.
APSA's shopping centers comprised a total of 181,085 square meters of
gross leasable area (excluding certain space occupied by hypermarkets which are
not APSA's tenants). As of June 30, 2002, the average occupancy rate of the
shopping center portfolio was approximately 92%. During the year ended June 30,
2002, net sales from shopping centers amounted to Ps. 43.3 million.
Management and administration. As a result of the acquisition of several
shopping centers and of the corporate reorganization of APSA, we were able to
reduce expenses by centralizing management of the shopping centers in APSA. All
of our shopping centers are owned through APSA, and all of them, except Mendoza
Plaza, are managed by APSA. As manager, APSA is responsible for providing common
area electrical power, a main telephone switchboard and central air conditioning
and other basic common area services.
We currently own 49.7% of APSA. On June 30, 2002, 27.8% of APSA's shares
were held by Parque Arauco S.A. and 6.4% by GSEM/AP Holdings L.P. The remaining
shares are held by the public and traded on the Buenos Aires Stock Exchange and
on the Nasdaq Stock Market in the form of American Depositary Shares (NASDAQ
symbol: APSA).
Leases. APSA enters into commercial leases with tenants for terms ranging
from three to ten years, with most leases having terms of no more than five
years. Lease agreements are generally denominated in U.S. dollars and subject to
rent escalation clauses. Shopping center leases generally do not contain renewal
options. Tenants are generally charged a rent which consists of the higher of
(i) a base rent and (ii) a percentage rent which generally ranges between 4% and
8% of tenant's 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. Tenants are also required to pay for the
direct expenses of their units, such as electricity, water, telephone and air
conditioning, as well as their proportion of the common area expenses. In
addition, tenants pay between approximately 12% and 15% of their base rent into
a common promotion fund. In the cases where APSA acts as manager, APSA receives
an administration fee.
In addition to rent, tenants are generally charged a key money which is
an admission fee that tenants pay upon entering into a lease and upon lease
renewal. Key money is normally paid in one lump sum or in a small number of
monthly installments. If the tenant pays in installments, it is the tenant's
responsibility to pay for the balance of any such amount unpaid in the event the
tenant terminates its lease prior to its expiration. In the event of
termination, a tenant will not be refunded its key money.
The following table shows certain information concerning our shopping
centers:
20
SHOPPING CENTER PROPERTIES
DATE GROSS PERCENTAJE EIRSA'S MONTHLY TOTAL RENTAL INCOME FOR THE BOOK
OF LEASEABLE LEASED INTEREST INCOME FISCAL YEAR PS./000 (3) VALUE
ACQUISITION AREA M2 (1) (2) PS./000 2002 2001 2000 PS./000
------------------------------------------------------------------------------------------------------------------
SHOPPING CENTERS (5)
Alto Palermo 12/23/97 18,129 92% 50% N/A 17,116 21,902 23,281 116,957
Abasto 7/17/94 40,476 95% 50% N/A 15,394 19,926 20,937 104,622
Alto Avellaneda 12/23/97 26,701 94% 50% N/A 10,623 14,347 15,955 44,469
Paseo Alcorta 6/6/97 14,909 84% 50% N/A 8,238 10,738 11,154 33,716
Patio Bullrich 10/1/98 11,623 91% 50% N/A 6,377 7,158 6,686 59,389
Nuevo NOA Shopping 3/29/95 18,876 88% 50% N/A 1,980 2,244 1,786 9,768
Others (6) 50,371 94% N/A N/A 1,676 1,860 2,379 16,839
------------------------------------------------------------------------------------------------------------------
Fibesa and others (7) N/A N/A 2,334 3,592 0
Revenues Tarjeta
Shopping 40% N/A 16,088 15,530 10,121
------------------------------------------------------------------------------------------------------------------
TOTAL SHOPPING CENTERS (8) 181,085 92% N/A N/A 79,825 97,295 92,299 385,760
------------------------------------------------------------------------------------------------------------------
Notes:
(1) Total leasable area in each property. To obtain the square meters
attributable to the Company, this column should be multiplied by th
Company's net ownership interest. Excludes common areas and parking spaces.
(2) Calculated dividing occupied square meters by leasable area.
(3) Total consolidated rents, according to the Comision Nacional de Valores
(CNV), adjusted for inflation as of June 30, 2002. Excludes gross income tax
deduction.
(4) Cost of acquisition plus improvements, less accumulated depreciation, plus
adjustment for inflation as of 06/30/02.
(5) Through Alto Palermo S.A.
(6) Includes the following properties: Buenos Aires Design and Mendoza Plaza
Shopping.
(7) Includes revenues from Fibesa S.A. and Alto Invest.
(8) Corresponds to the "Shopping Centers" business unit mentioned in Note 4 to
the Consolidated Financial Statements. Excludes gross income tax deduction.
The following table shows a schedule of lease expirations for our
shopping center properties in place (except Mendoza Plaza) as of June 30, 2002,
assuming that none of the tenants exercise renewal options or terminate their
lease early.
PERCENTAGE OF PERCENTAGE OF
SQUARE METERS TOTAL SQUARE ANNUAL RENT TOTAL RENT
FISCAL YEAR OF NUMBER OF SUBJECT TO METERS SUBJECT UNDER EXPIRING UNDER EXPIRING
LEASE EXPIRATION LEASES EXPIRING EXPIRING LEASES TO EXPIRATION LEASES (1) LEASES
---------------- --------------- --------------- -------------- -------------- --------------
(m2) (%) (Ps.) (%)
2002 (2)... 182 20,286 14.5 8,598,838 16.1
2003....... 267 24,729 17.7 17,108,221 32.1
2004....... 173 21,265 15.2 9,854,933 18.5
2005....... 138 18,774 13.4 7,960,922 14.9
2006....... 67 18,820 13.5 4,629,990 8.7
2007+...... 35 36,041 25.8 5,153,778 10.0
--------------- --------------- -------------- -------------- --------------
TOTAL...... 862 139,915 100.0 53,306,682 100.00
(1) Includes only the basic rental income amount. Does not give effect to our
ownership interest.
(2) Includes vacant stores at June 30, 2002.
Properties. Set forth below is information regarding our principal
shopping centers.
ALTO PALERMO SHOPPING, CITY OF BUENOS AIRES. Alto Palermo Shopping is a
155-store shopping center that opened in 1990 and is located in the densely
populated neighborhood of Palermo in the city of Buenos Aires. Alto Palermo
Shopping is located at the intersection of Santa Fe and Coronel Diaz avenues,
only a few minutes from downtown city of Buenos Aires and has nearby access from
the Bulnes subway
21
station. Alto Palermo Shopping has a total constructed area of 64,672 square
meters that consists of 18,129 square meters of gross leasable area. The
shopping center has a two-screen movie theatre, an entertainment center and a
food court with 20 restaurants. Alto Palermo Shopping is spread out over four
levels and has a 741-car pay parking. Tenants in this shopping center generated
average estimated monthly retail sales of approximately Ps. 633.0 per square
meter for the year ended June 30, 2002. Principal tenants currently include
Fravega, Mc Donald's, Musimundo, Garbarino and Zara.
ALTO AVELLANEDA, AVELLANEDA, GREATER BUENOS AIRES. Alto Avellaneda is a
155-store shopping center that opened in October 1995 and is located in the
highly populated neighborhood known as Avellaneda, on the southern border of the
city of Buenos Aires. Alto Avellaneda has a total constructed area of 95,722
square meters that includes 26,701 square meters of gross leasable area. Alto
Avellaneda includes several anchor stores, a six-screen multiplex movie theatre,
a Wal-Mart superstore, an entertainment area, a bowling alley, a 19-restaurant
food court and an outdoor parking lot. Wal-Mart purchased the space it now
occupies. Tenants in this shopping center generated average estimated monthly
retail sales of Ps. 345.3 per square meter for the year ended June 30, 2002.
Principal tenants currently include Mc Donald's, Musimundo, El Bingo, Rodo and
Garbarino.
PASEO ALCORTA, CITY OF BUENOS AIRES. Paseo Alcorta is a 124-store
shopping center that opened in 1992 and is located in the residential
neighborhood of Palermo Chico, one of the most exclusive areas in the city of
Buenos Aires, within a short drive from downtown city of Buenos Aires. Paseo
Alcorta has a total constructed area of approximately 78,000 square meters that
consists of 14,909 square meters of gross leasable area. The three-level
shopping center includes a four-screen multiplex movie theatre, a 24-restaurant
food court, a Carrefour hypermarket, and a free parking lot with approximately
1,500 spaces. Carrefour purchased the space it now occupies but it pays
proportional expenses of the shopping center. Tenants in this shopping center
generated average estimated monthly retail sales of Ps. 482.3 per square meter
for the year ended June 30, 2002. Principal tenants currently include Cristobal
Colon, McDonald's, Kartum, Musimundo and Fravega.
ABASTO SHOPPING, CITY OF BUENOS AIRES. Abasto Shopping is a 182-store
shopping center located in the city of Buenos Aires. Abasto Shopping is directly
accessible from the Carlos Gardel subway station and is located six blocks from
the Once railway terminal and a few blocks from the highway to Ezeiza
International Airport. Abasto Shopping opened in November 1998. The principal
building is a landmark building which during the period 1889 to 1984 operated as
the primary fresh produce market for city of Buenos Aires. The property was
converted into a 111,200 square meter shopping center, with approximately 40,476
square meters of gross leasable area. Abasto Shopping is located across from
Torres de Abasto residential apartment development. The shopping center includes
a food court with restaurants covering an area of 5,600 square meters, a
12-screen multiplex movie theatre, entertainment facilities and the "Museo de
los Ninos Abasto", a museum for children. Abasto Shopping is spread out over
five levels and has a 2,500-car parking lot. Tenants in Abasto have generated
estimated average monthly sales of Ps. 283,8 per square meter for the year ended
June 30, 2002. Principal tenants currently include Musimundo, McDonald's, Zara,
Rodo and Hoyts Cinemas.
PATIO BULLRICH, CITY OF BUENOS AIRES. Patio Bullrich is a 89-store
shopping center located in Recoleta, a popular tourist zone in the city of
Buenos Aires a short distance from the Caesar Park and Hyatt hotels. Patio
Bullrich has a total constructed area of 27,811 square meters that consists of
11,623 square meters of gross leasable area. The four-story shopping center
includes a 22-restaurant food court, an entertainment area, a six-screen
multiplex movie theatre and a parking lot with 228 spaces. Patio Bullrich is
currently one of the most successful malls in Argentina in terms of sales per
square meter, producing for tenants average estimated monthly retail sales of
Ps. 466.1 per square meter for the year ended June 30, 2002. Principal tenants
currently include Paula Cahen D'anvers, Cipriani Dolce, Buquebus, Cacharel
Damas and Beauty Shop.
ALTO NOA, SALTA, PROVINCE OF SALTA. Alto Noa is a 91-store shopping
center located in the city of
22
Salta, the capital of the province of Salta. The shopping center consists of
31,836 square meters of total constructed area that consists of 18,876 square
meters of gross leasable area and includes a 13-restaurant food court, a
children's amusement center, a supermarket, an eight-screen movie theatre and
parking facilities for 551 cars. Tenants have generated estimated average
monthly sales of Ps. 124.6 per square meter for the year ended June 30, 2002.
Principal tenants currently include Fravega, Mc Donald's, Hoyts General Cinema,
Repsol Y.P.F. and Casa Lozano S.A.
BUENOS AIRES DESIGN, CITY OF BUENOS AIRES. Buenos Aires Design Center is
a 66-store shopping center intended for specialty interior, home decorating and
restaurants that opened in 1993. APSA owns Buenos Aires Design through a 51%
interest in Emprendimientos Recoleta, which owns the concession to operate the
shopping center. Buenos Aires Design is located in Recoleta. Buenos Aires Design
has a total constructed area of 22,790 square meters that consists of 10,004
square meters of gross leasable area. The shopping center has 11 restaurants, is
divided into two floors and has a 178-car parking lot. Tenants in this shopping
have generated estimated average monthly sales of Ps. 213.3 per square meter for
the year ended June 30, 2002. Principal tenants currently include Vivendi, Bazar
Geo, Iluminacion Aguero, Hard Rock Cafe and Morph.
MENDOZA PLAZA, MENDOZA, PROVINCE OF MENDOZA. Mendoza Plaza is a 137-store
shopping center located in the city of Mendoza in the province of Mendoza. It
consists of 40,367 square meters of gross leasable area. Mendoza Plaza has a
multiplex movie theatre covering an area of approximately 3,515 square meters
with ten screens, the Chilean department store Falabella, a food court with 15
restaurants, an entertainment center and a supermarket which is also a tenant.
The monthly rental average of the leaser is estimated in Ps. 182,8 by square
meters for the year ended June 30, 2002. It is owned through APSA's 18.9%
interest in Perez Cuesta.
TARJETA SHOPPING. Tarjeta Shopping is a non-banking credit card issued by
Tarshop, which is a limited purpose credit card company, engaged in credit card
operations and is not affiliated to any bank. Tarshop originates credit card
accounts to encourage customers to purchase goods and services from our shopping
centers. Tarjeta Shopping is currently accepted in five shopping centers and an
extensive network of supermarkets and stores.
As of June 30, 2002, Tarshop had total assets of approximately Ps. 37.2
million and shareholder's equity of Ps. 6.2 million. For the fiscal year ended
June 30, 2002, Tarshop's total net sales were Ps. 40.8 million, representing
approximately 24.02 % of APSA's net sales for such period. As of June 30, 2002,
Tarshop had approximately Ps. 62.3 million in credit card receivables
outstanding (including asset-backed securities), compared to Ps. 72.8 as of June
30, 2001.
SALES AND DEVELOPMENT PROPERTIES; UNDEVELOPED PARCELS OF LAND
RESIDENTIAL DEVELOPMENT PROPERTIES
The acquisition and development of residential apartment complexes and
residential communities for sale is one of our core activities. Our development
of residential apartment complexes consists of the new construction of high-rise
towers or the conversion and renovation of existing structures such as factories
and warehouses. In residential communities, we acquire vacant land, develop the
infrastructure such as roads, utilities and common areas, and sell plots of land
for construction of single-family homes. We may also develop or sell portions of
land for others to develop complementary facilities such as areas for shopping
in the area of the residential developments. In fiscal year 2002 net sales from
the sales and developments segments fell to Ps. 45.2 million, compared to Ps.
89.8 million in fiscal year 2001. This reduction has mainly been due to the
reduced stock of units available for sale at present as a result of the halting
of new development launches several quarters back, a decision that was based on
the sharp fall in agregate demand.
Construction and renovation works on our residential development
properties is currently performed,
23
under our supervision, by independent Argentine construction companies that are
selected through a bidding process. We enter into turnkey contracts with the
selected company for the construction of residential development properties
pursuant to which the selected company agrees to build and deliver the
development for a fixed price and at a fixed date. We are generally not
responsible for any additional costs based upon the turnkey contract. All other
aspects of the construction including architectural design are performed by
third parties.
Prior to the commencement of construction of a residential project, we
conduct an advertising program that continues after the launching of the sales
of the units. In addition, we have showcased some of our renovation projects
through Casa FOA, a highly visited fundraising exhibition where architects and
designers display their work. This exhibition has wide public appeal and has
been a successful marketing tool for us.
The following table shows certain information and gives an overview
regarding our sales and development properties:
24
DEVELOPMENT PROPERTIES
TOTAL
DATE OF ESTIMATED/ AREA DESTINED IRSA'S PERCENTAGE PERCENTAGE ACCUMULATED
ACQUISITION ACTUAL COST FOR SALES UNITS OR LOTS INTEREST CONSTRUCTED SOLD (4) SALES
(PS.000) (1) (M2) (2) (3) (PS. 000) (5)
------------------------------------------------------------------------------------------------------------------------------------
APPARTMENT COMPLEXES
--------------------
Torres Jardin 7/18/96 50,348 32,244 490 100% 100% 97% 62,176
Torres de Abasto (8) 7/17/94 33,079 35,630 545 50% 100% 99% 48,104
Palacio Alcorta 5/20/93 67,463 25,555 191 100% 100% 100% 68,152
Concepcion Arenal 12/20/96 13,410 6,913 70 100% 100% 97% 10,249
Alto Palermo Park (9) 11/18/97 21,348 10,654 73 67% 100% 88% 25,015
Other (10) 38,346 23,240 178 N/A 100% 97% 42,149
------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 223,994 134,236 1,547 N/A N/A N/A 255,845
RESEIDENTIAL
------------
COMMUNITIES
-----------
Abril/Baldovinos (11) 1/3/95 97,119 1,408,905 1,273 83% 100% 85% 139,449
Villa Celina I, II y
III 5/26/92 4,220 75,970 219 100% 100% 100% 12,391
Villa Celina IV y V 12/17/97 2,180 58,480 181 100% 100% 98% 8,439
Other (12) 4,259 43,762 33 N/A 100% 100% 4,746
------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 107,778 1,587,117 1,706 N/A N/A N/A 165,025
LAND RESERVES
-------------
Dique 3 (parcela 1)
(13) 9/9/99 6,169 50% 0% 0% -
Dique 3 (parcela 2)
(14) 9/9/99 7,221 50% 0% 0% -
Dique 3 (parcela 3)
(15) 9/9/99 7,557 50% 0% 0% -
Caballito 11/3/97 20,968 100% 0% 0% -
Puerto Retiro (9) 5/18/97 82,051 33% 0% 0% -
Santa Maria del Plata 7/10/97 715,952 100% 0% 0% -
Pereiraola (11) 12/16/96 1,299,630 83% 0% 0% -
Monserrat (9) 11/18/97 3,400 67% 0% 100% 3,274
Dique 4 (ex Soc del
Dique) 12/2/97 4,653 100% 0% 50% 10,955
Other (16) 4,441,363 N/A 0% -
------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 6,588,964 N/A N/A N/A 14,229
OTHER
-----
Hotel Llao- Llao 6/1/97 11,725 - 0 100% 100% 50% 14,671
Galerias Pacifico 4/6/99 291 - 0 100% 100% 100% 5,869
Sarmiento 580 1/12/94 10,404 2,635 14 100% 100% 100% 9,644
Santa Fe 1588 11/2/94 7,423 2,713 20 100% 100% 100% 7,267
Rivadavia 2243/65 5/2/94 7,267 2,070 4 100% 100% 100% 3,257
Libertador 498 12/20/95 4,519 1,491 2 100% 100% 100% 3,220
Other Properties (17) 73,313 47,690 266 100% 97% 96,919
------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 117,942 56,599 306 N/A N/A N/A 140,847
SUBTOTAL 449,714 8,366,916 3,559 N/A N/A N/A 575,946
------------------------------------------------------------------------------------------------------------------------------------
INTEREST FOR FINANCING PROPERTY SALES 4,015
MANAGEMENT FEES 1,742
TOTAL (18) 449,714 8,366,916 3,559 N/A N/A N/A 575,946
------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED SALES FOR FISCAL YEAR ENDED JUNE
30 (6) (PS. 000) BOOK VALUE (7)
02 01 00 PROPORTIONAL
(PS. 000) (PS. 000) (PS. 000) VALUE) (PS. 000)
----------------------------------------------------------------------------------------------
APPARTMENT COMPLEXES
Torres Jardin 1,837 4,680 6,649 617
Torres de Abasto (8) 1,784 5,314 4,577 6,394
Palacio Alcorta 540 - 18 -
Concepcion Arenal 323 3,341 2,439 194
Alto Palermo Park (9) 8,729 (1,062) 2,782 3,034
Other (10) 1,635 1,784 2,048 1,394
---------------------------------------------------------------------------------------------
SUBTOTAL 14,848 14,057 18,513 11,633
RESEIDENTIAL
COMMUNITIES
Abril/Baldovinos (11) 11,188 30,235 19,537 15,801
Villa Celina I, II y
III (46) 6 106 39
Villa Celina IV y V 121 2,582 5,736 9
Other (12) - - 141 -
----------------------- --------------------------------------------------------------------
SUBTOTAL 11,263 32,823 25,520 15,849
LAND RESERVES
Dique 3 (parcela 1)
(13) - - - 8,554
Dique 3 (parcela 2)
(14) - - - 10,016
Dique 3 (parcela 3)
(15) - - - 10,478
Caballito - - - 12,120
Puerto Retiro (9) - - - 27,199
Santa Maria del Plata - - - 103,213
Pereiraola (11) - - - 15,695
Monserrat (9) - 1,069 2,205 -
Dique 4 (ex Soc del
Dique) - 10,955 - 5,483
Other (16) - - - 22,639
----------------------- ---------------------------------------------------------------
SUBTOTAL - 12,024 2,205 215,397
OTHER
Hotel Llao- Llao - - 14,671 -
Galerias Pacifico - - 5,869 -
Sarmiento 580 - 9,644 - -
Santa Fe 1588 7,267 - - -
Rivadavia 2243/65 3,257 - - -
Libertador 498 3,220 - - -
Other Properties (17) 1,832 10,613 2,709 1,294
----------------------- ---------------------------------------------------------------
SUBTOTAL 15,576 20,257 23,249 1,294
SUBTOTAL 41,687 79,161 69,487 244,173
----------------------- ---------------------------------------------------------------
INTEREST FOR FINANCING 8,646 10,029
MANAGEMENT FEES 2,932 2,269
TOTAL (18) 47,444 90,739 81,785 244,173
----------------------- ---------------------------------------------------------------
25
Notes:
(1) Cost of acquisition plus total investment made and/or planned if the project
has not been completed, adjusted for inflation as of 06/30/02, pro-rata to the
Company's net ownership interest. In the case of the sale of 100% of our
shareholding interest in Inversora del Pacifico and 50% in Hotel Llao-Llao the
cost of sale of the shares adjusted for inflation as of 06/30/02 was considered
as investment cost.
(2) Total area devoted to sales upon completion of the development or
acquisition and before the sale of any of the units (including parking and
storage spaces, but excluding common areas). To obtain the square meters
attributable to the Company, it should be multiplied by the Company's net
ownership interest. In the case of Land Reserves the land area was considered.
(3) Represents the total units or plots upon completion of the development or
acquisition (excluding parking and storage spaces). To obtain the units or lots
attributable to the Company, should be multiplied by the Company's net ownership
interest.
(4) The percentage sold is calculated dividing the square meters sold by the
total saleable square meters.
(5) Includes only cumulative sales adjusted for inflation as of June 30, 2002,
pro-rata the Company's net ownership interest.
(6) Corresponds to the Company's total consolidated sales as authorized by the
Comision Naiconal de Valores adjusted for inflation as of 06/30/02. Excludes
gross income tax deduction.
(7) Cost of acquisition plus improvement plus activated interest, adjusted for
inflation as of 06/30/02, pro-rata our Company's net ownership interest.
(8) Through Alto Palermo S.A. Includes Abasto plots and inventories related to
the Coto project.
(9) Through Inversora Bolivar S.A.
(10) Includes the following properties: Dorrego 1916 (fully sold through our
Company) and units for sale in Alto Palermo Plaza (through Inversora Bolivar)
(11) Directly through the Company and indirectly through Inversora Bolivar S.A.
(12) Includes the plots of land of San Jorge Village (fully sold through
Inversora Bolivar S.A.).
(13) Through Bs As Trade & Finance S.A.
(14) Through Bs As Realty S.A.
(15) Through Argentine Realty S.A.
(16) Includes the following land reserves : Torre Jardin IV, Constitucion 1111,
Padilla 902, and Terreno Pilar (through our Company), and Pontevedra, Mariano
Acosta, Merlo, Intercontinental Plaza II, Terrenos Benavidez (through Inversora
Bolivar S.A.) and Terrenos Alcorta (through APSA S.A.).
(17) Includes the following properties: Sarmiento 517 (through our Company), 1
unit of Madero 1020 (through our Company) and Puerto Madero Dock 13, Puerto
Madero Dock 5, Puerto Madero Dock 6; Av. de Mayo 701, Rivadavia 2768, Serrano
250; Montevideo 1975 (Rosario) (fully sold through our Company) and Art Tower
26th Floor and Cervino 3626 (fully sold through Inversora Bolivar S.A.)
(18) Corresponds to the "Sales and Developments" business unit mentioned in Note
4 to the Consolidated Financial Statements. Excludes gross income tax deduction.
APARTMENT AND LOFT BUILDINGS
In the apartment building market, we acquire undeveloped properties that
are strategically located in densely populated areas of the city of Buenos
Aires, particularly properties located next to shopping centers and hypermarkets
or those that are to be constructed. We then develop multi-building high-rise
complexes targeted towards the middle-income market which are equipped with
modern comforts and services such as open "green areas," swimming pools, sports
and recreation facilities and 24-hour security. In the loft buildings market,
our strategy is to acquire old buildings in disuse that are located in areas
with a significant middle and upper-income population. The properties are then
renovated into unfinished lofts allowing buyers the opportunity to design and
decorate them to their preferences.
TORRES JARDIN, CITY OF BUENOS AIRES. Torres Jardin is a high-rise
residential complex located in the Buenos Aires neighborhood of Villa Crespo,
five minutes from Abasto Shopping. The project originally included four 23-story
towers directed towards the middle-income market. However, we had decided not to
construct Torres Jardin IV and sell the rights to do so. Torres Jardin I, II and
III have been completed and consist of 490 one, two and three bedroom
residential apartments. As of June 30, 2002, Torres Jardin I was 100% sold, II
98% and III 100%. The complex also includes 295 spaces of underground parking.
TORRES DE ABASTO, CITY OF BUENOS AIRES. Torres de Abasto is a
545-apartment high-rise residential apartment complex developed through APSA and
is located one block from Abasto Shopping. The complex consists of three
28-story buildings and one 10-story building directed towards the middle-income
market. The apartments were completed in May 1999. The complex has a swimming
pool, a terrace, 24-hour security, four retail stores on the ground floor of one
of the buildings and 331 underground parking spaces. As of June 30, 2002 99% of
the apartments were sold.
PALACIO ALCORTA, CITY OF BUENOS AIRES. Palacio Alcorta is a 191-loft
residential property that we converted from a former Chrysler factory located in
the residential neighborhood of Palermo Chico, one of the most exclusive areas
of the city of Buenos Aires, which is a ten minute drive from downtown. The loft
area ranges from 60 to 271 square meters. This project is directed towards the
upper-income market and it is 100%
26
sold. Palacio Alcorta also has seven retail units and 165 parking spaces.
CONCEPCION ARENAL 3000, CITY OF BUENOS AIRES. Concepcion Arenal 3000 is a
70-loft residential property located in north-central city of Buenos Aires. Each
loft unit has a salable area of 86 square meters and a parking space. Lofts in
this building are directed towards the middle-income market.
ALTO PALERMO PARK, CITY OF BUENOS AIRES. Alto Palermo Park is one of two
34-story apartment buildings located two blocks away from Alto Palermo Shopping
in the exclusive neighborhood of Palermo. Apartments in the building are
targeted towards the upper-income market. The building is also located next to
its twin, Alto Palermo Plaza. The buildings are comprised of 3 and 4-room
apartments with an average area of 158 square meters in the case of Alto Palermo
Park and of 294.5 square meters, in the case of Alto Palermo Plaza and each unit
includes an average of 18 and 29 square meter parking/storage space,
respectively. These buildings were included in the assets we acquired from Perez
Companc S.A.
RESIDENTIAL COMMUNITIES
In the residential communities market, we acquire extensive undeveloped
properties located in suburban areas or neighborhoods near the city of Buenos
Aires to develop private neighborhoods and country clubs in which to sell vacant
lots for the construction of single-family homes. In these properties we build
streets and roads, we arrange for the provision of basic municipal services and
amenities such as open spaces, sport facilities and security. We seek to
capitalize on improvements in transportation and communication around the city
of Buenos Aires, the growing suburbanization of the region and the shift of the
population moving to countryside-type residential communities.
An important factor in the trend towards living in suburban areas have
been the improvements and additions to the highways Autopista Panamericana,
Avenida General Paz and Acceso Oeste and the improvement in public train, subway
and bus transportation since their privatization which have greatly reduced
commuting time and facilitated access.
As of June 30, 2002, our residential communities for the construction of
single-family homes for sale in Argentina had a total of 218,386 square meters
of gross salable area in the Abril and Villa Celina IV and V, residential
communities located in the province of Buenos Aires.
ABRIL, HUDSON, GREATER BUENOS AIRES. Abril, is one of our private
residential communities. It is a 312-hectare property located near the city of
Hudson, approximately 34 kilometers south of the city Buenos Aires. Abril is
being developed into a private residential community for the construction of
single-family homes directed towards the upper-middle-income market. The
property plan includes 20 neighborhoods subdivided into 1,273 lots consisting of
approximately 1,107 square meters each. Abril also includes an 18-hole golf
course, 130 hectares of woodlands, a 4,000 square meter mansion and
entertainment facilities, a bilingual school, horse stables and sports centers
that were completed by the end of 1998. There is also a community shopping
center that was finished in 1999. The neighborhoods have been completed and as
of June 30, 2002, 85% was sold, 102 homes were under construction and 424 homes
had been completed.
On March 23, 2001, we entered into with Pulte S.R.L. a contract for the
sale of plots and a commitment for the transfer of titles of 250 plots from
Abril to Pulte S.R.L. for a total amount of Ps. 17.4 million. As of June 30,
2002, there were 44 plots pending to be signed.
VILLA CELINA, GREATER BUENOS AIRES. Villa Celina is a 400-lot residential
community for the construction of single family homes located in the residential
neighborhood of Villa Celina, on the southeastern edge of the city of Buenos
Aires, a short distance from the intersection of the Ricchieri highway and the
avenida General Paz beltway. We have been developing this property in several
stages since 1994. The first three stages representing 219 lots, each measuring
347 square meters on average have been completely sold and the two last stages
representing 181 lots are 99% sold.
27
UNDEVELOPED PARCELS OF LAND
We have acquired large undeveloped properties as land reserves for the
future development of office and apartment buildings, shopping centers and
single-family housing. We have acquired what we believe to be two of the largest
and most important undeveloped river front parcels in Buenos Aires, Puerto
Retiro and Santa Maria del Plata, for the future development of residential and
office spaces. In addition, we have benefited from the improvement of land
values during periods of economic growth. As of June 30, 2002, our land reserve
totaled 19 properties consisting of approximately 660 hectares (excluding
Rosario, Neuquen and Caballito land properties, owned by APSA).
CITY OF BUENOS AIRES
PUERTO MADERO DOCK 3. Plot "5M", located in Dique 3, east side of Puerto
Madero, comprises 20,947 square meters and is subdivided in three plots. The
plots are owned by three different companies: Buenos Trade & Finance Center S.A.
("BATFCSA"), Buenos Aires Realty S.A. ("BARSA") and Argentine Realty S.A.
("ARSA"). We own 50% of the capital stock of each of the companies, and the
other 50% is owned by a company named RAGHSA S.A. ("RAGHSA").
On August 16, 2002, the Company signed an agreement with RAGHSA for the
redistribution of the plot "5M". As a result of the redistribution, the Company
now owns 100% of the capital stock of BAT&FCSA, and has transferred our 50%
ownership in ARSA and BARSA, respectively for the benefit of RAGHSA. This
agreement has also provided the division and redistribution of the costs and
construction commitments for the sites that had been assumed with Corporacion
Antiguo Puerto Madero S.A.(CAPM), the adjustment of the remaining commitments
and obligations also assumed with CAPM and the exchange of the shares issued by
the mentioned companies owning the plots making up the 5M site, ARSA, BARSA and
BAT&FCSA, respectively.
PUERTO RETIRO. Puerto Retiro is an 8.3 hectare undeveloped riverside
property bounded by the Catalinas and Puerto Madero office zones to the west,
the transportation hub Retiro to the north and the Rio de la Plata to the south
and east. One of the only two significant privately owned waterfront properties
in the city of Buenos Aires, Puerto Retiro may currently be utilized only for
port activities. We have initiated negotiations with municipal authorities in
order to rezone the area. Our plan is to develop a 360,000 square meter
financial center. The launching date has not been settled and consequently, the
estimated cost and financing method are not decided. We own 66% of our
subsidiary Inversora Bolivar, who owns a 50% interest in Puerto Retiro.
SANTA MARIA DEL PLATA. Santa Maria del Plata is an undeveloped waterfront
property located at the southern end of Puerto Madero, adjacent to the city of
Buenos Aires nature reserve. Approval has been granted for the construction of
715,000 square meters. The development will be targeted at the high-income
market and will include different residential projects, taking advantage of the
river and related nautical activities. The plan includes three different housing
concepts: high-rise apartment buildings, smaller condominiums and neighborhoods
of single-family homes. Common areas for recreation, offices, and a hotel are
also included. We plan to seek a partner for the development of this project. As
of June 30, 2002, we had invested Ps. 74.5 million in Santa Maria del Plata. The
master plan is pending final authorities approval. We currently hope to launch
this project for sale at the end of fiscal year 2003.
CABALLITO. Caballito is a 2.1 hectare undeveloped property located in the
residential neighborhood of Caballito in the city of Buenos Aires. We are
considering several alternatives for this property including the development of
residential apartment complexes or the sale of this property as it is. Zoning
approvals for the development of residential apartments have been obtained. As
the plan has not been decided, we do not have an estimated cost and financing
method for it.
CABALLITO, FERRO PROJECT. It is a property of approximately 25,539 square
meters in the neighborhood of Caballito, in the city of Buenos Aires, which was
acquired by APSA in October 1998. APSA currently plans to utilize the property
to build a shopping center similar to Alto Palermo Shopping but at present,
municipal
28
zoning regulations do not permit the construction of shopping centers in the
said property. APSA is analysing the way to get authorization to develop a
shopping center. There can be no assurance that APSA will actually be able to
develop this project.
ALCORTA PLAZA. On June 29, 2001, APSA acquired a plot of land located in
Figueroa Alcorta avenue, in front of Paseo Alcorta Shopping for Ps. 4.7 million.
This land is located in the neighborhood of Palermo Chico in the city of Buenos
Aires.
APSA intends to construct an office building named "Alcorta Plaza". This
proposed project will include the construction of a 23-story tower with
approximately 250 square meters each, which would be sold by story. The proposed
project will also include the construction of a basement level with parking
spaces. The total estimated cost for the development is currently approximately
Ps. 9.0 million, which is expected to be financed by anticipated sale of the
units.
The project's feasibility has been approved by the local authorities, but
final approval is still pending. As a result, APSA cannot assure the approvals
will be granted, and APSA may decide not to develop this proposed project.
GREATER BUENOS AIRES
PEREIRAOLA, HUDSON. We own an 83% interest in Pereiraola S.A., a company,
whose principal asset is a 130 hectare undeveloped property adjacent to Abril.
We intend to use this property to develop a private community for the
construction of single-family homes targeted at the middle-income market. We
have obtained the pertinent municipal building permits. We have not yet
established the costs and financing method for this proposed project.
BENAVIDEZ, TIGRE. Benavidez is a 99.8 hectare undeveloped land reserve
property located in Tigre, 35 kilometers to the north of downtown of the city of
Buenos Aires. The property is easily accessible due to its proximity to
Panamericana Highway. We are considering several alternatives for this property
including the development of a residential community or the sale of this
property as it is and, therefore, we do not have a cost estimate nor a financing
plan.
PILAR. Pilar is a 74.0 hectare undeveloped land reserve property located
close to the city of Pilar, 55 kilometers to the northwest of downtown of the
city of Buenos Aires. The property is easily accessible due to its proximity to
the Autopista del Norte. The Pilar area is one of the most rapidly developing
areas of the country. We are considering several alternatives for this property
including the development of a residential community or the sale of this
property as it is and, therefore, we do not have a cost estimate nor a financing
plan.
OTHER UNDEVELOPED PARCELS OF LAND IN THE CITY OF BUENOS AIRES
Our land reserve property portfolio also includes nine land reserve
properties located in Buenos Aires and its surrounding areas. These properties
are projected for future developments of offices, shopping centers, apartment
buildings and residential communities. The principal properties include Puerto
Madero Dock 4 "block 1M" and Merlo.
OTHER PROVINCES
ROSARIO PROJECT, CITY OF ROSARIO, PROVINCE OF SANTA FE. On August 25,
1998, together with Coto our subsidiary APSA acquired a 213,372 square meter
development property located in the city of Rosario, the third largest city in
Argentina in terms of population, in a public auction conducted by the Ente
Nacional de Administracion de Bienes Ferroviarios ("ENABIEF") a Argentine
government entity within the Ministry of Infrastructure and Housing, dedicated
to the administration of the national Argentine governments properties
(subsequently ENABIEF changed its name to Organismo Nacional de Administracion
de Bienes del Estado -
29
"ONABE"-).
The proposed project is composed of two parts. The first part involves
the construction of a shopping center with approximately 20,000 square meters of
gross leasable area and an entertainment complex, consisting of approximately
21,000 square meters, that is currently expected to include a science museum, a
railroad museum, a convention center, a restaurant area and an outside
entertainment area. The second part involves the construction of a high-rise
1,200 apartment residential complex consisting of nine towers. APSA paid US$
17,5 million (net of expenses at the end) for the 66,67% of the property.
On December 17, 1999, APSA obtained an exclusive title to a part of this
property upon which it plans to develop a residential complex. On the rest of
the land, which is 56% owned by APSA and 44% by Coto, APSA plans to develop a
shopping center.
At present, the estimated cost of the first part of the project is
approximately Ps. 37.5 million. The estimated cost of completion of the nine
residential towers is currently estimated at approximately an additional Ps.
126.0 million.
The ownership of the acquired property is subject to the accomplishment
of a construction timetable.
On December 20, 2000, APSA filed a request for extension of the terms set
forth in the original timetable for the construction of the project, which was
approved by the ONABE by Order 747-01 on September 4, 2001. The extension,
establishes the following schedule: i) the road system, which construction was
completed in March 2002; ii) the construction of the shopping center, is
projected to start on September, 15, 2002; and iii) the construction of the
first tower of the residential complex is projected to start on March, 2004.
On July 10, 2002, APSA submitted a new request for the extension of the
terms established in the last schedule to be approved . This request was
grounded mainly on the current economic and social crisis affecting the country
that was absolutely unforeseeable at the time the bid for the purchase of the
site was made.
At the present date the request to the ONABE is still awaiting reply.
NEUQUEN PROJECT, PROVINCE OF NEUQUEN. On July 6, 1999, our subsidiary
APSA acquired a 94.6% interest in Shopping Neuquen S.A. for Ps. 4.2 million.
Shopping Neuquen is owner of a plot of land of approximately 50,000 square
meters in Neuquen City, which have the pre-approved for the construction of a
shopping center. APSA paid Ps. 0.9 million on August 20, 1999, the remaining Ps.
3.3 was scheduled to be payable on the earlier of the opening of the shopping
center and July 5, 2001.
Shopping Neuquen's sole asset comprises of a piece of land of
approximately 50,000 square meters with preliminary governmental approval for
construction of a shopping center on the site. The project contemplates
construction of a shopping center with 135 stores, a hypermarket, a multiplex
movie theater and a hotel. The total cost for APSA is currently estimated to be
approximately Ps. 20.0 million and will be financed with working capital and
additional bank loans.
In June, 2001, Shopping Neuquen filed a request with the municipality of
Neuquen for extension of the original construction timetable and for
authorization to sell part of the land to third parties for the construction by
them of the property that they will develop. The proposed new timetable
contemplates that the construction of the first stage would start on December
15, 2002 and would finish on December 31, 2004. The second optional stage would
be finished on December 31, 2006.
The extension will have to be approved by the Consejo Deliberante of the
city of Neuquen which is the municipal legislative body. APSA is currently in
the process of seeking to extend the term for construction and payment of the
remaining purchase price of Shopping Neuquen. In the event that the proposal is
not
30
accepted by the local governmental authorities, the sale may be cancelled, and
Shopping Neuquen may not recover its original investment. Although APSA is
hoping for a favorable resolution to our proposal, there can be no assurance as
to the final outcome of the negotiations.
HOTELS
At the end of the 1997 fiscal year, we acquired the Hotel Llao Llao, our
first luxury hotel. Some months later, as part of the acquisition from Perez
Companc of the Old Alto Palermo, we acquired an indirect 50% interest in the
Hotel Inter-Continental in Buenos Aires which we own through our subsidiary
Inversora Bolivar. In March 1998, we acquired the Hotel Libertador. During
fiscal year 1999, we sold a 20% interest in the Hotel Libertador to Hoteles
Sheraton de Argentina S.A.C. ("Hoteles Sheraton de Argentina") and during the
fiscal year 2000, we sold 50% of our interest in the Hotel Llao Llao to the
Sutton group.
The following chart shows certain information regarding our luxury
hotels:
HOTELES
HOTEL ACQUISITION IRSA'S ROOMS AVERAGE AVG. PRICE ACCUMULATED SALES FOR FISCAL YEAR BOOK
DATE INTEREST OCCUPATION PER ROOM YEAR ENDED JUNE 30 (PS. 000) (1) VALUE AS
OF JUNE
30 2002 (2)
% % PS. 2002 2001 2000 (PS. 000)
----------------------------------------------------------------------------------------------------------------------------
Llao Llao 6/97 50 158 53 204 8,186 8,453 17,136 12,906
Inter-Continental 11/97 50 312 40 168 10,431 16,335 22,262 33,023
Sheraton Libertador 3/98 80 200 52 149 10,846 16,083 19,668 30,365
--- -- --- ------ ------ ------ ------
TOTAL 670 48 174 29,463 40,871 59,066 76,294
---------------------------------------------------------------------------------------------------------------------------
(1) Proportional to the Company's actual interest for each period.
(2) Represents 100% of the hotel's book value including facilities
and goodwill. Proportional to the Company's interest.
HOTEL LLAO LLAO, SAN CARLOS DE BARILOCHE, PROVINCE OF RIO NEGRO. Hotel
Llao Llao is located on the Llao Llao peninsula, 25 kilometers from the city of
San Carlos de Bariloche, and is one of the most important tourist hotels in
Argentina. Surrounded by mountains and lakes, this hotel was designed and built
by the famous architect Bustillo in a traditional alpine style and first opened
in 1930. The hotel was renovated between 1990 and 1993. The building has a total
constructed surface area of 15,000 square meters, 147 rooms and 14 suites. The
hotel-resort also includes an 18-hole golf course, tennis courts, health club,
spa, game room and swimming pool. The hotel is a member of The Leading Hotels of
the World and is currently being managed by Compania de Servicios Hoteleros S.A.
which manages the Hotel Alvear, a luxury hotel located in the Recoleta
neighborhood of the city of Buenos Aires.
HOTEL INTER-CONTINENTAL, CITY OF BUENOS AIRES. Hotel Inter-Continental is
located in the downtown city of Buenos Aires neighborhood of Monserrat, adjacent
to the Inter-Continental Plaza office building. This property was also a part of
the acquisition of Old Alto Palermo from Perez Companc. The hotel's meeting
facilities include eight meeting rooms, a convention center and a divisible 569
square meter ballroom. Other amenities include a restaurant, a business center,
a spa and a fitness facilities with swimming pool. The hotel was completed in
December 1994 and has 314 rooms. The hotel is managed by the Inter-Continental
Hotels Corporation, a United States Corporation.
HOTEL SHERATON LIBERTADOR, CITY OF BUENOS AIRES. Hotel Sheraton
Libertador is located in downtown city of Buenos Aires at the corner of the
streets Cordoba and Maipu, one block from Galerias Pacifico. The hotel contains
193 rooms and 7 suites, eight meeting rooms, a restaurant, a business center, a
spa and fitness facilities with a swimming pool. In March 1999, we sold 20% of
our interest in the Sheraton Libertador Hotel for US$ 4.7 million to Hoteles
Sheraton de Argentina. The hotel is managed by Sheraton Overseas Management
Corporation.
31
INTERNATIONAL REAL ESTATE ACTIVITIES
As of June 30, 2001, we participated in an international strategic
alliance in Brazil. In December 2000, we sold to Consultoria Inmobiliaria
Velutini y Asociados all of our interest in Venezuela Invest Ltd. and Fondo de
Valores Inmobiliarios, companies through which we held our interests in
Venezuela. On February 28, 2002, we sold all of our interest in Brazil Realty
for a total amount of US$ 44.2 million.
The following chart shows IRSA's strategic alliances as of June 30, 2002.
STRATEGIC ALLIANCES
COUNTRY IRSA'S RESULTS FOR IRSA AS OF JUNE 30, (1) BOOK VALUE AS PARTNER
SHARE 2002 2001 2000 OF JUNE 30 2002
BRAZIL REALTY Brazil 0.00 (3,378) 17,040 17,477 - Elie Horn
FVI Venezuela 0.00 - 542 (10,747) - Velutini Group
----------------------------------------------------------------------------------------------------------------------------------
TOTAL (3,378) 17,582 6,730 -
----------------------------------------------------------------------------------------------------------------------------------
(1) The Company's proportional equity value in the period's results.
BRAZIL REALTY
Until February 2002, when we sold our subsidiary Brazil Realty, we
participated in the Brazilian real estate market through Brazil Realty which was
engaged in: a) the acquisition and operation of office and shopping center
properties for rental, and b) the acquisition and development of properties, and
vacant land, to be used as office and retail properties for rental and/or sale,
and as residential properties for sale. Brazil Realty primarily focuses its
activities in the Sao Paulo real estate market, Brazil's largest consumer and
industrial market.
At the time we sold Brazil Realty, we owned 49,3% of the voting capital
stock of Brazil Realty, through our wholly owned subsidiary Ritelco S.A. Brazil
Realty's shares are listed and traded on the Sao Paulo Stock Exchange and trade
in the over-the-counter market in the United States in the form of American
Depositary Shares (NASDAQ symbol: BRZD).
FONDO DE VALORES INMOBILIARIOS
In December 2000, we sold to Consultoria Inmobiliaria Velutini y
Asociados all of our interest in Venezuela Invest Ltd. and Fondo de Valores
Inmobiliarios, companies through which we held our interests in Venezuela, for
total consideration of US$ 67.0 million.
Loss from the sale was US$ 0.494 million, and was recorded as part of
operating income under the line item "Loss from operations and holdings of real
estate assets".
TECHNOLOGY INVESTMENTS IN LATIN AMERICA
LATIN AMERICAN ECONETWORKS N.V.
In July 2000, together with Divine InterVentures, Inc., Dolphin Fund Plc
(formerly Quantum Dolphin Plc) and Catanzaro Holding B.V., we formed Latin
American Econetworks N.V., a holding company organized in the Netherlands
Antilles ("LAE"). LAE was conceived as a developer of software, technology and
Internet-related information network for the technology service suppliers. In
connection with the formation, an 11.2% interest in the holding company was
issued to us in exchange for US$ 5.3 million in cash.
On November 7, 2001, we sold our ownership in Latin American Econetworks
for Ps. 5.2 million.
32
IRSA TELECOMUNICACIONES N.V.
In the fourth quarter of fiscal year 2000, we had invested US$ 3.0
million, -in the form of irrevocable capital contributions-, into two unrelated
companies, namely, Red Alternativa, a provider of satellite capacity to Internet
service providers, and Alternativa Gratis, an Internet service provider (the
"Companies"). At that date, the Companies were development stage companies with
no significant operations. Between July 2000 and August 2000, we, together with
Dolphin Fund Plc (formerly Quantum Dolphin Plc), increased our respective
investments in the Companies, in exchange for shares of common stock. In a
series of transactions, which occurred between August 2000 and December 2000,
(i) we 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 and (ii) Dolphin Fund Plc (formerly Quantum
Dolphin Plc), the previous majority shareholder of the Companies and us
contributed our respective ownership interest in the Companies into ITNV in
exchange for shares of common stock of ITNV. As a result of the reorganization,
the Companies are now wholly owned subsidiaries of ITNV. Following the
reorganization, we held a 49.36% interest in ITNV and Dolphin Fund Plc. held a
20,13% interest.
On December 27, 2000, the shareholders of ITNV entered into a
shareholders agreement with new investors in ITNV, namely Quantum Industrial
Partners LDC and SFM Domestic Investment LLC, under which such new investors
contributed US$ 4.0 million in cash in exchange for 1,751,453 shares of Series A
redeemable convertible preferred stock and an option to purchase 2,627,179
additional shares of mandatorily redeemable convertible preferred stock.
Pursuant to the terms of the shareholders agreement, options were granted for a
period up to five years and at an exercise price equal to the quotient of US$
6.0 million by 2,627,179 preferred shares. On or after December 27, 2005, ITNV
might be required, at the written request of holders of the then outstanding
Series A preferred stock to redeem such holders' outstanding shares of series A
preferred stock for cash at the greater of (i) 200% of the original issue price
multiplied by the number of preferred stock to be redeemed, and (ii) the fair
market value of the common shares each holder of Series A preferred stock would
have been entitled to receive if such holder had converted the number of Series
A preferred stock to be redeemed into common stock at the redemption date; in
both cases plus any accrued or declared but unpaid dividends.
ALTOCITY.COM
Altocity.Com, is a company engaged in delivering e-commerce services
providing customers with the information necessary to make personalized online
buying decisions and giving retailers the ability to reach a large customer
base. Altocity.Com, is a wholly owned subsidiary of E-Commerce Latina S.A.,
("E-Commerce Latina"), an Internet venture between APSA and Telefonica de
Argentina S.A. ("Telefonica"), where each of them have a 50% interest.
Previously, APSA's partner in the venture was Telinver S.A., a wholly owned
subsidiary of Telefonica; but on April 27, 2001, Telinver notified APSA that it
had transferred its holdings in E-commerce Latina to Telefonica.
Altocity.Com's goal is to make the shopping experience informed, quick,
interactive and personalized. Altocity.Com primarily derives its revenues from
sales of products on its website and to a lesser extent from sales of
advertising and sponsorships and a fixed amount charged to retailers.
Altocity.Com began operating its web site on June 1, 2000, and by June
30, 2002, had more than 30,000 registered users. The site offers a product
supply of approximately 320,000 items from over 66 retailers that are classified
into 16 categories such as apparel, books, music and home appliances. The site's
"url address" www.altocity.com, is visited monthly by approximately 84,077
visitors on average.
In connection with the formation of E-Commerce Latina, on December 15,
1999, APSA entered into a shareholders' agreement with Telinver. On April 27,
2001, Telinver notified APSA that it had assigned that agreement to Telefonica.
Pursuant to the shareholders agreement, Telinver contributed to E-Commerce
Latina US$ 5 million upon execution, and an additional US$ 5.0 million on June
15, 2000 in return for its 50% ownership position. APSA contributed intellectual
property rights in exchange for its 50% ownership interest.
33
APSA and Telinver made additional capital contributions of US$ 5 million each,
during April 2001, and agreed to make optional capital contributions to be
approved by E-Commerce Latina's board of directors of up to US$ 12.0 million to
develop new lines of business, of which 75% is to be contributed by Telinver and
25% is to be contributed by APSA.
The shareholders' agreement also sets forth the rights and obligations of
each party over the operation of E-commerce Latina. The significant provisions
of the shareholders agreement include:
o our obligation to remain as APSA's controlling shareholder and of
Grupo Telefonica to control Telinver or any successor;
o the determination of the election of the members of the board of
directors;
o terms for notices of the shareholders meetings; and
o certain restrictions on transfers of shares for the first two years,
and thereafter reciprocal first refusal and "tag along" rights.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of our investment objectives and policies,
financing policies and policies with respect to certain other activities. These
policies may be amended or revised from time to time at the discretion of our
board of directors without the approval of our stockholders.
INVESTMENT OBJECTIVES AND POLICIES
We intend to achieve our objectives by means of:
o the acquisition and development of residential properties primarily
for sale,
o the acquisition, development and operation of office and other
non-shopping center retail properties primarily for rental purposes,
o the acquisition, development and operation of shopping center
properties,
o the acquisition and operation of luxury hotels, and
o the acquisition of undeveloped land reserves for future development
or sale.
Our strategy is to increase our cash flow, revenues and asset value
through the continuous expansion of our diversified portfolio of properties and
assets by means of the purchase, development and operation of real property,
either individually or in association with third parties, in all our business
segments.
We may change our current policy regarding any of these activities
without the need for a vote from the securities holders.
Throughout the past three years the rental of office and retail
properties have been our main activities, whereas the acquisition and
development of residential properties for sale and the operation of luxury
hotels have become secondary activities as a result of the economic recession.
We have made no acquisitions of undeveloped land reserves during this period.
Going forward, we expect to continue to focus on rental activities of
both office and retail space as main activities, while we believe we will not
continue with the development of residential properties for sale until we see
clear signs of a recovery in the Argentine economy. The operation of luxury
hotels will probably remain a secondary activity.
34
Historically, the acquisition of undeveloped land reserves has been the
only activity in which the main objective was to obtain capital gains, while the
rest of our business segments are mostly income producing activities.
Nevertheless, in the past, we have sold, and we expect to continue selling in
the future, properties which belong to other business segments, with the
intention of producing a capital gain.
We originate mortgage loans to stimulate the sale of units within our
development projects. Most of this mortgage portfolio was sold in December 2001,
but we have granted a small number of new loans subsequent to that date.
We may purchase rental properties for long-term investment or sell such
properties, in whole or in part, when it is advisable according to the
circumstances. In addition, we may purchase properties for development and sale
in whole or in part when it is advisable according to the circumstances. We do
not have a policy with respect to particular holding periods for our properties
and may dispose of them in whole or in part at any time we deem appropriate. We
have and may continue to invest in real estate through subsidiary corporations
or participate with other Argentine or foreign entities in property ownership
through strategic alliances or other types of co-ownership entities that we may
or may not control. We currently contemplate acquiring additional properties
located in Argentina and other countries in Latin America through strategic
alliances.
In the past, we have not invested in mortgage pools nor have sold or
transferred to third parties our loans secured by mortgages pursuant to our
seller financing programs for purchasers of units in our development properties.
However, in light of the recent development of the legal framework for the
secondary market for mortgages in Argentina, there can be no assurance that we
will not engage in this type of transaction in the future.
We have in the past and may in the future make secured loans to third
parties in connection with our real estate operations.
FINANCING POLICIES
In the past we have obtained financing by means of share offerings, the
use of fixed and variable rate debt instruments and short-term credit lines. We
may in the future incur additional indebtedness whenever the board considers it
appropriate. Management expects that additional financing could be necessary,
and will be obtained through a combination of the methods listed above or
through other types of financing, such as mortgages and the issue of debt
instruments backed by assets. See "Operating and Financial Review and Outlook -
Liquidity and Capital Resources".
Our short term financing policy will be focused on obtaining the
refinancing of our foreign current liabilities, extending the terms of
maturities and lowering interest rates, rebuilding our working capital and
substantially improving our financial burden
OTHER POLICIES
We have issued and may issue senior debt securities. See "Operating and
Financial Review and Outlook - Liquidity and Capital Resources". We may also
invest in debt securities or shares in other entities not involved in real
estate. In the last four years we have not issued securities in exchange for
property. Between the months of January and March 1999, we purchased 2,432,932
of the Company's outstanding shares, and between May and October 2000 we
acquired 20,729,472 of our own shares. Shareholder's meetings held on October
28, 1999 and October 30, 2000 approved the distribution of this shares. In
addition, between November 2000 and January 2001 we acquired 4,587,285 Company
shares, which are at present held in portfolio. Currently we have no plans to
repurchase own shares, unless it is determined to be beneficial to our
shareholders, and as long as the market conditions guarantee such an action in
the context of that allowed by our by-laws, legislation and applicable
regulations.
DIVIDEND POLICY
Pursuant to Argentine law, the distribution and the payment of
dividends to shareholders is valid only if it results from realized and net
earnings of the company pursuant to annual financial statements approved by
35
the shareholders. The board of directors may declare interim dividends, in which
case each board member and member of the Supervisory Committee will be severally
responsible for the return of such dividends if at the end of the fiscal year in
which such interim dividends were paid the realized liquid profits were to be
insufficient to allow the payment of such dividends. The approval , amount and
payment of dividends are subject to the approval of our shareholders at our
annual general meeting. In view of their ability to exercise significant
influence over the selection of board members, our principal shareholders have
the power to control the declaration, amount and payment of dividends, subject
to Argentine legislation and our Company's by-laws.
The board submits the annual report and balance sheet of the Company for
the previous fiscal year together with the reports from the Supervisory
Committee for the approval of the annual general meeting of shareholders. The
annual ordinary shareholders' meeting called to approve the annual report and
financial statement and to determine the distribution of the Company's net
income for the year must be held prior to October 30 each year. In accordance
with Argentine law and our bylaws, liquidated and realized profits for each
fiscal year are distributed as follows:
- 5% of such net profits are allocated to our legal reserve, until such
reserve amounts to 20% of our capital stock;
- a certain amount determined at a shareholders' meeting is allocated to
the compensation of our directors and the members of our supervisory committee;
and
- dividends, additional dividends to preferred shares if any, or to
optional reserve funds or contingency reserves or to a new account, or for
whatever purpose the shareholders' meeting determines are distributed.
According to the rules issued by the Argentine Comision Nacional de
Valores, cash dividends must be paid to shareholders within 30 days of the
resolution approving their distribution. In the case of stock dividends, the
shares must be delivered within three months of the holding of the annual
general meeting that were to have approved them.
If and when our Company declares and pays dividends on its ordinary
shares, the holders of global share certificates in the Company, each
representing the right to receive 10 ordinary shares (the "GDS") at the
corresponding registration date shall have the right to receive the dividends
due on the ordinary shares underlying the GDSs subject to the term of the
Modified Ordered Deposit Contract dated December 12, 1994, signed between our
Company, The bank of New York and the eventual holders of the GDSs. Cash
dividends are to be paid in pesos, and except in certain circumstances they will
be converted by the Depository into dollars at the rate of exchange in force at
the date of conversion and shall be paid to the holders of the GDSs net of any
commission on the distribution of dividends, costs and conversion charges, taxes
and official dues.
In the past, we paid dividends in cash and stock that averaged Ps. 0.11
per share. At our shareholders' meeting which was held on October 30, 2000, our
shareholders approved the distribution of 20,729,472 treasury shares to be
distributed pro rata among our shareholders.
The following table sets forth the dividend payout ratio and the amounts
of total dividends paid on each fully paid share common stock in respect of the
year indicated. Amounts in Pesos are presented in historical Pesos of the
respective payment dates. See "Exchange Rates".
PAYMENTS (1)
YEAR DECLARED CASH DIVIDENDS STOCK DIVIDENDS TOTAL PER SHARE
------------------------- -------------- --------------------- --------------------
(Pesos) (Pesos) (Pesos)
1995..................... 0.094 0.06 0.154
1996..................... 0.092 -- 0.092
1997..................... 0.110 -- 0.110
1998..................... 0.060 0.05 0.110
1999..................... 0.076 0.04 0.116
36
2000..................... -- 0.20 0.204
2001..................... -- -- --
----------
(1) Corresponds to per share payments. To calculate the dividends paid per
GDS, the payment per share should be multiplied by ten.
During the fiscal year ended June 30, 2001, we suffered a loss of Ps.
59.9 millions. Consequently, in order to maintain adequate liquidity levels, to
reduce our outstanding debt and our financial burden, we did not pay any cash
dividends.
Under certain of our debt obligations, we have specific limitations
regarding the distribution of dividends. In accordance with our syndicated
credit facility for US$ 80 million, neither we nor our subsidiaries are able to
pay dividends or make any other distribution or debt or equity repurchase,
except for certain restricted subsidiary payments to us. Restricted payments can
be made only if no event of default has occurred, or would occur as a result of
such payment, and no financial covenants have been violated during the prior
calculation period. Moreover, as agreed upon the issuance of the floating rate
notes, if we do not fulfill any of our obligations, neither we nor our
subsidiaries will be able to pay dividends in cash directly or indirectly
through payments of bonds, compensation, loans, forgiveness of debt, or any
other distribution, in money or kind, to shareholders, or fees to directors,
except that our subsidiaries may distribute dividends to us, to be used to pay
off the floating rate notes.
During fiscal year ended June 30, 2002 we had a net loss of Ps. 499.6
million. Consequently, we currently intend to maintain the same policy as last
year, to be discussed at our next shareholder's meeting, to distribute no
dividends unless and until we return to profitability.
Although we hope to distribute cash dividends in the future, we cannot
assure that we will be able to do so.
TAKING OF DECISIONS AND INTERNAL CONTROL OF THE COMPANY
Pursuant to our bylaws, our day-to-day business is managed by an
executive committee consisting of five directors among which, there should be
the chairman, first vice-chairman and second vice-chairman of the board of
directors
The executive committee is responsible for the management of the
day-to-day business delegated by the board of directors in accordance with
applicable law and our bylaws. Our bylaws authorize the executive committee to:
o designate the managers and establish the duties and compensation of
such managers;
o grant and revoke powers of attorney on behalf of us;
o hire, discipline and fire personnel and determine wages, salaries
and compensation of personnel;
o enter into contracts related to our business;
o manage our assets;
o enter into loan agreements for our business and set up liens to
secure our obligations; and
o perform any other acts necessary to manage our day-to-day business.
The supervisory committee (Comision Fiscalizadora) is responsible for
reviewing and supervising our administration and affairs, and verifying
compliance with the bylaws and the resolutions adopted at shareholders'
meetings. See "Management and Administration".
37
SUBSEQUENT EVENTS
The following events have taken place subsequent to June 30, 2002, the
year-end closing date.
SALE OF MADERO 1020 OFFICES - On July 31, 2002 the Company sold floor
21 located at the office tower of Madero 1020 for an amount of US$ 410,000, paid
in the form of Ps.1,488,300. On August 2, 2002 the Company sold floor 15 for an
amount of US$ 400,000 and on August 29, 2002 the Company sold floor 23 for an
amount of US$ 365,000, both floors located in this same building.
EXCHANGE AND PERMUTATION OF SHARES IN COMPANIES ARSA, BARSA AND
BAT&FCSA.- On August 16, 2002, the Company signed an agreement with RAGHSA for
the distribution of the 5M site within Antiguo Puerto Madero in the City of
Buenos Aires. The redistribution of costs and construction commitments for the
sites that had been assumed with Corporacion Antiguo Puerto Madero S.A. (CAPM),
the adjustments of the remaining commitments and obligations also assumed with
CAPM and the exchange of the shares issued by the mentioned companies owning the
plots making up the 5M site, ARSA, BARSA and BAT&FCSA, respectively.
As a result of this distribution the Company now owns 100% of the
capital stock of BAT&FCSA, while our 50% holding in ARSA and BARSA was
transferred to RAGHSA S.A.
ISSUE OF BONDS CONVERTIBLE INTO ORDINARY SHARES OF APSA - On August 20,
2002, APSA ended its subscription period for the first branch for up to US$ 50
million of bonds convertible into ordinary shares of APSA of a Ps.0.1 nominal
value each. In this sense, IRSA has subscribed a total amount of US$ 27.7
million of the convertible notes of APSA.
38
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
The following selected consolidated financial data has been derived from
our consolidated financial statements as of the dates and for each of the years
indicated below. This information should be read in conjunction with and is
qualified in its entirety by reference to our consolidated financial statements.
AS OF AND FOR THE YEAR ENDED JUNE 30, (1)
-----------------------------------------
2002 2001
----------------- -----------------
$ $
Sales 211,319 339,843
Costs (121,355) (172,024)
Gross profit 89,964 167,819
Selling expenses (34,332) (33,748)
Administrative expenses (37,643) (50,740)
Loss on purchasers rescissions of sales
contracts 27 (14)
(Loss) gain from operations and holdings of
real estate assets, net (64,956) (6,305)
Operating income 46,940 77,012
Net (loss) income in equity investments. (1,967) (10,323)
Financial results, net (432,220) (103,302)
Other income (expenses), net (8,511) (5,624)
(Loss) income before taxes, preacquisition
earnings and extraordinary items (489,638) 49,237
Income tax (9,981) (5,063)
Net (loss) income ordinary (499,619) 54,300
Extraordinary loss - (5,653)
Net (loss) income (499,619) (59,953)
Net (loss) income per share (2.41) (0.29)
Net (loss) income per GDS (24.08) (2.89)
BALANCE SHEET DATA
Cash and current investments 61,627 100,237
Inventories 70,688 92,182
Mortgages and leases receivable, net 15,139 104,254
Total current assets 136,308 221,875
Non-current investments 526,348 699,893
Fixed assets, net 338,794 419,375
Total assets 1,144,715 1,494,549
Short-term debt (2) 565,572 352,091
Total current liabilities 606,060 385,661
Long-term debt (3) 867 28,848
Total non-current liabilities 3,021 34,497
Shareholders' equity 460,416 960,035
OTHER FINANCIAL DATA
EBITDA(4) 84,436 120,766
Depreciation and amortization 21,033 23,103
Capital expenditures(5) 76,601 72,755
Net cash provided by (used in):
Operating activities 47,325 95,894
Investing activities (17,426) 72,755
Financing activities (37,867) (164,648)
(1) In thousands of constant Argentine Pesos of June 30, 2002, except for
ratios and weighted average number of shares outstanding. Includes
adjustment by inflation as of June 30, 2002. Sums may not total due to
rounding.
(2) Includes short-term loans, the current mortgages payable and the current
portion of the seller financing.
(3) Includes long-term loans, non-current mortgages payable and the
non-current portion of the seller financing.
(4) EBITDA is net income plus, when previously deducted, expenses for
consolidated interest, consolidated income tax, consolidated
depreciation, consolidates amortization of intangibles and losses
derived from operations and holdings of real estate and other
non-monetary items that reduce or increase net income, plus cash
dividends received from non-consolidated subsidiaries less any income
derived from the valuation of investments in affiliated companies
using the equity method of accounting and minority interests. EBITDA
should not be considered as an alternative to (i) net income as an
indicator of the Company's operating return, or (ii) the flow of funds
of the operating activities of our Company, as an indicator of
liquidity. Does not include income from subsidiaries.
(5) Includes the purchase of inventories, fixed assets and long-term
investments.
39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read together with the Company's financial
statements and their notes. For the purposes of the following analysis we have
considered "Audited Consolidated Financial Statements" to be our audited
consolidated financial statements and notes corresponding to the fiscal year
ended June 30, 2002 and 2001.
VARIABILITY OF QUARTERLY RESULTS
A principal source of our revenue is rental income derived from leases of
office and retail properties and sales of developed properties. Nevertheless,
our historical revenues have varied from period to period depending upon the
timeliness of sales of properties. No assurance can be given that our period to
period results of operations will not continue to vary as a result of periodic
property sales.
CONSOLIDATION
The consolidated statements of income were prepared on a proportionate
consolidation basis. As of July 1, 1996, we have used the
"proportionate-consolidation method" of accounting for our investments in which
we exercise control and other jointly-controlled investments. This method has
not been used for balance sheet and cash flows purposes. All notes to our
consolidated financial statements relating to income-statement items have been
also prepared on a proportionate consolidation basis. We calculate the
proportionate-consolidation method by applying our percentage ownership interest
to the historical financial statements of our equity method investments. We
consider this method more appropriately reflect our results of operations and
the integration of our core businesses. The use of the
proportionate-consolidation method has been approved by the Argentine Comision
Nacional de Valores.
Although the use of the proportionate consolidation method as compared to
the equity method of accounting from a financial presentation perspective
impacts almost all areas of our consolidated statements of income, it does not
impact our consolidated shareholders' equity or net earnings. Note 14 to the
consolidated financial statements we presented the income statements in
accordance with the Technical Resolution N(o) 4 of F.A.C.P.C.E. reporting
(i) the jointly-controlled investments accounted for by the equity method, with
the earnings or losses included as earnings or losses from equity investments,
and (ii) minority interest in earnings or losses of controlled subsidiaries.
In accordance with the terms of Resolution 3/02 issued by the
Professional Council in Economic Sciences in the Autonomous city of Buenos Aires
and Resolution 415/02 of the Comision Nacional de Valores the Company's
financial statements contemplate the effects of changes in the purchasing power
of the currency as of January 1, 2002.
REVENUE RECOGNITION
We primarily derive our revenues from domestic and international office
and shopping center leases and services operations, the development and sale of
properties, hotel operations and to a lesser extent, from e-commerce activities.
The proportionate consolidation method has not been used for balance sheet and
cash flows purposes. This section reflects our revenue recognition policies and
those of our controlled and jointly-controlled subsidiaries. All revenues are
stated net of taxes levied on sales.
DEVELOPMENT AND SALE OF PROPERTIES. We generally enter into purchase and
sale agreements with purchasers of units in our residential development
properties prior to the commencement of construction. Pursuant to this practice,
we initiate our marketing and sales efforts on the basis of already-commissioned
architectural designs and model units. As a general rule, purchasers pay a
booking charge for the units and subsequently enter into fixed price purchase
and sale agreements by advancing us approximately 5% of the purchase price and
agreeing to advance an additional 20% of the purchase price in equal
installments over an agreed upon construction period. The balance of the
purchase price is due upon delivery of the constructed and completed unit.
Construction of such residential development properties is done pursuant
to "turn-key" contracts with major Argentine and South American construction
companies that provide for construction to be completed
40
within a prescribed period and budget, subject to customary exceptions.
We record revenue from the sale of properties when all of the following
criteria are met:
o the sale has been consummated;
o we have determined that the buyer's initial and continuing
investments are adequate to demonstrate a commitment to pay for the
property;
o our receivable is not subject to future subordination; and
o we have transferred to the buyer the risk of ownership, and do not
have a continuing involvement in the property.
We use the percentage-of-completion method of accounting with respect to
sales of development properties under construction effected under fixed-priced
contracts. Under this method, revenue is recognized based on the ratio of costs
incurred to total estimated costs applied to the total contract price. We do 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 management to
prepare budgeted costs (i.e., the estimated costs of completion) in connection
with sales of properties / units. All changes to estimated costs of completion
are incorporated into revised estimates during the contract period.
Under this method of accounting, revenues for work completed may be
recognized in the statement of income prior to the period in which actual cash
proceeds from the sale are received. In this situation, a deferred asset is
recorded. Alternatively, and as is more common for us, where property unit
purchasers pay us an advance down-payment and monthly cash installments prior to
the commencement of construction, a liability is recorded. This is recorded as a
customer advance in the financial statements.
LEASES AND SERVICES FROM OFFICE AND OTHER BUILDINGS. Leases with tenants
are accounted for as operating leases. Tenants are charged a base rent on a
monthly basis. Rental income is recognized on a straight-line basis over the
term of the lease and unpaid rents are included in accounts receivable in the
consolidated balance sheets.
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 and (ii) a specified
percentage of the tenant's monthly gross retail sales 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 and unpaid
rents are included in accounts receivable in the consolidated balance sheets.
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. We determine the compliance with specific targets and
calculate 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.
Generally, our 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.
We also charge our 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
41
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. We recognize revenues from our rooms, catering, and
restaurant facilities as earned on the close of business each day.
INTERNATIONAL OPERATIONS. On February 28, 2002, we sold all of our 49.3%
interest in Brazil Realty, a company operating in Brazil, whose business
primarily comprises the same type of operations conducted by us in Argentina.
All revenues are state net of taxes levied on sales.
RENTAL PROPERTY DEPRECIATION
We compute depreciation using the straight-line method over an estimated
useful life of 50 years for buildings, ten years for facilities and five years
for furniture and other equipment, all of which are judgmental determinations.
These determinations may prove to be different than the actual life of the
properties.
EFFECT ON US OF RECENT DEVALUATION AND ECONOMIC CRISIS
All of our assets are located and our operations are performed in
Argentina. Accordingly, our financial condition and results of operations depend
substantially upon economic conditions prevailing in Argentina. Due to a
four-year-old recession, the Argentine economy has deteriorated sharply.
The rate of gross domestic product growth of Argentina dropped to a
negative 5.0% during the first two quarters of 2001 and dropped to a negative
16% during the first quarter of 2001. In May 2002, unemployment rate rose to
22.0%. Other relevant economic indicators have not been showing signs of
recovery. In conclusion, the economic crisis, the lower level of activity in the
Argentine economy and the increase in the unemployment rate during all the
fiscal year have detrimentally affected our profitability.
On December 23, 2001, President Adolfo Rodriguez Saa declared the
suspension of the payment of foreign debt and later Eduardo Duhalde ratified
this decision. On January 7, 2002, the National Congress enacted the Public
Emergency Law which repeals several provisions of the Convertibility Law which
prevailed in Argentina for 10 years, and the executive branch announced the
devaluation of the Peso with the establishment of a dual exchange rate system in
which certain limited transactions will occur at a fixed rate of Ps. 1.4 to US$
1.0 and all other transactions will be settled at a floating market rate
depending on supply and demand. This new legislation is expected to have a
material adverse impact on our financial position and the results of our
operations. Our board of directors is currently analyzing the impact of the new
legislation and has begun conversations with our creditors for renegotiations of
existing agreements. Additionally, we will initiate negotiations with tenants
regarding the terms of our lease agreements as called for in the new
legislation.
As described above, economic and political factors affecting Argentina as
well as changes in interest rates and foreign currency have a substantial impact
on our financial performance. We have been negatively
42
impacted by the continued deterioration of the Argentine economy, the Argentine
government's adoption of the economic measures summarized above and the
devaluation of the Argentine Peso. During fiscal year 2002, we suffered a net
loss of Ps. 499.6 million and as of June 30, 2002, we have a working capital
deficiency of Ps. 469.8 million. Additionally, we are not in compliance with
certain restrictive covenants under our syndicated credit facility and our
floating rate notes, conditions which constitute events of default and permit
the holders of such notes to accelerate their maturity. Due to the continuing
effects of economic recession, the unavailability of financial credit and the
succession of recent economic measures adversely affecting the normal operations
of the banking and payments system, we were unable to make the schedule payments
upon maturity of our floating rate notes and our syndicated credit facility on
September 9, 2002 and July 31, 2002. Our management has successfully negotiated
with the holders of our floating rate notes and the lenders under our syndicated
credit facility to extend both maturities to September 30, 2002.
EFFECTS OF INFLATION
From 1997 until the end of year 2001, policies adopted by Argentine
government have substantially reduced the level of inflation. Therefore,
inflation has not affected our financial condition and results of operations.
The following are annual inflation rates' figures published by the Ministry of
Economy of Argentina:
YEAR ENDED JUNE 30, CONSUMER PRICE INDEX WHOLESALE PRICE INDEX
------------------------ -------------------- ---------------------
1997 0.9% 0.1%
1998 1.1% -1.9%
1999 -1.4% -5.3%
2000 -1.2% 4.4%
2001 -0.3% -1.6%
2002 30.5% 95.6%
The Public Emergency Law authorizes the executive branch to establish the
system which will determine the new exchange ratio between the Peso and foreign
currencies, and to approve the corresponding monetary regulations. The
devaluation of the Peso by the executive branch creates a significant risk that
inflation will increase materially, and we have no means of hedging and
protecting ourselves from the risks of inflation.
EFFECTS OF INTEREST RATE FLUCTUATIONS
We are highly leveraged and are materially affected by interest rate
fluctuations. Almost all of our U.S. dollar-denominated indebtedness bears
variable interest rates that have increased substantially during the year 2001.
An increase in interest rates may significantly increase our financial costs and
materially affect our financial condition and our results of operations.
EFFECTS OF FOREIGN CURRENCY FLUCTUATIONS
From April 1, 1991, until the beginning of 2002, the Convertibility Law
No. 23,928 was applicable in Argentina. This law established a fixed exchange
rate, under which the Argentine Central Bank was obliged to sell U.S. dollars to
any person at a fixed rate of one Peso per U.S. dollar. Accordingly, the foreign
currency fluctuations were reduced to a minimum level during the fiscal year
2001 and the subsequent interim period.
The primarily economic change announced by the current Argentine
government in January 2002 was the devaluation of the Peso. Most of our lease
contracts and a significant portion of our liabilities are denominated in U.S.
dollars. Foreign currency exchange rate fluctuations significantly increase the
risk of default on our mortgage receivables, leases and services and other
receivables, because many of our customers
43
have Peso-denominated revenue streams and will therefore experience a relative
increase in their U.S. dollar-denominated liabilities compared to their
Peso-denominated revenues. Foreign currency exchange restrictions hereafter
imposed by the Argentine government could prevent or restrict our access to U.S.
dollars, affecting our ability to service our U.S. dollar- denominated
liabilities. Also, fluctuations in the exchange rate between the Peso and the
U.S. dollar may adversely affect the U.S. dollar equivalent of the Peso price of
our common shares on the Buenos Aires Stock Exchange, and as a result, are
likely to affect the market price of our GDSs in the United States.
SUSPENSION OF THE APPLICATION OF SECTION 206 OF THE ARGENTINE
CORPORATIONS LAW
As of June 30, 2002, the negative results recorded by our Company
absorbed more than 50% of capital and reserves. Section 206 of the Argentine
corporations law establishes mandatory capital reduction when such a situation
exists. However in view of the crisis that Argentina is undergoing, Executive
Branch Decree 1269 suspended the application of this section until December 10,
2003.
OPERATING COSTS AND EXPENSES
ALLOCATION OF SELLING EXPENSES TO BUSINESS SEGMENTS
Selling expenses related to the shopping centers, hotels and
international segments are directly allocated to such segments because such
segments are individually managed and clearly identifiable. The remaining
selling expenses are allocated among the development and sale of properties and
offices and other non-shopping center rental properties segments, excluding
those located in shopping centers, based on the cost center which incurred the
selling expense.
ALLOCATION OF ADMINISTRATIVE EXPENSES TO BUSINESS SEGMENTS
Administrative expenses (other than those expenses we incurred for the
benefit of all the business segments) related to our shopping centers, hotels
and International business segments are directly attributable to such segments
because such segments are individually managed and are clearly identifiable.
Administrative expenses include management fees paid, if any, to the managers of
such segments. The remaining administrative expenses are allocated to the
different segments, based on the cost center in which they are incurred, as
follows:
o administrative expenses related to all business segments, as those
corresponding to the board of directors, are allocated among each
segment pro rata on the basis of their respective assets;
o administrative expenses incurred by certain departments associated
with specific segments are allocated to such segments; and
o 70% of the remaining administrative expenses are allocated to the
development and sale of properties segment, and 30% to the offices
and other non-shopping center rental properties segment.
ALLOCATION OF RESULTS FROM THE RESCINDING OF TOWERS
This results derive from the purchasers recessions of sales contracts for
units in Torres de Abasto in APSA and are allocated to "Sales and Developments".
ALLOCATION OF RESULTS FROM OPERATIONS AND THE HOLDING OF REAL ESTATE
ASSETS
These results are allocated to the segment that generates them.
ALLOCATION OF OTHER EXPENSES AND NET INCOME TO BUSINESS SEGMENTS
44
FINANCIAL RESULTS, NET. Includes interest income, gain (loss) on
financial operations, financing expenses, gain (loss) on exposure to inflation,
exchange differences and miscellaneous income (expense) allocable to each
segment, as described below:
INTEREST INCOME AND GAIN (LOSS) ON FINANCIAL OPERATIONS. Only those
related to the International, shopping center and hotel segments were separately
allocated to such segments, as each of them manage their own financial
surpluses. The remaining amounts in this respect have been allocated to
"financial operations and others" because they are not directly related to any
segment in particular.
FINANCING EXPENSES. Concerning the international, shopping center and
hotel segments, only the proportional financing expenses incurred in Brazil
Realty, Fondo de Valores Inmobiliarios, APSA and hotels have been considered.
The remaining proportional consolidated financing expenses have been apportioned
to the sales and development, office and others, hotel segments and the column
headed "financial operations and others " pro rata in the basis of the total
assets allocated to each such segment.
GAIN (LOSS) ON EXPOSURE TO INFLATION, EXCHANGE DIFFERENCES AND
MISCELLANEOUS. In the case of the business International, Shopping Center and
Hotels are presented in the same business that was generated. The other is
presented in "Others" in proportion to the assets related.
NET INCOME IN AFFILIATED COMPANIES. These have been allocated to the
related segments. Regarding the income/loss related to the investments in IRSA
Telecomunicaciones and Latin American Econetworks, they have been allocated to
"financial operations and others" because they are not related to any segment in
particular.
OTHER INCOME (EXPENSES). Only those related to the international,
shopping center and hotel segments were separately allocated to such segments.
The remaining amounts in this respect have been allocated to "financial
operations and others" because they are not directly related to any segment in
particular.
INCOME TAX. The income tax applicable to each segment was separately
applied to each such segment.
EXTRAORDINARY LOSS. The extraordinary loss applicable to each segment was
separately applied to each such segment.
BUSINESS SEGMENT REPORTING
We have determined that our reportable segments are those that are based
on our method of internal reporting. Accordingly, we have six reportable
segments. These segments are development and sales of properties, office and
other non-shopping center rental properties, shopping centers, hotel operations,
international, financial operations and others. The consolidated statements of
income were prepared on a proportionate consolidation basis. As of July 1, 1996,
we used the "proportionate-consolidation method" of accounting for our
investments in which we exercise control and other jointly-controlled
investments. This method has not been used for balance sheet and cash flows
purposes. Accordingly, this section reflects the results of operations of our
controlled and jointly-controlled subsidiaries on a proportionate basis.
A general description of each segment follows:
Development and sale of properties. This segment includes the operating
results of our construction and ultimate sale of residential buildings business.
Offices and other non-shopping center rental properties. This segment
includes the operating results of our lease and service revenues of office space
and other non-retail building properties from tenants.
Shopping centers. This segment includes the operating results of our
shopping centers principally comprised of lease and service revenues from
tenants. This segment also includes revenues derived from
45
credit card transactions which consist of commissions and financing income.
Hotel operations. This segment includes the operating results of our
hotels principally comprised of room, catering and restaurant revenues.
International. This segme nt includes the results of operations of our
equity investments in:
Brazil (which we sold in February 2002) for all periods presented; and
Venezuela (which we sold in December 2000) for the period ended June 30,
2001.
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. For the fiscal year 2001 and the
year ended June 30, 2002, this segment also includes the loss in our equity
investees relating to Internet, telecommunications and other technology-related
activities.
We measure our reportable segments based on net income. Inter-segment
transactions, if any, are accounted for at current market prices. We evaluate
performance and allocate our resources to each segment based on net segment
income. We are not dependent on any single customer.
The following tables show certain operating data by business activity:
46
FOR THE FISCAL YEAR 2002 (IN MILLIONS OF PESOS)
----------------------------------------------------------------------------------------------
OFFICES AND OTHER
NON-SHOPPING
DEVELOPMENT CENTER
AND SALE OF RENTAL SHOPPING HOTEL
PROPERTIES PROPERTIES INTERNATIONAL CENTERS OPERATIONS OTHERS TOTAL
------------ ------------ ------------- -------- ---------- ------- ------
Sales................ 45.2 34.3 24.8 77.6 29.5 -- 211.3
Costs................ (37.4) (10.7) (14.1) (38.4) (20.8) -- (121.4)
Gross profit......... 7.8 23.6 10.8 39.2 8.7 -- 90.0
Selling expenses..... (3.7) (0.5) (4.6) (22.3) (3.3) -- (34.3)
Administrative
expenses............. (9.0) (5.0) (3.8) (11.2) (8.7) -- (37.6)
Loss on purchasers
rescissions of sale
contracts............ (0.0) -- -- -- -- -- 0.0
(Loss) gain from
operations and
holdings of real
estate assets, net... (30.8) (41.7) 31.5 (23.9) -- -- (65.0)
Operating income
(loss)............... (35.6) (23.6) 33.9 (18.3) (3.4) -- (46.9)
Financial results,
net.................. (18.5) (14.8) (3.6) 8.9 (15.5) (388.6) (432.2)
Net loss in equity
investments.......... -- -- 0.4 (3.9) -- 1.5 (2.0)
Other income
(expenses), net...... -- -- 0.0 (4.7) 0.2 (4.0) (8.5)
(Loss) income before
taxes and
extraordinary loss... (54.1) (38.4) 30.8 (18.1) (18.7) (391.1) (489.6)
Income tax........... (0.6) (3.3) (4.5) (1.3) (0.1) (0.1) (10.0)
Net (loss) income
ordinary for the year (54.7) (41.8) 26.2 (19.4) (18.7) (391.2) (499.6)
Extraordinary loss... -- -- -- -- -- -- --
Net (loss) income
for the year......... (54.7) (41.8) 26.2 (19.4) (18.7) (391.2) (499.6)
Total assets......... 354.0 273.4 26.1 299.6 114.4 77.2 1,144.7
47
FOR THE FISCAL YEAR 2001 (IN MILLIONS OF PESOS)
---------------------------------------------------------------------------------------------
OFFICES AND
OTHER
NON-SHOPPING
DEVELOPMENT CENTER
AND SALE OF RENTAL SHOPPING HOTEL
PROPERTIES PROPERTIES INTERNATIONAL CENTERS OPERATIONS OTHERS TOTAL
----------- ------------ ------------- -------- ---------- ------ -----
Sales................ 89.8 45.6 69.1 94.5 40.9 -- 339.8
Costs................ (68.2) (8.9) (31.0) (36.8) (27.1) -- (172.0)
Gross profit......... 21.6 36.7 38.1 57.7 13.8 -- 167.8
Selling expenses..... (8.5) (0.5) (8.7) (11.4) (4.7) -- (33.8)
Administrative
expenses............. (13.4) (6.3) (7.2) (14.1) (9.8) -- (50.7)
Loss on purchasers
rescissions of sale
contracts............ 0.0 -- -- -- -- -- 0.0
(Loss) from
operations and
holdings of real
estate assets, net... (3.8) (1.9) (0.6) -- -- -- (6.3)
Operating income..... (4.1) 28.1 21.6 32.2 (0.8) -- 77.0
Financial results,
net.................. (25.0) (20.0) (14.4) (28.1) (8.5) (14.5) (110.3)
Net loss in equity
investments.......... 0.0 -- (1.3) (1.4) -- (7.6) (10.3)
Other income
(expenses), net...... -- -- 0.0 (0.2) 0.2 (5.7) (5.6)
(Loss) income before
taxes and
extraordinary loss... (29.1) 8.1 5.9 2.5 (9.0) (27.7) (49.2)
Income tax........... 0.0 (2.4) (1.9) (0.8) 0.0 -- (5.1)
Net (loss) income
ordinary for the year (29.1) 5.7 4.0 1.7 (8.9) (27.7) (54.3)
Extraordinary loss... -- -- -- -- (5.7) -- (5.7)
Net (loss) income
for the year......... (29.1) 5.7 4.0 1.7 (14.6) (27.7) (60.0)
Total assets......... 419.4 335.0 142.0 326.0 117.1 155.1 1,494.6
-----------
48
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2002 AND 2001.
TOTAL SALES
Total sales decreased 37.8%, from Ps. 339.8 million in the fiscal year
ended June 30, 2001 to Ps. 211.3 million in the fiscal year ended June 30, 2002,
on account of a decrease in sales in all segments of our activity. This decrease
was primarily attributable to the severe and ongoing recession that the
Argentine economy is undergoing and, therefore, it is paralyzing our operations
that are mostly conducted in Argentina.
Development and sale of properties. Sales from development and sale of
properties decreased 49.6%, from Ps. 89.8 million for the fiscal year ended June
30, 2001 to Ps. 45.2 million for the fiscal year ended June 30, 2002. The
decrease in sales in the development and sale of properties segment was
attributable to: (i) the Ps. 21.6 million decrease in sales from the residential
communities of Abril and Villa Celina; (ii) the Ps. 12.0 million decrease in
sales of undeveloped parcels of land, on account of the non-recurrence of sales
of Dique IV and Monserrat made in 2001; (iii) the Ps. 4.7 million decrease in
the sales of other real property primarily resulting from the lack of recurrence
of sales in Serrano 250, Sarmiento 580, Av. de Mayo 701, Madero 1020 and
Montevideo 1975, partially offset by new sales during fiscal year 2002 of the
real properties on Santa Fe 1588, Rivadavia 2243 and Libertador 498 and finally
(iv) the Ps. 5.2 million reduction in interest income from financed sales
primarily due to the sale on October 2001 of a significant portion of our real
estate loans to Banco Sudameris Argentina S.A.. See "Business - Development
Property".
Offices and other . Sales from Offices and other decreased 24.9% from Ps.
45.6 million during the fiscal year ended June 30, 2001 to Ps. 34.2 million
during the fiscal year ended June 30, 2002. This decrease is primarily due to:
(i) a 22.1% decrease in revenues from office rents from Ps. 39.5 million in the
fiscal year ended June 30, 2001 to Ps. 30.8 million in the fiscal year ended
June 30, 2002 mainly due to decreases in occupancy rates in almost all rental
properties and (ii) a 45.5% decrease in sales from commercial property rents
from Ps. 6.2 million in the fiscal year ended June 30, 2001 to Ps. 3.4 million
in the fiscal year ended June 30, 2002 mainly due to the sales of the
properties: Florida 291, Santa Fe 1588 and Montevideo 1975. See
"Business--Offices and Other Rental Properties".
Shopping centers. Sales from Shopping Centers went down by 17.9%, from
Ps. 94.5 million during the fiscal year ended June 30, 2001 to Ps. 77.6 million
for the fiscal year ended June 30, 2002. The decrease in revenues from leases
and services is mainly due to the recession that the Argentine economy has been
suffering for over 4 years, which has resulted in a decrease in sales of tenants
giving rise to a fall in both occupancy rates and revenues from minimal rent and
goodwill in all our shopping centers. The general occupancy rate of our shopping
centers decreased from 94% as of June 30, 2001 to 92% as of June 30, 2002.
Hotels. Sales from hotels went down 27.9%, from Ps. 40.9 million for the
fiscal year ended June 30, 2001 to Ps. 29.5 million for the fiscal year ended
June 30, 2002, due to a decrease in the average occupancy level of hotels from
58% in 2001 to 44% in 2002, as well as a decrease in rates, giving rise to a
decrease in the sales from Hotel Sheraton Libertador of Ps. 5.2 million, from
Hotel Intercontinental of Ps. 5.9 million and from Hotel Llao Llao of Ps. 0.3
million during this year. See "Business - Hotels".
International. Sales from international operations decreased 64.1%, from
Ps. 69.1 million for the fiscal year ended June 30, 2001 to Ps. 24.8 million for
the fiscal year ended June 30, 2002, mainly due to a decrease in the sales of
Brazil Realty and the effect of the sale of FVI on the sales of the
international segment during this fiscal year. Sales from Brazil Realty went
down by 61.9%, from Ps. 65.2 million for the fiscal year ended June 30, 2001 to
Ps. 24.8
49
million for the fiscal year ended June 30, 2002, due to the significant
decrease in sales in Brazilian Reais between both fiscal years and in particular
due to the non recurrence during 2002 of the sales of the JK Financial Center
and Brasilinvest offices and the sale of our equity interest in such company in
February 2002. See "Business--International".
TOTAL COSTS
Total costs decreased 29.5%, from Ps. 172.0 million for the fiscal year
ended June 30, 2001 to Ps. 121.4 million for the fiscal year ended June 30,
2002, mainly due to lesser costs from Development and Sale of properties, Hotels
and International, which decrease was partially offset by an increase in the
costs related to the operation of Offices and other and Shopping Centers. Total
costs as a percentage of sales increased from 50.6% for the fiscal year ended
June 30, 2001 to 57.4% for the fiscal year ended June 30, 2002.
Development and Sale of properties. The costs of Development and Sales of
properties decreased 45.1%, from Ps. 68.2 million for the fiscal year ended June
30, 2001 to Ps. 37.4 million for the fiscal year ended June 30, 2002, due to
fewer sales of real properties. The costs of Development and Sale of properties
as a percentage of sales from Development and Sale of properties increased from
75.9% for the fiscal year ended June 30, 2001 to 82.7% for the fiscal year ended
June 30, 2002.
Offices and other. Costs of Offices and other rose by 19.9%, from Ps. 8.9
million for the fiscal year ended June 30, 2001 to Ps. 10.7 million for the
fiscal year ended June 30, 2002. The costs of Offices and other as a percentage
of sales resulting from Offices and other increased from 19.6% for the fiscal
year ended June 30, 2001 to 31.2% for the fiscal year ended June 30, 2002. The
increase in the cost of Offices and other in absolute terms and as a percentage
of sales is due to the decrease in the average occupancy rate from 89% during
all fiscal year 2001 to 72% during all fiscal year 2002, which resulted in an
increase in the maintenance costs of the unoccupied units, especially as regards
common expenses. The main component of the cost of offices is represented by the
depreciation of leased properties.
Shopping Centers. The costs of Shopping Centers increased 4.3%, from Ps.
36.8 million for the fiscal year ended June 30, 2001 to Ps. 38.4 million for the
fiscal year ended June 30, 2002, mainly due to the increase in the cost of rents
derived from the recognition of a one-time loss for charges for expenses billed
to the tenants in the fiscal year which were not recovered, which increase was
partially offset by the reduction in the cost of sale of Torres de Abasto and
the cost of Tarjeta Shopping operations. The costs of Shopping Centers as a
percentage of sales resulting from Shopping Centers increased from 39.0% for the
fiscal year ended June 30, 2001 to 49.5% for the fiscal year ended June 30,
2002. The main component of the cost of shopping centers in this fiscal year is
represented by depreciation and amortization charges of leased properties,
including the goodwill paid upon acquisition thereof.
Hotels. Costs from hotel operations decreased 23.3%, from Ps. 27.1
million for the fiscal year ended June 30, 2001 to Ps. 20.8 million for the
fiscal year ended June 30, 2002, primarily due to: (i) lower levels of activity
in this segment; (ii) decrease in the constant value of the cost components of
Hotels such as salaries, fees and services mainly on account of the effect of
this last semester inflation and
(iii) the restructuring carried out to offset the fall in the level of occupancy
so as to attain greater efficiency. Hotel operating costs as a percentage of
sales from hotels increased from 66.2% for the fiscal year ended June 30, 2001
to 70.5% for the fiscal year ended June 30, 2002 primarily due to the
combination of lower sales reflecting the fall in occupancy rates and to lower
rates compared to the previous fiscal year together with the same incidence in
both fiscal years of
50
fixed costs such as depreciation. Costs of hotels are primarily composed of
rooms, depreciation, food and beverages, salaries and social security
contributions.
International. Costs of international operations fell by 54.7% from Ps.
31.0 million for the fiscal year ended June 30, 2001 to Ps. 14.1 million for the
fiscal year ended June 30, 2002, due to (i) lower costs in Brazilian Reais
attributable both to a lower level of sales and to the sale of such company in
the preceding quarter, which resulted in a Ps. 17.1 million decrease and (ii) a
decrease in costs attributable to FVI as a consequence of the sale of our equity
interest during the previous fiscal year. International operating costs as a
percentage of sales from international operations went up from 44.9% for the
fiscal year ended June 30, 2001 to 56.7% for the fiscal year ended June 30,
2002.
TOTAL GROSS PROFIT
As a result of the foregoing, the total gross profit decreased by 46.4%
from Ps. 167.8 million for the fiscal year ended June 30, 2001 to Ps. 90.0
million for the fiscal year ended June 30, 2002.
SELLING EXPENSES
Selling expenses increased by 1.7% from Ps. 33.7 million for the fiscal
year ended June 30, 2001 to Ps. 34.3 million for the fiscal year ended June 30,
2002, primarily due to the increase in Shopping Centers selling expenses and
partially offset by the reduction in selling costs of the Hotels, International
and Sales and Development segments. Selling expenses as a percentage of total
revenues increased from 9.9% for the fiscal year ended June 30, 2001 to 16.2%
for the fiscal year ended June 30, 2002.
Development and Sale of properties. Selling expenses for Development and
Sales decreased by 56.8% from Ps. 8.5 million for the fiscal year ended June 30,
2001 to Ps. 3.7 million during the fiscal year ended June 30, 2002, as a
consequence of the decrease in sale operations during this fiscal year
generating less direct selling expenses. Selling expenses of Development and
Sale of properties as a percentage of sales from Development and Sale of
properties decreased from 9.5% for the fiscal year ended June 30, 2001 to 8.1%
for the fiscal year ended June 30, 2002. The main components of selling expenses
of Development and Sale of properties are commissions and expenses from sales
and advertising.
Offices and other . Selling expenses of Offices and other increased by
1.9% from Ps. 0.47 million during the fiscal year ended June 30, 2001 to Ps.
0.48 million during the fiscal year ended June 30, 2002. Selling expenses of
Offices and other properties as a percentage of sales from Offices and other
increased from 1.0% for the fiscal year ended June 30, 2001 to 1.4% for the
fiscal year ended June 30, 2002.
Shopping Centers. Selling expenses of Shopping Centers rose by 96.1% from
Ps. 11.4 million for the fiscal year ended June 30, 2001 to Ps. 22.3 million for
the fiscal year ended June 30, 2002, resulting mainly from the increase in bad
debts charges, that was partially offset with a decrease in advertising
expenses, salaries and bonuses. Selling expenses of Shopping Centers as a
percentage of sales from Shopping Centers increased from 12.0% for the fiscal
year ended June 30, 2001 to 28.7% for the fiscal year ended June 30, 2002. The
main components of selling expenses of Shopping Centers are bad debts charges
and advertising expenses.
Hotels. Selling expenses dropped 30.0% from Ps. 4.7 million during the
fiscal year ended June 30, 2001 to Ps. 3.3 million for the fiscal year ended
June 30, 2002, primarily due to a
51
decrease in advertising expenses and to a lesser extent a decrease in salaries
and social security contributions in all Hotels. Selling expenses of Hotels as a
percentage of sales from Hotels decreased from 11.6% for the fiscal year ended
June 30, 2001 to 11.3% for the fiscal year ended June 30, 2002. The main
components of selling expenses are advertising expenses and salaries.
International. Selling expenses of international operations decreased by
47.3% from Ps. 8.7 million for the fiscal year ended June 30, 2001 to Ps. 4.6
million for the fiscal year ended June 30, 2002, basically due to (i) a drop in
selling expenses of FVI of Ps. 0.2 million as a result of the sale of such
Company in the previous fiscal year and (ii) a decrease in selling expenses of
Brazil of Ps. 3.9 million as a result of the fall in the sale operations during
this fiscal year, which originated less direct selling expenses, and of the sale
of our equity interest in Brazil in February 2002. Selling expenses as a
percentage of sales from international operations increased from 12.6% for the
fiscal year ended June 30, 2001 to 18.4% for the fiscal year ended June 30,
2002. The main components of selling expenses are advertising expenses and
commissions.
ADMINISTRATIVE EXPENSES
Administrative expenses decreased by 25.8%, from Ps. 50.7 million for the
fiscal year ended June 30, 2001 to Ps. 37.6 million for the fiscal year ended
June 30, 2002, due to lower expenses in all the segments. As a percentage of
sales, administrative expenses rose from 14.9% for the fiscal year ended June
30, 2001 to 17.8% for the fiscal year ended June 30, 2002. The main components
for the fiscal year are salaries and social security contributions, fees and
compensations for services and depreciation and amortization.
Development and Sale of properties. Administrative expenses of
Development and Sale of properties decreased by 33.2% from Ps. 13.4 million for
the fiscal year ended June 30, 2001 to Ps. 9.0 million for the fiscal year ended
June 30, 2002, primarily due to (i) the restructuring carried out with the
purpose of achieving a structure sustainable in the medium term and (ii) the
decreases as measured in constant values of expenses such as salaries, fees and
services, principally due to the effect of inflation during the last semester.
Administrative expenses of Development and Sale of properties as a percentage of
sales from Development and Sales increased from 15.0% for the fiscal year ended
June 30, 2001 to 19.8% for the fiscal year ended June 30, 2002.
Offices and other. The administrative expenses of Offices and other fell
by 21.0% from Ps. 6.3 million for the fiscal year ended June 30, 2001 to Ps. 5.0
million for the fiscal year ended June 30, 2002, primarily due to (i) the
restructuring carried out with the purpose of achieving a structure sustainable
in the medium term and (ii) the decreases as measured in constant values of
expenses such as salaries, fees and services, mainly due to the effect of
inflation during the last semester. Administrative expenses of Offices and other
as a percentage of the sales from this segment increased from 13.8% for the
fiscal year ended June 30, 2001 to 14.5% for the fiscal year ended June 30,
2002.
Shopping Centers. Administrative expenses of Shopping Centers decreased
by 20.1%, from Ps. 14.0 million for the fiscal year ended June 30, 2001 to Ps.
11.2 million for the fiscal year ended June 30, 2002 due to a general fall in
administrative expenses, especially salaries and social security contributions,
fees and compensations for services. Administrative expenses of Shopping Centers
as a percentage of sales from Shopping Centers decreased from 14.9% for the
fiscal year ended June 30, 2001 to 14.5% for the fiscal year ended June 30,
2002. The main components of administrative expenses of Shopping Centers are
salaries, fees for services and fees paid to Directors.
Hotels. Administrative expenses of Hotels dropped by 11.1% from Ps. 9.8
million for the fiscal year ended June 30, 2001 to Ps. 8.7 million during the
fiscal year ended June 30, 2002,
52
basically due to the decrease during this fiscal year of all the administrative
expenses of Llao Llao, Intercontinental and Sheraton Libertador Hotels, and
especially due to reductions in fees for services, salaries and social security
contributions. Administrative expenses of hotels as a percentage of sales from
the hotel operation rose from 24% during the fiscal year ended June 30, 2001 to
29.6% during the fiscal year ended June 30, 2002. The main components of
administrative expenses of the hotel operation are salaries, fees for services,
depreciation and amortization.
International. Administrative expenses of international operations
decreased by 47.4%, from Ps. 7.2 million during the fiscal year ended June 30,
2001 to Ps. 3.8 million during the fiscal year ended June 30, 2002, mainly due
to (i) a decrease in administrative expenses of FVI of Ps. 0.9 million as a
result of the sale of such company in 2001 and (ii) a decrease in the
administrative expenses of Brazil of Ps. 2.4 million. Administrative expenses as
a percentage of sales from international operations increased from 10.4% during
the fiscal year ended June 30, 2001 to 15.2% during the fiscal year ended June
30, 2002.
LOSS ON PURCHASERS' RESCISSIONS OF TORRES SALES CONTRACT, NET
The losses resulting from the rescission of Torres de Abasto sales
contracts varied from a loss of Ps. 0.01 million in the fiscal year ended June
30, 2001 to a profit of Ps. 0.03 in the fiscal year ended June 30, 2002.
RESULTS FROM OPERATIONS AND HOLDINGS OF REAL ESTATE ASSETS, NET
Results from operations and holdings of real estate assets, net, showed a
Ps. 58.7 million loss change between both fiscal years, from a Ps. 6.3 million
loss for the fiscal year ended June 30, 2001 to a Ps. 65.0 million loss for the
fiscal year ended June 30, 2002. This decrease results mainly from the net
result between (i) the gain obtained from the sale of our equity interest in
Brazil Realty which amounted to Ps. 31.5 million in this fiscal year; (ii) the
non-recurrence in 2002 of the Ps. 1.0 million loss attributable to the sale of
our equity interest in FVI recognized in 2001 and (iii) the Ps. 91.2 million
loss from the impairment of long-lived assets, which rose from Ps. 5.7 million
during 2001 to Ps. 96.9 million during 2002. This Ps. 91.2 million loss from the
impairment of long-lived assets between both fiscal years, was distributed among
our segments as follows: (a) Development and Sales: Ps. 27.0 million, (b)
Offices and Others: Ps. 39.8 million and (c) Shopping Centers: Ps. 24.4 million.
OPERATING INCOME
As a result of the foregoing, the total operating income decreased from a
Ps. 77.0 million gain during the fiscal year ended June 30, 2001 to a Ps. 46.9
million loss during the fiscal year ended June 30, 2002.
Development and Sale of properties. Operating results from Development
and Sales of properties showed an improvement, from a Ps. 4.1 million loss for
the fiscal year ended June 30, 2001 to a Ps. 35.6 million loss for the fiscal
year ended June 30, 2002.
Offices and other. The operating results from Offices and other decreased
from a Ps. 28.1 million profit for the fiscal year ended June 30, 2001 to a Ps.
23.6 million loss for the fiscal year ended June 30, 2002.
Shopping Centers. The operating results from Shopping Centers decreased
from a Ps. 32.2 million profit for the fiscal year ended June 30, 2001 to a Ps.
18.3 million loss for the fiscal year ended June 30, 2002.
53
Hotels. The operating results from hotels increased from a Ps. 0.8
million loss for the fiscal year ended June 30, 2001 to a Ps. 3.4 million loss
for the fiscal year ended June 30, 2002.
International. The operating results from international operations
increased 57.0% from Ps. 21.6 million for the fiscal year ended June 30, 2001 to
Ps. 33.9 million for the fiscal year ended June 30, 2002. The operating margin
for international operations increased from 31.3% for the fiscal year ended June
30, 2001 to 136.7% for the fiscal year ended June 30, 2002.
FINANCIAL RESULTS, NET
The total net financial results reflected an increase from a loss of Ps. 110.3
million during the fiscal year ended June 30, 2001 to a loss of Ps. 432.2
million during the fiscal year ended June 30, 2002. The total increase in
financial results was primarily due to: (i) the increase in the net loss of Ps.
294.9 million as compared to the previous fiscal year due to the joint effect of
the peso devaluation and inflation, the impact of foreign currency denominated
net debts, partially offset by a Ps. 84.6 million reduction in financing
expenses, which dropped from Ps. 100.7 million during 2001 to Ps. 16.1 million
during 2002 as a result of the impact of the negative actual financing interest
rate on our loans and (ii) an increase in the loss for financial transactions
for Ps. 113.4 million as compared to 2001, mainly due to the fall in the value
of the stock of Banco Hipotecario, to losses connected with investments such as
Telecom stock, Pro1 bonds and FRB and the drop in the quotation of Quantum Fund
during this fiscal year.
NET (LOSS) -- INCOME IN COMPANIES SECTION 33, LAW 19,550
The net results derived from affiliated companies showed an 80.9%
reduction from a loss of Ps. 10.3 million during the fiscal year ended June 30,
2001 to a loss of Ps. 2.0 million during the fiscal year ended June 30, 2002,
mainly due to a reduction in the loss derived from IRSA Telecomunicaciones
investment for an aggregate amount of Ps. 8.0 million. .
OTHER INCOME (EXPENSES), NET
The other income (expenses), net line increased 51.3% from a loss of Ps. 5.6
million during the fiscal year ended June 30, 2001 to a loss of Ps. 8.5 million
during the fiscal year ended June 30, 2002, basically due to: (i) the loss
originated during the current fiscal year by the new tax on bank credits and
debits for Ps. 1.8 million; (ii) the Ps. 1.3 million decrease in the results
from the repurchase of Negotiable Obligations of Alto Palermo in the open
market, from an income of Ps. 1.2 million during 2001 to a loss of Ps. 0.2
million during 2002; (iii) the loss resulting from a contingency due to lawsuits
of Alto Palermo for Ps. 3.5 million, mainly resulting from a provision for a
lawsuit brought by Carrefour supermarket in connection with the construction of
Paseo Alcorta shopping center, which decreases were partially offset by (iv)
lower charges from gifts and non-computable VAT as compared to the previous
fiscal year for Ps. 3.7 million.
ORDINARY LOSS BEFORE TAXES
As a consequence of the factors described above, the ordinary loss before
taxes and extraordinary results showed an increase from a Ps. 49.2 million loss
during the fiscal year ended June 30, 2001 to a loss of Ps. 489.6 million during
the fiscal year ended June 30, 2002.
INCOME TAX AND MINIMUM PRESUMED INCOME TAX
Income tax increased 97.1% from Ps. 5.1 million during the fiscal year
ended June 30, 2001 to Ps. 10.0 million during the fiscal year ended June 30,
2002, mainly due to the net
54
variation between (i) the increase during the current fiscal year of IRSA's
Minimum Presumed Income Tax charges by Ps. 3.6 million, as an income tax
recovery for such amount was computed during 2001 as a result of the amendments
of Law 25,360, and of Brazil's Income Taxe by Ps. 1.6 million; and (ii) the
reduction during this fiscal year of the Income Tax charges of APSA group by Ps.
0.2 million and FVI by Ps. 0.2 million, due to the sale of this company during
the previous fiscal year.
ORDINARY LOSS FOR THE FISCAL YEAR
As a consequence of the factors described above, the ordinary loss before
extraordinary results showed an increase from a Ps. 54.3 million loss during the
fiscal year ended June 30, 2001 to a loss of Ps. 499.6 million during the fiscal
year ended June 30, 2002.
EXTRAORDINARY LOSS
During the fiscal year ended June 30, 2002 no extraordinary results were
registered as compared to the fiscal year ended June 30, 2001, when they
amounted to a loss of Ps. 5.7 million due to our share in the results recognized
by Llao Llao Resorts S.A. as a consequence of adjustments in the provisions
recorded in connection with a lawsuit brought by the National Parks
Administration (Administracion de Parques Nacionales).
NET LOSS FOR THE FISCAL YEAR
As a consequence of the factors mentioned above, the net loss for the
fiscal year changed from a loss of Ps. 60.0 million during the fiscal year ended
June 30, 2001 to a loss of Ps. 499.6 million during the fiscal year ended June
30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the statement of cash flows for the years
ended June 30, 2002 and 2001, respectively.
YEAR ENDED JUNE 30
2002 2001
(IN MILLION OF PESOS)
Net proceeds generated by (used in)
Operations 47.3 95.9
Investment activities (17.5) 72.8
Financing activities (37.9) (164.6)
Historically our principal requirements for funds have arisen from the
purchase and development of property. We have mainly sought financing through
the issue of debt and shares to obtain funds to cover our needs. We expect funds
from our operations to form the main source to meet our working capital needs.
As of June 30, 2002 we had working capital deficit of Ps. 469.8 million.
At the same date we held funds for a total of Ps. 25.3 million. As of June 30,
2001 we held funds for a total of Ps. 33.3 million.
During the fiscal year ended June 30, 2002, the main source of liquidity
for our Company were the funds generated by operations for a total amount of Ps.
47.3 million. The sale of inventory generated an increase in funds of Ps. 52.8
million and the reduction in receivables from sales and rentals generated a
further increase of Ps. 38.0 million. This increase in funds was offset by an
increase in current investments and other receivables for Ps. 29.5 million. The
overall net variation generated a reduction in funds for Ps. 14.0 million.
55
Our investing activities resulted in net cash outflows of Ps. 17.5
million for fiscal year 2002. The sale of Brazil Realty generated an inflow of
funds of Ps. 103.3 million, which was offset by the granting of loans to our
subsidiary APSA for Ps. 94.1 million. Investments were also made in fixed assets
for Ps. 21.1 million, mainly in the purchase of "Costero Dique IV" office
building for Ps. 18.4 million. The remaining investments in related companies
generated a net reduction of Ps. 2.7 million and were applied to land reserves
for Ps. 3.0 million, of which Ps. 2.2 million was invested in Dique III.
Financing activities during the year required an application of funds of
Ps. 37.9 million, having applied Ps. 187.5 million to the settlement of loans
and receiving Ps. 151.3 million under the same heading. Also during this year we
have repaid debt from the purchase of subsidiaries for Ps. 1.8 million.
We plan to continue with the sale of non-core assets to be able to obtain
funds to repay our debt. We consider that the refinancing of our existing debt
and the sale of non-strategic assets, together with our funds generating
activities will provide us with the necessary working capital to cover our
needs.
OUR INDEBTEDNESS
Our total outstanding debt as of June 30, 2002 was Ps. 566.4 million
compared to Ps. 380.9 million as of June 30, 2001. Out of the Ps. 566.4 million
outstanding as of June 30, 2002, Ps. 564.7 million corresponded to short term
bank debt and the rest was debt from the purchase of shares in related
companies, Ps. 0.8 million being short term and Ps. 0.7 million long term. The
increase in total debt as of June 30, 2002, compared to June 20, 2001 has been
mainly due to the effect of devaluation on our loans in foreign currency. We
have already begun to negotiate with our creditors to refinance the debt over
the long term under new conditions, and we expect to reach an agreement shortly.
Pursuant to Decree No. 214, part of our indebtedness was "pesified,"
although a large portion, governed by foreign laws continued to be
dollar-denominated. "Pesified" indebtedness is to be adjusted by the CER index.
Between January and June of 2002, we repaid "pesified" short-term debt in
an aggregate amount of Ps. 46.7 million with the proceeds of the sale of Brazil
Realty and cash from operations, using rescheduled time deposits as payment.
Repayment was made at discounts on the original U.S. dollar value of the debt
and on the converted Peso value of the debt.
Syndicated Credit Facility and Floating Rate Notes. On May 24, 2000, we
entered into a US$ 80 million syndicated loan arranged by BankBoston N.A. with
an original maturity on July 31, 2001. Loans under this syndicated credit
facility bear interest at three-month LIBOR plus a margin of 500 basis points.
Amounts owing under the syndicated credit facility are payable in U.S.
dollars. Although final maturity on the loan agreement was on July 31, 2002, due
to the continuing effects of economic recession, the unavailability of financing
sources and the succession of recent governmental measures adversely affecting
the normal operations of the banking and payments system, we agreed with the
holders of our credit facility to reschedule maturity to September 30, 2002. We
hope to renegotiate this facility under new conditions, by that date.
On December 18, 2000, we issued US$ 43.5 million unsecured Class 2
floating rate notes due December 24, 2001. Proceeds from this issuance were used
to repay certain outstanding short-term indebtedness. Our floating rate notes
matured in December 2001, and we were unable to pay the principal then due. As a
result of such non-payment, in December 2001, we entered into negotiations with
the holders of our floating rate notes and to date have been able to obtain
short-term deferrals of our obligation to pay such matured notes. On February 8,
2002, we agreed with our holders to replace the floating interest rate for an
annual fixed interest rate of 12%. Pursuant to the most recent deferral, granted
on September 9, 2002, principal and interest on the floating rate notes must be
paid in full on September 30, 2002. The capitalization of interest due on
September 9, 2002 was also agreed upon with the holders.
56
On May 15, 2002, we repurchased a portion of the notes, which resulted in a
reduction of the outstanding amount to US$ 40.1 million. We are currently
negotiating with the note holders the available alternatives for the repayment
of these notes.
The floating rate notes and the syndicated credit facility include
various restrictive covenants, which among other things, require us to meet
certain financial tests and to comply with certain other covenants, including
restrictions on incurrence of debt and liens, restrictions on mergers,
acquisitions, asset dispositions, capital contributions, repurchases of stock
and investments. As of June 30, 2001, we stopped complying with certain
financial covenants in our floating rate notes and our syndicated credit
facility. To avoid possible acceleration from debtors, we obtained waivers to
these financial covenants from the lenders under the syndicated credit facility
and several amendments were agreed on with the holders of floating rate notes.
As of June 30, 2002, we were not in compliance with certain of the
financial covenants under the floating rate notes and syndicated credit
facility, and a waiver had been granted by the respective holders banks in
relation to such covenants.
Subordinated Intercompany Loan to APSA. On February 8, 2002 we and Parque
Arauco, principal shareholders of APSA, subordinated the collection of loan
receivables granted by us to APSA to the repayment of principal and interest on
APSA's US$ 120 million Senior Notes and on its short-term debt.
Loan to Hoteles Argentinos. In January 2001, our subsidiary Hoteles
Argentinos S.A., owner of 100% of Hotel Sheraton Libertador, obtained a US$ 12.0
million loan from BankBoston N.A. The maturity date is January 2006 and the loan
bears interest on a quarterly basis at LIBO rate plus a spread ranging between
401 and 476 basis points, depending on the value of certain financial ratios.
This loan was not pesified and remains in U.S. dollars due to the fact it is
governed by New York law.
Other Loans Recently Repaid. On October 11, 2001, Banco Galicia granted
us a Ps. 7.0 million loan with a one-year maturity. The loan accrued interest at
Encuesta corregida rate (rate reported daily by Argentine Central Bank which
represents the average paid by banks on 30-35 day dollar denominated deposits of
over Ps. 1,000,000) plus 500 basis points. According to Decree No. 214, this
loan was pesified. In May 2002 we repaid this loan in full at a discount to its
Peso value by tendering rescheduled time deposits in payment.
Cyrela Loan. On August 29, 2001 we obtained a loan from Cyrela Capital
Management Ltd. for US$ 10.0 million. This loan was payable on June 5, 2002 and
accrued interest at 12% annually. This loan was secured by pledging 8,089,800
shares and 591,020 ADSs of Brazil Realty. We repaid this loan in full upon the
sale of our interest in Brazil Realty in February 2002.
Issue of negotiable obligations convertible into ordinary shares of IRSA.
The Ordinary and Extraordinary shareholders' meeting of IRSA, held on March 8,
2002, authorized the issue of negociable obligations convertible into ordinary
shares of th Company with a par value of Ps. 1 each and one vote per share, for
up to an amount of US$ 100 million, which were to accrue interest at a fixed
rate of between 6% and 12% p.a. payable six monthly in arrears with a conversion
price arising out of the market price of our shares plus a premium of up to 10%,
to be determined by the board, with stock option warrants attached for exercise
at a conversion price plus a premium of between 20% and 30%. The funds generated
by the issue were to be mainly assigned to the settlements of existing
liabilities at that date and to subscribe to a convertible negotiable bond issue
offered by APSA. The corresponding approvals from the corporate governance
bodies required for this issue are currently pending.
APSA'S INDEBTEDNESS
In relation to the negotiable obligations for Ps. 85.0 million due April
7, 2005 APSA entered into a swap agreement with Morgan Guaranty Trust to cover
and reduce the interest rate of such notes,
57
converting part of the Peso-denominated fixed rate debt into U.S.
dollar-denominated floating rate debt. However, due to the economic situation,
the political instability and the depreciation of the Argentine public debt,
there was a negative deviation of the performance of the swap agreement that
required the modification of the original terms.
To solve the problem, resort was made to the experience of the managers
to achieve a higher degree of certainty regarding the situation. As a result, on
July 20, 2001, APSA signed a new swap agreement that eliminated the implicit
rate risk in Peso/dollar futures, avoiding worse consequences for the Company.
To achieve this change it was necessary to set up a deposit in guarantee for US$
50 million. Both ourselves and Parque Arauco S.A., as its principal
shareholders, have granted loans to enable the constituting of the guarantee
required by the swap. The remaining principle was financed out as part of its
working capital.
During December 2001, the swap was partially settled, with a reduction in
the amount of the transaction from US$ 85 million to US$ 69.1 million, while at
the same time the repurchase was carried out of its negotiable obligations
denominated in Pesos due April 7, 2005, for a nominal value of Ps. 15.5 million
under par value. The two transactions together led to a loss to APSA of Ps. 0.3
million.
With regard to the negotiable obligations for Ps. 120 million due in
January 2005, during the year there have been certain lags in the ratio for
interest cover to EBITDA covenanted. For this reason, the board of APSA called
special meetings of noteholders that were held on November 15, 2001 and February
18, May 3 and August 22, 2002. At these meetings a succession of limited waivers
were obtained for this non-compliance, the last of which was valid through the
presentation of its Financial Statements as of September 30, 2002.
In the case of the negotiable obligations for Ps. 85 million, in view of
the fact that an agreement has still not been reached with the noteholders,
non-compliance with the financial commitments meant that APSA was unable to take
on any debt in addition to that which it held as of September 2001.
The devaluation of the Argentine peso was accompanied by a decision to
"pesify" by decree contracts signed in foreign currency between private parties
that were ruled by the Argentine law. As a result, its negotiable obligations
for Ps. 120 million were converted into Pesos, as was 100% of its short term
bank debt and 100% of the debt due to shareholders. As a consequence, its debt
was left mainly denominated in Pesos.
Nevertheless, although after the devaluation much of our debt was
"pesified", as indicated above, the application of a "Reference Stabilization
Index (CER) to this debt has meant a significant increase in its value, leading
to excessive financial charges.
In a highly dynamic manner, in a clear demonstration of business agility,
the Company's management raised the possibility of settling a large part of our
debt with banks making use of two alternatives that resulted in a significant
reduction of the financial burden. These options were:
o payment of principal and interest with rescheduled Time
Deposits that enable a saving of approximately 20% of the
amount to be paid; or 20
o pre payment of 100% of the principal and interests in cash with
a similar discount to the 20% obtained in the settlement of
time deposits.
Issue of negotiable obligations convertible into ordinary shares of APSA.
The Ordinary and Extraordinary shareholders meeting of APSA, held on December 4,
2001, authorized the issue of convertible bonds convertible into common stock of
APSA with a par value of Ps. 0.10 each and one vote per share, for up to an
amount of US$ 100 million, which were to accrue interest at a fixed rate of 10%
p.a. payable semi-annually in arrears with a conversion price of between Ps.
0.10 and Ps. 0.15, to be
58
determined by the board. The funds generated by the issue were to be assigned to
the settlement of existing liabilities at that date.
On August 30, 2002, APSA concluded the period for preferential
subscription for Series I for up to US$ 50,000,000 in book-entry negotiable
obligations convertible into ordinary shares with a par value of US$ 0.10 each.
IRSA subscribed to a total of US$ 27.2 million of these convertible negotiable
obligations.
We consider that in our industry success requires a substantial liquidity
to maintain flexibility and take advantage of real estate opportunities at the
moment they arise. As a result, we generally tend to keep liquidity at a high
level. We invest our liquid assets mostly in time deposits and occasionally in
the stock of local companies and Argentine Government securities, to take
advantage of market opportunities. In addition, we also invest in securities and
bonds issued by foreign companies. In future, our need to avoid becoming a PFIC
-Passive Foreign Investment Company - as regards the tax treatment applicable to
its shareholders in the USA, or in an investment company under the terms of the
1940 Investment Company Act in the USA, could restrict our ability to make
certain short term investments.
The issue of the convertible notes has allowed APSA to pay an important
portion of its existing debt as of March 2002. The funds obtained have been
allocated to the full repayment of (i) short-term bank debt which, as of March
31, 2002, came up to approximately Ps. 39.0 million, and (ii) the amount of Ps.
47.0 of the senior secured notes.
59
MANAGEMENT
BOARD OF DIRECTORS
Our administration and management is the responsibility of our board. Our
by-laws lay down that the board will be made up of a minimum of eight and
maximum of fourteen full directors and eight to fourteen alternate directors. We
are managed by a board of directors, which is composed of nine directors and
four alternate directors. Our directors and alternate directors are elected for
three year terms by our shareholders by a majority vote at an ordinary
shareholders' meeting.
Our current board of directors was elected at a shareholders' meeting
held in October 2001. Three of the directors elected on that shareholders'
meeting have resigned. On March 21, 2002, our board of directors accepted the
resignation of our former director Gary Gladstein and on May 17, 2002, our board
of directors accepted the resignation of our former directors Enrique A.
Antonini and Emilio J. Cardenas. As of today, none of the directors that
resigned have been replaced. Our current directors are as follows:
NAME POSITION CURRENT POSITION HELD SINCE
-------------------------------------------------------------------------------------------------------------
Eduardo S. Elsztain Chairman of the board 1991
M. Marcelo Mindlin First Vice-chairman of the 1991
board
Saul Zang Second Vice-chairman of the 1994
board
Ernesto M. Vines (with licence) Director 1991
Oscar P. Bergotto Director 1994
Fernando A. Elsztain Director 1999
A. Gabriel Juejati Director 1999
Jeremiah W. O'Connor Director 1999
Alejandro G. Elsztain Director 2001
Salvador D. Bergel Alternate Director 1996
Juan C. Quintana Teran Alternate Director 1996
Gabriel A.G. Reznik Alternate Director 1999
Thomas Quinn Alternate Director 1999
The following is a brief biographical description of each member of our
board of directors:
Eduardo S. Elsztain. Mr. Elsztain studied accounting at the Universidad
de Buenos Aires. He has been engaged in the real estate business for more than
twenty years. He founded Dolphin Fund Management. He is chairman of the board of
directors of APSA, SAPSA, Dolphin Fund Management, Hoteles Argentinos and Cresud
among others; he is also vice-chairman of Banco Hipotecario S.A. and E-Commerce
Latina S.A. He is Fernando A. Elsztain's cousin and Alejandro G. Elsztain's
brother.
M. Marcelo Mindlin. Mr. Mindlin obtained a degree in economics from the
Universidad de Buenos Aires and a master degree in business administration at
the Centro de Estudios Macroeconomicos de Buenos Aires. He is the vice-chairman
of the board of directors of APSA, Dolphin Fund Management, Hoteles Argentinos
and Cresud; and director of Banco Hipotecario S.A.
Saul Zang. Mr. Zang obtained a degree in law from the Universidad de
Buenos Aires. He is founding partner of the law firm Zang, Bergel & Vines. He is
also the second vice-chairman of Cresud and vice-chairman of Puerto Retiro and
Fibesa; a director of APSA, Banco Hipotecario S.A., Nuevas Fronteras S.A.,
Tarshop and Palermo Invest S.A.; and an alternate director of SAPSA.
60
Ernesto M. Vines. Mr. Vines obtained a degree in law from the Universidad
de Buenos Aires. He is a founding partner of the law firm Zang, Bergel & Vines
and vice-president general counsel of Banco Hipotecario S.A.. He is a director
of Cresud and also an alternate director of APSA, Inversora Bolivar and
Emprendimientos Recoleta.
Oscar P. Bergotto. Mr. Bergotto is the chief treasury officer of IRSA
since 1991. He has also worked in various other real estate companies. He is an
alternate director of APSA and Dolphin Fund Management.
Fernando A. Elsztain. Mr. Elsztain studied architecture at the
Universidad de Buenos Aires. He has been our chief commercial officer since
March 1994. He has been engaged in the real estate business as consultant and as
managing officer of a family-owned real estate company. He is chairman of the
board of directors of Llao Llao Resorts S.A., Palermo Invest S.A. and Nuevas
Fronteras S.A. He is also a director of APSA, Hoteles Argentinos and Tarshop;
and an alternate director of Banco Hipotecario S.A. and Puerto Retiro among
others. He is the cousin of Alejandro G. Elsztain and Eduardo S. Elsztain.
A. Gabriel Juejati. Mr. Juejati has been engaged in real estate
activities since 1975. He is one of the founding members of Gama Propiedades, an
Argentine real estate brokerage company. He is chairman of Shopping Neuquen,
Fibesa, Tarshop and Emprendimientos Recoleta; he is executive vice-chairman of
APSA and vice-chairman of SAPSA. He is also a director of Nuevas Fronteras S.A.
and Altocity.Com among others.
Jeremiah W. O'Connor, Jr. Mr. O'Connor obtained a degree in economics at
Holy Cross College and a masters in business administration at Harvard Business
School. He is the founder and president of The O'Connor Group, a global real
estate company established in 1983. He is also associate president of The
Peabody Group, a sponsor of real estate opportunity funds. He is a director and
trustee of TrizecHahn Corporation (Canada), Grupo Empresarial Metropolitano S.A.
de C.V. (Mexico), BEG S.A. (France), Manhattan Institute, The Catholic Community
Fund and Holy Cross College where he also acts as president of its endowments
fund. Mr. O'Connor has been president of the International Shopping Center
Council.
Alejandro G. Elsztain. Mr. Elsztain obtained a degree in agricultural
engineering from the Universidad de Buenos Aires. He is chairman of Inversiones
Ganaderas and a director of APSA and CRESUD S.A.C.I y A. He is the brother of
our chairman Eduardo S. Elsztain and is the cousin of our director, Fernando A.
Elsztain.
Salvador D. Bergel. Mr. Bergel obtained a degree in law and a Ph.D. in
law from the Universidad del Litoral. He is a founding partner of the law firm
of Zang, Bergel & Vines and a consultant to Repsol YPF S.A. He is also an
alternate director of Cresud.
Juan C. Quintana Teran. Mr. Quintana Teran obtained a degree in law from
the Universidad de Buenos Aires. He is a consultant of the law firm Zang, Bergel
& Vines. He has been chairman and judge of the National Court of Appeals of the
City of Buenos Aires dealing in commercial matters. He is an alternate director
of Cresud, APSA, Banco Hipotecario S.A. and Nuevas Fronteras S.A.
Gabriel A. G. Reznik. Mr. Reznik obtained a degree in civil engineering
from the Universidad de Buenos Aires. He has been working for us since 1992. He
formerly worked for an independent construction company in Argentina. He is a
director of APSA, Emprendimientos Recoleta, Inversora Bolivar, Puerto Retiro and
Nuevas Fronteras S.A. and an alternate director of Banco Hipotecario S.A.
Thomas Quinn. Mr. Quinn obtained an undergraduate degree from Dartmouth
College and a masters in sciences from Middlebury College. He acts as executive
director of J.P. Morgan Capital Corporation and associate president of The
Peabody Group, a sponsor of real estate opportunity funds. He has been
responsible for the principal real estate investment vehicle of J.P. Morgan
since 1992 and he
61
also acted as executive director and head of the global real estate consulting
business of J.P. Morgan. He is a director of TrizecHahn Corporation (Canada),
Grupo Empresarial Metropolitano S.A. de C.V. (Mexico), BEG S.A. (France) and HPE
Property Holding GmbH (Germany).
Directors Eduardo S. Elsztain, M. Marcelo Mindlin, A. Gabriel Juejati,
Alejandro Elsztain, Fernando A. Elsztain, Gabriel A. Reznik, Saul Zang, Oscar P.
Bergotto, Juan M. Quintana, Juan C. Quintana Teran, Salvador D. Bergel and
Ernesto M. Vines qualify as not independent, while the remainder are independent
within the terms of Resolution No. 340 issued by the Comision Nacional de
Valores.
SYSTEMS FOR REMUNERATING DIRECTORS
Under Argentine law, if the compensation of the members of the board of
directors is not established in the bylaws of a company, it should be determined
by the shareholders meeting. The maximum amount of total compensation of the
members of our board of directors, including compensation for technical or
administrative permanent activities, cannot exceed 25% of our earnings.
That amount should be limited to 5% when there is no distribution of
dividends to shareholders, and will be increased proportionally to the
distribution. When one or more directors perform special commissions or
technical or administrative activities, and there are no earnings to distribute,
or they are reduced, the shareholders meeting may approve compensation in excess
of the above mentioned limits.
The compensation of our directors for each fiscal year is determined
pursuant to Argentine corporations law, taking into consideration if the
directors perform additional technical or administrative activities and our
fiscal year's results. Once the amounts are determined, they are submitted to
our shareholders for approval at a shareholders' meeting. We have not
established share option plans, nor retirement, or pension benefits or any other
such remuneration system for our directors except those described. See "Systems
for Remuneration of Senior Management".
Fees received by the members of the board of directors for the fiscal
year ended 2001, was Ps. 708,000, as approved by the shareholders meeting held
on October 19, 2001. The members of our supervisory committee gave up their
right to collect their fees for the fiscal year ended 2001. The fees
corresponding to the fiscal year ended June 30, 2002 will be considered by the
shareholders' meeting that will be held next October.
EXECUTIVE COMMITTEE
Pursuant to our bylaws, our day-to-day business is managed by an
executive committee consisting of five directors among which, there should be
the chairman, first vice-chairman and second vice-chairman of the board of
directors. An alternate member, also selected from the board of directors,
serves on the executive committee in the event of a vacancy. As a result of the
resignation of Enrique A. Antonini as member of the board of directors and of
the executive committee, Mr. Oscar Bergotto who was an alternate member assume
as member of the executive committee. Therefore, the current members of the
executive committee are Messrs. Eduardo S. Elsztain, M. Marcelo Mindlin, Saul
Zang, and Oscar Bergotto.
The executive committee is responsible for the management of the
day-to-day business delegated by the board of directors in accordance with
applicable law and our bylaws. Our bylaws authorize the executive committee to:
o designate the managers and establish the duties and compensation of
such managers;
o grant and revoke powers of attorney on behalf of us;
62
o hire, discipline and fire personnel and determine wages, salaries
and compensation of personnel;
o enter into contracts related to our business;
o manage our assets;
o enter into loan agreements for our business and set up liens to
secure our obligations; and
o perform any other acts necessary to manage our day-to-day business.
SENIOR MANAGEMENT
Our board of directors appoints and removes the senior management. Senior
management performs its duties in accordance with the instructions of our board
of directors.
The following table shows information about our current senior
management:
NAME YEARS OLD POSITION CURRENT POSITION HELD
SINCE
---------------------------------- ------------------ ---------------------------------- -----------------------
Eduardo S. Elsztain 41 Chief Executive Officer 1991
M. Marcelo Mindlin 37 Executive Vice-President 1991
M. Marcelo Mindlin 37 Chief Financial Officer 2001
Gabriel A. Reznik 42 Chief Technical Officer 1992
A. Gabriel Juejati 41 Commercial Director 1994
Fernando A. Elsztain 40 Commercial Director 1994
Oscar P. Bergotto 58 Chief Treasury Officer 1991
SYSTEMS FOR THE REMUNERATION OF SENIOR MANAGEMENT
We pay our senior management pursuant to a fixed amount established
taking into consideration their background, capacity and experience as well as
an annual bonus which varies according to their individual performance and our
overall results.
We have entered into executive employment agreements with four executives
and a contract for the participation by management in the capital stock with
eight executives, the details of which are described below.
We have not set up variable remuneration schemes, nor are there option
plans or retirement or pension plans, nor any other remuneration systems for
executives than those described above.
COMPENSATION
On October 30, 1997, our shareholders authorized us to enter into
executive employment agreements with each of Eduardo S. Elsztain, M. Marcelo
Mindlin, Saul Zang and Oscar P. Bergotto. These employment agreements were
executed on December 27, 1997 and approved by our shareholders at an
extraordinary shareholders meeting on April 7, 1998. Pursuant to these
employment agreements, Messrs. Elsztain, Mindlin, Zang and Bergotto will serve
in their current capacity as directors or senior managers and are restricted
from participating in real estate activities in Argentina that are the same as
63
our business activities. Under these employment agreements, Messrs. Elsztain,
Mindlin, Zang and Bergotto are each entitled to receive annual compensation in
the aggregate of approximately Ps. 750,000, subject to an annual 4% increase.
The initial term of these employment agreements is seven years, although
they may be terminated prior to their expiration by us or the relevant
executive. If we terminate the employment agreements without cause, we will be
liable to the relevant executive for two years of compensation.
MANAGEMENT STOCK OWNERSHIP PLAN
On October 30, 1997, our shareholders authorized us to enter into a
noncontributory management stock ownership plan with eight executive officers,
pursuant to which the beneficiaries were granted the right to purchase up to 24
million shares of our common stock at a purchase price equal to Ps. 1.00 per
share, subject to the implementation of an equity participation agreement. In
accordance with Argentine law, we established a special purpose trust for
purpose of this agreement.
On October 1, 1998, we issued 21,090,024 shares to be subscribed by the
beneficiaries and, on August 31, 1999, we and the beneficiaries entered into a
subscription agreement pursuant to which the beneficiaries purchased the
abovementioned amount of shares at Ps. 1 per share, in the following
proportions: Eduardo S. Elsztain, 56.66%; M. Marcelo Mindlin, 10.00%; Saul Zang,
5.00%; Ricardo Torres, 6.67%; A. Gabriel Juejati, 6.67%; Gabriel A. G. Reznik,
5.00%; Fernando A. Elsztain, 6.67%; and Oscar P. Bergotto, 3.33%.
Once the participation stock was subscribed, it was placed in a trust, as
laid down in the subscription contract. The trust has an original term of six
years. According to the terms of this stock ownership plan and the trust,
beneficiaries are not entitled to receive any distributions (either in the form
of shares, cash or other) from the trust during its term, although beneficiaries
are allowed to cause the trust to sell their designated shares of common stock
held by the trust in certain cases. Each of the beneficiaries financed the
purchase of his respective participation stock with funds provided by certain
loan agreements signed with the trust on August 31, 1999. The trust contemplated
the possibility of disbursing the assets of the trust to the beneficiaries on
the sixth anniversary of the inception of the trust on a pro rata basis. The
trust assets shall be distributed according to the percentage of participation
stock held by each of the beneficiaries under the participation contract.
On May 31, 2001, we entered into an agreement with Ricardo Torres, our
former chief financial officer, pursuant to which we and Ricardo Torres set
forth our mutual agreement with respect to all matters relating to the Ricardo
Torres's resignation and cessation of employment. In consideration of the mutual
promises and agreements we and Mr. Torres agreed that Mr. Torres would resign as
chief financial officer, we would pay Mr. Torres a lump sum cash amount equal to
Ps. 95,000 and would also be entitled to continued coverage for him and his
dependents under our medical and dental plans for a period of up to six months
following his termination.
On May 24, 2001, Mr. Torres entered into a purchase agreement with
Eduardo S. Elsztain, one of our principal shareholders and also a beneficiary
under the stock ownership plan, pursuant to which Mr. Torres sold his shares in
the trust at a fixed price per share below the fair market value per share at
the date of the purchase agreement.
As the result of the sale and reallocation of Mr. Torres' shares in the
trust, the interests of Mr. Eduardo S. Elsztain and Mr. Saul Zang in the shares
in the trust increased to 61.66% and 6.67%, respectively.
SUPERVISORY COMMITTEE
64
The supervisory committee (Comision Fiscalizadora) is responsible for
reviewing and supervising our administration and affairs, and verifying
compliance with the bylaws and the resolutions adopted at shareholders'
meetings. The members of the supervisory committee, the syndics, are appointed
at the annual general ordinary shareholders' meeting for a term of one year. The
supervisory committee is composed of 3 syndics and 3 alternate syndics: Jose D.
Abelovich, Marcelo H. Fuxman and Martin Barbafina; Ruben O. Mosi, Carlos A.
Rebay and Julio P. Naveyra.
Set forth below is a brief biographical description of each member of our
supervisory committee, who were elected in our annual general ordinary
shareholders' meeting held on October 19, 2001:
JOSE D. ABELOVICH. Mr. Abelovich obtained a degree in accounting from the
Universidad de Buenos Aires. He is a founding member and partner of Abelovich,
Polano and Associates/SC International, a public accounting firm in Argentina.
Formerly, he had been a manager of Harteneck, Lopez y Cia/PricewaterhouseCoopers
and has served as a senior advisor in Argentina for the United Nations and the
World Bank. He is a member of the supervisory committees of APSA, SAPSA, Hoteles
Argentinos and Inversora Bolivar.
MARCELO H. FUXMAN. Mr. Fuxman obtained a degree in accounting from the
Universidad de Buenos Aires. He is a partner of Abelovich, Polano and
Associates/SC International, a public accounting firm in Argentina. He is also a
member of the supervisory committee of APSA, SAPSA and Inversora Bolivar.
MARTIN BARBAFINA. Mr. Barbafina obtained a degree in accounting from the
Universidad Catolica Argentina. He is a partner of PricewaterhouseCoopers. He is
also a member of the supervisory committee of APSA, Cresud, Metrovias S.A. and
Grupo Concesionario del Oeste.
RUBEN O. MOSI. Mr. Mosi obtained a degree in accounting from the
Universidad de Buenos Aires. He is a partner of PricewaterhouseCoopers. He is
also a member of the supervisory committees of Edesal S.A., Papelera del Plata
S.A. and Terminal Murchison Roman S.A.
CARLOS A. REBAY. Mr. Rebay obtained a degree in accounting and a degree
in administration from the Universidad Argentina de la Empresa. He is a partner
of PricewaterhouseCoopers. He is also a member of the supervisory committees of
Massalin Particulares S.A., Hart S.A., Tapiales S.A. and AT&T Argentina S.A.
JULIO P. NAVEYRA. Mr. Naveyra obtained a degree in accounting from the
Universidad de Buenos Aires. He is a retired partner of PricewaterhouseCoopers.
He is member of the supervisory committees of APSA, Cresud, La Nacion and
Johnson & Johnson of Argentina.
All of the members of the supervisory committee qulify as independent
under the terms of Resolution 340 issued by the Comision Nacional de Valores,
although they have provided remunerated professional assistance to companies
covered by section 33 of Law No. 19.550.
65
STOCK MARKET INFORMATION
NEW YORK STOCK EXCHANGE
Our Global Depositary Shares, each representing 10 common shares, are
listed and traded on the NYSE under the trading symbol "IRS". The Global
Depositary Shares began trading on the NYSE on December 20, 1994 and were issued
by the Bank of New York, Inc., acting as Global Depositary Shares Depositary. It
should not be assumed, however, that the Global Depositary Shares will actually
trade at a multiple of 10 times the price per common share. The following table
shows, for the periods indicated, the high and low closing sales price of the
Global Depositary Shares on the NYSE.
FISCAL YEAR US DOLLAR PER GDS
HIGH LOW
------------ -----------
2002 16 2/25 3 33/50
2001 22 2/9 13
2000 31 1/4 19 6/7
1999 33 1/2 16
1998 40 1/3 25 1/5
1997 38 1/3 24 1/5
FISCAL QUARTER US DOLLAR PER GDS
HIGH LOW
------------ -----------
2002
4th quarter 6 1/10 3 2/3
3rd quarter 6 2/7 4 1/2
2nd quarter 9 3/4 4 9/10
1st quarter 16 9 4/5
2001
4th quarter 17 1/9 13
3rd quarter 20 1/2 14 1/2
2nd quarter 20 59/64 14 1/2
1st quarter 22 2/9 20 1/2
2000
4th quarter 28 1/3 19 6/7
3rd quarter 31 1/4 26 5/8
2nd quarter 29 3/7 24 2/3
1st quarter 28 24 1/3
MONTH US DOLLAR PER GDS
HIGH LOW
------------ -----------
September (FY 2003) 6 1/4 4 3/10
August (FY 2003) 4 1/2 3 19/20
July (FY 2002) 5 4 1/10
June (FY 2002) 5 3 2/3
May (FY 2002) 5 2/7 5
April (FY 2002) 5 3/5 4 4/5
March (FY 2002) 6 1/10 4 3/5
February (FY 2002) 5 1/3 4 1/4
January (FY 2002) 6 2/7 4 1/3
------------------
Source: Bloomberg.
66
BUENOS AIRES STOCK EXCHANGE
Our common shares are listed and traded on the Buenos Aires Stock
Exchange under the trading symbol "IRSA". The shares began trading on the Buenos
Aires Stock Exchange in the year 1948. The following table shows, for the
periods indicated, the high and low closing sales price of our common shares on
the Buenos Aires Stock Exchange. On October 9, 2002, the closing price for our
common shares on the Buenos Aires Stock Exchange was, approximately, Ps. 2.07
per share.
FISCAL YEAR PESOS PER SHARE
HIGH LOW
------------- -------------
2002 1.88 0.58
2001 2.23 1.30
2000 3.15 1.99
1999 3.37 1.63
1998 4.08 2.52
1997 3.84 2.43
FISCAL QUARTER PESOS PER SHARE
HIGH LOW
------------- -------------
2002
4th quarter 1.88 1.26
3rd quarter 1.45 0.76
2nd quarter 0.97 0.58
1st quarter 1.59 1.00
2001
4th quarter 1.71 1.30
3rd quarter 2.06 1.47
2nd quarter 2.08 1.46
1st quarter 2.23 2.06
2000
4th quarter 2.84 1.99
3rd quarter 3.15 2.66
2nd quarter 2.95 2.45
1st quarter 2.82 2.44
MONTH PESOS PER SHARE
HIGH LOW
------------- -------------
September (FY 2003) 2.25 1.47
August (FY 2003) 1.70 1.47
July (FY 2002) 1.72 1.57
June (FY 2002) 1.87 1.49
May (FY 2002) 1.88 1.65
April (FY 2002) 1.7 1.45
March (FY 2002) 1.45 1.26
February (FY 2002) 1.27 1.00
January (FY 2002) 1.03 0.76
----------------
Source: Bloomberg.
67
IRSA INVERSIONES Y REPRESENTACIONES
SOCIEDAD ANONIMA
AND SUBSIDIARIES
BOARD REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
June 30, 2002 and 2001
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2002 AND 2001
In thousands of pesos
====================================================================================
June 30, June 30,
2002 2001
(Notes 2 and 3) (Notes 2 and 3)
----------------------------------
ASSETS
------
CURRENT ASSETS
--------------
Cash and banks 24,831 10,530
Investments (Note 7) 36,796 89,707
Mortgages and leases receivables 12,004 59,928
Other receivables (Note 5) 38,547 36,927
Inventory (Note 6) 24,130 24,783
----------------------------------
TOTAL CURRENT ASSETS 136,308 221,875
----------------------------------
NON-CURRENT ASSETS
------------------
Mortgages receivables 3,135 44,326
Other receivables (Note 5) 89,621 34,764
Inventory (Note 6) 46,558 67,399
Investments (Note 7) 526,348 699,893
Fixed assets (Note 8) 338,794 419,375
Intangible assets 3,951 6,917
----------------------------------
TOTAL NON-CURRENT ASSETS 1,008,407 1,272,674
----------------------------------
TOTAL ASSETS 1,144,715 1,494,549
====================================================================================
===================================================================================
June 30, June 30,
2002 2001
(Notes 2 and 3) (Notes 2 and 3)
-----------------------------------
LIABILITIES
-----------
CURRENT LIABILITIES
-------------------
Trade accounts payable 12,224 10,831
Customer advances 1,931 4,300
Short term-debt (Note 9) 564,739 350,465
Salaries and social security charges 1,024 1,923
Taxes payable 12,598 8,036
Other liabilities (Note 10) 13,544 10,106
----------------------------------
TOTAL CURRENT LIABILITIES 606,060 385,661
----------------------------------
NON-CURRENT LIABILITIES
-----------------------
Trade accounts payable - 374
Long term-debt (Note 9) 142 26,012
Customer advances - 360
Other liabilities (Note 10) 2,879 7,751
----------------------------------
TOTAL NON-CURRENT LIABILITIES 3,021 34,497
----------------------------------
TOTAL LIABILITIES 609,081 420,158
----------------------------------
Minority interest 75,218 114,356
----------------------------------
SHAREHOLDERS' EQUITY 460,416 960,035
==================================
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,144,715 1,494,549
===================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
Eduardo Sergio Elsztain
President
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
=======================================================================================================================
June 30, June 30,
2002 2001
(Notes 2 and 3) (Notes 2 and 3)
---------------------------------------
Mortgages, leases and services 211,319 339,843
Costs of sales, leases and services (121,355) (172,024)
---------------------------------------
GROSS INCOME 89,964 167,819
---------------------------------------
Selling expenses (34,332) (33,748)
Administrative expenses (37,643) (50,740)
---------------------------------------
SUBTOTAL (71,975) (84,488)
---------------------------------------
Loss on purchasers rescissions of sales contracts 27 (14)
Loss from operations and holding of real estate assets (Note 11) (64,956) (6,305)
---------------------------------------
OPERATING INCOME (NOTE 4) (46,940) 77,012
---------------------------------------
Financial results, net (Note 12) (432,220) (110,302)
Net income in related companies (1,967) (10,323)
Other income and expenses, net (Note 13) (8,511) (5,624)
---------------------------------------
LOSS BEFORE TAXES (NOTE 4) (489,638) (49,237)
---------------------------------------
Income tax and asset tax (9,981) (5,063)
Extraordinary loss - (5,653)
=======================================
LOSS FOR THE YEAR (NOTE 4) (499,619) (59,953)
=======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (1)
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
================================================================================================================================
June 30, June 30,
2002 2001
(Notes 2 and 3) (Notes 2 and 3)
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss for the year (499,619) (59,953)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FLOW FROM OPERATING ACTIVITIES:
o Equity in earnings of affiliated companies 11,111 (6,471)
o Minority interest in related companies (5,118) 1,459
o Results from the sale of fixed assets - (29)
o Allowances and provisions 1,314 994
o Amortization and depreciation 21,033 23,103
o Loss from operations and holding of real estate assets 41,631 5,708
o Financial results 301,073 39,912
o Income tax 6,882 3,140
CHANGES IN ASSETS AND LIABILITIES:
o Increase in current investments (16,103) (34,740)
o Decrease in non-current investments 982 -
o Decrease in mortgages and leases receivables 37,966 15,663
o Increase in other receivables (13,377) (5,849)
o Decrease in inventory 52,758 52,188
o Decrease in intangible assets - 593
o Increase (Decrease) in taxes payable, salaries and social
security and customer advances 984 (12,762)
o Increase in accounts payable 8,289 2,578
o Increase in accrued interest and exchange loss 72,222 54,957
o Cash dividends received 2,496 19,243
o Increase (Decrease) in other liabilities 22,800 (3,840)
------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 47,325 95,894
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
o Decrease from equity interest in subsidiary companies and equity investees 119,933 134,074
o Payment for acquisition of subsidiary companies and equity investees (19,322) (52,291)
o Payment for acquisition of undeveloped parcels of land (2,952) (2,214)
o Loans granted to related parties (94,077) -
o Purchase and improvements of fixed assets (21,058) (6,813)
------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (17,476) 72,756
------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
o Purchase of treasury stock - (80,431)
o Minority shareholders contribution 3,059 -
o Proceeds from short-term and long-term debt 151,326 324,508
o Payment of short-term and long-term debt (187,453) (385,590)
o Increase in intangible assets (3,033) (4,802)
o Payment of seller financing (1,766) (18,332)
------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (37,867) (164,647)
------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,018) 4,003
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 33,271 29,275
------------------------------------
CASH AND CASH EQUIVALENTS AS OF END OF YEAR 25,253 33,278
================================================================================================================================
(1) Includes cash, banks and investments with a realization term not exceeding
three months. The accompanying notes are an integral part of these consolidated
financial statements.
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (CONTINUED)
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
June 30, June 30,
2002 2001
(Notes 2 and 3) (Notes 2 and 3)
--------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH ACTIVITIES:
o Increase in inventory through a decrease in fixed assets 36,860 23,809
o Decrease in inventory through an increase in intangible assets - 595
o Increase in fixed assets through a decrease in inventory - 2,408
o Decrease in mortgages receivable through the trust 20,796 -
o Increase in investments through a decrease in mortgages and leases receivables 20,200 -
o Increase in other receivables through a decrease in mortgages receivables 2,500 -
o Increase in deffered gain through a decrease in current investments - 2,328
o Increase in other current receivables through a decrease in current investments - 12,520
o Increase in Minority interest through a drecrease in long-term debt - 293
o Decrease in non-current investments through an increase in other liabilities 33,919 -
o Decrease in Short and long term-debt though a decrease in investments 5,620 -
Eduardo Sergio Elsztain
President
4
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
NOTE 1: ARGENTINE ECONOMIC SITUATION AND ITS IMPACT ON THE ECONOMIC AND
FINANCIAL POSITION OF IRSA INVERSIONES Y REPRESENTACIONES S.A. (THE
"COMPANY")
Argentina is immersed in a difficult economic climate. The prevailing
indicators were a significant public debt burden, a financing system in
crisis, country risk levels far above normal average and a more than
four-year economic recession. This situation has led to a significant
decrease in products and services consumption and an increase in the
unemployment level. These circumstances have affected the Government's
ability to comply with existing commitments and access to bank
financing.
As from December 3, 2001 measures were issued to restrict the free
availability and circulation of cash and the transfer of foreign
currency abroad. Subsequently, the Government declared default on the
external debt.
On January 6, 2002 after a political crisis that resulted in the
resignation of two presidents, the Government enacted Law 25561 (Law of
public emergency and exchange system reform) that involved an in-depth
change of the prevailing economic model and the amendment of the
Convertibility Law in force since March 1991. In early February the
Government announced new economic measures though Decree 214
(Restructuring of the financial system) dated February 3, 2002 and
Decree 260 (Exchange Regime) dated February 8, 2002, substantially
modifying some of the measures implemented by the Public Emergency Law.
These decrees are being complemented by other regulations being issued
by the various control agencies, some of which are been pending at the
date of the issuance of these financial statements. In addition, on
April 24, 2002 the Government signed an agreement with provincial
governors, which, together with other changes to the National
Administration, will lay down the basis for further measures that have
yet to be issued or fully implemented.
Listed below are some of the measures adopted by the Government that
are in force at the date of filing these financial statements and the
effect they have on the Company's economic and financial situation.
5
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: (continued)
Exchange system
---------------
On February 8, 2002 a single free exchange market system was
established through which all transactions involving the exchange of
currency are to be traded at a rate of exchange to be freely agreed,
observing the requirements to be laid down by the Argentine Central
Bank. At present certain transfers abroad of a financial nature require
the prior approval of the Central Bank and there are certain
requirements for settling and collecting foreign currency arising from
exports.
Deposits in financial institutions
----------------------------------
As from February 3, 2002 deposits in U.S. dollars or other foreign
currencies in Argentine financial institutions were converted to pesos
at the exchange rate of Ps. 1.4 per US$ 1 or its equivalent in such
other currency. Furthermore, there are restrictions on the availability
of certain balances in current accounts and savings accounts in dollars
and fixed term deposits in pesos or dollars. The terms of ultimate
repayment of bank deposits to depositors have not been finalized and is
not yet known in what form such payment, or other compensation, will be
made. As from February 3, 2002 a reference stabilization index (CER)
and an interest rate were to be applied to these rescheduled deposits.
The CER is an index that measures the daily rate of change derived from
the monthly change in the Consumer Price Index (CPI) published by the
INDEC. The application of the CER for certain transactions has met with
substantial resistance in Argentina and its application may change
substantially in the future. In addition, the possibility exists of
transforming part or all of the rescheduled deposits into Government
Bonds or other financial institutions. If the depositors do not elect
to receive Government Bonds, they will receive bonds issued by the Bank
that will observe the pre-existing conditions.
Financial debts in foreign currency
-----------------------------------
Debts in U.S. dollars or other foreign currencies in the Argentine
financial system were converted to pesos at the rate of exchange of Ps.
1 per US$ 1 or its equivalent in another currency. As from February 3,
2002 a reference stabilization index (CER) and an interest rate will be
applied to these debts.
6
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: (continued)
Credits and debts not related to the financial system
-----------------------------------------------------
The obligation to pay money denominated in dollars or other foreign
currency that are not related to the financial system, whatever their
origin or nature, were converted to pesos at the exchange rate of $ 1
to US$ 1 or its equivalent in such other foreign currency. To these
balances must be applied a reference stabilization index as from
February 3, 2002. If through this provision, the resulting value of the
item, good or service is higher or lower at the time of payment, either
of the parties can request a fair readjustment of the price. If no
agreement is reached, the case will be submitted to the Courts.
Deferment of the deduction of the exchange difference from income tax
---------------------------------------------------------------------
The negative net results that originate in this devaluation will be
deductible from income tax as from the future five financial years.
Recognition of the effects of changes in the purchasing power of the
--------------------------------------------------------------------
currency
--------
As established by Resolution 3/2002 of the Professional Council in
Economic Sciences of the Autonomous City of Buenos Aires, Resolution
240/02 of the Argentine Federation of Professional Councils in Economic
Sciences and Resolution No. 415 of the National Securities Commission,
as from January 1, 2002 the financial statements consider the effects
of changes in the purchasing power of the currency in accordance with
the guidelines of Technical Pronouncement No.6 of the Argentine
Federation of Professional Councils in Economic Sciences. Note 1.b to
the individual financial statements provides details of this situation.
Impact of the economic situation on the Company
-----------------------------------------------
The impact generated by all these measures adopted to date by the
Government on the financial situation of the Company at June 30, 2002
was calculated according to the evaluations and estimates made by
Management at the date of preparing the financial statements. Future
actual results could differ from the evaluations and estimates made at
the date of preparing these financial statements and these differences
could be significant. Therefore, the Company's financial statements may
not report all the adjustments that could result from these adverse
conditions. Furthermore, at this time it is not possible to foresee the
future development of the country's economy or its consequences on the
economic and financial situation of the Company. Thus, any decision
that must be made on the basis of
7
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: (continued)
othese financial statements must take into account the effects of these
measures and their future development and the Company's financial
statements must be considered in the light of these uncertain
circumstances.
As mentioned in Note 6 to the individual financial statements at June
30, 2002, the Company was unable to meet certain financial ratios
required by the negotiable obligations, so that the holders of the
notes could require accelation of maturities. As mentioned in Note 15
to the consolidated financial statements, the subsidiary Hoteles
Argentinos S.A. has not paid principal installments amounting to US$
300 thousand, with original maturities set for April 29 and July 29,
2002, and an interest installment amounting to US$ 127 thousand which
fell due on July 29, 2002, under the long-term loan agreement secured
by a mortgage entered into with Bank Boston N.A., Buenos Aires branch.
As a result of the current economic situation, the lack of credit and
the crisis of the Argentine financial system, it is probable that the
Company will be unable to meet its obligations when due. At present,
Management is negotiating the mentioned liabilities.. Although Company
Management understands that there are feasible alternatives, it is not
possible to insure that they will be successful in implementing them
and whether, once implemented, the Company can fulfill its obligations.
Management estimates that the net funds provided by the issue of
negotiable obligations convertible into shares described in Note 14 to
the individual financial statements will be appropriated to the
financing or partial settlement of the debts mentioned in Note 6.
The financial statements have been prepared assuming that the Company
will continue as a going concern. Therefoe, these financial statements
do not include the effects of a possible adjustment or
reclassification, if any, that might be required if the Company could
be obliged to sell its assets and settle its liabilities, including
contingencies in conditions different to the normal course of its
business.
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 June 30, 2002 and 2001 of IRSA
Inversiones y Representaciones Sociedad Anonima, the Statements of
Income
8
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (continued)
included in Note 14, and the Statements of Cash Flows for the years
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:
June 30, June 30,
2002 2001
----------------------------------------
DIRECT OR INDIRECT % OF
COMPANIES VOTING SHARES
------------------------------------------------------------ ----------------------------------------
IRSA International Ltd (1) - 100,00
Ritelco S.A.(1) 100,00 -
Home Financing S.A. - 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
(1) In accordance with mentioned in Note 16 to the Consolidated
Financial Statements, as of June 30, 2002 the Company decided the
liquidation anticipated of IRSA International Ltd.
The consolidated statements of income were prepared on a proportionate
consolidation basis. As from July 1, 1996, the Company uses the
"proportionate-consolidation method" of accounting for the investments
in which the Company exercises control and other jointly controlled
investments. This method has not been used for balance sheet and cash
flows purposes. All notes to the consolidated financial statements
relating to income-statement items have been also prepared on a
proportionate-consolidation basis. The Company calculates the
proportionate-consolidation method by applying its percentage ownership
interest to the financial statements of its equity method investments.
The Company considers this method more appropriately reflects the
Company's results of operations and the integration of its core
businesses. The use of the proportionate-consolidation method has been
approved by the CNV. Although the use of the
proportionate-consolidation method as compared to the equity method of
accounting from a financial presentation perspective impacts almost all
areas of the Company's consolidated statements of income, it does not
impact the Company's consolidated shareholders' equity or net earnings.
9
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (continued)
Note 14 to our consolidated financial statements presents our
statements of income for the years ended June 30, 2002 and 2001
prepared following the guidelines of the Technical Resolution No. 4 of
the Argentine Federation of Professional Councils of Economic Sciences
(F.A.C.P.C.E.), reporting (i) the jointly-controlled investments
accounted for by the equity method, with the earnings or losses
included as earnings or losses from equity investments, and (ii)
minority interest in earnings or losses of controlled subsidiaries.
A description of the jointly controlled investments accounted for under
the proportionate consolidation method is presented as follows:
JOINTLY CONTROLLED COMPANIES
----------------------------------------------------------------------------------------
2002 2001
Brazil Realty S.A. Empreendimentos e
Participacoes o "Brazil Realty" (1) - % 49,27 %
Alto Palermo S.A. ("APSA") 49,69 % 47,42 %
Llao Llao Resort S.A. 50,00 % 50,00 %
Argentine Realty S.A. 50,00 % 50,00 %
Buenos Aires Realty S.A. 50,00 % 50,00 %
Buenos Aires Trade & Finance Center S.A. 50,00 % 50,00 %
Puerto Retiro S.A. 33,33 % 33,33 %
(1) During February 2002, the Company sold its equity interest in
Brazil Realty
b) Consideration of the effects of inflation
The financial statements have been prepared in constant currency,
reflecting the overall effects of inflation through August 31, 1995. As
from that date, in accordance with professional accounting standards
and the requirements of the control authorities, restatement of the
financial statements was discontinued until December 31, 2001. As from
January 1, 2002, in accordance with Resolution No. 3/2002 of the
Professional Council in Economic Sciences of the Autonomous City of
Buenos Aires and Resolution No. 415 of the National Securities
Commission, the effects of inflation are being recognized in the
financial statements. To this end, the restatement method established
by Technical Pronouncement No. 6 of the F.A.C.P.C.E. has been followed.
10
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (continued)
As a consequence of the above, the Company's financial statements are
presented in constant currency of June 30, 2002, having considered that
the accounting measurements restated by the change in the purchasing
power of the currency until August 31, 1995 and those arising between
that date and December 31, 2001 are stated in currency of the latter
date.
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 June 30, 2002 for
comparative purposes.
c. Reclassifications
Certain reclassifications of prior year information have been made to
conform with the current year presentation.
d. Disposition of businesses
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 Participacoes ("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. This operation generated a net gain amounting to $
31,514 which is shown in the Statement of Income as "Gain from
operations and holding of real estate assets" at June 30, 2002.
11
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (continued)
iii) Fondo de Valores Inmobiliarios S.A.C.A. ( "FVI" ) and Venezuela
Invest Ltd. ( "Venezuela Invest"): As a result of a series of
related transactions, in December 2000 the Company sold its
participation in Venezuela Invest Ltd. and in Fondo de Valores
Inmobiliarios S.A.C.A., Company subsidiaries in Venezuela, for an
aggregate amount of US$ 67,000 thousand. This operation generated
a loss of $ 966 thousand, which is shown in the Statement of
Income at June 30, 2001 as Loss from operations and holding of
real estate assets".
NOTE 3: SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the subsidiaries mentioned in Note 2 have
been prepared on a consistent basis with those applied by IRSA
Inversiones y Representaciones Sociedad Anonima.
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 Participacoes, 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.
12
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (continued)
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 year, less estimated selling expenses, while options were
valued at restated cost as mentioned in Note 1.b) to the individual
financial statements.
Revenue Recognition
-------------------
See Note 4 for details on the Company's business segments. As
discussed in Note 2.a., the consolidated statements of income were
prepared on a proportionate consolidation basis. The Company uses
the "proportionate-consolidation method" of accounting for the
investments in which the Company exercises control and other jointly
controlled investments.
o 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.
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.
13
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: (continued)
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.
o 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.
o Hotel operations
----------------
The Company recognizes revenues from its rooms, catering, and
restaurant facilities as earned on the close of business each day.
o International operations
------------------------
As of June 30, 2001, the Company held a 49.27% 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.d.ii.
14
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 on a proportionate consolidation basis. The
Company uses the "proportionate-consolidation method" of accounting for
its investments in which the Company exercises control and other
jointly controlled investments. This method has not been used for
balance sheet and cash flows purposes. Accordingly, this note reflects
the results of operations of the Company's controlled and
jointly-controlled subsidiaries on a proportionate basis.
A general description of each segment follows:
o Development and sale of properties
This segment includes the operating results of the Company's
construction and ultimate sale of residential buildings business.
o 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.
o 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.
o Hotel operations
This segment includes the operating results of the Company's
hotels principally comprised of room, catering and restaurant
revenues.
15
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: (continued)
o International
This segment includes the results of operations of the Company's
equity investments in: i) Brazil for all periods presented, as
discussed in Note 2.d.ii), the Company sold its ownership
interest in Brazil in February 2002, and ii) the results of
operations of the equity investments in Venezuela for the period
ended March 31, 2001, as discussed in Note 2.d.ii), the Company
sold its ownership interest in Venezuela in December 2000.
o 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. For the years ended June 30, 2002 and 2001, 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 financial statements and in Note 3 to
the consolidated financial statements.
The following information provides the operating results from each
business unit:
16
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: (continued)
As of June 31, 2002:
------------------------------------------------------------------------------------------------
Financial and
Sales and Office and Shopping other
developments others (a) International centers Hotels operations Total
------------------------------------------------------------------------------------------------
Income 45,202 34,250 24,820 77,585 29,462 -- 211,319
Costs (37,402) (10,692) (14,061) (38,426) (20,774) -- (121,355)
Gross income 7,800 23,558 10,759 39,159 8,688 -- 89,964
Selling expenses (3,672) (477) (4,576) (22,289) (3,318) -- (34,332)
Administrative expenses (8,971) (4,959) (3,773) (11,219) (8,721) -- (37,643)
Loss on purchasers rescissions
of sales contracts 27 -- -- -- -- -- 27
Results from operations and
holding of real estate assets (30,786) (41,738) 31,514 (23,946) -- -- (64,956)
------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (35,602) (23,616) 33,924 (18,295) (3,351) -- (46,940)
------------------------------------------------------------------------------------------------------------------------------------
Net financial results (18,532) (14,831) (3,597) 8,855 (15,504) (388,611) (432,220)
Net loss in related companies -- -- 404 (3,911) -- 1,540 (1,967)
Other income and expenses, net -- -- 47 (4,744) 167 (3,981) (8,511)
(Loss) income before taxes (54,134) (38,447) 30.778 (18,095) (18,688) (391,052) (489,638)
Income tax and asset tax (569) (3,341) (4,533) (1,333) (58) (147) (9,981)
Income for the year (54,703) (41,788) 26,245 (19,428) (18,746) (391,199) (499,619)
------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (b) (5,889) 7,663 219 30,403 4,815 -- 37,211
------------------------------------------------------------------------------------------------------------------------------------
Operating assets 317,384 245,810 -- 269,351 102,848 -- 935,393
Non operating assets 36,644 27,581 26,129 30,223 11,540 77,205 209,322
Total Assets 354,028 273,391 26,129 299,574 114,388 77,205 1,144,715
(a) Includes offices, commercial and residential premises.
(b) Included in operating income/loss.
17
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: (continued)
As of June 30, 2001
-------------------------------------------------------------------------------------------------
Financial
Sales and Office and Shopping and other
developments others (a) International centers Hotels operations Total
-------------------------------------------------------------------------------------------------
Income 89,772 45,591 69,132 94,475 40,873 -- 339,843
Costs (68,164) (8,914) (31,041) (36,829) (27,076) -- (172,024)
Gross income 21,608 36,677 38,091 57,646 13,797 -- 167,819
Selling expenses (8,500) (468) (8,678) (11,364) (4,738) -- (33,748)
Administrative expenses (13,429) (6,279) (7,169) (14,049) (9,814) -- (50,740)
Loss on purchasers rescissions
of sales contracts (14) -- -- -- -- -- (14)
Results from operations and
holding of real estate assets (3,793) (1,878) (634) -- -- -- (6,305)
------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (4,128) 28,052 21,610 34,233 (755) -- 77,012
------------------------------------------------------------------------------------------------------------------------------------
Net financial results (24,981) (19,945) (14,347) (28,113) (8,452) (14,464) (110,302)
Net loss in related companies (22) -- (1,299) (1,420) -- (7,582) (10,323)
Other income and expenses, net -- -- (37) (178) 237 (5,646) (5,624)
Income before taxes (29,131) 8,107 5,927 2,522 (8,970) (27,692) (49,237)
Income tax and asset tax 20 (2,404) (1,933) (786) 40 -- (5,063)
(Loss) income ordinary of the year (29,111) 5,703 3,994 1,736 (8,930) (27,692) (54,300)
Extraordinary item -- -- -- -- (5,653) -- (5,653)
Income for the year (29,111) 5,703 3,994 1,736 (14,583) (27,692) (59,953)
------------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (b) 659 7,480 276 33,263 5,663 -- 47,341
------------------------------------------------------------------------------------------------------------------------------------
Operating assets 392,952 316,034 133,933 307,481 110,463 -- 1,260,863
Non operating assets 26,467 18,987 8,046 18,474 6,637 155,076 233,687
Total Assets 419,419 335,021 141,979 325,955 117,100 155,076 1,494,549
(a) Includes offices, commercial and residential premises.
(b) Included in operating income/loss.
18
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: OTHER RECEIVABLES
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
-----------------------------------------------
Non- Non-
Current Current Current Current
-----------------------------------------------
Asset tax and prepayments 2,319 14,617 4,634 29,584
Value Added Tax (VAT) 466 1,224 6,457 2,555
C.N. Hacoaj Project 593 - 1,363 -
Related parties 261 73,309 792 2,551
Services to be billed - - 364 -
Personnel loans and prepayments 2,654 - 2,107 -
Notes receivable 301 - 589 -
Prepaid expenses 26,129 - - -
Debtors under legal proceedings - - 2,815 -
Sundry debtors 2,418 433 - -
Operation pending settlement 315 - 13,459 -
Income tax prepayments and withholdings 333 - 886 -
Country club debtors 440 - 1,495 -
Tax on debits and credits 2 - 70 -
Trust accounts receivable 2,312 - - -
Allowance for doubful accounts - - (342) -
Other 4 38 2,238 74
===============================================
38,547 89,621 36,927 34,764
===============================================
19
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: INVENTORY
The breakdown for this item is as follows:
June 30, 2002
------------------------------------
Non-
Current Current
------------------------------------
Constitucion 1111 3,767 -
Dique IV - 5,483
Dock 13 48 -
Dorrego 1916 - 12
Minetti "D" - 194
Madero 1020 4,730 -
Caballito plots of land - 12,120
Padilla 902 - 219
Pilar - 3,032
Puerto Madero Dock 5 - 407
Puerto Madero Dock 6 - 113
Rivadavia 2768 - 137
Sarmiento 517 - 589
Torres Jardin 356 261
V.Celina - 48
Abril/Baldovinos 8,344 11,298
Alto Palermo Park 4,555 -
Alto Palermo Plaza 2,087 -
Benavidez - 12,645
Other 243 -
====================================
24,130 46,558
====================================
June 30, 2001
------------------------------------
Non-
Current Current
------------------------------------
Constitucion 1111 2,330 -
Dique IV - 5,475
Dock 13 51 6
Dorrego 1916 - -
Minetti "D" 491 156
Figueroa Alcorta 430 -
Madero 1020 - -
Caballito plots of land - 17,709
Padilla 902 - 321
Pilar - 3,032
Puerto Madero Dock 5 - -
Puerto Madero Dock 6 - -
Sarmiento 517 428 84
Torres Jardin 1,759 450
V. Celina 61 2
Abril/Baldovinos 11,872 18,838
Alto Palermo Park 5,452 8,666
Alto Palermo Plaza 1,289 -
Benavidez - 12,645
Other properties 184 15
Other 436 -
====================================
24,783 67,399
====================================
The book value of inventories at June 30, 2002 includes the provision for
impairment mentioned in Note 11 to the consolidated financial statements.
20
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: INVESTMENTS
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
------------------------------------
CURRENT
-------
Bocon Pro 1 - 12,817
Telecom Argentina - 17,351
Banco Hipotecario S.A. 11,522 21,051
Perez Companc 788
Time deposits and money markets 422 22,741
Mutual funds 24,852 13,545
Other investments - 1,414
------------------------------------
36,796 89,707
------------------------------------
NON-CURRENT
-----------
Alto Palermo S.A. 307,246 318,465
Brazil Realty - 133,800
Llao - Llao Resorts S.A. 9,745 5,104
Alto Invest S.A. 174 -
Banco de Credito y Securitizacion S.A. 6,236 9,781
Latin American Econetworks N.V. - 9,658
IRSA Telecomunicaciones N.V. 2,654 3,388
Banco Hipotecario S.A. 6,500 32,015
IRSA I Trust Exchangeable Certificate Class B 1,101 -
IRSA I Trust Exchangeable Certificate Class C 1,767 -
IRSA I Trust Exchangeable Certificate Class D 6,173 -
IRSA I Trust Exchangeable Certificate Class A 755 -
Art work 33 33
Other investments 5 -
------------------------------------
342,389 512,244
------------------------------------
Undeveloped parcels of land:
Torres Jardin IV 1,985 2,698
Puerto Retiro 41,170 41,530
Intercontinental Plaza 1,020 -
Santa Maria del Plata 103,213 110,244
Pereiraola 19,439 19.349
Buenos Aires Trade and Finance Center S.A. 6,166 3,256
Buenos Aires Realty S.A. 4,671 3,840
Argentine Realty S.A. 4,559 3,977
Other parcels of undeveloped land 1,736 2,755
------------------------------------
183,959 187,649
------------------------------------
526,348 699,893
====================================
The book value of land reserves at June 30, 2002 includes the
provision for impairment mentioned in Note 11 to the consolidated
financial statements.
21
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: FIXED ASSETS
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
------------------------------------
HOTELS
Hotel Intercontinental 53,359 62,561
Hotel Libertador 37,464 39,746
Hotel Piscis - Advances to purchase 518 -
------------------------------------
91,341 102,307
------------------------------------
OFFICE BUILDINGS
Avda. De Mayo 595 3,738 5,663
Avda. Madero 942 4,147 5,201
Edificios costeros (Dique II) 21,197 24,106
Laminar Plaza 25,343 29,133
Libertador 498 33,744 48,163
Libertador 602 2,248 2,854
Madero 1020 9,025 18,460
Maipu 1300 36,922 42,607
Puerto Madero Dock 5 - 2,149
Reconquista 823 15,807 19,293
Rivadavia 2768 - 301
Sarmiento 517 229 513
Suipacha 652 9,021 13,026
Alto Palermo Plaza 754 3,746
Intercontinental Plaza 57,915 64,825
Costeros Dique IV 15,877 2,425
------------------------------------
235,967 282,465
------------------------------------
COMMERCIAL REAL ESTATE
Alsina 934 1,347 1,371
Constitucion 1111 372 5,459
Rivadavia 2243 - 7,339
Av. Santa Fe 1588 - 7,457
Other - -
------------------------------------
1,719 21,626
------------------------------------
OTHER FIXED ASSETS
Alto Palermo Park 714 2,737
Thames 3,652 4,384
Other 5,401 5,856
------------------------------------
9,767 12,977
====================================
338,794 419,375
====================================
The book value at June 30, 2002 includes the provision for
impairment mentioned in Note 11 to the consolidated financial
statements.
22
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: SHORT AND LONG TERM DEBT
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
---------------------------------------------------
Non- Non-
Current Current Current Current
---------------------------------------------------
Intercompany - - - -
Bank debts (1) 350,317 142 213,138 26,012
Accrued interest - bank loans (1) 7,210 - 2,866 -
Commercial paper - capital - - 48,905 -
Commercial paper - interest - - (910) -
Negotiable obligations 2001 - principal amount 149,249 - 85,095 -
Negotiable obligations 2001 - accrued interest 540 - 1,371 -
Other 57,423 -
===================================================
564,739 142 350,465 26,012
===================================================
The detail of issue of negotiable obligations and financial loans is
mentioned in Note 6 to the individual financial statements.
(1) Includes $ 42,778 current corresponding to a loan secured with real
property of Hoteles Argentinos S.A. See Note 15 to the consolidated
financial statements.
NOTE 10: OTHER LIABILITIES
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
----------------------------------------------------------
Non- Non-
Current Current Current Current
----------------------------------------------------------
Seller financing 833 725 1,626 2,836
Dividends payable 6,567 - - -
Intercompany 59 503 - -
Lessee deposits 968 837 1,240 3,506
Pending settlements for sales of plots 957 - 2,306 -
Provision for discounts 33 - 65 -
Accruals 107 - - -
Fees payable 5 - 188 -
Provision for lawsuits and contingencies 440 357 133 207
Prepaid expenses 490 - 782 -
Other receivables 107 - - -
Collections on behalf of third parties 50 - 188 -
Other provisions 595 - 1,958 370
Operation pending settlement 903 - 671 -
Directors' deposits - 8 - 16
Other 1,537 449 949 816
==========================================================
13,544 2,879 10,106 7,751
==========================================================
23
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: RESULTS FROM OPERATIONS AND HOLDINGS OF REAL ESTATE ASSETS
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
-----------------------------------
Results from transactions related to shares of real estate companies 31,854 (634)
Loss from holding of real estate assets (2) (96,810) (5,671)
===================================
(1) (64,956) (6,305)
===================================
(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.
(2) Includes losses due to impairment of assets amounting to:
- $ 60,372 recorded by the Company at June 30, 2002 as
mentioned in Notes 2.t. to the individual financial
statements.
- $ 25,899 recorded by the related company Alto Palermo S.A.
as a consequence of the recording of certain inventories and
certain fixed assets at their recoverable value (mainly
those identified as Alto Avellaneda, Alto Noa and
Caballito); and
- $ 10,438 recorded by the subsidiaries Palermo Invest S.A.,
Baldovinos S.A. and others.
NOTE 12: FINANCIAL RESULTS, NET
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
--------------------------------
FINANCIAL RESULTS GENERATED BY ASSETS:
Interest income 9,656 8,141
(Loss)/Gain on financial operations (117,386) (4,014)
Exchange loss 50,327 (18,901)
Gain on exposure to inflation - foreign investments (151,448) 19,988
Discounts granted (265) -
--------------------------------
(209,116) 5,214
--------------------------------
FINANCIAL RESULTS GENERATED BY LIABILITIES:
Loss on exposure to inflation - foreign investments 98,397 (7,610)
Exchange loss (305,415) (6,686)
Discounts 9 (546)
Financial expenses (16,095) (100,674)
--------------------------------
(223,104) (115,516)
--------------------------------
FINANCIAL RESULTS, NET (432,220) (110,302)
================================
24
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: OTHER INCOME AND EXPENSES; NET
June 30, June 30,
2002 2001
--------------------------------
OTHER INCOME:
(Loss) gain on early redemption of debt (174) 1,166
(Loss) gain from the sale of fixed assets - 166
Other 1,519 2,144
--------------------------------
1,345 3,476
--------------------------------
OTHER EXPENSES:
Unrecoverable VAT (1,344) (3,288)
Donations (263) (1,997)
Contingencies for lawsuits (4,349) (851)
Debit and credit tax (1,783) -
Other (2,117) (2,964)
--------------------------------
(9,856) (9,100)
--------------------------------
FINANCIAL RESULTS, NET (8,511) (5,624)
================================
NOTE 14: STATEMENTS OF INCOME
As discussed in Note 2.a., the consolidated statements of income were
prepared on a proportionate consolidation basis. As from July 1, 1996,
the Company used the "proportionate-consolidation method" of accounting
for its investments in which the Company exercises control and other
jointly controlled investments. This method has not been used for
balance sheet and cash flows purposes. The Company calculates the
proportionate-consolidation method by applying its percentage ownership
interest to the historical financial statements of its equity method
investments.
The statements of income have been prepared following the guidelines of
Technical Resolution No. 4 of the F.A.C.P.C.E.:
25
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: (continued)
==============================================================================================
June 30, June 30,
2002 2001
---------------------------------
Mortgages, leases and services 123,462 195,657
Cost of sales, leases and services (74,836) (111,378)
---------------------------------
GROSS INCOME 48,626 84,279
---------------------------------
Selling expenses (7,978) (15,546)
Administrative Expenses (28,528) (35,593)
---------------------------------
SUBTOTAL (36,506) (51,139)
---------------------------------
Loss from operations and holding of real estate assets (41,684) (6,342)
---------------------------------
OPERATING INCOME (29,564) 26,798
---------------------------------
Financial results, net (445,821) (83,358)
Equity in earnings of affiliated companies (17,797) 6,471
Other income and (expenses), net (4,322) (5,266)
---------------------------------
SUBTOTAL (497,504) (55,355)
---------------------------------
Minority interest 5,118 (1,459)
Income tax and asset tax (7,233) (3,139)
---------------------------------
LOSS FOR THE YEAR (499,619) (59,953)
==============================================================================================
NOTE 15: RESTRICTED ASSETS
Puerto Retiro S.A.: extension of the bankruptcy
-----------------------------------------------
On April 18, 2000, Puerto Retiro S.A. was notified of a filing made by
the National Government, through the Ministry of Defense, to extend the
petition in bankruptcy of Inversora Darsena Norte S.A. (Indarsa) to
Puerto Retiro S.A. Concurrently with the complaint, at the request of
plaintiff, the bankruptcy court granted an order restraining the
ability of Puerto Retiro to sell or dispose in any manner the real
estate property purchased from Tandanor S.A. ("Tandanor").
Indarsa had purchased 90% of the capital stock of Tandanor, a formerly
state owned company privatized in 1991, engaged in the shipyard
industry.
In June 1993, Tandanor sold the plot of land near Puerto Madero
denominated "Planta 1" to Puerto Retiro S.A.
Indarsa did not comply with the payment of the outstanding price for
the purchase of the stock of Tandanor, and therefore the Ministry of
Defense requested the bankruptcy of Indarsa. Since the only asset of
Indarsa were the shareholdings in Tandanor, the Ministry of Defense is
pursuing to extend the bankruptcy to other companies or individuals
which, according to its view, acted as an economic group, and
therefore, requested the extension of the bankruptcy to Puerto Retiro
which acquired Planta 1 from Tandanor. The lawsuit is at its first
stages. Puerto Retiro S.A. answered the claim and appealed the
preventive measures ordered. This appeal was overruled on December 14,
2000.
26
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: (continued)
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 falling due on April
29 and July 29, 2002 and the interest installment amounting to US$ 127
thousand falling due on July 29, 2002 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.
NOTE 16: 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.
27
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16: (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 17: IRSA INTERNATIONAL LIMITED INVESTMENTS 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) 200% of the original issue price multiplied by the
28
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: (continued)
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 18: SETTING UP OF A FINANCIAL TRUST FOR THE SECURITIZATION OF RECEIVABLES
OF IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA (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 Bolivar 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:
o 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.
o 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.
29
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: (continued)
o 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.
o 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 June 30, 2002, the Exchangeable Class A , B , C and D Participation
Certificates amounted to thousand $ 8,162 in IRSA, thousand $ 1,300 in
Inversora Bolivar S.A., and thousand $ 334 in Baldovinos S.A.
NOTE 19: 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.
30
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: (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 the date of these financial statements: a) the first and second
installment regarding the Company's payment obligation with GSEM
mentioned in point d), which were due on January 31, 2002, and April
30, 2002, respectively are still outstanding.
31
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: 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.
At June 30, 2002, there were no operations with financial instruments
in effect.
At June 30, 2001, the Company had the following derivative activity:
(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.
At June 30, 2001, the Company had three term exchange purchase-sale
contracts with financial entities to sell US$ 16.8 milliion falling due
in August 2001 and, through its subsidiary Ritelco S.A., an exchange
purchase-sale contract to sell US$ 10.0 million maturing in September
2001. The Company recorded net income of $ 0.4 million in its
consolidated financial statements during the year ended on June 30,
2001.
(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 June 30, 2001, the
Company had an interest rate swap agreement outstanding with an
aggregate notional amount of US$ 15.0 million with maturities through
August 2001. The interest rate payable was at a variable rate of 22.3%
and interest rate receivable was at a fixed rate of 10.15%. Any
differential to be paid or received was accrued and was recognized as
an adjustment to interest expense in the statement of income. The
related accrued receivable or payable was included as an adjustment to
interest payable. The fair value of the swap agreement was not
recognized in the financial statements. The risk assumed by the Company
with respect to the swap contract is limited to the cost of replacing
that contract at current market rates. The Company considers that the
cost would be increased in the event of an increase in interest rates.
32
Name of the Company: IRSA INVERSIONES Y
REPRESENTACIONES SOCIEDAD ANONIMA
Corporate domicile:
Bolivar 108 1(st) Floor - Federal Capital
Principal activity:
Real estate investment and development
Financial Statements for the year
ended as of June 30, 2002
compared with the same previous year
Stated in thousands of pesos
Fiscal year No. 59 beginning July 1(st), 2001
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
--------------------------------------------------------------------------------------------------------------------------
Authorized for Public Offer of
Type of stock Shares Subscribed Paid up
--------------------------------------------------------------------------------------------------------------------------
Common stock,1 vote each 211,999,273 212,000 212,000
Treasury stock (4,587,285) (4,588) (4,588)
------------------------------------------------------------------
207,411,988 207,412 207,412
==========================================================================================================================
33
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
BALANCE SHEETS AS OF JUNE 30, 2002 AND 2001
In thousands of pesos
============================================================================================
June 30, June 30,
2002 2001
(Notes 1 and 2) (Notes 1 and 2)
--------------------------------
ASSETS
------
CURRENT ASSETS
--------------
Cash and banks (Schedule G) 4,283 5,908
Investments (Schedules C, D and G) 9,497 34,948
Mortgages and leases receivables (Note 3 - Schedule G) G) 8,384 31,985
Other receivables (Note 4 - Schedule G) 52,476 13,216
Inventory (Note 5) 8,901 5,734
--------------------------------
TOTAL CURRENT ASSETS 83,541 91,791
--------------------------------
NON-CURRENT ASSETS
------------------
Mortgages receivables (Note 3 - Schedule G) 2,258 35,105
Other receivables (Note 4 - Schedule G) 85,373 25,381
Inventory (Note 5) 22,615 27,260
Investments (Schedules C, D and G) 624,783 904,741
Fixed assets (Schedule A) 181,810 238.675
Intangible assets (Schedule B) 2,055 4,178
--------------------------------
TOTAL NON-CURRENT ASSETS 918,894 1,235,340
--------------------------------
TOTAL ASSETS 1,002,435 1,327,131
============================================================================================
=========================================================================================
June 30, June 30,
2002 2001
(Notes 1 and 2) (Notes 1 and 2)
--------------------------------
LIABILITIES
-----------
CURRENT LIABILITIES
-------------------
Trade accounts payable (Schedule G) 6,350 3,020
Notes payable (Schedule G) - -
Customer advances (Schedule G) 186 884
Short and long term debt (Note 6 - Schedule G) 521,170 346,640
Salaries and social security charges 343 346
Taxes payable (Schedule G) 9,674 4,613
Other liabilities (Note 7 - Schedule G) 2,342 5,237
--------------------------------
TOTAL CURRENT LIABILITIES 540,065 360,740
--------------------------------
NON-CURRENT LIABILITIES
-----------------------
Trade accounts payable (Schedule G) - 374
Short and long term debt (Note 6 - Schedule G) - -
Customer advances (Schedule G) - 360
Taxes payable - -
Other liabilities (Note 7 - Schedule G) 1,954 5,622
--------------------------------
TOTAL NON-CURRENT LIABILITIES 1,954 6,356
--------------------------------
TOTAL LIABILITIES 542,019 367,096
--------------------------------
SHAREHOLDERS `EQUITY (As per relevant statement) 460,416 960,035
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,002,435 1,327,131
=========================================================================================
The accompanying notes and schedules are an integral part of these financial
statements.
Eduardo Sergio Elsztain
President
34
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
STATEMENTS OF INCOME
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
==========================================================================================================
June 30, June 30,
2002 2001
(Notes 1 and 2) (Notes 1 and 2)
--------------------------------
Mortgages, leases and services 51,707 97,787
Cost of sales, leases and services (Schedule F) (33,695) (54,490)
--------------------------------
GROSS INCOME 18,012 43,297
--------------------------------
Selling expenses (Schedule H) (2,137) (4,380)
Administrative expenses (Schedule H) (13,242) (19,681)
--------------------------------
SUBTOTAL (15,379) (24,061)
--------------------------------
Loss from operations and holding of real estate assets (Schedule E and
Note 2.t) (60,425) (5,601)
--------------------------------
OPERATING INCOME (57,792) 13,635
--------------------------------
Financial results, net (Note 8) (364,333) (53,641)
Equity in earnings of controlled and affiliated companies (Nota 10 c.) (72,222) (15,669)
Other income and expenses,net (Note 9) (2,348) (4,959)
--------------------------------
Loss before taxes (496,695) (60,634)
Income tax and asset tax (Note 2 .g and .h) (2,924) 681
--------------------------------
LOSS FOR THE YEAR (499,619) (59,953)
==========================================================================================================
The accompanying notes and schedules are an integral part of these financial
statements.
Eduardo Sergio Elsztain
President
36
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos (Notes 1 and 2)
---------------------------------------------------------------------------------------------------------------------------------
Shareholders' contributions
---------------------------------------------------------------------------------------------------------------------------------
Inflation Inflation
Treasury adjustment adjustment
Common Stock stock of common of treasury Additional
Items (Note 11) (Note 11) stock stock paid-in-capital Total
---------------------------------------------------------------------------------------------------------------------------------
Balances as of beginning of the year 207,412 4,588 216,042 4,781 506,767 939,590
Purchase of treasury stock - - - - - -
Net loss for the year - - - - - -
------------------------------------------------------------------------------------
Balances as of 30.06.02 207,412 4,588 216,042 4,781 506,767 939,590
====================================================================================
Balances as of 30.06.01 207,412 4,588 216,042 4,781 506,767 939,590
=================================================================================================================================
====================================================================================================
Reserved
Earnings
---------------
Retained Total as of Total as of
Items Legal reserve earnings June 30, 2002 June 30, 2001
----------------------------------------------------------------------------------------------------
Balances as of beginning of the year 17,305 3,140 960,035 1,100,419
Purchase of treasury stock - - - (80,431)
Net loss for the year - (499,619) (499,619) (59,953)
---------------------------------------------------------
Balances as of 30.06.02 17,305 (496,479) 460,416 -
=========================================================
Balances as of 30.06.01 17,305 3,140 - 960,035
====================================================================================================
The accompanying notes and schedules are an integral part of these financial
statements.
Eduardo Sergio Elsztain
President
36
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
STATEMENTS OF CASH FLOWS (1)
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
============================================================================================================================
June 30, June 30,
2002 2001
(Notes 1 and 2) (Notes 1 and 2)
----------------------------------
CASH FLOWS FROM OPERATING ACITIVITES:
Loss for the year (499,619) (59,953)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FLOW FROM OPERATING ACTIVITIES:
o Equity in earnings of affiliated companies 45,744 14,672
o Write-down of inventories 60,372 5,601
o Allowances and provisions 667 364
o Amortization and depreciation 11,011 11,900
o Financial results 294,155 3,416
o Income tax 2,924 (681)
CHANGES IN ASSETS AND LIABILITIES:
o Decrease (Increase) in current investments 10,105 (33,070)
o Decrease in non-current investments 569 -
o Decrease in mortgages and leases receivables, net 22,934 10,847
o Increase in other receivables (32,707) 15,221
o Decrease in inventory 19,394 32,719
o Decrease in intangible assets 241 1,508
o Increase (Decrease) in taxes payable, salaries and social security and
customer advances 6,575 (10,049)
o Increase in accounts and notes payable 4,780 919
o Increase in accrued interest 55,102 54,322
o Cash dividends received 2,502 5,503
o Increase (Decrease) in other liabilities 22,963 (2,128)
----------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES 27,712 51,111
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
o Net proceeds from the sale of interests in joint controlled companies 79,941 133,176
o Payment for acquisition of subsidiary companies and equity investees (6,515) (8,949)
o Payment for acquisition of undeveloped parcels of land (557) (775)
o Purchase and improvements of fixed assets (19,214) (4,237)
o Cash acquired (from Home Financing, Santa Maria del Plata and Sociedad del Dique
mergers and liquidation of IRSA International Ltd.) 385 78
o Loans granted to related parties (85,159) -
----------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (31,119) 119,293
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
o Purchase of treasury stock - (80,431)
o Intercompany loans 60,676 -
o Proceeds from loans 105,207 322,501
o Payment of loans (160,675) (391,152)
o Increase in intangible assets (3,033) (4,799)
o Payment of seller financing (1,766) (15,225)
----------------------------------
NET CASH USED IN FINANCING ACTIVITIES 409 (169,106)
----------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,998) 1,298
CASH AND CASH EQUIVALENTS AS OF BEGINNING OF YEAR 7,477 6,168
----------------------------------
CASH AND CASH EQUIVALENTS AS OF END OF YEAR 4,479 7,466
============================================================================================================================
(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 financial
statements.
Eduardo Sergio Elsztain
President
37
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
STATEMENTS OF CASH FLOWS (CONTINUED)
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
June 30, June 30,
2002 2001
(Notes 1 and 2) (Notes 1 and 2)
----------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH ACTIVITIES:
o Increase in inventory through a decrease in fixed assets 32,399 19,537
o Increase in intangible assets through a decrease in inventory - 595
o Assets acquired from mergers 388 55,625
o Increase in fixed assets throgh a decrease in inventories - 10
o Decrease in mortgages receivables through the trust 16,688 -
o Increase in non current investments through a decrease in mortgage receivables 16,190 -
o Increase in other receivables through a decrease in receivables 2,023 -
o Increase in investments through a decrease in other current receivables - 1,174
o Decrease in short and long term debt through a decrease in current investments 5,620 -
o Assets acquired from liquidation 108,754 -
o Decrease in other liabilities through a decrease in other receivables 78,495 -
Eduardo Sergio Elsztain
President
38
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
NOTE 1: BASIS FOR THE PRESENTATION
a) Disclosure criteria
In compliance with the provisions of Resolution No. 368/01 and 372/01
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.
These financial statements include the effect of the Company's merger
with a) Home Financing S.A. effective July 1, 2001 and b) Sociedad del
Dique S.A. and Santa Maria del Plata S.A. effective July 1, 2000.
The present financial statements must be readen condiderating the
circumstances mentioned in note 1 to the consolidated financial
statements.
b) Recognition of the effects of inflation
The financial statements have been prepared in constant currency,
reflecting the overall effects of inflation through August 31, 1995. As
from that date, in accordance with professional accounting standards
and the requirements of the control authorities, restatement of the
financial statements was discontinued until December 31, 2001. As from
January 1, 2002, in accordance with Resolution No. 3/2002 of the
Professional Council in Economic Sciences of the Autonomous City of
Buenos Aires and Resolution No. 415 of the National Securities
Commission, the effects of inflation are being recognized in the
financial statements. To this end, the restatement method established
by Technical Pronouncement No. 6 of the F.A.C.P.C.E. has been followed.
As a consequence of the above, the Company's financial statements are
presented in constant currency of June 30, 2002, having considered that
the accounting measurements restated by the change in the purchasing
power of the currency until August 31, 1995 and those arising between
that date and December 31, 2001 are stated in currency of the latter
date.
The above restatement was made applying the coefficients prepared based
on the domestic wholesale price index.
39
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
The Company used a conversion factor to restate the comparative
financial statements in constant Argentine pesos of June 30, 2002 for
comparative purposes.
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 respect to 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.
Current investments also include equity securities and
government bonds. Unrealized gains and losses on government
bonds and equity securities 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 on the last business day of the period
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.
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 years.
The Company presents consolidated financial statements with
its subsidiaries as complementary information.
40
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
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.3. Plots of land
-------------
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 year, 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.
As mentioned in Note 2.m., at June 30, 2002 the Company set up
provisions for impairment of certain plots (identified as Santa
Maria del Plata and Torres Jardin IV).
The provision amounted to $ 8,301 thousand and is shown under
"Result from operations and holding of real estate assets" in the
Statement of Income at June 30, 2002. (See Schedule E)
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
years.
Residential, office and other non-retail properties completed or
under construction are stated at cost, adjusted for inflation at
the end of the year, 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
year in which the related revenue is earned, as determined under
the percentage-of-completion method. Total contract costs are
charged to expense in the year in which the related revenue is
earned, as determined under the percentage-of-completion method.
No interest costs were capitalized during the year ended June 30,
2002 and 2001.
41
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
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.
As mentioned in Note 2.m, at June 30, 2002, the Company set up
provisions for impairment of certain inventories (identified as Avda.
Madero 1020, Rivadavia 2768, Constitucion 1111, Terrenos de Caballito,
Padilla 902 and parking lots in Dock 13).
The provision amounted to $ 10,210 thousand and is shown under "Result
from operations and holding of real estate assets" in the Statement of
Income at June 30, 2002. (See Schedule E and F)
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.
o Rental properties
Rental properties are carried at cost, adjusted for inflation at the
end of the year, 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 years for buildings and
improvements. Expenditures for ordinary maintenance and repairs are
charged to operations in the year 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 any profit or loss is recognized.
The Company capitalizes interest on long-term construction projects. No
interest costs were capitalized during the year ended June 30, 2002 and
2001.
As mentioned in Note 2.m, at June 30, 2002, the Company set up
provisions for impairment of certain rental properties (identified as
Libertador 498, Maipu 1300, Avda. Madero 1020, Suipacha 652, Laminar
Plaza, Reconquista 823, Constitucion 1111, Dique 2 M10- Edificio C-.
Libertador 602, Dock 2 M10 -Building A-, Avda. Madero 942, Avda. De
Mayo 595, Costeros Dique IV and Sarmiento 517).
42
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
The provision amounted to $ 37,599 thousand and is shown under
"Result from operations and holding of real estate assets" in
the Statement of Income at June 30, 2002. (See Schedule E).
o 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 year ended June 31, 2002 and 2001 were
not material. These costs are being amortized on a
straight-line basis over a period of 3 years.
o Other properties and equipment
Other property and equipment properties are carried at cost,
adjusted for inflation at the end of the year, 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 (years)
-------------------------------------------------------------------------------
Leasehold improvements On contract basis
Facilities 10
Machinery and equipment 10
Furniture and fixtures 5
Computer equipment 3
The cost of maintenance and repairs is charged to expense as
incurred. The cost of significant renewals and improvements
are added to the carrying amount of the respective assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the
accounts.
d. Intangible assets
Intangible assets are carried at cost, adjusted for inflation at
the end of the year as defined in Note 1.b), less accumulated
depreciation.
o 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.
43
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
o 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 year in which the related
revenue is earned, as determined under the
percentage-of-completion method.
e. Foreign currency assets and liabilities
Assets and liabilities denominated in foreign currency are
translated at the exchange rate prevailing at year 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 and Decree No. 762/02, 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) or a reference
of salary variation, as applicable.
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 statutory income tax rate was 35% for all the years
presented. The Company does not recognize deferred taxes.
As permitted under Argentine income tax law in determining its
taxable income for the year ended June 30, 2002, the Company has
taken into consideration tax losses of approximately $337,2
million.
44
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
As of June 30, 2002, the Company had accumulated tax loss
carryforwards of approximately Ps. 366,4 million, which expire as
follows:
Maturity $
--------------------------------------- ---------------------
2003 81
2004 535
2005 28.440
2006 137
2007 337.194
---------------------
Total $ 366.387 (*)
(*) includes only one fifth of net losses due to the
devaluation, as explained in Note 1 to the consolidated
financial statements.
h. Asset tax
During the year ended June 30, 1999, Law 25,063 set out the asset
tax for four fiscal years. This tax supplements the income tax,
because while the latter is levied on the taxable income for the
year, 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 years.
Any excess of the asset tax over and above the income tax in a
given fiscal year may be considered as a payment on account of
the income tax to be generated in the next four years (in excess
of the asset tax).
As of June 30, 2002 the Company has estimated the applicable
asset tax and has reflected the portion it estimates it will be
able to offset in future years 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.
45
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
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 or the fair value of collateral if the
loan is collateral dependent, when applicable. 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.
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 expenses advertising and promotion costs as
incurred with the exception of advertising and promotion expenses
incurred to market real estate projects. Advertising and
promotion expenses were approximately Ps. 859 and Ps. 644 million
for the year ended June 30, 2002 and 2001, 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.
46
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
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
June 30, 2002, 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 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. (See Schedule E).
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.
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.
47
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
- 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 year. 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.
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 year
The results for the year 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.
48
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
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 year. 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.
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:
o the sale has been consummated;
o there is sufficient evidence to demonstrate the buyer's
ability and commitment to pay for the property;
o the Company's receivable is not subject to future
subordination; and
o 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.
49
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 2: (Continued)
s. Cash and cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less, consisting primarily of time
deposits, to be cash equivalents.
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 and the results due to
impairment of real estate assets.
At June 30, 2002, the amounts recorded total $ 53 and $ 60,372,
respectively. (See Schedule E)
NOTE 3: MORTGAGES AND LEASES RECEIVABLES
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
--------------------------------------------------------
Current Non-current Current Non-current
--------------------------------------------------------
Mortgages and leases receivable 4,252 529 18,363 33,251
Debtors under legal proceedings 1,815 - 8,283 -
Intercompany (Note 10 a.) 3,390 1,729 7,017 1,854
Less:
Allowance for doubtful accounts (Schedule E) (1,073) - (1,678) -
========================================================
8,384 2,258 31,985 35,105
========================================================
As of June 30, 2002, current and non-current receivables from the sale
of real estate are secured by first degree mortgages in favor of the
Company.
50
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: OTHER RECEIVABLES
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
---------------------------------------------------------
Current Non-current Current Non-current
---------------------------------------------------------
Income tax prepayments and withholdings
Asset tax (Note 2 h.) 2,077 11,665 2,909 22,756
Value Added Tax (VAT) 55 - 164 -
C.N. Hacoaj Project 593 - 1,363 -
Intercompany (Note 10 a.) 43,478 73,309 3,828 2,551
Guarantee deposits - 38 - 74
Expenses to recover 1,333 - 1,541 -
Gross sales tax 4 - - -
Income tax advances 63 - 227 -
Operating pending settlement 315 - 939 -
Trust accounts receivable - 361 - -
Credit Fiscal Certificates 2,312 - - -
Other 2,246 - 2,245 -
=========================================================
52,476 85,373 13,216 25,381
=========================================================
As of June 30, 2002, current and non-current receivables from the sale
of real estate are secured by first degree mortgages in favor of the
Company.
NOTE 5: INVENTORY
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
------------------------------------------------------
Current Non-current Current Non-current
------------------------------------------------------
Real estate for sale 8,901 22,615 5,734 27,260
======================================================
8,901 22,615 5,734 27,260
======================================================
The book value at June 30, 2002 includese a provision for impairment as
mentioned in Note 2.b.
51
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: SHORT AND LONG TERM DEBT
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
----------------------------------------------------------
Current Non-current Current Non-current
----------------------------------------------------------
Bank loans (1) 306,748 - 209,313 -
Accrued interest - bank loans (1) 7,210 - 2,866 -
Commercial paper - capital (2) - - 48,905 -
Commercial paper interest (2) - - (910) -
Negotiable Obligations - 2001- principal
amount (3) 149,249 - 85,095 -
Negotiable Obligations - 2001 -accrued
interest (3) 540 - 1,371 -
Other 57,423 - - -
----------------------------------------------------------
521,170 - 346,640 -
==========================================================
(1) a) In May 2000, the Company obtained a syndicated loan amounting
to US$ 80,000 thousand through Bank Boston (leader of a bank
syndicate) repayable in 24 months, bearing interest payable
quarterly at the LIBO rate over three months plus 500 basic
points. At June 30, 2002, the interest rate accrued on the loan
was 6.99%.
As from December 2001 the Company initiated a loan renegotiation
process, as a result of which the loan maturity was extended to
September 30, 2002. The contract terms require that the Company
maintain certain ratios and financial conditions, certain rates
and indebtedness levels and sets restrictions on certain
investments, payments, obtaining of new loans and sales of
certain assets and capital investments.
As a result of the current economic situation, the Company has
been unable to comply with certain financial ratios established
by the loan agreement. At the date of issue of these financial
statements, a waiver for the Company's failure to observe the
above ratios at June 30, 2002 was obtained. b) Other debts
amounting to $ 2,750 are included in this line.
2. At June 30, 2002 all the negotiable obligations were settled.
3. On December 21, 2000, the Board of Directors approved the issue
of Class 02 negotiable obligations for US$ 43,500 thousand, in
denominations of US$ 10,000 and multiples of US$ 1,000. the net
proceeds from the negotiable obligations were appropriated to the
settlement of the loan from Banca Nazionale del Lavoro amounting
to US$ 21,763 thousand, HSBC for US$ 14,838 thousand and Banco
Sudameris for US$ 6,449 thousand.
The notes would be fully settled within 365 days from issue, i.e.
on December 20, 2001, accruing interest at a floating rate
payable quarterly in arrears. During the quarter at June 30,
2002, the Company has repurchased part of the notes, so that the
new value, including capitalized interest, amounts to US$ 40.1
million. The notes were repurchased with National Government
bonds, which has generated net income of approximately $ 9
million, which is shown under Financing effects, net in the
Statement of Income at June 30, 2002.
As from December 2001, the Company has initiated a negotiable
obligation renegotiation process, as a result of which the due
date has been postponed to September 9, 2002.
The Board of Directors has requested consideration of a proposal
to modify financial ratios and a waiver for non-compliance with
the above ratios after March 31, 2002. At the date of issue of
these financial statements no waiver for the infringements at
June 30, 2002 has yet been obtained.
The loans indicated in 1 a) and those indicated in 3 contain
"cross - default provision" in connection with the financial
instruments of our subsidiary APSA, as described in Note 12.
52
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: OTHER LIABILITIES
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
----------------------------------------------------------
Current Non-current Current Non-current
----------------------------------------------------------
Seller financing 786 725 1,602 2,836
Intercompany (Note 10 a.) 43 503 1,768 -
Lessee deposits 713 718 876 2,770
Provision for discounts (Schedule E) 11 - 22 -
Provision for lawsuits (Schedule E) 204 - 10 -
Fees payable 5 - 188 -
Directors' deposits - 8 - 16
Sundry creditors 107 - - -
Fund administration 9 - 1 -
Collections on behalf of third parties 50 - 188 -
Other 414 - 582 -
==========================================================
2,342 1,954 5,237 5,622
==========================================================
NOTE 8: FINANCIAL RESULTS, NET
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
---------------- ----------------
FINANCIAL RESULTS GENERATED BY ASSETS:
Interest income 352 3,488
Exchange (loss) gain 14,800 106
(Loss) gain on exposure to inflation (82,577) -
(Loss)/gain on financial operations (33,375) 3,721
---------------- ----------------
(100,800) 7,315
---------------- ----------------
FINANCIAL RESULTS GENERATED BY LIABILITIES:
Discounts - (49)
Exchange (loss) gain (262,745) (55)
(Loss) gain on exposure to inflation 49,015 -
Financial expenses (Schedule H) (49,803) (60,852)
---------------- ----------------
(263,533) (60,956)
================ ================
FINANCIAL RESULTS, NET (364,333) (53,641)
================ ================
53
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: OTHER INCOME AND EXPENSES, NET
The breakdown for this item is as follows:
June 30, June 30,
2002 2001
---------------- ----------------
OTHER INCOME:
Other 583 501
---------------- ----------------
583 501
---------------- ----------------
OTHER EXPENSES:
Unrecoverable VAT (974) (2,866)
Donations (76) (1,610)
Debit and credit tax (1,407) (446)
Other (474) (538)
---------------- ----------------
(2,931) (5,460)
---------------- ----------------
TOTAL OTHER INCOME AND EXPENSES, NET (2,348) (4,959)
================ ================
NOTE 10: BALANCES AND TRANSACTIONS WITH INTERCOMPANY
a. The balances as of June 30, 2002 and 2001 with controlled,
affiliated and related companies are as follows:
June 30, June 30,
2002 2001
--------------- ---------------
ABRIL S.A.
----------
Current mortgages and leases receivables 9 -
Other current receivables - 3,093
BALDOVINOS S.A.
---------------
Current mortgages and leases receivables 723 5,552
Non-current mortgages receivables 91 1,854
Other current liabilities 35 175
HOTELES ARGENTINOS S.A.
-----------------------
Other current receivables - -
Other current receivables - 10
Current accounts payable - 23
INVERSORA BOLIVAR S.A.
----------------------
Current mortgages and leases receivables 1,941 288
Other current receivables 7 -
Current accounts payable - 286
54
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: (Continued)
June 30, June 30,
2002 2001
--------------- ---------------
ALTO PALERMO S.A.
-----------------
Current mortgages and leases receivables 384 188
Non current mortgages and leases receivables 1,638 -
Current accounts payable - -
Other non current receivables 73,160 -
Current trade accounts payable 140 96
Other current liabilities - -
Other non-current liabilities 503 -
RED ALTERNATIVA S.A.
--------------------
Current mortgages and leases receivables 5 18
ALTERNATIVA GRATIS S.A.
-----------------------
Current mortgages and leases receivables 1 8
BANCO HIPOTECARIO S.A.
----------------------
Current investments 1,957 -
Current mortgages and leases receivables 2 2
Other current receivables 1 -
BANCO DE CREDITO Y SECURITIZACION S.A
-------------------------------------
Non-current investments 6,236 -
ALTO INVEST S.A.
----------------
Current mortgages and leases receivables - 23
DOLPHIN FUND MANAGEMENT S.A.
----------------------------
Current mortgages and leases receivables 128 309
Other current receivables 58 -
Current accounts payable 45 -
CRESUD S.A.C.I.F.
-----------------
Current mortgages and leases receivables 132 254
Current accounts payable 42 -
Current trade accounts payable - -
Other current liabilities 5 -
EMPRENDIMIENTOS RECOLETA S.A.
-----------------------------
Current mortgages and leases receivables - 25
Other current receivables 20 -
Current trade accounts payable 4 -
TARSHOP SOCIEDAD ANONIMA
------------------------
Current mortgages and leases receivables
ALTOCITY.COM S.A.
-----------------
Current mortgages and leases receivables 54 180
LATIN AMERICAN ECONETWORKS N.V.
-------------------------------
Current mortgages and leases receivables - 105
55
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: (Continued)
June 30, June 30,
2002 2001
--------------- ---------------
FUTUROS Y OPCIONES S.A.
-----------------------
Current mortgages and leases receivables - 12
Non Current accounts payable - -
FIBESA S.A.
-----------
Current mortgages and leases receivables - 10
Current accounts payable 2 -
CACTUS S.A.
-----------
Current mortgages and leases receivables - 4
Current trade accounts payable - -
IRSA INTERNATIONAL LIMITED
--------------------------
Other current receivables - -
Other current liabilities - -
PALERMO INVEST
--------------
Other current receivables 13,135 -
Other current liabilities - 1,307
RITELCO S.A
-----------
Other current receivables 30,129 -
NUEVAS FRONTERAS S.A.
---------------------
Current accounts payable - -
SAPSA
-----
Current mortgages and leases receivables - -
TARSHOP S.A.
------------
Current mortgages and leases receivables 11 39
Other current liabilities 3 -
UNIVERSAL REAL STATE S.A.
-------------------------
Current mortgages and leases receivables - -
PRESTAMOS AL PERSONAL
---------------------
Managers, Directors and other current Staff of the Company 129 725
Managers, Directors and other non- current Staff of the Company 149 2,551
56
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: (Continued)
b. Gain/(loss) on controlled, affiliated and related companies
during the years ended June 30, 2002 and 2001 are as follows:
Sales and Recovery Resultado
service of Tenencia Recovery Interest Interest
Year fees expenses (Perdida) of expenses Earned Lost
----------------------------------------------------------------------------------
INTERCOMPANY
Abril S.A. 2002 - - - - - -
2001 106 - - - - -
Alto Palermo S.A. 2002 - - - - 10,691 -
2001 153 - - - - -
Inversora Bolivar S.A. 2002 903 - - 1,507 - -
2001 - - - 1,360 - 110
Hoteles Argentinos S.A. 2002 - - - - - -
2001 - - - - 1,716 -
Alto Invest S.A. 2002 - - - - - -
2001 - 18 - - - -
Altocity.Com S.A. 2002 - 207 - - - -
2001 139 329 - - - -
Alternativa Gratis S.A. 2002 - - - - 1 -
2001 39 129 - - - -
Palermo Invest S.A 2002 - - - - - -
2001 - - - - - -
Cresud S.A 2002 - 147 - - 410 -
2001 125 - - - - -
Econetworks Argentina S.A. 2002 - - - - - -
2001 31 207 - - - -
Emprendimiento Recoleta S.A. 2002 - - - - - -
2001 80 - - - - -
Fibesa S.A 2002 - - - - - -
2001 29 - - - - -
Futuros y Opciones S.A. 2002 - - - - - -
2001 43 - - - - -
Red Alternativa S.A. 2002 - 47 - - - -
2001 88 - - - - -
Tarshop S.A. 2002 - 72 - - - 5
2001 98 - - - - -
Dolphins Found Management S.A. 2002 - - - - - -
2001 119 59 - - - -
Cactus S.A 2002 - - - - - -
2001 8 - - - - -
Prestamos al personal 2002 - - - - 120 -
2001 - - - - 311 -
Banco Hipoticario S.A. 2002 - - 738 - - -
2001 - - 303 - - -
----------------------------------------------------------------------
Total 2002 903 473 738 1,507 11,222 5
======================================================================
Total 2001 1,058 742 303 1,367 2,027 110
======================================================================
57
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: (Continued)
c. The composition of intercompany gain/(loss) is as follows:
(Loss) income
----------------------------
June 30, June 30,
2002 2001
----------------------------
Equity in earnings of controlled and affiliated companies (45,744) (14,671)
Amortization of intangible assets and investments (26,478) (998)
============== ============
(72,222) (15,669)
============== ============
NOTE 11: COMMON STOCK
a. Common stock
As of June 30, 2002, IRSA's capital stock was as follows:
==================================================================================================
Approved by
-----------------------------------
Date of record with
the Public Registry
Par Value Body Date of Commerce
--------------------------------------------------------------------------------------------------
Shares issued for cash - First Meeting for 04.05.1943 06.25.1943
IRSA's Incorporation
Shares issued for cash 16,000 Extraordinary 11.18.1991 04.28.1992
Shareholders' Meeting
Shares issued for cash 16,000 Extraordinary 04.29.1992 06.11.1993
Shareholders' Meeting
Shares issued for cash 40,000 Extraordinary 04.20.1993 10.13.1993
Shareholders' Meeting
Shares issued for cash 41,905 Extraordinary 10.14.1994 04.24.1995
Shareholders' Meeting
Shares issued for cash 2,000 Extraordinary 10.14.1994 06.17.1997
Shareholders' Meeting
Shares issued for cash 74,951 Extraordinary 10.30.1997 07.02.1999
Shareholders' Meeting
Shares issued for cash 21,090 Extraordinary 04.07.1998 04.24.2000
Shareholders' Meeting
Shares issued for cash 54 Board of Directors' 05.15.1998 07.02.1999
Meeting
------------
212,000
Treasury Stock (4,588)
------------
207,412
==================================================================================================
58
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: (Continued)
a. Common stock (Continued)
------------
At June 30, 2002, the negative results recorded by the Company
use up over 50% of capital stock and reserves. Section 206 of the
Corporations Law establishes obligatory capital reduction in such
circumstances. However, as a result of the Argentine economic
crisis, by Decree 1269, the National Government suspended the
application of this section until December 10, 2003.
The Shareholders' Ordinary and Extraordinary Meeting held on
October 19, 2001 corresponding to the year ended as of June 30,
2001, approved, among other things, the following:
- Not to distribute 4,587,285 treasury stock in proportion to
the respective interests of the shareholders, avoiding
delegating implementation of share distribution to the Board
of Directors.
- The mergers with Home Financing S.A.
- Approve the duties discharged by the Board of Directors
regarding the financial assistance provided to Alto Palermo
S.A. (APSA), in connection with the restructuring of the swap
contract entered into with Morgan Guarantee Trust, regarding
the issuance of APSA's negotiable obligations maturing in
2005.
b. Treasury stock
--------------
The Company repurchases periodically outstanding ordinary shares
when it considers that their price is undervalued on the market.
During 2001, the Company repurchased 19,079,995 outstanding
ordinary shares for a total of thousand $ 80,431. This
acquisition was recorded as "Treasury shares" and resulted in a
reduction of accumulated results.
During 2002 no treasury shares were bought.
c. Restriction on the distribution of profits
------------------------------------------
In accordance with the Argentine Corporations Law and the
Company's By-laws, 5% of the net and realized profit for the year
calculated in accordance with Argentine GAAP plus (less) prior
year adjustments must be appropriated by resolution of the
shareholders to a legal reserve until such reserve equals 20% of
the Company's outstanding capital. This legal reserve may be used
only to absorb losses.
59
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: (Continued)
d. Noncontributory Management Stock Ownership Plan
-----------------------------------------------
On October 30, 1997, the shareholders authorized the Company to
enter into a Noncontributory Management Stock Ownership Plan
("NMSOP") with eight executive officers of the Company (the
"Beneficiaries"), pursuant to which the Beneficiaries were
granted the right to purchase up to 24 million shares of common
stock (the "Participation Shares"), at a purchase price equal to
Ps. 1.0 per share, subject to the implementation of an Equity
Participation Agreement ("EPA"). Under Argentine law, the Company
established a special purpose trust in this connection (the
"Trust").
The Beneficiaries were required to purchase the Participation
Shares available, if any, within 24 months of any capital
increase. The Trust has an original term of six years. According
to the terms of the NMSOP and the Trust, Beneficiaries are not
entitled to receive any distributions (either in the form of
shares, cash or other) from the Trust during its term, although,
Beneficiaries are allowed to cause the Trust to sell their
designated shares of common stock held by the Trust in certain
cases. In addition, the Company was not allowed to grant any
loans or otherwise assist the Beneficiaries in financing the
purchase of the Participation Shares.
On April 7, 1998, the Company's shareholders, at an extraordinary
shareholders' meeting, approved a capital increase of 24 million
shares to permit the Beneficiaries to purchase all of the
Participation Shares to which they were entitled under the EPA.
The BASE and the CNV approved the capital increase on June 4,
1999, and on August 31, 1999 the Beneficiaries acquired
21,090,024 shares at Ps. 1.0 per share.
NOTE 12: FINANCIAL LOANS TO ALTO PALERMO S.A.
As a result of the economic situation, at June 30, 2002, Alto Palermo
S.A., was unable to comply with certain financial ratios established in
the Trust Agreement signed in connection with the issue of negotiable
obligations amounting to $ 120 million and other unsecured notes
amounting to $ 85 million. After the end of the year, Alto Palermo S.A.
called an Extraordinary Noteholders' Meeting for August 22, 2002, which
decided to grant a waiver on non-compliance with the commitments
contained in the Specific Commitments clause, financial ratios
sub-clause, in the Price Supplement on Negotiable Obligations Class A
dated January 15, 2001 during the quarter between April 2002 and June
30, 2002, without this implying a waiver of such infringements after
June 30, 2002 or changes to those commitments in the future. No waiver,
however, was obtained in connection with
60
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: (Continued)
general unsecured obligations amounting to $ 85 million. As a result of
this refusal, Alto Palermo S.A. cannot incur aditional indebtedness
until that event of default has been resolved. After the end of the
year, Alto Palermo S.A. redeemed Clase A2 notes for a total nominal
value of $ 17 million.
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 a result of recent
unforseable economic developments in Argentina, the implicit rates on
futures in pesos or dollars reached totally unexpected values, which
gave rise to the requirement for additional guarantees for the exchange
rate swap entered into with Morgan Guaranty Trust Company of New York.
Consequently, on July 20, 2001, the Board of Directors of Alto Palermo
S.A. entered into a new swap agreement amounting to US$ 85,000,000
securing this operation with a collateral deposit of US$ 50,000,000 and
eliminating the rate risk implicit in futures in pesos and dollars.
This guarantee was financed through a loan agreement with the Company
for an original amount of $ 47,210,926. Payment of principal and
interest on those contracts was subordinated to the payment of
principal and interest on bonds and payment of principal and interest
on the short-term financial debt.
NOTE 13: RESTRICTED ASSETS
- The Labor Court No. 55 decided the embargo of units No. 14 and
20 located in Sarmiento 517, property of the Company, in
connection with a lawsuit in which the Company is codefendant.
- In connection with the acquisition of additional interest in
Santa Maria del Plata S.A., the Company pledged 2,460,041 shares
of its interest in that company to secure the balance owed until
it is fully paid.
- As indicated in Note 19 e) to the June 30, 2002 consolidated
financial statements, the Company has assigned in trust, under
the terms of Law 24.441, in favor of the Trustee (ABN AMRO BANK
N.V.) all the shares it owns in Palermo Invest S.A.
NOTE 14: NEGOTIABLE OBLIGATIONS CONVERTIBLE
On March 8, 2002, the Ordinary and Extraordinary Meeting of
Shareholders resolved:
a) Approving the issuance of Negotiable Obligations Convertible into
Ordinary Shares of the company ("ONC") for up to a face value of
US$100,000,000 (one hundred million pesos), for a term of 5
(five) years, at a fixed interest rate of 6% to 12% per annum,
payable half-yearly in arrears.
61
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: (Continued)
b) Approving a subscription option for the ONC holders to subscribe
ordinary shares of the company at 1 (one) share per $1 (one peso)
of ONC face value, paying in cash $1(pesos one) as subscription
price, during 15 (fifteen) days after the conversion term has
expired, including the corresponding capital increase.
c) Suppressing the preferential subscription and accretion rights,
or reducing the term to exercise the preference, as provided by
section 12 of the Negotiable Obligations Law and other applicable
regulations.
d) Amending article nine (9) of the bylaws to partially adapt its
contents to the market circumstances arising from the amendment
approved, by replacing 1) the 20% percentage referred to in the
amendment to the bylaws, by the percentage indicated in Decree
677/01, i.e., 35%; and 2) eliminating the negotiable obligations
or other convertible debt securities, as well as the warrants,
from the calculation mentioned in Article Nine of the Bylaws.
As of the date of the present financial statements, this Negotiable
Obligations Convertible into Ordinary Shares were pending of approval
from the respective control authorities.
NOTE 15: SUBSEQUENT EVENTS
Issue of Negotiable Obligations Convertible into shares by our related
company Alto Palermo S.A. ("APSA")
On August 20, 2002, APSA ended its subscription period for the first
branch for up to US$ 50 million of bonds convertible into ordinary
shares of APSA of a Ps.0.1 nominal value each. In this sense, IRSA has
subscribed a total amount of US$ 27.2 million of the convertible notes
of APSA, by using loan agreements existing at that date and cash
contributions.
Barter - exchange of shares in Argentine Realty S.A. ("ARSA"), Buenos
Aires Realty S.A.("BARSA") and Buenos Aires Trade & Finance Center S.A.
("BAT&FCSA")
On August 16, 2002, the Company and RAGHSA S.A. agreed the following:
i) the redestribution of the 5M site in Antiguo Puerto Madero of the
City of Buenos Aires, ii) the division and distribution of the cost and
contruction commitments for the sites assumed with Corporacion Antiguo
Puerto Madero S.A.(CAPM), iii) the adjustment of the remaining
commitments and obligations also assumed with CAPM and iv) the exchange
of shares issued by the mentioned companies owning the plots making up
the 5M site, ARSA, BARSA y BAT&FCSA , respectively.
As a result of this distribution the Company now holds 100% of the
capital stock of BAT&FCSA, while our 50% holding in ARSA and BARSA was
transferred to RAGHSA.
62
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
FIXED ASSETS
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
SCHEDULE A
==================================================================================
Value at Increases Deductions
Items beginning and and Value as of
of year transfers Transfers end of
and Year
writedown
of
inventories
(2)
----------------------------------------------------------------------------------
Facilities 61 - (61) -
Furniture and fixtures 1,344 2 - 1,346
Computer equipment 3,473 140 - 3,613
Leasehold improvements 4,863 162 - 5,025
Real Estate:
------------
Alsina 934 1,580 - - 1,580
Av. De Mayo 595 6,532 - (1,561) 4,971
Av. Madero 942 5,847 - (958) 4,889
Constitucion 1111 6,383 - (5,862) 521
Costeros Dique IV 2,425 18,345 (4,582) 16,188
Dique 2 M10 (1I) Edif. A 18,910 - (1,959) 16,951
Dique 2 M10 (1I) Edif. C 5,475 - (524) 4,951
Hotel Piscis - Purchase - 518 - 518
advance
Laminar Plaza 29,961 - (3,312) 26,649
Libertador 498 52,921 17 (14,114) 38,824
Libertador 602 3,107 - (558) 2,549
Madero 1020 20,248 - (9,807) 10,441
Maipu 1300 46,959 101 (5,022) 42,038
Puerto Madero Dock 5 2,393 - (2,393) -
Reconquista 823 21,992 - (3,134) 18,858
Rivadavia 2243 8,339 - (8,339) -
Rivadavia 2768 352 - (352) -
Av. Santa Fe 1588 8,341 - (8,341) -
Sarmiento 517 583 - (315) 268
Suipacha 652 15,139 - (3,350) 11,789
----------------------------------------------------
TOTAL AS OF JUNE 31, 2002 267,228 19,285 (74,544) 211,969
====================================================
TOTAL AS OF JUNE 31, 2001 286,705 4,349 (23,826) 267,228
==================================================================================
======================================================================================================================
Depreciation
-----------------------------------------------------------------
For the year
---------------------------------------
Deductions
And Net Net
Items Accumulated Transfers Rate Amount Accumulated carrying carrying
as of % (1) as of year Value as value as
beginning of end of of
year June 30, June
2002 30, 2001
----------------------------------------------------------------------------------------------------------------------
Facilities - - 10 - - - 61
Furniture and fixtures 1,235 - 20 109 1,344 2 109
Computer equipment 2,985 9 33,33 407 3,401 212 488
Leasehold improvements 2,384 - 10 580 2,964 2,061 2,479
Real Estate:
------------
Alsina 934 209 - 2 24 233 1,347 1,371
Av. De Mayo 595 869 - 2 364 1,233 3,738 5,663
Av. Madero 942 646 - 2 96 742 4,147 5,201
Constitucion 1111 924 (908) 2 133 149 372 5,459
Costeros Dique IV - - 2 311 311 15,877 2,425
Dique 2 M10 (1I) Edif. A 280 - 2 425 705 16,246 18,631
Dique 2 M10 (1I) Edif. C - - 2 - - 4,951 5,475
Hotel Piscis - Purchase - - 2 - - 518 -
advance
Laminar Plaza 828 - 2 478 1,306 25,343 29,133
Libertador 498 4,758 (513) 2 835 5,080 33,744 48,163
Libertador 602 253 - 2 48 301 2,248 2,854
Madero 1020 1,787 (693) 2 322 1,416 9,025 18,460
Maipu 1300 4,352 - 2 764 5,116 36,922 42,607
Puerto Madero Dock 5 244 (308) 2 64 - - 2,149
Reconquista 823 2,699 - 2 352 3,051 15,807 19,293
Rivadavia 2243 1,000 (1,071) 2 71 - - 7,339
Rivadavia 2768 51 (55) 2 4 - - 301
Av. Santa Fe 1588 884 (917) 2 33 - - 7,457
Sarmiento 517 52 (21) 2 8 39 229 531
Suipacha 652 2,113 - 2 655 2,768 9,021 13,026
------------------------------------------------------------------------------------------
TOTAL AS OF JUNE 31, 2002 28,553 (4,477) - 6,083 30,159 181,810 -
==========================================================================================
TOTAL AS OF JUNE 31, 2001 24,852 (2,334) - 6,035 28,553 - 238,675
======================================================================================================================
(1) The accounting application of the depreciation for the year is set forth
in Schedule H.
(2) See coments in Note 2.c.
63
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INTANGIBLE ASSETS
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
SCHEDULE B
========================================================================================================================
Values of origin Amortization
-------------------------------------------------------------------------------
Balances Accumulated
as of Balances as as of
beginning of end of beginning
Items of year Additions Deductions year of year Additions
------------------------------------------------------------------------------------------------------------------------
ON 1999 expenses 2,623 - (2,623) - 2,623 -
ON 2003 expenses 7,181 - (7,181) - 7,181 -
Development property expenses 477 156 (241) 392 - 143
Bank loan expenses 10,495 2,694 - 13,189 8,024 -
Exchange expenses 2,523 339 - 2,862 1,293 -
-------------------------------------------------------------------------------
TOTAL AS OF JUNE 30, 2002 23,299 3,189 (10,045) 16,443 19,121 143
-------------------------------------------------------------------------------
TOTAL AS OF JUNE 30, 2001 19,406 12,549 (8,656) 23,299 13,251 2,689
========================================================================================================================
==================================================================================================
Amortization Net carrying value as of
----------------------------------------------------------------
Accumulated
Amount as of end June 30, June 30,
Items Deductions (1) of year 2002 2001
-------------------------------------------------------------------------------------=============
ON 1999 expenses (2,623) - - - -
ON 2003 expenses (7,181) - - - -
Development property expenses - 13 156 236 477
Bank loan expenses - 4,915 12,939 250 2,471
Exchange expenses - - 1,293 1,569 1,230
----------------------------------------------------------------
TOTAL AS OF JUNE 30, 2002 (9,804) 4,928 14,388 2,055 -
----------------------------------------------------------------
TOTAL AS OF JUNE 30, 2001 (2,684) 5,865 19,121 - 4,178
==================================================================================================
(1) The accounting application of the amortization for the year is set forth in
Schedule H.
64
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
SHARES AND OTHER SECURITIES ISSUED IN SERIES
INTEREST IN OTHER COMPANIES
Balance Sheets as of June 30, 2002 and 2001
In thousands of pesos
SCHEDULE C
========================================================================================================
Value as Value as
Listing of June of June
Issuer and types of securities Class P.V. Amount value 30, 2002 30, 2001
--------------------------------------------------------------------------------------------------------
CURRENT INVESTMENTS
APSA 2005 bonds U$S 0.001 700,000 - - 1,414
Telecom Argentina S.A $ 0.001 537,239 - - 17,351
Perez Companc S.A. $ 0.001 1,638,171 - - 788
Bocon PRO 1 $ 0.001 13,174,419 0.0003 - 12,817
Banco Hipotecario S.A. $ 0.001 1,093,445 0.0029 1,956 1,009
-------------------------------------------------------------------
Total current investments as of 1,956 -
June 30, 2002
-------------------------------------------------------------------
Total current investments as of 33,379
June 30, 2001
========================================================================================================
====================================================================================================================
Issuer's information (1)
------------------------------------------------------------
Last financial statement
----------------------------------------------
(1)
Capital Income(loss) Interest in
Main stock for the Shareholders' capital
Issuer and types of securities Activity Date (par value) year equity stock
--------------------------------------------------------------------------------------------------------------------
CURRENT INVESTMENTS
APSA 2005 bonds - - - - - -
Telecom Argentina S.A - - - - - -
Perez Companc S.A.
Bocon PRO 1
Banco Hipotecario S.A. - - - - - -
--------------------------------------------------------------------------------
Total current investments as of
June 30, 2002
--------------------------------------------------------------------------------
Total current investments as of
June 30, 2001
====================================================================================================================
(1) Not inform because the equity interest is less than 5%.
65
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
SHARES AND OTHER SECURITIES ISSUED IN SERIES
INTEREST IN OTHER COMPANIES
Balance Sheets as of June 30, 2002 and 2001
In thousands of pesos
SCHEDULE C (Continued)
=========================================================================================================
Value Value
Recorded Recorded
Listing at June at June
Issuer and types of securities Class P.V. Amount value 30, 2002 30, 2001
---------------------------------------------------------------------------------------------------------
NON-CURRENT INVESTMENTS
Abril S.A. Common 1 5,000 1,320 - (17,883) (15,254)
vote - - - 22,251 21,346
Irrevoc.
Contrib.
IRSA International Ltd. Common 1 0.001 - - - 451,477
vote
Pereiraola S.A. Common 1 0.001 50,000 - 6,941 7,058
vote
Irrevoc. - - - 968 859
Contrib.
Baldovinos S.A. Common 1 0.001 6,000 - (4,711) (3,562)
vote
Irrevoc. - - - 10,290 10,239
Contrib.
Home Financing S.A. Common 1 0.001 11,999 - - (648)
vote
Irrevoc. - - - - 929
Contrib.
Palermo Invest S.A. Common 1 0.001 76,949,667 - 120,710 187,277
vote
Inversora del Puerto S.A. Common 1 0.001 - - - 1,174
vote
Hoteles Argentinos S.A. Common 1 0.001 7,309,273 - (5,771) 15,542
vote
Irrevoc. - - - 3,142 -
Contrib.
Alto Palermo S.A. (ex SAMAP) Common 1 0,001 64,559,510 - 307,246 89,371
vote
Buenos Aires Realty S.A. Common 1 0.001 6,000 - 118 33
vote
Irrevoc. - - - 4,553 3,807
Contrib.
Buenos Aires Trade and Finance Common 1 0.001 6,000 - 2,288 18
Center S.A. vote
Irrevoc. - - - 3,878 3,238
Contrib.
Argentine Realty S.A. Common 1 0.001 6,000 - (181) 16
vote
Irrevoc. - - - 4,740 3,961
Contrib.
Llao - Llao Resort S.A Common 1 0.001 5,878,940 - 7,659 4,018
vote
Irrevoc. - - - 2,086 1,086
Contrib.
Banco de Credito y Securitizacion S.A. Common 1 0.001 3,187,500 - 6,236 9,781
vote
Alto Invest S.A. Common 1 0.001 960 - 10 -
vote - - - 164 -
Irrevoc.
Contrib.
Ritelco S.A. Common 1 0.001 66,970,394 - 36,656 -
vote
------------------------------------------------------------------
Total as of June 30, 2002 511,390 -
------------------------------------------------------------------
Total as of June 30, 2001 - 791,766
=========================================================================================================
====================================================================================================================================
Issuer's information
-------------------------------------------------------------------------
Last financial statement
-----------------------------------------------
Capital Income
ftock (loss)
Main (Par for the Shareholders' Interest in
Issuer and types of securities Activity Date value) year equity Capital Stock
------------------------------------------------------------------------------------------------------------------------------------
NON-CURRENT INVESTMENTS
Abril S.A. Building, development 06.30.2002 13,200 (6,741) 49,778 50%
and administration of
country club
IRSA International Ltd. Investment 06.30.2002 - - 1 100%
Pereiraola S.A. Real estate and financing 06.30.2002 100 (234) 2,375 50%
Baldovinos S.A. Real estate and building 06.30.2002 12 (1,800) 10,494 50%
Home Financing S.A. Mortgages 06.30.2002
Palermo Invest S.A. Investments 06.30.2002 78,251 11,215 181,273 66,67%
Inversora del Puerto S.A. Purchase, sales and
explotation of properties
Hoteles Argentinos S.A. Hotel Libertador 06.30.2002 9,887 (26,543) 5,744 79,99%
exploitation
Alto Palermo S.A. (ex SAMAP) Real estate investments 06.30.2002 70,000 (42,403) 601,207 10,37%
Buenos Aires Realty S.A. Real estate investments 06.30.2002 12 5,303 14,432 50%
Buenos Aires Trade and Finance
Center S.A. Real estate investments 06.30.2002 12 4,540 12,316 50%
Argentine Realty S.A. Real estate investments 06.30.2002 12 5,572 15,077 50%
Llao - Llao Resort S.A Hotel Llao-Llao 06.30.2002 11,757 7,299 18,663 50%
exploitation
Banco de Credito y Securitizacion S.A. Banking 06.30.2002 62,500 4,032 67,349 5,10%
Alto Invest S.A. Electronic Commerce 06.30.2002 12 (1,032) 697 8%
Ritelco S.A. Investments 06.30.2002 66,970 (253,174) 36,656
-------------------------------------------------------------------------------------------
Total as of June 30, 2002
-------------------------------------------------------------------------------------------
Total as of June 30, 2001
====================================================================================================================================
66
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
OTHER INVESTMENTS
Balance Sheets as of June 31, 2002 and 2001
In thousands of pesos
SCHEDULE D
=============================================================================================================
Value as of June Value as of June
Items 30, 2002 30, 2001
=============================================================================================================
CURRENT INVESTMENTS
Time deposits 158 374
Mutual funds 7,383 1,195
-----------------------------------------
Total current investments as of June 30, 2002 7,541 -
=========================================
Total current investments as of June 30, 2001 - 1,569
=========================================
NON-CURRENT INVESTMENTS Undeveloped parcels of land:
Santa Maria del Plata 103,213 110,244
Torres Jardin IV 1,985 2,698
-----------------------------------------
Subtotal 105,198 112,942
-----------------------------------------
IRSA I Trust Exhangeable Certificates Class A 629 -
IRSA I Trust Exhangeable Certificates Class B 918 -
IRSA I Trust Exchangeable Certificates Class C 1,472 -
IRSA I Trust Exchangeable Certificates Class D 5,143 -
-----------------------------------------
Subtotal 8,162 -
-----------------------------------------
Art work 33 33
-----------------------------------------
Total non-current investments as of June 30, 2002 113,393 -
=========================================
Total non-current investments as of June 30, 2001 - 112,975
=============================================================================================================
As of June 30, 2002 the non-current investments, Santa Maria del Plata and Torre
Jardin IV, include the provision for impairment as mentioned in Note 2.a.3
67
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
ALLOWANCES AND PROVISIONS
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
SCHEDULE E
====================================================================================================================================
Balances as of Carrying value Carrying value
beginning of as of as of
Items year Increases (1) Decreases June 30, 2002 June 31, 2001
------------------------------------------------------------------------------------------------------------------------------------
DEDUCTED FROM ASSETS:
Allowance for doubful accounts 1,1678 353 (958) 1,073 1,678
Provision for impairment of inventory - 14,472 (4,262) 10,210 -
Provision for impairment of fixed assets - 37,599 - 37,599 -
Provision for impairment of undeveloped plots of land - 8,301 - 8,301 -
FROM LIABILITIES:
Provisions for lawsuits 10 314 (120) 204 10
Provisions for discounts 22 - (11) 11 22
-----------------------------------------------------------------------------
TOTAL AS OF JUNE 30, 2002 1,710 61,039 (5,351) 57,398 -
-----------------------------------------------------------------------------
TOTAL AS OF JUNE 30, 2001 755 1,153 (198) - 1,710
====================================================================================================================================
(1) The increase in the Allowance for doubful accounts is set forth in Schedule
H, the increase of the provision for impairment of inventory, fixed asset and
undeveloped plots of land are included in Results for operations and holdings of
real estate assets for a total amount of $ 60,372 (corresponding $ 56.110 as
mentioned in Note 2.m and $ 4,262 as indicated in Schedule F) and the increase
in Provision for lawsuits is set forth in Maintenance of building in Cost of
properties sold of Schedule H.
68
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
COST OF SALES, LEASES AND SERVICES
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
SCHEDULE F
=================================================================================================================
June 30, 2002 June 30, 2001
------------------------------------------
I. COST OF SALES
Stock as of beginning of year 32.994 50,499
Plus (less):
Purchases for the year 91 383
Expenses (Schedule H) 1,204 1,792
Transfers to fixed assets - (10)
Transfers from fixed assets 32,399 19,537
Less:
Reclassification of inventories sold 80 608
Reclassification from expenses for property sold to intangible assets - (595)
Stock as of end of year (31,516) (32,994)
------------------------------------------
Subtotal 35,252 39,220
------------------------------------------
Plus
Cost of sales - Abril S.A. 3,676 8,713
Results from holding of real estate assets (1) (14,472) (3,723)
------------------------------------------
COST OF PROPERTIES SOLD 24,456 44,210
------------------------------------------
II. COST OF LEASES
Expenses (Schedule H) 7,653 6,839
------------------------------------------
COST OF PROPERTIES LEASED 7,653 6,839
------------------------------------------
III. COST OF FEES FOR SERVICES
Expenses (Schedule H) 1,586 3,441
------------------------------------------
COSTO OF FEES FOR SERVICES 1,586 3,441
------------------------------------------
TOTAL COSTS 33,695 54,490
=================================================================================================================
(1) Includes the total amount of $ 10,210 for imapirment provision in accordance
with mentioned in Note 2.b. and $ 4,262 corresponds to provision generated
during the year for inventories that have been sold as of June 30, 2002.
69
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
FOREIGN CURRENCY ASSETS AND LIABILITIES
Balance Sheets as of June 30, 2002 and 2001
In thousands of pesos
SCHEDULE G
===================================================================================================================================
Prevailing exchange Total as of Total as of
Items Class Amount rate June 30, 2002 June 30, 2001
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and banks:
Cash U$S 38,808 0.0037 (1) 144 6
Banks U$S 28,822 0.0037 (1) 107 4,223
Savings accounts U$S 40,472 0.0037 (1) 150 395
Checks to be deposited U$S - 0.0037 (1) - 29
Investments:
APSA 2005 bond U$S - 0.0037 (1) - 1,414
Patriotic bond U$S - 0.0037 (1) - -
Time deposits U$S - 0.0037 (1) - 374
Mutual Funds U$S 1,985,022 0.0037 (1) 7,345 603
Mortgages and leases receivables U$S - 0.0037 (1) - 30,423
Other receivables:
Intercompany U$S 8,142,865 0.0038 (1) 30,129 10
Services to be billed U$S - 0.0037 (1) - 364
Operations pendings to settlement U$S - 0.0037 (1) - 939
Personnel loans and prepayments U$S - 0.0037 (1) - 651
Total Current Assets 10,235,989 74,521 37,875
-------------- ----------------------------------
NON-CURRENT ASSETS
Mortgages receivable U$S - 0.0037 (1) - 35,105
Other receivables:
Intercompany U$S 9,643,556 0.0038 (1) 36,646 -
Guarantee deposits U$S - 0.0037 (1) - 74
Personnel loans and prepayments U$S - 0.0037 (1) - 2,541
Fixed Assets U$S 140,000 0.0037 (1) 518 -
Investments: -
IRSA
International Ltd.:
Shares U$S - 0.0037 (1) - 451,477
Total Non-current Assets U$S 9,783,556 37,164 489,198
-------------- ----------------------------------
TOTAL ASSETS AS OF JUNE 30, 2002 U$S 20,019,545 75,039 -
-------------- ----------------------------------
TOTAL ASSETS AS OF JUNE 30, 2001 U$S 528,632,674 - 528,629
-------------- ----------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable U$S - 0.0038 (1) - 63
Customer advances U$S - 0.0038 (1) - 882
Taxes payable U$S 1,665,402 0.0038 (1) 6,329 -
Short and long term debt U$S 136,425,994 0.0038 (1) 518,419 325,422
Other liabilities:
Debt for purchase of shares U$S - 0.0038 (1) - 1,602
Intercompany U$S - 0.0038 (1) - 1,768
Guarantee deposits U$S - 0.0038 (1) - 876
Provisions U$S - 0.0038 (1) - 22
Collections on behalf of third parties U$S - 0.0038 (1) - 188
-------------- ----------------------------------
Total Current Liabilities U$S 138,091,396 524,748 330,823
-------------- ----------------------------------
NON-CURRENT LIABILITIES
Accounts payable U$S - 0.0038 (1) - 374
Short and long term debt U$S - 0.0038 (1) - -
Customer advances U$S - 0.0038 (1) - 360
Other liabilities:
Debt for purchase of shares U$S - 0.0038 (1) - 2,836
Guarantee deposits U$S - 0.0038 (1) - 2,770
Directors' deposits U$S - 0.0038 (1) - 16
-------------- ----------------------------------
Total Non-current Liabilities U$S - - 6,356
-------------- ----------------------------------
TOTAL LIABILITIES AS OF JUNE 30, 2002 U$S 138,091,396 524,748 -
-------------- ----------------------------------
TOTAL LIABILITIES AS OF JUNE 30, 2001 U$S 337,182,301 - 337,179
===================================================================================================================================
(1) Official rate of exchange quoted by Banco Nacion at June 30, 2002.
70
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY LAW 19,550, SECTION 64, PARAGRAPH B)
For the years beginning on
July 1, 2001 and 2000
and ended June 30, 2002 and 2001
In thousands of pesos
SCHEDULE H
============================================================================================================
Cost of
Total as of properties Cost of Cost of fees
Items June 30, 2002 leased properties sold for services
------------------------------------------------------------------------------------------------------------
Directors' fees 1,037 - - -
Fees and payments for 2,219 - - -
services
Salaries, bonuses and social security 6,411 - - -
charges
Other expenses of personnel 310 -
administration
Depreciation and amortization 11,011 4,987 - -
Maintenance of buildings 4,194 2,666 1,204 -
Utilities and postage 28 - - -
Travel expenses 121 - - -
Advertising and promotion 859 - - -
Fees and expenses for property sold 999 - - -
Local transportation and stationery 138 - - -
Taxes, rates and assessments 30 - - -
Subscriptions and dues 223 - - -
Interest and indexing adjustments 40,086 - - -
Bank charges 436 - - -
Safety box and stockbroking charges 181 - - -
Doubtful 353 - - -
accounts
Insurance 4 - - -
Security 8 - - -
Courses 59 - - -
Lawsuits 277 - - -
Results of fideicomiso 1,176 - - -
Rents 451 - - -
Other 5,104 - - 1,586
-------------------------------------------------------------------
Total as of June 30, 2002 75,625 7,653 1,204 1,586
===================================================================
Total as of June 30, 2001 - 6,839 1,792 3,441
============================================================================================================
====================================================================================================================
Expenses
-------------------------------------------
Total as of
Cost of hotel June 30,
Items activity Administration Selling Financing 2001
--------------------------------------------------------------------------------------------------------------------
Directors' fees - 1,037 - - 1,410
Fees and payments for - 2,219 - - 3,609
services
Salaries, bonuses and social security - 6,411 - - 9,748
charges
Other expenses of personnel 310 - - 108
administration
Depreciation and amortization - 1,096 - 4,928 11,900
Maintenance of buildings - 324 - - 5,520
Utilities and postage - 28 - - 43
Travel expenses - 121 - - 168
Advertising and promotion - 74 785 - 644
Fees and expenses for property sold - - 999 - 3,462
Local transportation and stationery - 138 - - 317
Taxes, rates and assessments - 30 - - 18
Subscriptions and dues - 223 - - 200
Interest and indexing adjustments - - - 40,086 54,326
Bank charges - - - 436 436
Safety box and stockbroking charges - 138 - 43 356
Doubtful - - 353 - 364
accounts
Insurance - 4 - - 27
Security - 8 - - 90
Courses - 59 - - 153
Lawsuits - 277 - - -
Results of fideicomiso - - - 1,176 -
Rents - 451 - - 1,049
Other - 294 - 3,134 3,037
---------------------------------------------------------------------------
Total as of June 30, 2002 - 13,242 2,137 49,803 -
===========================================================================
Total as of June 30, 2001 - 19,681 4,380 60,852 96,985
====================================================================================================================
71
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
BREAKDOWN BY MATURITY DATE OF RECEIVABLES AND LIABILITIES
AS OF JUNE 30, 2002 AND 2001
In thousands of pesos
SCHEDULE I
---------------------------------------------------------------------------------------------------
WITH MATURITY DATE
--------------------------------------------------------------------
TO DUE
-----------------------------------------------------------
UP TO FROM 3 FROM 6 FROM 9 FROM 1 FROM 2 FROM 3
WITHOUT FALLING 3 TO 6 TO 9 TO 12 TO 2 TO 3 TO 4
TERM DUE MONTHS MONTHS MONTHS MONTHS YEARS YEARS YEARS
---------------------------------------------------------------------------------------------------
2002
Assets
Investments 7,383 - - - 158 - 526 2,815 2,605
Receivables 77,377 - 56,189 828 636 628 2,262 2,211 2,188
Liabilities
Loans - - 521,170 - - - - - -
Other liabilities 503 33 16,816 1,714 67 265 1,018 211 214
2001
Assets
Investments 34,576 - 125 92 84 71 - - -
Receivables - 6,602 22,851 8,371 2,764 4,613 12,954 14,392 7,516
Liabilities
Loans - - 103,678 86,466 - 156,496 - - -
----------------------------------------------------------------------------
Other liabilities - 70 8,596 1,784 3,406 244 2,927 2,821 213
---------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
WITH MATURITY DATE INTEREST
--------------------------- -------------------------
TO DUE ACCRUED
------------------- -----------------
FROM 4 TOTAL
YEARS TOTAL A WITH NO FIXED VARIABLE
ON VENCER TERM TOTAL ACRCRUED TERM TERM
------------------------------------------------------------------------------------
2002
Assets
Investments 2,216 8,320 8,320 15,703 - 3,177 12,526
Receivables 6,172 71,114 71,114 148,491 68,717 79,774 -
Liabilities
Loans - 521,170 521,170 521,170 - 207,212 313,958
Other liabilities 8 20,313 20,346 20,849 20,124 725 -
2001
Assets
Investments - 372 372 34,948 34,576 372 -
Receivables 25,624 99,085 105,687 105,687 45,105 60,582 -
Liabilities
Loans - 346,640 346,640 346,640 - 155,682 190,958
-------------------------------------------------------------
Other liabilities 395 20,386 20,456 20,456 15,581 4,875 -
------------------------------------------------------------------------------------
72
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
1. None
2. None
3. Additional information on assets and liabilities
================================================================================================
FALLING DUE WITH NO
MATURITY DATE
---------------------------------------------------------------
CONCEPT 31.3.02 31.5.02 CURRENT 30.9.02
------------------------------------------------------------------------------------------------
RECEIVABLES
Receivables for sale - - 737 7,136
Receivable for the sale of
properties - - - -
Other receivables - - 1,842 49,053
---------------------------------------------------------------
Total - - 2,579 56,189
LIABILITIES
Customer advances - - - 186
Taxes payables - - - 8,873
Trade accounts payable - - - 6,350
Other liabilities 33 - - 1,068
Loans - 311,206 - 209,964
Salaries and social securities
payables - - - 339
===============================================================
Total 33 311,206 - 226,780
================================================================================================
=================================================================================================
TO DUE (POINT 3 C)
-----------------------------------------------
CONCEPT 31.12.02 31.3.03 30.6.03 TOTAL
------------------------------------------------------------------------------------------------
RECEIVABLES
Receivables for sale 298 110 103 8,384
Receivable for the sale of
properties - - - -
Other receivables 530 526 525 52,476
---------------------------------------------------------------
Total 828 636 628 60,860
LIABILITIES
Customer advances - - - 186
Taxes payables 801 - - 9,674
Trade accounts payable - - - 6,350
Other liabilities 913 63 265 2,342
Loans - - - 521,170
Salaries and social securities
payables - 4 - 343
===============================================================
Total 1,714 67 265 540,065
================================================================================================
73
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
3. (Continued) Stated in thousands of pesos
============================================================================================================================
TO MATURE (POINT 3 C)
================================================================================
WITHOUT ANY
FIXED DUE DATE
ITEMS (NON-CURRENT) 30.9.03 31.12.03 31.3.04 30.6.04 30.9.04 31.12.04 31.3.05 30.6.05
----------------------------------------------------------------------------------------------------------------------------
RECEIVABLES
Receivables for the sale of
properties 1,638 - - - 160 - - - 108
Other receivables 73,160 - - - 2,102 - - - 2,103
Total 74,798 - - - 2,262 - - - 2,211
LIABILITIES
Other liabilities 503 80 786 32 120 53 34 36 88
Total 503 80 786 32 120 53 34 36 88
============================================================================================================================
===========================================================================================
TO MATURE (POINT 3 C)
--------------------------------------------------------------
ITEMS 30.9.05 31.12.05 30.6.06 30.6.07 30.6.08 30.6.09 30.6.10
-------------------------------------------------------------------------------------------
RECEIVABLES
Receivables for the sale of 31
properties - - 86 79 30 27
Other receivables - - 2,102 2,104 2,107 1,296 -
Total - - 2,188 2,183 2,137 1,323 31
LIABILITIES
Other liabilities 45 169 - - - - -
Total 45 169 - - - - -
===========================================================================================
===================================================================================================
TO MATURE (POINT 3 C)
-----------------------------------------------------------------------
ITEMS 30.6.11 30.6.12 30.6.13 30.6.14 30.9.14 30.6.15 30.6.18 TOTAL
---------------------------------------------------------------------------------------------------
RECEIVABLES
Receivables for the sale of 20 22 26 24 - 7
properties - 2,258
Other receivables - - - - - - 399 85,373
Total 20 22 26 24 - 7 399 87,631
LIABILITIES
Other liabilities - - - - 8 - - 1,954
Total - - - - 8 - - 1,954
===================================================================================================
74
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
3. (Continued) Stated in thousands of pesos
==============================================
ITEMS TOTAL
----------------------------------------------
RECEIVABLES
Receivables for sale 8,384
Receivables for the sale of
properties 2,258
Other receivables 137,849
===============
Total 148,491
===============
LIABILITIES
Customer advances 186
Taxes payable 9,674
Trade accounts payable 6,350
Other liabilities 4,296
Loans 521,170
Salaries and social
securities payable 343
---------------
Total 542,019
==============================================
75
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
The classification of receivables and liabilities is as follows:
4-a. Breakdown by currency and maturity
================================================================================================================
CURRENT NON-CURRENT
---------------------------------------------------------------------------------
LOCAL FOREIGN LOCAL FOREIGN TOTAL
ITEMS CURRENCY CURRENCY TOTAL CURRENT CURRENCY CURRENCY NON-CURRENT
----------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLES
Receivables 8,384 - 8,384 - - -
Mortgages and leases
receivables - - - 2,258 - 2,258
Other receivables 22,348 30,129 52,477 48,727 36,646 85,373
---------------------------------------------------------------------------------
Total 30,732 30,129 60,861 50,985 36,646 87,631
----------------------------------------------------------------------------------------------------------------
LIABILITIES
Customer advances 186 - 186 - - -
Taxes payable 9,674 - 9,674 - - -
Trade accounts payable 6,350 - 6,350 - - -
Other liabilities 2,342 - 2,342 1,954 - 1,954
Short and long term debt 2,752 518,419 521,171 - - -
Salaries and social security
payable 343 - 343 - - -
---------------------------------------------------------------------------------
Total 21,647 518,419 540,066 1,954 - 1,954
================================================================================================================
======================================================================================
TOTAL IN TOTAL IN
TOTAL LOCAL FOREIGN TOTAL
ITEMS CURRENCY CURRENCY
--------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLES
Receivables 8,384 8,384 - 8,384
Mortgages and leases
receivables 2,258 2,258 - 2,258
Other receivables 137,850 71,075 66,775 137,850
-------------------------------------------------------
Total 148,492 81,717 66,775 148,491
--------------------------------------------------------------------------------------
LIABILITIES
Customer advances 186 186 - 186
Taxes payable 9,674 9,674 - 9,674
Trade accounts payable 6,350 6,350 - 6,350
Other liabilities 4,296 4,296 - 4,296
Short and long term debt 521,171 2,752 518,419 521,171
Salaries and social security
payable 343 343 - 343
-------------------------------------------------------
Total 542,020 23,601 518,419 542,020
======================================================================================
76
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
4-b. Breakdown by adjustment clause
=====================================================================================================================
CURRENT NON-CURRENT
-----------------------------------------------------------------------------------
WITHOUT WITH WITHOUT WITH
ADJUSTMENT ADJUSTMENT ADJUSTMENT ADJUSTMENT TOTAL
ITEMS CLAUSE CLAUSE TOTAL CURRENT CLAUSE CLAUSE NON-CURRENT
---------------------------------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLES
Receivables 8,384 - 8,384 - - -
Mortgages and leases receivables - - - 2,258 - 2,258
Other receivables 52,476 - 52,476 85,373 - 85,373
-----------------------------------------------------------------------------------
Total 60,860 - 60,860 87,631 - 87,631
---------------------------------------------------------------------------------------------------------------------
LIABILITIES
Customer advances 186 - 186 - - -
Taxes payable 9,674 - 9,674 - - -
Trade accounts payable 6,350 - 6,350 - - -
Other liabilities 2,342 - 2,342 1,954 - 1,954
Short and long term debt 521,170 - 521,170 - - -
Salaries and social security
payable 343 - 343 - - -
-----------------------------------------------------------------------------------
Total 540,065 - 540,065 1,954 - 1,954
=====================================================================================================================
==========================================================================================
TOTAL TOTAL
WITHOUT WITHT
ADJUSTMENT ADJUSTMENT
ITEMS TOTAL CLAUSE CLAUSE TOTAL
------------------------------------------------------------------------------------------
ACCOUNTS RECEIVABLES
Receivables 8,384 8,384 - 8,384
Mortgages and leases receivables 2,258 2,258 - 2,258
Other receivables 137,849 137,849 - 137,849
--------------------------------------------------------
Total 148,491 148,491 - 148,491
------------------------------------------------------------------------------------------
LIABILITIES
Customer advances 186 186 - 186
Taxes payable 9,674 9,674 - 9,674
Trade accounts payable 6,350 6,350 - 6,350
Other liabilities 4,296 4,296 - 4,296
Short and long term debt 521,170 521,170 - 521,170
Salaries and social security
payable 343 343 - 343
--------------------------------------------------------
Total 542,019 542,019 - 542,019
==========================================================================================
77
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
4-c. Breakdown of accounts receivable and liabilities by interest clause
================================================================================================================
CURRENT NON-CURRENT
-------------------------------------------------------------------------------
NOT- NOT- TOTAL
ACCRUING INTEREST ACCRUING TOTAL ACCRUING INTEREST ACCRUING NON-
INTEREST CURRENT INTEREST CURRENT
----------------------------------------------------------------------------------------------------------------
FIXED VARIABLE FIXED VARIABLE
RATE RATE RATE RATE
------------------- --------------------
ACCOUNTS RECEIVABLES
Receivables 5,581 -- 2,803 8,384 -- -- -- --
Mortgages and leases
receivables -- -- -- -- 620 -- 1,638 2,258
Other receivables 265 -- 52,211 52,476 73,308 -- 12,065 85,373
-----------------------------------------------------------------------------------
Total 5,846 -- 55,014 60,860 73,928 -- 13,703 87,631
----------------------------------------------------------------------------------------------------------------
LIABILITIES
Customer advances -- -- 186 186 -- -- -- --
Taxes payable -- -- 9,674 9,674 -- -- -- --
Trade accounts payable -- -- 6,350 6,350 -- -- -- --
Other liabilities -- -- 2,342 2,342 725 -- 1,229 1,954
Short and long term debt -- 521,170 -- 521,170 -- -- -- --
Salaries and social security
payable -- -- 343 343 -- -- -- --
-----------------------------------------------------------------------------------
Total -- 521,170 18,895 540,065 725 -- 1,229 1,954
================================================================================================================
=====================================================================
TOTAL TOTAL
TOTAL ACCRUING NOT-ACCRU TOTAL
INTEREST INTERESTING
---------------------------------------------------------------------
ACCOUNTS RECEIVABLES
Receivables 8,384 5,581 2,803 8,384
Mortgages and leases
receivables 2,258 620 1,638 2,258
Other receivables 137,849 73,573 64,276 137,849
----------------------------------------
Total 148,491 79,774 68,717 148,491
---------------------------------------------------------------------
LIABILITIES
Customer advances 186 -- 186 186
Taxes payable 9,674 -- 9,674 9,674
Trade accounts payable 6,350 -- 6,350 6,350
Other liabilities 4,296 725 3,571 4,296
Short and long term debt 521,170 521,170 -- 521,170
Salaries and social security
payable 343 -- 343 343
----------------------------------------
Total 542,019 521,895 20,124 542,019
=====================================================================
78
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
5. Intercompany
a. Intercompany interest
See Schedule C to the financial statements.
b. Intercompany debit/credit balances (Note 10)
Current mortgages and leases receivables
----------------------------------------
=========================================================================
June 30, 2002
---------------------
Intercompany:
Abril S.A. 9
Alternativa Gratis S.A. 1
Alto Palermo S.A. 384
Altocity.Com S.A. 54
Baldovinos S.A. 723
Banco Hipotecario S.A. 2
Cresud S.A.C.I.F. 132
Dolphin Fund Management S.A. 128
Inversora Bolivar S.A 1,941
Red Alternativa S.A. 5
Tarshop Sociedad Anonima 11
=========================================================================
Non-current mortgages and leases receivables
--------------------------------------------
=========================================================================
June 30, 2002
---------------------
Intercompany:
Alto Palermo S.A. 1,638
Baldovinos S.A. 91
=========================================================================
79
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
Other current receivables
-------------------------
===============================================================================
June 30, 2002
---------------------
Intercompany:
Emprendimiento Recoleta S.A. 20
Dolphin Fund Management S.A. 58
Banco Hipotecario S.A. 1
Inversora Bolivar S.A. 7
Ritelco S.A. 30,129
Palermo Invest S.A 13,135
===============================================================================
Other non current receivables
-----------------------------
===============================================================================
June 30, 2002
---------------------
Intercompany:
Alto Palermo S.A. 73,160
===============================================================================
Current trade accounts payable
------------------------------
===============================================================================
June 30, 2002
---------------------
Intercompany:
Alto Palermo S.A. 140
Cresud S.A.C.I.F 42
Dolphin Fund Management S.A 45
Emprendimiento Recoleta S.A. 4
Fibesa 2
===============================================================================
Other current liabilities
-------------------------
===============================================================================
June 30, 2002
---------------------
Intercompany:
Baldovinos S.A. 35
Cresud S.A. 8
Tarshop S.A. 3
===============================================================================
80
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
Other non current liabilities
======================================================================
June 30, 2002
-------------------
Intercompany:
Alto Palermo S.A.. 503
======================================================================
6. None.
7. In view of the nature of the inventory, no physical inventories are
performed and there are no frozen assets.
8. Not applicable. See Notes 2.a., 2.b., 2.c. and 2.d. to the financial
statements.
9. None.
10. None.
11. None.
12. See Notes 2.a., 2.b., 2.c. and 2.d. to the financial statements.
81
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
13. Insured Assets.
Insured Accounting
amounts values Risk covered
------------ ------------ ----------------------------------------------------
Alsina 934 Capital (3) 1,890 1,347 Fire, explosion with additional coverage and debris
removal
Alsina 934 Capital (3) 308 1,347 Third party liability with additional coverage and
minor risks.
Av. de Mayo 589-99 (3) 2,700 3,738 Fire, explosion with additional coverage and debris
removal
Av. de Mayo 589-99 (3) 1,000 3,738 Third party liability with additional coverage and
minor risks.
Av. Alicia M. de Justo 1714 Dock (1) 17,000 57 Fire, explosion with additional coverage and
13 Capital debris removal
Av. Alicia M. de Justo 1714 Dock (1) 555 57 Third party liability with additional coverage and
13 Capital minor risks.
Av. Alicia M. de Justo 750 Dock (1) 16,775 406 Fire, explosion with additional coverage and
5 Capital debris removal
Av. Alicia M. de Justo 750 Dock (1) 202 406 Third party liability with additional coverage and
5 Capital minor risks.
Av. Alicia M. de Justo 840 Dock (1) 17,550 113 Fire, explosion with additional coverage and
6 Capital debris removal
Av. Alicia M. de Justo 840 Dock (1) 406 113 Third party liability with additional coverage and
6 Capital minor risks.
Bolivar 108 e H. Yrigoyen 476 5,160 - Fire, explosion with additional coverage and
Capital debris removal
Bolivar 108 e H. Yrigoyen 476 3,199 - Third party liability with additional coverage and
Capital minor risks.
Constitucion 1111 Capital 420 4,139 Fire, explosion with additional coverage and debris
removal
Constitucion 1111 Capital 600 4,139 Third party liability with additional coverage and
minor risks.
Constitucion 1111 TIA Capital (3) 1,500 4,139 Fire, explosion with additional coverage and debris
removal
Constitucion 1111 TIA Capital (3) 5,000 4,139 Third party liability with additional coverage and
minor risks.
Dorrego 1916 Capital (4) 17,430 12 Fire, explosion with additional coverage and debris
removal
Dorrego 1916 Capital (4) 506 12 Third party liability with additional coverage and
minor risks.
Edificios costeros Dique 2 Este. 14,700 21,197 Fire, explosion with additional coverage and
Dockitos. P. Madero Capital debris removal
Edificios costeros Dique 2 Este. 1,631 21,197 Third party liability with additional coverage and
Dockitos. P. Madero Capital minor risks.
Edificios costeros Dique 4 O. (1) 17,000 15,877 Fire, explosion with additional coverage and
Cosentini 240 Capital debris removal
Edificios costeros Dique 4 O. (1) 1,002 18,877 Third party liability with additional coverage and
Cosentini 240 Capital minor risks.
F. Alcorta 3351 Palacio Alcorta (1) 30,250 - Fire, explosion with additional coverage and
Capital debris removal
F. Alcorta 3351 Palacio Alcorta (1) 1,655 - Third party liability with additional coverage and
Capital minor risks.
Gurruchaga 274 Torres Jardin III (2) 10,736 150 Fire, explosion with additional coverage and
Capital debris removal
Gurruchaga 274 Torres Jardin III (2) 601 150 Third party liability with additional coverage and
Capital minor risks.
ING Butty 240 Laminar Plaza (1) 47,250 25,343 Fire, explosion with additional coverage and
Capital debris removal
ING Butty 240 Laminar Plaza (1) 4,130 25,343 Third party liability with additional coverage and
Capital minor risks.
Libertador 450-98 Capital (1) 33,600 33,744 Fire, explosion with additional coverage and
debris removal
Libertador 450-98 Capital (1) 3,461 33,744 Third party liability with additional coverage and
minor risks.
82
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
13. Insured Assets (Continued)
Insured Accounting
amounts values Risk covered
------------ ------------ ----------------------------------------------------
Av. Libertador 602 Capital (1) 1,002 2,248 Third party liability with additional coverage and
minor risks.
Av. Libertador 602 Capital (1) 25,200 2,248 Fire, explosion with additional coverage and debris
removal
Madero 1020 Capital (1) 28,350 13,571 Fire, explosion with additional coverage and debris
removal
Madero 1020 Capital (1) 2,933 13,571 Third party liability with additional coverage and
minor risks.
Madero 940 Capital (1) 36,960 4,147 Fire, explosion with additional coverage and debris
removal
Madero 940 Capital (1) 1,315 4,147 Third party liability with additional coverage and
minor risks.
Maipu 1270 - 1300 Capital 22,050 36,922 Fire, explosion with additional coverage and debris
removal
Maipu 1270 - 1300 Capital 4,061 36,922 Third party liability with additional coverage and
minor risks.
Padilla 870 Torres Jardin II (2) 9,540 409 Fire, explosion with additional coverage and
Capital debris removal
Padilla 870 Torres Jardin II (2) 607 409 Third party liability with additional coverage and
Capital minor risks.
Reconquista 823 Capital (3) 13,000 15,807 Fire, explosion with additional coverage and debris
removal
Rivadavia 2768 Capital (1) 3,610 136 Fire, explosion with additional coverage and debris
removal
Rivadavia 2768 Capital (1) 251 136 Third party liability with additional coverage and
minor risks.
Sarmiento 501 (1) 3,885 818 Fire, explosion with additional coverage and debris
removal
Sarmiento 501 (1) 607 818 Third party liability with additional coverage and
minor risks.
Serrano 287 Torres Jardin I (2) 9,450 58 Fire, explosion with additional coverage and
Capital debris removal
Serrano 287 Torres Jardin I (2) 607 58 Third party liability with additional coverage and
Capital minor risks.
Suipacha 664 15,750 9,021 Fire, explosion with additional coverage and debris
removal
Suipacha 664 722 9,021 Third party liability with additional coverage and
minor risks.
83
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
INFORMATION REQUIRED BY SECTION 68 OF THE
BUENOS AIRES STOCK EXCHANGE REGULATIONS
BALANCE SHEET AS OF JUNE 30, 2002
Stated in thousands of pesos
General
-------
In the case of insurance covering fire and explosion with additional coverage,
the amounts insured are stated at replacement and/or reconstruction to an "as
new" condition value, not including land and foundations, due to the
apportionment rules.
Insured amounts correspond to units belonging to the company that are being
sold, and/or units sold under mortgages not having individual policies with
assigned rights.
Notes:
------
(1) Insured amounts correspond to the total for the building. The amount
insured for each co-owner is obtained by applying the percentage of
co-ownership to the total insurance.
(2) Insured amounts correspond solely to jointly held areas.
(3) Insurance purchased by tenants with provisions for the assignment of
rights.
(4) Insured amounts correspond to units not yet having a bill of sale.
(5) Insured amounts correspond to common areas and partially to individual
areas.
In our opinion, the above-described policies adequately cover current risks.
14. Not applicable.
15. See comments in Note 1 to the consolidated financial statements.
16. Not applicable.
17. None.
18. In accordance which was stipulated in loans agreements, the Company shall
not distribute dividends until this obligations would be cancelled.
BUENOS AIRES, SEPTEMBER 9, 2002.
84
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
BUSINESS OVERVIEW
In thousands of pesos
1. BRIEF COMMENTS ON THE COMPANY'S ACTIVITIES DURING THE YEAR, INCLUDING
REFERENCES TO SIGNIFICANT EVENTS AFTER THE END OF THE PERIOD.
See attached.
2. CONSOLIDATED SHAREHOLDERS' EQUITY STRUCTURE AS COMPARED WITH THE SAME YEAR
FOR THE FOUR PREVIOUS YEARS.
June 30, 2002 June 30, 2001 June 30, 2000 June 30, 1999 June 30, 1998
-------------- -------------- --------------- -------------- --------------
Current Assets 136,308 221,875 246,196 299,584 453,672
Non-Current Assets 1,008,407 1,272,674 1,419,031 1,430,982 1,316,241
-------------- -------------- --------------- -------------- --------------
TOTAL 1,144,715 1,494,549 1,665,227 1,730,566 1,769,913
============== ============== =============== ============== ==============
Current Liabilities 606,060 385,661 236,344 290,212 238,533
Non-Current Liabilities 3,021 34,497 215,863 218,322 354,999
-------------- -------------- --------------- -------------- --------------
SUBTOTAL 609,081 420,158 452,207 508,534 593,532
-------------- -------------- --------------- -------------- --------------
Minority interest in
subsidiaries 75,218 114,356 112,603 112,971 106,926
-------------- -------------- --------------- -------------- --------------
Shareholders' Equity 460,416 960,035 1,100,417 1,109,062 1,069,455
-------------- -------------- --------------- -------------- --------------
Total 1,144,715 1,494,549 1,665,227 1,730,567 1,769,913
============== ============== =============== ============== ==============
3. CONSOLIDATED INCOME STRUCTURE AS COMPARED WITH THE SAME YEAR FOR THE FOUR
PREVIOUS YEARS.
June 30, 2002 June 30, 2001 June 30, 2000 June 30, 1999 June 30, 1998
-------------- -------------- ------------- -------------- --------------
Operating ordinary profit (29,564) 26,798 46,110 71,409 67,137
Financial results (445,821) (83,358) (24,719) (35,333) (12,158)
Equity in earnings of
affiliated companies (17,797) 6,471 10,810 46,734 31,424
Other income (expenses) (4,322) (5,266) (6,371) 9,458 (3,294)
------------- -------------- ------------- -------------- --------------
LOSS BEFORE TAXES (497,504) (55,355) 25,830 92,268 83,109
Income tax/ asset tax (7,233) (3,139) (9,460) - -
Minority interest 5,118 (1,459) (4,818) (5,282) (11,109)
------------- -------------- ------------- -------------- --------------
NET (LOSS) INCOME (499,619) (59,953) 11,552 86,986 72,000
============= ============== ============= ============== ==============
85
4. STATISTICAL DATA AS COMPARED WITH THE SAME YEAR OF THE FOUR PREVIOUS YEARS.
Summary of properties sold in units and thousands of pesos.
Accumulated Accumulated Accumulated Accumulated Accumulated
as of as of as of as of as of
Real Estate June 30, June 30, June 30, June 30, 1999 June 30,
2002 2001 2000 (1) 1998
(1) (1) (1) (1)
------------------------------------ ------------- -------------- ------------- -------------- -------------
Apartments & Loft Buildings
---------------------------
Torres Jardin 1.837 4.680 6.649 10.456 12.428
Torres de Abasto 1.784 5.314 4.577 25.976 10.454
Alcorta Palace 540 - 18 2.238 29.814
Concepcion Arenal and Dorrego 1916 323 3.635 2.970 2.314 2.097
Alto Palermo Park 8.729 (1.062) 2.782 4.067 10.499
Other 1.635 1.491 1.518 3.723 -
Residential Communities
-----------------------
Abril / Baldovinos 11.188 30.235 19.537 21.088 57.403
Villa Celina I, II and III (46) 6 106 2.516 3.361
Villa Celina IV and V 121 2.582 5.736 - -
Other - - 141 2.586 2.019
Undeveloped parcels of land
---------------------------
Monserrat - 1.069 2.205 - -
Dique IV - 10.955 - - 5.378
Puerto Madero Dique II - - - 48.905 -
Other
-----
Llao Llao - - 14.671 - -
Galerias Pacifico - - 5.869 - -
Puerto Madero Dock 6 103 154 - 779 5.820
Gallo y Lavalle - - - - 10.059
Sarmiento 580 - 9.644 - - -
Av. de Mayo 701 - 2.766 - - -
Montevideo 1975 - 2.778 - - -
Santa Fe 1588 7.267 - - - -
Other 8.206 4.915 2.709 628 14.540
------------- -------------- ------------- -------------- -------------
41.687 79.162 69.488 125.276 163.872
============= ============== ============= ============== =============
(1) Deductions on account of gross sales tax are not included.
86
5. KEY RATIOS AS COMPARED WITH THE SAME YEAR OF THE FOUR PREVIOUS YEARS.
June 30, Jund 30, Jund 30, June 30, June 30,
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
LIQUIDITY RATIO
Current Assets 136.308 = 0,22 221.875 = 0,58 246.196 = 1,04 299.584 = 1,03 453.672 = 1,90
------------ ------------ ------------ ------------ ------------
Current 606.060 385.661 236.344 290.212 238.533
Liabilities
INDEBTEDNESS RATIO
Total liabilities 609.081 = 1,32 420.158 = 0,44 452.207 = 0,41 508.534 = 0,46 593.533 = 0,55
------------ ------------ ------------ ------------ ------------
Shareholders' 460.416 960.035 1.100.417 1.109.062 1.069.455
Equity
INCOME BEFORE INCOME TAX, TAX ON ASSETS AND MINORITY INTEREST.
June 30, June 30, June 30, June 30, June 30,
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Income
Before income tax/
Tax on assets (497.504) = (0,52) (55.355) = (0,05) 25.830 = 0,02 92.268 = 0,09 83.109 = 0,08
------------ ------------ ------------ ------------ ------------
Shareholders' 960.035 1.019.988 1.088.866 1.022.075 997.455
equity at end
excluding (loss)
income for the
year
6. BRIEF COMMENT ON THE FUTURE PERSPECTIVES FOR THE ENSUING YEAR
See attached.
87
[PRICEWATERHOUSECOOPERS LOGO]
[SC INTERNATIONAL LOGO]
ABELOVICH,
POLANO
& ASOCIADOS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
IRSA INVERSIONES Y REPRESENTACIONES SOCIEDAD ANONIMA
1. We have audited the balance sheets of IRSA Inversiones y Representaciones
Sociedad Anonima at June 30, 2002 and 2001, and the related statements of
income and cash flows for the years then ended, and the statement of
changes in shareholders' equity for the year ended on June 30, 2002, and
the complementary notes 1 to 15 and exhibits A to I. Furthermore, we have
audited the consolidated financial statements of IRSA Inversiones y
Representaciones Sociedad Anonima with its subsidiaries for the years ended
on June 30, 2002 and 2001, which are presented as complementary
information. The preparation and issuance of the financial statements are
the responsibility of the Company's management. Our responsibility is to
issue an opinion on the financial statements, based on our audit.
2. We conducted our audits of these statements in accordance with auditing
standards in force in Argentina, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement and to form an opinion on the
reasonableness of relevant information contained in the financial
statements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
3. As established by Resolution 1/02 of the Professional Council in Economic
Sciences of the Autonomous City of Buenos Aires and Resolution No. 392 of
the National Securities Commission, the Company has given recognition to
the effects of the devaluation as from January 1, 2002.
4. Note 1 to the consolidated financial statements details the situation at
the end of the year related to the economic measures issued by the National
Government to confront the Argentine crisis, some of which may have been
pending issue at the date of preparation of these financial statements. The
impact generated by all these measures adopted to date by the Government on
the financial statements of the Company at June 30, 2002 was recognized
according to the evaluations and estimates made by Management when
preparing the financial statements. Actual results could differ from the
evaluations and estimates made at the date of preparing these financial
statements and these differences could be significant. Therefore, the
Company's financial statements may not report all the adjustments that
could result from these adverse conditions. Furthermore, at this time it is
not possible to foresee the future development of the country's economy or
its consequences on the economic and financial situation of the Company.
Thus, any decision that must be made on the basis of these financial
statements must take into account the effects of these measures and their
future development and the Company's financial statements must be
considered in the light of these uncertain circumstances.
PRICE WATERHOUSE & CO. ABELOVICH, POLANO & ASSOCIADOS
Av. A. Moreau de Justo 270, Piso 2(nd) 25 de Mayo 596 - 8(th)Piso
C1107AAF Ciudad de Buenos Aires - Argentina (1002) Buenos Aires - Argentina
Tel. (54-11) 4319-4600 Tel./Fax 4312-8525 -
Fax: (54-11) 4315-6448/9 E-mail: abelovich@elsitio.net
www.pwcglobal.com
[PRICEWATERHOUSECOOPERS GRAPHIC OMITTED]
[SC INTERNATIONAL GRAPHIC OMITTED]
ABELOVICH,
POLANO
& ASOCIADOS
REPORT OF INDEPENDENT ACCOUNTANTS (Contd.)
5. As mentioned in Note 6 to the financial statements, at June 30, 2002 the
Company was unable to meet certain financial ratios required by the trust
agreement related to the issuance of negotiable obligations for US$ 39.3
million. As mentioned in Note 15 to the consolidated financial statements,
the subsidiary Hoteles Argentinos S.A. has not paid principal installments
amounting to US$ 300 thousand, with original maturities set for April 29
and July 29, 2002, and an interest installment amounting to US$ 127
thousand which fell due on July 29, 2002, under the US$ 12 million
long-term loan agreement secured by a mortgage entered into with BankBoston
N.A. Buenos Aires Branch.
6. During the year ended on June 30, 2002, the Company recorded a net loss of
$ 499,619 thousand, accumulated losses of $ 496,479 thousand and a
shortfall of working capital of $ 456,524 thousand (consolidated shortfall
of working capital of $ 469,752 thousand). Company Management is currently
defining and implementing an action plan to counteract these circumstances
as has been detailed in Note 1 to the consolidated financial statements.
These financial statements have been prepared using accounting principles
applicable to a going concern. Therefore, these financial statements do not
include the effects of possible adjustments or reclassifications, if any,
that might be required if the above situation is not resolved in favor of
continuing the Company's activities and the Company were obliged to sell
its assets and settle its liabilities, including contingencies, in
conditions other than those of the normal course of its business.
7. In our opinion, subject to the effects on the financial statements of
possible adjustments and reclassifications that could be required as a
result of the resolution of the situations described in points 4, 5 and 6:
a) the financial statements of IRSA Inversiones y Representaciones Sociedad
Anonima present fairly, in all material respects, its financial position at
June 30, 2002 and 2001, the results of its operations and its cash flows
for the years then ended, and the changes in shareholders' equity for the
year ended on June 30, 2002, in accordance with professional accounting
standards in effect in the Autonomous City of Buenos Aires.
b) the consolidated financial statements of IRSA Inversiones y
Representaciones Sociedad Anonima with its subsidiaries present fairly, in
all material respects, its consolidated financial position at June 30, 2002
and 2001, the consolidated results of operations and the consolidated cash
flows for the years then ended, in accordance with professional accounting
standards in effect in the Autonomous City of Buenos Aires.
PRICE WATERHOUSE & CO. ABELOVICH, POLANO & ASSOCIADOS
Av. A. Moreau de Justo 270, Piso 2(nd) 25 de Mayo 596 - 8(th)Piso
C1107AAF Ciudad de Buenos Aires - Argentina (1002) Buenos Aires - Argentina
Tel. (54-11) 4319-4600 Tel./Fax 4312-8525 -
Fax: (54-11) 4315-6448/9 E-mail: abelovich@elsitio.net
www.pwcglobal.com
[PRICEWATERHOUSECOOPERS GRAPHIC OMITTED]
[SC INTERNATIONAL GRAPHIC OMITTED]
ABELOVICH,
POLANO
& ASOCIADOS
REPORT OF INDEPENDENT ACCOUNTANTS (Contd.)
8. In accordance with current regulations we report that:
a) the financial statements of IRSA Inversiones y Representaciones Sociedad
Anonima and its consolidated financial statements are transcribed to the
"Inventory and Balance Sheet Book" and comply with the pertinent
resolutions of the National Securities Commission;
b) the financial statements of IRSA Inversiones y Representaciones Sociedad
Anonima arise from official accounting records carried in all formal
respects in accordance with legal requirements;
c) we have read the summary of activity and the additional information to the
notes to the financial statements required by sect. 68 of the Buenos Aires
Stock Exchange Regulations, on which, as regards those matters that are
within our competence, we have no observation to make;
d) at June 30, 2001, the debt accrued in favor of the Integrated Pension and
Survivors' Benefit System according to the accounting records amounted to $
120 thousand, none of which was claimable at that date.
Buenos Aires
September 9, 2002
ABELOVICH, POLANO & ASOCIADOS PRICE WATERHOUSE & Co.
(Partner) (Partner)
------------------------------------- -----------------------------------
Dr. Jose Daniel Abelovich Carlos Martin Barbafina
Public Accountant (U.B.A.) Public Accountant (U.C.A.)
C.P.C.E.C.A.B.A. T(o)102 F(o)191 C.P.C.E.C.A.B.A. T(o)175 F(o)65
Professional Registration of the Firm Professional Registration of the Firm
C.P.C.E.CAP.FED. T(o)1 F(o)240 C.P.C.E.CAP.FED. T(o)1 F(o)1
PRICE WATERHOUSE & CO. ABELOVICH, POLANO & ASSOCIADOS
Av. A. Moreau de Justo 270, Piso 2(nd) 25 de Mayo 596 - 8(th)Piso
C1107AAF Ciudad de Buenos Aires - Argentina (1002) Buenos Aires - Argentina
Tel. (54-11) 4319-4600 Tel./Fax 4312-8525 -
Fax: (54-11) 4315-6448/9 E-mail: abelovich@elsitio.net
www.pwcglobal.com
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 ANONIMA
By:
------------------------------------------------------
Name: Saul Zang
Title: Second Vice Chairman of the Board of Directors
Dated: November 6, 2002